[Federal Register Volume 81, Number 182 (Tuesday, September 20, 2016)]
[Notices]
[Pages 64536-64544]
[FR Doc No: 2016-22533]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78834; File No. SR-OCC-2016-802]

Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of Advance Notice Concerning the Options Clearing
Corporation's Escrow Deposit Program

September 14, 2016.
    Pursuant to Section 806(e)(1) of Title VIII of the Dodd-Frank Wall
Street Reform and Consumer Protection Act, entitled the Payment,
Clearing, and Settlement Supervision Act of 2010 \1\ (``Payment,
Clearing and Settlement Supervision Act'') and Rule 19b-4(n)(1)(i)
under the Securities Exchange Act of 1934,\2\ notice is hereby given
that on August 15, 2016, The Options Clearing Corporation (``OCC'')
filed with the Securities and Exchange Commission (``Commission'') the
advance notice as described in Items I, II and III below, which Items
have been primarily prepared by OCC. The Commission is publishing this
notice to solicit comments on the advance notice from interested
persons.
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    \1\ 12 U.S.C. 5465(e)(1).
    \2\ 17 CFR 240.19b-4(n)(1)(i).
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I. Clearing Agency's Statement of the Terms of Substance of the Advance
Notice

    This advance notice is filed by OCC in connection with changes that
would improve the resiliency of OCC's escrow deposit program. Such
changes are designed to: (1) Increase OCC's visibility into and control
over collateral deposits made under the escrow deposit program; (2)
strengthen clearing member's rights to collateral in the escrow deposit
program in the event of a customer default to the clearing member; (3)
provide more specificity concerning the manner in which OCC or clearing
members would take possession of collateral in OCC's escrow deposit
program; and (4) improve the readability of the rules governing OCC's
escrow deposit program by consolidating all such rules into a single
location in OCC's Rulebook.

II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Advance Notice

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

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

Communications With Custodian Banks
    In light of the substantial changes proposed to the escrow deposit
program, OCC has sought to keep custodian banks informed regarding the
proposed changes. These communications began in January and February
2012, when OCC notified each custodian bank of the proposal to
restructure the escrow deposit program. As part of this notification,
OCC informed each custodian bank of (1) OCC's intention to require that
security pledges be made through the Depository Trust Company
(``DTC''), (2) the percentage of cash used in the escrow deposit
program and (3) the potential elimination of cash deposits.\3\
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    \3\ While it was ultimately determined in April 2014 that cash
collateral would remain in the escrow deposit program, prior
discussions with participating escrow banks reflected the evolution
of OCC's decision on this point. For example, the PowerPoint
presentation given to banks during June--August 2012 indicated that
cash collateral would not be permitted in the escrow deposit
program, while the PowerPoint presentation given during April--May
2013, as well as the draft rules distributed to participating escrow
banks for comment in July--August 2013, indicated that it would be
included. A number of current participants in the escrow deposit
program use cash, some to a substantial degree, and OCC determined
that the use of cash collateral should remain an essential aspect of
the escrow deposit program.
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    In June through August 2012, OCC provided a PowerPoint presentation
to each custodian bank summarizing proposed changes to the escrow
deposit program. This presentation included an explanation of the
reasons for the proposed changes, including the desire to enhance and
strengthen the escrow deposit program and increase collateral
transparency. The presentation also included a discussion of changes to
the validation and valuation of collateral, and the calculation of
contract quantities based on the collateral that has been pledged.
    In April and May 2013, OCC provided each custodian bank with an
operational overview of the restructured escrow deposit program in the
form of a PowerPoint presentation. This presentation covered: eligible
option types, types of eligible supporting collateral, required
collateral value calculations for option contact coverage, valuation of
supporting collateral, asset management locations/processing of
supporting collateral, and validation and valuation of supporting
collateral and calculation of option contract coverage.
    In July and August 2013, OCC distributed a draft Participating
Escrow Bank Agreement (as described below) and the related proposed OCC
Rules to custodian banks along with a request for feedback. Following
the receipt of questions and comments, OCC distributed ``FAQ''
responses to custodian banks.
    During September 2013, OCC provided a walkthrough of the functions
of its ENCORE \4\ system applicable to the enhanced escrow deposit
program for custodian banks in order to provide an orientation of such
functionality. In connection with the restructured escrow deposit
program, clearing members will continue to use ENCORE to view member
specific deposits, and custodian banks will use ENCORE to view third-
party specific deposits and make escrow deposits consisting of cash.
Moreover, OCC sent requests to custodian banks for validation of the
DTC pledgor accounts to be used for the restructured escrow deposit
program. In October 2013, OCC distributed escrow deposit program
eligible securities file details to custodian banks.
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    \4\ ENCORE is OCC's real-time clearing and settlement system
that allows clearing members to, among other things, post and view
margin collateral as well as deposits in lieu of margin.
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    In February and March 2014, OCC arranged a series of calls with
custodian banks to solicit feedback on a term sheet detailing cash
account structures. Following the receipt of questions and comments,
OCC distributed ``FAQ'' responses to custodian banks.
Comments Received From Custodian Banks
    As described above, OCC discussed the proposed changes to its
escrow deposit program with custodian banks several times since 2012.
While these discussions were generally informational in nature,
custodian banks provided OCC with comments and questions in two
instances: the July/August 2013 discussions and the February/March 2014
discussion. The primary focus of the comments in both sets of
discussions was the manner in which custodian banks would be required
to hold cash under the new escrow rules: in an omnibus structure or in
a tri-party structure. The omnibus structure would provide OCC with an
account in OCC's name and thereby perfect OCC's right under the Uniform
Commercial Code (``UCC'') to take

possession of cash escrow deposits in the event of a clearing member
default. This would also eliminate the need for a separate tri-party
agreement. However, the omnibus structure was less desirable to
custodian banks since all of a custodian bank's OCC escrow deposit
program clients' assets would be comingled in a single account. From an
operational perspective, a single omnibus account at a custodian bank
is easier for OCC to manage since OCC would only need to have ``view
access'' into one account at a custodian bank. On the other hand,
custodian banks expressed privacy concerns with respect to several
clients having view access into a single account. Eventually, OCC
decided to use a tri-party account structure for cash escrow deposits,
with certain controls to alleviate the concerns on both sides.
Specifically, custodian banks agreed to facilitate the execution of a
form tri-party agreement with each of its clients that participates in
OCC's escrow deposit program, which perfects OCC's security interest in
cash escrow deposits. Additionally, custodian banks agreed to establish
an escrow specific cash account for each client so that OCC does not
need to differentiate a client's OCC escrow cash from the client's non-
escrow cash. OCC believes that the proposed structure for cash accounts
strikes the appropriate balance between OCC's desire for legal
certainty as to its right to take possession of cash escrow deposits in
the event of a clearing member default, and the operational desire to
only have view access to a client's OCC escrow deposit program cash
account balance at a custodian bank.
    Additional comments OCC received from the July/August 2013
discussions with custodian banks centered on administrative items such
as the escrow deposit program documentation structure and the manner in
which custodian banks would post escrow deposits in OCC's clearing
system, ENCORE. As discussed below, OCC moved the substantial majority
of its Amended and Restated On-Line Escrow Deposit Agreement into
proposed Rule 610C in order to have the majority of escrow rules in one
place. Custodian banks did not express any concerns regarding the
operational steps necessary to post an escrow deposit in ENCORE once
OCC provided custodian banks with a ``walkthrough'' of the operational
process.

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

Description of Change
    The purpose of this proposed change is to improve the resiliency of
OCC's escrow deposit program. The changes would: (1) increase OCC's
visibility into and control over collateral deposits made under the
escrow deposit program; (2) provide more specificity concerning the
manner in which OCC would take possession of collateral in OCC's escrow
deposit program in the event of a clearing member or custodian bank
default; (3) clarify clearing members' rights to collateral in the
escrow deposit program in the event of a customer default to the
clearing member; and (4) improve the readability of the rules governing
OCC's escrow deposit program by consolidating all such rules into a
single location in OCC's Rulebook. Upon implementation of the proposed
change, all securities collateral in OCC's escrow deposit program would
be held at DTC, and custodian banks would only be allowed to hold cash
collateral.
    The narrative below is comprised of four sections. The first
section provides a background of OCC's current escrow deposit program
as well as an overview of the proposed changes to the rules and
agreements that govern the escrow deposit program. The second section
discusses the changes associated with: (1) Increasing OCC's visibility
into and control over collateral deposits made under the escrow deposit
program; (2) Providing more specificity concerning the manner in which
OCC would take possession of collateral in OCC's escrow deposit program
in the event of a clearing member or custodian bank default; and, (3)
Clarifying clearing member's rights to collateral in the escrow deposit
program in the event of a customer default to the clearing member as
well as providing additional detail concerning the manner in which
clearing members may take possession of such collateral. The third
section discusses proposed technical and conforming changes to the
rules and agreements governing the current escrow deposit program that
would allow OCC to consolidate all such terms into a single location in
OCC's Rulebook. The second and third sections also discuss changes that
improve the readability of the rules governing OCC's escrow deposit
program, which is primarily achieved by consolidating all such rules
into a single location in OCC's Rulebook. The fourth section discusses
the manner in which OCC proposes to transition from the current escrow
deposit program to the new escrow deposit program, including the
removal of certain rules and contractual provisions that would no
longer be applicable to the new escrow deposit program.
Section 1: Background and Overview of Proposed Changes
Background/Current Escrow Deposit Program
    Each day OCC collects collateral from its clearing members in order
to protect OCC and the markets it serves from potential losses stemming
from a clearing member default. Approximately half of the collateral
deposited by clearing members at OCC is deposited through OCC's escrow
deposit program. Users of OCC's escrow deposit program are customers of
clearing members who, through the escrow deposit program, are permitted
to collateralize eligible positions directly with OCC (instead of with
the relevant clearing member who would, in turn, deposit margin at
OCC). Currently, collateral deposits made through OCC's escrow deposit
program are characterized as either ``specific deposits'' or ``escrow
deposits.'' Specific deposits are deposits of the security underlying a
given options positions and are made through the DTC by a clearing
member on behalf of its customer (at the direction of the customer).\5\
Escrow deposits are deposits of cash or securities made by a custodian
bank on behalf of a customer of an OCC clearing member in support of an
eligible options position. OCC's Rules currently contemplate two forms
of escrow deposits: ``third-party escrow deposits'' and ``escrow
program deposits.'' Third-party escrow deposits are substantially
similar to specific deposits except for the fact that third-party
escrow deposits are made by a custodian bank, and not a clearing
member. Third-party escrow deposits consist entirely of securities and,
like specific deposits, are made through DTC. In order to effect third-
party specific deposits, custodian banks must be DTC members. Escrow
program deposits are bank deposits of eligible securities or cash,
which are held at the custodian bank (versus third-party escrow
deposits and specific deposits, which are held at DTC).
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    \5\ For example, if customer XYZ holds a short position of
options on AAPL, customer XYZ could, through its clearing member's
DTC account, pledge shares of AAPL to OCC in order to collateralize
such options position and not be charged margin by OCC.
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    When a customer of a clearing member makes a deposit in lieu of
margin through OCC's escrow deposit

program, the relevant positions are excluded from the clearing member's
margin requirement at OCC. The escrow deposit program therefore
provides users of OCC's services with a means to more efficiently use
cash or securities they may have available.
Overview of Rule Changes (Including Terminology Changes) and New
Agreements
Rule Consolidation and Terminology Changes
    Currently, the rules concerning OCC's escrow deposit program are
located in OCC Rules 503, 610, 613 and 1801. Additionally, OCC and
custodian banks participating in OCC's escrow deposit program enter
into an Escrow Deposit Agreement (``EDA''), which also contains
substantive provisions governing the program. OCC is proposing to
consolidate all of the rules concerning the escrow deposit program,
including the provisions of the EDA relevant to the revised escrow
deposit program, into proposed Rules 610, 610A, 610B and 610C.\6\ OCC
believes that consolidating the many rules governing the escrow deposit
program into a single location would significantly enhance the
understandability and transparency of the rules concerning the escrow
deposit program for current users of the program as well as any persons
that may be interested in using the program in the future.
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    \6\ As described herein, OCC is proposing to eliminate the EDA
based on such consolidation. When appropriate, and as described in
more detail below, conforming changes were made to certain Rules as
a result of OCC proposing to require that all non-cash deposits in
the escrow deposit program be made through DTC (and not held at
custodian banks).
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    In connection with the above described rule consolidation, OCC is
also proposing to rename the types of escrow deposits available within
the escrow deposit program, as well as rename the term ``approved
depository'' to ``approved custodian.'' Specific deposits would now be
called ``member specific deposits,'' which are equity securities
deposited by clearing members at DTC at the direction of their
customers; third-party escrow deposits would now be called ``third-
party specific deposits,'' which are equity securities deposited by
custodian banks at DTC at the direction of their customers; and, escrow
program deposits would now be called, ``escrow deposits,'' which are
either cash deposits held at a custodian bank for the benefit of OCC,
or Government securities deposited at DTC by custodian banks at the
direction of their customers. The term ``approved depository'' would
also be changed to ``approved custodian'' to eliminate any potential
confusion with the term ``Depository,'' which is defined in the Rules,
to mean DTC.
New Rule Organization
    With respect to the rules governing the escrow deposit program,
proposed Rule 610 would set forth general terms and conditions common
to all types of deposits permitted under the escrow deposit program.
Specifically, proposed Rule 610: (1) Sets forth the different types of
eligible positions for which a deposit in lieu of margin may be used,
(2) sets forth operational aspects of the escrow deposit program such
as the days and the times during which a deposit in lieu of margin may
be made and where the different types of deposits in lieu of margin
must be maintained (either DTC or a custodian bank), (3) provides the
conditions under which OCC may take possession of a deposit in lieu of
margin (from DTC or a custodian bank), and (4) describes OCC's security
interest in deposits in lieu of margin.\7\ Proposed Rule 610 is
supplemented by: (1) Proposed Rule 610A for member specific deposits,
(2) proposed Rule 610B for third-party specific deposits, and (3)
proposed Rule 610C for escrow deposits. Proposed Rules 610A, 610B and
610C provide further guidance and specificity on the topics initially
addressed in proposed Rule 610 (and delineated above) as they relate to
member specific deposits, third-party specific deposits and escrow
deposits, respectively.
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    \7\ OCC would continue to maintain a perfected security interest
in deposits in the escrow deposit program under the proposed Rules
notwithstanding changes to the location of the rules that perfect
such security interest. OCC's security interest in securities
deposits in the escrow deposit program, which are held at DTC, is
perfected by operation of DTC's rules. OCC's security interest in
cash deposits in the escrow deposit program is perfected under
proposed Rules 610C(i), 610C(j) and 610C(k), which replace Sections
3.3, 3.4, 4.3, 4.4, 5.3, 5.4 and 21 of the EDA. Proposed Rule 610(g)
also concerns OCC's security interest in deposits in escrow deposit
program.
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    The new rule structure differs from the existing rule structure in
that existing Rules 503, 610, 613 and 1801 discuss topics concerning
deposits in lieu of margin (such as withdrawal, roll-over \8\ and
release) in general terms and without regard to the type of deposit in
lieu of margin. The existing rule structure also does not provide
operational details of the escrow deposit program. The new rule
structure discusses each aspect of OCC's escrow deposit program by type
of deposit in lieu of margin (member specific deposits, third-party
specific deposit or escrow deposits) as well as provides operational
details concerning the program. OCC believes that the more detailed
presentation of the new rules concerning the escrow deposit program
enhances the understandability of the program to all users, and
potential users, of the program because all such persons will be able
to better understand how topics apply by type of deposit in lieu of
margin and with regard to the operational differences between each type
of deposit in lieu of margin.
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    \8\ A ``roll-over'' occurs when a customer chooses to maintain
an existing escrow deposit after the options supported by the escrow
deposit expires, or are closed-out, and the customer re-allocates
the escrow deposit to a new options position.
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Agreements Concerning the Escrow Deposit Program
    In addition to the above-described Rule changes, many provisions of
the EDA would be moved in to the Rules. Accordingly, OCC is proposing
to eliminate the EDA and replace it with a simplified agreement
entitled the ``Participating Escrow Bank Agreement.'' \9\ The
Participating Escrow Bank Agreement would provide that custodian banks
are subject to all terms of the Rules governing the revised escrow
deposit program,\10\ as they may be amended from time to time.\11\ The
Participating Escrow Bank Agreement would contain eligibility
requirements for custodian banks, including representations regarding
the custodian bank's Tier 1 Capital,\12\ and provide

OCC with express representations concerning the bank's authority to
enter into the Participating Escrow Bank Agreement.\13\ Moreover,
standard contractual provisions concerning topics such as assignment,
governing law and limitation of liability have been enhanced in the
Participating Escrow Bank Agreement when compared to the EDA.\14\ OCC
is also proposing to move notification requirements into proposed Rule
610C(l), which is an enhancement of Section 7 of the EDA that requires
custodian banks to provide notice to OCC only when there are changes to
the ``authorized persons'' and changes to the address of the bank.
Proposed Rule 610C(l) would require escrow banks to provide OCC with
notices of material changes to the bank (in additional to items such as
changes of authorized persons and the address of bank, as currently
required under Section 7 of the EDA).
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    \9\ The Participating Escrow Bank Agreement is attached to this
filing as Exhibit 5A, with changes from the EDA marked. Custodian
banks participating in the revised escrow deposit program are
defined as ``Participating Escrow Banks'' in the Participating
Escrow Bank Agreement, and such banks must also be an Approved
Custodian pursuant to proposed Section 1.A(13) of OCC's By-Laws. In
addition, and as described above, certain provisions of the EDA are
proposed to be incorporated into OCC's Rules; however, no rights or
obligations of either OCC or a custodian bank would change solely as
a result of such an incorporation.
    \10\ The Rules governing the revised escrow deposit program are
proposed Rules 610, 610A, 610B and 610C.
    \11\ Under the Participating Escrow Bank Agreement, however, OCC
will agree to provide custodian banks with advance notice of
material amendments to the Rules relating to deposits in lieu of
margin and custodian banks will have the opportunity to withdraw
from the escrow deposit program if they object to the amendments. As
a general matter, the Participating Escrow Bank Agreement will not
be negotiable, although OCC may determine to vary certain non-
material terms in limited circumstances.
    \12\ OCC recently enhanced the measurement it uses--Tier 1
Capital instead of shareholders' equity--to establish minimum
capital requirements for banks approved to issue letters of credit
that may be deposited by clearing members as a form of margin asset.
See Securities Exchange Act Release No. 74894 (May 7, 2015), 80 FR
27431 (May 13, 2015) (SR-OCC-2015-007). For the reasons set forth in
SR-OCC-2015-007, OCC is proposing to adopt the same standard with
respect to custodian bank escrow deposits.
    \13\ These provisions include, but are not limited to, Sections
1.1 and 1.2 of the EDA.
    \14\ Sections 2.1, 2.2, 3.5, 3.6, 3.8, 4.7, and 5.6, 6 and 7 of
the EDA would be removed entirely since they are no longer needed
under OCC's revised escrow deposit program. These provisions concern
a custodian bank's movement of securities escrow collateral; such
collateral would be deposited at DTC under the revised escrow
deposit program (as described below). Section 2.3 of the EDA would
also be removed in its entirety because escrow deposits would not be
permitted for equity calls in the revised escrow deposit program.
Additionally, the concept of cash settlements concerning escrow
deposits would not be included in the revised escrow deposit program
and, as a result, Sections 15, 16, 17 and 18(b) to 18(d) would be
removed in their entirety.
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    OCC, under Proposed Rule 610C(b), would also require customers
wishing to deposit cash collateral and custodian banks holding escrow
deposits comprised of cash to enter into a tri-party agreement
involving OCC, the customer and the applicable custodian bank (``Tri-
Party Agreement,'' attached hereto as Exhibit 5B). The Tri-Party
Agreement governs the customer's use of cash in the program, confirms
the grant of a security interest in the customer's account to OCC and
the relevant clearing member, as set forth in proposed Rule 610C(f),
and causes customers of clearing members to be subject to all terms of
the Rules governing the revised escrow deposit program.\15\ Each
custodian bank entering into the Tri-Party Agreement (``Tri-Party
Custodian Bank''), would agree to follow the directions of OCC with
respect to cash escrow deposits without further consent by the
customer.\16\ As discussed in greater detail below, use of the Tri-
Party Agreement significantly enhances OCC's rights concerning cash
escrow deposits, and provides OCC with greater certainty regarding its
rights to cash escrow deposits in the event of a customer or clearing
member default.
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    \15\ The Rules governing the revised escrow deposit program are
proposed Rules 610, 610A, 610B and 610C.
    \16\ OCC has determined to use this cash account structure as a
result of a series of discussions with certain custodian banks
involved in the cash portion of the escrow deposit program, as
described in Item 5 above. The intended structure would permit a
greater number of customers to participate in the escrow deposit
program than, for example, a commingled ``omnibus'' account
structure at each custodian bank, which would preclude the
participation of customers subject to restrictions under the
Investment Company Act of 1940 requiring segregation of a registered
investment company's funds.
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Section 2: Transparency and Controls, Taking Possession of Collateral,
and Clearing Member Rights to Collateral
Transparency and Control Over Collateral Included in Escrow Deposits
    Currently, securities deposits in the escrow deposit program are
held at either DTC or a custodian bank, and cash deposits in the escrow
deposit program are held at a custodian bank. In the case of either
cash or securities held at a custodian bank, OCC relies on the
custodian bank to verify the value and control of collateral since OCC
does not have any visibility into relevant accounts. OCC is proposing
to require that all securities deposited within the escrow deposit
program, regardless of the type of deposit, be held at DTC.\17\
Additionally, OCC is proposing to require Tri-Party Custodian Bank to
provide OCC with view access into the account in which the deposit is
held.
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    \17\ OCC has discussed the proposed changes to the escrow
deposit program with DTC and, based on feedback from DTC, no
concerns were communicated to OCC by DTC regarding the proposed
changes. DTC has also indicated that the proposed changes to the
escrow deposit program are consistent with DTC's operations.
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    Holding securities escrow deposit program collateral at DTC would
provide OCC with increased visibility into the collateral within the
escrow deposit program because OCC would be able to use its existing
interfaces with DTC to view, validate and value collateral within the
escrow deposit program in real time, allowing OCC to perform the
controls for which it currently relies on the custodian banks. It would
also provide OCC with the ability to obtain possession of deposited
securities upon a clearing member default by issuing a demand of
collateral instruction through DTC's systems, without the need for
custodian bank involvement. Furthermore, a clearing member would have
the ability to obtain possession of deposited securities upon a
customer default in a similar manner by notifying OCC of such customer
default and submitting a request for delivery of such deposited
securities (OCC's and clearing members' ability to take possession of a
deposit within the escrow deposit program is discussed in greater
detail below). OCC does not believe that requiring use of DTC to
deposit securities escrow collateral presents a material change for
users of OCC's escrow deposit program because such users currently use
DTC to effect certain types of deposits in lieu of margin under the
current escrow deposit program.\18\
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    \18\ Specifically, users of OCC's escrow deposit program would
use DTC's Collateral Loan Services, which is described at: http://www.dtcc.com/products/training/helpfiles/settlement/settlement_help/help/collateral_loans.htm.
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    Cash collateral pledged to support an escrow deposit would continue
to be facilitated through the existing program interfaces; however, for
increased security, any pledges of cash would be required to be made in
a customer's account at the Tri-Party Custodian Bank that is used
solely for the purpose of making escrow deposits. As described above,
under the proposed changes OCC would require Tri-Party Custodian Bank
and customers to enter into a Tri-Party Agreement in order to provide
legal certainty concerning this arrangement. Further, and as set forth
in the Tri-Party Agreement, each Tri-Party Custodian Bank would agree
to disburse funds from the pledged account only at OCC's direction.
From an operational perspective, each Tri-Party Custodian Bank would
provide OCC with online view access to each customer's cash account
designated for the escrow deposit program, allowing visibility into
transactional activity and account balances. OCC would not process a
cash escrow deposit in its systems until it sees the appropriate amount
of cash deposited in the designated bank account at the Tri-Party
Custodian Bank. This process ensures that OCC does not rely on a third
party to value, or warrant the existence of, collateral within the
escrow deposit program. The Tri-Party Agreement, in connection with the
new cash collateral structure, would provide OCC with additional
transparency and control over cash collateral under the revised escrow
deposit program.
    In order to effect the foregoing, OCC is proposing to adopt
proposed Rules 610A(a), 610B(a), 610C(b) and 610C(c). Proposed Rules
610A(a) and 610B(a), Effecting a Member Specific Deposit and Effecting
a Third-Party Specific Deposit,

respectively, require that member specific deposits and third-party
specific deposits must be made through DTC, and are largely based upon
existing Rule 610(e), which discusses effecting deposits in lieu or
margin generally. Language has been added to each proposed rule to more
accurately articulate that member specific deposits and third-party
specific deposits must be made through DTC and the party that is
required to effect each type of deposit (i.e., a clearing member or a
third-party depository). In the case of member specific deposits and
third-party specific deposits, which are already made through DTC, OCC
believes that proposed Rules 610A(a) and Rule 610B(a) are rules that
clarify existing practices and provide additional operational detail to
users of the escrow deposit program (i.e., member specific deposits and
third-party specific deposits must be made through DTC's Electronic
Data Processing (``EDP'') Pledge System and clearing members are
required to maintain records of such deposits). Proposed Rules 610C(b)
and 610C(c), Manner of Holding and Method of Effecting Escrow Deposits,
respectively, are largely based upon existing Rules 610(d), 610(g),
1801(d) and 1801(g), as well as Section 8 of the EDA with language
added to more accurately articulate that securities escrow deposits
must be made through DTC and cash must be deposited through a Tri-Party
Custodian Bank, and provide operational detail concerning effecting
escrow deposits. Moreover, OCC is proposing to adopt new Rule 610(e) in
order to specify that all types of deposits in the escrow deposit
program may be made only during the time specified by OCC. The purpose
of specifying the time frames in which participants are allowed to
effect deposits in the escrow deposit program is to facilitate OCC
daily margin processing and ensure that all of the positions it
guarantees are timely collateralized.\19\
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    \19\ In the event a deposit in the escrow deposit program is not
timely made, OCC would collect margin from the relevant clearing
member.
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    In addition to the above, and with respect to escrow deposits only,
OCC is proposing enhancements to its process of ensuring that customers
meet initial and maintenance minimums.\20\ Specifically, under the
revised escrow deposit program, in the event a customer falls below the
maintenance minimum, the custodian bank, pursuant to the Participating
Escrow Bank Agreement, would be required to ensure that the customer
deposits additional collateral or escalate the matter to OCC. In
addition to such notification requirement, OCC would also implement
automated processes to ensure that escrow deposits meet required
initial and maintenance minimums. In the event the matter is escalated
to OCC or OCC's systems identify a shortfall, OCC would: (1) Demand
that the relevant clearing member post additional margin to cover the
margin requirement on the applicable position, and (2) if the relevant
clearing member fails to satisfy such a demand for additional margin,
OCC would close-out the applicable position and demand the escrow
deposit from DTC or the Tri-Party Custodian Bank, as applicable, under
its existing authority pursuant to Rule 1106. This process is much more
robust than the current process concerning maintenance minimums in that
OCC currently relies entirely on custodian banks holding escrow
deposits to ensure the customer deposits additional collateral, as
necessary, to meet initial and maintenance minimums. OCC believes that
the proposed new process is more streamlined and efficient because OCC
would not have to rely entirely on a custodian bank to ensure customers
comply with initial and maintenance minimums.
---------------------------------------------------------------------------

    \20\ Initial and maintenance minimums do not apply to member
specific deposits and third-party specific deposits since the
clearing member or custodian bank, as applicable, is pledging the
security that is deliverable upon exercise of the germane options
position.
---------------------------------------------------------------------------

    In order to implement the foregoing within the new rules concerning
the escrow deposit program, OCC is proposing to adopt Rules 610C(g) and
610C(h) that concern the initial and maintenance minimum escrow deposit
values required by OCC as well as actions OCC's[sic] is permitted to
take in the event an escrow deposit falls below a required amount.
These proposed rules are based on existing Rules 1801(c) and 1801(e) as
well as Sections 3.2, 4.2, 5.2, 3.7, 4.8 and 5.7 of the EDA.\21\ With
respect to the computation of initial and maintenance minimums,
proposed Rules 610C(g) and 610C(h) would explain the formula through
which OCC computes the initial and maintenance minimum for a given
options position, with the specific percentage applicable to such
calculation provided to participants in the escrow deposit program in a
schedule posted on OCC's Web site. With respect to the effects of a
failure to meet maintenance minimums, proposed Rule 610C(h) sets forth
the conditions under which OCC would close out a given escrow deposit
should it fall below the requisite maintenance minimum. Proposed Rule
610C(h) would also provide OCC with the authority to use the cash and
securities included within the escrow deposit to reimburse itself for
costs incurred in connection with the close-out. OCC believes that by
virtue of their proposed new location in the rules, as well as the
additional detail provided in the proposed rules, all participants, and
potential participants, in OCC's escrow deposit program would better
understand the rules concerning initial and maintenance minimums, as
they relate to escrow deposits, under the enhanced escrow deposit
program (versus under the current escrow deposit program).
---------------------------------------------------------------------------

    \21\ OCC is proposing to eliminate the concept of
``substitutions'' of escrow deposit collateral (located in Sections
4.7 and 5.6 of the EDA)--instead a given escrow deposit must at all
times must meet the minimum amount (as set forth in proposed Rules
610(g)(1) and (2)) and OCC would permit any excess amount to be
withdrawn.
---------------------------------------------------------------------------

OCC's Rights to Collateral in the Escrow Deposit Program in the Event
of a Clearing Member or Bank Default
    The proposed Rules would enhance OCC's default management regime as
it relates to the escrow deposit program by more specifically
delineating the conditions under, and the process through which, OCC
would take possession of collateral within the escrow deposit program
should a clearing member or custodian bank default. Specifically,
proposed Rules 610A(b), 610B(f), 610C(q) and 610C(r) provide that in
the event of a clearing member or custodian bank default OCC would have
the right to direct DTC to deliver the securities included in a member
specific deposit, third-party specific deposit or escrow deposit to
OCC's DTC participant account for the purpose of satisfying the
obligations of the clearing member or reimbursing itself for losses
incurred as a result of the failure, as applicable. Similarly, pursuant
to proposed Rules 610C(q) and 610C(r) OCC would have the right in the
event of a Tri-Party Custodian Bank default to take possession of cash
included within an escrow deposit for the same purposes. In the event
of a custodian bank default, pursuant to proposed Rule 610C(r) OCC
would have the right to remove the custodian bank from the escrow
deposit program, prohibit the custodian bank from making new escrow
deposits, disallow withdrawals with respect to existing deposits, close
out short positions covered by escrow deposits at the defaulted
custodian bank and use such escrow deposits to reimburse itself for the
costs of the close-out, or disregard

or require the withdrawal of existing escrow deposits.
    Proposed Rules 610A(b), 610B(f) and 610C(q), concern OCC's rights
to a member specific deposits, third-party specific deposits and escrow
deposits, respectively, in the event of a clearing member default. They
would provide a more specific description of OCC's rights to a third-
party specific deposit during a default than existing Rule 610(k) and
Section 18 of the EDA. However, the additional specificity that would
be provided in proposed Rules 610A(b), 610B(f) and 610C(q) would not
change OCC's nor clearing members' rights or obligations regarding
member specific, third-party specific or escrow deposits in the event
of a clearing member default. Proposed Rule 610C(r) addresses OCC's
rights in the event of a custodian bank default and is based on
existing Rules 613(h) and 1801(k). Proposed Rule 610C(r) would clarify
OCC's existing operational practices when a custodian bank defaults
(i.e., demand monies, not allow new deposits, etc. . ., as described
immediately above), but does not change any of the rights of OCC,
clearing members or custodian banks as they are set forth in existing
Rules 613(h) and 1801(k).
    In addition to the above described proposed changes, OCC is
proposing to amend Rule 1106 to set forth the treatment of deposits in
the escrow deposit program in the event of a suspension of a clearing
member. Rule 1106(b)(2) would be amended to provide that OCC may close
out a short position of a suspended clearing member covered by a member
specific, third-party specific or escrow deposit, subject to the
ability of the suspended clearing member or its representative to
transfer the short position to another clearing member under certain
circumstances. Further, current Rule 1106(b)(3) would be combined with
Rule 1106(b)(2) and amended to set forth OCC's right to take possession
of the cash and/or securities included within an escrow, member
specific, or third-party specific deposit for the purpose of
reimbursing itself for costs incurred in connection with the close-out
of a short position covered by the deposit. These proposed amendments
to Rule 1106 are consistent with proposed Rules 610B(f), 610C(q) and
610C(r).
Clearing Members' Rights to Collateral in the Escrow Deposit Program
    Clearing members' rights to escrow deposits and third-party
specific deposits would be clarified under the proposed rules. While
clearing members have secondary lien rights on the escrow deposits of
their customers under the current escrow deposit program, OCC is
proposing to add several rules that would clarify these rights and
provide additional guidance to clearing members regarding operational
steps that would need to be taken in order to exercise their secondary
lien rights. Specifically, OCC is proposing to add Rules 610B(c) and
610C(f) to delineate the rights of a clearing member as they relate to
third-party specific deposits and escrow deposits. Proposed Rules
610B(c) and 610C(f) would provide for the grant of a security interest
by the customer to the clearing member with respect to any given third-
party specific deposit and escrow deposit, as applicable. The Rules
would further provide that any such security interest of a clearing
member in an escrow deposit would be subordinated to OCC's interest.
For purposes of perfecting a clearing member's security interest under
the UCC, OCC would obtain control over the security both on its own
behalf and on behalf of the relevant clearing member, with clear
subordination of the clearing member's interest to OCC's interest. In
the event OCC had to direct delivery of the security to the clearing
member, OCC would do so on the clearing member's behalf. Proposed Rules
610B(c) and 610C(f) would better codify clearing members' secondary
lien rights to third-party specific deposits and escrow deposit[sic]
than they are currently codified in Section 21 of the EDA, without
changing any clearing member rights or obligations. OCC believes that
such a codification would provide more transparency regarding clearing
member's secondary lien rights under the enhanced escrow deposit
program because all users, and potential users, of OCC's escrow deposit
program would be able to easily identify and understand the rules
concerning clearing members' secondary lien rights in a single location
within OCC's publically available Rulebook.
    Additionally, OCC is proposing to add several procedural rules that
would set forth the process by which clearing members could exercise
their secondary lien rights in a given deposit in the escrow deposit
program. Proposed Rules 610C(d), 610C(o), 610C(p) and 610C(s), relating
to escrow deposits, and proposed Rules 610B(d) and 610B(e), relating to
third-party specific deposits, would provide that, in the event of a
customer default to a clearing member, the clearing member would have
the right to request a ``hold'' on a deposit. The hold would prevent
the withdrawal of deposited securities or cash by a custodian bank or
the release of a deposit that would otherwise occur in the ordinary
course. Subsequent to placing a hold instruction on a deposit, a
clearing member would have the right to request that OCC direct
delivery of the deposit to the clearing member through DTC's systems,
in the case of securities, or an instruction to the Tri-Party Custodian
Bank in the case of cash. Providing clearing members with transparent
instructions regarding how to place a hold instruction on and direct
delivery of a deposit in the escrow deposit program would significant
enhancement to the current escrow deposit program.
    OCC is also proposing to adopt Rules 610B(e) and 610C(s), which
would protect OCC in the event that it delivers a third-party specific
deposit or escrow deposit to a clearing member. Under proposed Rules
610B(e) and 610C(s) a clearing member making a request for delivery
would be deemed to have made the appropriate representations to OCC
that the clearing member has a right to take possession of the
deposited securities or cash and would agree to indemnify OCC against
losses resulting from a breach of these representations or the delivery
of the deposit. A clearing member would also be required to provide
documentation regarding its right to possession of the securities or
cash as OCC may reasonably request.
Section 3: Technical and Conforming Changes to OCC'S Rules
    OCC also proposes a number of technical, conforming and structural
changes in order to move the majority of the terms governing the escrow
deposit program into one section in its Rulebook. OCC believes that
changes to proposed Rules 610, 610A, 610B and 610C, described in
greater detail below, are either non-substantive or conforming changes
that do not alter the current rights or obligations of OCC, clearing
members or participants in the escrow deposit program.
Proposed Rule 610--Deposits in Lieu of Margin (General Provisions)
    Proposed Rule 610 contains general provisions applicable to the
escrow deposit program. Specifically, proposed Rule 610(a) replaces
existing Rule 610(a) and sets forth general provisions of the escrow
deposit program including: (1) Who may participate in the escrow
deposit program, (2) the types of positions included in the escrow
deposit program, (3) the types of deposits in the escrow deposit
program, and (4) the collateral that is eligible for the escrow deposit
program. Proposed Rule 610(b) replaces existing Rule

610(b) and provides further specificity with respect to the types of
options positions included within OCC's escrow deposit program.\22\
This additional specificity clarifies OCC's existing rules and provides
more transparency to users and potential users of OCC's escrow deposit
program. Proposed Rule 610(c), which is not derived from an existing
rule, clarifies OCC's existing practice that OCC will disregard a
member specific deposit or a third-party specific deposit if such
deposit is no longer eligible to be delivered upon the exercise of the
associated stock option contract. Proposed Rule 610(d), which replaces
existing Rules 610(c) and 1801(l), requires that deposits within the
escrow deposit program be made in accordance with applicable laws and
regulations, and be appropriately authorized. Proposed Rule 610(f),
which replaces existing Rule 610(l), would clarify OCC's right to use
deposits within the escrow deposit program until such deposits are
withdrawn. Proposed Rule 610(f) is supplemented by proposed Rules 610A,
610B and 610C with respect to member specific, third-party specific and
escrow deposits. Proposed Rule 610(g) codifies OCC's security interest
in deposits within the escrow deposit program.
---------------------------------------------------------------------------

    \22\ As described in greater detail below, proposed Rules 610(a)
and 610(b) are supplemented by proposed Rules 610A, 610B and 610C.
---------------------------------------------------------------------------

Proposed Rule 610A--Member Specific Deposits
    Proposed Rule 610A clarifies many of the current rules concerning
the escrow deposit program as they relate to member specific deposits.
For example, proposed 610A(c) describes the process by which a clearing
member may withdraw a member specific deposit (i.e., effecting a
withdrawal or release through DTC's EDP Pledge System and ensuring that
its margin requirement at OCC is met). While this issue is addressed in
existing Rule 610(j) in general terms, OCC believes that the additional
operational details regarding its existing process in proposed Rule
610A(c), along with its inclusion in proposed Rule 610A, further
clarify how those existing processes apply to member specific deposits
as opposed to other types of deposits in lieu of margin in existing
Rule 610.\23\ Proposed Rule 610A(d) also establishes that member
specific deposits may be ``rolled-over,'' a concept that is not
specifically set forth in existing Rule 610 but has historically
applied in connection with member specific deposits (formerly specific
deposits).
---------------------------------------------------------------------------

    \23\ Proposed Rule 610A(c) supplements to proposed Rule 610(f).
---------------------------------------------------------------------------

Proposed Rule 610B--Third-Party Specific Deposits
    Proposed Rule 610B clarifies many of the current rules concerning
third-party specific deposits. For example, proposed 610B(b), which
addresses rollovers of a third-party specific deposit and replaces
existing Rules 613(a) and Section 9 of the EDA, and articulates how to
rollover third-party specific deposits by its inclusion within Rule
610B. Withdrawals and releases of third-party specific deposits are
addressed in proposed Rule 610B(d), which is based on existing Rules
613(b) and 613(f). Specifically, releases and withdrawals of third-
party specific deposits would be effected through DTC's EDP Pledge
System, subject to the clearing member's margin requirement being met,
the clearing member's approval of the release or withdrawal, and the
absence of a ``hold'' instruction. In addition, proposed Rule 610B(g)
seeks to provide a more detailed description of the effect of a release
of a third-party specific deposit than existing Rule 613(i).
Proposed Rule 610C--Escrow Deposits
    Proposed Rule 610C, which is based on existing Rule 1801(a), would
clarify the current rules concerning escrow deposits. For example, the
introductory paragraph of proposed Rule 610C would provide a more
detailed overview of a custodian bank's role in the escrow deposit
program, specifying such a bank's role in effecting escrow deposits,
and would describe eligible positions as they relate to escrow
deposits. Proposed Rules 610C(a) through 610C(e) and proposed Rule
610C(t) concern eligible collateral, the manner in which escrow
deposits are to be held, and withdrawing an escrow deposit and rolling
over an escrow deposit. These operational rules are based on: (1)
Existing Rules 610(g) and 1801(b) and Sections 3.1, 4.1 and 5.1 of the
EDA with respect to eligible collateral (proposed Rule 610C(a)); (2)
existing Rules 610(j) and 1801(i), and Sections 10 and 20 of the EDA
with respect to withdrawing an escrow deposit (proposed Rule 610C(d));
(3) existing Rule 613(i) with respect to the effect of a release or
withdrawal of an escrow deposit (proposed Rule 610C(t)); and (4)
existing Rule 613(a) and Section 9 of the EDA, with respect to
rollovers of an escrow deposit (Proposed Rule 610C(e)).
    In order to provide additional transparency concerning
representations that custodian banks are deemed to make when effecting
an escrow deposit, OCC is proposing to move several contractual
provisions of the EDA into proposed Rules 610C(i), 610C(j), and
610C(k). Specifically: (1) Proposed Rule 610C(i), which concerns
agreements and representations an escrow bank is deemed to have made
when effecting an escrow deposit, is based upon Sections 1.6 and 4.6 of
the EDA; (2) proposed Rule 610C(j), which concerns representations and
warranties a custodian bank is deemed to make when giving an
instruction to OCC and is based upon Sections 1.3, 1.4, 1.5, 1.6, 1.7
and 1.8 of the EDA; and (3) proposed Rule 610C(k), which concerns
agreements a custodian bank is deemed to make when giving an
instruction to OCC and is based upon Sections 4, 5 and 21 of the EDA.
Moreover, and in addition to locating deemed representations of
custodian banks in the Rules, proposed Rules 610C(i), 610C(j) and
610C(k) contain language that perfects OCC's security interest in
escrow deposits under Section 9 of the UCC, and replace Sections 3.3,
3.4, 4.3, 4.4, 5.3 and 5.4 of the EDA.\24\ OCC believes that by
locating the above described provisions in the Rules, all users and
potential users of OCC's escrow deposit program would better understand
the relationship between OCC and custodian banks.
---------------------------------------------------------------------------

    \24\ The primary UCC-related provisions in the proposed Rules
include Rules 610C(j)(1), 610C(j)(9) and 610C(k)(1), which provide
for the perfection of OCC's security interest in deposits consisting
of securities under UCC Sections 9-106 and 9-314; Rules 610C(j)(1),
610C(j)(10), and 610C(k)(2), which provide for the perfection of
OCC's security interest in deposits consisting of cash under UCC
Sections 9-104, 9-312 and 9-314; and Rules 610C(i)(1), 610C(i)(2)
and 610C(j)(3), which support the first priority of OCC's security
interest by preventing competing liens or claims.
---------------------------------------------------------------------------

    Proposed Rules 610C(m), 610C(n), 610C(o) and 610C(p) concern the
exercise of options positions collateralized by escrow deposits and the
release of escrow deposits upon expiration. As with other parts of
proposed Rule 610C, OCC believes that the location of proposed Rules
610C(m), 610C(n), 610C(o) and 610C(p) provides all users and potential
users of OCC's escrow deposit program with a more transparent
understanding of how exercises of options positions affect escrow
deposits as well as the manner in which OCC would release an escrow
deposit upon the expiration of an options position. Similar to other
parts of Rule 610C, proposed Rules 610C(m), 610C(n), 610C(o) and
610C(p) are based on existing Rules of OCC as well as the EDA.\25\
Proposed Rule 610C(m)

concerns reports OCC provides regarding escrow deposits and is based
upon existing Rules 613(d) and 613(e) as well as Sections 11, 12 and 13
of the EDA. Proposed Rules 610C(n), 610C(o) and 610C(p), which concern
assignments of exercises and releases of escrow deposits upon
expiration is based upon existing Rules 613(f) and 1801(j) and Section
14 of the EDA.
---------------------------------------------------------------------------

    \25\ As discussed in Section 3 above, Rules 610C(n) and 610C(p)
contain language that prevents the release of an escrow deposit in
the event such deposit is subject to a hold instruction, which is a
proposed enhancement to the escrow deposit program.
---------------------------------------------------------------------------

Section 4: Transition Period
    For the administrative convenience of clearing members, custodian
banks and customers, the existing Rules governing deposits in lieu of
margin would remain in effect, in parallel with the proposed Rules, for
a transition ending November 30, 2017. During this transition period,
deposits in lieu of margin could be made under either the existing
Rules or the proposed Rules. This will eliminate the need of all
clearing members to provide new collateral on a single date in the
absence of a transition period. After the transition period, proposed
Rules 610, 610A, 610B and 610C would provide the sole means of making
deposits in lieu of margin and existing Rules 613 and 1801 would be
removed from the Rulebook. In connection with the transition, existing
Rule 610 would be re-designated as 610T to indicate that it is a
temporary rule, and would become ineffective and removed after the
transition period. Furthermore, following the transition period,
existing Rule 503, which addresses instructions that call for the
payment of a premium by or to the clearing member for whose account the
deposit is made, would be removed from the Rules because these
instructions would no longer be permitted under the revised escrow
deposit program since this aspect of the program has not been used for
a number of years.\26\ In addition, Government securities would be
given full market value under the revised escrow deposit program and
therefore existing Rule 610(h) would be removed from the Rules after
the transition period.
---------------------------------------------------------------------------

    \26\ For the purposes of clarity, existing Rules 613(c), 613(g),
613(h), 613(j) address the same topic and would be removed from
OCC's Rulebook following the transition period without being
migrated into a proposed Rule.
---------------------------------------------------------------------------

Consistency With the Payment, Clearing and Settlement Supervision Act
    OCC believes that the proposed change concerning deposits in lieu
of margin described above is consistent with Section 805(b)(1) of the
Payment, Clearing and Settlement Supervision Act \27\ because the
proposed change would promote robust risk management. OCC collects
margin, or deposits in lieu of margin, in order to protect OCC and
market participants from risks resulting from default of a clearing
member. As described above, this proposed change would enhance OCC's
control over and visibility into deposits in lieu of margin. By
increasing OCC's transparency and control over deposits in lieu of
margin the change would enable OCC to better ensure that it maintains
adequate financial resources in the event of a default of a clearing
member and thereby promote robust risk management.
---------------------------------------------------------------------------

    \27\ 12 U.S.C. 5464(b)(1).
---------------------------------------------------------------------------

    The proposed change also provides clarity to clearing members,
their customers and potential users of OCC's escrow deposit program
regarding the manner in which OCC would risk manage a clearing member
default or the default of a customer of a clearing member using the
escrow deposit program. By implementing changes that better describe
OCC's risk management regime as it relates to use of the deposits of a
clearing member, or customer of a clearing member, within the escrow
deposit program, OCC would provide all users, or potential users, of
its services with additional certainty and predictability concerning
actions OCC would take in the event of a clearing member default that
would, in turn, promote robust risk management by making it less likely
that such a default would have a have a substantive impact on the
ongoing operations of OCC or on the markets OCC serves.
Anticipated Effect on and Management of Risk
    OCC believes that the proposed change would reduce the nature and
level of risk presented to OCC because OCC would enhance its control
over and visibility into deposits in lieu of margin that are made to
OCC and thereby enhance OCC's default management practices. As
described above, OCC collects margin, or deposits in lieu of margin, in
order to protect OCC and market participants from risks associated with
the default of a clearing member and such deposits can be in cash or
non-cash. The proposal would ensure that all non-cash deposits in lieu
of margin would be pledged to OCC through DTC, which would enable OCC
to (1) better validate its control over such deposits and (2) ensure
that it is properly valuing such deposits in real-time. In addition,
OCC would have greater visibility into deposits in lieu of margin
consisting of cash, and Tri-Party Custodian Banks would contractually
agree to only release such deposits in lieu of margin upon the approval
of OCC. These processes would ensure that OCC could verify that
deposits in lieu of margin sufficiently collateralize germane short
options position(s) and OCC would be able to use its existing
functionality with DTC to more quickly take possession of such deposits
in the event of a clearing member default that would, in turn, protect
OCC and market participants from risks associated with a clearing
member default. Accordingly, OCC believes the proposed change would
reduce the nature or level of risk presented to OCC.

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

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

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or

     Send an email to<EMAIL_ADDRESS>Please include
File Number SR-OCC-2016-802 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-OCC-2016-802. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the advance notice that are filed
with the Commission, and all written communications relating to the
advance notice between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for Web site viewing and printing in
the Commission's Public Reference Room, 100 F Street NE., Washington,
DC 20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of OCC and on OCC's Web site at
http://www.theocc.com/components/docs/legal/rules_and_bylaws/sr_occ_16_802.pdf. All comments received will be posted without change;
the Commission does not edit personal identifying information from
submissions. You should submit only information that you wish to make
available publicly. All submissions should refer to File Number SR-OCC-
2016-802 and should be submitted on or before October 11, 2016.
    By the Commission.

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-22533 Filed 9-19-16; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 88, Number 152 (Wednesday, August 9, 2023)]
[Rules and Regulations]
[Pages 53798-53800]
[FR Doc No: 2023-16603]

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 52

[EPA-R04-OAR-2022-0428; FRL-9991-02-R4]

Air Plan Approval; North Carolina; Air Quality Control, Revisions
to Particulates From Fugitive Dust Emissions Sources Rule

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final rule.

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SUMMARY: The Environmental Protection Agency (EPA) is finalizing the
approval of changes to the North Carolina State Implementation Plan
(SIP), submitted by the State of North Carolina through the North
Carolina Division of Air Quality (NCDAQ) through a letter dated
September 10, 2021. The SIP revision includes changes to the State's
air pollution control requirements in the SIP that modify several
definitions, clarify its applicability requirements, adjust the
requirement for fugitive dust control plan submissions, and make minor
language and formatting changes. EPA is approving these changes
pursuant to the Clean Air Act (CAA or Act).

DATES: This rule is effective September 8, 2023.

ADDRESSES: EPA has established a docket for this action under Docket
Identification No. EPA-R04-OAR-2022-0428. All documents in the docket
are listed on the regulations.gov website. Although listed in the
index, some information may not be publicly available, i.e.,
Confidential Business Information or other information whose disclosure
is restricted by statute. Certain other material, such as copyrighted
material, is not placed on the internet and will be publicly available
only in hard copy form. Publicly available docket materials are
available either electronically through www.regulations.gov or in hard
copy at the Air Regulatory Management Section, Air Planning and
Implementation Branch, Air and Radiation Division, U.S. Environmental
Protection Agency, Region 4, 61 Forsyth Street SW, Atlanta, Georgia
30303-8960. EPA requests that you contact the person listed in the FOR
FURTHER INFORMATION CONTACT section to schedule your inspection. The
Regional Office's official hours of business are Monday through Friday
8:30 a.m. to 4:30 p.m., excluding Federal holidays.

FOR FURTHER INFORMATION CONTACT: Pearlene Williams-Miles, Multi-Air
Pollutant Coordination Section, Air Planning and Implementation Branch,
Air and Radiation Division, U.S. Environmental Protection Agency,
Region 4, 61 Forsyth Street SW, Atlanta, North Carolina 30303-8960. The
telephone number is<PHONE_NUMBER>. Ms. Williams-Miles can also be
reached via electronic mail at [email protected].

SUPPLEMENTARY INFORMATION:

I. Background

    On September 10, 2021, NCDAQ submitted a revision to North
Carolina's Rule 15A North Carolina Administrative Code (NCAC) 02D
.0540, Particulates from Fugitive Non-Process Dust Emission
Sources.1 2 The submittal makes changes to the State's air
pollution control requirements by revising several definitions,
clarifying applicability requirements, updating language, and making
other minor changes to the corresponding particulate matter fugitive
emission control regulation in the North Carolina SIP.\3\ EPA believes
that the changes to Rule 02D .0540 provide additional clarity to the
applicability of control plans and control plan procedures, rule
exemptions, and definitions for fugitive dust emission sources. EPA has
determined that the changes to the SIP do not interfere with attainment
and maintenance of the NAAQS or any other applicable requirement of the
Act.
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    \1\ EPA received the September 10, 2021, submittal on September
14, 2021. For clarity, throughout this rulemaking EPA will refer to
the September 14, 2021, submission by its cover letter date of
September 10, 2021.
    \2\ The September 10, 2021, submittal included several changes
to other North Carolina SIP-approved rules that are not addressed in
this rulemaking. EPA will act on those rule revisions in separate
actions.
    \3\ NCDAQ submitted a letter to EPA on January 25, 2023,
withdrawing the changes to Rule .0540(e)(1) from consideration for
inclusion in the North Carolina SIP. For this reason, EPA is not
acting on the changes to paragraph (e)(1) in this rulemaking.
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    Through a notice of proposed rulemaking (NPRM), published on March
23, 2023 (88 FR 17479), EPA proposed to approve the September 10, 2021,
changes to North Carolina Rule 15 NCAC 02D .0540. The details of North
Carolina's submission, as well as EPA's rationale for approving the
changes, are described in more detail in the March 23, 2023, NPRM.
Comments on the March 23, 2023, NPRM were due on or before April 24,
2023. No comments were received on the March 23, 2023, NPRM.

II. Incorporation by Reference

    In this document, EPA is finalizing regulatory text that includes
incorporation by reference. In accordance with the requirements of 1
CFR 51.5, and as discussed in section I of this preamble, EPA is
finalizing the incorporation by reference of 15A NCAC 02D .0540,
Particulates from Fugitive Dust Emission Sources, State effective on
September 1, 2019, into the North Carolina SIP with the exception of
paragraph (e)(1).\4\ EPA has made, and will continue to make, these
materials generally available through www.regulations.gov and at the
EPA Region 4 Office (please contact the person identified in the FOR
FURTHER INFORMATION CONTACT section of this preamble for more
information). Therefore, these materials have been approved by EPA for
inclusion in the State implementation plan, have been incorporated by
reference by EPA into that plan, are fully federally enforceable under
sections 110 and 113 of the CAA as of the effective date of the final
rulemaking of EPA's approval, and will be incorporated by reference in
the next update to the SIP compilation.\5\
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    \4\ Paragraph (e)(1) remains in the SIP with a State effective
date of August 1, 2007.
    \5\ See 62 FR 27968 (May 22, 1997).
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III. Final Action

    EPA is finalizing the approval of the September 10, 2021, SIP
revision to incorporate various changes to North Carolina's fugitive
emission dust control regulation. Specifically, EPA is proposing to
approve various changes to Rule 02D .0540, Particulates from Fugitive
Dust Emission Sources, as explained herein. EPA is proposing to approve
these changes for the reasons discussed above.

IV. Statutory and Executive Order Reviews

    Under the CAA, the Administrator is required to approve a SIP
submission that complies with the provisions of the Act and applicable
Federal regulations. See 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in
reviewing SIP submissions, EPA's role is to approve state choices,
provided that they meet the criteria of the CAA. This action merely
approves state law as meeting Federal requirements and does not impose
additional requirements beyond those imposed by state law. For that
reason, this action:
     Is not a significant regulatory action subject to review
by the Office of Management and Budget under Executive Orders 12866 (58
FR 51735,

October 4, 1993) and 13563 (76 FR 3821, January 21, 2011);
     Does not impose an information collection burden under the
provisions of the Paperwork Reduction Act (44 U.S.C. 3501 et seq.);
     Is certified as not having a significant economic impact
on a substantial number of small entities under the Regulatory
Flexibility Act (5 U.S.C. 601 et seq.);
     Does not contain any unfunded mandate or significantly or
uniquely affect small governments, as described in the Unfunded
Mandates Reform Act of 1995 (Pub. L. 104-4);
     Does not have federalism implications as specified in
Executive Order 13132 (64 FR 43255, August 10, 1999);
     Is not an economically significant regulatory action based
on health or safety risks subject to Executive Order 13045 (62 FR
19885, April 23, 1997);
     Is not a significant regulatory action subject to
Executive Order 13211 (66 FR 28355, May 22, 2001); and
     Is not subject to requirements of section 12(d) of the
National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272
note) because application of those requirements would be inconsistent
with the CAA.
    In addition, the SIP is not approved to apply on any Indian
reservation land or in any other area where EPA or an Indian tribe has
demonstrated that a tribe has jurisdiction. In those areas of Indian
country, the rule does not have tribal implications and will not impose
substantial direct costs on tribal governments or preempt tribal law as
specified by Executive Order 13175 (65 FR 67249, November 9, 2000).
    Executive Order 12898 (Federal Actions to Address Environmental
Justice in Minority Populations and Low-Income Populations, 59 FR 7629,
Feb. 16, 1994) directs Federal agencies to identify and address
``disproportionately high and adverse human health or environmental
effects'' of their actions on minority populations and low-income
populations to the greatest extent practicable and permitted by law.
EPA defines environmental justice (EJ) as ``the fair treatment and
meaningful involvement of all people regardless of race, color,
national origin, or income with respect to the development,
implementation, and enforcement of environmental laws, regulations, and
policies.'' EPA further defines the term fair treatment to mean that
``no group of people should bear a disproportionate burden of
environmental harms and risks, including those resulting from the
negative environmental consequences of industrial, governmental, and
commercial operations or programs and policies.''
    NCDAQ did not evaluate EJ considerations as part of its SIP
submittal; the CAA and applicable implementing regulations neither
prohibit nor require such an evaluation. EPA did not perform an EJ
analysis and did not consider EJ in this action. Due to the nature of
the action being taken here, this action is expected to have a neutral
to positive impact on the air quality of the affected area.
Consideration of EJ is not required as part of this action, and there
is no information in the record inconsistent with the stated goal of
E.O. 12898 of achieving EJ for people of color, low-income populations,
and Indigenous peoples.
    This action is subject to the Congressional Review Act, and EPA
will submit a rule report to each House of the Congress and to the
Comptroller General of the United States. This action is not a ``major
rule'' as defined by 5 U.S.C. 804(2).
    Under section 307(b)(1) of the Clean Air Act, petitions for
judicial review of this action must be filed in the United States Court
of Appeals for the appropriate circuit by October 10, 2023. Filing a
petition for reconsideration by the Administrator of this final rule
does not affect the finality of this action for the purposes of
judicial review nor does it extend the time within which a petition for
judicial review may be filed and shall not postpone the effectiveness
of such rule or action. This action may not be challenged later in
proceedings to enforce its requirements. See section 307(b)(2).

List of Subjects in 40 CFR Part 52

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

    Dated: May 22, 2023.
Daniel Blackman,
Regional Administrator, Region 4.

    For the reasons stated in the preamble, EPA amends 40 CFR part 52
as follows:

PART 52--APPROVAL AND PROMULGATION OF IMPLEMENTATION PLANS

0
1. The authority citation for part 52 continues to read as follows:

    Authority: 42 U.S.C. 7401 et seq.

Subpart II--North Carolina

0
2. In Sec.  52.1770, amend the table in paragraph (c)(1) by revising
the entry for ``Rule .0540'' to read as follows:

Sec.  52.1770  Identification of plan.

* * * * *
    (c) * * *

                                   (1) EPA Approved North Carolina Regulations
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                                                          State
        State citation              Title/subject       effective     EPA approval date         Explanation
                                                           date
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                                                  * * * * * * *
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                                    Section .0500 Emission Control Standards
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                                                  * * * * * * *
Rule .0540...................  Particulates from          9/1/2019  8/9/2023,............  With the exception of
                                Fugitive Dust                       [Insert citation of     paragraph (e)(1),
                                Emission Sources.                    publication].          which has a State
                                                                                effective date of
                                                                                August 1, 2007.

                                                  * * * * * * *
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* * * * *
[FR Doc. 2023-16603 Filed 8-8-23; 8:45 am]
BILLING CODE 6560-50-P


Comment Info: =================

General Comment:Dear Mr. Zeller:

I am writing as an individual consumer to request an extension of the comment period for the Food and Drug Administration's ("FDA") Proposed Rule Deeming Tobacco Products to be Subject to the Federal Food, Drug, and Cosmetic Act, as amended by the Family Smoking and Prevention and Tobacco Control Act (the "Proposed Rule") published at 79 Fed. Reg. 23,142 and Federal Register No. 2014-09491. On behalf of myself, I am requesting that the comment period for the Proposed Rule be extended by the FDA for an additional 105 days, from its current 75-day period, to 180 days.

The Proposed Rule raises a number of significant issues and questions that are important and relevant to me, as a consumer of products that are proposed for regulation under the Proposed Rule. The Proposed Rule asks about a hundred different questions I might want to respond to. I want to provide my thoughts and comments on many of these issues, but my time to devote to researching and providing thoughtful comments on these important questions is limited. I have already spent many hours researching and dissecting these issues, but they take time. I know that the FDA took many years to even come up with the Proposed Rule, so I do not think it is at all unreasonable to allow the public a mere six months to comment on it. This is our only opportunity, as consumers, to provide our feedback.

I feel very strongly about e-cigarettes as an alternative to combustible cigarettes. Quite simply, I firmly believe that they saved my life and the lives of my husband and children who smoked combustible cigarettes. I wish to provide you with my personal story, as well as science- and evidence-based responses to your questions so that you can take my comment into account.

I am 56 years old and had smoked since I was 19, and had tried for every one of those 37 years to quit smoking cigarettes. Smoking was shown in almost every TV show and movie I had ever seen until showing smoking in media and advertising was discouraged. Each time I tried to quit, I made it as long as 2 weeks before the side effects of quitting were too much to bear. I firmly believe that I was not only addicted to the act of smoking but to many of the 4,000 toxins that the tobacco industry has been allowed (thus encouraged) to treat tobacco cigarettes with. I tried hypnosis, pills, patches, etc. and nothing worked until I tried the e-cigarette. I have been a non-smoker for over 3 years now without a single relapse to smoking cigarettes. While my experience may be better than some, I believe it is certainly more prevalent than the FDA knows. Since beginning to use e-cigarettes I have over time lowered my intake of nicotine to a very, very low level and am almost ready to go to zero nicotine liquids. This method has worked for me and my husband, who smoked 3 packs a day.

I find it appalling that e-cigarette usage is being subjected to more scrutiny than the tobacco industry, or the pharmaceutical companies whose solutions (Chantix) to smoke cessation can cause people to commit suicide either slowly or quickly, depending on the method. I am passionate about this subject because, as I repeat, the availability of e-cigarettes saved my life. Let's slow things down and use a fair and common sense approach to address the issues that need to be.

I realize that the FDA has the authority under 21 CFR 10.40 to extend this time frame and that the FDA has exercised this authority on numerous occasions in the past. I would therefore ask that you do so here, so that all stakeholders have the opportunity to provide their comments on this proposed regulation. Please allow the world more time to fully communicate before regulation is forced without proper consideration.

I appreciate your consideration of my request and am happy to discuss this issue with you further.