[Federal Register Volume 83, Number 156 (Monday, August 13, 2018)]
[Notices]
[Pages 40099-40101]
[FR Doc No: 2018-17258]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83794; File No. SR-NASDAQ-2018-062]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend the Nasdaq Options Regulatory Fee

August 7, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on July 27, 2018, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange proposes to revise The Nasdaq Options Market LLC's
Rules (``NOM'') at Chapter XV, Section 5 to amend the Nasdaq Options
Regulatory Fee or ``ORF.''
    While the changes proposed herein are effective upon filing, the
Exchange has designated the amendments become operative on August 1,
2018.
    The text of the proposed rule change is available on the Exchange's
website at http://nasdaq.cchwallstreet.com/, at the principal office of
the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange 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. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Currently, Nasdaq assesses an ORF of $0.0027 per contract side. The
Exchange proposes to decrease this ORF to $0.0008 per contract side. In
light of recent market volumes on NOM, the Exchange is proposing to
change the amount of ORF that will be collected by the Exchange. The
Exchange's proposed change to the ORF should balance the Exchange's
regulatory revenue against the anticipated costs.
Collection of ORF
    Currently, NOM assesses its ORF for each customer option
transaction that is either: (1) executed by a Participant on NOM; or
(2) cleared by a NOM Participant at The Options Clearing Corporation
(``OCC'') in the customer range,\3\ even if the transaction was
executed by a non-member of NOM, regardless of the exchange on which
the transaction occurs.\4\ If the OCC clearing member is a NOM
Participant, ORF is assessed and collected on all cleared customer
contracts (after adjustment for CMTA\5\); and (2) if the OCC clearing
member is not a NOM Participant, ORF is collected only on the cleared
customer contracts executed at NOM, taking into account any CMTA
instructions which may result in collecting the ORF from a non-member.
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    \3\ Participants must record the appropriate account origin code
on all orders at the time of entry in order. The Exchange represents
that it has surveillances in place to verify that members mark
orders with the correct account origin code.
    \4\ The Exchange uses reports from OCC when assessing and
collecting the ORF.
    \5\ CMTA or Clearing Member Trade Assignment is a form of
``give-up'' whereby the position will be assigned to a specific
clearing firm at OCC.
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    By way of example, if Broker A, a NOM Participant, routes a
customer order to CBOE and the transaction executes on CBOE and clears
in Broker A's OCC Clearing account, ORF will be collected by NOM from
Broker A's clearing account at OCC via direct debit. While this
transaction was executed on a market other than NOM, it was cleared by
a NOM Participant in the member's OCC clearing account in the customer
range, therefore there is a regulatory nexus between NOM and the
transaction. If Broker A was not a NOM Participant, then no ORF should
be assessed and collected because there is no nexus; the transaction
did not

execute on NOM nor was it cleared by a NOM Participant.
    In the case where a Participant both executes a transaction and
clears the transaction, the ORF is assessed to and collected from that
Participant. In the case where a Participant executes a transaction and
a different member clears the transaction, the ORF is assessed to and
collected from the Participant who clears the transaction and not the
Participant who executes the transaction. In the case where a non-
member executes a transaction at an away market and a Participant
clears the transaction, the ORF is assessed to and collected from the
Participant who clears the transaction. In the case where a Participant
executes a transaction on NOM and a non-member clears the transaction,
the ORF is assessed to the Participant that executed the transaction on
NOM and collected from the non-member who cleared the transaction. In
the case where a Participant executes a transaction at an away market
and a non-member clears the transaction, the ORF is not assessed to the
Participant who executed the transaction or collected from the non-
member who cleared the transaction because the Exchange does not have
access to the data to make absolutely certain that ORF should apply.
Further, the data does not allow the Exchange to identify the
Participant executing the trade at an away market.
ORF Revenue and Monitoring of ORF
    The Exchange monitors the amount of revenue collected from the ORF
to ensure that it, in combination with other regulatory fees and fines,
does not exceed regulatory costs. In determining whether an expense is
considered a regulatory cost, the Exchange reviews all costs and makes
determinations if there is a nexus between the expense and a regulatory
function. The Exchange notes that fines collected by the Exchange in
connection with a disciplinary matter offset ORF.
    The ORF is designed to recover a material portion of the costs to
the Exchange of the supervision and regulation of its members,
including performing routine surveillances, investigations,
examinations, financial monitoring, and policy, rulemaking,
interpretive, and enforcement activities.
    The Exchange believes that revenue generated from the ORF, when
combined with all of the Exchange's other regulatory fees, will cover a
material portion, but not all, of the Exchange's regulatory costs. The
Exchange will continue to monitor the amount of revenue collected from
the ORF to ensure that it, in combination with its other regulatory
fees and fines, does not exceed regulatory costs. If the Exchange
determines regulatory revenues exceed regulatory costs, the Exchange
will adjust the ORF by submitting a fee change filing to the
Commission.
Proposal
    The Exchange is proposing to decrease the ORF from $0.0027 to
$0.0008 as of August 1, 2018. In light of recent market volumes on NOM,
the Exchange is proposing to decrease the amount of ORF that will be
collected by the Exchange. The Exchange regularly reviews its ORF to
ensure that the ORF, in combination with its other regulatory fees and
fines, does not exceed regulatory costs. The Exchange believes this
adjustment will permit the Exchange to cover a material portion of its
regulatory costs, while not exceeding regulatory costs.
    The Exchange notified Participants via an Options Trader Alert of
the proposed change to the ORF thirty (30) calendar days prior to the
proposed operative date, August 1, 2018.\6\ The Exchange believes that
the prior notification market participants will ensure market
participants are prepared to configure their systems to properly
account for the ORF.
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    \6\ See Options Trader Alert #2018-27.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section
6(b) of the Act \7\ in general, and furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act \8\ in particular, in that it provides
for the equitable allocation of reasonable dues, fees and other charges
among members and issuers and other persons using its facility and is
not designed to permit unfair discrimination between customers,
issuers, brokers, or dealers.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that decreasing the ORF from $0.0027 to
$0.0008 as of August 1, 2018 is reasonable because the Exchange's
collection of ORF needs to be balanced against the amount of regulatory
costs incurred by the Exchange. The Exchange believes that the proposed
adjustments noted herein will serve to balance the Exchange's
regulatory revenue against the anticipated regulatory costs.
    The Exchange believes that amending the ORF from $0.0027 to $0.0008
as of August 1, 2018 is equitable and not unfairly discriminatory
because assessing the ORF to each Participant for options transactions
cleared by OCC in the customer range where the execution occurs on
another exchange and is cleared by a NOM Participant is an equitable
allocation of reasonable dues, fees, and other charges among its
members and issuers and other persons using its facilities. The ORF is
collected by OCC on behalf of NOM from Exchange clearing members for
all customer transactions they clear or from non-members for all
customer transactions they clear that were executed on NOM. The
Exchange believes the ORF ensures fairness by assessing fees to
Participants based on the amount of customer options business they
conduct. Regulating customer trading activity is much more labor
intensive and requires greater expenditure of human and technical
resources than regulating non-customer trading activity, which tends to
be more automated and less labor-intensive. As a result, the costs
associated with administering the customer component of the Exchange's
overall regulatory program are materially higher than the costs
associated with administering the non-customer component (e.g.,
Participant proprietary transactions) of its regulatory program.
    The ORF is designed to recover a material portion of the costs of
supervising and regulating Participants' customer options business
including performing routine surveillances, investigations,
examinations, financial monitoring, and policy, rulemaking,
interpretive, and enforcement activities. The Exchange will monitor the
amount of revenue collected from the ORF to ensure that it, in
combination with its other regulatory fees and fines, does not exceed
the Exchange's total regulatory costs. The Exchange has designed the
ORF to generate revenues that, when combined with all of the Exchange's
other regulatory fees, will be less than or equal to the Exchange's
regulatory costs, which is consistent with the Commission's view that
regulatory fees be used for regulatory purposes and not to support the
Exchange's business side.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. This proposal does not create
an unnecessary or inappropriate intra-market burden on competition
because the ORF applies to all customer activity, thereby raising
regulatory revenue to offset regulatory expenses. It also supplements
the regulatory revenue derived from non-customer activity. This
proposal does

not create an unnecessary or inappropriate inter-market burden on
competition because it is a regulatory fee that supports regulation in
furtherance of the purposes of the Act. The Exchange is obligated to
ensure that the amount of regulatory revenue collected from the ORF, in
combination with its other regulatory fees and fines, does not exceed
regulatory costs.

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

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

    The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act.\9\
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    \9\ 15 U.S.C. 78s(b)(3)(A)(ii).
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    At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is: (i)
Necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) otherwise in furtherance of the
purposes of the Act. If the Commission takes such action, the
Commission shall institute proceedings to determine whether the
proposed rule should be approved or 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 No. SR-NASDAQ-2018-062 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 No. SR-NASDAQ-2018-062. 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 the filing also will be available for inspection
and copying at the principal office of the Exchange. 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 No. SR-NASDAQ-2018-062, and should be submitted on
or before September 4, 2018.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-17258 Filed 8-10-18; 8:45 am]
 BILLING CODE 8011-01-P


[Federal Register Volume 77, Number 129 (Thursday, July 5, 2012)]
[Proposed Rules]
[Pages 39653-39654]
[FR Doc No: 2012-16447]

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DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 71

[Docket No. FAA-2012-0385; Airspace Docket No. 12-ASO-23]

Proposed Establishment of Class E Airspace; Reidsville, GA, and
Proposed Amendment of Class E Airspace; Vidalia, GA

AGENCY: Federal Aviation Administration (FAA), DOT.

ACTION: Notice of proposed rulemaking (NPRM).

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SUMMARY: This action proposes to establish Class E Airspace at
Reidsville, GA. Separation of existing Class E airspace surrounding
Swinton Smith Field at Reidsville Municipal Airport, Reidsville, GA,
from the Class E airspace of Vidalia Regional Airport, Vidalia, GA, has
made this action necessary to enhance the safety and airspace
management of Instrument Flight Rules (IFR) operations at the airport.
This action also would change the names of both airports and update the
airport's geographic coordinates.

DATES: Comments must be received on or before August 20, 2012. The
Director of the Federal Register approves this incorporation by
reference action under title 1, Code of Federal Regulations, part 51,
subject to the annual revision of FAA, Order 7400.9 and publication of
conforming amendments.

ADDRESSES: Send comments on this rule to: U.S. Department of
Transportation, Docket Operations, West Building Ground Floor, Room
W12-140, 1200 New Jersey SE., Washington, DC 20590-0001; Telephone: 1-
800-647-5527; Fax:<PHONE_NUMBER>. You must identify the Docket Number
FAA-2012-0385; Airspace Docket No. 12-ASO-23, at the beginning of your
comments. You may also submit and review received comments through the
Internet at http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: John Fornito, Operations Support
Group, Eastern Service Center, Federal Aviation Administration, P.O.
Box 20636, Atlanta, Georgia 30320; telephone<PHONE_NUMBER>.

SUPPLEMENTARY INFORMATION:

Comments Invited

    Interested persons are invited to comment on this rule by
submitting such written data, views, or arguments, as they may desire.
Comments that provide the factual basis supporting the views and
suggestions presented are particularly helpful in developing reasoned
regulatory decisions on the proposal. Comments are specifically invited
on the overall regulatory, aeronautical, economic, environmental, and
energy-related aspects of the proposal.
    Communications should identify both docket numbers (FAA Docket No.
FAA-2012-0385; Airspace Docket No. 12-ASO-23) and be submitted in
triplicate to the Docket Management System (see ADDRESSES section for
address and phone number). You may also submit

comments through the Internet at http://www.regulations.gov.
    Persons wishing the FAA to acknowledge receipt of their comments on
this action must submit with those comments a self-addressed stamped
postcard on which the following statement is made: ``Comments to Docket
No. FAA-2012-0385; Airspace Docket No. 12-ASO-23.'' The postcard will
be date/time stamped and returned to the commenter.
    All communications received before the specified closing date for
comments will be considered before taking action on the proposed rule.
The proposal contained in this notice may be changed in light of the
comments received. A report summarizing each substantive public contact
with FAA personnel concerned with this rulemaking will be filed in the
docket.

Availability of NPRMs

    An electronic copy of this document may be downloaded from and
comments submitted through http://www.regulations.gov. Recently
published rulemaking documents can also be accessed through the FAA's
Web page at http://www.faa.gov/airports_airtraffic/air_traffic/publications/airspace_amendments/.
    You may review the public docket containing the proposal, any
comments received and any final disposition in person in the Dockets
Office (see the ADDRESSES section for address and phone number) between
9 a.m. and 5 p.m., Monday through Friday, except Federal Holidays. An
informal docket may also be examined during normal business hours at
the office of the Eastern Service Center, Federal Aviation
Administration, room 350, 1701 Columbia Avenue, College Park, Georgia
30337.
    Persons interested in being placed on a mailing list for future
NPRM's should contact the FAA's Office of Rulemaking,<PHONE_NUMBER>,
to request a copy of Advisory circular No. 11-2A, Notice of Proposed
Rulemaking distribution System, which describes the application
procedure.

The Proposal

    The FAA is considering an amendment to Title 14, Code of Federal
Regulations (14 CFR) part 71 by establishing Class E airspace extending
upward from 700 feet above the surface at Swinton Smith Field at
Reidsville Municipal Airport (formerly Reidsville Airport), Reidsville,
GA, to accommodate the separation of existing Class E airspace
surrounding Vidalia Regional Airport (formerly Vidalia Municipal
Airport), Vidalia, GA. Geographic coordinates for both airports also
would be adjusted to be in concert with the FAA's aeronautical
database.
    Class E airspace designations are published in Paragraph 6005 of
FAA Order 7400.9V, dated August 9, 2011, and effective September 15,
2011, which is incorporated by reference in 14 CFR 71.1. The Class E
airspace designation listed in this document will be published
subsequently in the Order.
    The FAA has determined that this proposed regulation only involves
an established body of technical regulations for which frequent and
routine amendments are necessary to keep them operationally current.
It, therefore, (1) Is not a ``significant regulatory action'' under
Executive Order 12866; (2) is not a ``significant rule'' under DOT
Regulatory Policies and Procedures (44 FR 11034; February 26, 1979);
and (3) does not warrant preparation of a Regulatory Evaluation as the
anticipated impact is so minimal. Since this is a routine matter that
will only affect air traffic procedures and air navigation, it is
certified that this proposed rule, when promulgated, would not have a
significant economic impact on a substantial number of small entities
under the criteria of the Regulatory Flexibility Act.
    The FAA's authority to issue rules regarding aviation safety is
found in Title 49 of the United States Code. Subtitle I, Section 106
describes the authority of the FAA Administrator. Subtitle VII,
Aviation Programs, describes in more detail the scope of the agency's
authority. This proposed rulemaking is promulgated under the authority
described in Subtitle VII, Part A, Subpart I, Section 40103. Under that
section, the FAA is charged with prescribing regulations to assign the
use of airspace necessary to ensure the safety of aircraft and the
efficient use of airspace. This proposed regulation is within the scope
of that authority as it would amend Class E airspace at Vidalia, GA and
establish Class E airspace at Reidsville, GA.
    This proposal will be subject to an environmental analysis in
accordance with FAA Order 1050.1E, ``Environmental Impacts: Policies
and Procedures'' prior to any FAA final regulatory action.

Lists of Subjects in 14 CFR Part 71:

    Airspace, Incorporation by reference, Navigation (air).

The Proposed Amendment

    In consideration of the foregoing, the Federal Aviation
Administration proposes to amend 14 CFR part 71 as follows:

PART 71--DESIGNATION OF CLASS A, B, C, D, AND E AIRSPACE AREAS; AIR
TRAFFIC SERVICE ROUTES; AND REPORTING POINTS

    1. The authority citation for part 71 continues to read as follows:

    Authority: 49 U.S.C. 106(g); 40103, 40113, 40120; E.O. 10854, 24
FR 9565, 3 CFR, 1959-1963 Comp., p. 389.

Sec.  71.1  [Amended]

    2. The incorporation by reference in 14 CFR 71.1 of Federal
Aviation Administration Order 7400.9V, Airspace Designations and
Reporting Points, dated August 9, 2011, effective September 15, 2011,
is amended as follows:

Paragraph 6005 Class E airspace areas extending upward from 700
feet or more above the surface of the earth.

* * * * *

ASO GA E5 Vidalia, GA [Amended]

Vidalia Regional Airport, GA
    (Lat. 32[deg]11'34'' N., long. 82[deg]22'16'' W.)

    That airspace extending upward from 700 feet above the surface
within a 7-mile radius of Vidalia Regional Airport.
* * * * *

ASO GA E5 Reidsville, GA [New]

Swinton Smith Field at Reidsville Municipal Airport, GA
    (Lat. 32[deg]03'32'' N., long. 82[deg]09'06'' W.)

    That airspace extending upward from 700 feet above the surface
within a 7-mile radius of the Swinton Smith Field at Reidsville
Municipal Airport.

    Issued in College Park, Georgia, on June 21, 2012.
Gerald E. Lynch,
Acting Manager, Operations Support Group, Eastern Service Center, Air
Traffic Organization.
[FR Doc. 2012-16447 Filed 7-3-12; 8:45 am]
BILLING CODE 4910-13-P


[Federal Register Volume 83, Number 232 (Monday, December 3, 2018)]
[Rules and Regulations]
[Pages 62259-62262]
[FR Doc No: 2018-26151]

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DEPARTMENT OF HOMELAND SECURITY

Coast Guard

33 CFR Part 165

[Docket Number USCG-2018-0868]
RIN 1625-AA00

Safety Zone; Annual Fireworks Displays Within the Sector Columbia
River Captain of the Port Zone

AGENCY: Coast Guard, DHS.

ACTION: Final rule.

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SUMMARY: The Coast Guard is revising the regulation for safety zones
for annual fireworks displays in the Captain of the Port Zone Columbia
River. This action is necessary to provide for the safety of life on
navigable waters during the fireworks displays. This rule includes
updating 3 existing safety zones, adding 1 safety zone for a fireworks
display that was previously published as a temporary regulation, and
removing 10 safety zones for inactive fireworks displays.

DATES: This rule is effective January 2, 2019.

ADDRESSES: To view documents mentioned in this preamble as being
available in the docket, go to https://www.regulations.gov, type USCG-
2018-0868 in the ``SEARCH'' box and click ``SEARCH.'' Click on Open
Docket Folder on the line associated with this rule.

FOR FURTHER INFORMATION CONTACT: If you have questions on this rule,
call or email LCDR Dixon Whitley, Waterways Management Division, Marine
Safety Unit Portland, Coast Guard; telephone<PHONE_NUMBER>, email
[email protected].

SUPPLEMENTARY INFORMATION:

I. Table of Abbreviations

CFR Code of Federal Regulations
DHS Department of Homeland Security
FR Federal Register
NPRM Notice of proposed rulemaking
Sec.  Section
U.S.C. United States Code

II. Background Information and Regulatory History

    The Coast Guard is amending the regulation for safety zones for
annual fireworks displays in the Captain of the Port Zone Columbia
River, 33 CFR 165.1315. This rule is removing 10 safety zones for
inactive fireworks displays, adding 1 safety zone for a new, recurring
fireworks display for which we previously issued a temporary safety
zone, and updating the date or location for 3 existing fireworks
displays.
    On September 28, 2018, the Coast Guard published a notice of
proposed rulemaking (NPRM) titled, ``Safety Zone; Annual Fireworks
Displays within the Sector Columbia River Captain of the Port Zone''
(83 FR 49028). There we stated why we issued the NPRM, and invited
comments on our proposed regulatory action related to annual fireworks
displays. During the comment period that ended October 29, 2018, we
received four comments.

III. Legal Authority and Need for Rule

    The Coast Guard is issuing this rule under authority in 33 U.S.C.
1231. The Captain of the Port Columbia River (COTP) has determined that
potential hazards associated with the fireworks displays create
hazardous conditions for the maritime public because of the large
number of vessels near the displays, as well as the noise, falling
debris, and explosions that occur during the event. Because firework
discharge sites pose a potential hazard to the maritime public, these
safety zones are necessary in order to restrict vessel movement and
reduce vessel congregation in the proximity of the firework discharge
sites. The purpose of this rule is to ensure safety of vessels and the
navigable waters in the safety zone before, during, and after the
scheduled events and provides the public accurate information regarding
safety zones for annual fireworks displays in the Captain of the Port
Zone Columbia River.

IV. Discussion of Comments, Changes, and the Rule

    As noted above, we received four comments on our NPRM published
September 28, 2018. The first comment suggested establishing new safety
zones to replace the 10 inactive safety zones this rule is removing.
There has been no indication from the sponsors of these events that
they plan to continue them and our office has not received any
additional information to warrant the addition of replacement safety
zones. The second and third comments contained no suggested changes or
recommendations. The fourth comment supported the creation of this
rule. There are no changes in the regulatory text of this rule from the
proposed rule in the NPRM.
    The Coast Guard is removing 10 fireworks display safety zones in 33
CFR 165.1315 that are listed in Table 1 below because there has been no
indication from the sponsors of these events that they plan to continue
them.

                        Table 1--List of Safety Zone We Are Removing From 33 CFR 165.1315
----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------
Cinco de Mayo Fireworks.......  Portland, OR....  One day in May..  45[deg]30'58'' N       122[deg]40'12'' W
Newport High School Graduation  Newport, OR.....  One day in June.  44[deg]36'48'' N       124[deg]04'10'' W
 Fireworks.
Celebrate Milwaukie...........  Milwaukie, OR...  One day in July.  45[deg]26'33'' N       122[deg]38'44'' W
Arlington 4th of July.........  Arlington, OR...  One day in July.  45[deg]43'23'' N       120[deg]12'11'' W
East County 4th of July         Gresham, OR.....  One day in July.  45[deg]33'32'' N       122[deg]27'10'' W
 Fireworks.
Rufus 4th of July Fireworks...  Rufus, OR.......  One day in July.  45[deg]41'39'' N       120[deg]45'16'' W
Maritime Heritage Festival....  St. Helens, OR..  One day in July.  45[deg]51'54'' N       122[deg]47'26'' W
Lynch Picnic..................  West Linn, OR...  One day in July.  45[deg]23'37'' N       122[deg]37'52'' W
First Friday Milwaukie........  Milwaukie, OR...  One day in        45[deg]26'33'' N       122[deg]38'44'' W
                                                   September.
Willamette Falls Heritage       Oregon City, OR.  One day in        45[deg]21'44'' N       122[deg]36'21'' W
 Festival.                                         October.
----------------------------------------------------------------------------------------------------------------

    Additionally, the Coast Guard is adding a new fireworks display
safety zone. We previously issued a temporary safety zone (83 FR 30869,
July 2, 2018) for that event, and after conferring with the event
sponsor, we determined it will become a recurring fireworks display.
This safety zone will cover all navigable waters within a 450-yard
radius of the fireworks barge in the Willamette River located at
approximately 45[deg]24'37'' N, 122[deg]39'30'' W in the vicinity of
George Rogers Park in Lake Oswego, OR. The following will be added to
the table in 33 CFR 165.1315:

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

----------------------------------------------------------------------------------------------------------------
City of Lake Oswego 4th of      Lake Oswego, OR.  One day in July.  45[deg]24'37'' N       122[deg]39'30'' W
 July Fireworks.
----------------------------------------------------------------------------------------------------------------

    Finally, the Coast Guard is revising three existing fireworks
display safety zones. These revisions include updating the date for 4th
of July at Pekin Ferry to more precisely describe when the fireworks
display will occur, correcting the wrong state listed for the
Independence Day at the Port and updating the location for the Leukemia
and Lymphoma Light the Night Fireworks.
    These updates will eliminate any confusion caused by the fireworks
display safety zones listed in the 33 CFR 165.1315 table and any
subsequently issued temporary safety zones resulting from changes to
the dates or locations of the events. The regulatory text appears at
the end of this document.

V. Regulatory Analyses

    We developed this rule after considering numerous statutes and
Executive orders related to rulemaking. Below we summarize our analyses
based on a number of these statutes and Executive orders, and we
discuss First Amendment rights of protestors.

A. Regulatory Planning and Review

    Executive Orders 12866 and 13563 direct agencies to assess the
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits. Executive Order 13771 directs agencies to control
regulatory costs through a budgeting process. This rule has not been
designated a ``significant regulatory action,'' under Executive Order
12866. Accordingly, this rule has not been reviewed by the Office of
Management and Budget (OMB), and pursuant to OMB guidance it is exempt
from the requirements of Executive Order 13771.
    This regulatory action determination is based on size, location,
duration, and time-of-day of the safety zone. Vessel traffic will be
able to safely transit around these safety zones which will impact
small designated areas of the Oregon coast, Tillamook Bay, the Columbia
River and its tributaries, and the Clatskanie River for approximately 2
hours during the evening when commercial vessel traffic is normally
low. Moreover, the Coast Guard will issue a Broadcast Notice to
Mariners via VHF-FM marine channel 16 about the zones, and the rule
allows vessels to seek permission to enter the zone.

B. Impact on Small Entities

    The Regulatory Flexibility Act of 1980, 5 U.S.C. 601-612, as
amended, requires Federal agencies to consider the potential impact of
regulations on small entities during rulemaking. The term ``small
entities'' comprises small businesses, not-for-profit organizations
that are independently owned and operated and are not dominant in their
fields, and governmental jurisdictions with populations of less than
50,000. The Coast Guard received no comments from the Small Business
Administration on this rulemaking. The Coast Guard certifies under 5
U.S.C. 605(b) that this rule will not have a significant economic
impact on a substantial number of small entities.
    While some owners or operators of vessels intending to transit the
safety zones may be small entities, for the reasons stated in section
V.A above, this rule will not have a significant economic impact on any
vessel owner or operator.
    Under section 213(a) of the Small Business Regulatory Enforcement
Fairness Act of 1996 (Pub. L. 104-121), we want to assist small
entities in understanding this rule. If the rule would affect your
small business, organization, or governmental jurisdiction and you have
questions concerning its provisions or options for compliance, please
contact the person listed in the FOR FURTHER INFORMATION CONTACT
section.
    Small businesses may send comments on the actions of Federal
employees who enforce, or otherwise determine compliance with, Federal
regulations to the Small Business and Agriculture Regulatory
Enforcement Ombudsman and the Regional Small Business Regulatory
Fairness Boards. The Ombudsman evaluates these actions annually and
rates each agency's responsiveness to small business. If you wish to
comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR
(1-888-734-3247). The Coast Guard will not retaliate against small
entities that question or complain about this rule or any policy or
action of the Coast Guard.

C. Collection of Information

    This rule will not call for a new collection of information under
the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

D. Federalism and Indian Tribal Governments

    A rule has implications for federalism under Executive Order 13132,
Federalism, if it has a substantial direct effect on the States, on the
relationship between the national government and the States, or on the
distribution of power and responsibilities among the

various levels of government. We have analyzed this rule under that
Order and have determined that it is consistent with the fundamental
federalism principles and preemption requirements described in
Executive Order13132.
    Also, this rule does not have tribal implications under Executive
Order 13175, Consultation and Coordination with Indian Tribal
Governments, because it does not have a substantial direct effect on
one or more Indian tribes, on the relationship between the Federal
Government and Indian tribes, or on the distribution of power and
responsibilities between the Federal Government and Indian tribes. If
you believe this rule has implications for federalism or Indian tribes,
please contact the person listed in the FOR FURTHER INFORMATION CONTACT
section.

E. Unfunded Mandates Reform Act

    The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538)
requires Federal agencies to assess the effects of their discretionary
regulatory actions. In particular, the Act addresses actions that may
result in the expenditure by a State, local, or tribal government, in
the aggregate, or by the private sector of $100,000,000 (adjusted for
inflation) or more in any one year. Though this rule will not result in
such an expenditure, we do discuss the effects of this rule elsewhere
in this preamble.

F. Environment

    We have analyzed this rule under Department of Homeland Security
Directive 023-01 and Commandant Instruction M16475.1D, which guide the
Coast Guard in complying with the National Environmental Policy Act of
1969 (42 U.S.C. 4321-4370f), and have determined that this action is
one of a category of actions that do not individually or cumulatively
have a significant effect on the human environment. This rule involves
safety zones lasting less approximately two hours in duration that will
prohibit entry within 450 yards of fireworks launch sites. It is
categorically excluded from further review under paragraph L60(a) of
Appendix A, Table 1 of DHS Instruction Manual 023-01-001-01, Rev. 01. A
Record of Environmental Consideration supporting this determination is
available in the docket where indicated under ADDRESSES.

G. Protest Activities

    The Coast Guard respects the First Amendment rights of protesters.
Protesters are asked to contact the person listed in the FOR FURTHER
INFORMATION CONTACT section to coordinate protest activities so that
your message can be received without jeopardizing the safety or
security of people, places or vessels.

List of Subjects in 33 CFR Part 165

    Harbors, Marine safety, Navigation (water), Reporting and
recordkeeping requirements, Security measures, Waterways.

    For the reasons discussed in the preamble, the Coast Guard amends
33 CFR part 165 as follows:

PART 165--REGULATED NAVIGATION AREAS AND LIMITED ACCESS AREAS

0
1. The authority citation for part 165 continues to read as follows:

    Authority:  33 U.S.C. 1231; 50 U.S.C. 191; 33 CFR 1.05-1, 6.04-
1, 6.04-6, and 160.5; Department of Homeland Security Delegation No.
0170.1.

0
2. In Sec.  165.1315, revise paragraph (a) to read as follows:

Sec.  165.1315   Safety Zone; Annual Fireworks Displays within the
Sector Columbia River Captain of the Port Zone.

    (a) Safety zones. The following areas are designated safety zones:
Waters of the Columbia River and its tributaries, waters of the Siuslaw
River, Yaquina River, Umpqua River, Clatskanie River, Tillamook Bay and
waters of the Washington and Oregon Coasts, within a 450 yard radius of
the launch site at the approximate locations listed in the following
table:

----------------------------------------------------------------------------------------------------------------
    Event name (typically)       Event location     Date of event          Latitude              Longitude
----------------------------------------------------------------------------------------------------------------
Portland Rose Festival          Portland, OR....  One day in May    45[deg]30'58'' N       122[deg]40'12'' W
 Fireworks.                                        or June.
Tri-City Chamber of Commerce    Kennewick, WA...  One day in July.  46[deg]13'37'' N       119[deg]08'47'' W
 Fireworks/River of Fire
 Festival.
Astoria-Warrenton 4th of July   Astoria, OR.....  One day in July.  46[deg]11'34'' N       123[deg]49'28'' W
 Fireworks.
Waterfront Blues Festival       Portland, OR....  One day in July.  45[deg]30'42'' N       122[deg]40'14'' W
 Fireworks.
Florence Independence Day       Florence, OR....  One day in July.  43[deg]58'09'' N       124[deg]05'50'' W
 Celebration.
Oaks Park Association 4th of    Portland, OR....  One day in July.  45[deg]28'22'' N       122[deg]39'59'' W
 July.
City of Rainier/Rainier Days..  Rainier, OR.....  One day in July.  46[deg]05'46'' N       122[deg]56'18'' W
Ilwaco July 4th Committee       Ilwaco, WA......  One day in July.  46[deg]18'17'' N       124[deg]02'00'' W
 Fireworks/Independence Day at
 the Port.
Splash Aberdeen Waterfront      Aberdeen, WA....  One day in July.  46[deg]58'40'' N       123[deg]47'45'' W
 Festival.
City of Coos Bay July 4th       Coos Bay, OR....  One day in July.  43[deg]22'06'' N       124[deg]12'24'' W
 Celebration/Fireworks Over
 the Bay.
Port of Cascade Locks 4th of    Cascade Locks,    One day in July.  45[deg]40'15'' N       121[deg]53'43'' W
 July Fireworks.                 OR.
Clatskanie Heritage Days        Clatskanie, OR..  One day in July.  46[deg]6'17'' N        123[deg]12'02'' W
 Fireworks.
Washougal 4th of July.........  Washougal, WA...  One day in July.  45[deg]34'32'' N       122[deg]22'53'' W
City of St. Helens 4th of July  St. Helens, OR..  One day in July.  45[deg]51'54'' N       122[deg]47'26'' W
 Fireworks.
Waverly Country Club 4th of     Milwaukie, OR...  One day in July.  45[deg]27'03'' N       122[deg]39'18'' W
 July Fireworks.
Hood River 4th of July........  Hood River, OR..  One day in July.  45[deg]42'58'' N       121[deg]30'32'' W
Winchester Bay 4th of July      Winchester Bay,   One day in July.  43[deg]40'56'' N       124[deg]11'13'' W
 Fireworks.                      OR.
Brookings, OR July 4th          Brookings, OR...  One day in July.  42[deg]02'39'' N       124[deg]16'14'' W
 Fireworks.
Yachats 4th of July...........  Yachats, OR.....  One day in July.  44[deg]18'38'' N       124[deg]06'27'' W
Lincoln City 4th of July......  Lincoln City, OR  One day in July.  44[deg]55'28'' N       124[deg]01'31'' W
July 4th Party at the Port of   Gold Beach, OR..  One day in July.  42[deg]25'30'' N       124[deg]25'03'' W
 Gold Beach.
Gardiner 4th of July..........  Gardiner, OR....  One day in July.  43[deg]43'55'' N       124[deg]06'48'' W
Huntington 4th of July........  Huntington, OR..  One day in July.  44[deg]18'02'' N       117[deg]13'33'' W
Toledo Summer Festival........  Toledo, OR......  One day in July.  44[deg]37'08'' N       123[deg]56'24'' W
Port Orford 4th of July.......  Port Orford, OR.  One day in July.  42[deg]44'31'' N       124[deg]29'30'' W
The Dalles Area Fourth of July  The Dalles, OR..  One day in July.  45[deg]36'18'' N       121[deg]10'23'' W
Roseburg Hometown 4th of July.  Roseburg, OR....  One day in July.  43[deg]12'58'' N       123[deg]22'10'' W
Newport 4th of July...........  Newport, OR.....  One day in July.  44[deg]37'40'' N       124[deg]02'45'' W
Cedco Inc./The Mill Casino      North Bend, OR..  One day in July.  43[deg]23'42'' N       124[deg]12'55'' W
 Independence Day.
Waldport 4th of July..........  Waldport, OR....  One day in July.  44[deg]25'31'' N       124[deg]04'44'' W

Westport 4th of July..........  Westport, WA....  One day in July.  46[deg]54'17'' N       124[deg]05'59'' W
The 4th of July at Pekin Ferry  Ridgefield, WA..  Saturday before   45[deg]52'07'' N       122[deg]43'53'' W
                                                   July 4th.
Bandon 4th of July............  Bandon, OR......  One day in July.  43[deg]07'29'' N       124[deg]25'05'' W
Garibaldi Days Fireworks......  Garibaldi, OR...  One day in July.  45[deg]33'13'' N       123[deg]54'56'' W
Bald Eagle Days...............  Cathlamet, WA...  One day in July.  46[deg]12'14'' N       123[deg]23'17'' W
Independence Day at the Fort    Vancouver, WA...  One day in July.  45[deg]36'57'' N       122[deg]40'09'' W
 Vancouver.
Oregon Symphony Concert         Portland, OR....  One day in        45[deg]30'42'' N       122[deg]40'14'' W
 Fireworks.                                        August or
                                                   September.
Astoria Regatta...............  Astoria, OR.....  One day in        46[deg]11'34'' N       123[deg]49'28'' W
                                                   August.
Leukemia and Lymphoma Light     Portland, OR....  One day in        45[deg]30'23'' N       122[deg]40'4'' W
 the Night Fireworks.                              October.
Veterans Day Celebration......  The Dalles, OR..  One day in        45[deg]36'18'' N       121[deg]10'34'' W
                                                   November.
----------------------------------------------------------------------------------------------------------------

* * * * *

    Dated: November 27, 2018.
D.F. Berliner,
Captain, U.S. Coast Guard, Acting Captain of the Port Columbia River.
[FR Doc. 2018-26151 Filed 11-30-18; 8:45 am]
BILLING CODE 9110-04-P


[Federal Register Volume 85, Number 195 (Wednesday, October 7, 2020)]
[Notices]
[Pages 63305-63312]
[FR Doc No: 2020-22096]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90065; File No. SR-OCC-2020-011]

Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of Proposed Rule Change To Adopt a New Second Amended
and Restated Cross-Margining Agreement Between The Options Clearing
Corporation and The Chicago Mercantile Exchange

October 1, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on September 22, 2020, The Options Clearing Corporation (``OCC'') filed
with the Securities and Exchange Commission (``SEC'' or ``Commission'')
the proposed rule change as described in Items I, II, and III below,
which Items have been prepared by OCC. The Commission is publishing
this notice to

solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

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

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

    This proposed rule change by The Options Clearing Corporation
(``OCC'') would adopt a new Second Amended and Restated Cross-Margining
Agreement (``Proposed X-M Agreement'') between OCC and the Chicago
Mercantile Exchange (``CME''). This proposal is designed to: (1) Update
the existing X-M Agreement with the Proposed X-M Agreement to bring it
into conformity with current operational procedures and eliminate
provisions that are out-of-date; (2) improve the clarity and
readability by consolidating certain redundant provisions and moving
certain operational details from the existing X-M Agreement to a
standalone service level agreement; and (3) streamline and consolidate
certain related Clearing Member agreements.
    The Proposed X-M Agreement is attached hereto as Exhibit 5 of
filing SR-OCC-2020-011. The Proposed X-M Agreement includes the
following as appendices each of which is marked to show changes:
Proprietary Cross-Margin Account Agreement and Security Agreement; Non-
Proprietary Cross-Margin Account Agreement and Security Agreement; and
Market Professional's Agreement for Cross-Margining.\3\
---------------------------------------------------------------------------

    \3\ Each of the Clearing Member agreement forms includes a
version for Joint and Affiliated Clearing Members.
---------------------------------------------------------------------------

    This 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 defined herein have the same meaning as set forth in OCC's By-
Laws and Rules.\4\
---------------------------------------------------------------------------

    \4\ OCC's By-Laws and Rules can be found on OCC's public
website: https://www.theocc.com/Company-Information/Documents-and-Archives/By-Laws-and-Rules#rule-filings.
---------------------------------------------------------------------------

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 this proposed rule change is to adopt a new Second
Amended and Restated Cross-Margining Agreement between OCC and CME that
would: (1) Update the existing X-M Agreement with the Proposed X-M
Agreement to bring it into conformity with current operational
procedures and eliminate provisions that are out-of-date; (2) improve
the clarity and readability by consolidating certain redundant
provisions and moving certain operational details to a standalone
service level agreement; and (3) streamline and consolidate certain
related Clearing Member agreements.
Background
    OCC and CME are currently parties to an Amended and Restated Cross-
Margining Agreement dated May 28, 2008, as further amended by Amendment
No. 1 dated October 23, 2008 \5\ and Amendment No. 2 dated May 20, 2009
\6\ (the ``Existing X-M Agreement''). OCC and CME first implemented
their cross-margining program (the ``X-M Program'') in 1989. The
purpose of the X-M Program is to: (1) Facilitate the cross-margining of
positions in options cleared by OCC with positions in futures and
commodity options cleared by CME and (2) address the fact that Clearing
Members may have been required to meet higher margin requirements at
each clearinghouse than were warranted by the risk of combined
positions, because each portfolio was margined separately without
regard to positions held in the other portfolio.\7\ After the 1987
Market Break, several government reports recommending market structure
reforms found that cross-margining arrangements between clearinghouses
should be implemented or expanded, because they could have a profound
effect on mitigating liquidity stress to key market participants at
critical times.\8\ For example, the Bachmann Task Force, which was
formed at the request of SEC Chairman Breeden to address the issue of
safety and soundness of the clearance and settlement system in the
United States, published a report on Clearance and Settlement Reform in
the U.S. Securities Markets, and the staff of the SEC's Division of
Market Regulation \9\ also published its own report to analyze factors
involved in the depth and rapidity of the market decline. Both reports
noted that the existence of separate clearinghouses for each market
segment increases systemic exposure because no single clearinghouse is
able to accurately assess intermarket exposure among its clearing
members and among their customers.\10\ Accordingly, the Bachmann Report
specifically advanced that the cross-margining agreement in place
between OCC and CME benefited dual participants with hedged positions
with the respective clearing organizations,\11\ and it stated that OCC
and relevant futures exchanges should be encouraged to expand their
cross-margining programs because they ``reduce clearing system risk by
substituting correlated positions for cash or cash equivalent margins
and provide financing relief and settlement harmonization.'' \12\ Since
the X-M Program was implemented, the parties have amended it twice.\13\
---------------------------------------------------------------------------

    \5\ Securities Exchange Act Release No. 58258 (July 30, 2008),
73 FR 46133 (August 7, 2008) (SR-OCC-2008-12) (amending the
agreement to, among other things, permit money market fund shares as
margin).
    \6\ Securities Exchange Act Release No. 60063 (June 8, 2009), 74
FR 28738 (June 17, 2009) (SR-OCC-2009-10) (amending the agreement to
redefine the term ``Eligible Contracts'' and deleting the list of
such contracts attached as Schedule A).
    \7\ Securities Exchange Act Release Nos. 26607 (March 7, 1989),
48 FR 10608 (March 14, 1989) (SR-OCC-89-1); 27296 (September 26,
1989) (SR-OCC-89-11).
    \8\ See Report of the Bachmann Task Force on Clearance and
Settlement Reform in U.S. Securities Markets, Submitted to The
Chairman of the U.S. Securities and Exchange Commission (May 1992)
(the ``Bachmann Report''); The October 1987 Market Break, A Report
by the Division of Market Regulation, U.S. Securities and Exchange
Commission (February 1988) (the ``1987 Market Break Report'').
    \9\ This Division is now known as the Division of Trading and
Markets.
    \10\ See Bachmann Report at 11 citing the Report of the
Presidential Task Force on Market Mechanisms at 64 (January 1988);
1987 Market Break Report at 10-57 (stating that ``[i]n a fully
integrated cross-margin account, margin requirements could be fixed
to reflect more accurately the net risk of such positions taken as a
whole, thus reducing certain margin requirements . . .'').
    \11\ See Bachmann Report at 12.
    \12\ See Bachmann Report at 31.
    \13\ See, e.g., Securities Exchange Act Release Nos. 32534 (June
28, 1993), 58 FR 36234 (July 6, 1993) (SR-OCC-92-98); 38584 (May 8,
1997), 62 FR 26602 (May 14, 1997); See also supra notes 5 and 6.
---------------------------------------------------------------------------

The Existing X-M Agreement
    The Existing X-M Agreement governs OCC and CME's participation in a
cross-margining program (the ``X-M Program''), which permits positions
in certain futures and futures options contracts cleared by CME to be
cleared in a special proprietary or non-proprietary cross-margining
account (an ``X-M Account'') at CME, which is then paired with a
corresponding X-M

Account (proprietary or non-proprietary, as the case may be) at OCC, in
which securities options contracts are cleared (such contracts,
``Eligible Contracts''). OCC Clearing Members that are also CME members
(``Joint Clearing Members''), or that have qualified affiliates that
are CME members (``Affiliated Clearing Members''), provided that they
have signed the required X-M Program clearing member participation
agreement, are permitted to participate in the X-M Program. Currently,
there are nine Joint Clearing Members and one pair of Affiliated
Clearing Members that participate in the X-M Program. Each Joint
Clearing Member or pair of Affiliated Clearing Members electing to
participate in the X-M Program and establish a pair of X-M Accounts is
required to execute the appropriate account agreements in the forms
prescribed by OCC and CME and to designate the account as either
``proprietary'' or ``non-proprietary.'' \14\
---------------------------------------------------------------------------

    \14\ The Existing X-M Agreement also permits the establishment
of ``X-M Pledge Accounts,'' which are X-M Accounts in respect of
which the Clearing Member grants a security interest in all
contracts purchased or carried in the particular account to a bank,
as security for a loan. X-M Pledge Accounts may be either
proprietary or non-proprietary. The New X-M Agreement would
eliminate the ability to establish such X-M Pledge Accounts because
they are no longer being used. Historically, pledge accounts were
only used for the purpose of supporting the pledging of money market
mutual fund shares as collateral. Now that money market mutual fund
shares are not acceptable collateral for the XM Program, there is no
longer a need for the use of X-M Pledge Accounts.
---------------------------------------------------------------------------

    Proprietary X-M accounts are confined to the confirmed trades and
positions of non-customers of Clearing Members and other proprietary
``market professionals.'' \15\ A non-proprietary X-M Account is limited
to options market-makers and other ``market professionals.''
---------------------------------------------------------------------------

    \15\ See OCC By-Laws Article I, Section 1.O.(1).
---------------------------------------------------------------------------

    Non-proprietary X-M Accounts are treated as futures customer
accounts, because they are carried subject to the segregation
provisions of Section 4d of the Commodity Exchange Act \16\ rather than
as securities accounts subject to Rule 15c3-3 \17\ and other customer
protection rules under the Securities Exchange Act of 1934.\18\ X-M
Accounts that are paired for purposes of the X-M Program are treated
for margin purposes as if they were a single account, making it
possible to margin the paired X-M Accounts based on the net risk of the
potentially offsetting positions within them. The Existing X-M
Agreement governs the calculation, collection, and holding of margin
with respect to the paired X-M Accounts, as well as the handling of
daily settlement.
---------------------------------------------------------------------------

    \16\ 7 U.S.C. 6d.
    \17\ 17 CFR 240.15c3-3.
    \18\ 17 CFR 240.8c-1; 17 CFR 240.15c2-1.
---------------------------------------------------------------------------

    The Existing X-M Agreement also addresses how OCC and CME may use
the contracts and margin held in X-M Accounts in the event of the
default of a Joint Clearing Member or Affiliated Clearing Member. Upon
suspending a Joint Clearing Member or Affiliated Clearing Member, the
suspending clearinghouse is required to immediately notify the other
clearinghouse of the suspension. Both OCC and CME would then
immediately liquidate the contracts and margin in each X-M Account
carried for the suspended Joint Clearing Member or the Affiliated
Clearing Members, unless OCC and CME otherwise agree to delay
liquidation or to transfer the contracts. OCC and CME are required to
use their best efforts to coordinate the transfer or liquidation of
such contracts and to close out any hedged positions simultaneously or,
if transferring the positions, to transfer them to the same clearing
firm or pair of affiliated clearing firms.
    Any funds received by either OCC or CME upon liquidation of the
proprietary and non-proprietary X-M Accounts, respectively, may be used
to offset expenses arising from the liquidation of such account, and
any net proceeds thereafter are to be deposited in a corresponding
proprietary or non-proprietary liquidating account established jointly
by OCC and CME. The funds in a proprietary or non-proprietary
liquidating account are to be used only to set off any liquidating
deficits or settlement obligations remaining with respect to the
corresponding proprietary or non-proprietary X-M Account, respectively.
To the extent the proprietary liquidating account has a surplus, after
satisfying all deficits and obligations, the proceeds may be applied to
set off any net liquidating deficits or settlement obligations arising
from the Clearing Member's non-proprietary X-M Accounts at OCC or CME.
    After these offsets, if a liquidating account still has a deficit,
each of OCC and CME bear 50% of the remaining shortfall. If a
proprietary liquidating account has a surplus, OCC and CME each are
entitled to 50% of the surplus to satisfy any losses whatsoever arising
from the other obligations of the defaulting Clearing Member. However,
if one clearinghouse's net loss is less than 50% of the remaining
surplus and the other's is greater, the former is only entitled to the
surplus up to the amount of its loss, and the latter is entitled to
receive the balance up to the amount of its loss. After all of this, if
any amounts remain in the liquidating accounts, such funds are returned
to the Joint Clearing Member or pair of Affiliated Clearing Members or
their respective representatives.
The Proposed X-M Agreement
    The Proposed X-M Agreement retains the same basic framework
described above regarding the Existing X-M Agreement, and it would not
fundamentally alter the scope of the X-M Program or the rights and
responsibilities of OCC and CME. The primary purposes for proposing to
update the Existing X-M Agreement with the Proposed X-M Agreement are
to: (1) Bring the Existing X-M Agreement into conformity with current
operational procedures; (2) eliminate provisions in the Existing X-M
Agreement that are out-of-date; and (3) improve the clarity and
readability of the agreement by consolidating redundant provisions. The
Proposed X-M Agreement would also move several of the operational
details regarding the X-M Accounts to the OCC-CME Cross-Margining
Service Level Agreement (``SLA''). OCC and CME believe that having such
operational details in a separate document produces a more streamlined
Proposed X-M Agreement that would be easier to comprehend and that
would therefore allow OCC and CME to more easily review the service
levels and modify them as appropriate without having to amend the
entire Proposed X-M Agreement. OCC believes that these changes would
make the Proposed X-M Agreement and SLA easier to read and comprehend
and would promote consistency with the requirement in Rule 17Ad-
22(e)(1) \19\ that OCC must establish, implement, maintain and enforce
written policies and procedures reasonably designed to, as applicable,
provide for a well-founded, clear and transparent legal basis for each
aspect of its activities.
---------------------------------------------------------------------------

    \19\ 17 CFR 240.17Ad-22(e)(1).
---------------------------------------------------------------------------

    Key changes from the Existing X-M Agreement to the Proposed X-M
Agreement are described in detail below.
Eligible Contracts and Accepted Transactions
    The Proposed X-M Agreement would not change the scope of products
eligible for participation in the X-M Program. However, it would
include a definition of ``Eligible Contracts'' in Section 1 that
conforms with the substance of the definition that was adopted in 2009
as part of Amendment

No. 2 to the Existing X-M Agreement.\20\ Consistent with these changes,
the definition of ``Eligible Contracts'' in the Proposed X-M Agreement
would include any contracts that have been ``jointly designated'' by
OCC and CME as eligible for inclusion in the list of eligible contracts
jointly maintained by OCC and CME. Prior to designating a new set of
contracts as Eligible Contracts, OCC and CME would be required to
evaluate and approve the additional contracts through internal
processes that consider each clearing organization's risk policies.
---------------------------------------------------------------------------

    \20\ See supra note 13.
---------------------------------------------------------------------------

    Section 1 of the Proposed X-M Agreement would also be amended to
introduce the new defined term ``Accepted Transaction'' and to provide
a mechanism for confirming what specific transactions are subject to
the Proposed X-M Agreement. The purpose of this change is not to change
the scope of the X-M Program but rather to provide certainty and
clarity regarding the specific transactions--the ``Accepted
Transactions''--for which OCC and CME would be jointly responsible.
``Accepted Transactions'' would be defined to include all positions
that are Eligible Contracts and have been included on the ``daily
margin detail report'' generated by OCC and transmitted to CME.
Positions included in the ``daily margin detail report'' would be
deemed to be the final record of positions in which OCC and CME are
obligated under the Proposed X-M Agreement.
The Service Level Agreement
    As part of the update to the Proposed X-M Agreement, certain
operational terms previously covered in the Existing X-M Agreement
would be addressed in the SLA. For example, this includes provisions
from the Existing X-M Agreement in Section 6 regarding acceptable forms
of collateral, Section 7 regarding the timing, methods and forms of
daily settlement procedures, and Section 15 regarding OCC and CME's
commitment to share information regarding Joint and Affiliated Clearing
Members, banks, and their own financial status. The Proposed X-M
Agreement would address the existence of this SLA in a proposed Section
2, stating that all ``times, methods and forms of deliveries,
notification and consents'' pertaining to the X-M Program and X-M
Accounts are provided for in the SLA. CME and OCC would also agree to
review the SLA at least annually.
Account Structure
    The same basic account structure in Section 2 of the Existing X-M
Agreement would still be used in Section 3 of the Proposed X-M
Agreement. Proprietary and/or non-proprietary paired clearing accounts
would still be established for Joint and Affiliated Clearing Members
that participate in the X-M Program, and OCC and CME would continue to
have a joint security interest in the contracts, margin, and other
property held in the joint accounts. However, as noted above, the
Proposed X-M Agreement would remove all references to X-M Pledge
Accounts because such accounts are no longer in use. Along with
removing all references to such accounts throughout the Proposed X-M
Agreement, Section 3 of the Existing X-M Agreement, entitled
``Establishment of X-M Pledge Accounts,'' would be deleted in its
entirety.
    The Proposed X-M Agreement would also change some of the defined
terms that are used to describe the accounts related to the X-M Program
to describe their purpose more accurately. For example, the
``Proprietary Joint Settlement Account'' and ``Segregated Joint Margin
Account'' would be referred to as the ``Proprietary Joint Margin Cash
Account'' and ``Segregated Joint Margin Cash Account,'' and the
``Proprietary Joint Custody Account'' and ``Segregated Joint Custody
Account'' would be referred to as the ``Proprietary Joint Margin
Custody Account'' and ``Segregated Joint Margin Custody Account.'' The
terms ``Proprietary Bank Account'' and ``Segregated Funds Bank
Account'' would also be added to the defined terms section for
readability and consistency, though they were already used in the body
of the Existing X-M Agreement. The proposed addition of such terms to
the defined terms section would not change for the purposes of the
agreement. The defined term ``Liquidating Accounts'' would also be
added to the agreement to cover the Non-Proprietary and Proprietary
Liquidating Accounts created in the event of a Clearing Member
suspension and liquidation.
Margin and Posted Collateral
    The Proposed X-M Agreement would replace the provisions in Section
5 of the Existing X-M Agreement regarding the methodology for
determining the initial margin requirements for each X-M Account with a
statement that, with respect to each pair of X-M Accounts, the amount
of cash, securities or other property required to be deposited as
collateral would be determined by using OCC's approved margin
methodology, as in effect as of the date of the Proposed X-M Agreement.
As a practical matter, this change would not represent a change from
the existing operation of the X-M Program because, consistent with the
authority in Section 5, CME already elects to use the margin
calculation that is produced by OCC. The Proposed X-M Agreement would
also require OCC to provide 30 calendar days prior notice to CME of any
proposed changes to OCC's margin methodology, and any changes to the
way collateral requirements are calculated with respect to X-M Accounts
would be required to be agreed upon in writing in advance by OCC and
CME. The Proposed X-M Agreement would also specify that OCC and CME
would each determine the net amount of premiums, exercise settlement
amounts, and variation margin due for its respective products because
the determination is made based upon the products cleared by OCC and
CME, and adopts the defined terms ``Net Pay/Collect'' to refer to such
amount. Each clearinghouse would be required to notify the other of the
Net Pay/Collect amount in accordance with the SLA.
    Like under the Existing X-M Agreement, OCC and CME would each still
have the ability to charge additional margin at any amount as it deems
appropriate without the consent of the other and each would be
responsible for determining the adequacy of the margin requirement for
each cross-margin account.
    As discussed above, Section 6 of the Proposed X-M Agreement would
no longer specify the eligible forms of initial margin, instead
referring to the SLA. The SLA would revise the list of eligible
collateral to include cash, treasuries, and letters of credit from pre-
approved U.S. depository institutions, and eliminate the eligibility of
government sponsored entity debt and money market funds. OCC and CME
are proposing to eliminate the eligibility of these instruments
because, in practice, OCC no longer accepts them as collateral for the
X-M Program. This is because no money market mutual funds currently
meet OCC's requirements for such margin assets set forth in OCC Rule
604(b)(3), and OCC's liquidity facilities do not currently accept
government sponsored entity debt as collateral. Consequently, all
references to government sponsored entity debt and money market funds
are removed from the Proposed X-M Agreement. The Proposed X-M Agreement
would also clarify that the more conservative limits

would apply to the extent OCC and CME's rules with respect to
concentration limits for eligible margin differ. Furthermore, if OCC
reduces any of its required haircuts for eligible margin below CME's
required haircuts, OCC is required to provide prompt notice to CME.
    The Proposed X-M Agreement would also provide that OCC and CME
would each be permitted to invest any cash deposited as collateral in
their joint margin cash accounts overnight in certain eligible
investments and with certain custodians, depositories, and
counterparties, as OCC and CME may mutually agree, with each
clearinghouse sharing equally in any proceeds received, or losses
incurred, from such overnight investments. This formalizes the existing
practice of OCC and CME and provides clarity that OCC and CME share
equally in any proceeds or losses from overnight investments.
    Additionally, the Proposed X-M Agreement would no longer use the
term ``Margin'' or ``Initial Margin'' with respect to the collateral
deposited in an X-M Account. Instead, it would use the term ``Posted
Collateral.'' OCC proposes the change because it is a more accurate
characterization of the margin requirement set by OCC's System for
Theoretical Analysis and Numerical Simulations (``STANS'')--which is
the methodology used to determine the collateral requirement for the X-
M Program and does not produce a separate Initial Margin requirement.
References to margin requirements and deficits or surpluses in respect
to such requirements are proposed to be replaced with references to the
defined terms ``Collateral Requirement,'' ``Collateral Deficit,'' and
``Collateral Excess,'' respectively.
Daily Settlement
    Section 7 of the Proposed X-M Agreement would be revised to
increase the time OCC and CME would have to provide approval or non-
approval of revised Settlement Instructions from 15 minutes to 30
minutes. Based on OCC and CME's experience operating the X-M Program,
OCC believes the change from 15 to 30 minutes would provide additional
time which would be useful during the process of performing a full
review of any revised Settlement Instructions and making determinations
for approval or non-approval of the revised Settlement Instructions.
Furthermore, OCC has determined that the proposed change to add
additional time to review revised Settlement Instructions will not
negatively impact on the timing of other processes performed under the
Proposed X-M Agreement.
    As described above, details regarding the timing, methods, and form
of daily settlement in the X-M Accounts have been moved to the SLA, and
Section 7 of the Proposed X-M Agreement would be amended to reflect
that fact. Section 7 would also be amended to conform to existing
reporting practices for OCC and CME with respect to settlement. For
example, under the Existing X-M Agreement each clearing organization
issues a ``Margin and Settlement Report'' to each Joint Clearing Member
or pair of Affiliated Clearing Members for which it is the Designated
Clearing Organization. However, in practice, OCC has been the only
Designated Clearing Organization. Accordingly, the related provisions
would be modified so that the information contained in that report is
only provided by OCC to the Clearing Members. The definition of
``Margin and Settlement Report'' in Section 1 of the Proposed X-M
Agreement is correspondingly modified and would refer to the report
more specifically as the ``Account Summary by Clearing Corporation
Report.''
    The Proposed X-M Agreement would also update Section 7 to provide
for the communication of intra-day instructions to X-M clearing banks
with respect to the X-M Accounts, to facilitate the deposit of
collateral in response to an intra-day margin call from CME or OCC. A
defined term for ``Intra-day Instruction'' would also be added to
Section 1 to accommodate this change.
Suspension and Liquidation
    Section 8 of the Proposed X-M Agreement essentially retains the
Existing X-M Agreement's procedures for the handling of X-M Accounts in
the event of the default of a Joint Clearing Member or pair of
Affiliated Clearing Members, as described above, with certain
modifications. First, paragraphs 8(a) and (b) would be revised to state
more generally that each clearinghouse will follow its own rules with
respect to the default of a Clearing Member; provided, however, that
each clearinghouse would also use its best efforts to coordinate with
the other clearinghouse regarding the liquidation or transfer of
Accepted Transactions. The proposed changes that expressly provide that
each clearinghouse would follow its own rules with respect to the
default of a Clearing Member are not intended to substantively change
the terms in the Existing X-M Agreement. Instead, they are meant to
provide each clearinghouse with greater flexibility to amend their
suspension and liquidation procedures pursuant to the normal rule
change process without having to also amend the Proposed X-M Agreement.
The Proposed X-M Agreement also now expressly contemplates the
potential use of a joint liquidating auction with respect to X-M
Accounts during a Clearing Member default scenario.
    Second, new sections 8(c) and (d) would be added to the Proposed X-
M Agreement to provide that upon the suspension of a defaulted Clearing
Member, the clearinghouses would establish a plan pursuant to which
Accepted Transactions of the Clearing Member would be liquidated or
transferred. The plan would be required, at a minimum, to (i) identify
the primary point of contact at each clearinghouse responsible for
coordinating communications and actions related to the plan; (ii)
current-day settlement information related to the suspended Clearing
Member; and (iii) whether any transactions in addition to Accepted
Transactions would be guaranteed. If by the close of the markets on the
business day that follows the last successful margin collection for the
suspended Clearing Member the clearinghouses do not take action under a
plan or have not otherwise established a plan, then the clearinghouses
would be required to take certain steps to transfer cleared contracts
prior to the open of trading on the next business day. Specifically,
contracts cleared by each respective clearinghouse would be transferred
into an account under its control to allow that clearinghouse to
liquidate or transfer the contracts pursuant to its rules. The closing
prices for the cleared contracts used to determine final proceeds and
any liquidity obligations of the clearinghouses would be the prices as
of the business day that immediately follows the last successful margin
collection for the suspended Clearing Member.
    Third, Section 8 would also be revised to provide that each of OCC
and CME agree to enter into any agreements reasonably necessary to
ensure that the other can obtain liquidity during a default scenario
and will be jointly and equally responsible for providing liquidity to
ensure all obligations of a non-defaulting Clearing Member with respect
to the X-M Accounts on a timely basis. OCC believes this change would
help ensure OCC and CME have sufficient access to liquidity and thereby
provide for efficient and effective default management in the event of
a Clearing Member default.
    Finally, OCC and CME also would agree to conduct joint default
management drills for the cross-margin accounts at least annually. OCC
believes

that this change would promote consistency with the requirement in Rule
17Ad-22(e)(13) that OCC as a covered clearing agency establish,
implement, maintain, and enforce written policies and procedures
reasonably designed to ``[e]nsure the covered clearing agency has the
authority and operational capacity to take timely action to contain
losses and liquidity demands and continue to meet its obligations by,
at a minimum, requiring [its] participants and, when practicable, other
stakeholders to participate in the testing and review of its default
procedures, including any close-out procedure, at least annually and
following material changes thereto.'' \21\
---------------------------------------------------------------------------

    \21\ 17 CFR 240.17Ad-22(e)(13).
---------------------------------------------------------------------------

Miscellaneous Changes
    Regarding other changes, first the ``Recitals'' to the Proposed X-M
Agreement would be updated to reflect OCC and CME's respective SEC and
CFTC registration statuses and designations as systemically important
by the Financial Stability Oversight Council. Related to this, defined
terms would be added for ``FSOC,'' ``Dodd Frank Act,'' ``DCO,''
``Exchange Act,'' and ``SEC.''
    Second, Section 9 of the Proposed X-M Agreement would be amended to
clarify that the requirement that one clearinghouse notify the other
when it becomes subject to a court order to disclose ``confidential
information'' is only required if it is permitted by law.
    Third, Section 10 of the Proposed X-M Agreement would rephrase the
section to only reference Losses because the definition of Losses under
the Proposed X-M Agreement would be revised to include claims and other
potential loss events.
    Fourth, Section 13 of the proposed agreement would change the
process and timing related to termination of the agreement because OCC
and CME believe the revised language would reduce risk in the event of
a termination.
    Fifth, the Proposed X-M Agreement would also revise Section 14, to
clarify that while OCC and CME are not permitted to reject any
transaction effected in an X-M Account without the other's express
consent, this condition would not interfere with their respective
abilities to implement recovery and orderly wind-down plans under their
own rules, as required under Rule 17Ad-22(e)(3)(ii) \22\ and CFTC Rule
39.39(b).\23\
---------------------------------------------------------------------------

    \22\ 17 CFR 240.17Ad-22(e)(3)(ii).
    \23\ 17 CFR 39.39(b).
---------------------------------------------------------------------------

    Sixth, as discussed above in the description of the SLA, Section 15
of the Existing X-M Agreement regarding information sharing between OCC
and CME would be deleted from the Proposed X-M Agreement and moved to
the SLA. OCC believes the more succinctly drafted language in the SLA
maintains consistent rights and/or obligations for OCC and CME to share
information which will continue to allow OCC and CME to efficiently
manage the risks presented by Joint and Affiliated Clearing Members.
    Seventh, Section 15 of the Proposed X-M Agreement regarding
notifications differs from the corresponding provisions in Section 16
of the Existing X-M Agreement, in that it would allow for the use of
electronic mail to satisfy notice requirements, except with respect to
notifications relating to the termination of the Proposed X-M
Agreement. It would also eliminate facsimile as an appropriate method
of communication. OCC believes this change conforms to current
communication procedures and standards and ensures notices will be
received in a timely manner through a communication method that is
monitored regularly.
    Finally, the Proposed X-M Agreement would also add Section 17 to
clarify that each of OCC and CME would be responsible for obtaining
their own regulatory approvals in connection with the implementation of
the Proposed X-M Agreement.
Additional Changes To Defined Terms
    In addition to the proposed and modified defined terms described
above, the Proposed X-M Agreement would make certain additional
modifications to Section 1 of the Existing X-M Agreement. Many of these
are non-substantive, including adding defined terms that are already
used and defined elsewhere in the Existing X-M Agreement but that are
not currently listed in Section 1--e.g., the defined terms ``AAA,''
``Affiliated Clearing Member,'' ``CME Clearing Member,'' ``CME Rules,''
``Confidential Information,'' ``Indemnitor,'' ``Indemnified Party,''
``Losses,'' ``OCC Clearing Member,'' and ``OCC Rules.'' The Proposed X-
M Agreement would also modify the definition of ``Affiliate'' to remove
the statement that 10% ownership of common stock will be deemed prima
facie control of that entity for purposes of determining whether an
entity is under direct or indirect control of a Clearing Member, to
instead reflect that OCC and CME believe that a facts-and-circumstances
approach is more appropriate. The definition of ``Business Day'' would
be modified to provide that when one or more markets on which cleared
contracts trade are closed but banks are open, OCC and CME would each
make their own determination regarding whether and to what extent to
treat any such day as a Business Day for purposes of Section 7 of the
Proposed X-M Agreement regarding daily settlements.
Clearing Member Agreements
    In conjunction with the streamlining efforts at the heart of the
Proposed X-M Agreement, OCC is proposing to consolidate certain of the
template Clearing Member agreements that it maintains for the X-M
Program. As noted above, a Clearing Member that intends to participate
in the X-M Program must execute the appropriate Clearing Member
agreement. Currently, there are six such template agreements, and the
appropriate agreement for the participating Clearing Member depends on
the type of account it will be using as its X-M Account (i.e.,
proprietary, non-proprietary, or market professional) and whether the
Clearing Member will be participating in the X-M Program as a Joint
Clearing Member or with an Affiliated Clearing Member. To maintain
fewer templates and streamline the Clearing Member documentation, the
six template agreements would be consolidated into three. Specifically,
Joint Clearing Members and Affiliated Clearing Members would use the
same template agreement for the appropriate account type (i.e.,
proprietary, non-proprietary, or market professional). The revised
Clearing Member agreements include language providing for OCC and CME's
ability to move positions between Clearing Member accounts, as
necessary, based upon Clearing Member instruction, to maintain
positions in the appropriate account type. The substance of the
agreements is not otherwise being altered.
(2) Statutory Basis
    OCC believes the proposed rule change is consistent with Section
17A of the Act \24\ and the rules thereunder applicable to OCC. Section
17A(b)(3)(F) of the Act requires, among other things, that the rules of
a clearing agency be designed to remove impediments to and perfect the
mechanism of a national system for the prompt and accurate clearance
and settlement of securities transactions.\25\ OCC believes that the
proposal is consistent with this requirement for the following reasons.

The proposed change would improve the clarity and transparency of the
Existing X-M Agreement by moving several of the operational details to
an SLA to produce a more streamlined Proposed X-M Agreement that would
be easier to comprehend. Maintaining a separate SLA would also allow
OCC and CME to more easily review the service levels and modify them as
appropriate without having to amend the entire Proposed X-M Agreement--
improving the ease with which the parties would be able to keep the
legal requirements of X-M Program consistent with evolving operational
needs. Further, as described above, certain aspects of the Existing X-M
Agreement would be clarified to reflect current practice. For example,
the Proposed X-M Agreement would remove provisions related to the X-M
Pledge Accounts to reflect the fact that they are no longer used. Also,
the Proposed X-M Agreement would modify provisions related to the
calculation of the margin requirements for X-M Accounts to reflect the
fact that OCC's margin methodology has historically been and will
continue to be the margin methodology that is used.
---------------------------------------------------------------------------

    \24\ 15 U.S.C. 78q-1.
    \25\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    Section 17A(b)(3)(F) of the Act also requires that the rules of a
clearing agency be designed, in general, to protect investors and the
public interest.\26\ OCC believes the proposal is consistent with this
requirement because, under the Proposed X-M Agreement, the X-M Program
would continue to benefit dual participants with hedged positions at
the respective clearing organizations by permitting them to meet margin
requirements that are based on the risk of the combined positions.
---------------------------------------------------------------------------

    \26\ Id.
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(20) \27\ requires that a covered clearing agency
establish, implement, maintain and enforce written policies and
procedures reasonably designed to ``identify, monitor, and manage risks
related to any link \28\ the covered clearing agency establishes with
one or more other clearing agencies, financial market utilities, or
trading markets.'' OCC and CME have each been designated as
systemically important financial market utilities and OCC believes that
the X-M Program meets the definition of a ``link'' for this purpose.
Replacing the Existing X-M Agreement with a Proposed X-M Agreement that
better reflects OCC and CME's current operational procedures, and which
relocates several of the operational details to an SLA that allows them
to be reviewed and updated on a more regular basis, furthers the
purpose of identifying and managing risks arising from the OCC-CME
linkage and therefore promotes robust risk management and reducing
systemic risk. Accordingly, OCC believes that adopting the Proposed X-M
Agreement is consistent with Rule 17Ad-22(e)(20).\29\
---------------------------------------------------------------------------

    \27\ 17 CFR 240.17Ad-22(e)(20).
    \28\ A ``link'' for purposes of Rule 17Ad-22(e)(20) means ``a
set of contractual and operational arrangements between two or more
clearing agencies, financial market utilities, or trading markets
that connect them directly or indirectly for the purposes of
participating in settlement, cross margining, expanding their
services to additional instruments or participants, or for any other
purposes material to their business.'' [emphasis added.] See 17 CFR
240.17Ad-22(a)(8).
    \29\ 17 CFR 240.17Ad-22(e)(20).
---------------------------------------------------------------------------

    OCC also believes that the proposed change would promote compliance
with Rule 17Ad-22(e)(1),\30\ which requires OCC as a covered clearing
agency to establish, implement, maintain, and enforce written policies
and procedures reasonably designed to ``provide for a well-founded,
clear, transparent, and enforceable legal basis for each aspect of its
activities in all relevant jurisdictions.'' The Proposed X-M Agreement
would move several of the operational details regarding the X-M
Accounts to a standalone SLA, which OCC believes would produce a more
streamlined Proposed X-M Agreement that would be easier to comprehend.
The proposed change would also allow OCC and CME to more easily review
the service levels and modify them as appropriate without having to
amend the entire Proposed X-M Agreement--thereby promoting the ability
of the parties to keep the agreements that are the legal basis for the
X-M Program consistent with evolving operational needs. Accordingly,
OCC believes that the proposed change is consistent with Rule 17Ad-
22(e)(1).
---------------------------------------------------------------------------

    \30\ 17 CFR 240.17Ad-22(e)(1).
---------------------------------------------------------------------------

    OCC further believes that the proposed change would promote
compliance with Rule 17Ad-22(e)(13),\31\ which requires OCC as a
covered clearing agency to establish, implement, maintain, and enforce
written policies and procedures reasonably designed to ``ensure [it]
has the authority and operational capacity to take timely action to
contain losses and liquidity demands and continue to meet its
obligations by, at a minimum, requiring [its] participants and, when
practicable, other stakeholders to participate in the testing and
review of its default procedures, including any close-out procedures,
at least annually and following material changes thereto.'' The
Proposed X-M Agreement specifically requires OCC and CME to conduct
joint default management drills with respect to the X-M Account at
least annually. It also includes new language providing that each of
OCC and CME will enter into any agreements reasonably necessary to
ensure that the other can obtain liquidity during a default scenario
and that they will be jointly and equally responsible for providing
liquidity to ensure all obligations of non-defaulting Clearing Members
with respect to the X-M Accounts on a timely basis. These changes are
specifically designed to ensure OCC and CME retain operational capacity
with respect to the X-M Program during a Clearing Member default, and
OCC accordingly believes they are consistent with Rule 17Ad-22(e)(13).
---------------------------------------------------------------------------

    \31\ 17 CFR 240.17Ad-22(e)(13).
---------------------------------------------------------------------------

    OCC also believes that the proposed change would promote compliance
with Rule 17Ad-22(e)(17),\32\ which requires OCC as a covered clearing
agency to establish, implement, maintain, and enforce written policies
and procedures reasonably designed to ``manage the covered clearing
agency's operational risks by,'' among other things, ``identifying the
plausible sources of operational risk . . . and mitigating their impact
through the use of appropriate systems, policies, procedures, and
controls [and] ensuring that systems have a high degree of security,
resiliency, operational reliability, and adequate, scalable capacity.''
As described above, certain aspects of the Existing X-M Agreement do
not reflect current operational realities with respect to the X-M
Program, which potentially could be a source of operational risk to
OCC. OCC believes that the Proposed X-M Agreement would reduce this
potential source of operational risk by removing and updating
provisions and requirements that are out of date, like those related to
determining the margin requirements for an X-M Account or various
required methods of communication and notification. Accordingly, OCC
believes that the proposed change is consistent with Rule 17Ad-
22(e)(17). In these ways, OCC believes the proposed changes are
consistent with Section 17A(b)(3)(F) of the Act \33\ and Rules 17Ad-
22(e)(1), (13), (17), and (20).\34\
---------------------------------------------------------------------------

    \32\ 17 CFR 240.17Ad-22(e)(17).
    \33\ 15 U.S.C. 78q-1(b)(3)(F).
    \34\ 17 CFR 240.17Ad-22(e)(1), (13), (17), and (20).

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

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

    Section 17A(b)(3)(I) of the Act \35\ 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 proposal would impose any burden on competition.\36\
The primary purpose of the proposed rule change is to update and
clarify the existing X-M Agreement to reflect current practices and
also streamline Clearing Member agreements. The proposed rule change
would not affect any individual Clearing Member's current rights or
ability to access OCC services or disadvantage or favor any particular
user in relationship to another. As such, OCC believes that the
proposed changes would not have any impact or impose any burden on
competition.
---------------------------------------------------------------------------

    \35\ 15 U.S.C. 78q-1(b)(3)(I).
    \36\ Id.
---------------------------------------------------------------------------

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

    Written comments were not and are not intended to be solicited with
respect to the proposed change and none have been received. OCC will
notify the Commission of any written comments received by OCC.

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_ADDRESS>Please include
File Number SR-OCC-2020-011 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-2020-011. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of such filing also will be available for inspection
and copying at the principal office of OCC and on OCC's website at
https://www.theocc.com/Company-Information/Documents-and-Archives/By-Laws-and-Rules#rule-filings.
    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-2020-011 and
should be submitted on or before October 28, 2020.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\37\
---------------------------------------------------------------------------

    \37\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-22096 Filed 10-6-20; 8:45 am]
BILLING CODE 8011-01-P