[Federal Register Volume 83, Number 44 (Tuesday, March 6, 2018)]
[Notices]
[Pages 9562-9564]
[FR Doc No: 2018-04484]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82793; File No. SR-OCC-2018-004]

Self-Regulatory Organizations; The Options Clearing Corporation;
Suspension of and Order Instituting Proceedings To Determine Whether To
Approve or Disapprove the Proposed Rule Change To Revise The Options
Clearing Corporation's Schedule of Fees

February 28, 2018.

I. Introduction

    On January 19, 2018, The Options Clearing Corporation (``OCC'')
filed with the Securities and Exchange Commission (``Commission'') a
proposed rule change, File No. SR-OCC-2018-004, pursuant to Section
19(b)(1) of the Securities Exchange Act of 1934 (``Act''),\1\ and Rule
19b-4 thereunder.\2\ The proposed rule change was immediately effective
upon filing with the Commission pursuant to Section 19(b)(3)(A) of the
Act.\3\ The proposed rule change was published for comment in the
Federal Register on February 2, 2018.\4\ Under Section 19(b)(3)(C) of
the Act,\5\ the Commission is hereby: (i) Temporarily suspending File
No. SR-OCC-2018-004; and (ii) instituting proceedings to determine
whether to approve or disapprove File No. SR-OCC-2018-004.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ Securities Exchange Act Release No. 82596 (Jan. 30, 2018),
83 FR 4944 (Feb. 2, 2018) (SR-OCC-2018-004) (``Notice'').
    \5\ 15 U.S.C. 78s(b)(3)(C).
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II. Description of the Proposed Rule Change

    The proposed rule change by OCC would revise OCC's Schedule of Fees
effective March 1, 2018 to implement an increase in clearing fees in
accordance with OCC's Fee Policy,\6\ which was adopted as part of its
plan to raise additional capital (``Capital Plan'').\7\ As stated in
the Notice, OCC filed the proposed rule change to revise OCC's Schedule
of Fees in accordance with its Fee Policy and set fees at a level
designed to cover OCC's operating expenses and maintain a Business Risk
Buffer of 25%.\8\
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    \6\ See Notice at 4944-45. OCC also filed a proposed rule change
with the Commission to revise its Fee Policy to provide that
proposed fee changes are required to be implemented no sooner than
thirty (30) days from the date of filing of the proposed rule change
concerning such fee change (as opposed to sixty (60) days). See
Securities Exchange Act Release No. 82576 (Jan. 24, 2018), 83 FR
4324 (Jan. 30, 2018) (SR-OCC-2018-001). OCC submitted the proposed
changes to its Fee Policy to the Commodity Futures Trading
Commission (``CFTC'') under CFTC Regulation 40.6. OCC stated that
implementation of the proposed fee change on March 1, 2018 would
require either: (i) Commission approval of SR-OCC-2018-001 and
certification of the Fee Policy changes in SR-OCC-2018-001 under
CFTC Regulation 40.6 or (ii) an exception to the 60-day notice
period provision in the Fee Policy authorized by OCC's Board of
Directors and the holders of all of the outstanding Class B Common
Stock of OCC.
    \7\ See Securities Exchange Act Release No. 77112 (February 11,
2016), 81 FR 8294 (February 18, 2016) (SR-OCC-2015-02) (``Approval
Order''). The Capital Plan was later subject to judicial review by
the U.S. Court of Appeals for the District of Columbia Circuit
(``D.C. Circuit''), which remanded the Approval Order to the
Commission to further analyze whether the Capital Plan is consistent
with the Act. Susquehanna Int'l Grp., LLP v. SEC, 866 F.3d 442 (D.C.
Cir. 2017). The Commission's review of the Plan on remand is
ongoing, and the Capital Plan remains in effect during this ongoing
review.
    \8\ See Notice at 4944-45. The Business Risk Buffer is an amount
of fee revenue that OCC targets above its anticipated operating
expenses to allow for unexpected fluctuations in operating expenses,
business capital needs, and regulatory capital requirements.
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    OCC stated that it recently reviewed its current Schedule of Fees
\9\ against projected revenues and expenses for 2018 in accordance with
its Fee Policy to determine whether the Schedule of Fees was sufficient
to cover OCC's anticipated operating expenses and achieve the Business
Risk Buffer. OCC stated that it analyzed: (i) Expenses budgeted for
2018; (ii) projected other revenue streams for 2018; (iii) projected
volume mix; and (iv) projected volume growth for 2018. After this
review, OCC determined that the current fee schedule is set at a level
that would be insufficient to ensure that OCC achieves its Business
Risk Buffer as required under the Fee Policy.\10\ OCC stated that it
arrived at the proposed fee schedule below by determining the figures
that provide the best opportunity for OCC to achieve coverage of its
anticipated operating expenses plus a Business Risk Buffer.
Accordingly, OCC proposed the Schedule of Fees set forth in the table
below:
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    \9\ OCC previously revised its Schedule of Fees effective
December 1, 2016, to implement a fee increase in accordance with the
Fee Policy. See Securities Exchange Act Release No. 79028 (October
3, 2016), 81 FR 69885 (October 7, 2016) (SR-OCC-2016-012).
    \10\ OCC provided a summary of its analysis in a confidential
Exhibit 3 to the filing.

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                     Current fee schedule                                    Proposed fee schedule
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                                                                   Trades with
      Trades with contracts of:             Current fee           contracts of:             Proposed fee
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1-1,100.............................  $0.050/contract........             1-1,018  $0.054/contract.
>1,100..............................  $55/trade..............              >1,018  $55/trade.
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    OCC proposed to modify its Schedule of Fees to: (i) Increase its
per contract clearing fee from $0.050 to $0.054 per contract; and (ii)
adjust the quantity of contracts at which the fixed, per trade clearing
fee begins from greater than 1,100 contracts per trade to greater than
1,018 contracts per trade. OCC stated that the proposed changes are
designed to target a level of revenues sufficient to cover OCC's
operating expenses plus the Business Risk Buffer while continuing to
maintain its existing fixed, per trade, fee at $55 per trade.
    OCC stated that in accordance with its Fee Policy, OCC will
continue to monitor cleared contract volume and operating expenses to
determine if further revisions to OCC's Schedule of Fees are required
so that monies received from clearing fees cover its operating expenses
plus the Business Risk Buffer.\11\
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    \11\ Any subsequent changes to OCC's Schedule of Fees would be
the subject of a subsequent proposed rule change filed with the
Commission.
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III. Summary of Comment Received

    On February 22, 2018, the Commission received a comment letter on
the proposed rule change from Susquehanna International Group, LLP
(``SIG'').\12\ In the comment letter, SIG expressed concern regarding
whether the information provided by OCC in the Notice was sufficient to
allow for meaningful public comment on the proposal.\13\ Specifically,
SIG asserted that OCC's Shareholder Exchanges are incented to
overestimate OCC's expenses, because such overestimation would lead to
increased dividends.\14\ SIG asserted further that, without access to
the expense projections filed as a confidential exhibit to the proposed
rule change, the public has no basis to believe that the proposed fee
increase is reasonable and no ability to comment critically on OCC's
supporting analysis.\15\ In addition, SIG characterized OCC's proposal
to increase fees as a negative consequence of the Capital Plan.\16\
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    \12\ See letter from Richard J. McDonald, SIG, dated February
14, 2018, to Brent J. Fields, Secretary, Commission (``SIG
Letter''). See comments on the proposed rule change (SR-OCC-2018-
004), https://www.sec.gov/comments/sr-occ-2018-004/occ2018004.htm.
    \13\ SIG Letter at 2.
    \14\ SIG Letter at 3. OCC is owned by Chicago Board Options
Exchange, Incorporated (``CBOE''); International Securities
Exchange, LLC; NASDAQ OMX PHLX, LLC; NYSE American LLC; and NYSE
Arca, Inc. See Approval Order at 8294.
    \15\ SIG Letter at 2.
    \16\ Id. at 1. OCC's Board of Directors decided that OCC was
significantly undercapitalized, and, therefore, proposed an
expedited plan to substantially increase OCC's capitalization. See
Approval Order at 8294. Subsequent to the Approval Order, parties,
including SIG, filed a petition for review of the Approval Order in
the DC Circuit, challenging the Commission's Approval Order. The DC
Circuit ultimately remanded the case to the Commission for further
proceedings without reaching the merits of the Capital Plan.
Susquehanna, 866 F.3d at 443. The court did not vacate the Approval
Order prior to remand, instead leaving the Capital Plan in place and
remanding to give the Commission an opportunity to reevaluate the
Capital Plan. Id. at 451. As noted above, the Commission's
reconsideration of the Capital Plan is ongoing.
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IV. Suspension of File No. SR-OCC-2018-004

    Pursuant to Section 19(b)(3)(C) of the Act,\17\ at any time within
60 days of the date of filing of a proposed rule change pursuant to
Section 19(b)(1) of the Act,\18\ the Commission summarily may
temporarily suspend the change in the rules of a self-regulatory
organization if it appears to the Commission that such action is
necessary or appropriate in the public interest, for the protection of
investors, or otherwise in furtherance of the purposes of the Act. As
discussed further below, the Commission believes a temporary suspension
of the proposed rule change is warranted here to allow for additional
analysis of the proposed rule change's consistency with the Act and the
rules thereunder. In particular, the Commission finds that it is
appropriate in the public interest, for the protection of investors,
and otherwise in furtherance of the purposes of the Act, to temporarily
suspend the proposed rule change to consider whether the proposed rule
change satisfies the standards under the Act and the rules thereunder
requiring, among other things, that clearing agency rules provide for
the equitable allocation of reasonable dues, fees and other charges
among its participants.
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    \17\ 15 U.S.C. 78s(b)(3)(C).
    \18\ 15 U.S.C. 78s(b)(1).
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V. Proceedings To Determine Whether To Approve or Disapprove File No.
SR-OCC-2018-004

    The Commission is instituting proceedings pursuant to Sections
19(b)(3)(C) \19\ and 19(b)(2)(B) of the Act \20\ to determine whether
the proposed rule change should be approved or disapproved.
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    \19\ 15 U.S.C. 78s(b)(3)(C). Once the Commission temporarily
suspends a proposed rule change, Section 19(b)(3)(C) of the Act
requires that the Commission institute proceedings under Section
19(b)(2)(B) to determine whether a proposed rule change should be
approved or disapproved.
    \20\ 15 U.S.C. 78s(b)(2)(B).
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    Institution of proceedings does not indicate that the Commission
has reached any conclusions with respect to any of the issues involved.
Rather, the Commission seeks and encourages interested persons to
provide additional comment on the proposed rule change to inform the
Commission's analysis of whether to disapprove the proposed rule
change.
    Pursuant to Section 19(b)(2)(B) of the Act,\21\ the Commission is
providing notice of the grounds for disapproval under consideration. As
noted above, the Fee Policy to which the proposed rule change relates
was adopted as part of OCC's Capital Plan, and the Capital Plan remains
subject to Commission review.\22\ The commenter asserts that the fee
increase contradicts previous statements by OCC regarding ``OCC's
assurances of low fees in its Capital Plan submissions,'' calls into
question the consistency of the Capital Plan with the Act, and is
otherwise without basis.\23\ The Commission believes it is appropriate
to institute proceedings to assess whether the considerations currently
before the Commission in connection with its review of the Capital Plan
on remand are implicated by the issues raised by the proposed fee
change.\24\ Moreover, the commenter

argues that, without access to the information provided by OCC on a
confidential basis, the public cannot ``meaningfully comment on the
propriety of the proposed fee increase.'' \25\ The Commission is also
instituting proceedings to allow for additional consideration and
comment on this and other issues raised by the commenter. Finally, the
Commission believes that OCC's proposed rule change raises questions as
to whether it is consistent with Section 17A(b)(3)(D) of the Act,\26\
which requires clearing agency rules to provide for the equitable
allocation of reasonable dues, fees and other charges among its
participants.
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    \21\ 15 U.S.C. 78s(b)(2)(B).
    \22\ See supra note 7.
    \23\ SIG Letter at 2.
    \24\ The Commission notes that one of the issues before us in
considering the Capital Plan is the contention by some of those
commenting on the Plan that the Plan will lead to an increase in
fees. In responding to these comments in our initial approval of the
Plan, we observed that ``[t]he Exchange Act rule filing requirements
for fee changes provide an opportunity for public comment and an
opportunity for the Commission to review the change, summarily
suspend it and institute proceedings to ultimately approve or
disapprove the change, as applicable, to ensure an SRO's rules meet
regulatory requirements.'' See Approval Order at 8303.
    \25\ SIG Letter at 3.
    \26\ 17 CFR 240.17Ad-22(d)(7).
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VI. Request for Written Comments

    The Commission requests that interested persons provide written
submissions of their views, data, and arguments with respect to the
proposed fee change. In particular, the Commission invites the written
views of interested persons concerning whether the proposed fee change
is consistent with Section 17A(b)(3)(D) of the Act \27\ or any other
provision of the Act, rules, and regulations thereunder. 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:
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    \27\ 15 U.S.C. 78q-1(b)(3)(D).
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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-OCC-2018-004 on the subject line.

Paper Comments

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

All submissions should refer to File No. SR-OCC-2018-004. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of such filing also will be available for inspection
and copying at the principal office of OCC and on OCC's website at
https://www.theocc.com/about/publications/bylaws.jsp.
    All comments received will be posted without change. Persons
submitting comments are cautioned that we do not redact or edit
personal identifying information from comment submissions. You should
submit only information that you wish to make available publicly.
    All submissions should refer to File No. SR-OCC-2018-004 and should
be submitted on or before March 27, 2018. Any person who wishes to file
a rebuttal to any other person's submission must file that rebuttal on
or before April 10, 2018.

VII. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(3)(C) of the
Act,\28\ that File No. SR-OCC-2018-004, be and hereby is, temporarily
suspended. In addition, the Commission is instituting proceedings to
determine whether the proposed rule changes should be approved or
disapproved.
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    \28\ 15 U.S.C. 78s(b)(3)(C).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-04484 Filed 3-5-18; 8:45 am]
BILLING CODE 8011-01-P