[Federal Register Volume 84, Number 228 (Tuesday, November 26, 2019)]
[Notices]
[Pages 65202-65204]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-25587]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87577; File No. SR-OCC-2019-008]
Self-Regulatory Organizations; the Options Clearing Corporation;
Order Approving Proposed Rule Change To Establish a Regulatory
Committee of the Options Clearing Corporation's Board of Directors
November 20, 2019.
I. Introduction
On September 25, 2019, the Options Clearing Corporation (``OCC'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change SR-OCC-2019-008 (``Proposed Rule Change'')
pursuant to Section 19(b) of the Securities Exchange Act of 1934
(``Exchange Act'') \1\ and Rule 19b-4 \2\ thereunder to establish a new
committee under OCC's Board of Directors.\3\ The Proposed Rule Change
was published for public comment in the Federal Register on October 9,
2019.\4\ The Commission has received no comments regarding the Proposed
Rule Change. This order approves the Proposed Rule Change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Notice of Filing infra note 4, at 84 FR 54240.
\4\ Securities Exchange Act Release No. 87207 (Oct. 3, 2019), 84
FR 54239 (Oct. 9, 2019) (SR-OCC-2019-008) (``Notice of Filing'').
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II. Background
OCC proposes to establish the OCC Regulatory Committee
(``Committee'') and adopt the OCC Regulatory Committee Charter
(``Committee Charter''). The Committee would be composed solely of
members of OCC's Board of Directors (``Board''). To facilitate the
establishment of the Committee, OCC also proposes to amend Article III,
Section 4 of the OCC By-Laws (``By-Laws'') and the OCC Board of
Directors Charter and Corporate Governance Principles (``Board
Charter'').
Specifically, OCC proposes to amend the Board Charter and Article
III, Section 4 of OCC's By-Laws to list the Committee alongside the
other OCC Board committees. OCC also proposes to amend its By-Laws
consistent with the Committee Charter regarding the delegation of
authority from the Board to the Committee as well as the composition of
the Committee. The Committee Charter would further define the scope of
the Committee's authority. For example, the Committee Charter would
authorize the Committee to access OCC's books, records, facilities and
personnel and to hire specialists or rely upon other outside advisors.
Consistent with the charters of OCC's other Board-level
committees,\5\ the Committee Charter would define the purpose and
functions of the Committee and would set out requirements related to
the composition and meetings of the Committee, which would, in part,
relate to the governance arrangements supporting OCC's compliance with
its regulatory obligations. For example, in defining the Committee's
purpose, the Committee Charter would state that the Board established
the Committee to assist in overseeing OCC's efforts to demonstrate
compliance with its regulatory obligations. The functions and
responsibilities with which the Committee would be charged under the
Committee Charter would include (1) overseeing OCC management's action
plans to achieve compliance with any proposed new regulation; (2)
meeting with regulators to discuss OCC's efforts to enhance its
regulatory compliance posture; (3) reviewing annual regulatory
compliance reports provided by OCC management; and (4) reviewing
documents related to examinations conducted by OCC's regulators (e.g.,
examination report letters provided by regulators, responses to such
letters from OCC). Regarding the composition and meetings of the
Committee, the Committee would be composed of all OCC Public Directors,
and the Committee would be obligated to meet at least quarterly and to
maintain minutes of all Committee meetings.\6\
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\5\ See Securities Exchange Act Release 84473 (Oct. 23, 2019),
83 FR 54385 (Oct. 29, 2018) (SR-OCC-2018-012).
\6\ The Committee Charter would permit the Committee's Chair to
determine whether to record minutes of any executive session called
by the Committee.
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The proposed Committee Charter would also clearly describe direct
lines of responsibility between the Committee and, as appropriate,
either the Board or members of OCC's management team. For example, the
Committee Charter would require that the Committee make such reports to
the Board as deemed necessary or advisable. The Committee Charter would
also require that OCC's Chief Compliance Officer (``CCO''), or one of
his or her deputies if the CCO is unavailable, attend meetings of the
Committee. Additionally, the Committee Charter would require the
Committee to review its charter at least once every twelve months and
submit the Committee Charter to the Board for approval.
III. Discussion and Commission Findings
Section 19(b)(2)(C) of the Exchange Act directs the Commission to
approve a proposed rule change of a self-regulatory organization if it
finds that such proposed rule change is consistent with the
requirements of the Exchange Act and the rules and regulations
thereunder applicable to such organization.\7\ After carefully
considering the Proposed Rule Change, the Commission finds that the
proposal is consistent with the requirements of the Exchange Act and
the rules and regulations thereunder applicable to OCC. More
specifically, the Commission finds that the proposal is consistent
[[Page 65203]]
with Section 17A(b)(3)(F) of the Exchange Act \8\ and Rule 17Ad-
22(e)(2) thereunder.\9\
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\7\ 15 U.S.C. 78s(b)(2)(C).
\8\ 15 U.S.C. 78q-1(b)(3)(F).
\9\ 17 CFR 240.17Ad-22(e)(2).
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A. Consistency With Section 17A(b)(3)(F) of the Exchange Act
Section 17A(b)(3)(F) of the Exchange Act requires, among other
things, that the rules of a clearing agency be designed to, in general,
protect investors and the public interest.\10\ Based on its review of
the record, the Commission believes that the proposed changes are
designed to, in general, protect investors and the public interest for
the reasons set forth below.
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\10\ 15 U.S.C. 78q-1(b)(3)(F).
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The Committee, as described in the Proposed Rule Change, would be
established to assist the Board in overseeing OCC's efforts to
demonstrate compliance with its regulatory obligations. The Committee's
responsibilities would include meeting with regulators as well as
reviewing compliance reports and materials related to examinations
conducted by OCC's regulators. Moreover, the Committee Charter and By-
Laws would require that the Committee be composed of OCC's Public
Directors. The Commission believes that establishing a Board-level
committee for the purpose of overseeing OCC's efforts to demonstrate
compliance with its regulatory obligations would help ensure that such
efforts are being reviewed and overseen at appropriately senior levels
within the organization, which in turn should enhance OCC's efforts to
demonstrate compliance with its regulatory obligations.
Further, the proposed Committee Charter would clearly define the
authority and function of the Committee. For example, the Committee
Charter would provide the Committee with authority to (1) act on the
behalf of the Board; (2) access OCC's books, records, facilitates and
personnel; and (3) hire specialists or rely upon outside advisors. The
authority described in the proposed Committee Charter would be
consistent with the authority granted to OCC's other Board-level
committees.\11\ The Committee Charter would also clearly describe the
Committee's obligations regarding meeting frequency, minutes, and
reporting. Further, the Committee would be obligated to review the
Committee Charter at least once every twelve months. Formally defining
the Committee's characteristics in this manner--consistent with the
characteristics of OCC's other Board-level committees--should help
ensure that the Committee is imbued with and sustains a level of
attention and stature consistent with that of OCC's other Board-level
committees, which in turn should enhance the Committee's ability to
achieve its stated mission of supporting OCC's efforts to demonstrate
compliance with its regulatory obligations.
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\11\ See Securities Exchange Act Release 84473 (Oct. 23, 2019),
83 FR 54385 (Oct. 29, 2018) (SR-OCC-2018-012).
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The Commission believes generally that a clearing agency's
compliance the applicable securities laws protects investors and the
public interest. As discussed above, the Commission believes that the
Proposed Rule Change is designed to ensure that the Committee's work
will be reviewed, supervised, and supported at the Board level, which
in turn should enhance the Committee's ability to achieve its stated
goal of supporting OCC's efforts to demonstrate compliance with its
regulatory obligations. The Commission believes, therefore, that OCC's
proposal to establish a Board-level Regulatory Committee is consistent
with, in general, protecting investors and the public interest
consistent with the requirements of Section 17A(b)(3)(F) of the
Exchange Act.\12\
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\12\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rule 17Ad-22(e)(2) Under the Exchange Act
Rule 17Ad-22(e)(2) under the Exchange Act requires that a covered
clearing agency establish, implement, maintain, and enforce written
policies and procedures reasonably designed to provide for governance
arrangements that address certain criteria.\13\ Rules 17Ad-22(e)(2)(i)
and (v) under the Exchange Act require that such governance
arrangements are clear and transparent and specify clear and direct
lines of responsibility.\14\ Further, the Commission has expressed the
belief that policies and procedures specifying clear and direct lines
of responsibility should generally entail documenting the
responsibilities of the board of directors and senior management.\15\
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\13\ 17 CFR 240.17Ad-22(e)(2).
\14\ 17 CFR 240.17Ad-22(e)(2)(i) and 17 CFR 240.17Ad-
22(e)(2)(v).
\15\ See Securities Exchange Act Release No. 78961 (Sep. 28,
2016), 81 FR 70786, 70804 (Oct. 13, 2016) (S7-03-14) (``Covered
Clearing Agency Standards'').
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As described above, OCC proposes amend its By-Laws and Board
Charter to list the Committee among OCC's other Board-level committees
and to specify the required composition of the Committee. Additionally,
the Committee Charter would clearly define the authority and function
of the Committee. For example, the Committee Charter would provide the
Committee with authority to (1) act on the behalf of the Board; (2)
access OCC's books, records, facilitates and personnel; and (3) hire
specialists or rely upon outside advisors. The Committee Charter would
also obligate OCC's CCO, or one of his or her deputies if the CCO is
unavailable, to attend meetings of the Committee. Moreover, the
Committee Charter would obligate the Committee to review its charter at
least once every twelve months and submit the Committee Charter to the
Board for approval. The Commission believes, therefore, that the
changes to OCC's By-Laws and Board Charter as well as the
organizational aspects of the proposed Committee Charter are consistent
with Exchange Act Rule 17Ad-22(e)(2)(i) and (v).\16\
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\16\ 17 CFR 240.17Ad-22(e)(2)(i) and 17 CFR 240.17Ad-
22(e)(2)(v).
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Rule 17Ad-22(e)(2)(iii) under the Exchange Act requires, in part,
that the governance arrangements required by Rule 17Ad-22(e)(2) support
the public interest requirements in Section 17A of the Exchange Act
applicable to clearing agencies.\17\
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\17\ 17 CFR 240.17Ad-22(e)(2)(iii).
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As described above, certain aspects of the Committee Charter relate
to the governance of OCC's compliance with its regulatory obligations.
For example, the Committee Charter would state that the Committee was
established to assist the Board in overseeing OCC's efforts to
demonstrate compliance with its regulatory obligations. The Committee's
functions and responsibilities, as specified in the Committee Charter,
would include meeting with regulators to discuss OCC's efforts to
enhance it compliance posture and reviewing reports related to OCC's
compliance posture (e.g., annual regulatory compliance reports provided
by OCC management, final exam report letters from OCC's regulators, and
OCC's response to regulatory examination letters). As discussed above,
the Commission believes OCC's proposal to establish a Board-level
Regulatory Committee is consistent with, in general, protecting
investors and the public interest consistent with the requirements of
Section 17A(b)(3)(F) of the Exchange Act.\18\ The Commission believes,
therefore, that the establishment of the Committee through a detailed
charter document is consistent with Exchange Act Rule 17Ad-
22(e)(2)(iii).\19\
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\18\ 15 U.S.C. 78q-1(b)(3)(F).
\19\ 17 CFR 240.17Ad-22(e)(2)(iii).
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IV. Conclusion
On the basis of the foregoing, the Commission finds that the
Proposed Rule Change is consistent with the requirements of the
Exchange Act, and in particular, the requirements of Section 17A of the
Exchange Act \20\ and the rules and regulations thereunder.
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\20\ In approving this Proposed Rule Change, the Commission has
considered the proposed rules' impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Exchange Act,\21\ that the Proposed Rule Change (SR-OCC-2019-008) be,
and hereby is, approved.
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\21\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-25587 Filed 11-25-19; 8:45 am]
BILLING CODE 8011-01-P