2018-16533. Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Partial Amendments No. 1 and 2 to Proposed Rule Change Concerning Updates to and Formalization of OCC's Recovery and Orderly Wind-Down Plan

July 27, 2018.

On December 8, 2017, The Options Clearing Corporation (“OCC”) filed with the Securities and Exchange Commission (“Commission”) proposed rule change SR-OCC-2017-021 (“Proposed Rule Change”) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”),^[1] and Rule 19b-4 thereunder,^[2] concerning enhanced and new tools for recovery scenarios.^[3] The Proposed Rule Change was published for comment in the Federal Register on December 26, 2017.^[4] On March 22, 2018, the Commission instituted proceedings under Section 19(b)(2)(B)(i) of the Act ^[5] to determine whether to approve or disapprove the Proposed Rule Change.^[6] On June 20, 2018 the Commission designated a longer period for Commission action on proceedings to determine whether to approve or disapprove the Proposed Rule Change.^[7] On July 11, 2018, OCC filed Partial Amendment No. 1 to the Proposed Rule Change. On July 13, 2018, OCC filed Partial Amendment No. 2 to the Proposed Rule Change to supersede and replace Partial Amendment No. 1 in its entirety, due to technical defects in Partial Amendment No. 1. Therefore, the Initial Filing, as modified by Amendment No. 2, reflects the changes proposed.

Pursuant to Section 19(b)(1) of the Act ^[8] and Rule 19b-4 thereunder ^[9] the Commission is publishing notice of these Partial Amendments No. 1 and 2 to the Proposed Rule Change as described in Items I and II below, which Items have been prepared by OCC. The Commission is publishing this notice to solicit comments on the Proposed Rule Change, as modified by Amendments No. 1 and 2, from interested persons.

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

This Partial Amendment No. 2 would make the following three amendments to the Initial Filing: (1) Removal of sections of the RWD Plan concerning OCC's proposed authority to require cash settlement of certain physically delivered options and single stock futures; (2) updating the list of OCC's Critical Support Functions; ^[10] and (3) making three changes to Chapter 5 of the RWD Plan in order to conform to a change contemporaneously proposed in Amendment No. 2 to OCC proposed rule change SR-OCC-2017-020 concerning enhanced and new tools for recovery scenarios.^[11]

With regard to the removal of sections of the RWD Plan concerning OCC's proposed authority to require cash settlement of certain physically delivered options and single stock futures, OCC proposes to amend the following text on pages 16 and 55-56 of the Initial Filing (new text is underlined and proposed deletions are marked in strikethrough text).

OCC also proposes to amend the following text on pages 22-23 and 61-63 of the Initial Filing (including associated footnotes).

OCC plans to resubmit the proposed cash settlement tool previously filed in SR-OCC-2017-018 and SR-OCC-2017-807 on a separate timeline from the rest of its enhanced and new tools for recovery scenarios and would submit a subsequent filing to the Commission to amend the RWD Plan at that time.

In addition, OCC proposes to make the following amendments on pages 32 and 72 of the Initial Filing.

With regard to updating the list of OCC's Critical Support Functions, the amendment would revise OCC's RWD Plan to consistently identify one of OCC's internal functions as a Critical Support Function.

Finally, OCC proposes to make two changes to Chapter 5 of the RWD Plan, which would align an exhibit, a related list and a related paragraph with the certain changes OCC is contemporaneously proposing in Amendment No. 2 to proposed rule change SR-OCC-2017-020 concerning enhanced and new tools for recovery scenarios.^[12] Specifically, OCC would change the aforementioned exhibit, list and paragraph in Chapter 5 to recognize that while OCC does not intend, in the first instance for its tear-up process to serve as a means of loss allocation, circumstances may arise such that, despite best efforts, OCC has inadequate remaining financial resources to extinguish torn-up positions at their assigned Tear-Up Price without forcing a reduction in the amount of unpaid value of such positions (e.g., despite best efforts, market movements not accounted for by monitoring, additional Clearing Member defaults occur immediately preceding a tear-up). In such circumstances, despite best efforts, OCC would use its partial tear-up process as a means of loss allocation.

OCC has included an updated Exhibit 5 containing its RWD Plan as well as an Exhibit 4 showing the changes proposed in this Partial Amendment No. 2 to the proposed rule text in the Initial Filing, with the proposed changes in the Initial Filing marked in underlined and strikethrough text. Exhibits 4 and 5 have been redacted and filed separately with the Commission and confidential treatment for Exhibits 4 and 5 is requested pursuant to 17 CFR 240.24b-2.

The partial amendment would not change the purpose of or basis for the proposed rule change. All other representations in the Initial Filing remain as stated therein and no other changes are being made.

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

As the Commission stated in Securities Exchange Act Release No. 83485, the Commission shall by order approve or disapprove the proposed rule change by August 23, 2018.^[13]

III. 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 Commissions internet comment form (http://www.sec.gov/​rules/​sro.shtml); or
• Send an email to [e-mail]. Please include File Number SR-OCC-2017-021 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-OCC-2017-021. 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 http://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 or 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-2017-021 and should be submitted on or before August 17, 2018.

For the Commission by the Division of Trading and Markets, pursuant to delegated authority.^[14]

Robert W. Errett,

Deputy Secretary.

Footnotes

1.  15 U.S.C. 78s(b)(1).

2.  17 CFR 240.19b-4.

3.  On December 8, 2017, OCC also filed a related advance notice (SR-OCC-2017-810) with the Commission pursuant to Section 806(e)(1) of Title VIII of the Dodd-Frank Wall Street Reform and Consumer Protection Act, entitled the Payment, Clearing, and Settlement Supervision Act of 2010 and Rule 19b-4(n)(1)(i) under the Act (“Advance Notice”). 12 U.S.C. 5465(e)(1) and 17 CFR 240.19b-4(n)(1)(i), respectively. The Advance Notice was published in the Federal Register on January 23, 2018. Securities Exchange Act Release No. 82513 (Jan. 17, 2018), 83 FR 3224 (Jan. 23, 2018) (SR-OCC-2017-810).

4.  Securities Exchange Act Release No. 82352 (Dec. 19, 2017), 82 FR 61072 (Dec. 26, 2017) (SR-OCC-2017-021) (“Initial Filing”).

5.  15 U.S.C. 78s(b)(2)(B)(i).

6.  See Securities Exchange Act Release No. 82927 (March 22, 2018), 83 FR 13176 (March 27, 2018) (SR-OCC-2018-021).

7.  See Securities Exchange Act Release No. 83485 (Jun. 20, 2018), 83 FR 29843 (Jun. 26, 2018) (SR-OCC-2017-021).

8.  15 U.S.C. 78s(b)(1).

9.  17 CFR 240.19b-4.

10.  The amendment to the list of Critical Support Functions would be made to the confidential and redacted portions of the RWD Plan.

11.  See Amendment No. 2 to SR-OCC-2017-020. The three amendments to Chapter 5 also would be made to the confidential and redacted portions of the RWD Plan.

12.  See Amendment No. 2 to SR-OCC-2017-020.

13.  See Securities Exchange Act Release No. 83485 (June 20, 2018), 83 FR 29843 (June 26, 2018) (SR-OCC-2017-021).

14.  17 CFR 200.30-3(a)(12).