8011-01p
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100455; File No. SR-OCC-2024-006]
Self-Regulatory Organizations; The Options Clearing Corporation; Order
Approving Proposed Rule Change by The Options Clearing Corporation
Concerning Amendments to Its Rules and Comprehensive Stress Testing &
Clearing Fund Methodology, and Liquidity Risk Management Description
July 2, 2024.
I.

Introduction
On May 2, 2024, The Options Clearing Corporation (“OCC”) filed with the

Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of
the Securities Exchange Act of 1934 (“Act”),1 and Rule 19b-4 thereunder,2 a proposed
rule change (the “Proposed Rule Change”) to amend its Comprehensive Stress Testing &
Clearing Fund Methodology, and Liquidity Risk Management Description
(“Methodology Description”) to incorporate additional stress scenarios into OCC’s
financial resource sufficiency monitoring and its Rules to clarify OCC’s practice of
collecting additional collateral from its members based on such monitoring. The
Proposed Rule Change was published for comment in the Federal Register on May 21,
2024.3 The Commission has not received any comments on the Proposed Rule Change.
For the reasons discussed below, the Commission is approving the Proposed Rule
Change.

15 U.S.C. 78s(b)(1).

17 CFR 240.19b-4.

Securities Exchange Act Release No. 100147 (May 15, 2024), 89 FR 44752 (May 21, 2024) (File
No. SR-OCC-2024-006) (“Notice”).

II.

Description of the Proposed Rule Change
As a clearing agency, OCC faces a number of risks including credit and liquidity

risk.4 OCC manages its credit and liquidity risk, in part, by performing daily stress
testing5 that covers a wide range of scenarios.6
OCC groups its stress testing scenarios into different categories, including
Sufficiency Scenarios and Informational Scenarios.7 Sufficiency Scenarios are designed
to measure the potential exposures that a Clearing Member Group’s portfolios present
relative to OCC’s credit and liquidity resources so that OCC can determine the potential
need to call for additional collateral, either as margin or as Clearing Fund collateral, or
adjust the forms of collateral on deposit.8 Specifically, depending on Sufficiency
Scenario results, OCC Rules 609 or 1001 may allow or require OCC to call for additional
margin or Clearing Fund resources from a Clearing Member.9 Moreover, under OCC
Rules 601 and 609, OCC could require that a Clearing Member provide additional
resources in the form of cash.10 In contrast, OCC uses Informational Scenarios to
monitor and assess the size of OCC’s prefunded financial resources against a wide range
of stress scenarios for informational and risk monitoring purposes.11 These scenarios are
not used to determine the size of OCC’s financial resources; however, OCC’s Risk

Credit Risk is the risk that a counterparty will be unable to meet fully its financial obligations
when due, or at any time in the future. Liquidity Risk is the risk that a counterparty will have
insufficient funds to meet its financial obligations as and when expected, although it may be able
to do so in the future. Bank for International Settlements & International Organization of
Securities Commissions, Principles for Financial Market Infrastructures,
https://www.bis.org/cpmi/publ/d101a.pdf.

Stress testing is the estimation of credit or liquidity exposures that would result from the
realization of potential stress scenarios, such as extreme price changes, multiple defaults, or
changes in other valuation inputs and assumptions. 17 CFR 240.17Ad-22(a).

Notice, 89 FR at 44753; see OCC Rule 609, OCC Rule 1001.

Capitalized terms used but not defined herein have the meanings specified in OCC’s Rules and ByLaws, available at https://www.theocc.com/about/publications/bylaws.jsp.

Notice, 89 FR at 44753.

Id.

Id. at 44754 n.20.

Id. at 44753.

Committee may approve adjustments with respect to how OCC categorizes these
scenarios.12 For example, OCC’s Risk Committee could approve the recategorization of
an Informational Scenario as a Sufficiency Scenario.13
The Proposed Rule Change would make three groups of changes related to OCC’s
Sufficiency Scenarios. First, it would recategorize two Informational Scenarios as
Sufficiency Scenarios by making changes to the Methodology Description.14 As a result,
the two recategorized scenarios would be used to determine potential calls for additional
collateral. Second, the Proposed Rule Change would add detail to OCC’s Rules outlining
circumstances under which OCC could require Clearing Members to contribute
additional collateral due to the results of Sufficiency Scenarios. Third, the Proposed Rule
Change would make minor formatting and grammatical changes to the Methodology
Description and the Rules.
A.

Recategorization of Scenarios

OCC’s Methodology Description lists a subset of the Sufficiency Scenarios that
have been implemented in OCC’s stress testing system. The Sufficiency Scenarios on
this list are historical scenarios that replicate historical events under current market
conditions. For example, among the listed Sufficiency Scenarios are scenarios that
replicate the largest rally/decline in 2008.
To replicate historical events in its current Sufficiency Scenarios, OCC applies
one of three price shocks to risk factors in a predetermined order, also referred to as a
waterfall.15 As its first choice for a price shock, OCC uses the returns of the risk factor

Id.

Id.

The Methodology Description describes the Comprehensive Stress Testing and Clearing Fund
Methodology, and Liquidity Risk Management Description that OCC uses to analyze the
adequacy of its financial resources and to challenge its risk management framework. Id. at 44573
n.5.

Risk factors are products or attributes whose historical data are used to estimate and simulate the
risk for an associated product. Id. at 44574 n.12.

observed during the historical event. If such returns do not exist, or are otherwise
unavailable, OCC uses the market return from the risk factor’s corresponding sector as
the price shock. If neither the risk factor return nor the market sector return is available,
OCC uses a beta approach to set the price shock.16 Currently, OCC applies this waterfall
to determine price shocks for the 2008 largest rally/decline Sufficiency Scenarios.
Some of OCC’s Informational Scenarios use a different approach to determine the
price shock applied to risk factors than the existing Sufficiency Scenarios use, which
yields different outcomes. For example, some existing Informational Scenarios are
variations of the 2008 largest rally/decline Sufficiency Scenarios that directly apply the
risk driver beta-derived price shock as the price shock instead of using the waterfall
approach. As part of the regular review of the output of its stress scenarios, OCC found
that the variations of the 2008 largest rally/decline Informational Scenarios described
above yielded exposures that were consistently higher than those generated by the
corresponding Sufficiency Scenarios.17 To enhance its ability to manage risks, OCC
proposes recategorizing such variations of the 2008 largest rally/decline scenarios from
Informational Scenarios to Sufficiency Scenarios by adding them to the Sufficiency
Scenarios listed in OCC’s Methodology Description.18 This would allow the newlyrecategorized Sufficiency Scenarios to be used to drive the size of the Clearing Fund and
calls for additional margin, which is not the case while they remain categorized as
Informational Scenarios.19

Beta is the sensitivity of a security with respect to its corresponding risk driver. Id. at 44754 n.14.
Examples of risk drivers include price and volatility with respect to equity securities. Different
categories of products—for example, collateral positions in U.S. Government Securities versus
Canadian Government Securities—have different risk drivers. Id. at 44754 n.15. The risk driver
shock is the return of a risk driver from a historical event. Id. at 44754. The beta approach is the
application of the shock of a risk driver to the beta of the related risk factor, which generates a
“risk driver beta derived price shock.”

Id. at 44753.

Id.

Id.

B.

Changes to the Rules Related to Intra-Day Margin and the Clearing Fund

OCC also proposes changes to its Rules to clarify OCC’s practice of collecting
additional collateral from its members based on stress scenario monitoring. Specifically,
OCC proposes changes to Rule 609, which governs intra-day margin, and Rule 1001(c),
which governs intra-month clearing fund sizing adjustments. OCC proposes these
changes to align the Rules with OCC’s current practices and procedures.20
Some of the proposed changes to Rule 609 clarify OCC’s approach to situations
where a Clearing Member Group is subject to an intra-day margin call under more than
one Sufficiency Stress Test. Rule 609(a)(5) currently provides that OCC may require the
Clearing Member Group responsible for a stress test exposure to deposit intra-day margin
if a Sufficiency Stress Test identifies an exposure that exceeds 75% of the current
Clearing Fund requirement less deficits.21 In the event of such a margin call, OCC’s
current practice is to compare the margin call amount to existing intra-day margin call
amounts for the monthly period under OCC Rule 609(a)(5). A new margin call is issued
when the margin call amount is greater than existing intra-day margin call amounts under
Rule 609(a)(5). The updated margin call amount would remain in effect until either the
next monthly resizing of the Clearing Fund, or the amount is superseded by a larger
margin call amount.22 To reflect this current practice,23 and consistent with the Clearing
Fund Methodology Policy,24 OCC proposes adding language to Rule 609(a)(5) noting
that if a Clearing Member Group is subject to intra-day margin calls under more than one

Id. at 44754-55.

Id. at 44754; OCC Rule 609(a)(5).

Notice, 89 FR at 44754.

Id.

Securities Exchange Act Release No. 83406 (June 11, 2018), 83 FR 28018, 28025 (June 15, 2018)
(File No. SR-OCC-2018-008).

Sufficiency Stress Test, the largest call will be applied and remain in effect until the next
monthly resizing.25
Separately, OCC proposes to conform Rule 609(a)(5) to OCC’s existing
policies.26 As noted above, current Rule 609(a)(5) requires the Clearing Member Group
responsible for a stress test exposure to deposit margin intra-day if a Sufficiency Stress
Test identifies an exposure that exceeds 75% of the current Clearing Fund requirement
less deficits. OCC’s Clearing Fund Methodology Policy contains similar language with a
notable difference. Specifically, the Clearing Fund Methodology Policy does not include
the “less deficits” language, while such language is in OCC Rule 609(a)(5).27 This
language was removed from the Clearing Fund Methodology Policy in an effort to
conform the Clearing Fund Methodology Policy to changes to OCC’s Rules, shortening
the number of days a Clearing Member has to meet funding obligations related to the
Clearing Fund.28 Given the previous change to its rules, OCC considers the “less
deficits” language in each document unnecessary.29 As such, OCC proposes removing
the “less deficits” language from Rule 609(a)(5) to promote consistency within its rules.30
OCC also proposes changes to Rule 1001(c) to reflect its current practices.31 Rule
1001(c) currently indicates that, if at any time between regular monthly calculations of
the size of the Clearing Fund a Sufficiency Stress Test identifies a breach that exceeds

While a margin call imposed as the result of a Sufficiency Stress Test will remain in effect until the
next monthly Clearing Fund resizing, the imposition of such a margin call would not preclude OCC
from making additional margin calls driven by subsequent Sufficiency Stress Tests prior to the
monthly resizing.

Notice, 89 FR at 44755.

Id.

Securities Exchange Act Release No. 94950 (May 19, 2022), 87 FR 31916, 31918 (May 25, 2022)
(File No. SR-OCC-2022-004). Prior to approval of SR-OCC-2022-004, Clearing Members had
two days to deposit additional required Clearing Fund assets. In SR-OCC-2022-004, OCC
proposed to shorten this period. Id.; Notice, 89 FR at 44755.

Notice, 89 FR at 44755.

Id.

Id.

90% of the size of the Clearing Fund requirement (less any margin collected as a result of
a Sufficiency Stress Test breach pursuant to Rule 609), the calculated size of the Clearing
Fund shall be increased. As is reflected in OCC’s Clearing Fund Methodology Policy,
OCC’s current practice is to include margin called, rather than only margin collected, in
the amount subtracted in the calculation from Rule 1001(c).32 To align the descriptions in
OCC’s Rules with OCC’s current practices, OCC proposes adding “or to be collected” to
the text or Rule 1001(c).33
C.

Minor Formatting and Grammatical Changes

OCC also proposes several minor formatting and grammatical changes to its rules.
In the Methodology Description, OCC proposes minor edits to correct the formatting of
footnotes. Additionally, in the Rules, OCC proposes replacing the words “such that”
with “from” and adding the word “that” to Rule 609(a)(5) so that it reads “stress test
exposures from a Sufficiency Stress Test (as defined in Rule 1001(a)) that identifies an
exposure” instead of “stress test exposures such that a Sufficiency Stress Test (as defined
in Rule 1001(a)) identifies an exposure.”
III.

Discussion and Commission Findings
Section 19(b)(2)(C) of the Act requires the Commission to approve a proposed

rule change of a self-regulatory organization if it finds that the Proposed Rule Change is
consistent with the requirements of the Act and the rules and regulations thereunder
applicable to the organization.34 Under the Commission’s Rules of Practice, the “burden
to demonstrate that a proposed rule change is consistent with the Exchange Act and the
rules and regulations issued thereunder . . . is on the self-regulatory organization [‘SRO’]
that proposed the rule change.”35
Id. at 44755 n.27.

Id. at 44755.

15 U.S.C. 78s(b)(2)(C).

Rule 700(b)(3), Commission Rules of Practice, 17 CFR 201.700(b)(3).

The description of a proposed rule change, its purpose and operation, its effect,
and a legal analysis of its consistency with applicable requirements must all be
sufficiently detailed and specific to support an affirmative Commission finding,36 and any
failure of an SRO to provide this information may result in the Commission not having a
sufficient basis to make an affirmative finding that a proposed rule change is consistent
with the Exchange Act and the applicable rules and regulations.37 Moreover,
“unquestioning reliance” on an SRO’s representations in a proposed rule change is not
sufficient to justify Commission approval of a proposed rule change.38
After carefully considering the Proposed Rule Change, the Commission finds that
the Proposed Rule Change is consistent with the requirements of the Exchange Act and
the rules and regulations thereunder applicable to OCC. More specifically, for the
reasons given below, the Commission finds that the Proposed Rule Change is consistent
with Section 17A(b)(3)(F) of the Act39 and Rule 17Ad-22(e)(4) thereunder.40
A.

Consistency with Section 17A(b)(3)(F) of the Act

Under Section 17A(b)(3)(F) of the Act, OCC’s rules, among other things, must be
“designed to promote the prompt and accurate clearance and settlement of securities
transactions . . . derivative agreements, contracts, and transactions . . . and to assure the
safeguarding of securities and funds which are in the custody or control of the clearing
agency or for which it is responsible.”41 Based on its review of the record, and for the
reasons discussed below, OCC’s changes are consistent with Section 17A(b)(3)(F) of the

Id.

Id.

Susquehanna Int’l Group, LLP v. Securities and Exchange Commission, 866 F.3d 442, 447 (D.C.
Cir. 2017) (“Susquehanna”).

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

17 CFR 240.17Ad-22(e)(4).

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

Act42 because they decrease the likelihood of loss mutualization, may increase, and
cannot decrease, the amount of financial resources that OCC collects to address credit
losses that could arise from the default of a Clearing Member, and support OCC’s robust
default management system.
OCC’s proposal to elevate Informational Scenarios to Sufficiency Scenarios may
decrease the likelihood of loss mutualization. As noted above, OCC proposes to expand
the scope of stress scenarios against which OCC monitors its financial resources by
elevating, from Informational Scenarios to Sufficiency Scenarios, variations on their
2008 largest rally/decline scenarios, which first apply the risk driver beta-derived price
shock as the price shock as opposed to using the waterfall approach. Once these
scenarios are elevated to Sufficiency Scenarios, they would be used to determine whether
it is necessary to call for additional margin intra-day or an increase to the size of the
Clearing Fund intra-month.43

By elevating the Informational Scenarios to Sufficiency

Scenarios, OCC creates a wider range of stress scenarios. Having a wider range of stress
scenarios may, in turn, increase the likelihood that OCC will have sufficient collateral on
hand to address a default without resorting to loss mutualization through the use of nondefaulting Clearing Members’ contributions to the Clearing Fund. Because it avoids loss
mutualization, the Proposed Rule Change is consistent with the safeguarding of securities
and funds which are in OCC’s custody or control.
OCC’s proposed changes to its Sufficiency Stress Tests also may increase, and
cannot decrease, the amount of financial resources that OCC collects to address credit
losses that could arise from the default of a Clearing Member. Based on the impact
analyses filed with this Proposed Rule Change, the proposed change could result in OCC
calling for additional resources available for resolving a member default. The data

Id.

OCC Rule 609(a)(5); OCC Rule 1001(c).

provided demonstrates that the proposed scenarios could produce more conservative
results relative to the current 2008 largest rally/decline scenarios. Because OCC does not
propose removing any of its existing Sufficiency Scenarios, the proposed changes could
not reduce the resources OCC would collect. By maintaining, and potentially increasing,
the financial resources OCC collects to address credit losses that could arise from the
default of a Clearing Member, the proposed change to OCC’s stress tests would
potentially help OCC recover from the default of a Clearing Member and could make
OCC’s default waterfall more robust. As such, it would increase the likelihood that OCC
would be able to provide clearing services during and after a Clearing Member default,
which is consistent with OCC’s ability to promptly and accurately clear and settle
securities transactions for participants in the options markets during periods of market
stress.
Separately, the proposed changes to conform OCC’s Rules 609 and 1001 to
current practice would continue to support OCC’s risk management systems. As
described above, the proposed changes would make minor changes, remove unnecessary
language, and acknowledge that, when determining whether to call for additional
collateral based on OCC’s Sufficiency Stress Tests, if a Clearing Member Group is
subject to intra-day margin calls under more than one Sufficiency Stress Test, only the
largest margin call will be applied and remain in effect until the next monthly resizing.
Further, OCC proposes that it account for margin called as a result of a Sufficiency Stress
Test breach under Rule 609 when determining whether it must increase the size of the
Clearing Fund. Such changes would not reduce the total resources called by OCC.
Continuing to require that members contribute resources based on the exposures they
pose (as measured by the Sufficiency Scenarios) would increase the likelihood that OCC
would have sufficient resources to manage its exposure to such a member in the event of
a default. This would increase the likelihood that OCC could promptly and accurately

clear transactions in the event of a default. Additionally, requiring members to contribute
resources based on the exposures they pose would increase OCC’s ability to manage a
default with the defaulter’s resources and would reduce the risk that OCC would be
required to use the resources of other members to manage a default, consistent with
OCC’s ability to safeguard the funds and securities of such non-defaulting members.
Further, OCC’s rules require that members meet such calls in a timely manner.44
As a result, OCC’s rules do not preclude OCC from taking additional steps, such as
suspending a member, if it does not receive the required resources promptly. Thus,
OCC’s rules, both current and as proposed, allow OCC to act quickly to mitigate
potential losses and liquidity shortfalls. Such authority reduces the risk that OCC would
be unable to continue providing clearance and settlement services, which is consistent
with the promotion of the prompt and accurate settlement of securities for the markets
OCC serves.
Based on the foregoing, the Proposed Rule Change is consistent with the
requirements of Section 17A(b)(3)(F) of the Act.45
B.

Consistency with Rule 17Ad-22(e)(4) under the Act

Rule 17Ad-22(e)(4) requires covered clearing agencies to establish, implement,
maintain, and enforce written policies and procedures reasonably designed to effectively
identify, measure, monitor, and manage its credit exposures to participants and those
arising from its payment, clearing, and settlement processes by testing the sufficiency of
its total financial resources available to meet the minimum financial resource
requirements under Rules 17Ad-22(e)(4)(i) through (iii) under the Act.46 Under Rule
17Ad-22(e)(4)(vi)(A), OCC’s policies and procedures should provide that OCC conduct

See e.g., OCC Rule 609(a) (requiring that members meet intra-day margin calls within one hour of
issuance).

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

17 CFR 240.17Ad-22(e)(4)(vi).

such stress testing of its total financial resources once each day using standard
predetermined parameters and assumptions.47
The Proposed Rule Change is consistent with Rule 17Ad-22(e)(4)(vi) because it
broadens the scope of stress scenarios that OCC conducts to test its financial resources.
Expanding the scope of stress scenarios against which OCC monitors its financial
resources would increase the likelihood that OCC maintains sufficient financial resources
at all times.48 This Proposed Rule Change would expand the scope of stress scenarios by
elevating two Informational Scenarios to Sufficiency Scenarios. This expansion could
result in the collection of additional resources available for resolving a member default,
which, in turn, would increase the likelihood that OCC maintains sufficient financial
resources at all times.49
Based on the foregoing, the Proposed Rule Change is consistent with the
requirements of Rule 17Ad-22(e)(4) under the Act.50
IV.

Conclusion

On the basis of the foregoing, the Commission finds that the Proposed Rule
Change is consistent with the requirements of the Act, and in particular, Section
17A(b)(3)(F) of the Act51 and Rule 17Ad-22(e)(4).52
IT IS THEREFORE ORDERED pursuant to Section 19(b)(2) of the Act that the
Proposed Rule Change (SR-OCC-2024-006) be, and hereby is, approved.53
17 CFR 240.17Ad-22(e)(4)(vi)(A).

See Securities Exchange Act Release No. 90827 (Dec. 30, 2020), 86 FR 659, 661 (Jan. 6, 2021)
(File No. SR-OCC-2020-015); Securities Exchange Act Release No. 83735 (July 27, 2018), 83 FR
37855, 37863 (Aug. 2, 2018) (File No. SR-OCC-2018-008).

The Proposed Rule Change does not alter OCC’s daily implementation of its Sufficiency Stress
Tests. Notice, 89 FR at 44753. Thus, the OCC’s Sufficiency Stress Testing continues to be
consistent with Rule 17Ad-22(e)(4)(vi)(A)’s daily testing requirements.

17 CFR 240.17Ad-22(e)(4).

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

17 CFR 240.17Ad-22(e)(4).

In approving the Proposed Rule Change, the Commission considered the proposal’s impacts on
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).

For the Commission by the Division of Trading and Markets, pursuant to
delegated authority.54
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-14971 Filed: 7/8/2024 8:45 am; Publication Date: 7/9/2024]

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