Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Advance Notice by The Options Clearing Corporation To Establish a Commercial Paper Program

[Federal Register Volume 91, Number 109 (Monday, June 8, 2026)]

[Notices]

[Pages 34685-34693]

From the Federal Register Online via the Government Publishing Office [ www.gpo.gov ]

[FR Doc No: 2026-11378]

[[Page 34685]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-105602; File No. SR-OCC-2026-801]

Self-Regulatory Organizations; The Options Clearing Corporation;

Notice of Filing of Advance Notice by The Options Clearing Corporation

To Establish a Commercial Paper Program

June 3, 2026.

Pursuant to Section 806(e)(1) of Title VIII of the Dodd-Frank Wall

Street Reform and Consumer Protection Act, entitled Payment, Clearing

and Settlement Supervision Act of 2010 (``Clearing Supervision Act'')

\1\ and Rule 19b-4(n)(1)(i) \2\ of the Securities Exchange Act of 1934

(``Exchange Act'' or ``Act''),\3\ notice is hereby given that on May

19, 2026, The Options Clearing Corporation (``OCC'' or ``Corporation'')

filed with the Securities and Exchange Commission (``SEC'' or

``Commission'') an advance notice as described in Items I, II and III

below, which Items have been prepared primarily by OCC. The Commission

is publishing this notice to solicit comments on the advance notice

from interested persons.

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\1\ 12 U.S.C. 5465(e)(1).

\2\ 17 CFR 240.19b-4(n)(1)(i).

\3\ 15 U.S.C. 78a et seq.

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I. Clearing Agency's Statement of the Terms of Substance of the Advance

Notice

This advance notice is submitted by OCC in connection with a prosed

change to its operations to establish a commercial paper program as

part of its overall liquidity plan to meet OCC's settlement

obligations.

II. Clearing Agency's Statement of the Purpose of, and Statutory Basis

for, the Advance Notice

In its filing with the Commission, OCC included statements

concerning the purpose of and basis for the advance notice and

discussed any comments it received on the advance notice. 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) and (B)

below, of the most significant aspects of these statements.

(A) Clearing Agency's Statement on Comments on the Advance Notice

Received From Members, Participants or Others

The proposed change was approved for filing with the Commission by

OCC's Board of Directors (``Board'') on December 12, 2024. The proposal

was presented to OCC's non-Board-level risk management committee

(``RMC'') \4\ and OCC's Financial Risk Advisory Council (``FRAC'') \5\

on February 24, 2025, and April 30, 2025, respectively. No substantive

feedback on the proposed change was received by the RMC or FRAC.

Proposed changes to OCC's Capital Management Policy were approved by

OCC's stockholders on September 10, 2025. Written comments were not and

are not intended to be solicited with respect to the proposed change

and none have been received.

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\4\ The RMC is a sub-advisory group of rotating FRAC

participants that OCC consults with on all matters that could

materially affect OCC's risk profile. OCC established the RMC in

compliance with Commodity Futures Trading Commission (``CFTC'')

Regulations, which requires a derivatives clearing organization

(``DCO'') to establish one or more risk management committees,

comprised of a rotating membership of clearing member

representatives and representatives of customers of clearing

members, to consult with, and consider and respond to input from, on

all matters that could materially affect the risk profile of the

DCO, including any material changes to the DCO's margin model,

default procedures, participation requirements, and risk monitoring

practices, as well as the clearing of new products that could

materially affect the risk profile of the DCO. See 17 CFR

39.24(b)(11).

\5\ The FRAC is a forum to discuss and seek feedback on proposed

financial risk initiatives comprised of representatives from direct

and indirect market participants, including clearing members,

customers of clearing members, exchanges, and other relevant

stakeholders. As such, the FRAC and RMC function as risk advisory

working groups as required by CFTC Regulation. See 17 CFR

39.24(b)(12). Board consultation with the RMC and FRAC are also

means by which OCC complies with Exchange Act Rule 17ad-25(j), which

requires each clearing agency to establish, implement, maintain, and

enforce written policies and procedures reasonably designed to

require the board of directors to solicit, consider, and document

its consideration of the view of participants and other relevant

stakeholders of the registered clearing agency regarding material

developments in its risk management and operations on a recurring

basis. 17 CFR 240.17ad-25(j). Materials submitted to the FRAC are

included as Exhibits 3A and 3B [sic].

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(B) Advance Notice Filed Pursuant to Section 806(e) of the Payment,

Clearing, and Settlement Supervision Act

OCC is the sole clearing agency for standardized equity options

listed on national securities exchanges registered with the Commission.

In its role as a registered clearing agency, and as a derivatives

clearing organization (``DCO'') registered with the Commodity Futures

Trading Commission (``CFTC''), OCC acts as a central counterparty

(``CCP'') that guarantees all contracts it clears. That is, OCC becomes

the buyer to every seller and the seller to every buyer. In its role as

guarantor, OCC is exposed to risks from a Clearing Member's failure to

fulfill its obligations, including liquidity risk (i.e., the risks that

OCC may need to meet the defaulting Clearing Member's settlement

obligations during the period between the default and the conclusion of

a liquidation of the defaulting Clearing Member's portfolio). In the

event of a Clearing Member default, OCC would be obligated to fulfill

that member's cleared transactions and meet settlement obligations in a

timely manner.

OCC manages liquidity risk by maintaining an overall liquidity plan

that includes a minimum amount of cash OCC requires each Clearing

Member to deposit in the Clearing Fund (``Clearing Fund Cash

Requirement'') \6\ and any excess cash a Clearing Member may choose to

maintain up to its required Clearing Fund contribution.\7\ In addition,

OCC maintains access to a diverse set of committed funding sources for

accessing additional liquidity on a same-day basis, including: (A) a

syndicated bank credit facility, through which OCC may borrow cash by

pledging the margin funds of the defaulting Clearing Member or

Government securities borrowed from the Clearing Fund; \8\ and (B) a

non-bank liquidity facility program, through which OCC may use

Government securities deposited by the defaulting Clearing Member or

borrowed from the Clearing Fund to enter into repurchase transactions

with institutional investment counterparties, such as insurance

companies and pension funds, that do not increase the concentration of

OCC's counterparty exposure to its participants \9\ (together with the

syndicated bank credit facility, the ``committed facilities'').\10\

Together,

[[Page 34686]]

the Clearing Fund Cash Requirement and committed facilities comprise

OCC's ``Base Liquidity Resources'' under its LRMF--i.e., the amount of

qualifying liquid resources \11\ OCC maintains at all times to satisfy

its regulatory obligation to maintain sufficient qualifying liquid

resources to cover payment obligations arising from the default of the

CMO Group that would generate the largest aggregate payment obligation

in extreme but plausible market conditions (a ``Cover 1'' liquidity

requirement).\12\

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\6\ See OCC Rule 1002.

\7\ Clearing Members may choose to satisfy their Clearing Fund

requirement with more than the minimum amount of cash or deposit

Government securities. See OCC Rule 1002(a). Substitution of U.S.

Government securities in place of excess cash is subject to a two-

day notification period, which aligns with OCC's liquidation time

horizon for managing a Clearing Member default. See OCC Rule

1002(a)(iv). Accordingly, OCC considers excess cash up to the

Clearing Member's Clearing Fund requirement as part of its

``Available Liquidity Resources'' under its Liquidity Risk

Management Framework. See Exchange Act Release No. 89014 (June 4,

2020), 85 FR 35446, 35447 (June 10, 2020) (SR-OCC-2020-003).

\8\ See, e.g., Exchange Act Release No. 88971 (May 28, 2020), 85

FR 34257 (June 3, 2020) (SR-OCC-2020-804).

\9\ See, e.g., Exchange Act Release Nos. 89039 (June 10, 2020),

85 FR 36444 (June 16, 2020) (SR-OCC-2020-803).

\10\ OCC was provided a notice of no objection regarding

establishing a repurchase agreement with a bank counterparty through

which OCC may use Government securities deposited by the defaulting

Clearing Member or borrowed from the Clearing Fund. See Exchange Act

Release No. 103047 (May 21, 2025), 90 FR 21800 (May 21, 2025) (SR-

OCC-2025-801).

\11\ Regulations applicable to OCC define ``qualifying liquid

resources'' to include, among other things, (i) cash held either at

the central bank of issue or at creditworthy commercial banks; and

(ii) assets that are readily available and convertible into cash

through prearranged funding arrangements, such as committed

arrangements without material adverse changes provisions, including

lines of credit and repurchase agreements. See 17 CFR 240.17ad-22(a)

(``Qualifying liquid resources'').

\12\ See 17 CFR 240.17ad-22(e)(7); 17 CFR 39.11(e).

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To further diversify its liquidity resources, OCC proposes to

establish a program to raise prefunded liquidity through the private

placement of unsecured debt (``Notes'') to institutional investors in

an aggregate amount not to exceed $1 billion (the ``Commercial Paper

Program''). OCC would engage an issuing and paying agent, as well as

certain placement agent dealers, to develop a program to issue the

Notes. The Notes would be issued to institutional investors through a

private placement and offered in reliance on an exemption from

registration under Section 4(a)(2) of the Securities Act of 1933.\13\

OCC would execute certain agreements required to establish the

Commercial Paper Program, including an issuing and paying agent

agreement, and a dealer agreement with each of the placement agent

dealers.\14\ The dealer agreements would each be based on the standard

form of dealer agreement for commercial paper programs, which is

published by the Securities Industry and Financial Markets Association.

The material terms and conditions of the Commercial Paper Program are

summarized further below. Proceeds from the Commercial Paper Program

would be held in an OCC account at the Federal Reserve Bank of Chicago

(a ``Federal Reserve Bank account'').

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\13\ 15 U.S.C. 77d(a)(2).

\14\ Pursuant to the existing TPRMF, as approved by the

Commission, OCC's Management Committee will determine whether these

counterparties constitute service providers for core services within

the meaning of Exchange Act Rule 17Ad-25, 17 CFR 240.17ad-25, during

the on-boarding stage and prior to entering into any agreement. If

these counterparties are determined to be service providers for core

services, then: (1) the Management Committee will evaluate and

document the risks related to the agreement, including under changes

to circumstances and potential disruptions, and assess whether the

risks can be managed in a manner consistent with the TPRMF; and (2)

the agreements establishing a relationship with these counterparties

would be subject to Board approval. See Exchange Act Release No. 34-

104099 (Sept. 26, 2025), 90 FR 47105 (Sept. 30, 2025) (SR-OCC-2025-

015).

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OCC believes the Commercial Paper Program would further diversify

its liquidity sources by adding a cost-effective \15\ means to source

liquidity more efficiently than its current facilities in response to

changing liquidity demands or changes in its counterparties'

commitments under the committed facilities. Specifically, once the

program is established, OCC expects it will be able to issue new debt

and receive proceeds on the same day. By comparison, sourcing

additional commitments from liquidity providers through OCC's existing

committed facilities is a process that can take weeks or months.

Currently, the only tool available to OCC to increase Base Liquidity

Resources on an expedited basis is to increase the Clearing Fund Cash

Requirement under OCC Rule 1002(a)(i)(A). The Commercial Paper Program

would add another tool for quickly increasing liquidity resources in

response to changing liquidity needs.

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\15\ OCC anticipates that the cost of sourcing liquidity through

the Commercial Paper Program would be less than the cost of its

existing syndicated bank credit facility and non-bank liquidity

facility. OCC has provided an assessment of these costs in

confidential Exhibit 3C [sic] to File No. SR-OCC-2026-801.

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In addition, the Commercial Paper Program would benefit OCC by

providing a prefunded source of liquidity that OCC would maintain in

one of its Federal Reserve Bank accounts. Accordingly, using proceeds

from the Commercial Paper Program would not require OCC to draw on a

facility during a Clearing Member default to make same-day settlement.

The absence of a facility draw mitigates the risk that a liquidity

provider may be delayed in funding or fail to fund as required under

the terms of OCC's committed facilities.\16\

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\16\ OCC mitigates these risks under its committed facilities by

executing committed arrangements without material adverse change

provisions and conducting periodic test draws of its facilities.

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Description of Change

1. Material Terms of the Commercial Paper Program

As discussed above, OCC's Board has authorized OCC to establish a

Commercial Paper Program in an aggregate amount not to exceed $1

billion. Initially, OCC anticipates replacing $250 million of existing

liquidity from its non-bank liquidity facility with Commercial Paper

proceeds. Specifically, to further diversify OCC's liquidity resources,

OCC plans to replace one of three commitments from a single liquidity

provider that together comprise 42.5% of the commitments under the $2

billion non-bank liquidity facility, and approximately 19% of OCC's

$4.5 million in committed facilities. Any expansion of the Commercial

Paper Program beyond the $1 billion would require further approval from

the Board. Any change to the program that would materially affect the

nature or level of risk at OCC would also require further regulatory

filings. OCC intends to structure the Commercial Paper Program such

that maturities of the Notes are staggered to avoid concentration of

maturing liabilities and the risk that a rollover issuance to replace

expiring Notes does not fund. For example, replacing $250 million of

non-bank liquidity facility commitments may be achieved with two issues

of $250 million in Notes of 90-day duration, staggered by 45 days.

The Notes would be interest-bearing and would be book-entry notes

evidenced by one or more master notes registered in the name of The

Depository Trust Company (``DTC'') or its nominee, in the form or forms

annexed to OCC's agreement with the issuing and paying agent. To

minimize interest rate risk,\17\ the Notes would have a maturity not to

exceed 180 days. The Notes would not be redeemable by OCC prior to

maturity, nor would they contain any provision for extension, renewal,

automatic rollover or voluntary prepayment.

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\17\ In this context, interest rate risk is the risk of

dislocation between the interest OCC pays on the Notes and the

interest that OCC would earn by holding the cash proceeds in its

Federal Reserve bank account. Such dislocation could increase OCC's

costs for maintaining the Commercial Paper Program.

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2. Amendments to Rules

In order to establish the Commercial Paper Program, OCC proposes to

amend certain of its frameworks and policies that have been filed as

rules with the Commission in order to (1) recognize the proceeds from

the Commercial Paper Program as a qualifying liquid resource, (2)

ensure that OCC maintains sufficient funds to repay the Notes as they

expire by incorporating the Commercial Paper Program proceeds into how

OCC sizes its Clearing Fund and providing that OCC may use the Clearing

Fund to repay the Notes if Commercial Paper Program proceeds are used

to cover losses or liquidity shortfalls in lieu of the Clearing Fund,

(3) distinguish the Commercial Paper

[[Page 34687]]

Program proceeds from other types of prefunded financial resources that

OCC maintains, (4) address the role played by the placement dealers and

the issuing and payment agent and how OCC monitors and manages its

relationships with these supporting institutions, (5) allow for OCC to

maintain the proceeds in one of its Federal Reserve Bank accounts, and

(6) provide for the governance to use the proceeds in the event of a

Clearing Member default.

A. Qualifying Liquid Resources

OCC proposes to amend OCC's Rules and LRMF to recognize the

proceeds from the Commercial Paper Program as a qualifying liquid

resource under OCC's overall liquidity plan. Specifically, OCC would

define the term ``Commercial Paper Program'' in Rule 101 as OCC's

program to raise prefunded qualifying liquid resources through the

private placement of unsecured debt to institutional investors up to an

amount approved by the Board, proceeds of which OCC would use

exclusively to: (i) repay maturing notes issued under the Commercial

Paper Program or (ii) cover losses or liquidity shortfalls in those

situations in which the Clearing Fund may be used under Rule 1006. This

provision recognizes the Board's authority to set a cap on the total

amount of Commercial Paper that OCC is authorized to issue. As

discussed above, the Board has initially approved the Commercial Paper

Program for up to $1 billion, but OCC intends to begin issuing Notes in

an amount less than the total authorized amount at the outset of the

program.

OCC would amend the LRMF to add the cash proceeds from the

Commercial Paper Program as one of the liquidity resources that may

comprise OCC's Base Liquidity Resources. The LRMF would further provide

that OCC may count such proceeds as Base Liquidity Resources up to an

amount approved by OCC's Board. This provision would allow the Board to

establish a cap on the amount of Commercial Paper Program proceeds that

may be counted towards OCC's Base Liquidity Resources to account for

the staggering of maturities and the potential risk that a rollover of

expiring Notes may not fund, in which case OCC may need to pivot to

other sources of liquidity. For example, if the Notes were staggered

into two $500 million tranches with 90-day maturities staggered by 45

days, the Board may determine that up to $500 million of the total $1

billion may be counted towards Base Liquidity Resources. OCC

anticipates that the Board would initially provide that Commercial

Paper Program proceeds may not exceed 5% of Base Liquidity Resources.

Any Commercial Paper Program proceeds beyond the amount authorized as

Base Liquidity Resources would be considered excess liquidity. Such

excess would mitigate the risk that a failed rollover of expiring Notes

may otherwise cause OCC's qualifying liquid resources to drop below the

Cover 1 liquidity requirement. The LRMF would provide that factors the

Board may consider in setting the amount of Commercial Paper Program

proceeds that may be counted towards Base Liquidity Resources include,

but are not limited to, OCC's current or anticipated liquidity needs,

the total size of the Commercial Paper Program that the Board has

authorized, the staggering of maturity dates to address rollover risk,

the availability of other liquidity resources, and the size of the

Clearing Fund.

OCC would further amend the LRMF to address the Commercial Paper

Program in the Framework's discussion of the tools available to OCC to

increase its liquidity resources in response to changing business or

market conditions. Currently, those tools include: (1) OCC's authority

to temporarily increase the Clearing Fund Cash Requirement; \18\ (2)

the uncommitted accordion feature that OCC endeavors to maintain in its

syndicated bank credit facility that potentially allows OCC to borrow

additional funds from its existing or new bank syndicated liquidity

providers based on the willingness and ability of the syndicate members

to fund the additional borrowing request; \19\ and (3) OCC authority

under OCC Rule 609 to issue an intraday margin call based on a Clearing

Member's forecasted settlement demands, including for settlement

demands arising under OCC's accord with the National Securities

Clearing Corporation (``NSCC'').\20\ To this list of tools, OCC would

add that the Board may authorize a Commercial Paper Program that allows

OCC to obtain additional liquidity up to the amount approved by the

Board. Similar to the accordion feature of the syndicated bank credit

facility, OCC would note that its ability to secure additional proceeds

up to that approved amount is subject to the ability of the dealers to

place and the willingness of institutional investors to purchase any

additional Notes. The LRMF currently notes that the process of

obtaining additional liquidity through the accordion feature is

expected to take a period of weeks. By comparison, OCC expects it can

issue new debt and receive proceeds under the Commercial Paper Program

on the same day.

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\18\ See OCC Rule 1002(a)(i)(A).

\19\ Exchange Act Release No. 88971, supra note 11, 85 FR at

34258 n. 6 and accompanying text.

\20\ See Exchange Act Release No. 99735 (Mar. 14, 2024), 89 FR

19907 (Mar. 20, 2024) (SR-OCC-2023-007).

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OCC would also amend its RWD Plan to recognize the Commercial Paper

Program proceeds as a tool to address liquidity shortfalls, similar to

the Clearing Fund Cash Requirement and the facilities, among other

tools. The RWD Plan would be further amended to include an overview of

the Commercial Paper Program that summarizes: (i) the material terms of

the program, as discussed above; (ii) the Rules governing how OCC

considers the Commercial Paper Program proceeds when determining the

minimum size of its Clearing Fund, how OCC may use the cash proceeds as

a qualifying liquid resource in the same manner in the same scenarios

in which OCC is authorized to use the Clearing Fund under OCC Rule

1006(a), and how OCC may utilize its Clearing Fund to recover losses

covered through the use of such proceeds, as discussed below; and (iii)

the benefits of the Commercial Paper Program in terms of providing a

prefunded qualifying liquid resource, as well as how OCC would manage

rollover risk through the staggered issuance of Notes. OCC would also

make certain conforming edits to the sections addressing OCC's

management of risks including credit, custody and investment risks to

reflect prior proposed rule changes concerning OCC's management of

investment risk.\21\ Specifically, OCC would revise the RWD Plan to

reflect that under OCC Rule 1006(c) and (f), OCC may use the Clearing

Fund to make good losses or liquidity shortfalls caused by the failure

of an investment counterparty to perform any obligation to OCC when due

with respect to the investment of Clearing Member cash margin (e.g., a

counterparty in which OCC has invested margin cash through overnight

reverse repurchase agreements).

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\21\ See Exchange Act Release No. 94304 (Feb. 24, 2022), 87 FR

11776 (Mar. 2, 2022) (SR-OCC-2021-014) (approving amendments to OCC

Rule 1006 to add ``investment counterparties'' with whom OCC has

invested cash margin to the list of counterparties whose failure may

occasion use of the Clearing Fund).

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B. Clearing Fund

In order to ensure that OCC maintains sufficient funds to repay the

Notes as they expire, even if OCC uses the proceeds from the Commercial

Paper Program to meet settlement demands in the event of a Clearing

Member's default, OCC would amend Rule 1001(b)

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(Minimum Clearing Fund Size). Rule 1001(b) currently provides that the

floor for the sizing of the Clearing Fund will be no less than 110% of

the size of OCC's committed facilities plus the Clearing Fund Cash

Requirement. OCC would amend Rule 1001(b) to add the proceeds from the

Commercial Paper Program approved by the Board as Base Liquidity

Resources to that list for purposes of calculating the minimum Clearing

Fund size.\22\ If OCC incurred a loss in a Clearing Member default,

existing Rule 1006 authorizes OCC to charge such loss to the Clearing

Fund. Accordingly, including the Commercial Paper Program proceeds

authorized as Base Liquidity Resources when calculating the minimum

Clearing Fund size helps ensure OCC maintains funds to cover such

losses, like OCC does for its existing committed facilities. Because

OCC plans to replace existing liquidity from its non-bank liquidity

facility with Commercial Paper proceeds, the net effect on the

calculation of the Minimum Clearing Fund Size would be zero. In any

event, the Minimum Clearing Fund Size is not expected to determine the

actual Clearing Fund size. Since the adoption of OCC's current Clearing

Fund methodology in 2018, the Clearing Fund size has never been driven

by the Minimum Clearing Fund Size.\23\

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\22\ Separately, OCC also proposes to remove Interpretation and

Policy (``I&P'') .01 to Rule 1001. That I&P provides that the

provision of Rule 1001(a) that limits the Clearing Fund size from

decreasing by more than five percent from the prior month will not

take effect until one month following the adoption of Rule 1001.

Rule 1001 took effect on September 1, 2018, following the SEC's

approval of that Rule. See Exchange Act Release No. 83735 (July 27,

2018), 83 FR 37855, 37856 n.6 (Aug. 2, 2018) (SR-OCC-2018-008).

Accordingly, I&P .01 to Rule 1001 is no longer relevant and may be

deleted.

\23\ As of December 31, 2024, the Minimum Clearing Fund Size was

$15.95 billion. However, the actual Clearing Fund size as of that

date was $18.49 billion, driven by stress test scenarios (``Sizing

Stress Tests'') in accordance with OCC Rule 1001(a). The Clearing

Fund size may not decrease by more than 5% from the prior month.

Accordingly, only a sustained reduction in shortfalls over an

extended period would reduce OCC's Clearing Fund to the Minimum

Clearing Fund size.

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In connection with this change to Rule 1001, OCC would also amend

OCC Rule 101 to define the term ``Base Liquidity Resources,'' which is

not a term currently used in the OCC Rules. The Liquidity Risk

Management Framework currently defines that term as ``[t]he amount of

committed liquidity resources maintained at all times by OCC to meet

its minimum Cover 1 liquidity resource requirements under the

applicable regulations.'' To better reflect the prefunded nature of the

Commercial Paper Program proceeds, as well as the Clearing Fund Cash

Requirement, OCC proposes to define that term in Rule 101 as the amount

of qualifying liquid resources that OCC maintains at all times to meet

its regulatory requirements. OCC would make the same change to the

definition of the term ``Base Liquidity Resources'' in the LRMF and in

the Executive Summary, as well as reference the definition in Rule 101.

OCC would also amend the monthly Clearing Fund size computation and the

associated definition for ``Minimum Clearing Fund Size'' in its

Clearing Fund Methodology Policy to reflect the addition of Commercial

Paper Program proceeds up to the amount approved by the Board as Base

Liquidity Resources in the calculation of the minimum size of the

Clearing Fund. Similar changes would also be applied to the

articulation of that calculation in OCC's CST Methodology Description

and RWD Plan.

OCC also proposes to amend Rule 1006 (Purpose and Use of Clearing

Fund) to ensure OCC's authority to use the Clearing Fund to make good

losses or expenses that it suffers or provide liquidity to OCC as a

result of OCC's use of the Commercial Paper Program proceeds for any of

the purposes under Rule 1006. In connection with this change, OCC

proposes to restate Rule 1006(a) (Conditions for Clearing Fund Use) for

clarity. Specifically, OCC proposes to:

Subdivide and renumber existing clauses (i) through (viii)

into numbered paragraphs, consolidated and restated as addressed below.

Consolidate under paragraphs (A) through (E) of proposed

Rule 1006(a)(1) the conditions related to losses arising most directly

from a Clearing Member default and OCC's default management currently

found in existing clauses (i), (ii), (iv), (v) and (vi) of Rule

1006(a), respectively. Current clause (vii), which covers any other

required payments or performance by a Clearing Member, would be

addressed at the outset of proposed Rule 1006(a)(1) by noting that the

Clearing Member performance obligations listed in that paragraph are

without limitation.

Consolidate the provisions related to a Clearing Fund

borrowing currently found in the first and second sentences of current

OCC Rule 1006(a) into OCC Rule 1006(a)(2).

Renumber existing clause (iii)--related to Guaranty

Substitution Payments--as proposed Rule 1006(a)(3). Proposed Rule

1006(a)(3) would be further amended to ensure parallel construction

with the other paragraphs under Rule 1006(a) and to correct a

typographical error.

Renumber existing clause (viii)--related to the failure of

any bank, securities or commodities clearing organization, or

investment counterparty to perform its obligation to OCC when due--as

proposed Rule 1006(a)(4). Proposed Rule 1006(a)(4) would be further

amended to ensure parallel construction with the other paragraphs under

Rule 1006(a), correct a grammatical error, and abbreviate a cross

reference to another paragraph under Rule 1006.

Include as Rule 1006(a)(5) the new authority related to

use of the Clearing Fund with respect to the Commercial Paper Program.

Remove unnecessary verbiage at the beginning of the last

sentence of current Rule 1006(a), which would be renumbered as proposed

Rule 1006(a)(6).

Amend cross references in Rule 1006(h) to the current

clauses under Rule 1006(a) to reflect the proposed paragraph structure.

C. Prefunded Financial Resources

OCC proposes to further amend the Clearing Fund Methodology Policy

to exclude Commercial Paper Program proceeds from the definition of

``Pre-Funded Financial Resources,'' as that term is used in that

policy. The policy uses that term when measuring financial resources

against stress test scenarios for purposes of monitoring the adequacy

of OCC's financial resources to satisfy its regulatory obligations to

maintain financial resources sufficient to withstand a default by the

two CMO Groups \24\ to which it has the largest aggregate credit

exposures in extreme but plausible market conditions (a ``Cover 2''

credit requirement).\25\ That definition currently encompasses the

margin of the defaulting Clearing Member and the Clearing Fund, less

any deficits. The definition excludes certain resources, such as OCC's

assessment powers (i.e., Clearing Member resources that OCC can call

upon, but are not pre-funded) \26\ and OCC's own resources that it has

committed to cover default losses

[[Page 34689]]

(i.e., ``skin-in-the-game''),\27\ which OCC does not use when sizing or

monitoring the adequacy of its Clearing Fund. While the Commercial

Paper Program proceeds would be prefunded and maintained in a Federal

Reserve Bank account, OCC would rely on the Clearing Fund to cover any

loss associated with the use of those proceeds. Accordingly, since the

Clearing Fund is already included in the definition, OCC proposes to

exclude the Commercial Paper Program proceeds from its definition of

Pre-Funded Financial Resources (which as noted above relates to OCC's

Cover 2 monitoring).

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\24\ ``CMO Group'' refers to the legal entity that is the

Clearing Member and any other affiliate entities that control, are

controlled by, or under common control with the Clearing Member.

\25\ See, e.g., 17 CFR 17ad-22(e)(4)(ii); 17 CFR 39.33(a)(1).

OCC has not been designated a covered clearing agency that is

systemically important in multiple jurisdictions or involved in

activities that have a more complex profile. However, OCC has

voluntarily opted to adopt a Cover 2 credit requirement as a covered

clearing agency and a DCO that has elected to become a subpart C

DCO. See Exchange Act Release No. 83406 (June 11, 2018), 83 FR

28018, 28021 (June 15, 2018) (SR-OCC-2018-008).

\26\ See OCC Rule 1006(h).

\27\ See, e.g., Exchange Act Release No. 92038 (May 27, 2021),

86 FR 29861 (June 3, 2021) (SR-OCC-2021-003) (approving changes to

establish a persistent minimum amount of skin-in-the-game).

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OCC also proposes to amend its Capital Management Policy to

distinguish the Commercial Paper Program proceeds from OCC's liquid net

assets funded by equity (``LNAFBE'').\28\ The Capital Management Policy

requires OCC to monitor OCC's LNAFBE for purposes of ensuring that OCC

maintains sufficient funds to cover potential general business losses

so that OCC can continue operations and services as a going concern if

those losses materialize. However, the proceeds of the Commercial Paper

Program would be used exclusively to address liquidity shortfalls

arising from a Clearing Member default or other situation in which OCC

may borrow or otherwise obtain funds using its Clearing Fund under OCC

Rule 1006 and would not be used as working capital or to cover general

business losses. Accordingly, OCC would exclude the cash proceeds of

the Commercial Paper Program from the Capital Management Policy's

definition of LNAFBE. This exclusion is consistent with the current

exclusion of the Minimum Corporate Contribution, which is OCC cash

maintained exclusively as skin-in-the-game to cover default losses or

liquidity shortfalls.

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\28\ Currently, the Capital Management Policy defines LNAFBE as

the level of cash and cash equivalents, no greater than Equity, less

any approved adjustments (e.g., agency-related liabilities such as

Section 31 fees held by OCC and the Minimum Corporate Contribution).

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D. Supporting Institutions

OCC also proposes to make certain other changes to its LRMF and

TPRMF to clarify and distinguish its relationship with the dealers,

agents and Noteholders under OCC's Commercial Paper Program from its

existing relationship with liquidity providers under OCC's committed

facilities. Specifically, those frameworks currently address OCC's

exposure to liquidity providers in terms of the risk that those

institutions would fail to perform their obligations to fund a draw

under the contractual terms of their committed agreements with OCC.

However, these risks would not be present under the Commercial Paper

Program because the Commercial Paper Program proceeds would be

prefunded and maintained by OCC in its Federal Reserve account,

available to address losses or liquidity shortfalls without the need to

draw on a committed arrangement. Accordingly, OCC would amend the LRMF

and TPRMF to clarify that existing references to ``liquidity

providers'' for purposes of monitoring and managing third-party risk

are limited to the liquidity providers under OCC's committed

facilities, not the dealers, agents or Noteholders under OCC's

Commercial Paper Program. Specifically, OCC proposes to amend the LRMF

and TPRMF to clarify that the definition of ``liquidity provider'' and

existing provisions about the on-boarding, ongoing monitoring and off-

boarding of liquidity providers, as that term is used therein or

proposed to be defined, are limited to liquidity providers under OCC's

committed facilities (i.e., counterparties providing liquidity to OCC

under a committed line of credit or committed repurchase agreement), as

is OCC's current practice. Such provisions would not extend to the

Commercial Paper dealers, agent or Noteholders.

Instead, OCC proposes to add a separate section to the LRMF that

would describe OCC's relationship with those institutions supporting

OCC's Commercial Paper Program. That section would note that OCC

maintains relationships with placement dealers and an issuing and

paying agent to support the Commercial Paper Program, and that the

dealers' role is to effect the private placement of the Notes to the

noteholders, while the issuing and paying agent acts as OCC's agent in

connection with the issuance and payment of principal and interest on

the Notes. The LRMF would further note that unlike OCC's relationship

with liquidity providers under OCC's committed facilities, OCC is not

reliant on the dealers or agent to execute a draw to meet same-day

settlement obligations, as discussed above. In addition, the LRMF would

provide that OCC would monitor and manage its relationship with the

dealers and issuing and paying agent as ``Financial Institutions''

under the TPRMF, as that term is defined therein.

OCC would also amend the TPRMF to address how OCC monitors and

manages its relationship with the dealers and issuing and paying agent.

Specifically, OCC would amend the TPRMF to include the dealers and

agent, and the role they play in supporting OCC's Commercial Paper

Program, within the scope of Financial Institutions, which currently

includes OCC's relationships with Clearing Banks, custodians, liquidity

providers and investment counterparties. As such, the on-boarding and

ongoing monitoring of such relationships would be subject to existing

governance through OCC's Credit and Liquidity Risk Working Group

(``CLRWG''), a cross-functional group comprised of representatives from

relevant OCC business units including Treasury, Stress Testing and

Liquidity, Collateral and Third-Party Risk Management. OCC believes

that CLRWG is the appropriate internal working group for reviewing

these relationships given its existing role in managing OCC's liquidity

risks, resources and relationships.

E. Federal Reserve Account

OCC also proposes to amend its Rules and the Cash and Investment

Management Policy to allow for the Commercial Paper Program proceeds to

be held in one of its Federal Reserve Bank accounts. As part of OCC's

designation as a systemically important financial market utility

(``SIFMU'') by the Financial Stability Oversight Council (``FSOC'') on

July 18, 2012, OCC is eligible pursuant to Section 806 of Title VIII of

the Dodd-Frank Act to request the use of certain accounts and services

of Federal Reserve Banks.\29\ OCC has been approved by the Board of

Governors of the Federal Reserve System to maintain a Federal Reserve

Bank account to hold, among other things, cash deposits from its

Clearing Members to satisfy margin, Clearing Fund requirements, and

OCC's corporate funds.\30\ However, OCC Rule 1002 and OCC Rule 604B

impose certain restrictions on the manner in which OCC must hold

Clearing Fund contributions and margin assets.\31\

[[Page 34690]]

Consistent with these requirements, OCC's Federal Reserve Bank account

in which it would maintain the Commercial Paper Program proceeds

currently is limited to Clearing Fund contributions and certain non-

customer cash margin assets.\32\

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\29\ 12 U.S.C. 5465.

\30\ See Federal Reserve Bank of Chicago authorization to

provide accounts and services to Options Clearing Corporation and

Chicago Mercantile Exchange, Inc., in accordance with the Dodd-Frank

Act and Regulation HH, approved March 15, 2016 ( https://www.federalreserve.gov/releases/h2/20160319/h2.pdf ). OCC has also

been approved to maintain two additional accounts to serve as

customer segregated accounts as defined under Section 4d of the

Commodity Exchange Act. Since these accounts are segregated margin

accounts, the change discussed herein does not impact these

accounts.

\31\ See OCC Rule 604B(c) (providing authority to commingle

funds held by the Corporation as non-customer margin assets in a

Federal Reserve bank account with cash Clearing Fund contributions);

OCC Rule 1002, I&P .04 (providing authority to commingle cash

Clearing Fund contributions in a Federal Reserve bank account with

non-customer margin assets).

\32\ See Exchange Act Release No. 90100 (Oct. 6, 2020), 85 FR

64603 (Oct. 13, 2020) (SR-OCC-2020-010) (approving proposed rule

changes to allow OCC to commingle certain non-customer margin assets

with Clearing Fund contributions in OCC's Federal Reserve bank

account).

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To safeguard the prefunded cash proceeds from the Commercial Paper

Program, OCC proposes to amend I&P .04 to OCC Rule 1002 and OCC Rule

604B(c)(2) to allow OCC to maintain the Commercial Paper Program

proceeds in the same Federal Reserve Bank account as the Clearing Fund

cash and non-customer cash margin. Like the cash Clearing Fund

contributions, the Commercial Paper Program proceeds are funds that OCC

would use exclusively to manage a Clearing Member default or other

event for which OCC is authorized to use Clearing Fund deposits under

OCC Rule 1006. In addition, OCC believes that the ability to hold the

Commercial Paper Program proceeds in its Federal Reserve bank account

would be consistent with Commission rules for covered clearing agencies

that encourage the use of central bank services to conduct money

settlements,\33\ custody qualifying liquid resources,\34\ and enhance

management of liquidity risk.\35\ Accordingly, OCC believes holding

these funds together with the Clearing Fund cash in a Federal Reserve

Bank account is both prudent and supported by applicable regulatory

requirements. OCC intends to establish a subaccount under its master

Federal Reserve Bank account to segregate the Commercial Paper Program

proceeds from other funds maintained in the master account.

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\33\ 17 CFR 240.17ad-22(e)(9).

\34\ 17 CFR 240.17ad-22(a) (``Qualifying liquid resources'').

\35\ 17 CFR 240.17ad-22(e)(7)(iii).

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In connection with the above changes to OCC's Rules, OCC would also

amend its Cash and Investment Management Policy. Specifically, OCC

would update that policy to recognize the Commercial Paper Program

proceeds would be a form of OCC cash, as opposed to Clearing Member

cash. As defined in the Cash and Investment Management Policy, OCC's

cash includes, among other things, working capital cash related to

future operating costs, inclusive of financial resources held to meet

liquidity and resiliency requirements. In contrast, Clearing Member

cash is cash received from and held by OCC on behalf of its Clearing

Members, including Clearing Fund cash, margin cash, cash held in

liquidating settlement accounts, proceeds from OCC's liquidity

facilities, and investments made with Clearing Member cash. Since the

Commercial Paper Program proceeds are obtained through OCC's issuance

of unsecured debt, such proceeds are a form of OCC cash. However,

unlike other OCC cash, which OCC maintains at creditworthy commercial

banks and may invest in Government securities through reverse

repurchase agreements with investment counterparties, the policy would

provide that the Commercial Paper Program proceeds would be held

exclusively at a Federal Reserve Bank and would not be invested. The

policy would further provide that interest earned on Commercial Paper

Program proceeds held at a Federal Reserve Bank will accrue to the

benefit of OCC. Such accrued interest would help to partially offset

OCC's costs to issue the interest-bearing Notes.

F. Default Management

OCC also proposes to amend its Default Management Policy to provide

for the governance process for using Commercial Paper Program proceeds

in the event of a Clearing Member suspension, settlement bank failure,

or other situation in which OCC may need to draw upon its Clearing Fund

to cover losses or liquidity shortfalls. In such events, the policy

provides that the Chairman, Chief Executive Officer (``CEO'') or Chief

Operating Officer (``COO'') have authority under OCC Rule 1006 to

authorize OCC's Treasury office within its Finance Department to draw

on OCC's committed liquidity facilities or borrow cash deposits

maintained in the Clearing Fund as necessary. In actuality, OCC Rule

1006(f)(2)(A)(iii) currently provides that OCC may use funds it takes

possession of under Rule 1006(f) to borrow or otherwise obtain funds

through any means determined to be reasonable at the discretion of the

Chairman, CEO or COO. OCC's Office of the Chief Executive Officer

(``OCEO''), currently comprised of the CEO and COO, has already

determined that drawing on an existing committed liquidity facility or

borrowing Clearing Fund cash deposits are reasonable means to borrow or

otherwise obtain funds under Rule 1006 in such events. The Default

Management Policy would be amended to note this determination, in place

of the current statement about what OCC Rule 1006 authorizes.

With respect to approving a particular borrowing or draw, OCC would

further amend the Default Management Policy to provide that the OCEO,

OCC's Chief Financial Risk Officer (``CFRO''), Chief Risk Officer

(``CRO''), or their delegates may authorize OCC's Treasury, a business

unit within the Finance Department, to initiate a draw from OCC's

committed facilities or borrow cash deposits maintained in the Clearing

Fund to meet settlement obligations. OCC believes that expanding the

universe of the senior managers or their delegates who are authorized

to approve such measures is prudent to mitigate the operational risk

that one or more of those individuals would not be available to approve

such a time-sensitive request. If those individuals were unavailable to

approve the request, OCC may not be able to obtain the funds in a

timely enough manner and may need to extend settlement obligations

under OCC Rule 505. In addition, OCC would amend the Default Management

policy to provide that the same individuals would have the authority to

approve the use of Commercial Paper Program proceeds in such

situations. The Default Management Policy would further provide that

any other means of borrowing or otherwise obtaining funds requires

approval from the Chairman, CEO or COO, consistent with the

determination required under OCC Rule 1006(f).

(1) Administrative Changes

OCC also proposes to make certain non-substantive changes and

corrections to its rules for clarity, including:

OCC would add titles (i.e., ``Clearing Fund Cash

Requirement,'' ``Commercial Paper Program'' and ``Committed

Facilities'') to the descriptions in a list of qualifying liquid

resources that count as Base Liquidity Resources in the LRMF.

OCC would correct a cross-reference to the definition of

the term ``qualifying liquid resources'' in the LRMF to conform with

amendments to the Covered Clearing Agency Standards that removed the

numbering of definitions under Exchange Act Rule 240.17Ad-22(a).\36\

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\36\ See Exchange Act Release No. 99149 (Dec. 13, 2023), 89 FR

2714, 2829 (S7-23-22).

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Where the LRMF, TPRMF or Cash and Investment Management

Policy define terms at an earlier point in the document, OCC would

carry those

[[Page 34691]]

defined terms through the remainder of the document, as appropriate.

Consistent with respect to other policies and

frameworks,\37\ OCC would remove the version number from the Cash and

Investment Management Policy. Such version numbers do not constitute a

rule and are instead reflected in an internal system of record that OCC

uses to manage its policy governance.

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\37\ See Exchange Act Release No. 93436 (Oct. 27, 2021), 86 FR

60499, 60501 (Nov. 2, 2021) (SR-OCC-2021-010).

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Anticipated Effect on and Management of Risk

As a covered clearing agency and DCO, OCC's ability to meet

settlement demands in the event of a Clearing Member default, or the

failure of another participant to meet its obligations to OCC, is

critical to the markets that OCC serves. OCC believes that the overall

effect of the Commercial Paper Program on the risk profile at OCC would

be to reduce liquidity risk associated with OCC's function as a covered

clearing agency and DCO by providing it with an additional liquidity

resource to meet same-day settlement demands in the event of a Clearing

Member default or other scenario in which OCC may access its Clearing

Fund under OCC Rule 1006. In addition, the Commercial Paper Program has

a mix of benefits when compared with OCC's other liquidity resources.

Like the Clearing Fund Cash Requirement, the Commercial Paper Program

would be a prefunded source of liquidity, thus avoiding the operational

risk of drawing on a committed facility when necessary to meet same-day

settlement obligations. Also like the Clearing Fund Cash Requirement,

OCC expects that the Commercial Paper Program would allow OCC to source

new liquidity quickly and efficiently. However, unlike calling for

additional cash from Clearing Members by increasing the Clearing Fund

Cash Requirement, the Commercial Paper Program would not impose

opportunity costs \38\ on its Clearing Members. In addition, like OCC's

non-bank liquidity facility, the Commercial Paper Program would not

increase the concentration of OCC's credit risk to its participants.

That is, by maintaining Commercial Paper Program proceeds as prefunded

financial resources at a Federal Reserve Bank, OCC's liquidity sources

would rely less on committed funding arrangements from financial

institutions to which OCC faces credit risk through other

relationships, including as Clearing Members, settlement banks,

custodians or investment counterparties. As such, OCC believes that the

addition of the Commercial Paper Program would strengthen OCC's

liquidity risk management as part of a diverse set of liquidity

sources.

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\38\ In this context, ``opportunity costs'' refers to Clearing

Members' loss of potential gain when required to deposit cash with

OCC rather than deploying their capital in some other way.

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The Commercial Paper Program, like any liquidity resource, would

involve certain risks, most of which are standard in any commercial

paper program. OCC has structured the proposed Commercial Paper Program

to address: (1) repayment risk, (2) rollover risk, (3) interest rate

risk, and (4) custody risk.

(1) Repayment Risk

In this context, repayment risk is the risk that OCC would not have

access to sufficient financial resources to repay the face value of the

issued Notes upon maturity. OCC believes that this risk is extremely

remote because the proceeds of the Commercial Paper Program would be

used only in the event of a Clearing Member default or other scenario

in which the Clearing Fund may be charged under OCC Rule 1006. In the

event of a Clearing Member default, OCC would replace the cash, as it

would for any liquidity resource it utilized, with eligible proceeds

from the liquidation of the defaulting Clearing Member's portfolio. OCC

proposes to structure the Commercial Paper Program to mitigate

repayment risk by providing authority under its Rules to charge or

borrow from the Clearing Fund to obtain resources to pay the Notes upon

maturity if OCC used the Commercial Paper Program proceeds to meet

settlement demands. In addition, OCC proposes to amend its rules to

include the Commercial Paper Program proceeds when calculating the

minimum size of the Clearing Fund. Furthermore, as discussed above, the

staggering of maturities would eliminate the risk that the Notes become

due at one time. OCC believes that these measures ensure that OCC will

have access to financial resources to repay the Commercial Paper

Proceeds upon the maturity of the Notes.

(2) Rollover Risk

At the maturity of any Note, OCC would look to fund a new Note,

i.e., ``rollover'' the Note. Rollover risk is the risk that a rollover

of expiring Notes may not fund, leaving OCC without the liquidity

provided by those Notes upon their expiration. As discussed above, OCC

proposes to structure the Commercial Paper Program to manage rollover

risk by staggering the maturities of the Notes it issues, thereby

reducing a concentration in expiring Notes. The proposed rules would

also allow the Board to cap the amount of Commercial Paper Program

proceeds that could be counted towards OCC's Base Liquidity Resources.

Such a cap would further mitigate the risk that a failure to rollover

expiring Notes would reduce OCC's qualifying liquid resources below its

Cover 1 liquidity requirement. In addition, OCC would mitigate this

risk by maintaining a diverse set of other liquidity sources, including

the Clearing Fund Cash Requirement and the committed facilities,

thereby reducing the risk that OCC would be dependent on any one

liquidity source.

(3) Interest Rate Risk

Interest rate risk is the risk that the interest rate that OCC

would pay on the interest-bearing Notes may become dislocated from the

interest rate that OCC earns by holding the Commercial Paper Program

proceeds at the Federal Reserve. Such dislocation could increase OCC's

costs for maintaining the Commercial Paper Program. OCC proposes to

address such interest rate risk by limiting the duration of the Notes

it issues to no more than 180 days. OCC's current plan is to begin

issuing Notes with maturities of 90 days. Based on an analysis of 90-

day commercial paper rates compared to the Interest Rate on Reserve

Balances (``IORB'') and the Interest Rate on Required Reserves

(``IORR'') over the last fifteen years, OCC believes that the impact of

issuing the Notes on OCC's own financials would be minimal.\39\

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\39\ See Exhibit 3C [sic] to File No. SR-OCC-2026-801, supra

note 18 (presenting OCC's analysis).

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(4) Custody Risk

In this context, custody risk is the risk associated with

safeguarding OCC's qualifying liquid resources and ensuring that OCC

has prompt access to those resources to satisfy settlement demands on a

same-day basis if needed. OCC proposes to structure the Commercial

Paper Program to mitigate such custody risk by holding the Commercial

Paper Program proceeds in one of its Federal Reserve Bank accounts. As

part of the U.S. central banking system, the Federal Reserve Bank of

Chicago, where OCC maintains its accounts, is among the safest and most

sound depository institutions in the world. Accordingly, OCC believes

that maintaining the Commercial Paper Program proceeds in its Federal

Reserve bank account along with other qualifying liquid resources would

appropriately safeguard those assets and minimize the risk of OCC's

loss or delay in access to them. In

[[Page 34692]]

addition, OCC would maintain the proceeds in cash and would not invest

the proceeds in Government securities through overnight reverse-

repurchase agreements, as it periodically invests its working capital

and other permitted cash. Holding the proceeds in cash helps ensure

that they will be available to meet settlement demands on a same-day

basis, if needed.

Consistency With the Clearing Supervision Act

The stated purpose of the Clearing Supervision Act is to mitigate

systemic risk in the financial system and promote financial stability

by, among other things, promoting uniform risk management standards for

SIFMUs and strengthening the liquidity of SIFMUs.\40\ Section 805(a)(2)

of the Clearing Supervision Act \41\ also authorizes the Commission to

prescribe risk management standards for the payment, clearing and

settlement activities of designated clearing entities, like OCC, for

which the Commission is the supervisory agency. Section 805(b) of the

Clearing Supervision Act \42\ states that the objectives and principles

for risk management standards prescribed under Section 805(a) shall be

to:

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\40\ 12 U.S.C. 5461(b).

\41\ 12 U.S.C. 5464(a)(2).

\42\ 12 U.S.C. 5464(b).

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promote robust risk management;

promote safety and soundness;

reduce systemic risks; and

support the stability of the broader financial system.

The Commission has adopted risk management standards in furtherance

of these objectives and principles.\43\ Specifically, Rule 17ad-22(e)

requires covered clearing agencies, like OCC, to establish, implement,

maintain, and enforce written policies and procedures that are

reasonably designed to meet certain minimum requirements for their

operations and risk management practices on an ongoing basis.\44\

Therefore, the Commission has stated \45\ that it believes it is

appropriate to review changes proposed in advance notices against Rule

17Ad-22 \46\ and the objectives and principles of these risk management

standards as described in Section 805(b) of the Clearing Supervision

Act.\47\

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\43\ See 17 CFR 240.17ad-22.

\44\ 17 CFR 240.17ad-22(e).

\45\ See, e.g., Exchange Act Release No. 99731 (Mar. 13, 2024),

89 FR 19629, 19632-33 (Mar. 10, 2024) (SR-OCC-2023-801).

\46\ 17 CFR 240.17ad-22.

\47\ 12 U.S.C. 5464(b).

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OCC believes that the proposed changes are consistent with Section

805(b) of the Clearing Supervision Act \48\ because the Commercial

Paper Program would provide OCC with access to an additional source of

prefunded qualifying liquid resources within its risk management

toolbox to manage financial obligations more efficiently and

effectively. As described above, the Commercial Paper Program would be

structured to mitigate the risks that arise in connection with

commercial paper programs, including repayment risk, rollover risk,

interest rate risk, and custody risk, thereby promoting robust risk

management consistent with Section 805(b)(1).\49\ For example, OCC

would mitigate custody risk by safekeeping the Commercial Paper

Proceeds in its Federal Reserve Bank account, thereby promoting safety

and soundness consistent with Section 805(b)(2).\50\ In addition, the

proceeds of the Commercial Paper Program would be available for OCC to

meet settlement obligations in the event of a Clearing Member default,

or such other scenarios in which OCC is permitted to use its Clearing

Fund under OCC Rule 1006. Maintaining access to sufficient qualifying

liquid resources mitigates the risk that OCC would exercise its

authority to extend settlement obligations, which could have downstream

impacts on its participants and the markets OCC serves, including the

potential impact OCC's failure to make settlement could have on the

ability of other market participants to meet their own financial

obligations. As FSOC concluded when it designated OCC as a SIFMU under

Title VIII of the Dodd-Frank Act,\51\ ``a failure of or a disruption to

OCC could increase the risk of significant liquidity or credit problems

spreading among financial institutions or markets and thereby threaten

the stability of the financial system of the United States.'' \52\ OCC

believes that by helping ensure that OCC has sufficient qualifying

liquid resources to meet its liquidity demands, the proposed changes

are consistent with paragraphs (3) and (4) of Section 805(b) \53\ by

mitigating systemic risk that could threaten the stability of the

broader financial system. In these ways, the proposed changes are

designed to promote robust risk management, promote safety and

soundness, reduce systemic risks, and support the stability of the

broader financial system.

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\48\ 12 U.S.C. 5464(b).

\49\ 12 U.S.C. 5464(b)(1).

\50\ 12 U.S.C. 5464(b)(2).

\51\ 12 U.S.C. 5463.

\52\ FSOC Annual Report (2012), Appendix A at 187, available at

https://home.treasury.gov/system/files/261/2012-Appendix-A-Designation-of-Systemically-Important-Market-Utilities.pdf .

\53\ 12 U.S.C. 5464(b)(3)-(4).

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Exchange Act Rule 17Ad-22(e)(7)(i) requires that OCC establish,

implement, maintain and enforce written policies and procedures

reasonably designed to maintain sufficient liquid resources at the

minimum in all relevant currencies to effect same-day and, where

appropriate, intraday and multiday settlement of payment obligations

with a high degree of confidence under a wide range of foreseeable

stress scenarios that includes, but is not limited to, the default of

the participant family that would generate the largest aggregate

payment obligation for the covered clearing agency in extreme but

plausible market conditions.\54\ As described above, the proposed

change would allow OCC to establish its Commercial Paper Program, which

would in turn help provide OCC with a prefunded qualifying liquid

resource that would enable it to continue to meet its obligations in a

timely manner and address OCC's liquidity demands under stressed or

volatile market conditions. Accordingly, OCC believes that the proposed

changes are consistent with Exchange Act Rule 17Ad-22(e)(7)(i).\55\

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\54\ 17 CFR 240.17ad-22(e)(7)(i).

\55\ Id.

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Exchange Act Rule 17Ad-22(e)(7) \56\ also promotes the use of

central bank services by a covered clearing agency to conduct money

settlements. Specifically, Exchange Act Rule 17Ad-22(e)(7)(ii) requires

OCC to establish, implement, maintain and enforce written policies and

procedures reasonably designed to hold qualifying liquid resources

sufficient to satisfy its Cover 1 liquidity requirement in the currency

for which OCC has payment obligations owed to Clearing Members.\57\

Exchange Act Rule 17Ad-22(a) defines ``qualifying liquid resources'' to

include, among other things, cash held at the central bank of

issue.\58\ In addition, Exchange Act Rule 17Ad-22(e)(7)(iii) requires

OCC to establish, implement, maintain and enforce written policies and

procedures reasonably designed to use its access to accounts and

services at a Federal Reserve Bank when available and where determined

to be practical by OCC's Board to enhance its management of liquidity

risk.\59\ OCC proposes to maintain the proceeds of the Commercial Paper

Program in U.S. dollars, the currency in which OCC

[[Page 34693]]

conducts its settlements, held in a Federal Reserve Bank account along

with other qualifying liquid resources. Accordingly, OCC believes that

the proposal is consistent with Exchange Act Rules 17Ad-22(e)(7)(ii)

and (iii).\60\

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\56\ 17 CFR 240.17ad-22(e)(7).

\57\ 17 CFR 240.17ad-22(e)(7)(ii).

\58\ 17 CFR 240.17ad-22(a) (``Qualifying liquid resources'').

\59\ 17 CFR 240.17ad-22(e)(7)(iii).

\60\ 17 CFR 240.17ad-22(e)(7)(ii), (iii).

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Exchange Act Rule 17Ad-22(e)(16) requires OCC to establish,

implement, maintain, and enforce written policies and procedures

reasonably designed to safeguard its own and its participants' assets,

minimize the risk of loss and delay in access to these assets, and

invest such assets in instruments with minimal credit, market, and

liquidity risks.\61\ In adopting Exchange Rule 17Ad-22(e)(16),\62\ the

Commission stated that in satisfying the requirements a covered

clearing agency should consider, among other things: (i) whether it

holds its own and its participants' assets at supervised and regulated

entities that have robust accounting practices, safekeeping procedures,

and internal controls that fully protect these assets; (ii) whether it

has prompt access to its assets and the assets provided by

participants, when required; and (iii) whether it evaluates and

understands its exposures to its custodian banks, taking into account

the full scope of its relationships with each.\63\ As discussed above,

OCC believes that the proposed changes are consistent with these

considerations by requiring OCC to hold the Commercial Paper Program

proceeds as qualifying liquid resources in one of its Federal Reserve

Bank accounts, thereby mitigating the custody risk of maintaining such

assets.

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\61\ 17 CFR 240.17ad-22(e)(16).

\62\ Id.

\63\ See Exchange Act Release No. 34-78961, 81 FR at 70786 at

70837 (Oct. 13, 2016).

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For the foregoing reasons, OCC believes that the proposed changes

are consistent with Section 805(b)(1) of the Clearing Supervision Act

\64\ and Rules 17Ad-22(e)(7) and (e)(16) under the Exchange Act.\65\

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\64\ 12 U.S.C. 5464(b)(1).

\65\ 17 CFR 240.17ad-22(e)(7), (16).

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III. Date of Effectiveness of the Advance Notice and Timing for

Commission Action

The proposed change may be implemented if the Commission does not

object to the proposed change within 60 days of the later of (i) the

date that the proposed change was filed with the Commission or (ii) the

date that any additional information requested by the Commission is

received. The clearing agency shall not implement the proposed change

if the Commission has any objection to the proposed change.

The Commission may extend period for review by an additional 60

days if the proposed change raises novel or complex issues, subject to

the Commission or the Board of Governors of the Federal Reserve System

providing the clearing agency with prompt written notice of the

extension. A proposed change may be implemented in less than 60 days

from the date the advance notice is filed, or the date further

information requested by the Commission is received, if the Commission

notifies the clearing agency in writing that it does not object to the

proposed change and authorizes the clearing agency to implement the

proposed change on an earlier date, subject to any conditions imposed

by the Commission. The clearing agency shall post notice on its website

of proposed changes that are implemented.

The proposal shall not take effect until all regulatory actions

required with respect to the proposal are completed.

IV. Solicitation of Comments

Interested persons are invited to submit written data, views and

arguments concerning the foregoing, including whether the advance

notice is consistent with the Act. Comments may be submitted by any of

the following methods:

Electronic Comments

Use the Commission's internet comment form ( https://www.sec.gov/rules-regulations/self-regulatory-organization-rulemaking );

or

Send an email to [email protected] . Please include

file number SR-OCC-2026-801 on the subject line.

Paper Comments

Send paper comments in triplicate to Secretary, Securities

and Exchange Commission, 100 F Street NE, Washington, DC 20549.

All submissions should refer to file number SR-OCC-2026-801. 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 of submission. The Commission will post all

comments on the Commission's internet website ( https://www.sec.gov/rules-regulations/self-regulatory-organization-rulemaking ). Copies of

this filing 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 .

Do not include personal identifiable information in submissions;

you should submit only information that you wish to make available

publicly. We may redact in part or withhold entirely from publication

submitted material that is obscene or subject to copyright protection.

All submissions should refer to file number SR-OCC-2026-801 and

should be submitted on or before June 29, 2026.

For the Commission, by the Division of Trading and Markets,

pursuant to delegated authority.\66\

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\66\ 17 CFR 200.30-3(a)(12).

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Sherry R. Haywood,

Assistant Secretary.

[FR Doc. 2026-11378 Filed 6-5-26; 8:45 am]

BILLING CODE 8011-01-P