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Federal Register / Vol. 86, No. 16 / Wednesday, January 27, 2021 / Notices
A Clearing Agencys Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1 Purpose The purpose of revised I&P .01 to OCC
Rule 602 is to achieve compliance with recent amendments to CFTC Regulation 39.13g8ii.8 Departing from the historical practice of establishing distinct minimum initial margin requirements for hedge and speculative customer accounts,9 revised CFTC
Regulation 39.13g8ii provides that a derivatives clearing organization DCO shall establish a minimum initial margin requirement that clearing members must charge their customers with respect to each product and portfolio that is commensurate with the risk presented by each customer account.10 The revised regulation also provides DCOs reasonable discretion in establishing a higher minimum initial margin requirement that clearing members must collect for categories of customers determined by the clearing member to have heightened risk profiles.11 As amended, I&P .01 to Rule 602 will allow OCC to achieve compliance with CFTC Regulation 39.13g8ii by requiring Clearing Members to determine which futures customers or categories of futures customers have heightened risk profiles and to collect, at a minimum, the amount of initial margin established by OCC for such customers or categories of customers from time to time. The proposal also eliminates the existing language in I&P .01 to OCC Rule 602
contemplating distinct margin requirements for customer hedge and speculative positions.12
OCC also proposes to adopt I&P .02 to OCC Rule 602 to facilitate no-action relief granted by the CFTC. By way of background, in 2011, the CFTC adopted Regulation 39.13g8iii requiring each DCO to prohibit the withdrawal of funds from a customer account unless the clearing member holds a sufficient amount of the customers assets to cover its initial margin requirements with respect to products cleared by the 8 85

FR at 4812 and 4856.
e.g. 85 FR at 4812.
10 17 CFR 39.13g8ii.
11 Id.
12 OCC plans to distribute information used to calculate the minimum initial margin requirement for futures customer accounts and futures customer accounts with heightened risk profiles through a daily theoretical pricing file that is distributed to Clearing Members. OCC currently uses a similar approach for information used to calculate the minimum initial margin requirement for hedge and speculative positions of futures customers.

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DCO.13 In 2012, OCC adopted Rule 602b to satisfy this requirement.14
CFTC staff has issued time-limited noaction relief pursuant to which a DCO
may allow a futures commission merchant FCM clearing member to treat the separate accounts of a customer as accounts of separate entities for purposes of CFTC Regulation 39.13g8iii, provided that the clearing member satisfies several conditions set forth in the letter.15
Proposed I&P .02 creates an exception to OCC Rule 602b that allows FCM
Clearing Members that satisfy the conditions established by the CFTC to treat separate futures customer accounts as accounts of separate entities for purposes of OCC Rule 602b.
Finally, the proposed rule change adds I&P .01 to OCC Rule 1103, which specifies that OCC will publish a public notice of a decision to suspend a Clearing Member on its website as soon as reasonably practical. OCC is adopting this I&P to achieve compliance with CFTC Regulation 39.16c2ii, which requires each DCO to adopt rules describing the actions a DCO will take upon a default,16 which must include posting a public notice of a declaration of default on the DCOs website.17
OCC proposes to make the revisions to the I&Ps to OCC Rules 602 and 1103
described above effective on January 27, 2021. This effective date aligns to the compliance date for the revisions to Part 39 of the CFTC regulations.18
2 Statutory Basis Section 17Ab3F 19 of the Act requires, among other things, that the rules of a clearing agency be designed to promote the prompt and accurate clearance and settlement of securities and derivatives transactions and protect investors and the public interest. OCC
believes that the proposed rule change is consistent with Section 17Ab3F
13 Derivatives Clearing Organization General Provisions and Core Principles, 76 FR 69334, 69374
November 8, 2011.
14 See File No. SROCC2012006.
15 CFTC Letter No. 1917, Comm. Fut. L. Rep.
34,523 July 10, 2019 granting time-limited noaction relief with respect to CFTC Regulation 39.13g8iii until June 30, 2021. See also CFTC
Letter No. 2028, Comm. Fut. L. Rep. 34,798
September 15, 2020 extending the time-limited no-action relief with respect to CFTC Regulation 39.13g8iii until December 31, 2021.
16 CFTC Regulation 39.16c2ii also requires DCOs to adopt rules providing for the prompt transfer, liquidation, or hedging of the customer or house positions of the defaulting clearing member, as applicable. Chapter XI of OCCs Rules addresses this portion of CFTC Regulation 39.16c2ii.
17 17 CFR 39.16c2ii. See also 85 FR at 4815
16 and 4857.
18 See 85 FR at 4800.
19 15 U.S.C. 78q1b3F.

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of the Act.20 As noted above, the proposed revision to I&P .01 to Rule 602
protects investors and the public interest by more clearly describing which accounts are subject to increased initial margin requirements. The addition of .02 to OCC Rule 602 will promote the prompt and accurate clearance and settlement of transactions by accommodating no-action relief that is intended to help Clearing Members and their customers realize operational efficiencies for separate accounts. The proposed addition of I&P .01 to OCC
Rule 1103 promotes the public interest by specifying that OCC will publish a public notice of a decision to suspend a Clearing Member on its website. The proposal also enables OCC to satisfy certain requirements set forth in Part 39
of the CFTC regulations and provides for a well-founded, clear, transparent and enforceable legal basis for its activities in accordance with SEC Rule 17Ad22e1.21 The proposed rule change is not inconsistent with the existing rules of OCC, including any other rules proposed to be amended.
B Clearing Agencys Statement on Burden on Competition Section 17Ab3I of the Act 22
requires that the rules of a clearing agency not impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. OCC does not believe that the proposed rule change would have any impact or impose a burden on competition. Although this proposed rule change affects Clearing Members, their customers, and the markets that OCC serves, OCC believes that the proposed rule change would not disadvantage or favor any particular user of OCCs services in relationship to another user because the proposed amendments apply equally to all users of OCC. OCC also notes that two of the proposed revisions to OCC Rules are designed to achieve compliance with amendments to Part 39 of the CFTC
Regulations, and, in adopting these amendments, the CFTC identified no anticompetitive effects.23 Given that the revisions to I&P .01 to OCC Rule 602
and I&P .01 to OCC Rule 1103 are narrowly tailored to achieve compliance with regulatory requirements for which no anticompetitive effects have been identified, OCC does not believe that these amendments would have any impact or impose a burden on competition. The addition of I&P .02 to 20 15

U.S.C. 78q1b3F.
CFR 240.17Ad22e1.
22 15 U.S.C. 78q1b3I.
23 See 85 FR at 484950.
21 17

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