2016 OCC Comment Letters
Final Rule on Options use in IRAs
On April 6, 2016 the U.S. Department of Labor issued final rules surrounding the fiduciary standard. In its original format, the proposal would have prohibited the use of listed options by self-directed individual investors in their IRA accounts. Through the efforts of OCC and the U.S. Securities Markets Coalition and concerned market participants such as you, the final rules omitted the exempted asset list. This means that options and other asset classes can continue to be used in self-directed IRA accounts. OCC's official announcement on the final rules can be found here.
The European Commission, November 16, 2016
Comments on Extension of the Transitional Periods Related to Own Funds Requirements for Exposures to Central Counterparties
As an update to its application to be recognized as a Qualifying Central Counterparty, OCC submitted a comment letter on November 16th to the European Commission supporting their draft regulation to push back the effective date of the EU Capital Requirements Regulation from December 15, 2016, to June 15, 2017. The proposed delay would afford the EC and the U.S. Securities and Exchange Commission more time to negotiate an equivalency determination for the SEC's CCP regulatory regime. Without the delay, OCC's clearing members affiliated with European banks or other European financial institutions would be subject to significantly higher capital charges under the EU Capital Requirements Regulation.
The Committee on Payments and Market Infrastructures (CPMI), October 18, 2016
OCC Response to Resilience and Recovery of Central Counterparties
In a letter to The Committee on Payments and Market Infrastructures (CPMI) and The International Organization of Securities Commissions (IOSCO) regarding the recently released CPMI-IOSCO consultative report on the resilience and recovery of central counterparties (CCPs), OCC said it appreciates that policy makers should be proactive in ensuring that the regulation of financial markets keep pace with market evolution and that smarter regulation is a goal all parties should strive to achieve. OCC stated its concern that certain aspects of the consultation are too prescriptive and do not afford CCPs such as OCC sufficient flexibility to adapt and apply these principles in the most effective manner for their businesses and the markets they serve. In addition, OCC feels that in several areas of the consultation, the further guidance actually contradicts the Committee's Principles for Financial Market Infrastructures (PFMI), which already have been implemented by most G20 national regulators in the form of binding regulatory requirements.
Financial Stability Board, October 17, 2016
OCC Comments on Essential Aspects of CCP Resolution Planning
On October 17, OCC provided comments to the Financial Stability Board (FSB) on the issue of essential aspects of CCP resolution planning. OCC supports the work being done regarding CCP resiliency and recovery, but reiterated its concern that in providing guidance regarding resolution, the FSB and other policymakers should not prevent a CCP like OCC from fully implementing its recovery plan and should avoid suggesting steps or processes that undermine the CCP recovery process. OCC said that it is very important in planning for CCP resolution that policymakers focus on resolution planning that promotes market certainty while giving resolution authorities and CCPs the flexibility to deal with actual events as they occur.
Senate Finance Committee, August 26, 2016
Comments on the Discussion Draft of the "Modernization of Derivatives Tax Act of 2016"
OCC and the U.S. Securities Markets Coalition provided preliminary comments on the discussion draft of the Modernization of Derivatives Tax Act of 2016. While OCC and the Coalition agree with Senator Wyden's stated interest in creating "one fair system with simple and straightforward rules," they do not believe the discussion draft would advance those objectives, but instead would create results that are neither fair, nor simple, nor straightforward as applied to exchange-traded options.
U.S. Department of the Treasury and the Internal Revenue Service, August 16, 2016
Comments Requesting Postponement of Final and Temporary 871(m) Regulations
OCC, on behalf of the U.S. Securities Markets Coalition, submitted a letter to the U.S. Department of the Treasury and the Internal Revenue Service, requesting a one-year postponement of the effective date of the final and temporary regulations issued under section 871(m). Since the promulgation of the regulations ten months ago, OCC's clearing members have been working to make the changes to their systems necessary to implement the regulations. Given the sheer magnitude of the approximately 850,000 unique options series that are available for trading and that would need to be reviewed each trading day to determine whether they are in-scope, as well as the cooperation that the regulations require among a wide range of market participants, OCC does not expect its members' systems will be operational by the January 1, 2017 deadline. OCC and the Coalition join other organizations in requesting the temporary, one-year postponement of the effective date of the regulations.
House Financial Services Committee, July 15, 2016
Comments on Financial CHOICE Act of 2016
On July 15, 2016, OCC submitted a comment letter to the Chairman of the House Financial Services Committee (Committee) on the Discussion Draft of the Financial CHOICE Act of 2016 (Draft). The letter recommends that the Committee clarify that the provisions of Title VI of the Draft that refer to "regulations" and "rules" are not intended to apply to rules of self-regulatory organizations. In addition, the letter provides a brief overview of the potential unintended consequences of repealing Title VIII of the Dodd-Frank Act given the rules, regulations and market evolution currently in place based on provisions in that legislation.
U.S. Securities and Exchange Commission, July 13, 2016
Comments on the Securities Exchange Act of 1934
OCC, along with 10 firms, submitted a comment letter to the U.S. Securities and Exchange Commission (SEC) regarding the proposal to amend Rule 15b9-1 under the Securities Exchange Act of 1934. The proposal would amend the rule to require broker-dealers that engage in off-exchange trading and non-member exchange trading to become members of FINRA. Through its impact on options market making firms, the letter addresses the disproportionate impact the proposal will have on the options markets and investors in those markets. The letter offers alternatives for the SEC to consider with regard to the proposal's application to options market making firms should the SEC decide to move forward with it.
Basel Committee on Banking Supervision, July 6, 2016
Consultation on Revisions to the Basel III leverage ratio framework
On July 6, 2016, OCC, along with 30 other exchanges, clearing organizations, and market participants, sent a letter to the Basel Committee on Banking Supervision regarding the Consultative Document on Revisions to the Basel III Leverage Ratio Framework. The letter states that unless the Standardized Approach for Counterparty Credit Risk (SA-CCR) method is allowed as a replacement for the Current Exposure Method (CEM) in the leverage calculation for exchange-traded derivative exposures, the application of the leverage ratio will result in vastly increased capital requirements for general clearing members offering clearing services to market makers and liquidity providers. The letter says this action will fundamentally threaten their business models and impact the liquidity and stability of global financial markets, and would be contrary to the G20 commitments on central clearing.
Securities and Exchange Commission, June 13, 2016
OCC Comments Regarding the Adoption of an Options Exchange Risk Control Standards Policy
OCC submitted a letter to the SEC in response to comments made by market participants on OCC's recent proposal regarding the adoption on an Options Exchange "Risk Controls Standards Policy." OCC's Policy would address risks from transactions that are executed on an options exchange that does not adhere to certain risk controls that are consistent with a set of principles-based Risk Controls Standards which were developed by OCC, in cooperation with the options exchanges, and impose a fee for trades executed on an options exchange that is not compliant with the Risk Controls Standards. The Proposal is intended to control risk and protect OCC against potentially very large losses that, in extreme cases, could threaten the stability of the U.S. listed options market.
Securities and Exchange Commission, March 25, 2016
Comments on SEC Fund use of Derivatives
OCC, on behalf of the U.S. Securities Markets Coalition, submitted a letter to the U.S. Securities and Exchange Commission (SEC) on the Commission's proposal regarding the use of derivatives by registered investment companies and business development companies. The letter outlines concerns by OCC and the Coalition that certain aspects of the proposal will limit the ability of funds to effectively use exchange-traded options.
U.S. Treasury and IRS, February 24, 2016
Comments Regarding Final Section 871(m) Regulations
OCC and the U.S. Securities Markets Coalition submitted a letter to the Department of the Treasury and the Internal Revenue Service addressing certain issues raised for listed options by the final section 871(m) regulations issued on September 18, 2015. In the letter, the Coalition acknowledges the tremendous effort that went into crafting the final regulations, but recommends certain clarifications and improvements to them as they apply to listed options to help lessen the compliance burdens imposed on broker-dealers. The letter includes a recommendation that the regulations permit the deltas of listed options to be determined based on the prior day's closing prices and permit broker-dealers and other parties to use end-of-day deltas generated by OCC.
House Financial Services Committee, February 11, 2016
OCC Comments on Amendments to Securities Exchange Act
OCC joined NYSE Group, Nasdaq, CBOE, Chicago Stock Exchange, and ISE in a letter to leaders of the House Financial Services Committee to express opposition to legislation seeking to amend the Securities Exchange Act of 1934 ("Exchange Act") to add voting members that are not self-regulatory organizations ("SROs") to the various National Market System plans ("NMS Plans"). As noted in the letter, SROs such as ones operated by the signatories to the letter are uniquely positioned to operate NMS Plans because each SRO, unlike broker-dealers, carries the obligation to enforce compliance with the Exchange Act.