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OCC Comment on SEC File No. S7.21.22, Clearing Agency Governance and Conflicts of Interest

October 07, 2022
The Options Clearing Corporation (“OCC”) appreciates the opportunity to submit these comments on the above-referenced proposal (“Proposal” or “Proposed Rules”) under the Securities Exchange Act of 1934, as amended (“Exchange Act”). The Proposal would establish new requirements on registered clearing agencies for board and board committee composition, independence determinations for directors, management of conflicts of interest, and board oversight.

OCC believes that robust and transparent governance arrangements with relevant stakeholder input is necessary for effective registered clearing agency risk management. Over the last several years, OCC has taken steps to help ensure its governance framework provides robust management oversight and sound corporate decision-making in consideration of diverse viewpoints representing relevant stakeholders and informed by independent judgment.

As such, we generally support the Securities and Exchange Commission’s (“SEC” or “Commission”) objective of reducing the likelihood that conflicts of interest may influence the board of directors of a registered clearing agency. We believe the Commission’s stated objective for the Proposal can be achieved by adopting, with certain slight modifications detailed below, the provisions of the Proposal that would impose requirements for: (i) the composition of the board, nominating committee, and any committee authorized to act on behalf of the board; (ii) policies and procedures regarding director conflicts of interest and director reporting of conflicts of interest; (iii) circumstances that would preclude a person from being an independent director; and (iv) the establishment of a risk management committee, in some cases with slight but important modifications to the Proposal as discussed below. However, and for the reasons stated below, we believe the other elements of the Proposal are overly prescriptive and conflate the role of the Board with the role of management, and as such we do not support them. Furthermore, we are concerned that overly prescriptive requirements that impose obligations on directors that are better suited for management regarding relationships with service providers for critical services may (i) detract from, rather than enhance, sound governance frameworks that have developed across the landscape of registered clearing agencies, and (ii) discourage otherwise well-qualified directors from seeking nomination at registered clearing agencies. Finally, while more time would be necessary to conduct a deeper analysis, we also believe the potential cost of compliance with these complex and prescriptive elements of the Proposal, when taken cumulatively with current overlapping regulations, could be considerable. As a result, we encourage the Commission to recognize that there is “uncertainty about the theoretically best way to mitigate divergent incentives” in the governance of clearing agencies and to follow its own guidance established from a prior release that “particular securities markets (e.g., equities, fixed income, and options) have their unique conventions, characteristics, and structure that are best addressed on a market-by-market basis.” 

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