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OCC Comment on CFTC RIN 3038-AF12 Reporting and Information Requirements for Derivatives Clearing Organizations

Megan M. Cohen
February 15, 2023
By Megan M. Cohen ,General Counsel and Corporate Secretary

The Options Clearing Corporation (“OCC") appreciates the opportunity to submit these comments on the above-reference proposal (“Proposal” or “Proposed Rules”) under the Commodity Exchange Act (“Exchange Act”). The Proposal would amend certain of the daily and event reporting requirements for derivatives clearing organizations (“DCOs”) under Part 39 of the CFTC’s regulations.

OCC supports and appreciates the Commission revisiting the Part 39 reporting requirements in light of the feedback it has received from DCOs and the Commission’s experience with Part 39 reporting following the most recent amendments in 2020. Given the compliance and technology resources required to ensure timely and accurate daily and event reporting, OCC further supports the Commission’s continued focus in the Proposed Rules to ensure that it is receiving the most relevant data from DCOs to support the Commission’s supervision function.

In particular, OCC supports the Proposal’s removal of the requirement for DCOs to report certain information at the individual account level. The Commission previously recognized the obstacles to such reporting when it granted no-action relief to impacted DCOs in 2021, and the Proposed Rules would appropriately codify that relief. OCC also supports the removal of certain duplicative reporting requirements and the clarification of ambiguities concerning DCOs’ obligations to report customer LEI information, as well as the delegation of authority for routine matters to the staff and the division director.

OCC also generally supports the addition of new Appendix C to Part 39 to replace the Reporting Guidebook (“Guidebook”). Codifying the reporting requirements increases clarity and transparency both for impacted DCOs and for the public (in terms of the scope of the Commission’s surveillance and analytical capabilities). However, we have concerns about the design of certain of the new reporting fields in proposed Appendix C, including those related to variation margin timing and reporting of margin model back testing results. With respect to both, the proposed reporting fields may not align closely enough with DCO practice to provide the Commission with the information necessary to achieve the policy goals identified in the Proposal.

While we are supportive of the Commission’s goal of increasing regulatory clarity and enhancing its ability to effectively supervise entities and markets within its regulatory ambit, OCC has reservations about certain aspects of the Proposal. OCC is particularly concerned by the proposed changes to the system safeguards reporting requirements in § 39.18.6 OCC agrees with the Commission that both DCOs and the Commission benefit from clarity in the rule. However, the proposed changes would have the effect of drastically increasing the number of required reports, leading to significant demands on the resources of both DCOs and the Commission to prepare and review reports of largely immaterial incidents. In addition, the proposed changes would introduce ambiguity and subjectivity through the addition of “operator error” as a reporting trigger and the inclusion of potentially overbroad definitions of “automated system” and “hardware or software malfunction.” Finally, the requirement to report threats that “could compromise” certain systems, including certain third-party systems, is unclear in its scope, and has the potential to discourage capable third-parties from providing critical services to DCOs. As a result, the benefits of the amendments, as described, do not appear to outweigh the significant costs they impose.

In our detailed comments below, we address each relevant provision of the Proposal and, where appropriate, identify potential alternatives or revisions that we believe will accomplish the Commission’s stated goals while minimizing new operational and administrative burdens on the Commission and DCOs, and eliminating ambiguities that could lead to the need for future clarifying rulemaking or other relief.

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