Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Proposed Rule Change by The Options Clearing Corporation Concerning Amendments to Its Rules To Establish a Procedures-Based Approach for Determining Product Eligibility During Overnight or Extended Trading Sessions Utilizing Its Current ETH Risk Management Framework

SECURITIES AND EXCHANGE COMMISSION [Release No. 34-106080; File No. SR-OCC-2026-008] Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Proposed Rule Change by The Options Clearing Corporation Concerning Amendments to Its Rules To Establish a Procedures-Based Approach for Determining Product Eligibility During Overnight or Extended Trading Sessions Utilizing Its Current ETH Risk Management Framework August 12, 2026. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Exchange Act” or “Act”), 1 and Rule 19b-4 thereunder, 2 notice is hereby given that on July 30, 2026, The Options Clearing Corporation (“OCC” or “Corporation”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change 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 proposed rule change from interested persons. 1  15 U.S.C. 78s(b)(1). 2  17 CFR 240.19b-4. I. Clearing Agency's Statement of the Terms of Substance of the Proposed Rule Change This proposed rule change would amend OCC's Rules to establish a procedures-based approach for determining product eligibility during overnight or extended trading sessions (“ETH”)  3 utilizing its current ETH risk management framework. Currently, the only products that OCC clears in ETH sessions are index options listed by Cboe Global Markets, Inc. (“Cboe”) and index futures listed by Cboe Futures Exchange, LLC (“CFE”). The proposed changes would create a framework for risk managing other products that an “Exchange”  4 may propose to trade outside of regular trading hours while maintaining the established risk management framework. 5 3  The term “ETH” means trading periods outside of normal exchange trading hours. 4  OCC's By-Laws define “Exchange” to include, among other things, a national securities exchange or a futures market. 5   See Exchange Act Release Nos. 74268 (Feb. 12, 2015), 80 FR 8917 (Feb. 19, 2015) (SR-OCC- 2014-24) (Order approving Proposed Rule Change concerning Extended and Overnight Trading Sessions, establishing the framework now being expanded) and 74241 (Feb. 10, 2015), 80 FR 8383 (Feb. 17, 2015) (SR-OCC-2014-812) (Notice of No Objection to Advance Notice concerning Extended and Overnight Trading Sessions). The proposed changes would allow OCC to accommodate requests from any participating Exchange, including CFE's request to trade options on index futures outside of regular trading hours and Cboe's proposal, which was approved by the Commission, 6 to amend its Global Trading Hours to allow trading of multi-listed equity options. 7 Other Exchanges subsequently filed similar changes to their rules. 8 In addition, OCC has designed the changes to create a framework for evaluating other products that an Exchange may propose to be traded outside of regular trading hours in the future that can be effectively risk-managed within OCC's established frameworks and procedures. To the extent OCC determines that changes to its existing ETH procedures would be necessary to support a particular product trading at a particular time, the proposed change would provide that such changes would be made in accordance with (i) OCC's regulatory obligations ( e.g., filing obligations under Section 19 of the Exchange Act) and (ii) the Participant Exchange Agreement  9 between OCC and the national securities exchanges or OCC's agreement with a requesting futures market. 10 6   See Exchange Act Release No. 105569 (May 28, 2026), 91 FR 33005 (June 02, 2026) (SR-CBOE-2025-079) (Order Approving Proposed Rule Change, as Modified by Amendment No. 1, to Allow for Extended Trading of Multi-Listed Equity Options). 7  Cboe proposes expanding the trading hours for multi-listed equity options to include a morning session from 6:30 a.m. to 8:25 a.m. Central time, while also evaluating the inclusion of a curb session from 3:00 p.m. Central time to 3:15 p.m. Central time as an extension of its Regular Trading Hours. See Exchange Act Release No. 104160 (Sep. 30, 2025), 90 FR 48091 (Oct. 3, 2025) (SR-CBOE-2025-079). 8   See, e.g., Exchange Act Release No. 105785 (June 26, 2026), 91 FR 40061 (July 1, 2026) (SR-MRX-2026-11); Exchange Act Release No. 105704 (June 16, 2026), 91 FR 37201 (June 22, 2026) (SR-NYSEAMER-2026-34). 9  In 2025, OCC and the national securities exchanges for which it provides clearance and settlement services executed the Amended and Restated Participant Exchange Agreement (hereinafter, the “Participant Exchange Agreement”) following Commission approval of a proposed rule change filed by OCC. See Exchange Act Release No. 103436 (July 11, 2025), 90 FR 32045 (July 16, 2025) (SR-OCC-2025-006). 10  Pursuant to Article XII, Section 1 of OCC's By-Laws, (Conditions for the Corporation to Clear Futures, Futures Options or Commodity Options for an Exchange), OCC has executed a clearing agreement with CFE. OCC has also filed an agreement with MIAX Futures Exchange, LLC, which is pending execution in advance of that Exchange's anticipated launch this year. See Exchange Act Release No. 103271 (June 16, 2025), 90 FR 26377 (June 20, 2025) (SR-OCC-2025-008). OCC filed the proposed changes to OCC's Rules and the Extended Trading Hours Set-Up and Monitoring Procedure as Exhibits 5A and 5B to File No. SR-OCC-2026-008, respectively. Material proposed to be added as currently in effect is underlined and material proposed to be deleted is marked in strikethrough text. All capitalized terms not defined herein have the same meaning as set forth in the OCC By-Laws and Rules. 11 11  OCC's By-Laws and Rules can be found on OCC's public website, available at https://www.theocc.com/Company-Information/Documents-and-Archives/By-Laws-and-Rules. II. Clearing Agency's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, OCC included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. 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), (B), and (C) below, of the most significant aspects of these statements. (A) Clearing Agency's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose OCC is a self-regulatory organization (“SRO”) that is registered as a covered clearing agency (“CCA”) under the Exchange Act, as amended, and a derivatives clearing organization (“DCO”) under the Commodity Exchange Act. OCC is also a derivatives clearing organization registered with the Commodity Futures Trading Commission (the “CFTC”) that clears futures products for CFE, and MIAX Futures Exchange, LLC (“MIAX”), 12 both designated contract markets by the CFTC pursuant to Section 5 of the Commodity Exchange Act. 13 In its role as a CCA and central counterparty (“CCP”), OCC is the guarantor for all contracts cleared through OCC, assuming the role of buyer to every seller and the seller to every buyer to ensure the prompt and accurate settlement of securities. In its capacity as a CCP, OCC is exposed to certain risks, including credit risk, 14 because OCC is obligated to perform pursuant to its By-Laws and Rules even when one of its members defaults. OCC manages its credit risk through various safeguards to ensure that it has sufficient financial resources in the event of a Clearing Member failure. For example, OCC periodically collects margin collateral from its Clearing Members, which is designed to cover the credit exposures they individually present to OCC with a high degree of confidence. OCC also maintains authority and has established procedures for collecting additional margin from Clearing Members on an intraday basis due to changes in positions  15 or changes in prices. 16 12  OCC is anticipated to commence clearing services for MIAX futures in May of 2026. 13  7 U.S.C. 7. 14  Credit risk is the risk that OCC would not maintain sufficient financial resources to cover exposures. 15   See Exchange Act Release No. 102768 (Apr. 3, 2025), 90 FR 15274 (Apr. 9, 2025) (SR-OCC-2024-010). 16   See Exchange Act Release No. 82355 (Dec. 19, 2017), 82 FR 61060, 61064 (Dec. 26, 2017) (SR-OCC-2017-007) (codifying in the Margin Policy the issuance of a margin call when unrealized losses are observed for an account, based on start-of-day positions and updated prices). OCC has also filed, and the Commission has approved, a proposed rule change to transition from start-of-day to current positions; this change is pending implementation with Ovation launch. See Exchange Act Release No. 103677 (Aug. 11, 2025), 90 FR 39229 (Aug. 14, 2025) (SR-OCC-2025-007). The clearance of trades that occur outside of regular trading hours presents OCC with certain additional considerations from a risk management perspective. First, OCC is limited in its ability to issue and collect intraday margin calls from a Clearing Member presenting increased risk to OCC. Second, trading outside of regular hours presents greater operational risk due to reduced Clearing Member operational and risk staff available to address issues that might arise during extended hours. Third, OCC has observed that for those products that currently trade ETH, the markets for such options typically have more limited market liquidity, which can lead to higher transaction costs for participants seeking to initiate or unwind positions during ETH sessions. These market dynamics carry risk management implications. Shallow market environments can manifest price gapping, 17 where modest trades can lead to outsized market moves and can lead to changes in valuations of positions and thus, increases in margin requirements. Another consideration is the behavior of market makers, who may scale back quoting activity during extended trading hours due to wider uncertainty, lower volumes, and less capacity to hedge. If market maker participation decreases during extended trading hours, it could lead to episodic volatility and a degradation of price discovery. 17  The term “Price gapping” refers to situations where security prices leap to a higher or lower level without any intermediate trading activity at the prices in between. OCC manages these risks for products that currently trade in ETH sessions through its ETH procedures. In 2015, OCC established its ETH procedures  18 for certain products proposed by Cboe and CFE to be traded outside of regular trading hours, including index options and index futures. 19 The ETH procedures allow for the provision of clearing and settlement services to participant exchanges subject to compliance with OCC's risk management procedures and controls. As described in more detail below, these procedures were designed to reduce and mitigate the risks associated with clearing trades executed in ETH sessions, and included the following components and controls: (i) qualification criteria used to approve Clearing Members for ETH sessions, including ETH deposit requirements, (ii) systemic controls to identify trades executed during ETH sessions by Clearing Members not approved for such sessions, (iii) enhancements to OCC's overnight monitoring of trades submitted by Exchanges during ETH sessions, (iv) enhancements to OCC's credit controls with respect to monitoring Clearing Members' credit risk during ETH sessions, including procedures for contacting an Exchange offering ETH sessions in order to invoke use of the Exchange's kill switch, and (v) rule enforcement actions such as taking appropriate disciplinary action against Clearing Members who attempt to clear during ETH session without first obtaining requisite approvals. 18   See supra note 5. OCC now proposes to formally file such procedure as a rule. 19  OCC's By-Laws define (i) an “index future” as a future on an index of securities of commodities, and (ii) an “index option contract” as any option contract the underlying interest of which is a securities index or commodities index. These ETH procedures were also designed to work in conjunction with the risk controls of the Exchanges that offer ETH sessions. Such Exchange risk controls consist of: (1) price reasonability checks, (2) controls to prevent orders from being executed beyond a certain percentage (determined by the Exchange), (3) activity based protections which focus on risk beyond price, such as a high number of trades occurring in a set period of time, and (4) kill switch capabilities, which may be initiated by the Exchange and can cancel all open quotes or all orders of a particular participant. While these procedures were designed to facilitate the clearing of index options and index futures, Exchanges, including CFE and Cboe, have requested that OCC expand its support for other products during the ETH sessions. First, CFE has requested that OCC provide clearance and settlement services for options on VIX futures (“VX Futures Options”)  20 during the same hours in which VIX futures currently trade. Second, Cboe, Nasdaq and NYSE have filed proposed changes to their Global Trading Hours for multi-listed equity options. 21 Specifically, these proposals would establish an early morning session from 6:30 a.m. Central Time to 8:25 a.m. Central Time and an afternoon session from 3:00 p.m. Central Time to 3:15 p.m. Central Time for trading of multi-listed equity options. These proposals also limit the number of equity options classes that may be designed for its Global Trading Hours to 100 option classes and establish criteria for eligibility based on average daily options volume, market capitalization of the underlying equity, and average daily trading volume of the underlying equity. Cboe has stated these criteria will help ensure options designated for trading in its Global Trading Hours will have sufficient demand and liquidity to support a Global Trading Hours market. 22 20  VX Futures Options are options on Cboe Volatility Index (“VX”) futures. VX futures are cash-settled futures on the Cboe Volatility Index (“VIX Index”). 21   See supra notes 7-8. 22   See Exchange Act Release No. 105153 (Apr. 6, 2026), 91 FR 18010, 18013 (Apr. 9, 2026) (SR-CBOE-2025-079) (Amendment No. 1). OCC has evaluated these proposed changes to Exchange rules to determine whether OCC has the legal authority, operational capacity and risk management processes in place to support the clearance and settlement of such products during such hours. OCC evaluates each proposed product using criteria that include, among other things: (1) compatibility with OCC's existing margin methodology, (2) availability of real-time settlement pricing, and (3) consistency with OCC's operations risk management requirements. OCC has determined to treat the proposed early morning session as extended trading hours, and to extend OCC's ETH procedures to that activity. OCC believes that extending the ETH procedures to the early morning trading session is prudent from a risk management perspective to address potential operational and market risk associated with trading in such early morning session. OCC's ETH procedures have operated without disruption through multiple periods of high volatility since 2015. The proposed products are not new to OCC, as single-name equity options and options on VX futures are already cleared by OCC during regular trading hours and margined using OCC's existing margin methodology. Further, the Exchanges' proposed eligibility criteria would limit initial participation to the most liquid U.S. equity options, reducing the risk of outsized credit exposures to OCC during the early morning session. In addition, consistent with OCC's Rule 609, 23 any credit risk accumulated during the early morning session is subject to OCC's start of business margin call at 8:30 a.m. CT, at which time settlement banks are open and OCC can collect any required additional margin deposit. 23   See OCC Rule 609. OCC's determination that its existing ETH procedures are adequate to manage the risks associated with the proposed extension of ETH rests not only on product compatibility, but also on the material enhancements and substantial build-out to its risk management processes and systems in the years since the ETH procedures were first implemented. For example, OCC has made enhancements to its proprietary margin methodology, the System for Theoretical Analysis and Numerical Simulations (“STANS”), including by, among other things: (i) incorporating daily price and returns data of securities;  24 24   See Securities Exchange Act Release No. 83326 (May 18, 2018), 83 FR 25081 (May 31, 2018) (SR-OCC-2017-022). (ii) incorporating variations in implied volatility;  25 25   See Securities Exchange Act Release No. 84879 (Dec. 20, 2018), 83 FR 67392 (Dec. 28, 2018) (SR-OCC-2018-014); Securities Exchange Act Release No. 95319 (July 19, 2022), 87 FR 44167 (July 25, 2022) (SR-OCC-2022-001). (iii) enhancing its models for generating theoretical values for listed options 26 and the futures products that OCC clears; 27 26   See Securities Exchange Act Release No. 86731 (Aug. 22, 2019), 84 FR 45188 (Aug. 28, 2019) (SR-OCC-2019-005). 27   See Securities Exchange Act Release No. 85873 (May 16, 2019), 84 FR 23620 (May 22, 2019) (SR-OCC-2019-002); Securities Exchange Act Release No. 89392 (July 24, 2020), 85 FR 45938 (July 30, 2020) (SR-OCC-2020-007); Securities Exchange Act Release No. 90139 (Oct. 8, 2020), 85 FR 65886 (Oct. 16, 2020) (SR-OCC-2020-012); Securities Exchange Act Release No. 91833 (May 10, 2021), 86 FR 26586 (May 14, 2021) (SR-OCC-2021-005); Securities Exchange Act Release No. 100528 (July 15, 2024), 89 FR 58736 (July 19, 2024) (SR-OCC-2024-008). (iv) establishing a risk-based liquidation charge to account for the costs of liquidating a defaulting Clearing Member's portfolio;  28 28   See Securities Exchange Act Release No. 86119 (June 17, 2019), 84 FR 29267 (June 21, 2019) (SR-OCC-2019-004). (v) establishing procedures for adjusting certain parameters when the products OCC clears and the markets it serves experience high volatility;  29 29   See Securities Exchange Act Release No. 102057 (Jan. 6, 2025), 90 FR 714 (Jan. 6, 2025) (SR-OCC-2024-014). (vi) enhancing the models to better account for the risk of short-dated options;  30 and 30   See Securities Exchange Act Release No. 102203 (Jan. 15, 2025), 90 FR 7721 (Jan. 22, 2025) (SR-OCC-2024-016). (vii) implementing and enhancing backtesting procedures for monitoring the performance of the models and establishing a margin charge should OCC identify backtesting deficiencies at the Clearing Member level. 31 31   See Securities Exchange Act Release No. 73749 (Dec. 5, 2014), 79 FR 73673 (Dec. 11, 2014) (SR-OCC-2014-810); Securities Exchange Act Release No. 75290 (June 24, 2015), 80 FR 37323 (June 30, 2015) (SR-OCC-2014-810); Securities Exchange Act Release No. 100998 (Sep. 11, 2024), 89 FR 76171 (Sep. 17, 2024) (SR-OCC-2024-009). Further, OCC has made enhancements to its intraday risk monitoring and collection of margin resources to cover intraday risk, including by establishing an Intraday Risk Charge and thresholds for margin calls during regular trading hours, similar to the procedures for ETH established in 2014. 32 Further enhancements to the intraday risk process have been designed and will be implemented upon migration to OCC's new clearance and settlement system, Ovation. 33 32   See Securities Exchange Act Release No. 102768 (Apr. 3, 2025), 90 FR 15285 (Apr. 9, 2025) (SR-OCC-2024-010). 33   See Securities Exchange Act Release No. 103677 (Aug. 11, 2025), 90 FR 39229 (Aug. 14, 2025) (SR-OCC-2025-007). In addition, beginning in 2018, OCC also implemented a comprehensive stress testing methodology that it uses to size its Clearing Fund and call for additional resources if stressed exposures exceed certain thresholds, to ensure that OCC maintains sufficient financial resources to cover the loss of the two Clearing Member groups presenting the largest stressed exposures to OCC in extreme but plausible market conditions. 34 OCC has also diversified its access to liquidity through the addition of new liquidity facilities and liquidity providers to ensure OCC has sufficient qualifying liquid resources to meet liquidity demands in such stressed conditions, 35 including liquidity demands arising from OCC's election under its accord with the National Securities Clearing Corporation (“NSCC”) to step into the shoes of a Clearing Member for whom NSCC has ceased to act in order to ensure the continued settlement of exercise and assignment activity for physically settled options through NSCC's CNS system. 36 Taken together, OCC believes that these risk management enhancements help to ensure that OCC's existing ETH procedures are sufficient to support the expanded ETH sessions. 37 34   See Securities Exchange Act Release No. 83561 (June 11, 2018), 83 FR 27957 (June 15, 2018) (SR-OCC-2018-006); Securities Exchange Act Release No. 83735 (July 27, 2018), 83 FR 37855 (Aug. 2, 2018) (SR-OCC-2018-008); Securities Exchange Act Release No. 87717 (Dec. 11, 2019), 84 FR 68985 (Dec. 17, 2019) (SR-OCC-2019-009); Securities Exchange Act Release No. 87718 (Dec. 11, 2019), 84 FR 68992 (Dec. 17, 2019) (SR-OCC-2019-010); Securities Exchange Act Release No. 89014 (June 4, 2020), 85 FR 35446 (June 10, 2020) (SR-OCC-2020-003); Securities Exchange Act Release No. 90827 (Dec. 30, 2020), 86 FR 659 (Jan. 6, 2021) (SR-OCC-2020-015); Securities Exchange Act Release No. 100147 (May 15, 2024), 89 FR 44752 (May 21, 2024) (SR-OCC-2024-006); Securities Exchange Act Release No. 103597 (July 30, 2025), 90 FR 36461 (Aug. 4, 2025) (SR-OCC-2025-009). 35   See Securities Exchange Act Release No. 76821 (Jan. 4, 2016), 81 FR 3208 (Jan. 20, 2016) (SR-OCC-2015-805); Securities Exchange Act Release No. 88317 (Mar. 4, 2020), 85 FR 13681 (Mar. 9, 2020) (SR-OCC-2020-801); Securities Exchange Act Release No. 88971 (May 28, 2020), 85 FR 34257 (June 3, 2020) (SR-OCC-2020-804); Securities Exchange Act Release No. 89039 (June 10, 2020), 85 FR 36444 (June 16, 2020) (SR-OCC-2020-803); Securities Exchange Act Release No. 95327 (July 20, 2022), 87 FR 44457 (July 26, 2022) (SR-OCC-2022-802); Securities Exchange Act Release No. 95670 (Sep. 2, 2022), 87 FR 55048 (Sep. 8, 2022) (SR-OCC-2022-803); Securities Exchange Act Release No. 103047 (May 15, 2025), 90 FR 21800 (May 21, 2025) (SR-OCC-2025-801). 36   See Securities Exchange Act Release No. 99735 (Mar. 14, 2024), 89 FR 19907 (Mar. 20, 2024) (SR-OCC-2023-007); Securities Exchange Act Release No. 104350 (Dec. 9, 2025), 90 FR 57796 (Dec. 12, 2025) (SR-OCC-2025-013). 37  OCC intends to monitor ETH activity as volumes develop to determine if any changes to its existing procedures are necessary to support current or future products. OCC has also determined that it may support the proposed afternoon session as regular trading hours, regardless of whether that trading session is classified as regular trading hours, a curb session, or some other designation under the rules of an Exchange. OCC believes treating such activity as within regular trading hours is consistent with the definition of ETH under its existing ETH procedures. This proposed rule change would amend OCC's Rules to establish a legal framework governing OCC's authority to determine product eligibility and session hours for ETH clearing, and to accommodate Exchange proposals to expand the products and hours covered by its ETH procedures. Specifically, the proposed amendments would: (i) clarify that OCC determines what constitutes “regular trading hours” and “extended trading hours” for purposes of OCC's operations and risk management ( i.e., this determination is independent of how a particular Exchange may categorize such trading under its rules); (ii) provide that contracts cleared during extended trading hours will be subject to OCC's established ETH procedures; (iii) provide that OCC will determine in its sole discretion, and for the protection of OCC, its Clearing Members and the general public, whether the risk of a product proposed by an Exchange to be traded in extended trading hours may be managed under OCC's existing ETH procedures; and (iv) provide that if OCC determines that an Exchange's proposal requires changes to its existing ETH procedures, such changes will be made in accordance with (a) OCC's regulatory obligations and (b) OCC's agreement with the Exchange. These changes are designed to both accommodate existing Exchange requests, as well as to serve as a foundation for evaluating future Exchange requests to trade products outside of regular trading hours, while ensuring that if OCC needs to make changes to its operations and risk management processes to accommodate such requests, such changes would remain consistent with OCC's regulatory obligations and agreements with the Exchanges. OCC does not intend this proposal to solve every issue raised by the industry's transition to 24/7 trading, 38 nor does OCC believe those issues need to be resolved to support the trading hours under the current Exchange proposals. Rather, this proposed rule change is designed to support an incremental step towards a continuous trading environment and to provide a framework for future steps. 38  OCC has published a whitepaper outlining a vision and roadmap for how U.S. listed options markets could evolve toward a 24/7 model, beginning with a phased transition to a 22/5 trading and clearing environment. See Considerations of a Continuous Trading Environment and Implications for Central Clearing of U.S. Listed Options: Perspectives on CCP Issues from a Utility Model Clearinghouse (Sept. 2025), available at https://www.theocc.com/newsroom/views/2025/09-29-white-paper-considerations-of-a-continuous-trading-environment. Existing ETH Procedures OCC manages the risk associated with clearance and settlement of trades in ETH sessions through ETH procedures, approved by the Commission, that include (i) qualification criteria for Clearing Member participation, (ii) systemic controls to detect unauthorized trading by participants that have not qualified to trade in ETH sessions, (iii) overnight monitoring of Clearing Members' credit risk during ETH sessions, (iv) credit controls to address potential increased exposure during ETH sessions, and (v) rule enforcement should Clearing Members trade in ETH sessions without prior approval. Under the proposed rule changes discussed below, these procedures would apply to the clearance and settlement of trading in hours that OCC has determined are outside of regular trading hours. Qualification Criteria In order to mitigate risks associated with clearing for ETH sessions, Clearing Members that participate in such trading sessions are required to provide contact information to OCC for operational and risk personnel available to be contacted by OCC during such sessions. In addition, OCC requires that Clearing Members participating in an ETH session post additional margin in a designated account in order to mitigate against the risk that OCC cannot draft a Clearing Member's bank account during an ETH session. 39 OCC has also adopted procedure whereby, on a quarterly basis, it confirms its record of Clearing Members eligible for ETH sessions with a similar record maintained by Exchanges offering such ETH sessions. 39  Clearing Members will be required to designate a proprietary bank account to ensure that OCC has a general lien on the assets in the account and can use them to satisfy any obligation of the Clearing Member to OCC. With respect to providing operational and risk contacts, under OCC Rule 201(b), each Clearing Member is required to maintain facilities for conducting business with OCC, and a representative of the Clearing Member authorized in the name of the Clearing Member to take all action necessary for conducting business with OCC is required to be available at the facility during such hours as may be specified from time-to-time by OCC. Similarly, OCC Rules 203(c) and (d) require Clearing Members to ensure that they have the appropriate number of qualified personnel and to maintain the ability to process anticipated volumes and values of transactions. OCC uses this existing authority to require Clearing Members trading during ETH sessions to maintain operational and risk staff that may be contacted by OCC during such sessions. OCC charges Clearing Members qualified to participate in ETH sessions additional margin requirement in an amount of the lesser of $10 million or 10% of the Clearing Member's net capital (“ETH margin add-on”), which is equal to the first monitoring risk threshold (described below) and which would be collected as part of regular morning settlement. Clearing Members must identify the proprietary account that would be charged the ETH margin add-on amount. The ETH margin add-on requirement is intended to provide OCC with additional margin assets should a Clearing Member's credit risk increase during ETH sessions. 40 Clearing Members that do not have sufficient excess margin on deposit with OCC to meet the ETH margin add-on amount are required to deposit additional funds with OCC to satisfy the ETH margin add-on requirement as part of regular morning settlement. 41 40  Clearing Members approved for ETH sessions who do not meet the ETH margin add-on requirement for a given ETH session are treated like a Clearing Member not approved ETH sessions, as described below. 41  Under OCC Rule 601, OCC has the discretion to fix the margin requirement for any account at an amount that it deems necessary or appropriate under the circumstances to protect the interests of Clearing Members, OCC and the public. OCC Clearing Members wishing to participate in trading activity during ETH trading sessions must receive OCC's approval, before an Exchange would grant trading privileges for such sessions. OCC also confirms that an Exchange offering ETH trading sessions has implemented a procedure to periodically ( i.e., quarterly) validate its record of approved clearing firms against OCC's record of Clearing Members approved for ETH sessions. Any discrepancies between the two records would be promptly resolved by either the Clearing Member obtaining approval at OCC for ETH sessions, or by the Exchange revoking the clearing firm's trading privileges for ETH sessions. Systemic Controls OCC has implemented systemic controls so that trades submitted to OCC during ETH sessions that have been executed by Clearing Members not approved for such trading sessions would be reviewed by OCC staff after acceptance but before being processed (each such trade being a “Reviewed Trade”). OCC would contact the submitting Exchange regarding each Reviewed Trade in order to determine if the trade is a valid trade. If the Exchange determines that the Reviewed Trade was in error such that, as provided in Article VI, Section 7(c), a new or revised trade information is required to properly clear the transaction, OCC expects the Exchange would instruct OCC to disregard or “bust” the trade. If the Exchange determines that the Reviewed Trade was not in error, then OCC would clear the Reviewed Trade  42 and take appropriate disciplinary action against the non-approved Clearing Member, as described below. OCC believes that clearing the Reviewed Trade is appropriate in order to avoid potentially harming the Clearing Member approved for ETH sessions that is on the opposite side of the transaction. 42  OCC is obligated under the Participant Exchange Agreement to accept and clear all matched trades in accordance with OCC's By-Laws and Rules reported to it by participating exchanges. The Participant Exchange Agreement does not provide OCC with authority to reject matched trades from exchanges or allow it to require that exchanges implement preventative controls. Overnight Monitoring OCC has implemented additional overnight monitoring in order to better monitor Clearing Members' credit risk during ETH sessions. Such monitoring of credit risk is similar to existing OCC practices concerning futures cleared during overnight trading hours and includes automated processes within ENCORE to measure, by Clearing Member: (i) the aggregate mark-to-market amounts of a Clearing Member's positions, including positions created during overnight trading, based on current prices using OCC's Portfolio Revaluation system, (ii) the aggregate incremental margin produced by all positions resulting from transactions executed during overnight trading, and (iii) with respect to options cleared during ETH sessions, the aggregate net trade premium positions resulting from trades executed during ETH trading (each of these measures being a “Credit Risk Number”). Hourly credit reports are generated containing the Credit Risk Numbers expressed in terms of both dollars and, except for the mark-to-market position values, as a percentage of net capital for each Clearing Member trading during ETH sessions. The Credit Risk Numbers are the same information used by OCC staff to evaluate Clearing Member exposure during regular trading hours and, in addition to OCC's knowledge of its Clearing Members' businesses, are effective measures of the risk presented to OCC by each Clearing Member. OCC's Operations staff review such reports as they are generated and, in the event that any of the Credit Risk Numbers for positions established by a Clearing Member during an ETH session exceeds established thresholds, staff would alert OCC's Market Risk staff  43 of the exceedance in accordance with established procedures, as described below. Market Risk staff follow a standardized process concerning such exceedances, including escalation to OCC's management, if required by such process. 43  OCC's Member Services staff will also receive alerts in order to contact Clearing Members as may be necessary. With respect to OCC's escalation thresholds, if any Credit Risk Number of a Clearing Member approved for ETH sessions is $10 million or more, or any Credit Risk Number equals 10% or more of the Clearing Member's net capital, an email is generated with a Level 1 Exceedance. This threshold functions as an early warning system, alerting Market Risk and Member Services to a developing credit risk situation before it reaches levels requiring more urgent intervention. At this tier, Operations staff notifies Market Risk and Member Services by email; Market Risk reviews the notification and assesses whether immediate action is warranted. More prescriptive remedial action is not required at this tier because the exposure level is covered by the pre-positioned ETH margin add-on, which OCC holds at the start of each ETH session. The higher thresholds require progressively more urgent action because they represent exposures that exceed that buffer. If any Credit Risk Number of a Clearing Member approved for ETH sessions is $50 million or more, or equals 25% or more of the Clearing Member's net capital, Operations staff would be required to contact, by telephone and email: (i) Market Risk and Member Services, (ii) the applicable Exchange for secondary review, and (iii) the Clearing Member's designated contacts. The on-call Market Risk duty officer would also consider if additional action is necessary, which may include contacting a designated executive officer in order to issue an intra-day margin call pursuant to OCC Rule 609, increase the Clearing Member's margin requirement in order to prevent the withdrawal of a specified amount of excess margin collateral, if any, the Clearing Member has on deposit with OCC pursuant to OCC Rule 601, or contacting the Exchange in order to invoke use of its kill switch. A Rule 601 margin requirement increase and Rule 609 intraday margin call are tools that reflect the operational constraints for ETH trading during hours in which banks may not be open, such as overnight. If banks are not open, OCC would not be able to collect additional cash during the hours in which such trading was taking place. In that case, OCC Rule 601 serves as a real-time tool that takes effect immediately, preventing a Clearing Member from withdrawing excess collateral already on deposit with OCC, without requiring a cash transfer. When settlement banks reopen, Rule 609 enables OCC to collect additional funds where a Clearing Member's existing excess collateral is insufficient to cover the incremental risk incurred during ETH. OCC Rule 601 also allows OCC to reduce the amount it would need to draft for a Rule 609 margin call by the amount of excess collateral the Clearing Member has on deposit at OCC. If any Credit Risk Number is $75 million or more, or equals 50% or more of the Clearing Member's net capital, Operations staff would be required to contact, by telephone and email, Market Risk staff, the on-call Market Risk duty officer and a designated executive officer. Such officer would be responsible for reviewing the circumstances and determining whether to implement credit controls, which are described in greater detail below and include: issuing an intra-day margin call, increasing a Clearing Member's margin requirement in order to prevent the withdrawal of a specified amount of excess margin collateral, if any, the Clearing Member has on deposit with OCC, whether further escalation is warranted in order for OCC to take protective measures pursuant to OCC Rule 305, or contact the Exchange in order to invoke use of its kill switch. OCC believes that these thresholds strike an appropriate balance between effective risk monitoring and operational efficiency. Credit Controls In order to address credit risk associated with trading during ETH sessions, and as described above, OCC collects the ETH margin add-on from Clearing Members and monitors and analyzes the impact that positions established during such sessions have on a Clearing Member's overall exposure. Should the need arise based on threshold breaches described above, and pursuant to OCC Rule 609, OCC may require the deposit of additional margin (“intra-day margin”) by any Clearing Member that increases its incremental risk as a result of trading activity during ETH sessions. Should a Clearing Member's exposure significantly increase, OCC has the authority under OCC Rule 601 to increase a Clearing Member's margin requirement which would restrict its ability to withdraw excess margin collateral. Furthermore, if a Clearing Member's trading activity during ETH sessions causes its exposure to exceed OCC's intra-day margin call threshold, OCC would require the Clearing Member to deposit intra-day margin equal to the incremental risk presented by the Clearing Member. Specifically, if a Clearing Member has a current risk charge  44 exceeding 25% and a loss of greater than $50,000 from an ETH session(s), OCC would initiate an intra-day margin call, subject to OCC's policies and procedures. 45 The margin call amount would be calculated using positions and prices as of the most recent snapshot generated during the ETH session. 46 Accordingly, OCC would know at approximately 8:30 a.m. (Central Time) if an intra-day margin call on a Clearing Member would be initiated based on breaches of this threshold. 47 This “start of business” margin call is in addition to daily margin OCC collects from Clearing Members pursuant to OCC Rule 605, any intra-day margin call that OCC may initiate as a result of regular trading sessions or special margin call that OCC may initiate. 44  The current risk charge is the margin risk charge used for intraday portfolio revaluation margin calls; but updated with any change in risk charge occurring from depositing or withdrawing Specific Deposit, Escrow Deposit, or Valued Securities collateral. 45   See Exchange Act Release No. 82355 (Dec. 19, 2017), 82 FR 61060, 61064 (Dec. 26, 2017) (SR-OCC-2017-007) (codifying in the Margin Policy that ETH intraday margin calls would be subject to a minimum value established in OCC's procedures). 46   See supra note 32. 47  OCC has current credit exposure data available at or near the close of each ETH session on which to base the determination whether to initiate a start-of-business margin call at 8:30 a.m. CT. In addition to, or instead of, requiring additional intra-day margin, OCC Rule 601  48 and OCC's Margin Policy work together to authorize Market Risk staff to increase a Clearing Member's margin requirement which may be in an amount equal to an intra-day margin call. 49 Any increased margin requirement will remain in effect until the next business day. This action would immediately prevent Clearing Members from withdrawing any excess margin collateral (in the amount of the increased margin requirement) the Clearing Member has deposited with OCC. With respect to clearing trades executed in ETH sessions, and in the event OCC requires additional margin from a Clearing Member, Market Risk staff may use increased margin requirements as a means of collateralizing the increase in incremental risk a Clearing Member incurred during such sessions. 50 Such action may be taken by OCC instead of or in addition to issuing an intra-day margin call depending on the amount of excess margin a Clearing Member has on deposit with OCC and the amount of the incremental risk presented by such Clearing Member. This intra-day margin call process as described in the preceding paragraph, including OCC's ability to manually increase Clearing Members' margin requirements, mitigates the risk that OCC is under-collateralized as a result of overnight trading hours. 48  In addition, OCC Rule 601 provides OCC with the authority to fix the margin requirement for any account or any class of cleared contracts at such amount as it deems necessary or appropriate under the circumstances to protect the respective interests of Clearing Members, OCC and the public. 49  Clearing Members frequently deposit margin at OCC in excess of requirements. 50  Clearing Members would be able to substitute the locked-up collateral during normal time frames ( i.e., 6:00 a.m. to 5:00 p.m. (Central Time) for equity securities). Moreover, a designated executive officer may call an Exchange offering ETH sessions to invoke use of its kill switch. The kill switch would prevent a Clearing Member (or the market participant clearing through a Clearing Member) from executing trades on the Exchange during a given ETH session or, if needed, stop all trading during a given ETH session. Finally, pursuant to OCC Rule 307B, the Chief Executive Officer or the Chief Operating Officer of OCC, in certain circumstances, has the authority to impose limitations and restrictions on the transactions, positions and activities of a Clearing Member. This authority would be used, as needed, in the event a Clearing Member accumulates significant credit risk during ETH sessions, or a Clearing Member's activities during such trading sessions otherwise warrant OCC taking protective action. Rule Enforcement Actions In order to deter Clearing Members from attempting to participate in ETH sessions without authorization as well as appropriately enforce the above-described processes, OCC maintains authority to initiate a rule enforcement action against a Clearing Member that attempts to participate in ETH sessions without first obtaining the necessary approval. As described above, Clearing Members not approved for ETH sessions who trade during ETH sessions would have their trades reviewed by OCC staff. Clearing Members who attempted to participate in ETH sessions that did not obtain the necessary approval to do so may be subject to a minor rule violation fine. 51 In addition, if a Clearing Member's operational or risk contacts for ETH sessions were unavailable had OCC attempted to contact such individuals, the Clearing Member may be subject to a minor rule violation fine. OCC has existing processes in place to monitor for Clearing Member violations of OCC's Rules and such processes would also apply to Clearing Member activity during ETH sessions. 51   See OCC Rule 1201(b). Proposed Changes OCC proposes amendments to its Rules and its ETH procedures to accommodate any participating Exchange request, including CFE's and Cboe's proposals for extended trading hours in VX Futures Options and multi-listed equity options, to establish a legal framework for the consideration of an Exchange's future extension of trading hours for these or other products. Specifically, OCC proposes to amend Rule 402, which is currently reserved, to establish a rule concerning products cleared outside of regular trading hours. In addition, OCC proposes to make changes to its ETH Procedure to amend the definition of “extended trading hours” to encompass not only hours in which U.S. payment systems are closed, as ETH is currently defined therein, but also to incorporate hours in which OCC has determined there may be heightened operational risk or market risk. In addition, OCC proposes to revise its ETH procedures to define the end of the ETH monitoring window as the start of regular trading hours. This revision would clarify to Clearing Members that OCC will conduct uninterrupted monitoring throughout all ETH sessions including the proposed early morning session between 6:30 a.m. and 8:25 a.m. CT. Proposed Rule 402 Rule 402 would clarify that products executed on an Exchange outside of regular trading hours, as determined by OCC, would be subject to OCC's established procedures for the risk management of cleared contracts during ETH sessions, as is the case for index options and index futures traded in ETH sessions today. Accordingly, the amended Rule would provide OCC's authority to determine whether a product proposed to be traded at a particular time would be subject to OCC's procedures for the management of risk during regular trading hours or those for ETH. For example, OCC has determined that the proposed Exchange extension of trading hours for multi-listed equity options from 3:00 p.m. Central to 3:15 p.m. Central may be considered regular trading hours under OCC's rules. Such extension does not raise the same concerns, or to the same degree, about the availability of U.S. payment systems or Clearing Member staffing to support such trading during such hours that motivated the design of the ETH procedures. This rule also clarifies that it is OCC that determines whether particular hours are considered regular trading hours or extended trading hours for purposes of OCC's own rules and operations. How a particular Exchange classifies such hours under Exchange Rules is not determinative. For example, Cboe initially proposed to consider the afternoon session as a “curb” session, 52 and then subsequently amended its proposal to consider it an extension Cboe's Regular Trading Hours. 53 OCC would make its own determination of how to classify an Exchange's proposed hours based on the impact on OCC's operations and risk management. 52   See Exchange Act Release No. 93819 (Dec. 15, 2021), 86 FR 73038 (Dec. 23, 2021) (SR-CBOE-2021-071). 53   See Exchange Act Release No. 94484 (Mar. 4, 2022), 87 FR 17359 (Mar. 28, 2022) (SR-CBOE-2021-071). Proposed Rule 402 would further provide that OCC would determine, at its sole discretion and for the protection of OCC, its Clearing Members and the general public, whether the risk of a product proposed by an Exchange to be traded in extended trading hours may be managed under OCC's existing ETH procedures. As such, Rule 402 documents OCC's authority to evaluate the proposed expansion of ETH sessions and products to determine whether OCC's risk management procedures are adequate to support the expansion. As discussed above, the current ETH procedures were designed with index options and index futures in mind. The procedures may not be sufficient to address the risks associated with the trading of all products at all hours, particularly the risks of overnight trading in equity options. 54 However, OCC believes that its existing ETH procedures are adequate to address the risks associated with the proposed early morning session. As discussed above, OCC already clears and margins these products during regular trading hours using its existing margin methodology. In addition, the Exchanges' proposed eligibility criteria further limits participation, confining the scope of eligible products to the most liquid names. Beyond this, the early morning session would run from 6:30 a.m. to 8:25 a.m. CT, and any credit risk accumulated during that brief period is subject to OCC's start of business margin authority at 8:30 a.m., when settlement banks are open and OCC can collect additional margin. 54  The proposed framework would accommodate products that can be risk managed within OCC's existing ETH procedures without modification. Should a proposed product or session require changes to those procedures, OCC will submit any required regulatory filing with the Commission. Should any other Exchange propose similar hours for similar products, the Rule would also allow OCC to accommodate that Exchange's request. OCC's review and determination of products or hours to be added to ETH sessions, as documented in proposed Rule 402, would also align OCC's Rules with provisions of the Participant Exchange Agreement. Specifically, the Participant Exchange Agreement provides that to the extent OCC agrees to undertake a program or project for a particular Exchange, OCC shall be prepared to undertake comparable programs and projects for each other Exchange that requests it to do so, without discrimination as to schedule