Self-Regulatory Organizations; The Options Clearing Corporation; Order Setting Aside Action by Delegated Authority and Approving Proposed Rule Change, as Modified by Partial Amendment No. 1, by The Options Clearing Corporation Concerning Methodology To Allocate Clearing Fund Deposit Requirements Among Its Clearing Members To Better Align the Allocation With the Sizing of the Clearing Fund so Stress Based Risk is Fairly Allotted to Market Participants That Expose OCC to Such Stress Risk

SECURITIES AND EXCHANGE COMMISSION [Release No. 34-106573; File No. SR-OCC-2025-018] Self-Regulatory Organizations; The Options Clearing Corporation; Order Setting Aside Action by Delegated Authority and Approving Proposed Rule Change, as Modified by Partial Amendment No. 1, by The Options Clearing Corporation Concerning Methodology To Allocate Clearing Fund Deposit Requirements Among Its Clearing Members To Better Align the Allocation With the Sizing of the Clearing Fund so Stress Based Risk is Fairly Allotted to Market Participants That Expose OCC to Such Stress Risk October 2, 2026. I. Introduction On September 26, 2025, the Options Clearing Corporation (“OCC”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change SR-OCC-2025-018, pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Exchange Act”)  1 and Rule 19b-4  2 thereunder, to amend its allocation methodology for the Clearing Fund  3 deposit requirements of its Clearing Members by realigning the allocation to correspond to the sizing of the Clearing Fund so that certain stress-based risk is proportionally allotted to market participants that expose OCC to such risk. 4 1  15 U.S.C. 78s(b)(1). 2  17 CFR 240.19b-4. 3  Capitalized terms used but not defined herein have the meanings specified in OCC's Rules and By-Laws, available at https://www.theocc.com/company-information/documents-and-archives/by-laws-and-rules. 4  The Commission published notice of the proposed rule change in the Federal Register on October 1, 2025. See Securities Exchange Act Release No. 104111 (Sept. 26, 2025), 90 FR 47383 (Oct. 1, 2025) (File No. SR-OCC-2025-018) (“Notice of Filing”). On October 7, 2025, OCC filed Partial Amendment No. 1 to append an Exhibit 2 to documents filed as part of File No. SR-OCC-2025-018 on September 26, 2025 (hereinafter, together, defined as “Proposed Rule Change”). Exhibit 2 consists of communication from OCC to its Clearing Members discussing, amongst other things, the proposed rule change in File No. SR-OCC-2025-018. On November 3, 2025, the Commission designated a longer period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether the proposed rule change should be disapproved. See Securities Exchange Act Release No. 104173 (Nov. 3, 2025), 90 FR 51424 (Nov. 17, 2025) (File No. SR-OCC-2025-018). On December 11, 2025, the Commission, acting through authority delegated to the Division of Trading and Markets, 5 approved the Proposed Rule Change (“Delegated Order”). 6 On December 18, 2025, Fidelity Investments (“Fidelity” or “Petitioner”)  7 filed a notice of its intention to petition for review, 8 pursuant to Rule 430 of the Commission's Rules of Practice. 9 Pursuant to Commission Rule of Practice 431(e), the Delegated Order was stayed by the filing with the Commission of a notice of intention to petition for review. 10 On December 24, 2025, Fidelity submitted its Petition for Review (“Petition”) of the Delegated Order. 11 On February 13, 2026, the Commission issued a scheduling order, pursuant to Commission Rule of Practice 431, 12 granting the Petition and providing until March 12, 2026, for any party or other person to file a written statement in support of, or in opposition to, the Delegated Order. 13 On March 12, 2026, Petitioner submitted a written statement in opposition to the Delegated Order. 14 The Commission received additional comment from the public, including from OCC. 15 5  17 CFR 200.30-3(a)(12). 6  Securities Exchange Act Release No. 104359 (Dec. 11, 2025), 90 FR 58352 (Dec. 16, 2025) (File No. SR-OCC-2025-018). The Delegated Order also provided notice of filing of Partial Amendment No. 1, which did not change the purpose of or basis for SR-OCC-2025-018. 7  Fidelity Investments provides clearing, custody, or other brokerage services through National Financial Services LLC, which is a Clearing Member of OCC. See https://www.theocc.com/company-information/member-directory (last visited Sept. 30, 2026). 8   See Letter from Roberto Braceras, General Counsel, Fidelity (Dec. 18, 2025), available at https://www.sec.gov/files/rules/sro/occ/2026/34-104359-fidelity-letter-121825.pdf. 9  17 CFR 201.430. 10  17 CFR 201.431(e). See Letter from J. Matthew DeLesDernier, Deputy Secretary, Commission, to Hafez Almiladi, Assistant General Counsel, OCC (Dec. 18, 2025), available at https://www.sec.gov/files/rules/sro/occ/2025/34-104359-letter.pdf. 11   See Fidelity, Petition for Review of Order Taken by Delegated Authority Granting Approval of Proposed Rule Change by Options Clearing Corporation Amending Methodology for Allocation of Clearing Fund Deposit Requirements (Dec. 24, 2025), available at https://www.sec.gov/files/rules/sro/occ/2025/34-104359-petition.pdf. The Commission received two comments supporting the Petition. See Letter from Matt Billings, President, Robinhood Financial LLC and Robinhood Securities, LLC (Dec. 23, 2025) (“Robinhood I”), available at https://www.sec.gov/comments/SR- OCC-2025-018/srocc2025018-687647-2132694.pdf; Letter from Jeffrey Starr, Managing Director, Head of Operations, Charles Schwab & Co., Inc. (Feb. 12, 2026) (“Schwab I”), available at https://www.sec.gov/comments/sr-occ-2025-018/srocc2025018-703548-2210614.pdf. On January 22, 2026, OCC submitted a response recommending that the Commission not grant the Petition. See Letter from Nicole Jakubowski, Deputy General Counsel and Corporate Secretary, OCC (Jan. 22, 2026) (“OCC I”), available at https://www.sec.gov/comments/sr-occ-2025-018/srocc2025018-695847-2175634.pdf. 12  17 CFR 201.431. 13   See Securities Exchange Act Release No. 104846 (Feb. 13, 2026), 91 FR 8034 (Feb. 19, 2026) (File No. SR-OCC-2025-018). 14   See Fidelity, Opposition to Proposed Rule Change by Options Clearing Corporation Amending Methodology for Allocation of Clearing Fund Deposit Requirements (“Opposition”) (Mar. 12, 2026), available at https://www.sec.gov/comments/sr-occ-2025-018/srocc2025018-722287-2261554.pdf. Concurrently, Petitioner provided additional information supporting its statement to the Commission with a request for confidential treatment. 15  Comments on the Proposed Rule Change are available at https://www.sec.gov/comments/sr-occ-2025-018/srocc2025018.htm. The Commission has conducted a de novo review of OCC's proposal, giving careful consideration to the entire record—including all comments and statements submitted—to determine whether the proposal is consistent with the requirements of the Exchange Act and the rules and regulations thereunder applicable to a registered clearing agency. Section 19(b)(2)(C) of the Exchange Act directs the Commission to approve a proposed rule change of a self-regulatory organization if it finds that such proposed rule change is consistent with the requirements of the Exchange Act and the rules and regulations thereunder applicable to such organization. 16 Under the Commission's Rules of Practice, the “burden to demonstrate that a proposed rule change is consistent with the Exchange Act and the rules and regulations issued thereunder . . . is on the self-regulatory organization that proposed the rule change.”  17 The description of a proposed rule change, its purpose and operation, its effect, and a legal analysis of its consistency with applicable requirements must all be sufficiently detailed and specific to support an affirmative Commission finding, 18 and any failure of an SRO to provide this information may result in the Commission not having a sufficient basis to make an affirmative finding that a proposed rule change is consistent with the Exchange Act and the applicable rules and regulations. 19 Moreover, “unquestioning reliance” on an SRO's representations in a proposed rule change is not sufficient to justify Commission approval of a proposed rule change. 20 16  15 U.S.C. 78s(b)(2)(C). 17  Rule 700(b)(3), Commission Rules of Practice, 17 CFR 201.700(b)(3). 18   Id. 19   Id. 20   Susquehanna Int'l Group, LLP v. Securities and Exchange Commission, 866 F.3d 442, 447 (D.C. Cir. 2017). For the reasons discussed herein, OCC has met its burden to show that the Proposed Rule Change is consistent with the Exchange Act and rules and regulations thereunder applicable to OCC, and this order sets aside the Delegated Order and approves the Proposed Rule Change. In particular, the Commission finds that the record before the Commission demonstrates that the Proposed Rule Change is consistent with the requirements of the Exchange Act and the rules and regulations thereunder applicable to OCC. More specifically, the Commission finds that the Proposed Rule Change is consistent with Sections 17A(b)(3)(F), and (I) of the Exchange Act, and with Exchange Act Rules 17ad-22(e)(2) and (18). II. Summary of the Proposal OCC is registered with the Commission as a clearing agency and, as such, is an SRO under the Exchange Act. 21 OCC is the only clearing agency for standardized U.S. securities options listed on Commission-registered national securities exchanges (“listed options”). In addition, OCC serves other financial markets, including the commodity futures, commodity options, security futures, securities lending, and the over-the-counter options markets. OCC provides central counterparty (“CCP”) clearing services for all these markets and performs critical functions in the clearance and settlement process. OCC's role as a CCP means that, as part of its function as a clearing agency, it interposes itself as the buyer to every seller and the seller to every buyer for certain financial transactions. As the CCP for the listed options markets in the United States, as well as for certain futures and stock loans, OCC is exposed to various risks arising from providing clearance and settlement services to its Clearing Members. Because OCC is obligated to perform on the contracts it clears, one such risk that OCC is exposed to is credit risk, including the risk that OCC would not maintain sufficient financial resources to cover exposures if one of its Clearing Members defaults. 21   See 15 U.S.C. 78c(a)(26). OCC is also registered with the U.S. Commodity Futures Trading Commission (“CFTC”) as a derivatives clearing organization. Among the ways that OCC manages the credit risk posed by a potential Clearing Member default is by periodically collecting margin collateral from Clearing Members on an individual basis and, to the extent this margin collateral could be insufficient to cover OCC's credit exposure in the event of a Clearing Member default, maintaining a Clearing Fund, which is a mutualized pool of financial resources to which each Clearing Member is required to contribute. OCC establishes the size of its Clearing Fund on a monthly basis, in part, at an amount determined by OCC to be sufficient to protect it against losses stemming from the default of the two Clearing Member Groups that would potentially cause the largest aggregate credit exposure for OCC under stress test scenarios that represent extreme but plausible market conditions. 22 22  OCC Rule 1001(a). OCC determines the size of its Clearing Fund based on the daily output of stress tests conducted using a range of foreseeable scenarios that utilize standard pre-determined parameters and assumptions, including: relevant peak historic price volatilities; shifts in other market factors including, as appropriate, priced determinants and yield curves; the default of one or multiple members; forward-looking stress scenarios. See Notice of Filing, 90 FR at 47384. After establishing the size of the Clearing Fund each month, OCC allocates a percentage of the obligation to contribute to the Clearing Fund to each Clearing Member. From time to time, OCC has modified its allocation methodology to more accurately reflect the risk each Clearing Member poses to OCC. 23 Currently, each Clearing Member's contribution to the Clearing Fund is a function of that member's proportionate share of total risk, 24 open interest, 25 and volume. 26 OCC currently uses a one-month lookback when calculating a member's proportionate share of the Clearing Fund. 27 23   See Securities Exchange Act Release No. 69403 (Apr. 18, 2013), 78 FR 24257 (Apr. 24, 2013) (File No. SR-OCC-2013-02) (replacing OCC's method of calculating Clearing Members' contributions to OCC's Clearing Fund in proportion to open interest with a formula based on open interest, total risk, and volume with relative weightings of 50%, 35%, and 15%, respectively); Securities Exchange Act Release No. 83735 (July 27, 2018), 83 FR 37855 (Aug. 2, 2018) (File No. SR-OCC-2018-008) (modifying OCC's allocation weighting to better manage its credit exposures to its Clearing Members by better aligning each Clearing Member's contributions to the credit risk it poses to OCC). 24  Total risk in this context refers to a member's proportionate share of margin posted to OCC. See OCC Rule 1003(b)(i). 25  Open interest is the total number of cleared contracts and open positions plus units of stock underlying open stock loan or borrow positions. See Securities Exchange Act Release No. 69403 (Apr. 18, 2013), 78 FR 24257 (Apr. 24, 2013) (File No. SR-OCC-2013-02). 26  OCC Rule 1003(a). The proportionate requirements are determined over and above the contribution of $500,000 per Clearing Member. See id. 27   See Notice of Filing, 90 FR at 47386. In the Proposed Rule Change, OCC proposed to modify the allocation methodology again to more closely align member obligations with the risks to which they expose OCC. 28 Although the current Clearing Fund allocation methodology contemplates risk as a function of margin, it does not include a component that accounts for the stressed losses used to size the Clearing Fund when determining each Clearing Member's required Clearing Fund contribution. OCC states that the lack of such a stress loss component creates an inconsistency between the sizing and allocation across the membership. 29 To address this inconsistency, OCC's Proposed Rule Change includes the stress loss component in the allocation methodology, allowing OCC to more accurately allocate individual Clearing Fund requirements because they better reflect the potential risk also known as the directional stressed risk that Clearing Members present to OCC. 28   See Notice of Filing, 90 FR at 47383 (providing notice of OCC's proposal to better align the allocation with the sizing of the Clearing Fund so that stress-based risk is fairly allotted to those market participants that expose OCC to such stress risk). 29  Notice of Filing, 90 FR at 47384 (“OCC's rules require OCC to size the Clearing Fund monthly based on stress test scenarios that present extreme but plausible market condition . . . [h]owever, the current allocation methodology does not include a component that takes into account the same stressed losses used to size the fund when determining each Clearing Member's required Clearing Fund deposit”). OCC's Proposed Rule Change would modify OCC's formula for allocating Clearing Fund Contribution requirements by (a) introducing a 70% Clearing Fund risk-based shortfall allocation based on stress loss in excess of margin (the “shortfall”);  30 and (b) changing the weighting percentages by reducing the margin allocation from 70% to 15% and open interest to 0%. These changes would result in a new weighting scheme of 70% shortfall, 15% margin, and 15% cleared volume. 30  OCC refers to such a shortfall as Stress Loss Over Initial Margin (“SLOIM”). See generally Letter from Nicole Jakubowski, Deputy General Counsel and Corporate Secretary, OCC (Mar. 12, 2026) (“OCC II”), available at https://www.sec.gov/comments/sr-occ-2025-018/srocc2025018-722767-2261914.pdf. As part of the change to allocation weighting, OCC also proposed extending the lookback period from one month to three months of data to align with parameters OCC uses when sizing the Clearing Fund. 31 Secondly, OCC proposed adopting rules that would authorize OCC to hold allocation weights constant month-over-month in light of volatile market conditions. 32 Finally, OCC proposed clarifying and conforming changes to the Clearing Fund Methodology Policy (“Policy”) and the Comprehensive Stress Testing & Clearing Fund Methodology, and Liquidity Risk Management Description (“Methodology Description”). 33 31  Petitioner does not object to extending the lookback period used for allocation inputs from one month to three months. See Petition, at 6 n. 2. See also Opposition, at 9 n.3. 32  Petitioner does not object to adopting a new authority allowing OCC to hold allocation weights constant month-over-month during periods of heightened market volatility. See Petition, at 6 n. 2. See also Opposition, at 9 n.3. 33  In addition to the modifications to the allocation weighting formula and the authority to hold constant, OCC proposed non-substantive conforming changes and clarifications, which were not subject to Fidelity's Petition. See Delegated Order, 90 FR at 58354 (“Such clarifying changes include the removal of Interpretation and Policy .03 of Rule 1003, which provides for implementation of the current allocation methodology and is no longer necessary. The conforming changes also include the introduction of `shortfall' into the provisions describing OCC's Clearing Fund allocation methodology across the Rules, Policy, and Methodology Description. Similarly, OCC would remove references to `open interest; and other terms that are not relevant to the proposed allocation methodology.”). The clarifying and conforming changes are considered as part of the Proposed Rule Change; however, they were not the subject of concerns raised in the Petition. A. Modifications to the Allocation Weighting Formula OCC proposed replacing the current allocation weighting (70% total risk, 15% open interest, and 15% volume) with a new weighting that aligns more closely with OCC's Clearing Fund sizing methodology (70% shortfall, 34 15% margin, 35 and 15% volume). Under the proposed weighting scheme, the proposed methodology would be driven primarily by a Clearing Member's proportionate share of shortfalls and would use the same Clearing Fund sizing scenarios to calculate these shortfalls. 36 OCC states that, based on its analysis of different allocation weightings, this specific allocation scheme generates a balance between the various risks captured by each component and would align the Clearing Fund allocation with the exposure driving the size of the Clearing Fund. 37 OCC also proposed to align the lookback period for all allocation-related measures with the parameters used to size the Clearing Fund by moving from a one-month lookback to a three-month lookback. 38 34  As proposed, OCC would define “shortfall” to mean “an estimated stress loss exposure in excess of margin amounts aggregated across all accounts of a Clearing Member determined using the Corporation's margin methodology and such add-on charges as may be determined pursuant to the Corporation's policies and procedures.” See Notice of Filing, 90 FR at 47385. 35  “Margin” under the proposed rule would have the same meaning as “total risk” under the current rule. OCC states that using the term “margin” rather than “total risk” provides better clarity as to the metric upon which the factor is based. See id. at 47385 n. 12. 36  The shortfall component used in the allocation is based on the highest shortfall across all sizing scenarios for that Clearing Member on a given business date and will be treated as zero in the event there are no shortfalls. 37   See Notice of Filing, 90 FR at 47385. OCC provided the results of its analysis in confidential Exhibit 3 to File No. SR-OCC-2025-018. See id. at 47385 n. 14. 38  Petitioner does not object to extending the lookback period used for allocation inputs from one month to three months. See Petition, at 6 n. 2. See also Opposition, at 9 n.3. Before the Commission published its Delegated Order, OCC provided and Commission staff reviewed confidential data describing how the proposed methodology could affect contributions by its Clearing Members. 39 OCC observed that, overall, the proposed approach allocates the Clearing Fund in a more distributed fashion within the top 10 Clearing Members (as measured by highest Clearing Fund contribution amounts), with some members experiencing larger changes relative to other Clearing Members. 40 Under the proposed methodology, while the top 10 Clearing Members would have experienced, on average, a 1.28% increase in their Clearing Fund contributions, the top five Clearing Members within that group would have experienced, on average, a 2.67% decrease in such contributions. 41 Outside of the top 10 group, the remaining Clearing Members would have experienced a 1.28% decrease in average contributions. 42 39   See Notice of Filing, 90 FR at 47386. 40   Id. 41   Id. 42   Id. B. Authority to Hold Constant As noted above, OCC proposed to adopt rules that would authorize it to hold allocation weights constant month-over-month in light of volatile market conditions. 43 As OCC stated in its proposal, when markets are highly volatile during periods of market stress, elevated margin coverage becomes more commonplace and consequently may reduce or even eliminate Clearing Fund shortfalls because of elevated margin requirements. 44 This is because the shortfall component represents a stress loss in excess of margin. Thus, an increase in margin, all else being equal, results in a decreased shortfall. 43  Petitioner does not object to adopting a new authority allowing OCC to hold allocation weights constant month-over-month during periods of heightened market volatility. See Petition, at 6 n. 2. See also Opposition, at 9 n.3. 44   See Notice of Filing, 90 FR at 47387. As OCC further stated in its proposal, reductions in shortfalls could cause the resulting Clearing Fund allocation to change dramatically month-over month. 45 This is because the proposed changes to the allocation methodology described above reduce the weight of margin and give significant weight to shortfall. As a result, an increase in a Clearing Member's proportionate share of margin would not offset an equal reduction in that member's proportionate share of shortfall under the proposed allocation methodology. OCC stated that the proposed implementation of a three-month lookback would help to smooth month-over-month changes;  46 however, OCC stated that it is possible the extended lookback alone may not be sufficient in the unlikely event that high volatility and reduced shortfalls persisted even though OCC did not observe such persistence in its analysis. 47 45   Id. 46   Id. 47   Id. To address the potential impact of persistent high volatility on the allocation of Clearing Fund requirements, OCC proposed to adopt rules that would allow it to hold allocations constant month-over-month. As proposed, Rule 1003(c) would grant OCC the authority to make the hold-constant decision at its sole discretion. The rule would provide that any hold-constant decision would (i) be based upon then-existing facts and circumstances, (ii) be in furtherance of the integrity of OCC and the stability of the financial system, and (iii) take into consideration the legitimate interests of Clearing Members and market participants. Under the proposed Policy, OCC would exercise its hold-constant authority by conducting daily analyses of the output of OCC's sizing stress tests  48 and, if warranted, by escalating to the Chair of the Stress Testing Working Group (“STWG”)  49 or the Chief Financial Risk Officer so that an STWG meeting be convened to review, and approve or reject, a hold-constant recommendation. 50 Such a recommendation would be required to be supported by an analysis that may include and is not limited to the percentage of firms generating shortfalls, the size of peak shortfalls relative to the Clearing Fund size, a comparison of the Clearing Fund allocation projections to current requirements, and a breakdown of the allocation projections by component. 51 OCC would be required to notify Clearing Members and the Risk Committee of any hold-constant decision or reversion to the proportionate approach. Further, OCC would be required to notify the Commission and the CFTC promptly of any decision to hold allocations constant and to provide the reasons for such decision. 48  In particular, these tests would be the Cover 2 Sizing Stress Tests, where “Cover 2” means “sufficient Pre-Funded Financial Resources, at a minimum, to enable OCC to cover a wide range of foreseeable stress scenarios that include, but are not limited to, the default of the two Clearing Member Groups that would potentially cause the largest aggregate credit exposure in extreme but plausible market conditions.” See Notice of Filing, 90 FR at 47384 n.23 and accompanying text. See also Notice of Filing, 90 FR at 47384 (“As described in the Methodology Description, OCC leverages a suite of sizing stress tests broadly categorized into two types: `Systemic Scenarios' and `Idiosyncratic Scenarios.' Systemic Scenarios are created to capture risk to OCC in an extreme event impacting all positions mainly driven by risk drivers, while Idiosyncratic Scenarios are used to assess the impact of extreme moves of specific equities in a Clearing Member portfolio. [. . .] OCC selects the largest aggregate stress test exposures as the primary basis for sizing the Clearing Fund.”). 49   See Notice of Filing, 90 FR at 47387 (“OCC believes the STWG is the appropriate OCC internal governing body to approve or reject such recommendation given the authority the Management Committee has delegated to it as the subject matter expert on OCC's financial risk and liquidity risk stress-testing scenarios, models, underlying parameters and assumptions, and stress test results.”). 50   See Notice of Filing, 90 FR at 47387 n. 24. Likewise, OCC would have the authority to revert to the proposed allocation calculation formula, subject to the STWG's prior approval. See Notice of Filing, 90 FR at 47387. 51   See Notice of Filing, 90 FR at 47387 n. 25. III. Discussion and Commission Findings The Commission finds that the Proposed Rule Change is consistent with the requirements of the Exchange Act and the rules and regulations thereunder applicable to OCC. More specifically, the Commission finds that the Proposed Rule Change is consistent with Sections 17A(b)(3)(F) and (I) of the Exchange Act, 52 and with Exchange Act Rules 17ad-22(e)(2) and (18), 53 as described in detail below. 54 Also as described below, commenters' argument regarding the equitable allocation of dues, fees, and other charges under Section 17A(b)(3)(D) of the Exchange Act  55 is misplaced. The Commission therefore approves the Proposed Rule Change. 52  15 U.S.C. 78q-1(b)(3)(F), 15 U.S.C. 78q-1(b)(3)(I). 53  17 CFR 240.17ad-22(e)(2) and 17 CFR 240.17ad-22(e)(18). 54  In approving this proposed rule change, the Commission has considered the Proposed Rule Change's impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 55  15 U.S.C. 78q-1(b)(3)(D). A. Consistency With Sections 17A(b)(3)(F) and 17A(b)(3)(I) of the Exchange Act Section 17A(b)(3)(F) of the Exchange Act requires, among other things, that a clearing agency's rules are not designed to permit unfair discrimination among participants in the use of the clearing agency. 56 Section 17A(b)(3)(I) of the Exchange Act requires that the rules of a clearing agency do not impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Exchange Act. Section 17A(b)(3)(I) does not require the Commission to make a finding that OCC chose the option that imposes the least possible burden on competition. Rather, the Exchange Act requires that the Commission find that the Proposed Rule Change does not impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Exchange Act, which involves balancing the competitive effects of the Proposed Rule Change against all other relevant considerations under the Exchange Act. 57 Because the concerns raised by the Petitioner and commenters regarding unfair discrimination and burdens on competition overlap substantively, this section addresses them together under the relevant statutory sections. 56  15 U.S.C. 78q-1(b)(3)(F). 57   See Bradford National Clearing Corp., 590 F.2d 1085, 1105 (D.C. Cir. 1978). The purpose of the Proposed Rule Change is to align the financial obligations imposed by OCC's rules with the credit risk each Clearing Member poses to OCC. As described above, OCC maintains the Clearing Fund to cover OCC's credit exposure in the event of a Clearing Member default to the extent such exposure is not covered by margin collateral. The size of the Clearing Fund is a direct function of the difference between the margin OCC collects from Clearing Members and the potential losses OCC could face from a member default under extreme but plausible market conditions, i.e., shortfall. 58 Collecting such collateral is necessary to ensure that OCC maintains sufficient financial resources to manage its credit risk. The greater the potential shortfall, the greater the size of the Clearing Fund. 59 Currently, however, the size of each Clearing Member's contribution is unrelated to the share of the shortfall it presents to OCC. 58   See Notice of Filing, 90 FR at 47384 (defining shortfall as the estimated stress loss exposure in excess of margin requirements). 59   See OCC Rule 1001(a) (explaining that the size of the Clearing Fund is set at an amount determined sufficient to protect against losses under stress test scenarios that represent extreme but plausible market conditions). Both the Petition and several comments received after the Petition address the burden on competition, as described in detail below. 60 Petitioner states that the proposal overstates the risk posed by agency brokers  61 in that the allocation methodology would “require agency brokers to contribute to the Clearing Fund substantially in excess of the risk they generate, while allowing proprietary trading firms and market makers to contribute substantially less than their risk profile warrants—resulting in a loss-allocation framework in which agency brokers subsidize any loss created by other distinct cohorts.”  62 60   See Petition, at 11-15 (suggesting that the proposal imposes an inappropriate burden on competition by unfairly discriminating against agency brokers serving retail clients). See also Opposition, at 13-20. See also generally Letter from Jeffrey Starr, Managing Director, Head of Operations, Charles Schwab & Co., Inc. (Mar. 12, 2026) (“Schwab II”), available at https://www.sec.gov/comments/sr-occ-2025-018/srocc2025018-722707-2261854.pdf; Letter from Matthew Morningstar, Group Managing Director, Chief Legal Officer, LPL Financial (Mar. 20, 2026) (“LPL Letter”), available at https://www.sec.gov/comments/SR-OCC-2025-018/srocc2025018-731607-2277094_0.pdf; and Letter from Jessica Giroux, Chief Legal Officer, American Securities Association (Mar. 19, 2026) (“ASA Letter”), available at https://www.sec.gov/comments/sr-occ-2025-018/srocc2025018-729927-2274615.pdf. 61  Although Petitioner states that “the relative default risk of each member is fundamental to the equitable allocation of Clearing Fund contributions,” it also states that the “proposed allocation change greatly overstates the risk posed by the agency-broker model, compared to the risks posed by different business models such as proprietary trading firms and market makers.” See Petition, at 11. See also Opposition, at 13-19. 62   See Petition, at 11. Under the Proposed Rule Change, Petitioner estimates that its contribution obligations will increase by approximately 67%. Id., at 3, 9, and 17. See also Schwab II, at 4 (“Specifically, Schwab's monthly Clearing Fund contribution is projected to increase by approximately 40% under the Re-Weighted Formula. At the same time, principal trading firms, including quantitative trading firms, market makers, and other broker-dealers engaged primarily or solely in principal trading [. . .] would see only modest increases ( e.g., 1.28%)—or even decreases —in their Clearing Fund contributions under the Re-Weighted Formula.” (emphasis in original)). See also LPL Letter, at 2. See also generally ASA Letter. Petitioner and some commenters suggest that, unlike Clearing Fund sizing, the proposed Clearing Fund allocation does not align with each Clearing Member's relative default likelihood as well as expected losses, and that the relative default likelihood of an agency broker is distinct from that of proprietary trading firms and market makers due to structural differences. 63 Petitioner states that theoretical exposure to market direction (via, in some cases, many individual accounts) for agency brokers does not necessarily translate into real-world default risk, 64 and that, unlike proprietary and market-making firms, whose losses hit their books immediately, stress losses attributable to agency brokers are borne by individual customers and would first be absorbed by the defaulting customers' net equity and available margin collateral. 65 Petitioner also states that agency brokers frequently have access to additional forms of loss protection, including fidelity bonds, insurance coverage, and clearing deposits by introducing brokers. 66 63   See Petition, at 12-14; Opposition, at 14-17; Schwab II, at 5-6; and LPL Letter, at 3. 64   See Petition, at 12 (“OCC's stress-testing methodology does not account for key structural and regulatory features of agency brokerage that materially reduce the actual likelihood of agency-broker default [. . .] put simply, two customers may short the same options, but may not default at the same time.”). See also LPL Letter, at 3 (“Retail order flow is typically highly diversified across a large number of customers, strategies, and underlying securities. Unlike institutional trading strategies that may involve concentrated directional positions, retail activity tends to consist of smaller positions spread across a large number of accounts and a variety of asset classes. This volume and diversification reduce the likelihood that a single market event or exposure would result in large losses concentrated on a single intermediary or clearing participant.”). 65   See Petition, at 12; and Opposition, at 14-15. See also Schwab II, at 5 (“OCC's new stress-based shortfall approach ignores the fact that when an Agency Broker's customer fails to pay or deliver, 100% of the loss does not need to be covered by OCC-collected margin with any shortfall being covered by Clearing Fund resources. Instead, the Agency Broker business model has built-in regulatory protections that mitigate the risk of Clearing Fund resources being needed to cover an Agency Broker customer default. FINRA Rule 4210 provides one such protection by requiring Agency Brokers to collect margin when they extend credit to their customers to finance transactions in exchange-listed options. Collecting margin protects Agency Brokers from customer credit risk because the collected margin serves as collateral for the transaction, mitigating the extent of any loss to the firm if the customer ultimately fails to pay for or deliver the securities subject to the transaction.”) (footnotes omitted). 66   See Petition, at 12; Opposition, at 15. See also Schwab II, at 5 (“Because Agency Brokers have resources to mitigate losses stemming from customer failures to pay or deliver, the likelihood of Agency Broker defaults is lower than anticipated by the Proposed Rule Change. Even in the event of an Agency Broker default, a significant portion of any loss may be covered before any need to rely on OCC resources. If an Agency Broker covers a significant portion of the loss before OCC resources are needed, then OCC-collected margin may fully cover the remaining portion of the loss without needing to rely on the Clearing Fund. Even if OCC-collected margin does not fully cover the loss, any margin shortfall would be significantly smaller than if OCC resources were needed to cover 100% of the loss.”). Lastly, Petitioner states that the proposed allocation formula overstates relative credit risk posed by agency brokers compared to proprietary trading firms and market-makers because the contribution requirements are driven primarily by OCC's new stress loss metric, and the proposed allocation change minimizes operational risk that can lead to member default since proprietary trading firms and market makers face greater operational risk than agency brokers. 67 The Petitioner states that, unlike agency brokers, “[p]roprietary trading firms and market-makers face greater operational risk than agency brokers because they often employ high-volume, programmatic trading strategies. When these strategies fail—through system errors, algorithmic malfunctions, or breakdowns in intraday controls and hedging—the resulting losses can scale with their trading volumes and open interest, introducing more systemic risk.”  68 As a result, by removing open interest entirely and instead focusing on shortfall, the Petitioner states that the proposal would compound structural disparities in the Clearing Fund methodology between agency brokers and proprietary and market-making firms, thereby disadvantaging retail-facing agency brokers and unfairly discriminating against that type of business model. 69 67   See Petition, at 12-14; Opposition, at 16-17. See also Schwab II, at 6. One commenter also states that the proposed extended lookback period could prevent Clearing Fund allocations from fully capturing all relevant risks to OCC. Id., at 9. The Proposed Rule Change, however, is focused solely on the allocation of collateral contribution requirements, not on the sizing those requirements. See Notice of Filing, 90 FR at 47384 (“While the changes would not affect the overall size of the Clearing Fund, some Clearing Members would see their allocation increase while others would see their allocation decrease.”). The commenter also suggested potential alternatives to achieve the goals of the Proposed Rule Change without “disproportionately impacting” agency brokers ( e.g., phase in the re-weighted formula on which the allocation methodology relies, permit agency broker-dealers to use certain offsets in net capital requirements). See Schwab II at 8-9. The alternatives suggested by commenters do not alter the Commission's determination that the Proposed Rule Change, as designed, is consistent with the applicable statute, rules, and regulations. While there may be more than one reasonable way to address a given risk, the existence of an alternative does not, in and of itself, render the proposed approach inconsistent with applicable law. Additionally, Rule 17ad-22(e) generally provides CCAs with flexibility in designing their written policies and procedures, rather than to take a strictly prescriptive approach. See, e.g., Securities Exchange Act Release No. 78961 (Sept. 28, 2016), 81 FR 70786, at 70795-97, and 70800-01 (Oct. 13, 2016) (File No. S7-03-14). This means that clearing agencies have the flexibility to tailor their policies and procedures to the risks posed by their particular businesses. 68   See Petition, at 13. See also Opposition, at 16. 69   See Opposition, at 13-14. OCC states that the proposed allocation is business model-neutral because if a Clearing Member is required to increase its contribution under the new allocation, that is because that Clearing Member contributes more tail risk than it is currently being charged for, and that any burden on competition imposed is necessary and appropriate in furtherance of the purposes of the Exchange Act. 70 OCC states that it “has a single class of members subject to a single Clearing Fund—there are not separate rules or requirements applicable to particular classes of Clearing Members” and, “[i]n fact, the PRC is designed to more fairly allocate Clearing Fund contributions to those Clearing Members who present increased tail risk.”  71 OCC states that the proposed methodology “considers only the risk that Clearing Members introduce into the clearing system, and is agnostic to external characterizations of the nature of their business.”  72 OCC also states that the proposed approach “reflects a measured, data-driven calculation that was vetted closely by regulators, Clearing Members, and others [. . .].”  73 OCC further states, “[t]he change in allocation methodology necessarily means that the deposit requirement for some Clearing Members will increase because they present higher risk to OCC in a default scenario, represented by shortfall, than is apportioned under the current methodology, while the deposit requirement of other Clearing Members will decrease correspondingly based on a lower risk profile.”  74 Based on the underlying impact data confidentially submitted to the Commission, OCC states that of the top 15 largest Clearing Fund allocations for June 2026 under the proposal, nine Clearing Members would have seen an increased allocation, ranging from +8.69% to +104.78%, and six Clearing Members would have seen a decreased allocation, ranging from -4.79% to -39.97%. 75 OCC states that the Clearing Members who would have experienced higher allocations “are not limited to those who generally describe themselves as serving retail customers. Some Clearing Members who serve retail customers would in fact see their allocation decrease.”  76 70   See OCC II, at 7-8 (“Far from being unfair or discriminatory, the new allocation method more fairly allocates tail risk and places all Clearing Members on a more level playing field.”). 71   See OCC II, at 7 (emphasis in original). 72   See Letter from Nicole Jakubowski, Deputy General Counsel and Corporate Secretary, OCC, at 1 (June 17, 2026) (“OCC III”), available at https://www.sec.gov/comments/SR-OCC-2025-018/srocc2025018-840179-2567787.pdf See id., at 2 (“OCC seeks to clarify that OCC does not view its Clearing Members based on public perceptions on the nature of their business but strictly by the risk each Clearing Member introduces to OCC. The revised methodology does not allocate the fund by the type of customers that use a particular Clearing Member, but rather by the tail risk presented by each Clearing Member. Tail risk is a product of the positions held by the Clearing Members.”) (footnote omitted). 73   See OCC I, at 3. 74   See OCC II, at 5. 75   See OCC III, at 2. 76   Id. Additionally, OCC states that because the proposed allocation methodology more accurately measures Clearing Fund deposits based on the tail risk represented by a particular Clearing Member to OCC in the event of a default, the proposal is “designed to appropriately apportion contributions so that Clearing Members who do not cause significant tail risk are not required to subsidize those who do cause such risk.”  77 As detailed below, several commenters support OCC's proposed Clearing Fund reallocation and its effect on mutualization of losses, stating that the proposal would enhance resilience of the clearing system in the markets OCC serves and more appropriately align structural incentives for Clearing Members to manage the risks they bring into the system in the face of OCC's evolving risk profile. 78 OCC and the supportive commenters point out that, due to “tremendous growth and innovation in the options markets”  79 —such as the rise of new products like options on cryptocurrencies, the introduction of new expiry days, extended trading hours, and increased retail investor participation—certain developments “can increase non-linear tail exposures, making shortfalls a particularly relevant measure for allocating mutualized default resources.”  80 One such commenter states that the proposal realigns the incentives around loss mutualization, 81 adding that “[w]here clearing members are able to introduce risks that are not fully reflected in their Clearing Fund contributions, those risks are effectively subsidized by others in the mutualized pool, undermining both fairness and the integrity of the risk management framework.”  82 This commenter further states that ensuring that Clearing Fund contributions are commensurate with the risks OCC faces “is therefore a critical component of the safety and soundness of OCC and the broader market ecosystem.”  83 77   See OCC II, at 1. 78   See generally Letter from Stuart Bourne, CEO, BofA Securities, Inc.; Stephen John Berger, Managing Director, Global Head of Government & Regulatory Policy, Citadel Securities; and Alicia Crighton, Global co-head of Futures, Global head of Clearing, Goldman Sachs & Co. LLC (Apr. 2, 2026) (“Goldman Letter”), available at https://www.sec.gov/comments/SR-OCC-2025-018/srocc2025018-739727-2297854.pdf; Letter from Boudewijn Duinstra, CEO, ABN AMRO Clearing USA LLC (Apr. 16, 2026) (“ABN AMRO Letter”), available at https://www.sec.gov/comments/sr-occ-2025-018/srocc2025018-755167-2324074.pdf; and Letter from Jackie Mesa, Chief Operating Officer and Senior Vice President of Global Policy, FIA (Mar. 12, 2026) (“FIA Letter”), available at https://www.sec.gov/comments/sr-occ-2025-018/srocc2025018-722227-2261394.pdf. Specifically, one commenter stated that the inherent loss mutualization of the Clearing Fund “creates a collective responsibility among clearing members to robustly manage the risk of the positions they introduce to the clearinghouse.” See Goldman Letter, at 2. 79   See Goldman Letter, at 3 (“The average daily volumes have nearly doubled since 2020, surpassing 60 million contracts per day. [. . .] The OCC's Clearing Fund as of the end of last year had grown to over $21 billion dollars, nearly doubling over the last decade, highlighting the growth and change in complexity and risk profile over time.”). See also OCC II, at 8 (“OCC, and the listed options industry more broadly, have seen a well-documented increase in retail trading activity since 2019. [. . .] In fact, OCC has seen a shift in the type of firms that drive its Cover 1 exposure, from institutional participants to agency brokers.”). 80   See Goldman Letter, at 3. 81   See Goldman Letter, at 2 (“While central clearing delivers significant benefits to the markets [. . .] it also boosts the exposure clearing members (and by extension their customers) have to each other, especially as the OCC is the only clearinghouse for U.S. listed options. In the event a clearing member defaults, if the losses exceed the defaulting clearing member's margin on deposit and its own Clearing Fund contribution, the OCC will utilize the Clearing Fund contributions of other, non-defaulting clearing members to manage the default.”) (footnotes omitted). 82   See Goldman Letter, at 2. 83  Goldman Letter, at 2. Regarding relative likelihood of default, OCC states that the Clearing Fund and the applicable regulatory requirements  84 are not designed to address the probability of default, but rather the degree of loss if and after a default occurs. 85 OCC states that neither OCC's Rules nor federal securities laws “provide for OCC to discount or haircut the financial resources it must maintain to meet OCC's Cover 2 standard by reference to the creditworthiness of the Clearing Members generating the Cover 2 exposures.”  86 Rather, OCC states that it assesses a Clear Member's credit worthiness through “other processes for addressing the probability of a member's default, including Commission-approved margin requirements, membership standards (and ongoing monitoring of members' adherence to those standards), and protective measures.”  87 Moreover, OCC states that despite the fact that agency brokers collect customer margin as an internal buffer before potentially resorting to OCC's Clearing Fund in the event of a Clearing Member default, “agency brokers may choose to keep this excess margin at the firm, which puts these resources outside the reach of OCC in the event of the Clearing Member's failure. Because it does not have access to this increased margin in the event of a default, OCC does not realize a reduced tail risk associated with that Clearing Member in the event that Clearing Member in fact defaults.”  88 84   See 17 CFR 240.17ad-22(e)(4). 85   See OCC II, at 8 (“The Clearing Fund and Exchange Act Rule 17ad-22(e)(4) are not designed to address the probability of default, but rather the degree of loss given default. The proposed allocation appropriately does not take into account the likelihood of default; that is not what the Clearing Fund is for.” (emphasis in the original)). 86  OCC II, at 8. 87  OCC II, at 8. 88  OCC II, at 8. Lastly, regarding Petitioner's statements on operational risk, the proposed removal of open interest as a component of the allocation methodology, and the proposed shortfall-focused approach, OCC states that the “SLOIM methodology is [sic] more appropriate way to apportion the costs of tail risk to the Clearing Members who actually create that risk” and, as such, “if the risk in excess of margin associated with a particular Clearing Member increases, that Clearing Member's Clearing Fund allocation likewise increases.”  89 Further, OCC states that â€