I. Introduction

On June 5, 2026, the Options Clearing Corporation (“OCC”), filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Exchange Act”) ^[1] and Rule 19b-4 thereunder,^[2] a proposed rule change to amend OCC's System for Theoretical Analysis and Numerical Simulation (“STANS”) Methodology Description to incorporate options implied interest rates as an additional source of interest rates inputs for constructing the interest rate discount curve used in options pricing (hereinafter “Proposed Rule Change”). The Proposed Rule Change was published for comment in the Federal Register on June 23, 2026.^[3] The Commission did not receive comments regarding the Proposed Rule Change. For the reasons discussed below, the Commission is approving the Proposed Rule Change.

II. Background

OCC is a central counterparty (“CCP”), which means that, as part of its function as a clearing agency, it interposes itself as the buyer to every seller and seller to every buyer for certain financial transactions. As the CCP for the listed options markets in the United States,^[4] 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.^[5] Because OCC is ( printed page 50909) 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. OCC manages such credit risk, in part, through financial safeguards, including the collection of margin collateral designed to cover the market risk associated with a Clearing Member's positions during the period that OCC would take to liquidate those positions in the event of a Clearing Member default. OCC employs its proprietary risk management system, STANS, to calculate each Clearing Member's margin requirements.^[6]

In the STANS methodology, the interest rate discount curve (“discount curve”) is a critical input for OCC's pricing models. OCC constructs the discount curve using industry standard benchmark rates and instruments. Currently, OCC states that it uses only the Secured Overnight Financing Rate (“SOFR”) based discount curve.^[7] However, OCC has observed that the SOFR-based discount curve may not always align with the rates implied by the options market, and market participants likewise have reported similar discrepancies in OCC's in-the-money options marks for long-dated SPX option expiries, specifically that the SOFR rates used by OCC are systematically below the options implied interest rates.^[8]

To address this misalignment, OCC proposes to amend its STANS Methodology Description to incorporate box rates implied by the SPX options market as an additional input to the discount curve construction used in options pricing.^[9] As a supplement to the current methodology, these market-derived box rates would allow OCC to incorporate box rates into its theoretical mark calculations and, thus, would increase smoothing output adherence to market quotations.^[10] OCC states that it expects the proposed change to improve pricing accuracy for deep-in-the-money options with medium- to long-term expirations, resulting in more realistic margin requirement calculations that more precisely reflect the risk of Clearing Member portfolios.^[11]

A. Overview of Discount Curve Inputs

The STANS methodology utilizes large-scale Monte Carlo simulations to forecast price and volatility movements in determining a Clearing Member's margin requirement.^[12] OCC's pricing model within its STANS methodology uses the discount curve, along with dividends and implied volatility, to specify underlying price dynamics. OCC uses this data, along with Exchange-listed option price data, to calibrate the implied borrow cost and implied volatility parameters used in its option pricing models. In general, the discount curve is used to project expected future cash flows for option derivatives and to discount them back to present value.

OCC has observed that a SOFR-based discount curve may not always align with the rates implied by the options market, resulting in pricing discrepancies, particularly for deep-in-the-money options.^[13] OCC states that, according to its analysis, the SOFR rate it uses generally is at a discount compared to the rate implied from put-call parity i.e., box rates, and historical data shows that box rates generally exceed SOFR-based rates by approximately 20 to 40 basis points across tenors, with varied spreads observed at shorter tenors.^[14] OCC also states that market participants have reported discrepancies between OCC's end-of-day option marks and observed market prices for deep-in-the-money SPX options with long-dated expiries across all option types.^[15]

B. Proposal To Incorporate Box Rates

To address these pricing discrepancies, OCC proposes to amend the STANS Methodology Description to incorporate interest rates implied by the SPX options market as inputs for constructing the discount curve. The incorporation of box rates would supplement OCC's current methodology, which uses SOFR rates as the primary input for discount curve modeling.

First, OCC would estimate such implied interest rates by sourcing market quotes for SPX European-style options and calculating their mid-prices from the average of the bid and ask. Then, using these mid-prices, OCC would apply a proprietary regression technique to derive box rates.^[16] SPX options typically extend to approximately five years out; as such, OCC would extend the term structure of the discount curve by applying a basis adjustment to longer term SOFR swap rates to create a curve that extends to approximately 50 years.^[17] OCC states that this approach would capture the market's cost of capital for equity options, which OCC has observed would typically run 20 to 40 basis points higher than SOFR-based rates.^[18]

The proposal would revise Section 3.2 in the STANS Methodology Description, which currently provides for three legacy groups of input data available for constructing the U.S. dollar discount curve: (1) cash rates, such as SOFR, (2) contiguous interest rate futures, and (3) ( printed page 50910) interest rate swaps.^[19] The proposal would expand the input data sources by adding a fourth input source to the list, namely, interest rates over the short and medium term implied by market quotes for options and other derivatives. Under the proposal, OCC would be able to use box rates derived from market quotes of standard SPX options, where available. As amended, Section 3.2 also would describe the process of extending the curve beyond available box rates to maintain continuity across the entire term structure, thus allowing OCC to extrapolate beyond the longest available expiration of standard SPX options using adjusted SOFR swap rates.

Further proposed changes to Section 3.2 of the STANS Methodology Description include replacement of specific maturity details with generalized timeframes so that, for example, cash rates would span from “overnight ( i.e., one day) to a few months” rather than listing specific tenors. Likewise, under the proposal, the term “contiguous” would be removed from the interest rate futures discussion, as would the last sentence on seamless selection changes. Other changes in Section 3.2 would revise terminology from “yield curve” to “discount curve”, as well as provide additional clarifying context and remove certain references to algorithmic notations. The proposal would eliminate entirely from Section 3.2 the cash instruments subsection, which references legacy instrument-specific details related to the construction of the interest rate curve before OCC transitioned away from LIBOR to SOFR transition.^[20]

III. Discussion and Commission Findings

Section 19(b)(2)(C) of the Exchange Act requires the Commission to approve a proposed rule change of a self-regulatory organization if it finds that the proposed rule change is consistent with the requirements of the Exchange Act and the rules and regulations thereunder applicable to the organization.^[21] 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 [`SRO'] that proposed the rule change.” ^[22]

After carefully considering the Proposed Rule Change, 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 Section 17A(b)(3)(F) of the Exchange Act,^[23] and Rule 17ad-22(e)(6)(i) thereunder, as described in detail below.^[24]

A. Consistency With Section 17A(b)(3)(F) of the Exchange Act

Section 17A(b)(3)(F) of the Act ^[25] requires, in part, that the rules of a clearing agency be designed to assure the safeguarding of securities and funds which are in the custody or control of the clearing agency or for which it is responsible.

OCC uses its proprietary risk management system, STANS, to set risk-based margin requirements for its Clearing Members to address the credit risk it faces as a central counterparty in the event of a Clearing Member default. Pricing models outlined in OCC's STANS Methodology Description help inform the calculation of such margin requirements. The interest rate discount curve is a crucial component of these pricing models and is solely based on the secured overnight financing rate, but OCC and certain Clearing Members have stated the discount curve calculation is misaligned with current markets. They noted that the SOFR rates used by OCC to construct its discount curve are systematically below the options implied interest rates, especially for deep in-the-money SPX options for long-dated expiries across all option types. To address this mispricing and obtain a more accurate modeling of margin requirements, the proposal would incorporate box rates as a supplemental input in the discount curve construction.

Addressing the pricing discrepancies described above would provide a more accurate means of constructing the discount curve as an input to pricing options. More accurate pricing would, in turn, improve OCC's ability to assess its credit exposures and collect an appropriate amount of margin collateral to address such exposures. Collecting an appropriate amount of margin collateral would increase the likelihood that OCC is able to risk manage the default of a Clearing Member without recourse to loss mutualization through the use of Clearing Fund assets of non-defaulting Clearing Members, which supports the safeguarding of securities and funds of such non-defaulting members in OCC's custody or control or for which it is responsible.

Accordingly, the Proposed Rule Change is consistent with the requirements of Section 17A(b)(3)(F) of the Act.^[26]

B. Consistency With Rule 17ad-22(e)(6) Under the Exchange Act

Exchange Act Rule 17Ad-22(e)(6) requires that a covered clearing agency establish, implement, maintain and enforce written policies and procedures reasonably designed to cover its credit exposures to its participants by establishing a risk-based margin system that, among other things, considers, and produces margin levels commensurate with, the risks and particular attributes of each relevant product, portfolio, and market.^[27]

As stated above, the proposal seeks to address the discrepancy noted by OCC and certain Clearing Members regarding one of the inputs underlying pricing models used to set margin requirements. OCC and its Clearing Members have observed that the SOFR-based discount curve used in margin-setting pricing models may not always align with the rates implied by the options market and that SOFR rates used by OCC are systematically below the options implied rates, particularly impacting deep in-the-money options marks for long-dated SPX option expiries across all option types. To address this misalignment, OCC proposes to supplement the SOFR-based input with box interest rates implied by the SPX options market. Additionally, OCC proposes to establish a process of extending the curve beyond available box rates, which typically extend to approximately five years out, to maintain continuity across the entire term structure, and allow for extrapolation beyond the longest available expirations of standard SPX options using adjusted SOFR swap rates.

The Proposed Rule Change would help improve pricing accuracy, especially for deep-in-the-money options with medium- to long-term expirations by aligning margin requirements and OCC's credit risk management more closely with the ( printed page 50911) current market. The proposal would, therefore, result in more accurate calculations for margin requirements commensurate with risks and particular attributes of the products it clears.

Accordingly, the Proposed Rule Change is consistent with the requirements of Rule 17ad-22(e)(6) under the Act.^[28]

IV. Conclusion

On the basis of the foregoing, the Commission finds that the Proposed Rule Change is consistent with the requirements of the Exchange Act, and in particular, with the requirements of Section 17A(b)(3)(F) of the Exchange Act,^[29] and Rule 17ad-22(e)(6)(i) thereunder. ^[30] It is therefore ordered pursuant to Section 19(b)(2) of the Exchange Act ^[31] that the proposed rule change (SR-OCC-2026-005) be, and hereby is, approved.^[32]