Mar. 15, 2023
C March 15, 2023 To Whom It May Concern: It has come to our attention The Options Clearing Corporation (OCC) has proposed a rule change to their Clearing Bank Standards. Lakeside Bank (LSB) is currently an approved Clearing Bank for the OCC. LSB was founded in 1966 and is a leading, independent community bank that specializes in serving small and medium sized businesses in Chicago. LSB was the first community bank to establish a bank branch in the Chicago Board of Trade Building in 1985 that serves small and medium sized broker/dealers, independent traders, and clearing brokers. In addition to the OCC, LSB is a Clearing Bank for the Chicago Mercantile Exchange (CME), and the Depository Trust Clearing Corporation (DTCC). In the proposed rule OCC seeks to revise their Clearing Member requirements for Banks. The OCC seeks to increase the Tier 1 Capital requirement from $100 million to $500 million. LSB would no longer satisfy the requirement at $274.5 million in Tier 1 Capital per the FFIEC 12/31/22 bank call report. The OCC has stated to LSB there will be no exceptions or exemptions for currently approved Clearing Member Banks. LSB is a federally regulated financial institution and believes they do not pose a risk to the current OCC settlement process with Clearing Banks. If the OCC considers the LSB relationship as riskier based upon the banks size, OCC could deploy transactional caps on their Clearing Members that other clearing houses maintain. The rule change creates an unfair competitive advantage for larger Clearing Member Banks that will already satisfy the new requirements and serves to eliminate community banking institutions from Clearing Member Bank membership as well as future applica nts. The proposed 5x increase to the current Tier 1 Capital requirement will have a negative effect by eliminating LSB as a member Clearing Bank. With LSB eliminated it will reduce competition in the marketplace. This is counter to the OCCs statement in the proposed rule, Moreover, OCC believes that the prudent expansion of types of institutions that are eligible for clearing membership will broaden the clearing membership base and potentially mitigate counterparty concentration risk consistent with the risk-based approach prescribed in Rule 17Ad-22(e)(18) 43 LSB believes they are solely affected by the proposed rule change as a Clearing Member Bank and was not provided a reasoned decision by the OCC for the proposal. LSB has concern that other SRO organizations such as CME and DTCC could move to make similar rules with the approval of this rule filing and Rule Filing SR_OCC_2022_012 and would therefore eliminate community banking from servicing Clearing Member. The proposed Tier 1 Capital rule change to $500 million is arbitrary and capricious and not explained other than the OCCs belief the new requirement reduces the risk of a Clearing Banks failure to achieve their daily settlement obligations. Given the nature of the capital base normally maintained by eligible banks, OCC believes that the capital floor of at least $500 million in Tier 1 Capital for eligible banks is necessary to mitigate risks that could not otherwise be effectively managed by other measures in accordance with Rule 17Ad-22(b)(7). To conclude, Lakeside Bank objects to the proposed rule change as drafted. The OCCs only argument is If a Clearing Bank is unable to timely make incoming payments on behalf of one or more Clearing Members, OCC may face liquidity challenges requiring it to draw on resources that could impose unexpected costs or other adverse consequences for its Clearing Members and, ultimately, market participants. The OCC provided no rational basis for the proposed Rule increasing Tier 1 Capital requirement to $500 million. LSB provides similar services for small and mid-sized firms that settle and clear transactions with CME and DTCC/NSCC which are similar and larger Registered Clearing Agencies. LSBs timely payment of settlements is not tied to the Banks Tier I Capital position rather it is predicated upon the banks client that is a Clearing Member of OCC and their timely delivery of liquidity assets to cover the Clearing Members daily obligations. The Rule is specifically targeted to eliminate LSB as a Clearing Member Bank, it will create an unfair competitive advantage for larger banks that meet the proposed requirements and will limit community banks and LSBs capabilities to service small and mid-sized Clearing Members. Respectfully, Lakeside Bank