[Federal Register Volume 79, Number 171 (Thursday, September 4, 2014)]
[Notices]
[Pages 52789-52790]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-21001]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72944; File No. SR-ICC-2014-08]


Self-Regulatory Organizations; ICE Clear Credit LLC; Order 
Approving Proposed Rule Change Related to ICC's Authority to Use 
Guaranty Fund and House Initial Margin as an Internal Liquidity 
Resource

August 28, 2014.

I. Introduction

    On June 24, 2014, ICE Clear Credit LLC (``ICC'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change SR-ICC-2014-08 pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder.\2\ The 
proposed rule change was published for comment in the Federal Register 
on July 14, 2014.\3\ The Commission did not receive comments on the 
proposed rule change. For the reasons described below, the Commission 
is approving the proposed rule change.
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    \1\ 15 U.S.C. 78(s)(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 34-72556 (July 8, 2014), 
79 FR 40796 (July 14, 2014) (SR-ICC-2014-08).
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II. Description of the Proposed Rule Change

    ICC has stated that the principal purpose of the proposed rule 
change is to formalize ICC's Liquidity Risk Management Framework, 
including its comprehensive liquidity monitoring program, and, through 
proposed changes to two sections of ICC's Rulebook, to clarify ICC's 
authority to use, and to provide details as to how ICC would use, 
Guaranty Fund and House Initial Margin as an internal liquidity 
resource.
    ICC's proposed Liquidity Risk Management Framework includes a 
discussion of all resources available to ICC and the order in which ICC 
would use available liquidity resources, if necessary, when managing 
one or more Clearing Participant defaults. The liquidity waterfall 
classifies available liquidity resources on any given day into four 
levels. Level One includes the House Initial Margin and Guaranty Fund 
cash deposits of the defaulting Clearing Participant. Level Two 
includes Guaranty Fund cash deposits of: (i) ICC; and (ii) non-
defaulting Clearing Participants. Level Three includes House Initial 
Margin cash deposits of the non-defaulting Clearing Participants. Level 
Four includes ICC's committed credit facility to access additional 
cash, and contemplates the establishment of other committed facilities 
to convert U.S. Treasuries to USD cash.
    In addition, the Liquidity Risk Management Framework describes: (i) 
The methodology used by ICC to estimate its minimum day-of-default 
available liquidity resources based on its liquidity risk management 
model; (ii) historical analysis based on back testing considerations; 
and (iii) forward-looking analysis based on stress testing. The 
Liquidity Risk Management Framework also provides for governance 
concerning ICC's liquidity testing, amending the liquidity program and 
the procedure for additional risk measures to be taken, as necessary, 
based upon testing results.
    Proposed new Rule 402(j) addresses ICC's use of any Clearing 
Participant's House Initial Margin as a liquidity resource in 
connection with a Clearing Participant's default. ICC states that under 
this rule, ICC may use a Clearing Participant's cash, securities or 
other property constituting Initial Margin for its House account to 
support liquidity arrangements relating to ICC's payment obligations. 
Such liquidity arrangements would include borrowing, repurchase 
transactions, exchange of Initial Margin for other assets or similar 
transactions, under which equivalent value is provided for such Initial 
Margin and such equivalent value will be held as Initial Margin and 
used or applied by ICC solely for the purposes for which Initial Margin 
in the House Account may be used. ICC states that any use of House 
Initial Margin may be used in a manner consistent with ICC's liquidity 
policies and applicable law. Additionally, ICC states that in 
connection with a Clearing Participant's default, ICC will be able to 
exchange cash that is House Initial Margin for the equivalent value of 
securities or cash of a different currency.
    Proposed new Rule 802(f)(iv) addresses ICC's authority to pledge 
assets in the Guaranty Fund to secure loans made to the clearing house, 
including for purposes of default management, or to transfer such 
assets to counterparties under repurchase transactions or similar 
transactions. ICC states that the proceeds of such

[[Page 52790]]

borrowings or repurchase transactions may be used in accordance with 
ICC's authority to use Guaranty Fund assets under ICC's current rules. 
Additionally, ICC states that, in connection with a Clearing 
Participant's default, ICC will be able to exchange cash in the 
Guaranty Fund for the equivalent value of securities or cash of a 
different currency.

III. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act \4\ directs the Commission to 
approve a proposed rule change of a self-regulatory organization if the 
Commission finds that such proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to such self-regulatory organization. Section 17A(b)(3)(F) 
of the Act \5\ requires, among other things, that the rules of a 
clearing agency are designed to promote the prompt and accurate 
clearance and settlement of securities transactions and, to the extent 
applicable, derivative agreements, contracts, and transactions, 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 and, in general, to protect investors and the public 
interest.
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    \4\ 15 U.S.C. 78s(b)(2)(C).
    \5\ 15 U.S.C. 78q-1(b)(3)(F).
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    The Commission finds that the proposed rule change is consistent 
with the requirements of Section 17A of the Act \6\ and the rules and 
regulations thereunder applicable to ICC. The proposed Liquidity Risk 
Management Framework would formalize ICC's liquidity management 
program, including the description of ICC's liquidity resources, the 
order of use of such resources, and the methodology for testing the 
sufficiency of these resources. In addition, proposed Rules 402(j) and 
802(f)(iv) would permit ICC to use, and provide details as to how ICC 
would use, margin and Guaranty Fund assets to support ICC's liquidity 
obligations. The Commission believes the proposed rule change is 
reasonably designed to allow ICC to manage its liquidity needs in the 
event of one or more Clearing Participant defaults and, therefore, 
promotes the prompt and accurate clearance and settlement of securities 
transactions and, to the extent applicable, derivative agreements, 
contracts, and transactions, and assures the safeguarding of securities 
and funds which are in the custody or control of the clearing agency or 
for which it is responsible, consistent with Section 17A(b)(3)(F) of 
the Act.\7\
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    \6\ 15 U.S.C. 78q-1.
    \7\ 15 U.S.C. 78q-1(b)(3)(F).
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IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposal is consistent with the requirements of the Act and in 
particular with the requirements of Section 17A of the Act \8\ and the 
rules and regulations thereunder.
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    \8\ 15 U.S.C. 78q-1.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\9\ that the proposed rule change (SR-ICC-2014-08) be, and hereby 
is, approved.\10\
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    \9\ 15 U.S.C. 78s(b)(2).
    \10\ In approving the proposed rule change, the Commission 
considered the proposal's impact on efficiency, competitionand 
capital formation. 15 U.S.C. 78c(f).

For the Commission, by the Division of Trading and Markets, pursuant 
to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-21001 Filed 9-3-14; 8:45 am]
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