[Federal Register Volume 83, Number 159 (Thursday, August 16, 2018)]
[Notices]
[Pages 40813-40816]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-17627]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83819; File No. SR-ICC-2018-009]


Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of 
Filing of Proposed Rule Change Relating to ICC's Treasury Operations 
Policies and Procedures

August 10, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 
1934,\1\ and Rule 19b-4,\2\ notice is hereby given that on July 31, 
2018, ICE Clear Credit LLC (``ICC'') 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 
by ICC. The Commission is publishing this notice to solicit comments on 
the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change, Security-Based Swap Submission, or Advance Notice

    The principal purpose of the proposed rule change is to revise the 
ICC Treasury Operations Policies and Procedures (``Treasury Policy''). 
These revisions do not require any changes to the ICC Clearing Rules 
(``Rules'').

II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change, Security-Based Swap Submission, or 
Advance Notice

    In its filing with the Commission, ICC included statements 
concerning the purpose of and basis for the proposed rule change, 
security-based swap submission, or advance notice and discussed any 
comments it received on the proposed rule change, security-based swap 
submission, or advance notice. The text of these statements may be 
examined at the places specified in Item IV below. ICC 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, Security-Based Swap Submission, or 
Advance Notice

(a) Purpose
    ICC proposes revisions to its Treasury Policy. ICC believes such 
revisions will facilitate the prompt and accurate clearance and 
settlement of securities transactions and derivative agreements, 
contracts, and transactions for which it

[[Page 40814]]

is responsible. The proposed revisions are described in detail as 
follows.
    ICC proposes to update the ICC Treasury Policy in light of the 
exemptive order \3\ (the ``Order'') that was issued by the Commodity 
Futures Trading Commission (``CFTC'') permitting ICC to invest, subject 
to certain conditions, Euro-denominated customer funds in French and 
German sovereign debt. ICC was prohibited from investing customer funds 
in foreign sovereign debt by CFTC Regulation 1.25,\4\ which does not 
permit such investments. As such, ICC is proposing changes to its 
Treasury Policy to permit its Treasury Department to directly invest 
both US Dollar- (``USD'') and Euro-denominated Guaranty Fund (``GF'') 
and margin cash posted by Clearing Participants (``CPs'') (``house 
origin cash''); to invest Euro-denominated cash posted by CPs for their 
margin requirements related to client positions (``customer origin 
cash'') in French and German sovereign debt; to revise its Euro 
investment guidelines to limit investment to French and German 
sovereign debt; and to make additional clarification and clean-up 
changes throughout the document to enhance readability.
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    \3\ 83 FR 35241 (July 25, 2018).
    \4\ 17 CFR 1.25.
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    ICC proposes to revise the `Funds Management' section. ICC proposes 
clarifying changes that move reference to its default position of 
holding USD-denominated house origin cash in its Federal Reserve 
Account from the `Investment Strategy' subsection to the amended `ICC 
Investment of Guaranty Fund and Margin Cash' subsection, which is 
separated into USD and Euro. ICC proposes clarifying language within 
the proposed `USD' subsection to note that, if ICC is unable to deposit 
house origin cash in its Federal Reserve Account, ICC's Treasury 
Department may hold or invest such USD cash as specified within the 
Treasury Policy. ICC also proposes a revision to correct a 
typographical error by adding the verb ``has'' to the phrase ``ICE 
Clear Credit arrangements.''
    In the proposed `Euro' subsection, ICC proposes to permit its 
Treasury Department to directly invest Euro-denominated house origin 
cash. Under the current ICC Treasury Policy, the ICC Treasury 
Department is only permitted to directly invest USD-denominated house 
origin cash. Specifically, ICC proposes to state that Euro-denominated 
house origin cash will be (i) held in bank deposits, (ii) allocated to 
outside investment managers, or (iii) directly held/invested by the ICC 
Treasury Department pursuant to the Euro investment guidelines in the 
appendix. Under the proposed changes, ICC's Treasury Department is 
permitted to directly execute the Euro investment guidelines.
    In the `Outside Investment Management of Guaranty Fund and Margin 
Cash' subsection, ICC proposes removing reference to a specific outside 
investment manager to reflect ICC's engagement of multiple outside 
investment managers. ICC also proposes to correct certain typographical 
errors in this section to improve readability, including removing the 
indefinite article ``an'' in the phrase ``an alternative or additional 
outside investment managers'', adding the definite article ``the'' to 
the phrase ``Investment Manager's investment'', and changing 
``Directory of Treasury'' to ``Director of Treasury'' in a footnote.
    ICC proposes removing language from the `Treasury Management for 
Client Business' section that references the introduction of client 
trades to clarify that ICC has already commenced client clearing.
    ICC proposes the new `Investment of Client Margin Cash' subsection 
within the `Treasury Management for Client Business' section, which 
specifically relates to ICC's investment of customer origin cash. 
Currently, the ICC Treasury Policy prohibits ICC from investing 
customer origin cash in foreign sovereign debt due to CFTC Regulation 
1.25,\5\ which does not permit such investments. In light of the CFTC's 
Order,\6\ ICC proposes to state that it will invest customer origin 
cash in compliance with CFTC Regulation 1.25,\7\ including any 
applicable exemptive orders and including, without limitation, the 
conditions in CFTC Regulation 1.25 \8\ related to the investment of 
customer origin cash in non-U.S. sovereign debt.
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    \5\ Id.
    \6\ 83 FR 35241 (July 25, 2018).
    \7\ 17 CFR 1.25.
    \8\ Id.
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    ICC proposes revisions to the Euro investment guidelines appendix. 
ICC proposes to include a footnote, for clarity, stating that its 
Treasury Department can directly execute the Euro investment 
guidelines. ICC also proposes to extend the Euro investment guidelines 
to ICC's segregated CFTC Cleared Swaps Customer initial margin 
portfolio. ICC's Euro investment guidelines provide for the investment 
of Euro cash in overnight reverse repurchase (``repo'') transactions 
with high quality sovereign debt as collateral. If 100% of the 
allocated cash cannot be placed in overnight reverse repo, backup 
investments will be in term reverse repo and then direct investment in 
high quality sovereign debt. Under the current Euro investment 
guidelines, investment in reverse repo and foreign sovereign debt is 
utilized only with respect to house origin cash and not customer origin 
cash pursuant to CFTC regulation. Given the CFTC's Order \9\ that 
allows ICC to invest Euro-denominated customer funds in French and 
German sovereign debt, ICC proposes to make its investment policies for 
Euro-denominated cash applicable to both customer origin and house 
origin cash. ICC further proposes to make the Euro investment 
guidelines uniform for both customer origin and house origin cash. 
Specifically, ICC proposes to revise the Euro investment guidelines to 
limit permissible investment, both directly and through reverse repo, 
to French and German sovereign debt given the comparability of French 
and German sovereign debt to U.S. government securities in terms of 
creditworthiness, liquidity, and volatility.\10\ With respect to 
customer origin cash, the proposed changes require that investments 
comply with any applicable conditions or restrictions set forth in CFTC 
Regulation 1.25 \11\ including any applicable exemptive orders and 
allow the use of term reverse repo subject to a certain restriction. 
Additionally, should conditions change so that the French or German 
sovereign debt no longer meets the conditions or restrictions of CFTC 
Regulation 1.25,\12\ the outside investment manager shall discontinue 
making any additional investments in such sovereign debt issuers.
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    \9\ 83 FR 35241 (July 25, 2018).
    \10\ See ICE Clearing House Application for Exemptive Order 
(June 22, 2017) for a discussion of the suitability of French and 
German sovereign debt, available at https://www.cftc.gov/sites/default/files/idc/groups/public/@requestsandactions/documents/ifdocs/icedcos4cappl6-22-17.pdf.
    \11\ 17 CFR 1.25.
    \12\ Id.
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(b) Statutory Basis
    Section 17A(b)(3)(F) of the Act \13\ requires, among other things, 
that the rules of a clearing agency be 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 to comply with the

[[Page 40815]]

provisions of the Act and the rules and regulations thereunder. ICC 
believes that the proposed rule changes are consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to ICC, in particular, to Section 17(A)(b)(3)(F),\14\ 
because ICC believes that the proposed rule changes will promote the 
prompt and accurate clearance and settlement of securities 
transactions, derivatives agreements, contracts, and transactions, and 
contribute to the safeguarding of securities and funds associated with 
security-based swap transactions in ICC's custody or control, or for 
which ICC is responsible. The proposed changes permitting ICC to invest 
Euro-denominated customer funds in French and German sovereign debt are 
designed to further ensure the reliable investment of assets in ICC's 
control with minimal risk. Euro-denominated customer fund balances must 
be held in unsecured bank demand deposits accounts, exposing ICC and 
its CPs and their customers to the credit risk of such banks. ICC 
believes that the proposed changes, given the CFTC's Order,\15\ to 
invest Euro-denominated customer funds in French and German sovereign 
debt would provide for an important alternative for the protection of 
customer funds. Moreover, allowing the Treasury Department to directly 
invest both USD and Euro-denominated house origin cash will continue to 
ensure the reliable investment of assets in ICC's control with minimal 
risk by allowing the Treasury Department to directly execute the Euro 
investment guidelines, thereby facilitating ICC's ability to promptly 
and accurately clear and settle its cleared CDS contracts and enhancing 
ICC's ability to assure the safeguarding of securities and funds which 
are in the custody or control of ICC or for which it is responsible. 
The clarification and clean-up changes that enhance readability will 
further ensure that the documentation of ICC's Treasury Policy remains 
up-to-date, clear, and transparent. As such, the proposed rule changes 
are designed to promote the prompt and accurate clearance and 
settlement of securities transactions, derivatives agreements, 
contracts, and transactions and to contribute to the safeguarding of 
securities and funds associated with security-based swap transactions 
in ICC's custody or control, or for which ICC is responsible within the 
meaning of Section 17A(b)(3)(F) of the Act.\16\
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    \13\ 15 U.S.C. 78q-1(b)(3)(F).
    \14\ Id.
    \15\ 83 FR 35241 (July 25, 2018).
    \16\ 15 U.S.C. 78q-1(b)(3)(F).
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    In addition, the proposed revisions to the ICC Treasury Policy are 
consistent with the relevant requirements of Rule 17Ad-22.\17\ Rule 
17Ad-22(b)(3) \18\ requires ICC to establish, implement, maintain and 
enforce written policies and procedures reasonably designed to maintain 
sufficient financial resources to withstand, at a minimum, a default by 
the two CP families to which it has the largest exposures in extreme 
but plausible market conditions. The proposed changes to the Euro 
investment guidelines that limit investment to French and German 
sovereign debt and apply to both house origin and customer origin cash 
serve to preserve principle and maintain liquidity of funds as such 
debt has credit, liquidity, and volatility characteristics that are 
comparable to U.S. government securities, thereby ensuring that ICC 
continues to maintain sufficient financial resources to withstand, at a 
minimum, a default by the two CP families to which it has the largest 
exposures in extreme but plausible market conditions, consistent with 
the requirements of Rule 17Ad-22(b)(3).\19\
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    \17\ 17 CFR 240.17Ad-22.
    \18\ 17 CFR 240.17Ad-22(b)(3).
    \19\ Id.
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    Rule 17Ad-22(d)(3) \20\ requires ICC to establish, implement, 
maintain and enforce written policies and procedures reasonably 
designed to hold assets in a manner that minimizes risk of loss or of 
delay in its access to them and to invest assets in instruments with 
minimal credit, market, and liquidity risks. ICC believes that the 
proposed changes allowing ICC to invest Euro-denominated customer funds 
in French and German sovereign debt and allowing the Treasury 
Department to directly invest both USD and Euro-denominated house 
origin cash and directly execute the Euro investment guidelines will 
enhance ICC's ability to hold assets in a manner that minimizes risk of 
loss or of delay in its access to them by serving as an important 
alternative for the protection of funds. Additionally, the proposed 
revisions to the Euro investment guidelines that limit investment to 
French and German sovereign debt for house origin cash allow ICC to 
continue to ensure to hold assets in a manner that minimizes risk of 
loss or of delay in its access to them and to invest assets in 
instruments with minimal credit, market, and liquidity risks given the 
comparability of French and German sovereign debt to U.S. government 
securities in terms of creditworthiness, liquidity, and volatility. 
Such changes are therefore reasonably designed to meet the requirements 
of Rule 17Ad-22(d)(3).\21\
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    \20\ 17 CFR 240.17Ad-22(d)(3).
    \21\ Id.
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(B) Clearing Agency's Statement on Burden on Competition

    ICC does not believe the proposed rule changes would have any 
impact, or impose any burden, on competition. The proposed changes to 
ICC's Treasury Policy will apply uniformly across all market 
participants. Therefore, ICC does not believe the proposed rule changes 
impose any burden on competition that is inappropriate in furtherance 
of the purposes of the Act.

(C) Clearing Agency's Statement on Comments on the Proposed Rule 
Change, Security-Based Swap Submission, or Advance Notice Received From 
Members, Participants or Others

    Written comments relating to the proposed rule change have not been 
solicited or received. ICC will notify the Commission of any written 
comments received by ICC.

III. Date of Effectiveness of the Proposed Rule Change, Security-Based 
Swap Submission, or Advance Notice and Timing for Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, security-based swap submission, or advance notice is consistent 
with the Act. Comments may be submitted by any of the following 
methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-ICC-2018-0 on the subject line.

[[Page 40816]]

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549.

All submissions should refer to File Number SR-ICC-2018-009. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change, security-based 
swap submission, or advance notice that are filed with the Commission, 
and all written communications relating to the proposed rule change, 
security-based swap submission, or advance notice between the 
Commission and any person, other than those that may be withheld from 
the public in accordance with the provisions of 5 U.S.C. 552, will be 
available for website viewing and printing in the Commission's Public 
Reference Room, 100 F Street NE, Washington, DC 20549, on official 
business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of 
the filing also will be available for inspection and copying at the 
principal office of ICE Clear Credit and on ICE Clear Credit's website 
at https://www.theice.com/clear-credit/regulation.
    All comments received will be posted without change. Persons 
submitting comments are cautioned that we do not redact or edit 
personal identifying information from comment submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-ICC-2018-009 and should be 
submitted on or before September 6, 2018.
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    \22\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
Brent J. Fields,
Secretary.
[FR Doc. 2018-17627 Filed 8-15-18; 8:45 am]
 BILLING CODE 8011-01-P