[Federal Register Volume 84, Number 32 (Friday, February 15, 2019)]
[Notices]
[Pages 4570-4571]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-02452]
[[Page 4570]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85105; File No. SR-ICC-2018-011]
Self-Regulatory Organizations; ICE Clear Credit LLC; Order
Approving Proposed Rule Change Relating to ICC's New Initiatives
Approval Policy and Procedural Framework
February 11, 2019.
I. Introduction
On December 18, 2018, ICE Clear Credit LLC (``ICC'') filed with the
Securities and Exchange Commission (``Commission''), pursuant to
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act''),\1\ a
proposed rule change (SR-ICC-2018-011) to adopt a revised ICC New
Initiatives Approval Policy and Procedural Framework (``NIA Policy'').
The proposed rule change was published for comment in the Federal
Register on December 28, 2018.\2\ The Commission did not receive
comments on the proposed rule change. For the reasons discussed below,
the Commission is approving the proposed rule change.\3\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ Securities Exchange Act Release No. 34-84889 (December 20,
2018), 83 FR 67445 (December 28, 2018) (SR-ICC-2018-011)
(``Notice'').
\3\ Capitalized terms used herein but not otherwise defined have
the meaning set forth in the NIA Policy or the ICC rulebook, which
is available at https://www.theice.com/publicdocs/clear_credit/ICE_Clear_Credit_Rules.pdf.
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II. Description of the Proposed Rule Change
ICC proposes to revise the NIA Policy, which sets forth ICC's
policies and procedures for the review and approval of certain new
initiatives to be offered or implemented by ICC.\4\ The NIA Policy
clarifies and harmonizes the policies, procedures, and documentation
for the review and approval of new initiatives that involve potentially
significant changes.\5\ The intention of the NIA Policy is to notify
all relevant departments of the introduction of the new initiative,
share information between departments, and establish requirements for
the pre-launch verification and testing of the new initiative.\6\
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\4\ Notice, 83 FR at 67445.
\5\ Id.
\6\ Id.
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New projects subject to the NIA policy are those that involve new
and material changes to the risk or pricing methodology, significant
changes to the processing system, significant changes to ICC rules,
significant changes to clearing operating procedures, material
modifications to significant capabilities provided by ICC, or
significant changes to models.\7\ A steering committee, comprised of
members of management, is responsible for prioritizing new initiatives
and guiding their implementation.\8\
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\7\ Id.
\8\ Id.
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The New Initiative Approval Committee (``NIAC'') identifies,
reviews, and approves new initiatives and is a management committee
that includes department heads, and representatives from Enterprise
Risk, Quality Systems, and Systems Operations.\9\ The NIAC also
determines the conditions, restrictions, and limitations of new
initiatives.\10\ Additionally, the NIAC documents its process with an
approval matrix, risk assessment, a form verifying that all conditions
and restrictions have been satisfied prior to enactment of the new
initiative, and a tracking log for the identification and review of new
initiatives.\11\ The NIAC also reviews initiatives after implementation
to ensure compliance with any conditions.\12\ The chair of the NIAC
maintains the NIA Policy, ensures cooperation and coordination between
the steering committee and NIAC, and brings material changes to the NIA
Policy to the ICC board for review and approval.\13\
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\9\ Id. at 67445-67446.
\10\ Id. at 67446.
\11\ Id.
\12\ Id.
\13\ Id.
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III. Discussion and Commission Findings
Section 19(b)(2)(C) of the 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
Act and the rules and regulations thereunder applicable to such
organization.\14\ For the reasons given below, the Commission finds
that the proposed rule change is consistent with Section 17A(b)(3)(F)
of the Act,\15\ and Rules 17Ad-22(d)(4) and (d)(8) thereunder.\16\
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\14\ 15 U.S.C. 78s(b)(2)(C).
\15\ 15 U.S.C. 78q-1(b)(3)(F).
\16\ 17 CFR 240.17Ad-22(d)(4) and (d)(8).
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A. Consistency With Section 17A(b)(3)(F) of the Act
Section 17A(b)(3)(F) of the Act requires, among other things, that
the rules of a registered 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, and 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.\17\ As discussed above, the proposed rule change
would revise the NIA Policy, which sets forth, clarifies, and
harmonizes ICC's policies and procedures for approval of new
initiatives that involve potentially significant changes, including
initiatives that (1) involve new and material modifications to the risk
or pricing methodology; (2) involve potential significant changes to
the processing system, ICC Clearing Rules, or clearing operating
procedures; (3) involve new and material modifications to existing and
significant capabilities provided by ICC; or (4) involve Model Changes
\18\ classified as Materiality A under ICC's Model Validation Framework
\19\ (collectively, ``New Initiatives''). The Commission believes that,
if not clearly and consistently identified, reviewed, and approved
according to appropriate policies and procedures, such New Initiatives
could pose operational or other risks to ICC.
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\17\ 15 U.S.C. 78q-1(b)(3)(F).
\18\ Model Changes include new and enhanced risk modeling
components of ICC's risk management system. Depending on how
substantially the Model Change affects the system's assessment of
risk for the related risk driver(s), it is classified as Materiality
A (i.e., substantial impact) or Materiality B (i.e., no substantial
impact).
\19\ Notice, 83 FR at 67445.
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The NIA Policy would clearly describe and formalize the roles of
the key participants involved in identifying, reviewing, and ultimately
approving any such potentially significant New Initiatives, and
identify such participants' specific authority and responsibilities. It
also would identify, clearly describe, and formalize the specific steps
to be taken during the identification, review, and approval of New
Initiatives. By doing so, the Commission believes that the NIA Policy
will enhance ICC's ability to manage risks and avoid potential
disruptions to operations related to New Initiatives, thereby enhancing
ICC's ability to ensure the prompt and accurate clearance and
settlement of securities transactions. This, in turn, would enhance
ICC's ability to ensure it is in a better position to promptly clear
and settle securities transactions and assure the safeguarding of
securities and funds which are in the custody or control of ICC, or for
which it is responsible. Therefore, the Commission finds that the
proposed rule change is consistent with the requirements of Section
17A(b)(3)(F) of the Act.\20\
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\20\ 15 U.S.C. 78q-1(b)(3)(F).
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[[Page 4571]]
B. Consistency With Rule 17Ad-22(d)(4)
Rule 17Ad-22(d)(4) requires, in relevant part, that a registered
clearing agency that is not a covered clearing agency establish,
implement, maintain, and enforce written policies and procedures
reasonably designed to identify sources of operational risk and
minimize them through the development of appropriate systems, controls,
and procedures.\21\ The Commission believes that the NIA Policy would
do this through establishing revised and clarified definitions,
personnel responsibilities, and documentation procedures related to the
identification, review, and approval of New Initiatives.
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\21\ 17 CFR 240.17Ad-22(d)(4).
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Specifically, the revised NIA Policy would ensure that ICC's system
of approving New Initiatives defines such initiatives (as noted above)
as being those that most significantly impact key areas and functions
of ICC, and therefore helps ensures that ICC will appropriately
address, and therefore enhance its ability to mitigate, the potential
operational and other risks associated with implementing such New
Initiatives. Further, by clearly identifying and transparently
communicating the role of ICC's management across multiple departments
and functions, the Commission believes that the NIA Policy would
enhance ICC's ability to identify sources of operational risk by
involving the most relevant and responsible parties in focusing on the
most impactful initiatives.
Additionally, the revisions to the NIA Policy would create a system
in which new initiatives would be assessed by relevant stakeholders
throughout ICC and through which such assessments would be documented.
For instance, the NIAC would utilize detailed matrixes and forms to
evidence that requisite approvals for new initiatives were obtained,
risks and mitigation plans were considered, and all appropriate
conditions were met prior to the implementation of a New Initiative.
The Commission believes that such documentation would enhance ICC's
ability to minimize operational risk by requiring thorough reviews and
justifications of its actions. As a result, the Commission finds that
the proposed rule, taken as a whole, enhances ICC's process of
identifying and minimizing sources of operational risk associated with
New Initiatives and is consequently consistent with Rule 17Ad-
22(d)(4).\22\
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\22\ Id.
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C. Consistency With Rule 17Ad-22(d)(8)
Rule 17Ad-22(d)(8) \23\ requires, in relevant part, that a
registered clearing agency that is not a covered clearing agency
implement, maintain and enforce written policies and procedures
reasonably designed to have governance arrangements that are clear and
transparent to fulfill the public interest requirements in Section 17A
of the Act.\24\ The NIA Policy proposed by ICC describes the roles of
key participants in the identification, review, approval, and
assessment of new initiatives. In particular, the NIA Policy describes
the steering committee's role in prioritizing the implementation of
initiatives as well as NIAC's role and composition, including the
participation of the heads of departments and representatives of
Enterprise Risk, Quality Systems, and Systems Operations. Additionally,
the proposal clarifies that the NIA Policy contains procedures for
notifying and seeking input from all relevant departments on the
introduction of New Initiatives. By setting forth clearly delineated
managerial roles and requiring information sharing across ICC related
to New Initiatives, the Commission finds that the proposed rule change
enhances and fosters governance arrangements that are clear and
transparent and is therefore consistent with the requirements of Rule
17Ad-22(d)(8).\25\
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\23\ 17 CFR 240.17Ad-22(d)(8).
\24\ 15 U.S.C. 78q-1.
\25\ 17 CFR 240.17Ad-22(d)(8).
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IV. Conclusion
On the basis of the foregoing, the Commission finds that the
proposed rule change is consistent with the requirements of the Act,
and in particular with the requirements of Section 17A of the Act \26\
and Rules 17Ad-22(d)(4) and 17Ad-22(d)(8) \27\ thereunder.
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\26\ 15 U.S.C. 78q-1.
\27\ 17 CFR 240.17Ad-22(d)(4) and (d)(8).
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It is therefore ordered pursuant to Section 19(b)(2) of the Act
\28\ that the proposed rule change (SR-ICC-2018-011) be, and hereby is,
approved.\29\
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\28\ 15 U.S.C. 78s(b)(2).
\29\ In approving the proposed rule change, the Commission
considered the proposal's impact on efficiency, competition, and
capital formation. 15 U.S.C. 78c(f).
\30\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\30\
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-02452 Filed 2-14-19; 8:45 am]
BILLING CODE 8011-01-P