[Federal Register Volume 85, Number 13 (Tuesday, January 21, 2020)]
[Notices]
[Pages 3446-3448]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-00806]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87958; File No. SR-ICC-2020-001]


Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of 
Filing of Proposed Rule Change, Security-Based Swap Submission, or 
Advance Notice Relating to the ICC Clearing Rules

January 14, 2020.
    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 January 9, 
2020, ICE Clear Credit LLC (``ICC'') filed with the Securities and 
Exchange Commission (``SEC'' or the ``Commission'') the proposed rule 
change, security-based swap submission, or advance notice 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, security-based swap submission, or advance notice 
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 its 
Clearing Rules (the ``Rules'') \3\ to consider the possibility of ICC 
receiving proceeds from default insurance.
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    \3\ Capitalized terms used but not defined herein have the 
meanings specified in the Rules.
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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 amendments to Chapters 1 and 8 of the ICC Rules as 
they relate to default insurance that is intended to cover specified 
losses resulting from a Clearing Participant (``CP'') default. The 
proposed amendments consider the possibility of ICC receiving proceeds 
from default insurance, which would be applied as part of the resources 
available to ICC in the event of a CP default. Such default insurance 
would provide additional default resources to cover losses from CP 
defaults, prior to the need to use guaranty fund resources from non-
defaulting CPs. ICC believes that such revisions will facilitate the 
prompt and accurate clearance and settlement of securities transactions 
and derivative agreements, contracts, and transactions for which it is 
responsible. ICC proposes to make such changes effective following 
Commission approval of the proposed rule change. The proposed revisions 
are described in detail as follows.
    ICC proposes to update ICC Rule 102 to reference ``Insurance 
Proceeds'' which would be defined in Rule 802(b)(i)(A)(4).
    ICC proposes to amend ICC Rule 802(a), which addresses the 
application of General Guaranty Fund contributions of a defaulting CP, 
to incorporate a reference to any insurer, surety or guarantor of the 
obligations of the defaulting CP to reflect that certain recoveries 
from a defaulting CP may be owed to the insurance provider. ICC does 
not propose any changes to the order of priority set forth in ICC Rule 
802(a).
    ICC proposes changes to ICC Rule 802(b) to integrate default 
insurance into the default waterfall. ICC proposes to amend the default 
waterfall in Rule 802(b)(i) to include the proceeds of default 
insurance (if any) as a default resource, to be applied after the 
application of ICC's own guaranty fund contributions of $50 million and 
prior to the application of guaranty fund contributions of non-
defaulting CPs. Under proposed ICC Rule 802(b)(i)(A)(4), ICC defines 
Insurance Proceeds and clarifies that ICC has no obligation to obtain 
or maintain default insurance. ICC proposes to re-number the following 
clauses accordingly. Further, amended ICC Rule 802(b)(iii) provides 
that ICC may use the contributions of non-defaulting CPs to the 
guaranty fund (and assessments on

[[Page 3447]]

such CPs) prior to the receipt of proceeds owed under the default 
insurance, provided that those CPs are reimbursed from the insurance 
proceeds when received.
    ICC proposes changes to ICC Rule 802(c) to reflect that certain 
recoveries from or in respect of a defaulting CP may be owed to the 
insurance provider.
    ICC proposes conforming changes to ICC Rule 808 that address 
Reduced Gains Distribution in order to permit Reduced Gains 
Distribution to occur prior to the end of the waiting period under the 
default insurance policy. Amended ICC Rule 808(b) clarifies that a 
claim under a default insurance policy will not preclude ICC from 
applying Reduced Gains Distribution after a CP default. Amended ICC 
Rule 808(m) provides that proceeds from a default insurance policy will 
be available as a potential resource to pay CPs that have been subject 
to Reduced Gains Distribution.
(b) Statutory Basis
    Section 17A(b)(3)(F) of the Act \4\ 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 provisions of the Act and the rules 
and regulations thereunder. ICC believes that the proposed rule change 
is 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),\5\ because ICC believes that the proposed rule change 
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 amend 
the default waterfall in ICC Rule 802(b)(i)(A) to include the proceeds 
of default insurance, if any, as a default resource, to be applied 
after the application of ICC's own guaranty fund contributions and 
prior to the application of guaranty fund contributions of non-
defaulting CPs. Placing the proceeds from any default insurance that 
ICC may receive before the guaranty fund resources of non-defaulting 
CPs in the default waterfall is generally favorable to non-defaulting 
CPs and enhances ICC's procedures that are designed to protect and 
ensure the safety of CP funds and assets. The default insurance 
provides additional default resources, after the exhaustion of the 
defaulting CP's margin and guaranty fund contributions and ICC's own 
guaranty fund contributions. In ICC's view, the proposed changes to the 
ICC Rules enhance ICC's ability to manage the risk of defaults by 
providing additional default resources to cover losses from CP 
defaults, prior to the need to use guaranty fund resources from non-
defaulting CPs, thereby promoting the prompt and accurate clearance and 
settlement of securities transactions, derivatives agreements, 
contracts, and transactions and the safeguarding of securities and 
funds which are in the custody or control of ICC or for which it is 
responsible. As such, the proposed rule change is 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.\6\
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    \4\ 15 U.S.C. 78q-1(b)(3)(F).
    \5\ Id.
    \6\ Id.
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    In addition, the proposed rule change is consistent with the 
relevant requirements of Rule 17Ad-22.\7\ Rule 17Ad-22(b)(3) \8\ 
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. ICC believes that the proposed revisions enhance its 
default waterfall and default management procedures. As described 
above, the proposed amendments contemplate the possibility of ICC 
receiving proceeds from default insurance, which would provide 
additional default resources to cover losses from CP defaults, prior to 
the need to use guaranty fund resources from non-defaulting CPs. 
Conforming changes are also proposed to ICC Rule 808 to permit Reduced 
Gains Distribution to occur prior to the end of the waiting period 
under the default insurance policy and to provide that proceeds from a 
default insurance policy will be available as a potential resource to 
pay CPs that have been subject to Reduced Gains Distribution. Such 
amendments consider the possibility of ICC receiving proceeds from 
default insurance, which, in ICC's view, represents a tool that 
strengthens ICC's ability to manage its financial resources and 
withstand the pressures of defaults, consistent with the requirements 
of Rule 17Ad-22(b)(3).\9\
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    \7\ 17 CFR 240.17Ad-22.
    \8\ 17 CFR 240.17Ad-22(b)(3).
    \9\ Id.
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    Rule 17Ad-22(d)(11) \10\ requires ICC to establish, implement, 
maintain and enforce written policies and procedures reasonably 
designed to make key aspects of the clearing agency's default 
procedures publicly available and establish default procedures that 
ensure that the clearing agency can take timely action to contain 
losses and liquidity pressures and to continue meeting its obligations 
in the event of a participant default. ICC's default management rules 
and procedures contained in the ICC Rules, the Initial Default Auction 
Procedures, and the Secondary Auction Procedures are publically 
available on ICC's website. The proposed changes to the ICC Rules 
integrate default insurance into the default waterfall, providing 
additional default resources to cover losses from CP defaults, prior to 
the need to use guaranty fund resources from non-defaulting CPs. 
Amended ICC Rule 802(b)(iii) provides that ICC may use the 
contributions of non-defaulting CPs to the guaranty fund (and 
assessments on such CPs) prior to the receipt of proceeds owed under 
the default insurance, provided that those CPs are reimbursed from the 
insurance proceeds when received. Given that it can be relatively time 
consuming to make and process an insurance claim, this provision 
ensures that the existence of default insurance does not interfere with 
ICC's default management and allows ICC to continue its default 
management process without having to wait for the payment of insurance 
proceeds. Moreover, the proposed changes to ICC Rule 808 permit Reduced 
Gains Distribution to occur prior to the end of the waiting period 
under the default insurance policy. The proposed amendments thus ensure 
that ICC can take timely action to contain losses and liquidity 
pressures and to continue meeting its obligations in the event of a 
participant default, consistent with the requirements of Rule 17Ad-
22(d)(11).\11\
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    \10\ 17 CFR 240.17Ad-22(d)(11).
    \11\ Id.

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[[Page 3448]]

(B) Clearing Agency's Statement on Burden on Competition

    ICC does not believe the proposed rule change would have any 
impact, or impose any burden, on competition. The proposed changes to 
the ICC Rules will apply uniformly across all market participants. 
Therefore, ICC does not believe the proposed rule change imposes 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-2020-001 on the subject line.

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-2020-001. 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 
such filings will also 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-2020-001 and should be 
submitted on or before February 11, 2020.
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    \12\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-00806 Filed 1-17-20; 8:45 am]
 BILLING CODE 8011-01-P