[Federal Register Volume 85, Number 67 (Tuesday, April 7, 2020)]
[Notices]
[Pages 19551-19553]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-07230]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88537; File No. SR-ICC-2020-003]


Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of 
Filing of Proposed Rule Change Relating to the Clearance of Additional 
Credit Default Swap Contracts

April 1, 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 March 26, 
2020, ICE Clear Credit LLC (``ICC'') filed with the Securities and 
Exchange Commission (``SEC'' or the ``Commission'') the proposed rule 
change as described in Items I, II, and III below, which Items have 
been prepared primarily 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

    The principal purpose of the proposed rule change is to revise the 
ICC Rulebook (the ``Rules'') to provide for the clearance of an 
additional Standard Emerging Market Sovereign CDS contract (the ``EM 
Contract'') and additional Standard Western European Sovereign CDS 
contracts (collectively, the ``SWES Contracts'').

II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    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

(a) Purpose
    The purpose of the proposed rule change is to adopt rules that will 
provide the basis for ICC to clear additional credit default swap 
contracts. ICC proposes to make such changes effective following 
Commission approval of the proposed rule change. ICC believes the 
addition of these contracts will benefit the market for credit default 
swaps by providing market participants the benefits of clearing, 
including reduction in counterparty risk and safeguarding of margin 
assets pursuant to clearing house rules. Clearing of the additional EM 
Contract and the additional SWES Contracts (collectively, the ``EM and 
SWES Contracts'') will not require any changes to ICC's Risk Management 
Framework or other policies and procedures constituting rules within 
the meaning of the Securities Exchange Act of 1934 (``Act'').
    ICC proposes amending Subchapter 26D of its Rules to provide for 
the clearance of the additional EM Contract, namely the Republic of 
Croatia. This additional EM Contract has terms consistent with the 
other EM Contracts approved for clearing at ICC and governed by 
Subchapter 26D of the Rules. Minor revisions to Subchapter 26D 
(Standard Emerging Market Sovereign (``SES'') Single Name) are made to 
provide for clearing the additional EM Contract. Specifically, in Rule 
26D-102 (Definitions), ``Eligible SES Reference Entities'' is modified 
to include the Republic of Croatia in the list of specific Eligible SES 
Reference Entities to be cleared by ICC.
    Additionally, ICC proposes amending Subchapter 26I of its Rules to 
provide for the clearance of the additional SWES Contracts, namely the 
Republic of Finland and the Hellenic Republic.

[[Page 19552]]

These additional SWES Contracts have terms consistent with the other 
SWES Contracts approved for clearing at ICC and governed by Subchapter 
26I of the Rules. Minor revisions to Subchapter 26I (Standard Western 
European Sovereign (``SWES'') Single Name) are made to provide for 
clearing the additional SWES Contracts. Specifically, in Rule 26I-102 
(Definitions), ``Eligible SWES Reference Entities'' is modified to 
include the Republic of Finland and the Hellenic Republic in the list 
of specific Eligible SWES Reference Entities to be cleared by ICC.
(b) Statutory Basis
    Section 17A(b)(3)(F) of the Act \3\ 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 ICC or for which it is responsible; 
and to comply with the provisions of the Act and the rules and 
regulations thereunder. The additional EM and SWES Contracts proposed 
for clearing are similar to the EM and SWES Contracts currently cleared 
by ICC, and will be cleared pursuant to ICC's existing clearing 
arrangements and related financial safeguards, protections and risk 
management procedures. Clearing of the additional EM and SWES Contracts 
will allow market participants an increased ability to manage risk and 
ensure the safeguarding of margin assets pursuant to clearing house 
rules. ICC believes that acceptance of the new EM and SWES Contracts, 
on the terms and conditions set out in the Rules, is consistent with 
the prompt and accurate clearance and settlement of securities 
transactions and derivative agreements, contracts and transactions 
cleared by ICC, the safeguarding of securities and funds in the custody 
or control of ICC or for which it is responsible, and the protection of 
investors and the public interest, within the meaning of Section 
17A(b)(3)(F) of the Act.\4\
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    \3\ 15 U.S.C. 78q-1(b)(3)(F).
    \4\ Id.
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    Clearing of the additional EM and SWES Contracts will also satisfy 
the relevant requirements of Rule 17Ad-22,\5\ as set forth in the 
following discussion.
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    \5\ 17 CFR 240.17Ad-22.
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    Margin Requirements. Rule 17Ad-22(b)(2) \6\ requires ICC to 
establish, implement, maintain and enforce written policies and 
procedures reasonably designed to use margin requirements to limit its 
credit exposures to participants under normal market conditions and use 
risk-based models and parameters to set margin requirements. In terms 
of financial resources, ICC will apply its existing initial margin 
methodology to the new EM and SWES Contracts, which are similar to the 
EM and SWES Contracts currently cleared by ICC. ICC believes that this 
model will provide sufficient initial margin requirements to cover its 
credit exposure to its clearing members from clearing such contracts, 
consistent with the requirements of Rule 17Ad-22(b)(2).\7\
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    \6\ 17 CFR 240.17Ad-22(b)(2).
    \7\ Id.
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    Financial Resources. Rule 17Ad-22(b)(3) \8\ requires ICC to 
establish, implement, maintain and enforce written policies and 
procedures reasonably designed to maintain financial resources 
sufficient to withstand, at a minimum, a default by the two participant 
families to which it has the largest exposures in extreme but plausible 
market conditions. ICC believes its Guaranty Fund, under its existing 
methodology, will, together with the required initial margin, provide 
sufficient financial resources to support the clearing of the 
additional EM and SWES Contracts, consistent with the requirements of 
Rule 17Ad-22(b)(3).\9\
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    \8\ 17 CFR 240.17Ad-22(b)(3).
    \9\ Id.
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    Operational Resources. Rule 17Ad-22(d)(4) \10\ requires ICC to 
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. ICC believes that its existing operational and 
managerial resources will be sufficient for clearing of the additional 
EM and SWES Contracts, consistent with the requirements of Rule 17Ad-
22(d)(4),\11\ as these new contracts are substantially the same from an 
operational perspective as existing contracts.
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    \10\ 17 CFR 240.17Ad-22(d)(4).
    \11\ Id.
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    Settlement Procedures. Rule 17Ad-22(d)(5), (12) and (15) \12\ 
requires ICC to establish, implement, maintain and enforce written 
policies and procedures reasonably designed to employ money settlement 
arrangements that eliminate or strictly limit ICC's settlement bank 
risks and require funds transfers to ICC to be final when effected; 
ensure that final settlement occurs no later than the end of the 
settlement day, and require that intraday or real-time finality be 
provided where necessary to reduce risks; and state to its participants 
ICC's obligations with respect to physical deliveries and identify and 
manage the risks from these obligations. ICC will use its existing 
settlement procedures and account structures for the new EM and SWES 
Contracts, which are similar to the EM and SWES Contracts currently 
cleared by ICC, consistent with the requirements of Rule 17Ad-22(d)(5), 
(12) and (15) \13\ as to the finality and accuracy of its daily 
settlement process and avoidance of the risk to ICC of settlement 
failures.
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    \12\ 17 CFR 240.17Ad-22(d)(5), (12) and (15).
    \13\ Id.
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    Governance Arrangements. Rule 17Ad-22(d)(8) \14\ requires ICC to 
establish, 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 \15\ applicable to clearing agencies, to support 
the objectives of owners and participants, and to promote the 
effectiveness of ICC's risk management procedures. ICC determined to 
accept the additional EM and SWES Contracts for clearing in accordance 
with its governance process, which included review of the contracts and 
related risk management considerations by the ICC Risk Committee and 
approval by its Board. These governance arrangements continue to be 
clear and transparent, such that information relating to the assignment 
of responsibilities and the requisite involvement of the ICC Board and 
committees is clearly detailed in the ICC Rules and policies and 
procedures, consistent with the requirements of Rule 17Ad-22(d)(8).\16\
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    \14\ 17 CFR 240.17Ad-22(d)(8).
    \15\ 15 U.S.C. 78q-1.
    \16\ 17 CFR 240.17Ad-22(d)(8).
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    Default Procedures. Rule 17Ad-22(d)(11) \17\ requires ICC to 
establish, implement, maintain and enforce written policies and 
procedures reasonably designed to establish default procedures that 
ensure that it can take timely action to contain losses and liquidity 
pressures and to continue meeting its obligations in the event of a 
participant default. ICC will apply its existing default management 
policies and procedures for the additional EM and SWES Contracts. ICC 
believes that these procedures allow for it to take timely action to 
contain losses and liquidity pressures and to continue meeting its 
obligations in the event of clearing member insolvencies or

[[Page 19553]]

defaults in respect of the additional single names, in accordance with 
Rule 17Ad-22(d)(11).\18\
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    \17\ 17 CFR 240.17Ad-22(d)(11).
    \18\ Id.
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(B) Clearing Agency's Statement on Burden on Competition

    The additional EM and SWES Contracts will be available to all ICC 
participants for clearing. The clearing of these additional EM and SWES 
Contracts by ICC does not preclude the offering of the additional EM 
and SWES Contracts for clearing by other market participants. 
Accordingly, ICC does not believe that clearance of the additional EM 
and SWES Contracts will impose any burden on competition not necessary 
or appropriate in furtherance of the purposes of the Act.

(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
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 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 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-2020-003 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-2020-003. 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 that are filed with 
the Commission, and all written communications relating to the proposed 
rule change 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-2020-003 and should be 
submitted on or before April 28, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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J. Matthew DesLesDernier,
Assistant Secretary.
[FR Doc. 2020-07230 Filed 4-6-20; 8:45 am]
BILLING CODE 8011-01-P