[Federal Register Volume 85, Number 68 (Wednesday, April 8, 2020)]
[Notices]
[Pages 19785-19787]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-07334]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88545; File No. SR-ICC-2020-004]


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 CDS Instrument On-Boarding Policies 
and Procedures

April 2, 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 30, 
2020, ICE Clear Credit LLC (``ICC'') filed with the Securities and 
Exchange 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 update and 
formalize the ICC CDS Instrument On-boarding Policies and Procedures 
(``Instrument On-boarding Policy''). These revisions do not require any 
changes to the ICC Clearing Rules (the ``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 to update and formalize the Instrument On-boarding 
Policy. ICC believes such changes 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 formalize the Instrument On-boarding 
Policy following Commission approval of the proposed rule change. The 
proposed rule change is described in detail as follows.
    The Instrument On-boarding Policy provides an overview of ICC's on-
boarding process for new instruments, which includes selecting new 
instruments for clearing, configuring internal systems, notifying and 
receiving feedback from stakeholders, and ensuring operational 
readiness by ICC and its Clearing Participants (``CPs''). Specifically, 
the on-boarding process includes the following components that are 
described in detail in the document: instrument selection, on-boarding 
governance, operational setup, risk evaluation, pricing evaluation, and 
dress rehearsal.
    The Instrument On-boarding Policy contains procedures for 
instrument selection. The document memorializes the guiding principles 
that ICC maintains for considering instruments for clearing, which 
contemplate various factors such as instrument open interest and 
volume, whether instruments can be cleared through existing systems and 
processes, and industry wide initiatives and protocols. Additionally, 
the document details how ICC identifies an initial universe of proposed 
instruments and applies the guiding principles to this universe, 
including the analysis performed by ICC to identify the specific list 
of instruments that meet the guiding principles from such universe of 
proposed instruments.
    Further, the Instrument On-boarding Policy documents the governance 
process that follows the determination that the proposed instruments 
meet ICC's guiding principles. The Instrument On-boarding Policy sets 
forth the roles and responsibilities of various stakeholders as part of 
the on-boarding governance process, including the role of the ICC Legal 
Department in determining appropriate governance actions and the role 
of relevant committees and working groups in reviewing certain 
analyses. Moreover, proposed instruments are classified into four 
categories: (1) A new instrument that falls under a previously approved 
instrument type, such as a previously approved CDS corporate single 
name instrument type (e.g., North American Corporate Single Names) or a 
previously approved CDS sovereign single name instrument type (e.g., 
Emerging Market Sovereign Single Names); (2) a new instrument that 
falls under a new instrument type that is not considered in the ICC 
Rules; (3) a new instrument that falls under a new product category 
(e.g., CDS on indices and CDS on single names) that is not considered 
in the ICC Rules; and (4) a new instrument that falls out of scope of 
the standard on-boarding process, relating to, for example, index roll 
dates and credit events. For each category, the Instrument On-boarding 
Policy explains the governance process, including notification to and 
review and approval by relevant stakeholders such as the Board, 
committees and working groups, and regulators.
    The Instrument On-boarding Policy illustrates the operational 
configuration necessary to allow ICC's clearing, risk management and 
pricing systems to evaluate and accept transactions, process and net 
transactions in the proposed instruments and price the proposed 
instruments. For this operational setup, the document notes a 
particular product attribute that must be defined, specific lists or 
documents that are maintained, and certain information that is loaded 
into ICC's databases and risk systems.
    Regarding risk and pricing evaluation, ICC ensures that its risk 
models adequately capture the risks associated with the new instruments 
and that the price dynamics of the new instruments are appropriately 
captured by the end-of-day price discovery process. The Instrument On-
boarding Policy describes the performance of back-testing and stress-
testing to demonstrate that the risks associated with the proposed 
instruments are appropriately accounted for by ICC's risk models and 
that Initial Margin and Guaranty Fund requirements will provide 
adequate protection to ICC and its CPs. For the pricing evaluation, the 
Instrument On-boarding Policy further discusses how ICC ensures that 
its end-of-day price discovery process operates effectively with the 
proposed instruments.
    Before launch, ICC performs a dress rehearsal, lasting at least two 
weeks,

[[Page 19786]]

during which the end-of-day price discovery process is executed each 
business day. During the dress rehearsal, ICC collects price 
submissions and fine tunes pricing parameters, if required. Once ICC 
has successfully completed the steps in the on-boarding process and 
received any required regulatory approvals, the Instrument On-boarding 
Policy allows ICC to deem an instrument eligible for clearing.
(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 the clearing agency or for which it is 
responsible; in general, to protect investors and the public interest; 
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) \4\, because the proposed rule change enhances ICC's 
ability to manage the risk to ICC of new instruments by describing the 
on-boarding process in detail, including the steps to take prior to 
clearing new instruments, and by documenting the roles and 
responsibilities of relevant stakeholders, such as the Board, 
committees and working groups, and ICC personnel. As discussed above, 
the Instrument On-boarding Policy details the components of the on-
boarding process, such as instrument selection, on-boarding governance, 
operational setup, risk and pricing evaluation, and dress rehearsal. 
ICC believes that the formalization of this document augments ICC's 
ability to assess and manage the risk to ICC of new instruments and 
avoid disruptions to operations, thereby promoting the prompt and 
accurate clearance and settlement of securities transactions, 
derivatives agreements, contracts, and transactions; the safeguarding 
of securities and funds which are in the custody or control of ICC or 
for which it is responsible; and the protection of investors and the 
public interest. 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; 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; and, in general, to protect investors and the 
public interest within the meaning of Section 17A(b)(3)(F) of the 
Act.\5\
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    \3\ 15 U.S.C. 78q-1(b)(3)(F).
    \4\ Id.
    \5\ Id.
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    In addition, the proposed rule change is consistent with the 
relevant requirements of Rule 17Ad-22.\6\ Rule 17Ad-22(b)(3) \7\ 
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 Instrument On-boarding Policy describes the 
guiding principles that ICC maintains to ensure that it selects 
instruments in a prudent manner, considering various factors such as 
instrument open interest and volume, whether instruments can be cleared 
through existing systems and processes, and industry wide initiatives 
and protocols. The document also illustrates the risk and pricing 
evaluation components of the on-boarding process whereby ICC ensures 
that its risk models adequately capture the risks associated with new 
instruments and that the price dynamics of new instruments are 
appropriately captured by the end-of-day price discovery process. As 
such, ICC believes that the Instrument On-boarding Policy enhances its 
ability to manage and assess the risk to ICC of new instruments and 
avoid disruptions to operations, 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).\8\
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    \6\ 17 CFR 240.17Ad-22.
    \7\ 17 CFR 240.17Ad-22(b)(3).
    \8\ Id.
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    Rule 17Ad-22(d)(4) \9\ requires ICC to establish, implement, 
maintain and enforce written policies and procedures reasonably 
designed to, in relevant part, identify sources of operational risk and 
minimize them through the development of appropriate systems, controls, 
and procedures and implement systems that are reliable, resilient and 
secure, and have adequate scalable capacity. The Instrument On-boarding 
Policy discusses the sequence and timing for the introduction of new 
instruments to ensure that ICC and its CPs are operationally ready and 
that ICC proceeds in a controlled manner to minimize operational risk. 
Moreover, the document details the testing and preparation that ICC 
must complete prior to the launch of new instruments for clearing, such 
as the dress rehearsal that lasts at least two weeks, during which the 
end-of-day price discovery process is executed, price submissions are 
collected, and pricing parameters are fine tuned (if required). ICC 
believes that such testing and preparation will reduce the likelihood 
of a disruption in operations from a new instrument and will improve 
ICC's ability to identify sources of operational risk and minimize them 
through the development of appropriate systems, controls, and 
procedures and implement systems that are reliable, resilient and 
secure, and have adequate scalable capacity, consistent with the 
requirements of Rule 17Ad-22(d)(4).\10\
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    \9\ 17 CFR 240.17Ad-22(d)(4).
    \10\ Id.
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    Rule 17Ad-22(d)(8) \11\ 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 
\12\ applicable to clearing agencies, to support the objectives of 
owners and participants, and to promote the effectiveness of ICC's risk 
management procedures. The Instrument On-boarding Policy describes the 
roles and responsibilities of relevant stakeholders, such as the Board, 
relevant committees and working groups, and ICC personnel. 
Additionally, the governance process documented in the Instrument On-
boarding Policy allows for feedback from, and notification to, relevant 
stakeholders, including CPs and regulators. These governance 
arrangements are clear and transparent, such that information relating 
to the assignment of responsibilities and the requisite involvement of 
the Board, relevant committees and working groups is clearly 
documented, and also promote the effectiveness of ICC's risk management 
procedures by detailing the responsibilities of relevant stakeholders 
throughout the on-boarding process, consistent with the requirements of 
Rule 17Ad-22(d)(8).\13\
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    \11\ 17 CFR 240.17Ad-22(d)(8).
    \12\ 15 U.S.C. 78q-1.
    \13\ 17 CFR 240.17Ad-22(d)(8).

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[[Page 19787]]

(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 rule change 
to formalize the Instrument On-boarding Policy 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-2020-004 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-2020-004. 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-2020-004 and should be 
submitted on or before April 29, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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J. Matthew DesLesDernier,
Assistant Secretary.
[FR Doc. 2020-07334 Filed 4-7-20; 8:45 am]
BILLING CODE 8011-01-P