[Federal Register Volume 85, Number 73 (Wednesday, April 15, 2020)]
[Notices]
[Pages 21052-21056]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-07897]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88614; File No. SR-ICC-2020-005]


Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of 
Filing of Proposed Rule Change Relating to the ICC Clearing Participant 
Default Management Procedures

April 9, 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

[[Page 21053]]

on April 3, 2020, ICE Clear Credit LLC (``ICC'') filed with the 
Securities and Exchange 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 Clearing Participant (``CP'') Default Management Procedures 
(``Default Management Procedures''). 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

    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
    ICC proposes to revise the Default Management Procedures, which set 
forth ICC's default management process, including the actions taken by 
ICC to determine that a CP is in default as well as the actions taken 
by ICC in connection with such default to close-out the defaulter's 
portfolio. The proposed revisions update the default contacts that ICC 
maintains for each CP, include language on the development of the scope 
of a default management test, and make additional clarification and 
clean-up changes throughout the document. 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 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 amend the list of defined terms in Section 2 
(Definitions). Specifically, ICC proposes to update the composition of 
the individuals that comprise ICC management.
    The proposed changes to Subsection 4.3.2.1 (Role-Based Contacts) 
revise certain types of contacts that ICC maintains for each CP in 
respect of the default management process. Currently, ICC maintains 
contact information for the Chief Executive Officer (``CEO''), Chief 
Financial Officer (``CFO''), and General Counsel of each CP, as well as 
other role-based contacts that are specific to the default management 
process. The proposed changes remove the requirement that ICC maintain 
contact information for the CEO, CFO, and General Counsel of each CP in 
connection with the default management process and instead require ICC 
to maintain contact information for the most senior person in charge of 
the CDS business and the most senior person responsible for providing 
compliance oversight for the CDS business.
    In Subsection 4.5 (Default Management Tests), ICC proposes 
clarification changes regarding the coordination of a default 
management test, which is a test of ICC's default management process. 
ICC proposes to clarify that it coordinates default management tests 
with its Risk Committee and Board, among other external participants. 
ICC proposes to specify that it conducts a default management test at 
least every twelve months, rather than once per calendar year. 
Additionally, the proposed changes direct the ICC Risk Oversight 
Officer to work with other members of the Close-Out Team, instead of 
ICC management, to determine the scope of each default management test. 
The Close-Out Team is responsible for overseeing the default management 
process and includes ICC management, the most senior member of the ICC 
Treasury Department, and the ICC Risk Oversight Officer. The proposed 
amendments also reference proposed Appendix 1 that includes language on 
the development of the scope of a default management test. The scope 
would be presented to the Board for review prior to executing the 
default management test.
    In Subsection 6.1.1 (President Pre-Declaration Initiated Actions), 
ICC proposes to update the contacts that the ICC President notifies of 
a possible default, including Intercontinental Exchange, Inc. contacts 
and CP contacts. As discussed above, ICC proposes to replace the 
requirement that the ICC President contact the CEO or CFO of each CP 
that is at risk of defaulting or in default (``Default Risk CP'') with 
the requirement to contact the default contacts of each Default Risk 
CP.
    ICC proposes updates to Subsection 6.1.5 (CCO Pre-Declaration 
Initiated Actions) regarding particular actions that occur prior to a 
declaration of default. The Chief Compliance Officer (``CCO'') works 
with ICC personnel to draft certain notices for CPs that are used as 
part of the default management process. Under the amended Default 
Management Procedures, the Close-Out Team, instead of ICC management, 
reviews and approves such notices, which are addressed to the default 
contacts at each Default Risk CP, rather than the CEO, CFO, and General 
Counsel.
    ICC proposes further updates to Subsection 6.4 (Default Declaration 
Notification) regarding specific actions that follow a default 
declaration. Under the revisions, the CCO sends certain notices to the 
default contacts of each defaulting CP, rather than the CEO, CFO, and 
General Counsel of each defaulting CP. Further, the ICC President is 
required to notify the Risk Committee and Board, rather than the 
chairman of the Risk Committee, of the CP that has been declared in 
default.
    ICC proposes a clarification update to Subsection 8.6 (Direct 
Liquidation) to clarify that certain actions relating to direct 
liquidation are only taken if ICC obtains Board approval.
    Amended Subsection 9.1 (Calling for Assessments) includes a minor 
update to the procedures for calling for assessment contributions. ICC 
may call for assessment contributions, which CPs are obligated to meet 
by providing additional amounts to the Guaranty Fund, in the event that 
the Guaranty Fund has been depleted or ICC anticipates the need for 
additional funds related to a default. Currently, ICC distributes 
notices calling for assessment contributions to each CP's Execution 
Coordinator. Such role is responsible for coordinating internally and 
with ICC for hedging and liquidation related activities. ICC proposes 
replacing ``Execution Coordinator'' with ``Central Point of Contact,'' 
which is a role that has overall responsibility for coordinating 
internally and with ICC during the default management process and is 
thus more relevant to the subject task.
    In proposed Appendix 1 to the Default Management Procedures, ICC 
includes language on the development of the scope of a default 
management test. Specifically, proposed Appendix 1 sets forth key 
scenario components that ICC may consider when developing a

[[Page 21054]]

default management test. ICC may supplement the list of factors 
included in this appendix from time to time as it identifies additional 
factors to test. This appendix considers (1) scenarios resulting in CP 
defaults, such as a CP's failure to meet payment obligations to ICC, 
insolvency or bankruptcy; (2) default management tools available to ICC 
in case of default, including consulting with the CDS Default Committee 
or performing Secondary Default Management Actions (e.g., calling for 
assessment contributions); (3) timing considerations, such as the time 
and length of a default event; (4) planning strategy (e.g., whether 
there is advance notice of a test); and (5) event specific elements 
that may occur in a default scenario, such as the occurrence of 
multiple CP defaults or stressed market conditions.
    ICC proposes other non-material changes that would fix 
typographical or grammatical errors by amending:
     Section 4 (Operational Readiness), to replace 
``described'' with ``describes'' in the phrase ``This section described 
the steps taken.''
     Subsection 4.4 (Secure Trading Facility), to replace 
``review'' with ``reviewed'' in the phrase ``periodically review by the 
Risk Department.''
     Subsection 4.5 (Default Management Tests), to add ``to'' 
to the phrase ``also be included.''
     Subsection 5.2 (Close-Out Team Activation), to add ``to'' 
to the phrase ``Default Risk Alert the President.''
     Subsection 6.1.3 (COO Pre-Declaration Initiated Actions), 
to add ``and'' to the phrase ``the Court a no action.''
     Subsection 6.4 (Default Declaration Notification), to 
replace ``confirm'' with ``confirms'' in the phrase ``and confirm 
with.''
     Subsection 7.3 (Initial CDS Default Committee Meeting), to 
replace ``provide'' with ``provides'' in the phrase ``ICC provide'' and 
replace the phrase ``receive'' with ``receives'' in the phrase ``ICC 
receive.''
     Subsection 9.1 (Calling for Assessments), to remove ``are 
subject'' from the phrase ``CPs are subject are considered.''
     Subsection 9.2 (Initiating a Cooling-Off Period), to 
replace ``Colling-Off Period'' with ``Cooling-Off Period.''
     Subsection 9.3 (Liquidation by Secondary Auction), to 
replace ``addition'' with ``additional'' in the phrase ``on or more 
addition CP Default''; remove an unfinished sentence; and replace 
``extend'' with ``extent'' in the phrase ``to the extend.''
     Subsections 9.4 (Entering a Loss Distribution Period) and 
9.5 (Continuing a Loss Distribution Period), to remove reference to a 
section that does not exist.
     Subsection 9.7 (Termination of Clearing), to replace 
``Partial Tear-Up'' with ``Termination'' in the phrase ``Partial Tear-
Up Circular.''
     Subsection 10.7 (Execute Transfers), to change the title 
to ``Execution of Transfers.''
(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 ICC believes that the proposed rule change 
enhances ICC's ability to manage the risk of a default by providing 
updates and additional clarity with respect to ICC's default management 
process and procedures. The amendments to the Default Management 
Procedures update the default contacts that ICC maintains so relevant 
individuals are notified and can take timely action as part of the 
default management process. Proposed Appendix 1 includes language on 
the development of the scope of a default management test and sets 
forth key scenario components that ICC may consider, which promotes 
robust and effective default management tests. The clarification and 
clean-up changes throughout the document ensure that the documentation 
of ICC's Default Management Procedures remains up-to-date, transparent, 
and focused on clearly articulating the policies and procedures used to 
support ICC's default management process. ICC believes that such 
changes augment ICC's procedures relating to default management and 
enhance ICC's ability to withstand defaults and continue providing 
clearing services, 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 proposed revisions update certain types of 
contact information that ICC maintains as part of the default 
management process to ensure that relevant individuals are notified and 
can take timely action. The proposed revisions further include language 
on the development of the scope of a default management test in 
Appendix 1, which promotes robust and effective default management 
tests that ensure operational readiness by ICC and its CPs to execute 
the default management process. ICC believes that such changes 
strengthen ICC's ability to manage its financial resources and 
withstand the pressures of defaults, including by ensuring that 
relevant individuals are notified and can take timely action during the 
default management process and through robust and effective default 
management tests that enhance ICC's ability to manage financial stress 
from CP defaults, 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

[[Page 21055]]

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 proposed amendments provide additional clarity and detail 
regarding the coordination of default management tests, including by 
specifying that ICC conducts a default management test at least every 
twelve months; clarifying that ICC receives input from relevant 
stakeholders, including the Board, Risk Committee, and the Close-Out 
Team; and adding proposed Appendix 1 that promotes robust and effective 
default management tests. Such testing and preparation strengthens 
ICC's ability to detect and manage financial stress from CP defaults 
and allows ICC 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 Default Management Procedures clearly assign 
and document responsibility and accountability for default management 
actions and decisions. The proposed revisions allow for feedback from, 
and notification to, relevant stakeholders, such as the Board, Risk 
Committee, and the Close-Out Team. The proposed changes note the 
coordination of a default management test with the Risk Committee and 
Board, the review of the scope of a default management test by the 
Board, the notification to the Risk Committee and Board of the CP in 
default, and the input of the Close-Out Team on various default 
management matters. 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 ICC personnel is clearly documented, and also promote 
the effectiveness of ICC's risk management procedures by detailing the 
responsibilities of relevant stakeholders throughout the Default 
Management Procedures, 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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    Rule 17Ad-22(d)(11) \14\ 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 Default Auction 
Procedures--Initial Default Auctions, and the Secondary Auction 
Procedures are publically available on ICC's website. The proposed 
changes to the Default Management Procedures update certain contacts 
that ICC maintains so relevant individuals are notified and can take 
timely action as part of the default management process. Additionally, 
the proposed changes clarify and augment ICC's default management 
process and enhance ICC's ability to withstand defaults and continue 
providing clearing services, including by promoting robust and 
effective default management tests that ensure operational readiness by 
ICC and its CPs through the additional detail included in proposed 
Appendix 1 and by making clarification and clean-up changes to ensure 
that the documentation of ICC's Default Management Procedures remains 
up-to-date, transparent, and focused on clearly articulating the 
procedures used to support ICC's default management process, to 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).\15\
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    \14\ 17 CFR 240.17Ad-22(d)(11).
    \15\ Id.
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(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 Default Management Procedures 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 
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-2020-005 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-2020-005. 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

[[Page 21056]]

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-2020-005 and should be 
submitted on or before May 6, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-07897 Filed 4-14-20; 8:45 am]
 BILLING CODE 8011-01-P