[Federal Register Volume 85, Number 76 (Monday, April 20, 2020)]
[Notices]
[Pages 21907-21909]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-08208]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88628; File No. SR-ICC-2020-007]
Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of
Proposed Rule Change Relating to the ICC Clearing Rules
April 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 April 10, 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 Rules (the ``Rules'') related to ICC membership
requirements.
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 amendments to Chapter 2 of the ICC Rules relating to
membership requirements. 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 amend ICC Rule 201(b), which contains membership
requirements of ICC and includes fitness criteria, financial standards,
operational standards, and registration qualifications with applicable
regulatory authorities. ICC proposes to add new subsection (xiv) to ICC
Rule 201(b) to require Clearing Participants (``CPs'') to participate
in default management simulations, new technology testing and other
exercises, as notified by ICC from time to time.
ICC proposes further updates to ICC Rule 206, which contains
certain notice requirements for CPs. Currently, under ICC Rule 206(a),
a CP must immediately notify ICC, orally and in writing, if it is
subject to an event described in ICC Rule 206(a). Such events include
material adverse changes in financial condition, restrictions or
limitations on certain business conducted by the CP, and becoming
insolvent, among others. Amended ICC Rule 206(a) removes the oral
notification requirement and only requires written notification to ICC.
ICC proposes to amend ICC Rule 206(c) which requires CPs that are
broker-dealers to notify ICC of any matter required to be notified to
FINRA under FINRA Rule 3070, as well as any matter required to be
notified to the Commission if a broker-dealer and to the Commodity
Futures Trading Commission (``CFTC'') if a futures commission merchant
under applicable Commission and CFTC regulations. ICC proposes
replacing ``FINRA Rule 3070'' with ``FINRA Rule 4530(a)(1)(A),(C),(E)
and 4530(b) (or any similar rules),'' as FINRA Rule 3070 is no longer
applicable and has been superseded by FINRA Rule 4530.
(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
[[Page 21908]]
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 will promote the prompt and
accurate clearance and settlement of securities transactions,
derivatives agreements, contracts, and transactions, 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 to protect investors and the public interest. The
proposed changes amend the membership requirements in Chapter 2 of the
ICC Rules. ICC has no concerns with the current level of CP
participation in default management testing or other exercises. The
proposed changes formalize the requirement in the ICC Rules that CPs
partake in default management simulations, new technology testing and
other exercises, as notified by ICC from time to time, in amended ICC
Rule 201(b). The proposed changes continue to ensure effective and
coordinated default testing with participation from relevant
stakeholders, which augments 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. The proposed revisions to ICC Rule 206 ensure that the
ICC Rules remain effective, clear and up-to-date by removing the oral
notification requirement, which ICC considers no longer necessary, and
replacing ``FINRA Rule 3070'' with ``FINRA Rule 4530(a)(1)(A),(C),(E)
and 4530(b) (or any similar rules),'' as FINRA Rule 3070 is no longer
applicable, to clarify the ICC membership requirements and help members
understand and remain complaint. 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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Section 17A(b)(3)(F) of the Act \6\ further requires that the rules
of ICC are not designed to permit unfair discrimination in the
admission of participants or among participants in the use of the
clearing agency. ICC believes that requiring CPs to participate in
default management simulations, new technology testing and other
exercises, as notified by ICC from time to time, in proposed ICC Rule
201(b)(xiv) ensures effective and coordinated testing with
participation from relevant stakeholders. For example, in ICC's view,
participation in periodic testing is necessary and reasonable since
successful default management will involve coordination with CPs.
Moreover, the changes to the notice requirements in ICC Rule 206
consist of clarification and clean-up changes that do not significantly
impact the rights or obligations of CPs under the ICC Rules. As such,
the proposed changes are not designed to permit unfair discrimination
in the admission of participants or among participants in the use of
the clearing agency.
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\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 to ICC Rule
201(b) continue to ensure practical and effective default management
procedures, as verified by effective and coordinated testing with CP
participation, which enhances 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).\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)(2) \10\ requires ICC to establish, implement,
maintain and enforce written policies and procedures reasonably
designed to require participants to have sufficient financial resources
and robust operational capacity to meet obligations arising from
participation in the clearing agency; have procedures in place to
monitor that participation requirements are met on an ongoing basis;
and have participation requirements that are objective and publicly
disclosed, and permit fair and open access. As discussed above, the
proposed amendments to ICC Rule 201(b) promote effective and
coordinated testing with participation from relevant stakeholders to
ensure operational readiness by ICC and its CPs. The proposed changes
to Rule 206 provide clarity and transparency in the ICC Rules regarding
ICC membership requirements. Replacing the no longer applicable ``FINRA
Rule 3070'' with ``FINRA Rule 4530(a)(1)(A),(C),(E) and 4530(b) (or any
similar rules)'' helps members understand and remain complaint with the
notice requirements in Rule 206. Removing the oral notification
requirement that ICC considers no longer necessary in ICC Rule 206(a)
further ensures that the ICC Rules remain practical and effective.
Moreover, ICC publicly discloses its membership requirements in the ICC
Rules on its website. Thus, ICC believes that the proposed changes
promote effective and coordinated testing with participation from
relevant stakeholders while facilitating fair and open access and
provide greater transparency and clarity regarding the ICC membership
requirements that are objective and publicly disclosed, consistent with
the requirements of Rule 17Ad-22(d)(2).\11\
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\10\ 17 CFR 240.17Ad-22(d)(2).
\11\ Id.
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Rule 17Ad-22(d)(8) \12\ 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
\13\ applicable to clearing agencies, to support the objectives of
owners and participants, and to promote the effectiveness of ICC's risk
management procedures. The ICC Rules clearly assign and document
responsibility and accountability for reviewing membership applications
and compliance with membership requirements and require consultation
with or approval from the Risk Management Subcommittee, the Risk
Committee, and the Board. As described above, the proposed amendments
ensure that the ICC Rules remain
[[Page 21909]]
effective, clear and up-to-date, including by requiring CP
participation in default management simulations, new technology testing
and other exercises to promote operational readiness and practical and
effective policies and procedures, removing the oral notification
requirement that is no longer necessary, and removing and replacing
``FINRA Rule 3070'' that is no longer applicable in Chapter 2. The
governance arrangements in the ICC Rules thus continue to be clear and
transparent, such that information relating to the assignment of
responsibilities and the requisite involvement of relevant stakeholders
is clearly documented, support the objectives of owners and
participants, and promote the effectiveness of ICC's risk management
procedures, consistent with the requirements of Rule 17Ad-22(d)(8).\14\
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\12\ 17 CFR 240.17Ad-22(d)(8).
\13\ 15 U.S.C. 78q-1.
\14\ 17 CFR 240.17Ad-22(d)(8).
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In addition, the amendments are intended to facilitate compliance
with the requirements for covered clearing agencies, namely Rule 17Ad-
22(e)(13) \15\ which requires each covered clearing agency to
establish, implement, maintain and enforce written policies and
procedures reasonably designed to ensure that the covered clearing
agency has the authority and operational capacity to take timely action
to contain losses and liquidity demands and continue to meet its
obligations by, at a minimum, requiring the covered clearing agency's
participants and, when practicable, other stakeholders to participate
in the testing and review of its default procedures, including any
close-out procedures, at least annually and following material changes
thereto. As such, ICC proposes amended Rule 201(b) that requires ICC's
CPs to participate in the testing and review of its default procedures,
as notified by ICC from time to time, to be consistent with the
requirements of Rule 17Ad-22(e)(13).\16\
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\15\ 17 CFR 240.17Ad-22(e)(13).
\16\ Id.
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(B) Clearing Agency's Statement on Burden on Competition
ICC does not believe the proposed amendments 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
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-2020-007 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-2020-007. 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-2020-007 and should be
submitted on or before May 11, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-08208 Filed 4-17-20; 8:45 am]
BILLING CODE 8011-01-P