[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