[Federal Register Volume 85, Number 103 (Thursday, May 28, 2020)]
[Notices]
[Pages 32067-32068]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-11402]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88927; File No. SR-ICC-2020-006)]


Self-Regulatory Organizations; ICE Clear Credit LLC; Order 
Approving Proposed Rule Change Relating to ICC's Treasury Operations 
Policies and Procedures

May 21, 2020.

I. Introduction

    On April 8, 2020, ICE Clear Credit LLC (``ICC'') filed with the 
Securities and Exchange Commission (``Commission''), pursuant to 
Section 19(b)(1) of the Securities Exchange Act of 1934 (the 
``Act''),\1\ and Rule 19b-4,\2\ a proposed rule change to revise the 
ICC Treasury Operations Policies and Procedures (``Treasury Policy''). 
The proposed rule change was published for comment in the Federal 
Register on April 20, 2020.\3\ The Commission did not receive comments 
regarding the proposed rule change. For the reasons discussed below, 
the Commission is approving the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Self-Regulatory Organizations; ICE Clear Credit LLC; Notice 
of Filing of Proposed Rule Change, Security-Based Swap Submission, 
or Advance Notice Relating to ICC's Treasury Operations Policies and 
Procedures, Exchange Act Release No. 88633 (Apr. 14, 2020); 85 FR 
21911 (Apr. 20, 2020) (SR-ICC-2020-006) (``Notice'').
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II. Description of the Proposed Rule Change

    The proposed rule change would revise the Treasury Policy to 
clarify ICC's approval process for adding a new settlement bank, ICC's 
minimum criteria applicable to settlement banks, and ICC's backup 
settlement banks. Currently, the Direct Settlement Section of the 
Treasury Policy requires that ICC's Director of Treasury and the Risk 
Department (credit analyst) conduct a review before ICC begins using a 
bank as a settlement bank, with final approval from the ICC President. 
Under the proposed rule change, ICC's Director of Treasury and the Risk 
Department (credit analyst) would still conduct a review before ICC 
begins using a bank as a settlement bank. The proposed rule change 
would require, however, that the Credit Review Subcommittee of the 
Participant Review Committee (the ``CRS''), rather than ICC's 
President, approve ICC's use of a bank. The CRS is comprised of ICC 
staff, including the ICC President, ICC Chief Operating Officer, and 
representatives from various departments, and is tasked with 
counterparty review responsibilities. Thus, under the proposed rule 
change, ICC's President would still be involved in the approval of a 
bank (as a member of the CRS) but other ICC personnel, as CRS members, 
would also participate in such approval.
    Moreover, the proposed rule change would amend the Direct 
Settlement Section of the Treasury Policy to set forth the minimum 
criteria that ICC applies when determining whether to use a bank as a 
settlement bank. Currently, the Treasury Policy requires that ICC's 
Director of Treasury and the Risk Department (credit analyst) review a 
bank's capitalization, creditworthiness, access to liquidity, 
operational reliability and supervision before approval of that bank. 
In addition to those items, the proposed rule change would specify the 
minimum criteria that ICC applies to its settlement banks. Among other 
things, these criteria require that a bank be subject to certain 
regulatory oversight and supervision (i.e., the bank must be subject to 
regulation and supervision by a competent authority such as the Federal 
Reserve Board or Office of the Comptroller of the Currency or such 
other applicable prudential regulatory body acceptable to ICC and if 
the bank is located outside the United States and will be used for 
customer funds, it must have in excess of $1 billion of regulatory 
capital), complete documentation which would allow ICC to assess the 
bank's financial stability and credit/counterparty risk, and 
demonstrate requisite operational capability.
    Finally, the proposed rule change would amend the Direct Settlement 
Section of the Treasury Policy and make amendments elsewhere in the 
Treasury Policy to clarify that ICC currently has two backup settlement 
banks in addition to one primary settlement bank. Currently, the 
Treasury Policy notes ICC's primary banking relationship and one backup 
banking relationship. The proposed rule change would incorporate a 
reference to the second backup banking relationship, which was 
inadvertently excluded and does not represent a new banking 
relationship.

III. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act directs the Commission to approve a 
proposed rule change of a self-regulatory organization if it finds that 
such proposed rule change is consistent with the requirements of the 
Act and the rules and regulations thereunder applicable to such 
organization.\4\ For the reasons given below, the Commission finds that 
the proposed rule change is consistent with Section 17A(b)(3)(F) of the 
Act \5\ and Rules 17Ad-22(d)(5) and 17Ad-22(d)(8).\6\
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    \4\ 15 U.S.C. 78s(b)(2)(C).
    \5\ 15 U.S.C. 78q-1(b)(3)(F).
    \6\ 17 CFR 240.17Ad-22(d)(5), (d)(8).
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A. Consistency With Section 17A(b)(3)(F) of the Act

    Section 17A(b)(3)(F) of the Act requires, among other things, that 
the rules of ICC be designed to promote the prompt and accurate 
clearance and settlement of securities transactions and, to the extent 
applicable, derivative agreements, contracts, and transactions, as well 
as to assure the safeguarding of securities and funds which are in the 
custody or control of ICC or for which it is responsible.\7\ The 
Commission believes that ICC's use of settlement banks poses potential 
risks that, if not mitigated and managed, could disrupt its ability to 
clear and settle transactions and safeguard securities and funds in its 
custody and control. For example, failure of a settlement bank, due to 
operational or financial issues, could inhibit ICC's ability to receive 
and make payments, which could prevent the final settlement of 
transactions and transfer of margin. As discussed above, the proposed 
rule change would revise the Treasury Policy to state that the CRS must 
approve ICC's use of a bank before ICC begins using that bank as a 
settlement bank and to provide minimum criteria that ICC must apply 
when determining whether to use a bank as a settlement bank. The 
Commission believes that the proposed rule change should help to manage 
and mitigate the potential risks associated with using a settlement 
bank, by improving the approval process for a settlement bank. The 
Commission believes the proposed rule change would improve this process 
by expanding the personnel within ICC that consider and approve a 
potential settlement bank and by providing certain minimum standards 
that a settlement bank must meet for ICC to use that bank, in addition 
to the criteria for review already listed in the Treasury

[[Page 32068]]

Policy. The Commission therefore believes that the proposed rule change 
should help to promote the prompt and accurate clearance and settlement 
of securities transactions and assure the safeguarding of securities 
and funds in ICC's custody and control.
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    \7\ 15 U.S.C. 78q-1(b)(3)(F).
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    Similarly, in specifying that ICC has two backup settlement banks 
in addition to one primary settlement bank, the Commission believes 
that the proposed rule change should better reflect that ICC has backup 
settlement banks available, and therefore should be able to continue 
clearing and settling transactions should its primary settlement bank 
fail.
    Therefore, the Commission finds that the proposed rule change 
should promote the prompt and accurate clearance and settlement of 
securities transactions and assure the safeguarding of securities and 
funds in ICC's custody and control, consistent with the Section 
17A(b)(3)(F) of the Act.\8\
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    \8\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rule 17Ad-22(d)(5)

    Rule 17Ad-22(d)(5) requires that ICC establish, implement, maintain 
and enforce written policies and procedures reasonably designed to 
employ money settlement arrangements that eliminate or strictly limit 
its settlement bank risks, that is, its credit and liquidity risks from 
the use of banks to effect money settlements with its participants; and 
require funds transfers to the clearing agency to be final when 
effected.\9\ By establishing that the CRS must approve ICC's use of a 
bank before ICC begins using that bank as a settlement bank, the 
Commission believes that the proposed rule change should limit the 
risks of ICC's use of banks to effect money settlements with its 
Clearing Participants by establishing CRS approval as an additional 
check on the adequacy and fitness of a proposed settlement bank. 
Similarly, the Commission believes that the minimum criteria discussed 
above should require a bank to demonstrate sufficient regulatory 
oversight and operational ability before becoming a settlement bank, 
thereby further limiting the risks of ICC's use of banks to effect 
money settlements with its Clearing Participants. Finally, in 
specifying that ICC has two backup settlement banks in addition to one 
primary settlement bank, the Commission believes the proposed rule 
change should help reflect that ICC has backup settlement banks 
available should its primary settlement bank fail, thereby further 
helping to reduce settlement bank risk. For these reasons, the 
Commission finds that the proposed rule change is consistent with Rule 
17Ad-22(d)(5).\10\
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    \9\ 15 U.S.C. 17Ad-22(d)(5).
    \10\ 15 U.S.C. 17Ad-22(d)(5).
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C. Consistency With Rule 17Ad-22(d)(8)

    Rule 17Ad-22(d)(8) requires that ICC 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 \11\ applicable 
to clearing agencies, to support the objectives of owners and 
participants, and to promote the effectiveness of ICC's risk management 
procedures.\12\ As discussed above, the proposed rule change would 
require approval by the CRS before ICC establishes a new bank as a 
settlement bank. The Commission believes this aspect of the proposed 
rule change would establish a governance arrangement (CRS approval) 
that is clear and promotes the effectiveness of ICC's procedures to 
mitigate the risks arising from use of a settlement bank by ensuring 
that appropriate personnel at ICC are involved in the approval of a new 
settlement bank. For this reason, the Commission finds that the 
proposed rule change is consistent with Rule 17Ad-22(d)(8).\13\
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    \11\ 15 U.S.C. 78q-1.
    \12\ 15 U.S.C. 17Ad-22(d)(8).
    \13\ 15 U.S.C. 17Ad-22(d)(8).
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IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act, 
and in particular, with the requirements of Section 17A(b)(3)(F) of the 
Act \14\ and Rules 17Ad-22(d)(5) and 17Ad-22(d)(8).\15\
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    \14\ 15 U.S.C. 78q-1(b)(3)(F).
    \15\ 17 CFR 240.17Ad-22(d)(5), (d)(8).
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    It is therefore ordered pursuant to Section 19(b)(2) of the Act 
\16\ that the proposed rule change (SR-ICC-2020-006) be, and hereby is, 
approved.\17\
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    \16\ 15 U.S.C. 78s(b)(2).
    \17\ In approving the proposed rule change, the Commission 
considered the proposal's impact on efficiency, competition, and 
capital formation. 15 U.S.C. 78c(f).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-11402 Filed 5-27-20; 8:45 am]
BILLING CODE 8011-01-P