[Federal Register Volume 85, Number 201 (Friday, October 16, 2020)]
[Notices]
[Pages 65891-65893]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-22739]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90138; File No. SR-ICC-2020-011]


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 Clearing Rules

October 8, 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 September 
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 revise 
ICC's Clearing Rules (the ``Rules'') \3\ to incorporate credit default 
index swaptions (``Index Swaptions'') into its summary assessment 
approach.
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    \3\ Capitalized terms used but not defined herein have the 
meanings specified in the Rules.
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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 revisions to the Rules to incorporate Index Swaptions 
into the summary assessment approach described in Rule 702(e) and 
Schedule 702 of the Rules. ICC proposes to make such changes to the 
Rules effective following Commission approval of the proposed rule 
change and completion of the ICC governance process surrounding the 
Index Swaptions product expansion. ICC has previously filed with the 
Commission changes to certain other policies and procedures related to 
clearing Index Swaptions (the ``Swaption Rule Filings'').\4\ As 
discussed in the Swaption Rule Filings, pursuant to an Index Swaption, 
one party (the ``Swaption Buyer'') has the right (but not the 
obligation) to cause the other party (the ``Swaption Seller'') to enter 
into an index credit default swap transaction at a pre-determined 
strike price on a specified expiration date on specified terms. In the 
case of Index Swaptions that would be cleared by ICC, the underlying 
index credit default swap would be limited to certain CDX and iTraxx 
Europe index credit default swaps that are accepted for clearing by 
ICC, and which would be automatically cleared by ICC upon exercise of 
the Index Swaption by the Swaption Buyer in accordance with its terms. 
The proposed amendments to incorporate Index Swaptions into the summary 
assessment approach in Rule 702(e) and Schedule 702 of the Rules are 
described in detail as follows.
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    \4\ As set out in the Swaption Rule Filings, ICC intends to 
implement the changes described in the Swaption Rule Filings 
following completion of the ICC governance process surrounding the 
Index Swaptions product expansion. SEC Release No. 34-87297 (October 
15, 2019) (approval), 84 FR 56270 (October 21, 2019) (SR-ICC-2019-
007); SEC Release No. 34-89142 (June 24, 2020) (approval), 85 FR 
39226 (June 30, 2020) (SR-ICC-2020-002); SEC Release No. 34-89436 
(July 31, 2020) (approval), 85 FR 47827 (August 6, 2020) (SR-ICC-
2020-008); SEC Release No. 34-89948 (September 22, 2020) (approval), 
85 FR 60845 (September 28, 2020) (SR-ICC-2020-010).
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    As part of ICC's end-of-day price discovery process, ICC Clearing 
Participants (``CPs'') are required to submit end-of-day prices in 
accordance with the ICC Procedures, and the failure of a CP to provide 
submissions in accordance with the ICC Procedures constitutes a Missed 
Submission pursuant to Rules 404(b) and 702(b) and (e). In order to 
provide incentive against

[[Page 65892]]

Missed Submissions, ICC has adopted a summary assessment approach 
described in Rule 702(e) and Schedule 702 of the Rules.
    The proposed amendments incorporate Index Swaptions in Rule 702(e). 
Under current Rule 702(e)(i)(2), CPs are required to submit end-of-day 
prices for each Contract in which they hold a cleared interest in 
accordance with the ICC Procedures and each price not submitted as 
required is a Missed Submission. The proposed changes to Rule 
702(e)(i)(2) would specify that CPs that hold a cleared interest in one 
or more Index Swaption Contracts sharing the same underlying index and 
expiration date are required to provide prices for all Index Swaption 
Contracts sharing the same underlying index and expiration date. 
Additionally, under current Rule 702(e)(ii)(2), a CP is eligible for 
one waiver per calendar year for single name Missed Submissions and one 
waiver per calendar year for index Missed Submissions caused by 
technical failures. Under amended Rule 702(e)(ii)(2), a CP would also 
be eligible for one waiver per calendar year for Index Swaption Missed 
Submissions caused by technical failures. The process for requesting 
and reviewing waivers for Missed Submissions remains unchanged. 
Moreover, amended Rule 702(e)(ii)(4) includes Index Swaption, along 
with single name and index, as a type of Missed Submission that may 
satisfy the requirements of Rule 702(e)(ii)(2).
    Additionally, ICC proposes updates to Schedule 702 to the Rules, 
which sets forth an assessment schedule, to include an assessment 
amount for Index Swaption Missed Submissions and correct a 
typographical error. Current Schedule 702 sets out assessment amounts 
(per missed price) in respect of index and single names. With respect 
to Index Swaptions, the proposed revisions would establish an 
assessment amount for each Missed Submission ($250) as well as a 
maximum assessment per day for Missed Submissions on Index Swaption 
instruments sharing the same underlying index ($10,000) and for all 
Index Swaption instruments during one day ($50,000). ICC also proposes 
to correct a typographical error with respect to single names in the 
assessment schedule and replace ``Submissions'' with ``Submission'' in 
the phrase ``For each Missed Submissions.''
(b) Statutory Basis
    ICC believes that the proposed rule change is consistent with the 
requirements of Section 17A of the Act \5\ and the regulations 
thereunder applicable to it, including the applicable standards under 
Rule 17Ad-22.\6\ Section 17A(b)(3)(F) of the Act \7\ requires 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 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. The proposed rule change would amend ICC's 
summary assessment approach described in Rule 702(e) and Schedule 702 
of the Rules to incorporate Index Swaptions as an incentive against 
Index Swaption Missed Submissions. The amendments also provide one 
waiver per calendar year for Index Swaption Missed Submissions caused 
by technical failures, which is analogous to the current provision in 
Rule 702(e) for single name and index Missed Submissions and is 
appropriately designed to maintain the integrity and effectiveness of 
ICC's price discovery process. Moreover, the clean-up change to 
Schedule 702 of the Rules to correct a typographical error ensures that 
the assessment schedule and the Rules remain effective, clear, and 
transparent to serve their intended purpose. Accordingly, in ICC's 
view, the proposed rule change would promote ICC's price discovery 
process by ensuring a clear, fair, and equitable assessment structure 
and is thus consistent with the prompt and accurate clearing and 
settlement of the contracts cleared by ICC, including Index Swaptions, 
the safeguarding of securities and funds in the custody or control of 
ICC or for which it is responsible, and the protection of investors and 
the public interest, within the meaning of Section 17A(b)(3)(F) of the 
Act.\8\
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    \5\ 15 U.S.C. 78q-1.
    \6\ 17 CFR 240.17Ad-22.
    \7\ 15 U.S.C. 78q-1(b)(3)(F).
    \8\ Id.
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    Further, Section 17A(b)(3)(G) of the Act \9\ requires that the 
rules of the clearing agency provide that its participants shall be 
appropriately disciplined for violation of any provision of the rules 
of the clearing agency, including by fine or other fitting sanction. 
The proposed changes are designed to ensure that CPs are appropriately 
disciplined for violations of the Rules, namely Missed Submissions, and 
set out an appropriate fining structure in Schedule 702 to the Rules 
that includes an assessment amount for each Index Swaption Missed 
Submission as well as a maximum assessment per day for Missed 
Submissions on Index Swaption instruments sharing the same underlying 
index and for all Index Swaption instruments during one day. Similar to 
ICC's approach for single name and index Missed Submissions, ICC 
proposes one waiver per calendar year for Index Missed Submissions 
caused by technical failures. In ICC's view, the amendments to Rule 702 
and Schedule 702 to the Rules provide an appropriate assessment 
approach given the role of submissions in ICC's price discovery process 
and are thus consistent with the requirements of Section 17A(b)(3)(G) 
of the Act.\10\
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    \9\ 15 U.S.C. 78q-1(b)(3)(G).
    \10\ Id.
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    Additionally, Section 17A(b)(3)(H) of the Act \11\ requires, among 
other things, that the rules of the clearing agency, in general, 
provide a fair procedure with respect to the disciplining of 
participants. The process for requesting and reviewing waivers for 
Missed Submissions remains unchanged in Rule 702(e) and continues to 
provide a fair procedure with respect to disciplining CPs for Missed 
Submissions, consistent with Section 17A(b)(3)(H) of the Act.\12\
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    \11\ 15 U.S.C. 78q-1(b)(3)(H).
    \12\ Id.
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    The amendments would also satisfy relevant requirements of Rule 
17Ad-22.\13\ Rule 17Ad-22(e)(2)(i) and (v) \14\ requires each covered 
clearing agency to establish, implement, maintain, and enforce written 
policies and procedures reasonably designed to provide for governance 
arrangements that are clear and transparent and specify clear and 
direct lines of responsibility. The ICC Procedures and the Rules 
clearly assign and document responsibility and accountability for risk, 
default management, and other key clearing house decisions and require 
consultation or approval from relevant parties. ICC determined to make 
the proposed changes in accordance with its governance process, which 
included review by the Risk Committee and review and approval by the 
Board of the proposed changes. ICC thus continues to maintain policies 
and procedures that are reasonably designed to provide for clear and 
transparent governance

[[Page 65893]]

arrangements and specify clear and direct lines of responsibility, 
consistent with Rule 17Ad-22(e)(2)(i) and (v).\15\
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    \13\ 17 CFR 240.17Ad-22.
    \14\ 17 CFR 240.17Ad-22(e)(2)(i) and (v).
    \15\ Id.
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    Rule 17Ad-22(e)(6)(iv) \16\ requires each covered clearing agency 
to establish, implement, maintain, and enforce written policies and 
procedures reasonably designed to cover its credit exposures to its 
participants by establishing a risk-based margin system that, at a 
minimum, uses reliable sources of timely price data and uses procedures 
and sound valuation models for addressing circumstances in which 
pricing data are not readily available or reliable. As discussed above, 
the proposed changes provide incentive against Index Swaption Missed 
Submissions by incorporating Index Swaptions into ICC's summary 
assessment approach in the Rules and also provide one waiver per 
calendar year for Index Swaption Missed Submissions caused by technical 
failures. In ICC's view, the proposed changes ensure a fair and 
equitable assessment structure with respect to Index Swaptions and thus 
are appropriately designed to support and maintain the integrity and 
effectiveness of ICC's price discovery process that provides reliable 
prices, consistent with the requirements of Rule 17Ad-22(e)(6)(iv).\17\
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    \16\ 17 CFR 240.17Ad-22(e)(6)(iv).
    \17\ 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 not necessary or 
appropriate in furtherance of the purpose of the Act. The proposed rule 
change amends Rule 702(e) and Schedule 702 of the Rules to incorporate 
Index Swaptions and will apply uniformly across all market 
participants.
    Accordingly, ICC does not believe the amendments would impose any 
burden on competition not necessary or appropriate in furtherance of 
the purpose 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-2020-011 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-2020-011. 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-2020-011 and should be submitted on 
or before November 6, 2020.

    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. 2020-22739 Filed 10-15-20; 8:45 am]
BILLING CODE 8011-01-P