[Federal Register Volume 86, Number 92 (Friday, May 14, 2021)]
[Notices]
[Pages 26561-26567]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-10173]



[[Page 26561]]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91806; File No. SR-ICC-2021-005]


Self-Regulatory Organizations; ICE Clear Credit LLC; Order 
Approving Proposed Rule Change Relating to the ICC Recovery Plan and 
the ICC Wind-Down Plan

May 10, 2021.

I. Introduction

    On March 23, 2021, ICE Clear Credit LCC (``ICC'') filed with the 
Securities and Exchange Commission (``Commission''), pursuant to 
Section 19(b)(1) of the Securities and Exchange Act of 1934 (the 
``Act''),\1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
update and formalize the ICC Recovery Plan and the ICC Wind-Down Plan 
(collectively, the ``Plans''). The proposed rule change was published 
for comment in the Federal Register on April 5, 2021.\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.
---------------------------------------------------------------------------

    \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 Relating to the ICC Recovery Plan 
and the ICC Wind-Down Plan, Exchange Act Release No. 91439 (March 
30, 2021); 86 FR 17649 (April 5, 2021) (SR-ICC-2021-005) 
(``Notice'').
---------------------------------------------------------------------------

II. Description of the Proposed Rule Change

A. Background

    As a ``covered clearing agency,'' ICC is required to, among other 
things, ``establish, implement, maintain and enforce written policies 
and procedures reasonably designed to . . . maintain a sound risk 
management framework for comprehensively managing legal, credit, 
liquidity, operational, general business, investment, custody, and 
other risks that arise in or are borne by the covered clearing agency, 
which . . . includes plans for the recovery and orderly wind-down of 
the covered clearing agency necessitated by credit losses, liquidity 
shortfalls, losses from general business risk, or any other losses.'' 
\4\ The Commission has previously clarified that it believes that such 
recovery and wind-down plans are ``rules'' within the meaning of 
Exchange Act Section 19(b) and Rule 19b-4 because such plans would 
constitute changes to a stated policy, practice or interpretation of a 
covered clearing agency.\5\ The Plans have been in place at ICC for a 
number of years. However, ICC has now filed them with the Commission 
for the first time since becoming a ``covered clearing agency'' under 
the definition in Rule 17Ad-22(a)(5).\6\
---------------------------------------------------------------------------

    \4\ 17 CFR 240.17Ad-22(e)(3)(ii).
    \5\ Standards for Covered Clearing Agencies, Exchange Act 
Release No. 78961 (Sep. 28, 2016), 81 FR 70786, 70809 (Oct. 13, 
2016).
    \6\ ICC became a ``covered clearing agency'' following a change 
in the definition of the term in Rule 17Ad-22(a)(5). The previous 
definition of ``covered clearing agency'' in Rule 17Ad-22(a)(5) 
stated that ``covered clearing agency'' means a designated clearing 
agency or a clearing agency involved in activities with a more 
complex risk profile for which the Commodity Futures Trading 
Commission is not the Supervisory Agency as defined in Section 
803(8) of the Payment, Clearing and Settlement Supervision Act of 
2010 (12 U.S.C. 5461 et seq.). Under this definition, ICC was not a 
covered clearing agency. Under the revised definition, ``covered 
clearing agency'' means a registered clearing agency that provides 
the services of a central counterparty or central securities 
depository. Under the revised definition, ICC is a covered clearing 
agency. See Definition of ``Covered Clearing Agency'', Exchange Act 
Release No. 88616 (April 9, 2020), 85 FR 28853, 28854-55 (May 14, 
2020).
---------------------------------------------------------------------------

B. Recovery Plan

    The Recovery Plan describes the actions ICC takes to (i) restore 
ICC to a stable and sustainable condition in the event that it comes 
under severe stress and (ii) maintain effective arrangements for 
ensuring that losses that threaten ICC's viability as a going concern 
are allocated. The Recovery Plan consists of 14 sections, which are 
detailed below.
    First, Section 1 of the Recovery Plan introduces and summarizes key 
aspects of ICC's plan for recovery and explain its purpose. Section 1 
explains that the Recovery Plan relies on ICC's existing Rules and 
policies and procedures and describes recovery tools available to ICC.
    Section 2 of the Recovery Plan provides an overview of ICC and the 
regulation to which it is subject, including key information regarding 
ICC's ownership structure, regulatory registrations, and designations. 
Section 2 explains that ICC's sole critical operation is providing CDS 
clearing services.
    Section 3 of the Recovery Plan discusses the applicable regulatory 
requirements and obligations, including regulatory guidance ICC 
considered in writing the plan.
    Section 4 provides an overview of the key elements in any recovery 
of ICC. First, Section 4 discusses the legal entities that are material 
to ICC for the Recovery Plan. The Recovery Plan defines a material 
legal entity (``MLE'') as a legal entity that is significant to the 
activities of ICC's critical operation and/or to the delivery of a 
critical service.\7\ Section 4 explains the metrics and information 
that ICC considered to identify the MLEs. Moreover, Section 4 explains 
that there are two MLEs for the Recovery Plan: ICC itself and ICC's 
ultimate parent company, Intercontinental Exchange, Inc. (``ICE''). 
With respect to ICC, Section 4 also explains (i) the requirements for 
ICC's Clearing Participants (``CPs''), such as operational capacity, 
financial responsibility, and capital; (ii) the governance arrangements 
and committees that have a direct and indirect role in default 
management and recovery, including the roles and responsibilities of 
the Board, Risk Committee, CDS Default Committee, and Advisory 
Committee, among others; (iii) ICC's key performance metrics in respect 
of the services that it provides; and (iv) ICC's management of 
collateral, including the forms of collateral that ICC accepts to 
satisfy initial margin (``IM'') and guaranty fund (``GF'') requirements 
and the monitoring of collateral counterparties.
---------------------------------------------------------------------------

    \7\ For purposes of the Recovery Plan, critical services are 
services and operations, such as information technology support and 
operations, human resources, and facilities, which are necessary to 
continue the ICC's critical operation (CDS central clearing 
services).
---------------------------------------------------------------------------

    As further explained in Section 4, the CDS Default Committee is 
responsible for assisting ICC during the execution of certain default 
management and recovery procedures and convenes upon the declaration of 
default. The Default Committee is comprised of up to three 
representatives from eligible CPs. For a CP to be eligible to serve on 
the Default Committee, the Board or its designee, after consultation 
with the ICC Risk Committee, needs to approve the CP for participation. 
The Recovery Plan lists the CPs currently eligible for participation on 
the Default Committee. Each member of the Default Committee is deemed 
seconded to ICC and takes actions in the best of interest of ICC.
    Section 5 analyzes the critical services that are necessary to 
continue daily operations of CDS clearing services. Section 5 
categorizes the critical services by those that are provided to ICC by 
ICE and those that are provided to ICC by external third parties.
    Section 6 details the interconnections and interdependencies 
between ICC and other entities, including operational and financial 
interconnections. Section 6 explains the interconnection between ICE 
and ICC, including through services provided to ICC by ICE, such as 
accounting, human resources, audit, and facilities. Section 6 also 
details the IT systems and applications critical to

[[Page 26562]]

ICC's clearing operations, including those provided by ICE, those 
provided by external third parties, and those that ICC provides to 
itself, through in-house systems. Section 6 also explains how ICC uses 
financial entities and monitors financial entities that have multiple 
roles and relationships with ICC (such as a CP that also provides 
financial services to ICC). Finally, Section 6 analyzes ICC's 
contractual arrangements in the context of continuing services under 
those contracts during recovery.
    Section 7 of the proposed Recovery Plan describes the potential 
stress scenarios that may prevent ICC from meeting obligations and 
providing services, as well as the recovery tools available to ICC to 
address such scenarios. Section 7 of the Recovery Plan categorizes 
stress scenarios as: (i) Uncovered credit losses and/or liquidity 
shortfalls triggered by a CP or multiple CPs defaulting (``CP default 
stress scenario''), and (ii) stress triggered by general business 
risks, operational risks, or other risks that may threaten ICC's 
viability as a going concern, other than a CP default (``non-CP default 
stress scenario''). Section 7 also discusses the monitoring mechanisms 
for both categories of scenarios, such as daily monitoring of GF and 
collateral requirements and daily review of back-testing and stress-
testing results, as well as the process for notifying regulators of the 
initiation of the Recovery Plan. Finally, Appendix D further analyzes 
each scenario, including the triggering events and the specific steps 
ICC takes when the scenario occurs or appears likely to occur.
    Section 8 of the proposed Recovery Plan describes the circumstances 
in which ICC initiates the Recovery Plan and the tools that are 
available to ICC to achieve recovery. Specifically, under both the CP 
default stress scenario and the non-CP default stress scenario, Section 
8 defines the point at which ICC activates the Recovery Plan and the 
point at which ICC begins recovery. Section 8 then describes the 
recovery tools available to ICC. Appendix E further analyzes and 
summarizes these recovery tools, including whether the particular tool 
is mandatory under ICC's rules or voluntary and the specific governance 
steps that required to implement each tool. For a CP default stress 
scenario, these recovery tools include:
     Auctions to close out a defaulter's portfolio ((ICC Rule 
20-605(d)(v) and (f)(ii));
     An insurance policy covering specified losses resulting 
from a CP default (ICC Rule 802);
     CPs' obligation to replenish their GF contribution to the 
required level in the event of any use of the GF contributions of non-
defaulting CPs (ICC Rule 803(a)) and to make assessment contributions 
to the GF following a CP default and the consumption of the pre-funded 
GF (ICC Rule 803(b)), subject to a cap;
     Partial tear-up of remaining positions (ICC Rules 20-
605(f)(iii) and 809) where ICC terminates positions of non-defaulting 
CPs that exactly offset those in the defaulter's remaining portfolio; 
and
     Reduced gains distributions (``RGD'') (ICC Rule 808) for 
up to five consecutive business days, allowing ICC to reduce payment of 
variation, or mark-to-market, gains that would otherwise be owed to 
CPs, as ICC attempts a secondary auction or conducts a partial tear-up.
    Section 8 also discusses the tools that are available to ICC to 
address a situation where ICC experiences liquidity shortfalls 
triggered by a default of one or more CPs and has insufficient liquid 
resources in the proper currency to meet payments obligations. These 
tools include entering into transactions to exchange certain sovereign 
debt securities for cash or to exchange U.S. dollar cash for Euro cash 
under one of ICC's committed repurchase or committed foreign exchange 
agreements, respectively.
    Finally, Section 8 discusses the tools available to ICC in the 
event that ICC experiences severe stress triggered by a non-CP default 
stress scenario, including the application of resources from ICC and 
contributions from CPs to address certain investment and custodial 
losses. ICC Rule 811 provides a mechanism for allocating investment 
losses and custodial losses as between ICC and CPs, with ICC being 
responsible for a first loss position up to the amount of defined 
resources and with CPs being responsible for the remaining loss, in 
proportion to and capped at their margin and GF contributions. 
Additional tools to address non-CP default stress scenarios include 
insurance coverage, seeking additional capital through the ICE group, 
renegotiating certain agreements, and reducing personnel and other 
expenses.
    Section 9 of the Recovery Plan describes the governance 
arrangements that provide oversight and direction in respect of the 
Recovery Plan, including design, implementation, testing, review, and 
ongoing maintenance. Specifically, overall responsibility for the 
Recovery Plan rests with the ICC Board. The ICC Board is responsible 
for reviewing and approving the Recovery Plan. The ICC Board has, in 
turn, delegated to the ICC President responsibility for implementing 
the Recovery Plan, as well as considering and developing any needed 
amendments or modifications to the Recovery Plan over time, and the ICC 
President is accountable to the ICC Board with respect to such matters. 
Accordingly, ICC management prepared the Recovery Plan under the 
direction of the ICC President.
    Section 9 also describes how ICC considers feedback from CPs and 
customers in developing the Recovery Plan, including through detailed 
consultation with CPs as to overall design and implementation. 
Moreover, Section 9 describes how ICC considers the interests of CPs 
and customers on an ongoing basis, including through the ICC Risk 
Committee and CP representation on the ICC Board.
    Finally, Section 9 describes the process for reviewing and 
approving the Recovery Plan, including changes to the Recovery Plan and 
testing. ICC Management, the ICC Risk Committee, and the ICC Board are 
responsible for reviewing and approving the Recovery Plan. Annually, 
the ICC General Counsel coordinates with ICC management to review and 
update the Recovery Plan. Moreover, ICC's General Counsel coordinates 
with ICC management to revise the Recovery Plan promptly when warranted 
by material changes to ICC's Rules, policies, procedures, or other 
circumstances. The ICC Risk Committee reviews the annual update and 
ongoing material amendments to the Recovery Plan and make a 
recommendation to the ICC Board with respect to Board approval. The ICC 
Board considers the Risk Committee's recommendation and is ultimately 
responsible for approval of revisions to the Recovery Plan. ICC 
notifies its regulatory authorities of changes to the Recovery Plan. 
Section 9 notes that ICC tests the Recovery Plan at least annually, as 
part of its annual default management drills, and ICC management 
provides the results of such testing, as well as any changes it 
recommends due to such testing, to the ICC Board and Risk Committee.
    Section 10 of the Recovery Plan analyzes the financial resources 
that ICC maintains for recovery in compliance with relevant 
regulations, including the procedures it follows in case of any 
shortfall. This section also discusses the timing for implementing 
ICC's recovery tools and ICC's projected estimated recovery and wind-
down costs. Specifically, Section 10 provides that ICC maintains 
capital in accordance

[[Page 26563]]

with SEC Rule 17Ad-22(e)(15) \8\ as well as CFTC requirements and, on a 
voluntary basis, calculates what its regulatory capital requirement 
would be if ICC was subject to EU-based clearing house regulatory 
capital requirements. ICC maintains regulatory capital in an amount at 
least equal to the highest of these three requirements (Commission, 
CFTC, and EU). Section 10 provides that currently the EU regulatory 
capital requirement results in the highest capital requirement and 
therefore ICC maintains regulatory capital in accordance with this 
requirement, which results in ICC maintaining regulatory capital in an 
amount materially more than the amounts required by SEC Rule 17Ad-
22(e)(15) \9\ or CFTC requirements. Section 10 then describes how ICC 
maintains this regulatory capital as liquid assets funded by equity and 
how ICC could raise additional capital from its parent company in the 
event of any shortfall in its regulatory capital. Finally, Section 10 
describes the estimated costs and time period for implementing the 
Recovery Plan and how ICC estimates these figures, and demonstrates how 
ICC's regulatory capital exceeds these costs.
---------------------------------------------------------------------------

    \8\ 17 CFR 240.17Ad-22(e)(15).
    \9\ 17 CFR 240.17Ad-22(e)(15).
---------------------------------------------------------------------------

    The remaining sections provide additional relevant information for 
the Recovery Plan. Section 11 provides financial information relevant 
to ICC and ICE. Section 12 sets forth key systems used by ICC to 
generate reports to monitor and support clearing operations. Section 13 
consists of the appendices to the Recovery Plan, including a glossary, 
diagrams and charts of clearing processes and financial service 
providers, and analyses related to different stress scenarios and 
recovery tools. Section 14 is an index of exhibits to the Recovery 
Plan.

C. Wind-Down Plan

    The Wind-Down Plan establishes how ICC could be wound-down in an 
orderly manner. ICC only invokes the Wind-Down Plan where recovery 
actions in the proposed Recovery Plan fail to preserve ICC's viability 
as a going concern (and therefore recovery is not possible) and 
resolution is not triggered. ICC could also use the Wind-Down Plan 
where ICC makes a business decision to exit all clearing activities. 
The proposed Wind-Down Plan is divided into 12 sections, which are 
detailed below.
    Similar to the proposed Recovery Plan, the Wind-Down Plan provides 
necessary background and context regarding ICC for wind-down planning. 
Section 1 of the Wind-Down Plan introduces the plan, summarizes key 
aspects of the Wind-Down Plan, and explains the plan's purpose. Section 
2 provides an overview of ICC and the regulation to which it is 
subject, including key information regarding ICC's ownership structure 
and regulatory registrations and designations. Section 3 describes the 
regulatory requirements and obligations applicable to ICC, including 
regulatory guidance that ICC considered in writing the plan.
    Section 4 of the Wind-Down Plan describes ICC's CPs and the 
governance arrangements that are relevant to wind-down, including the 
roles and responsibilities of the Board and Risk Committee. If ICC's 
recovery efforts fail, the ICC Board determines whether to implement 
the Wind-Down Plan and determines which options to use to achieve an 
orderly wind-down, taking into consideration the interests of CPs, 
through both the recommendations of the Risk Committee and the 
participation of CPs on the Board itself. ICC also regularly takes into 
account feedback of customers of CPs, both through its Advisory 
Committee and through direct communications with representatives of 
customers. Finally, Section 4 describes the ICC committees involved in 
the wind-down process, with the Risk Committee the principal committee 
involved in the wind-down process.
    Next, Section 5 of the Wind-Down Plan describes the potential 
stress scenarios that could prevent ICC from meeting obligations and 
providing services, resulting in wind-down. Similar to the Recovery 
Plan, Section 5 categorizes the stress scenarios as: (i) CP default 
stress scenarios, and (ii) severe stress triggered by general business 
risks, operational risks, or other risks that may threaten ICC's 
viability as a going concern, other than a CP default (``non-CP default 
severe stress scenarios''). Appendix D further analyzes each scenario, 
including, among other things, the events triggering wind-down under 
each scenario. These triggering events fall into two broad categories: 
(i) A critical reduction in market participation, and (ii) a critical 
reduction in ICC's financial resources below regulatory capital 
requirements. With respect to a business decision to wind-down, the 
triggering event is the Board's decision to exit the business.
    Section 6 examines ICC's options for wind-down, how ICC executes 
those options, and the potential obstacles to an orderly wind-down. ICC 
has three options for wind-down: (i) A transfer of CDS clearing 
activities from ICC to an alternative clearinghouse; (ii) the sale of 
ICC to another entity; or (iii) the termination of open positions. 
Although Section 6 presents the three options as alternatives, it also 
notes that the options could be used in combination with each other. 
Section 6 also notes that while the selection of the wind-down option 
depends on the circumstances, ICC prefers a transfer or sale and 
considers termination only if a transfer or sale cannot be achieved. 
Moreover, ICC could use any these options in the event ICC makes a 
business decision to exit all clearing activities.
    To execute these options, the ICC Board first makes a decision to 
wind-down, and as noted above, that is only in the event that recovery 
fails to preserve ICC's viability as a going concern and resolution is 
not triggered. Section 6 notes that before the Board makes a wind-down 
decision, ICC first consults with, among others, market participants, 
potential alternative clearing houses, and regulators. Moreover, once 
the ICC Board makes the decision to wind-down, ICC informs both the 
CFTC and the Commission.
    After the ICC Board agrees in principle to a wind-down, ICC staff 
undertakes an analysis under the direction of the Board and may consult 
with CPs, market participants, alternative clearing houses, swap 
execution platforms, and regulators with respect to the options and 
approaches to wind-down, to gain their input and relevant information 
for consideration by the ICC Board. The ICC Board ultimately decides 
which of the options to use. Section 6 notes that, to the extent 
possible, ICC's primary determinant of feasibility for wind-down 
options is the ability to continue providing centralized clearing of 
CDS with as little disruption as possible. If continuation is not 
feasible, the primary determinant is the ability to discontinue CDS 
clearing services in an orderly manner with minimum negative impact to 
the marketplace and stakeholders.
    Section 6 sets forth the plans that ICC uses for executing each 
wind-down option, including the approach, timeline, potential 
impediments, and other considerations. The Board considers and approves 
the execution plan prior to implementation. Where the Board makes a 
business decision to wind-down, ICC executes wind-down using one or 
more of the wind-down options listed above, with an execution plan 
based on those provided in the Wind-Down Plan.
    Finally, Section 6 discusses the potential obstacles to executing 
an orderly wind-down. These obstacles

[[Page 26564]]

include, among others: Staff retention; the ability to continue to 
receive key services from affiliates or third party vendors; risk of 
litigation; and finding an appropriate buyer.
    Section 7 describes the interconnections and interdependencies 
between ICC and other entities. Similar to the Recovery Plan, Section 7 
analyzes the legal entities that are material to ICC for the Wind-Down 
Plan, the critical services provided to ICC by ICE or external third 
parties, and ICC's operational and financial interconnections. This 
analysis identifies ICE as ICC's sole MLE for the purpose of wind-down 
and explains the interconnection between ICE and ICC, including through 
services provided to ICC by ICE, such as accounting, human resources, 
audit, and facilities.
    Again, similar to the Recovery Plan, Section 7 also (i) details the 
critical services that are necessary to continue daily operations of 
CDS clearing services; (ii) categorizes the critical services by those 
that are provided to ICC by ICE and those that are provided to ICC by 
external third parties; (iii) describes the IT systems and applications 
critical to ICC's clearing operations; and (iv) explains how ICC uses 
financial service providers and how ICC monitors entities that have 
multiple roles and relationships with ICC (such as a CP that also 
provides financial services to ICC).
    Section 8 of the Wind-Down Plan analyzes ICC's contractual 
arrangements in the context of continuing services during wind-down.
    Section 9 of the Wind-Down Plan analyzes the financial resources 
maintained by ICC to support wind-down in compliance with relevant 
regulations, including the procedures to follow in case of any 
shortfall. This section also discusses the timing for executing the 
wind-down options and ICC's projected estimated recovery and wind-down 
costs. As with the Recovery Plan, this section of the Wind-Down Plan 
notes that ICC maintains capital in accordance with SEC Rule 17Ad-
22(e)(15) \10\ as well as CFTC requirements and, on a voluntary basis, 
calculates what its regulatory capital requirement would be if ICC was 
subject to EU-based clearing house regulatory capital requirements. ICC 
maintains regulatory capital in an amount at least equal to the highest 
of these three requirements (Commission, CFTC, and EU). Section 9 
provides that currently the EU regulatory capital requirement results 
in the highest capital requirement and therefore ICC maintains 
regulatory capital in accordance with this requirement, which results 
in ICC maintaining regulatory capital in an amount materially more than 
the amounts required by SEC Rule 17Ad-22(e)(15) \11\ or CFTC 
requirements. Section 9 then describes how ICC maintains this 
regulatory capital as liquid assets funded by equity and how ICC could 
raise additional capital from its parent company in the event of any 
shortfall in its regulatory capital. Section 9 describes the estimated 
costs and time period for implementing the Wind-Down Plan and how ICC 
estimates these figures, and demonstrates how ICC's regulatory capital 
exceeds these costs.
---------------------------------------------------------------------------

    \10\ 17 CFR 240.17Ad-22(e)(15).
    \11\ 17 CFR 240.17Ad-22(e)(15).
---------------------------------------------------------------------------

    Section 10 of the Wind-Down Plan describes the governance 
arrangements that provide oversight and direction in respect of the 
Wind-Down Plan, including design, implementation, testing, review, and 
on-going maintenance. Specifically, overall responsibility for the 
Wind-Down Plan rests with the ICC Board. The ICC Board reviews and 
approves the Wind-Down Plan. As explained in Section 10, the ICC Board 
has delegated to the ICC President responsibility for implementing the 
Wind-Down Plan, as well as considering and developing any needed 
amendments or modifications to the Wind-Down Plan over time, and the 
ICC President is accountable to the ICC Board with respect to such 
matters. Accordingly, ICC management prepared the Wind-Down Plan under 
the direction of the ICC President.
    Section 10 also notes that in developing and approving the Wind-
Down Plan, ICC management and the ICC Board consider the legitimate 
interests of CPs, customers of CPs, and other relevant stakeholders, 
and that ICC considers the legitimate interests of such stakeholders in 
the execution and implementation of the Wind-Down Plan.
    Section 10 describes the process for reviewing and approving the 
Wind-Down Plan, including changes to the Wind-Down Plan and testing. 
ICC Management, the ICC Risk Committee, and the ICC Board review and 
approve the Wind-Down Plan. Annually, the ICC General Counsel 
coordinates with ICC management to review and update the Wind-Down 
Plan. Moreover, ICC's General Counsel coordinates with ICC management 
to revise the Wind-Down Plan promptly when warranted by material 
changes to ICC's Rules, policies, procedures, or other circumstances. 
The ICC Risk Committee reviews the annual update and ongoing material 
amendments to the Wind-Down Plan and makes a recommendation to the ICC 
Board with respect to Board approval. The ICC Board considers the Risk 
Committee's recommendation and is ultimately responsible for approval 
of revisions to the Wind-Down Plan. ICC notifies its regulatory 
authorities of changes to the Wind-Down Plan. Section 10 notes that ICC 
tests the Recovery Plan at least annually, as part of its annual 
default management drills, and ICC management provides the results of 
such testing, as well as any changes it recommends due to such testing, 
to the ICC Board and Risk Committee.
    Finally, Section 10 describes the governance for implementation of 
the Wind-Down Plan. As discussed elsewhere in the Wind-Down Plan, the 
ICC Board decides whether to wind-down and selects the option to use to 
achieve an orderly wind-down. ICC informs both the Commission and the 
CFTC of the decision to wind-down. The ICC President is responsible for 
implementing and overseeing the execution of the wind-down option 
chosen by the ICC Board.
    The remaining sections provide additional relevant information for 
the Wind-Down Plan. Section 11 contains appendices, including a 
glossary, diagrams and charts of both clearing processes and financial 
service providers, and analyses related to different stress scenarios. 
Lastly, Section 12 is an index of exhibits to the Wind-Down Plan.

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.\12\ After careful review, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act and 
the rules and regulations thereunder applicable to ICC. In particular, 
the Commission finds that the proposed rule change is consistent with 
Section 17A(b)(3)(F) of the Act; \13\ Rules 17Ad-22(e)(2)(i), (iii), 
and (v); \14\ Rule 17Ad-22(e)(3)(ii); \15\ and Rules 17Ad-22(e)(15)(i) 
and (ii).\16\
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78s(b)(2)(C).
    \13\ 15 U.S.C. 78q-1(b)(3)(F).
    \14\ 17 CFR 240.17Ad-22(e)(2)(i), (iii), and (v).
    \15\ 17 CFR 240.17Ad-22(e)(3)(ii).
    \16\ 17 CFR 240.17Ad-22(e)(15)(i) and (ii).

---------------------------------------------------------------------------

[[Page 26565]]

A. Consistency With Section 17A(b)(3)(F) of the Act

    Section 17A(b)(3)(F) 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.\17\
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    As discussed in greater detail below, the Commission believes that 
the Recovery Plan, generally, is designed to help ICC promote the 
prompt and accurate clearance and settlement of securities transactions 
and assure the safeguarding of securities and funds which are in the 
custody or control of ICC or for which it is responsible, by providing 
a roadmap for actions it may employ to monitor and manage its risks, 
and, as needed, to stabilize its financial condition in the event those 
risks materialize. Specifically, as described above, the Recovery Plan 
establishes triggers for the potential application of the recovery 
tools described in the Recovery Plan. The Commission believes that 
establishing such triggers alongside a list of available recovery tools 
helps ICC more promptly determine when and how it may need to manage a 
significant stress event, and, as needed, stabilize its financial 
condition.
    Moreover, as described above, the Recovery Plan specifies the steps 
that ICC takes in recovery and the governance framework applicable to 
taking such steps. It analyzes the anticipated impact of the recovery 
tools, the incentives created by such tools, and the risks associated 
with using such tools. It also explains how the tools are transparent, 
measurable, manageable, and controllable. The Commission believes that 
by identifying the steps ICC takes and the tools it uses to bring about 
recovery in the face of losses, the Recovery Plan increases the 
likelihood that recovery is orderly, efficient, and successful. By 
increasing the likelihood of an orderly, efficient, and successful 
recovery, the Commission believes that the Recovery Plan enhances ICC's 
ability to maintain the continuity of its CDS clearing service during, 
through, and following periods of extreme stress giving rise to the 
need for recovery, thereby promoting the prompt and accurate settlement 
of CDS transactions. The Commission also believes that the Recovery 
Plan helps assure the safeguarding of securities or funds in the 
custody or control of ICC by reducing the likelihood of a disorderly or 
unsuccessful recovery that could disrupt access to such securities or 
funds.
    Further, the Commission believes that the Wind-Down Plan, 
generally, is designed to help ICC to promote the prompt and accurate 
clearance and settlement of securities transactions and to assure the 
safeguarding of securities and funds which are in the custody or 
control of ICC or for which it is responsible by providing a roadmap to 
wind-down designed to ensure the availability of ICC's services to the 
marketplace, while reducing disruption to the operations of CPs and 
financial markets. For example, as described above, the Wind-Down Plan 
provides for the wind-down of ICC's operations as well as addressing 
transfer of membership and critical services in the case that recovery 
tools fail to return ICC to financial viability. Moreover, under the 
Wind-Down Plan, the ICC Board seeks a wind-down option that allows the 
continuance of centralized clearing of CDS with as little disruption as 
possible. Further to that end, the Wind-Down Plan notes that while the 
selection of the wind-down option depends on the circumstances, ICC 
prefers a transfer or sale and considers termination only if a transfer 
or sale cannot be achieved. By establishing the Wind-Down Plan to 
enable continuity in ICC's critical services and membership in an 
orderly manner while winding down its services, the Commission believes 
that the proposed rule change promotes the prompt and accurate 
clearance and settlement of securities transactions and assures the 
safeguarding of securities and funds in the custody or control of ICC 
or for which it is responsible.
    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 or control or for which it is responsible, 
consistent with Section 17A(b)(3)(F) of the Act.\18\
---------------------------------------------------------------------------

    \18\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

B. Consistency With Rules 17Ad-22(e)(2)(i), (iii), and (v)

    Rules 17Ad-22(e)(2)(i), (iii), and (v) require that ICC establish, 
implement, maintain and enforce written policies and procedures 
reasonably designed to provide for governance arrangements that are 
clear and transparent; that support the public interest requirements in 
17A of the Act \19\ applicable to clearing agencies, and the objectives 
of owners and participants; and that specify clear and direct lines of 
responsibility.\20\
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78q-1.
    \20\ 17 CFR 240.17Ad-22(e)(2)(i), (iii), and (v).
---------------------------------------------------------------------------

    As described above, the Plans are designed to identify clear lines 
of responsibility concerning the recovery and wind-down of ICC 
including (i) the ongoing development of the Plans; (ii) the ongoing 
maintenance and testing of the Plans; (iii) reviews and approvals of 
the Plans and updates to the Plans; and (iv) the functioning and 
implementation of the Plans. As described above, the ICC General 
Counsel coordinates with ICC management to review and update the Plans 
annually, or more frequently when warranted by material changes to 
ICC's Rules, policies, procedures, or other circumstances. The ICC Risk 
Committee reviews the annual update and ongoing material amendments to 
the Plans and makes a recommendation to the ICC Board with respect to 
Board approval. The ICC Board considers the Risk Committee's 
recommendation and is responsible for approving revisions to the Plans. 
Moreover, the Plans describe the governance for implementation of 
recovery and wind-down, including the parties responsible for execution 
of recovery tools and wind-down options. The Plans also explain how ICC 
receives input from relevant stakeholders, including CPs through the 
ICC Risk Committee and CP representation on the ICC Board, and 
customers of CPs through ICC's Advisory Committee and direct 
communications with customer representatives.
    In considering the above, the Commission believes that the Plans 
help contribute to establishing, implementing, maintaining, and 
enforcing written policies and procedures reasonably designed to 
provide for governance arrangements that are clear and transparent by 
specifying lines of control and responsibility. The Commission also 
believes that the Plans help contribute to establishing, implementing, 
maintaining, and enforcing written policies and procedures reasonably 
designed to provide for governance arrangements that support the public 
interest requirements in Section 17A of the Act \21\ applicable to 
clearing agencies, and the objectives of owners and participants, 
because they specify the process ICC takes to receive input from 
various ICC stakeholders. In addition, the Commission believes that the 
Plans help contribute to

[[Page 26566]]

establishing, implementing, maintaining, and enforcing written policies 
and procedures reasonably designed to provide for governance 
arrangements that specify clear and direct lines of responsibility 
because they identify who is responsible for the ongoing development, 
maintenance, reviews, approval, functioning, and implementation of the 
Plans.
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

    Therefore, the Commission finds that the proposed rule change is 
consistent with Rules 17Ad-22(e)(2)(i), (iii), and (v).\22\
---------------------------------------------------------------------------

    \22\ 17 CFR 240.17Ad-22(e)(2)(i), (iii), and (v).
---------------------------------------------------------------------------

C. Consistency With Rule 17Ad-22(e)(3)(ii)

    Rule 17Ad-22(e)(3)(ii) requires that ICC establish, implement, 
maintain, and enforce written policies and procedures reasonably 
designed to maintain a sound risk management framework for 
comprehensively managing legal, credit, liquidity, operational, general 
business, investment, custody, and other risks that arise in or are 
borne by ICC, which includes plans for the recovery and orderly wind-
down of ICC necessitated by credit losses, liquidity shortfalls, losses 
from general business risk, or any other losses.\23\
---------------------------------------------------------------------------

    \23\ 17 CFR 240.17Ad-22(e)(3)(ii).
---------------------------------------------------------------------------

    As described above, the Recovery Plan provides a plan for ICC's 
recovery necessitated by credit losses, liquidity shortfalls, losses 
from general business risk, or any other losses by defining the 
recovery tools that ICC may use to address stress scenarios that could 
eventually prevent ICC from being able to provide its critical services 
as a going concern. For example, the Recovery Plan describes (i) the 
potential stress scenarios that may prevent ICC from being able to meet 
obligations and provide services; (ii) the mechanisms ICC uses to 
monitor for the occurrence of such scenarios; and (iii) the tools ICC 
uses to recover from those stress scenarios, including when and how ICC 
uses those tools. Moreover, the Recovery Plan discusses the tools that 
are available to ICC to address a situation where ICC experiences 
liquidity shortfalls triggered by a default of one or more CPs and has 
insufficient liquid resources in the proper currency to meet payments 
obligations. Therefore, the Commission believes the Recovery Plan helps 
ICC establish, implement, maintain, and enforce written policies and 
procedures reasonably designed to maintain a sound risk management 
framework for comprehensively managing legal, credit, liquidity, 
operational, general business, investment, custody, and other risks 
that arise in or are borne by ICC, which includes a plan for the 
recovery of ICC necessitated by credit losses, liquidity shortfalls, 
losses from general business risk, or any other losses.
    As discussed above, the Wind-Down Plan provides a plan for orderly 
wind-down of ICC in the event the actions described in the Recovery 
Plan fail to preserve ICC's viability as a going concern and resolution 
is not triggered. Once triggered, the Wind-Down Plan is designed to 
maintain continued access to ICC's critical services and minimize 
market impacts while ICC seeks to ultimately wind-down its services. 
Moreover, the Wind-Down Plan provides options for wind-down and 
describes plans for executing those options, as well as the 
responsibilities of various groups at ICC. The ICC Board seeks a wind-
down option that allows the continuance of centralized clearing of CDS 
with as little disruption as possible and gives preference to a 
transfer or sale, to minimize the disruption to the marketplace and 
ICC's CDS clearing service. Therefore, the Commission believes that the 
Wind-Down Plan helps ICC establish, implement, maintain, and enforce 
written policies and procedures reasonably designed to maintain a sound 
risk management framework for comprehensively managing legal, credit, 
liquidity, operational, general business, investment, custody, and 
other risks that arise in or are borne by ICC, which includes a plan 
for the orderly wind-down of ICC necessitated by credit losses, 
liquidity shortfalls, losses from general business risk, or any other 
losses.
    For these reasons, the Commission finds that the proposed rule 
change is consistent with Rule 17Ad-22(e)(3)(ii).\24\
---------------------------------------------------------------------------

    \24\ 17 CFR 240.17Ad-22(e)(3)(ii).
---------------------------------------------------------------------------

D. Consistency With Rules 17Ad-22(e)(15)(i) and (ii)

    Rules 17Ad-22(e)(15)(i) and (ii) \25\ require that ICC establish, 
implement, maintain, and enforce written policies and procedures 
reasonably designed to identify, monitor, and manage ICC's general 
business risk and hold sufficient liquid net assets funded by equity to 
cover potential general business losses so that ICC can continue 
operations and services as a going concern if those losses materialize, 
including by (i) determining the amount of liquid net assets funded by 
equity based upon its general business risk profile and the length of 
time required to achieve a recovery or orderly wind-down, as 
appropriate, of its critical operations and services if such action is 
taken and (ii) holding liquid net assets funded by equity equal to the 
greater of either (x) six months of ICC's current operating expenses, 
or (y) the amount determined by the board of directors to be sufficient 
to ensure a recovery or orderly wind-down of critical operations and 
services of ICC, as contemplated by the plans established under Rule 
17Ad-22(e)(3)(ii).\26\
---------------------------------------------------------------------------

    \25\ 17 CFR 240.17Ad-22(e)(15)(i) and (ii).
    \26\ 17 CFR 240.17Ad-22(e)(3)(ii).
---------------------------------------------------------------------------

    As discussed above, both of the Plans describe how ICC maintains 
capital in accordance with SEC Rule 17Ad-22(e)(15).\27\ ICC does so by 
maintaining regulatory capital as if it was subject to EU-based 
clearing house regulatory capital requirements, which results in ICC 
maintaining an amount of capital exceeding what is required by Rule 
17Ad-22(e)(15).\28\ Moreover, the Plans describe how ICC ensures that 
it maintains this amount, including through monthly calculations of 
ICC's net assets and its regulatory capital requirements. The Plans 
also describe how ICC maintains this regulatory capital as liquid 
assets funded by equity and how ICC could raise additional capital from 
its parent company in the event of any shortfall in its regulatory 
capital. Finally, the Plans describes the estimated costs and time 
period for implementing recovery and wind-down and how ICC estimates 
these figures, and demonstrate how ICC's regulatory capital exceeds 
these costs.
---------------------------------------------------------------------------

    \27\ 17 CFR 240.17Ad-22(e)(15).
    \28\ 17 CFR 240.17Ad-22(e)(15).
---------------------------------------------------------------------------

    Therefore, the Commission finds that the proposed rule change is 
consistent with Rules 17Ad-22(e)(15)(i) and (ii).\29\
---------------------------------------------------------------------------

    \29\ 17 CFR 240.17Ad-22(e)(15)(i) and (ii).
---------------------------------------------------------------------------

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,\30\ Rules 17Ad-22(e)(2)(i), (iii), and (v),\31\ Rule 17Ad-
22(e)(3)(ii),\32\ and Rules 17Ad-22(e)(15)(i) and (ii).\33\
---------------------------------------------------------------------------

    \30\ 15 U.S.C. 78q-1(b)(3)(F).
    \31\ 17 CFR 240.17Ad-22(e)(2)(i), (iii), and (v).
    \32\ 17 CFR 240.17Ad-22(e)(3)(ii).
    \33\ 17 CFR 240.17Ad-22(e)(15)(i) and (ii).
---------------------------------------------------------------------------

    It is therefore ordered pursuant to Section 19(b)(2) of the Act 
\34\ that the proposed rule change (SR-ICC-2021-005) be, and hereby is, 
approved.\35\
---------------------------------------------------------------------------

    \34\ 15 U.S.C. 78s(b)(2).
    \35\ 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).


[[Page 26567]]


---------------------------------------------------------------------------

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\36\
---------------------------------------------------------------------------

    \36\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-10173 Filed 5-13-21; 8:45 am]
BILLING CODE 8011-01-P