[Federal Register Volume 86, Number 95 (Wednesday, May 19, 2021)]
[Notices]
[Pages 27136-27138]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-10498]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91894; File No. SR-ICC-2021-007]


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

May 13, 2021.

I. Introduction

    On March 29, 2021, 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 (``Act''),\1\ 
and Rule 19b-4 thereunder,\2\ a proposed rule change to revise the ICC 
Treasury Operations Policies and Procedures (the ``Treasury Policy''). 
The proposed rule change was published for comment in the Federal 
Register on April 13, 2021.\3\ The Commission did not receive comments 
on 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 Relating to the ICC's Treasury 
Operations Policies and Procedures, Exchange Act Release No. 91489 
(April 7, 2021), 86 FR 19311 (April 13, 2021) (SR-ICC-2021-007) 
(``Notice'').
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II. Description of the Proposed Rule Change

    ICC is proposing amendments to its Treasury Policy to make certain 
clarifications and updates with respect to governance arrangements and 
collateral asset haircuts, as well as minor clean-up changes. The 
proposed amendments are summarized below.\4\
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    \4\ The following description of the proposed rule change is 
substantially excerpted from the Notice.
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    ICC proposes to amend the ``Revision History'' section of the 
Treasury Policy. The proposed changes would remove an incorrect 
statement that the document's revision history is limited to the last 
three years. The proposed changes would also memorialize ICC's review 
and approval process of the Treasury Policy document, which consists of 
review by the ICC Risk Committee and review and approval by the ICC 
Board of Managers (the ``Board'') at least annually. Additionally, ICC 
would update the revision history table to include the most recent 
changes to the document.
    ICC also proposes updates and clarification changes to the 
``Collateral Assets Risk Management Framework'' appendix to the 
Treasury Policy (``Appendix 6''). Under the Treasury Policy, ICC 
accounts for the risk associated with fluctuations in the value of 
collateral assets by discounting, or applying ``haircuts'' to, such 
assets based on the risk measures and risk factors set forth in 
Appendix 6. The ICC Risk Department (the ``Risk Department'') 
calculates such haircuts for various collateral assets as described in 
Appendix 6 on an ongoing basis. ICC proposes to change Appendix 6 to 
update the measure of daily changes for collateral assets such as 
sovereign debt. Specifically, the proposed changes would amend and 
remove certain language that differentiates between yield rates greater 
than and less than or equal to one basis point in respect of sovereign 
debt collateral haircuts. ICC represents that such amendments do not 
represent a change to the methodology and would provide a more 
generalized and consistent collateral risk management framework for 
sovereign debt.\5\ ICC proposes additional clarifications, including 
with respect to time series used for determining sovereign debt 
collateral haircuts and a formula regarding a risk-factor specific 
haircut. ICC also proposes a grammatical update to change a reference 
to ``haircuts'' from plural to singular.
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    \5\ See Notice, 86 FR at 19311.
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    ICC further proposes additional detail on the process of reviewing 
and updating collateral asset haircuts. Appendix 6 currently states 
that such haircuts are reviewed monthly. ICC proposes to clarify that 
the Risk Department will establish haircuts for the respective 
collateral asset types within measured intervals, and review them at 
least monthly to determine the need for updates. ICC also proposes to 
specify that the Risk Department may use discretion to update 
collateral asset haircuts during periods of extreme market stress, and 
specifically during periods when collateral assets appreciate in 
response to central banks' policy implementations, as a temporary means 
to reduce procyclical impacts.

III. 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. For the reasons given below, the Commission finds that 
the proposed rule change is consistent with Section 17A(b)(3)(F) of the 
Act \6\ and Rules 17Ad-22(e)(2)(i) and (v), (e)(3)(i), and (e)(5) 
thereunder.\7\
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    \6\ 15 U.S.C. 78q-1(b)(3)(F).
    \7\ 17 CFR 240.17Ad-22(e)(2)(i) and (v), (e)(3)(i), and (e)(5).
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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 and to 
assure the safeguarding of securities and funds which are in the 
custody or control of ICC or for which it is responsible.\8\
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    \8\ 15 U.S.C. 78q-1(b)(3)(F).
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    As described above, the proposed rule change would update and 
clarify the revision history of the Treasury Policy document and 
memorialize the governance arrangements for its review and approval. 
The Commission believes that these proposed changes should help ICC 
maintain a complete and transparent history of changes to the Treasury 
Policy and ensure that the Treasury Policy is reviewed and approved at 
least annually to support ICC's ongoing treasury functions, including 
collateral asset risk

[[Page 27137]]

management. The Commission believes these aspects of the proposed rule 
change should facilitate ICC's ability to maintain CDS clearing 
services that are supported by, and consistent with, clear and 
transparent governance arrangements that comply with internal Treasury 
policies and procedures, which should, in turn, help ICC continue to 
promote the prompt and accurate settlement of CDS transactions.
    ICC would also update and clarify its collateral assets risk 
management framework in Appendix 6 of the Treasury Policy by changing 
certain risk measures for calculating collateral asset haircuts. 
Specifically, as described above, the proposed rule change would update 
the measure of daily changes for collateral assets such as sovereign 
debt, including with respect to time series used for sovereign debt 
collateral haircuts and a formula regarding a risk-factor specific 
haircut. ICC would also change a reference to ``haircuts'' from plural 
to singular. Further, ICC also proposes additional detail in Appendix 6 
on the process and frequency of reviewing and updating collateral asset 
haircuts. ICC proposes to clarify that the Risk Department will 
establish haircuts for the respective collateral asset types within 
measured intervals, and review them at least monthly to determine the 
need for updates. ICC also proposes to specify that the Risk Department 
may use discretion to update collateral asset haircuts during periods 
of extreme market stress to reduce procyclicality.
    Taken together, the proposed changes to Appendix 6 should enhance 
the accuracy of ICC's collateral asset haircuts and help ICC to ensure 
that, even in stressed market conditions, it will continue to collect 
sufficient collateral from its clearing participants and that such 
collateral could be liquidated in a timely manner to meet its financial 
obligations as a central counterparty while also limiting the 
likelihood of procyclical impacts from haircuts as issuer 
creditworthiness deteriorates and haircuts increase. Moreover, these 
proposed changes should enhance ICC's ability to manage the credit, 
liquidity, and market risks it faces from collateral posted by its 
participants. Accordingly, the Commission believes that ICC's proposed 
changes to Appendix 6 should help ICC to continue providing prompt and 
accurate settlement of CDS transactions and to enhance ICC's ability to 
safeguard securities and funds which are in its custody or control or 
for which it is responsible.
    For these reasons, the Commission finds that the proposed rule 
change is consistent with the Section 17A(b)(3)(F) of the Act.\9\
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    \9\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rule 17Ad-22(e)(2)(i) and (v)

    Rules 17Ad-22(e)(2)(i) 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 and specify clear and direct lines of 
responsibility.\10\
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    \10\ 17 CFR 240.17Ad-22(e)(2)(i) and (v).
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    As noted above, the proposed rule change would enhance the 
governance arrangements for reviewing and approving the Treasury Policy 
document generally, including clear governance arrangements for 
reviewing and updating haircuts under the collateral asset risk 
management framework in Appendix 6. Specifically, the proposed rule 
change provides that the Treasury Policy document is subject to review 
by the Risk Committee and review and approval by the Board at least 
annually. Further, the proposed rule change would clarify and update 
the current statement in Appendix 6 that collateral asset haircuts are 
reviewed monthly, by specifying that the Risk Committee will establish 
haircuts for the respective collateral asset types within measured 
intervals, and review them at least monthly to determine the need for 
updates. The proposed rule change would also clarify that the Risk 
Committee may exercise discretion to review and update haircut values 
more frequently, if it deems necessary, and may make incremental, 
temporary adjustments to existing haircuts in response to specific 
market conditions. The Commission therefore believes that these aspects 
of the proposed rule change will maintain ICC's Treasury operations 
policies and procedures in a manner reasonably designed to provide for 
governance arrangements that are clear and transparent and specify 
clear and direct lines of responsibility.
    For these reasons, the Commission finds that the proposed rule 
change is consistent with Rules 17Ad-22(e)(2)(i) and (v).\11\
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    \11\ 17 CFR 240.17Ad-22(e)(2)(i) and (v).
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C. Consistency With Rule 17Ad-22(e)(3)(i)

    Rule 17Ad-22(e)(3)(i) requires, among other things, that ICC 
establish, implement, maintain, and enforce written policies and 
procedures reasonably designed to, as applicable, maintain a sound risk 
management framework that identifies, measures, monitors, and manages 
the range of risks that it faces.\12\
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    \12\ 17 CFR 240.17Ad-22(e)(3)(i).
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    As described above, ICC's proposed changes to its collateral assets 
risk framework in Appendix 6 would refine and update certain risk 
measures and risk factors for determining collateral asset haircuts 
that can be accepted from an ICC clearing participant. The proposed 
changes would also require the Risk Department to review and update 
haircut values at least monthly, or more frequently as it deems 
necessary, and to incrementally update such haircuts during periods of 
extreme market stress. The Commission believes that these updated 
collateral asset risk management procedures should allow ICC to 
continue to mitigate collateral price and liquidation risk through 
setting acceptable haircuts and providing governance guidelines for 
monitoring haircut values and managing any deviations or related 
issues, thereby continuing to maintain a sound risk management 
framework in this regard.
    For these reasons, the Commission finds that the proposed rule 
change is consistent with Rule 17Ad-22(e)(3)(i).\13\
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    \13\ 17 CFR 240.17Ad-22(e)(3)(i).
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D. Consistency With Rule 17Ad-22(e)(5)

    Rule 17Ad-22(e)(5) requires that ICC establish, implement, maintain 
and enforce written policies and procedures reasonably designed to, as 
applicable, limit the assets it accepts as collateral to those with low 
credit, liquidity, and market risks, and set and enforce appropriately 
conservative haircuts and concentration limits if the covered clearing 
agency requires collateral to manage its or its participants' credit 
exposure; and require a review of the sufficiency of its collateral 
haircuts and concentration limits to be performed not less than 
annually.\14\
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    \14\ 17 CFR 240.17Ad-22(e)(5).
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    The Commission believes that the proposed changes in Appendix 6 
regarding the factors and other considerations with respect to 
acceptable collateral asset haircuts should continue to maintain ICC's 
ability to limit the assets it accepts as collateral to those with low 
credit, liquidity, and market risks, and to set and enforce 
appropriately conservative haircuts for sovereign debt and other 
acceptable collateral assets. Further, the proposed updates to the 
governance arrangements for the risk management framework of collateral 
assets haircuts in Appendix 6 would ensure that the Risk Department 
establishes haircuts for the respective collateral asset types

[[Page 27138]]

within measured intervals, and continues to review haircuts at least 
monthly, subject to regular reviews and more frequent valuation 
updates, if needed.
    For these reasons, the Commission finds that the proposed rule 
change is consistent with Rule 17Ad-22(e)(5).\15\
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    \15\ 17 CFR 240.17Ad-22(e)(5).
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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 \16\ and Rules 17Ad-22(e)(2)(i) and (v), (e)(3)(i), and (e)(5) 
thereunder.\17\
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    \16\ 15 U.S.C. 78q-1(b)(3)(F).
    \17\ 17 CFR 240.17Ad-22(e)(2)(i) and (v), (e)(3)(i), and (e)(5).
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    It is therefore ordered pursuant to Section 19(b)(2) of the Act 
\18\ that the proposed rule change (SR-ICC-2021-007) be, and hereby is, 
approved.\19\
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    \18\ 15 U.S.C. 78s(b)(2).
    \19\ 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.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-10498 Filed 5-18-21; 8:45 am]
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