[Federal Register Volume 86, Number 142 (Wednesday, July 28, 2021)]
[Notices]
[Pages 40665-40667]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-15993]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92468; File No. SR-ICC-2021-016]


Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of 
Proposed Rule Change Relating to the ICC Exercise Procedures

    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 
1934, (the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby 
given that on July 8, 2021, ICE Clear Credit LLC (``ICC'') filed with 
the Securities and Exchange Commission the proposed rule change as 
described in Items I, II, and III below, which Items have been prepared 
primarily by ICC. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The principal purpose of the proposed rule change is to revise the 
Exercise Procedures in connection with the clearing of credit default 
index swaptions (``Index Swaptions'').

II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    In its filing with the Commission, ICC included statements 
concerning the purpose of and basis for the proposed rule change, 
security-based swap submission, or advance notice and discussed any 
comments it received on the proposed rule change, security-based swap 
submission, or advance notice. The text of these statements may be 
examined at the places specified in Item IV below. ICC has prepared 
summaries, set forth in sections (A), (B), and (C) below, of the most 
significant aspects of these statements.

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

(a) Purpose
    ICC proposes revising the Exercise Procedures in connection with 
the clearing of Index Swaptions. The Exercise Procedures supplement the 
provisions of Subchapter 26R of the ICC Clearing Rules (the ``Rules'') 
with respect to Index Swaptions \3\ and provide further detail as to 
the manner in which Index Swaptions may be exercised by Swaption 
Buyers, the manner in which ICC will assign such exercises to Swaption 
Sellers, and certain actions that ICC may take in the event of 
technical issues. ICC proposes to make the changes effective following 
Commission approval of the proposed rule change. The proposed revisions 
are described in detail as follows.
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    \3\ 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 cleared by ICC, the underlying index credit default swap 
is limited to certain CDX and iTraxx 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.
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    ICC proposes changes related to certain fallback measures included 
in the Exercise Procedures. ICC proposes to amend Paragraph 2.6, which 
includes procedures to address a failure of the electronic system 
established by ICC for exercise (``Exercise System Failure''). In such 
case, Paragraph 2.6 currently provides ICC with the following options: 
(i) Cancel and reschedule the Exercise Period (i.e., the period on the 
expiration date of an Index Swaption during which the Swaption Buyer 
may deliver an exercise notice to ICC to exercise all or part of such 
Index Swaption); (ii) determine that automatic exercise will apply; 
and/or (iii) take such other action as ICC determines to be appropriate 
to permit exercising parties to submit exercise notices and to permit 
ICC to assign such notices. The proposed changes remove the ability to 
cancel and reschedule the Exercise Period and renumber the following 
options accordingly.

[[Page 40666]]

    ICC maintains the ability to effect an automatic exercise under 
Paragraph 2.8, which addresses the situation where ICC will 
automatically exercise on the expiration date each open position (of 
all exercising parties) in an Index Swaption that is determined by ICC 
to be ``in the money'' on such date. Whether an Index Swaption is ``in 
the money'' is currently based on the average of the end-of-day 
(``EOD'') price of the underlying CDS contract on the preceding 
business day and on the expiration date, and where relevant, also based 
on the average of the EOD price on the preceding business day and on 
the expiration date of each single name constituent contract with 
respect to which an Existing Restructuring \4\ has occurred. Under the 
proposed changes, whether an Index Swaption is ``in the money'' is 
based on the relevant market-observed prices for the underlying CDS 
contract determined by ICC using the intraday market data available to 
it at the time, or the EOD price of the underlying CDS contract on the 
expiration date established at any Intercontinental Exchange, Inc. 
(``ICE'') clearinghouse, and where relevant, also based on the last 
available ICE EOD price of each single name constituent contract with 
respect to which an Existing Restructuring has occurred. Such changes 
provide ICC with additional flexibility, as ICC need not wait until EOD 
to execute an automatic exercise, and allow this fallback measure to 
coincide with the timing of the Exercise Period.\5\
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    \4\ An Existing Restructuring is defined in ICC Rule 26R-319(c) 
and is applicable upon the occurrence of an M(M)R Restructuring 
Credit Event with respect to an Index Swaption for which the DC 
Credit Event Announcement or Regional CDS Committee Restructuring 
Announcement occurs on or prior to the expiration date.
    \5\ The Exercise Period starts at the Swaption Exercise Start 
Time (with respect to an Index Swaption referencing a CDX.NA index, 
9:00 a.m., New York time and referencing an iTraxx Europe index, 
9:00 a.m., London time) and ends at the Swaption Exercise Cut-Off 
Time (with respect to an Index Swaption referencing a CDX.NA index, 
11:00 a.m., New York time and referencing an iTraxx Europe index, 
4:00 p.m., London time) under the Exercise Procedures.
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(b) Statutory Basis
    ICC believes that the proposed rule change is consistent with the 
requirements of Section 17A of the Act \6\ and the regulations 
thereunder applicable to it, including the applicable standards under 
Rule 17Ad-22.\7\ In particular, Section 17A(b)(3)(F) of the Act \8\ 
requires that the rule change be consistent with the prompt and 
accurate clearance and settlement of securities transactions and 
derivative agreements, contracts and transactions cleared by ICC, 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. ICC proposes changes related to certain fallback 
measures in the Exercise Procedures. Removing the option to cancel and 
reschedule the Exercise Period under Paragraph 2.6 would streamline and 
simplify ICC's procedures in the case of an Exercise System Failure, 
thereby reducing the potential for confusion regarding ICC's practices 
under such circumstances. Moreover, to provide consistency where 
possible in the event of an Exercise System Failure, amended Paragraph 
2.8 allows the timing of automatic exercise to coincide with the timing 
of the Exercise Period. Accordingly, in ICC's view, the proposed rule 
change will facilitate understanding of how unforeseen operational or 
technical issues are handled and promote preparedness by market 
participants to enhance the implementation of the Exercise Procedures, 
thereby promoting 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.\9\
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    \6\ 15 U.S.C. 78q-1.
    \7\ 17 CFR 240.17Ad-22.
    \8\ 15 U.S.C. 78q-1(b)(3)(F).
    \9\ Id.
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    The amendments would also satisfy relevant requirements of Rule 
17Ad-22.\10\ Rule 17Ad-22(e)(1) \11\ requires each covered clearing 
agency to establish, implement, maintain, and enforce written policies 
and procedures reasonably designed to provide for a well-founded, 
clear, transparent, and enforceable legal basis for each aspect of its 
activities in all relevant jurisdictions. The Exercise Procedures 
supplement the provisions of Subchapter 26R of the Rules with respect 
to Index Swaptions and further ensure that ICC's Rules clearly reflect 
the terms and conditions applicable to Index Swaptions. As described 
above, the proposed revisions would support the clearing of Index 
Swaptions by ICC by providing additional consistency to market 
participants and simplifying the procedures in the case of an Exercise 
System Failure. The proposed rule change would continue to support the 
legal basis for ICC's clearance of Index Swaptions and operation of the 
exercise and assignment process, including addressing situations where 
there are operational or technical issues. As such, the proposed rule 
change would satisfy the requirements of the Rule 17Ad-22(e)(1).\12\
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    \10\ 17 CFR 240.17Ad-22.
    \11\ 17 CFR 240.17Ad-22(e)(1).
    \12\ Id.
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    Rule 17Ad-22(e)(17) \13\ requires, in relevant part, each covered 
clearing agency to establish, implement, maintain, and enforce written 
policies and procedures reasonably designed to manage its operational 
risks by (i) identifying the plausible sources of operational risk, 
both internal and external, and mitigating their impact through the use 
of appropriate systems, policies, procedures, and controls; and (ii) 
ensuring that systems have a high degree of security, resiliency, 
operational reliability, and adequate, scalable capacity. The Exercise 
Procedures allow ICC to manage the operational risks associated with 
the exercise and assignment process by establishing procedures for the 
exercise and assignment of Index Swaptions and including fallback 
measures, which help mitigate the impact from operational or technical 
issues and ensure that the system has a high degree of security, 
resiliency, operational reliability, and adequate, scalable capacity. 
The proposed changes remove the option to cancel and reschedule an 
Exercise Period, which would reduce the potential for confusion 
regarding ICC's practices under such circumstances. The proposed 
changes also provide ICC with additional flexibility for determining 
whether an Index Swaption is ``in the money'' such that ICC need not 
wait until EOD to execute an automatic exercise to provide consistency 
where possible in the case of an Exercise System Failure. ICC believes 
that these amendments would streamline and simplify ICC's procedures in 
the event of an Exercise System Failure and help mitigate the impact 
from operational or technical issues. The proposed rule change is 
therefore reasonably designed to meet the requirements of Rule 17Ad-
22(e)(17).\14\
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    \13\ 17 CFR 240.17Ad-22(e)(17)(i)-(ii).
    \14\ Id.
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(B) Clearing Agency's Statement on Burden on Competition

    ICC does not believe the proposed amendments would have any impact, 
or impose any burden, on competition not necessary or appropriate in 
furtherance of the purpose of the Act. The proposed changes to the 
Exercise Procedures will apply uniformly across all market 
participants. Therefore, ICC does not

[[Page 40667]]

believe the proposed rule change imposes 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 
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 for Commission 
Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-ICC-2021-016 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-2021-016. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of such filings will also be available for inspection 
and copying at the principal office of ICE Clear Credit and on ICE 
Clear Credit's website at https://www.theice.com/clear-credit/regulation.
    All comments received will be posted without change. Persons 
submitting comments are cautioned that we do not redact or edit 
personal identifying information from comment submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-ICC-2021-016 and should be 
submitted on or before August 18, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-15993 Filed 7-27-21; 8:45 am]
BILLING CODE 8011-01-P