[Federal Register Volume 87, Number 138 (Wednesday, July 20, 2022)]
[Notices]
[Pages 43351-43354]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-15444]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95279; File No. SR-ICC-2022-010]
Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of
Filing of Proposed Rule Change Relating to the Clearing Rules and the
End-of-Day Price Discovery Policies and Procedures
July 14, 2022.
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 7, 2022, ICE Clear Credit LLC (``ICE Clear Credit'' or
``ICC'') filed with the Securities and Exchange Commission (the
``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 implement
certain amendments to ICC's Clearing Rules (the ``Rules'') and End-of-
Day Price Discovery Policies and Procedures (the ``EOD Policy'') to
establish an additional class of clearing participant. The text of the
proposed amendments is attached in Exhibit 5 [sic].
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
The purpose of the proposed changes is to modify certain provisions
of the Rules and the EOD Policy to permit the establishment of an
additional class of clearing participant at ICC, the ``Associate
Clearing Participant'', or ``ACP''. ICC proposes to move forward with
implementation of these changes following Commission approval of the
proposed rule change.\3\ In general, an ACP would have the same rights,
obligations and responsibilities as other Participants (referred to as
``Full Participants''), with defined exceptions. Specifically, an ACP
will be permitted to provide pricing submissions with respect to
certain North American CDS products as of the end of the London trading
day, rather than the end of the New York trading day. This change is
intended to facilitate United Kingdom and European institutions
becoming clearing participants in ICC where they may not have the
global operational or other resources to support price submissions for
North American instruments outside of London trading hours. The
amendments would make a number of corresponding changes and impose
certain limitations on ACPs intended to assist ICC in mitigating any
additional risks resulting from these changes in the price submission
process for ACPs. For example, the amendments allow ICC to impose a
different clearing cut-off time for ACPs (intended to coincide with the
end of the London trading day, such that ACPs may not submit new trades
for clearing at a time when they are not able to provide price
submissions). ACPs also will not be permitted to submit trades on
behalf of customers.\4\ In addition, ICC may, but is not obligated to,
impose additional or alternative margin requirements for ACPs if it
determines that is appropriate from a risk management perspective. It
is expected that ACPs will be required to satisfy the same initial and
ongoing
[[Page 43352]]
membership standards and requirements as Full Participants, although
ICC will have the authority to modify membership standards for ACPs if
it determines it is appropriate to do so. ACPs will be required to make
contributions to the General Guaranty Fund and participate in default
management (including through mandatory auctions, if applicable) to the
same extent as Full Participants.
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\3\ ICC does not intend to implement this additional class of
clearing participant until ICC is permitted to implement the changes
described herein and ICC completes any other required governance or
internal processes. ICC will issue a circular notification in
advance of the operative date.
\4\ It is accordingly not expected that ACPs would be registered
futures commission merchants.
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A number of provisions of the Rules would be amended to implement
the ACP category. In Rule 102, definitions for ``Associate Clearing
Participant'', ``Full Participant'', ``NA Instruments'' and ``NA
Instrument EU EOD Submission'' (defined in Rule 212 as discussed below)
would be added.
ICC would adopt a new Rule 212 authorizing it to establish ACPs as
a new category of clearing participant, on the terms set out in the
Rule. Subsection (a) would provide that ACPs constitute Participants
for all purposes under the Rules, except as provided in Rule 212 or the
ICE Clear Credit Procedures. Subsection (b) would authorize ICC to
establish separate price submission requirements for ACPs, including
for Contracts with North American reference entities or indices (or
such other Contracts as ICC determines), referred to as ``NA
Instruments''. For such contracts, ICC would establish a new price
submission window at the end of the London trading day during which
ACPs would be required to make price submissions for NA Instruments
(referred to as ``NA Instrument EU EOD Submissions''). ACPs would not
be required to make the standard end-of-day price submissions at the
end of the New York trading day for NA Instruments, however. ICC would
also be permitted to establish firm trade requirements between ACPs
with respect to NA Instrument EU EOD Submissions (as discussed further
below in connection with the EOD Policy). Full Participants would be
permitted, but not required to make NA Instrument EU EOD Submissions
(and would not be subject to firm trade requirements with respect to
such submissions). For all other Contracts, ACPs would be subject to
the same end-of-day price submission requirements as Full Participants.
Subsection (c) would permit ICC to establish different daily
deadlines for submission of trades by ACPs as compared to Full
Participants. ICC expects to impose such a deadline for ACPs at the
close of the London trading day. Subsection (d) would permit ICC to
establish different or supplemental margin requirements (or margin
parameters) applicable to ACPs. ICC does not at this time plan to
implement such margin requirements but believes it is appropriate to
have the authority to do so to manage any incremental risk that may
arise from the activity of ACPs.
Pursuant to subsection (e), ACPs would be permitted to submit
trades for clearing only for their own accounts or the account of
affiliates, as House Positions. ICC believes that clearing participants
that engage in clearing on behalf of customers should be Full
Participants, with the operational and other resources to submit
pricing at all relevant times for the full spectrum of products that
they or their customers may submit.
ICC would have the authority to establish additional or alternative
membership standards, specifically as to business integrity, financial
capacity, creditworthiness, operational capability, experience and
competence for ACPs, pursuant to subsection (f). Except to the extent
of any such alternative or additional standards, the existing
membership standards in Rule 201 would apply to ACPs. Under subsection
(g), ICC may adopt a separate form of participant agreement for ACPs
reflecting their status as such.
Under Rule 212(h), an affiliate of an existing Participant would
not be eligible to be an ACP. Rule 212(i) would add, for clarification,
that Rule 212 does not affect the rights or obligations of Full
Participants.
ICC would also make related changes to the EOD Policy addressing
the price submission requirements applicable to ACPs, and
differentiating the requirements for ACPs and Full Participants
relating to NA Instruments. Specifically, the amendments would add an
additional submission window for the ICC end-of-day price submission
process, covering NA Instruments but determined at the end of the
London trading day (referred to as the ``NA Instrument EU Submission
Window''). The amendments would provide that the NA Instrument EU
Submission Window is intended primarily to support ACPs, and further
that all elements of the price discovery process for that window would
follow those for the EU submission window. Certain other clarifying and
conforming drafting changes would be made to distinguish the NA
Instrument EU Submission Window from other submission windows.
The provisions of the EOD Policy relating to the use of intraday
quotes received by ICC would be amended to provide that if a
Participant fails to make a required end-of-day submission during the
applicable window, ICC may use the last intraday quote received prior
to the close of that window (if one has been received on that day) to
serve as that Participant's end-of-day submission.
The submission requirement section would be revised to provide that
(i) ACPs must provide submissions for NA Instruments during the NA
Instrument EU Submission Window, but would not be required to provide
submissions for the end-of-NY trading day NA submission window, and
(ii) Full Participants may, but will not be obligated to, provide
submissions for the NA Instrument EU Submission Window. The amendments
would also state, consistent with the Rule amendments, that ACPs have
the same obligations with respect to daily end-of-day submissions as
Full Participants, except as set out in the amended EOD Policy.
Conforming changes would be made throughout this section.
The provisions of the EOD Policy relating to firm trades would be
revised to provide that for the NA Instrument EU Submission Window, ICC
will only designate firm trades between ACPs (and, for the avoidance of
doubt, voluntary submissions by Full Participants in that window will
not be subject to firm trades). Further, firm trades between ACPs
originating from the NA Instrument EU Submission Window would not be
eligible for reversing transactions.
The revised EOD Policy would also provide that prices established
in the NA Instrument EU Submission Window will not be published
externally by ICC. Such prices would be used only for ICC risk
management purposes.
The timetables for the end-of-day submission process in the
appendix to the EOD Policy would also be updated to include the NA
Instrument EU Submission Window (with timing and deadlines consistent
with the EU submission window, as noted above).
(b) Statutory Basis
ICE Clear Credit believes that the proposed amendments are
consistent with the requirements of Section 17A of the Act \5\ and the
regulations thereunder applicable to it, including the standards under
Rule 17Ad-22.\6\ Section 17A(b)(3)(F) of the Act \7\ requires, among
other things, 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, the safeguarding of securities and funds
in the custody or control of the clearing
[[Page 43353]]
agency or for which it is responsible, and the protection of investors
and the public interest.
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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).
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The amendments provide for the establishment of a new category of
clearing participant, ACPs. The ACP category is intended to facilitate
entities becoming clearing participants, particularly European
institutions, that may have limited global operational or other
resources outside of London business hours that may otherwise make it
difficult to satisfy the price submission requirements of being a
clearing participant for NA Instruments. ACPs would be required to
submit prices in NA Instruments at the end of the London trading day
(instead of the New York trading day), to facilitate the risk
management by ICC of ACP positions. Further, the proposed rules will
impose certain limitations on ACPs, as compared to Full Participants,
including allowing ICC to limit the ability of ACPs to submit new
trades for clearing after the close of the London trading day and to
limit the ability of ACPs to submit trades for customers. ICC also
retains the ability to impose additional or alternative margin
requirements on ACPs to the extent appropriate from a risk management
perspective. In ICC's view, the ACP category thus provides an ability
for ICC to potentially expand the pool of clearing participants, while
maintaining the clearing house's ability to conduct risk management. In
this regard, ICC notes that ACPs will, with the limited exceptions
identified herein, be required to perform all obligations of
Participants, including contributions to the General Guaranty Fund and
default management. ICC will further maintain ACP margin and guaranty
fund contributions in the same manner it holds margin and guaranty fund
contributions of Full Participants. As a result, in ICC's view, the
amendments are consistent with the prompt and accurate clearance and
settlement of securities transactions and derivative agreements,
contracts and transactions, the safeguarding of securities and funds in
the custody or control of the clearing agency or for which it is
responsible, and the protection of the investors and the public
interest, within the meaning of Section 17A(b)(3)(F).\8\
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\8\ 15 U.S.C. 78q-1(b)(3)(F).
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Moreover, the amendments are consistent with relevant provisions of
Rule 17Ad-22.\9\ In particular, Rule 17Ad-22(e)(18) requires that each
covered clearing agency ``establish, implement, maintain and enforce
written policies and procedures reasonably designed to . . . establish
objective, risk-based and publicly disclosed criteria for
participation, which permit fair and open access by direct and, where
relevant indirect participants . . . require participants to have
sufficient financial resources and robust operational capacity to meet
obligations arising from participation in the clearing agency, and
monitor compliance with such participation requirements on an ongoing
basis.'' \10\ The amendments would create a new category of
participant, ACPs, and set out rights, obligations and responsibilities
of such participants. As noted above, ACPs would largely have the same
rights and obligations as Full Participants, with certain exceptions
designed to facilitate participation by persons that may not have the
full global operational capability to provide prices for NA Instruments
at the close of the New York trading day. The amendments appropriately
limit clearing by ACPs in light of the limited submission requirements
by allowing for an earlier deadline for clearing submission, limiting
customer clearing and providing ICC the flexibility to impose
additional or alternative margin requirements if appropriate. In ICC's
view, the proposed rules thus provide a way of expanding the potential
pool of clearing participants while maintaining robust risk management.
As noted above, ACPs will be subject to the same guaranty fund, and the
same or additional margin requirements as Full Participants. All other
requirements of Participant status, and ICC's existing Participant
monitoring program, will apply to ACPs (although ICC can impose
additional or modified requirements appropriate to ACPs). As a result,
in ICC's view, the amendments are consistent with the requirements of
Rule 17Ad-22(e)(18).\11\
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\9\ 17 CFR 240.17Ad-22.
\10\ 17 CFR 240.17Ad-22(e)(18).
\11\ 17 CFR 240.17Ad-22(e)(18).
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Rule 17Ad-22(e)(6)(iv) \12\ requires that a covered clearing agency
``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: . . . (iv) 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.'' The amendments, including the changes to the
EOD Policy, are designed, consistent with the goal of admitting ACPs
that may not have global operational capability to submit prices
outside of London trading hours, to continue to provide ICC with robust
pricing to support its margin model. ACPs would be required, for NA
Instruments, to submit prices in a new submission window at the end of
the London trading day. ICC would use such prices for risk management
purposes, including for purposes of the margin model. ICC would use the
same procedures for other price submissions, including requiring firm
trades among ACPs, to ensure the robustness of submitted prices. In
ICC's view, the amendments are therefore consistent with the
requirements of Rule 17Ad-22(e)(6)(iv).\13\
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\12\ 17 CFR 270.17Ad-22(e)(6).
\13\ 17 CFR 240.17Ad-22(e)(6)(iv).
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(B) Clearing Agency's Statement on Burden on Competition
ICE Clear Credit does not believe the proposed amendments would
have any impact, or impose any burden, on competition not necessary or
appropriate in furtherance of the purposes of the Act. The amendments
are not intended to affect the rights or obligations of existing
Participants. The changes would adopt an additional category of
clearing participant, the ACP, which would be available to eligible
institutions that meet the clearing house's requirements. ACPs will be
subject to the same rights, obligations and responsibilities as Full
Participants, but will submit prices for NA Instruments during a
submission window at the end of the London trading day rather than the
New York trading day. This is intended to facilitate participation by
institutions that may not have the global operational capability to
submit prices outside of the London trading day, but maintain the
clearing house's ability to manage the risk of clearing in such
instruments. As a result, ICE Clear Credit does not believe the
amendments will impact competition among clearing members or other
market participants, adversely affect the ability of market
participants to access clearing generally, or adversely affect the cost
of clearing. ICE Clear Credit thus does not believe the proposed
amendments would have any impact, or impose any burden, on competition
not necessary or appropriate in furtherance of the purposes 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 amendments have not been
solicited or received by ICE Clear Credit.
[[Page 43354]]
ICE Clear Credit will notify the Commission of any comments received
with respect to the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change 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
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-2022-010 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-2022-010. 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-2022-010 and should be
submitted on or before August 10, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-15444 Filed 7-19-22; 8:45 am]
BILLING CODE 8011-01-P