[Federal Register Volume 87, Number 168 (Wednesday, August 31, 2022)]
[Notices]
[Pages 53529-53531]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-18766]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95603; File No. SR-ICC-2022-010]


Self-Regulatory Organizations; ICE Clear Credit LLC; Order 
Approving Proposed Rule Change Relating to the Clearing Rules and the 
End-of-Day Price Discovery Policies and Procedures

August 25, 2022.

I. Introduction

    On July 7, 2022, 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 (the 
``Act''),\1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
amend its 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 proposed rule change was published 
for comment in the Federal Register on July 20, 2022.\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 Clearing Rules and 
the End-of-Day Price Discovery Policies and Procedures; Exchange Act 
Release No. 95279 (July 14, 2022), 87 FR 43351 (July 20, 2022) (File 
No. SR-ICC-2022-010) (``Notice'').
---------------------------------------------------------------------------

II. Description of the Proposed Rule Change

A. Background

    The proposed rule change would amend the Rules and EOD Policy to 
establish an additional class of Clearing Participant at ICC, the 
Associate Clearing Participant (referred to herein as the ``ACP'').\4\ 
In general, an ACP would have the same rights, obligations, and 
responsibilities as other Clearing Participants (referred to herein as 
``Full Participants''), except with respect to certain price 
submissions. Specifically, ICC would permit an ACP to submit prices 
with respect to certain North American (``NA'') Credit Default Swap 
(``CDS'') products at the end of the London trading day, rather than at 
the end of the New York trading day. ICC represents this change is 
intended to

[[Page 53530]]

facilitate the participation of United Kingdom and European entities 
that may be unable to provide price submissions for North American 
instruments outside of London trading hours.\5\ There is no 
requirement, however, that an entity applying to become an ACP be based 
in the United Kingdom or Europe.
---------------------------------------------------------------------------

    \4\ This description is substantially excerpted from the Notice, 
87 FR at 43351. Capitalized terms not otherwise defined herein have 
the meanings assigned to them in the Rules or EOD Policy, as 
applicable.
    \5\ Notice, 87 FR at 43351.
---------------------------------------------------------------------------

B. Rules

    With respect to the Rules, the proposed rule change would amend 
Rule 102 and adopt a new Rule 212.
    In Rule 102, the proposed rule change would add new defined terms: 
``Associate Clearing Participant,'' ``Full Participant,'' ``NA 
Instruments,'' and ``NA Instrument EU EOD Submission.'' The term 
``Associate Clearing Participant'' would have the meaning assigned to 
it in new Rule 212 (as discussed below), while the term ``Full 
Participant'' would mean a Clearing Participant other than an ACP. 
Similarly, the terms ``NA Instruments'' and ``NA Instrument EU EOD 
Submission'' would have the meanings assigned to them in new Rule 212.
    New Rule 212 would permit ICC to establish the ACP category of 
Clearing Participants. Rule 212 would define ``ACP'' as a Clearing 
Participant meeting the terms and conditions set out in the new rule. 
Under Rule 212(a), each ACP would be a Clearing Participant for all 
purposes under the Rules and ICC Procedures, with and subject to all 
rights, obligations, limitations, conditions, restrictions, 
representations, warranties, and acknowledgements of a Clearing 
Participant, and subject to the initial and ongoing qualifications and 
requirements for being a Clearing Participant, except as otherwise 
provided in Rule 212 or the ICC Procedures.
    Rule 212(b) would permit ICC to establish a new London end-of-day 
price submission window for which ACPs would be required to make price 
submissions with respect to NA Instruments. Rule 212(b) would define 
``NA Instruments'' as Contracts relating to North American reference 
entities or indices (as identified by ICC) and such other Contracts as 
ICC may determine. Moreover, Rule 212(b) would define such price 
submissions submitted by ACPs as ``NA Instrument EU EOD Submissions.'' 
Rule 212(b) further would permit ICC to establish firm trade 
requirements \6\ with respect to NA Instrument EU EOD Submissions. 
Finally, Full Participants could make NA Instrument EU EOD Submissions, 
but would not be required to do so and would not be subject to firm 
trade requirements in connection with such submissions.
---------------------------------------------------------------------------

    \6\ The term ``firm trade requirements'' refers to ICC's ability 
to require that Clearing Participants enter into trades at the 
prices they submit to ICC. ICC uses firm trade requirements to help 
ensure accurate price submissions.
---------------------------------------------------------------------------

    Certain provisions of Rule 212 would permit ICC to establish 
different standards and obligations for ACPs as compared to Full 
Participants. Rule 212(c) would permit ICC to establish different daily 
deadlines for submission of Trades by ACPs. Rule 212(d) would permit 
ICC to establish different or supplemental margin requirements or 
related parameters for ACPs. Rule 212(f) would permit ICC to establish 
alternative or additional standards of business integrity, financial 
capacity, creditworthiness, operational capability, experience, and 
competence for ACPs. Finally, Rule 212(g) would permit ICC to require a 
separate form of Participant Agreement for ACPs.\7\
---------------------------------------------------------------------------

    \7\ ICC anticipates requiring ACPs to submit trades by the close 
of the London trading day but at this time does not anticipate 
establishing any other additional or alternative standards. Notice, 
87 FR at 43352.
---------------------------------------------------------------------------

    Rule 212(e) would prohibit ACPs from submitting any Trades on 
behalf of Clients. ACPs would only be permitted to submit Trades for 
their own accounts or for Affiliates as House positions. Moreover, 
under Rule 212(h), no Affiliate of an existing Clearing Participant 
could be an ACP. As stated in the notice, ICC believes that Clearing 
Participants that engage in clearing on behalf of Clients 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 Clients may submit.\8\
---------------------------------------------------------------------------

    \8\ Notice, 87 FR at 43352.
---------------------------------------------------------------------------

C. EOD Policy

    The proposed rule change would make related changes to the EOD 
Policy to establish the price submission requirements for ACPs and to 
differentiate these requirements from the requirements for Full 
Participants.
    First, the proposed rule change would create a new submission 
window for NA Instruments. ICC uses different submission windows to 
determine the prices of the different products it clears. For example, 
ICC has an existing submission window, known as the EU Submission 
Window, which occurs at the end of the London trading day for contracts 
that are primarily traded in London hours. The proposed rule change 
would create a new submission window for NA Instruments, which would 
occur at the end of the London trading day (referred to as the ``NA 
Instrument EU Submission Window''). Because the NA Instrument EU 
Submission Window would occur at the end of the London trading day, 
like the current EU Submission Window, the timings for all elements of 
the price discovery process related to the NA Instrument EU Submission 
Window would be the same as those for the EU Submission Window.
    The proposed rule change also would amend the EOD Policy to provide 
that if a Clearing Participant--both ACP and Full 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 Clearing 
Participant's end-of-day submission.
    Moreover, the proposed rule change would add a requirement to the 
EOD Policy that ACPs provide price submissions for the NA Instrument EU 
Submission Window. The proposed rule change would further add language 
stating that Full Participants may, but are not required to, provide 
price submissions for the NA Instrument EU Submission Window.
    Similarly, the proposed change would revise the provisions of the 
EOD Policy relating to firm trades. For the NA Instrument EU Submission 
Window, ICC would 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.\9\
---------------------------------------------------------------------------

    \9\ Under the EOD Policy, a reversing transaction is a second 
firm trade with identical attributes to the initial firm trade, but 
with the buyer and seller counterparties reversed, and at that day's 
EOD price rather than the original firm trade price.
---------------------------------------------------------------------------

    The proposed rule change also would revise the EOD Policy to 
provide that prices established in the NA Instrument EU Submission 
Window would not be published externally by ICC. ICC would use prices 
only for risk management purposes.\10\
---------------------------------------------------------------------------

    \10\ Notice, 87 FR at 43352.
---------------------------------------------------------------------------

    Finally, in the appendix to the EOD Policy, the proposed rule 
change would update the timetables for the end-of-day submission 
process to include the NA Instrument EU Submission Window (with timing 
and deadlines consistent with the EU submission window, as noted 
above).

[[Page 53531]]

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.\11\ For the reasons discussed below, the Commission finds 
that the proposed rule change is consistent with Section 17A(b)(3)(F) 
of the Act \12\ and Rules 17Ad-22(e)(6)(iv) and 17Ad-22(e)(18) 
thereunder.\13\
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(2)(C).
    \12\ 15 U.S.C. 78q-1(b)(3)(F).
    \13\ 17 CFR 240.17Ad-22(e)(6)(iv) and (e)(18).
---------------------------------------------------------------------------

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.\14\ Based on its 
review of the record, and for the reasons discussed below, the 
Commission believes the proposed rule change is consistent with the 
promotion of the prompt and accurate clearance and settlement of 
securities transactions at ICC because it would expand the group of 
entities able to become members of ICC.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    As discussed above, the proposed rule change would establish the 
requirements applicable to ACPs. These requirements would largely 
mirror those currently applicable to Full Participants, except that 
ACPs would submit prices for NA Instruments during the NA Instrument EU 
Submission Window. The Commission believes this would allow 
participation by entities that may be unable to provide prices for NA 
Instruments at the close of the New York trading day (as is required 
for Full Participants). In doing so, the Commission believes the 
proposed rule change would facilitate expanded participation at ICC and 
therefore the additional clearance and settlement of transactions at 
ICC by these additional participants. The Commission believes this 
change therefore would promote the prompt and accurate clearance and 
settlement of transactions at ICC, consistent with Section 17A(b)(3)(F) 
of the Act.\15\
---------------------------------------------------------------------------

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

B. Consistency With Rule 17Ad-22(e)(6)(iv)

    Rule 17Ad-22(e)(6)(iv) requires that ICC 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, among other things, 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.\16\ As discussed above, proposed 
Rule 212 and the revised EOD Policy would require ACPs to submit prices 
for NA Instruments during the NA Instrument EU Submission Window. The 
Commission believes this requirement would facilitate the submission of 
prices for NA Instruments by ACPs, who may not have the operational 
capability to provide prices for NA Instruments at the close of the New 
York trading day (as is required for Full Participants). The Commission 
therefore believes that ACPs could serve as a reliable source of timely 
price data for NA Instruments, in addition to the price data that Full 
Participants submit. The Commission therefore finds the proposed rule 
change is consistent with Rule 17Ad-22(e)(6)(iv).\17\
---------------------------------------------------------------------------

    \16\ 17 CFR 240.17Ad-22(e)(6)(iv).
    \17\ 17 CFR 240.17Ad-22(e)(2)(v).
---------------------------------------------------------------------------

C. Consistency with Rule 17Ad-22(e)(18)

    Rule 17Ad-22(e)(18) requires that ICC establish, implement, 
maintain, and enforce written policies and procedures reasonably 
designed to, among other things, establish objective, risk-based, and 
publicly disclosed criteria for participation, which permit fair and 
open access by direct and, where relevant, indirect participants and 
other financial market utilities.\18\ As discussed above, proposed Rule 
212 and the revised EOD Policy would require ACPs to submit prices for 
NA Instruments during the NA Instrument EU Submission Window. The 
Commission believes this represents an objective requirement that would 
allow participation by persons that may be unable to provide prices for 
NA Instruments at the close of the New York trading day (as is required 
for Full Participants). Moreover, as discussed above, any person who 
meets this requirement, and the other requirements for ACPs (which are 
largely the same as those applicable to Full Participants) could become 
an ACP. The Commission therefore believes the requirements applicable 
ACPs represent objective criteria which any person could potentially 
satisfy, thereby permitting fair and open access to ACP membership at 
ICC. The Commission therefore find the proposed rule change is 
consistent with Rule 17Ad-22(e)(18).\19\
---------------------------------------------------------------------------

    \18\ 17 CFR 240.17Ad-22(e)(18).
    \19\ 17 CFR 240.17Ad-22(e)(18).
---------------------------------------------------------------------------

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 \20\ and Rules 17Ad-22(e)(6)(iv) and 17Ad-22(e)(18) thereunder.\21\
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 78q-1(b)(3)(F).
    \21\ 17 CFR 240.17Ad-22(e)(6)(iv) and (e)(18).
---------------------------------------------------------------------------

    It is therefore ordered pursuant to Section 19(b)(2) of the Act 
\22\ that the proposed rule change (SR-ICC-2022-010), be, and hereby 
is, approved.\23\
---------------------------------------------------------------------------

    \22\ 15 U.S.C. 78s(b)(2).
    \23\ 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.\24\
---------------------------------------------------------------------------

    \24\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-18766 Filed 8-30-22; 8:45 am]
BILLING CODE 8011-01-P