[Federal Register Volume 88, Number 61 (Thursday, March 30, 2023)]
[Notices]
[Pages 19183-19186]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-06559]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97196; File No. SR-ICC-2023-003]


Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of 
Filing of Proposed Rule Change Relating to British Pounds Sterling as 
Client-Related Margin

March 24, 2023.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on March 13, 2023, ICE Clear Credit LLC (``ICC'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change 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 Treasury 
Operations Policies and Procedures (``ICC Treasury Policy'') to add 
cash British pounds sterling (``GBP'') as eligible margin to meet 
Client-Related Margin requirements. The text of the proposed amendments 
is attached [sic] in Exhibit 5.

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 and 
discussed any comments it received on the proposed rule change. 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 
to the ICC Rules and ICC Treasury Policy to add cash British pounds 
sterling (``GBP'') as eligible margin to meet Client-Related Initial 
Margin requirements. ICC Clearing Participants are required to post 
Client-Related Initial Margin to collateralize their individual credit 
exposure to ICC. Such Client-Related Initial Margin is intended to 
collateralize the risk arising from the client related positions 
cleared at ICC by ICC Clearing Participants. ICC limits the assets it 
accepts as collateral to those with low credit, liquidity and market 
risks. Currently, an ICC Clearing Participant may meet their Client-
Related Initial Margin requirements with US dollar cash, Euro cash or 
US Treasuries. ICC has received verbal feedback from several market 
participants requesting that ICC Clearing Participants to have the 
ability to post GBP in addition to the asset types currently accepted 
by ICC, specifically to support United Kingdom (UK) and European Union 
(EU) based customer clearing activity. Several UK and EU market 
participants have requested the addition of GBP as an ICC acceptable 
collateral type in connection with their exploration of migrating their 
credit default swap (CDS) clearing activity to ICC from ICE Clear 
Europe Limited (ICEU) following the recent ICEU announcement that it 
plans to cease its CDS clearing services.\3\ ICC previously accepted 
GBP to meet Client-Related Initial Margin, Non-Client Initial Margin 
and Guaranty Fund requirements, but that option was revoked in 2017.\4\ 
ICC chose to cease accepting GBP cash in 2017 because no ICC Clearing 
Participants posted GBP cash while it was an acceptable collateral 
type; and ICC considered GBP cash a less liquid resource due to the 
potential need to convert it to either US dollar cash or Euro cash.\5\
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    \3\ See ICE Clear Europe public circular dated September 26, 
2022, and available here: https://www.ice.com/publicdocs/clear_europe/circulars/C22109.pdf.
    \4\ See Securities Exchange Act Release No. 81037 (June 28, 
2017) (notice), 82 FR 31121 (July 5, 2017) (SR-ICC-2017-010). The 
Commission subsequently approved ICC's proposal to remove the 
eligibility of GBP cash (as well as certain other currencies) as 
acceptable collateral. See Securities Exchange Act Release No. 81386 
(August 14, 2017), 82 FR 39484 (August 18, 2017) (SR-ICC-2017-010).
    \5\ See Securities Exchange Act Release No. 81037 (June 28, 
2017), 82 FR 31121, 31122 (July 5, 2017) (SR-ICC-2017-010).
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    Recently, ICC has received customer feedback that there is a 
renewed interest in posting GBP, as many UK and EU based customers 
maintain GBP balances; and if ICC Clearing Participants were permitted 
to pass on customer GBP assets to ICC to meet Client-Related Initial 
Margin requirements, customers could decrease their overall cost of 
capital and reduce foreign exchange risk by posting GBP instead of 
converting GBP into another form of eligible collateral. Furthermore, 
ICC desires to structure its collateral acceptance policy to better 
serve UK and EU based market participants who may be seeking 
alternative CDS clearing services given the impending cessation of 
ICEU's current CDS clearing services. Therefore, allowing ICC Clearing 
Participants to post GBP to meet Client-Related Initial Margin 
requirements will facilitate a more effective and efficient transition 
from alternative CDS clearing services that generally accept GBP as 
collateral.
    For the aforementioned reasons, ICC proposes revising the ICC Rules 
and ICC Treasury Policy to add GBP to the list of eligible collateral 
to satisfy Client-Related Initial Margin requirements. With the 
addition of GBP, the list of eligible collateral to satisfy ICC Client-

[[Page 19184]]

Related Initial Margin requirements shall be: US dollar cash, Euro 
cash, US Treasuries and GBP cash. It should be noted that with respect 
to liquidity, ICC's Liquidity Risk Management Framework does not 
consider any collateral posted for Client-Related Initial Margin to be 
counted as an available liquidity resource, therefore the addition of 
GBP as an acceptable form of Client-Related Initial Margin collateral 
will not impact the amount of ICC's liquidity resources or its 
liquidity stress testing processes. The proposed revisions to the ICC 
Rules and ICC Treasury Policy are described in detail as follows. Only 
in the event of an ICC Clearing Participant default would ICC 
potentially need to convert posted GBP Client-Related Margin to either 
US dollar cash or Euro cash. The FX risk stemming from the acceptance 
of GBP as Client-Related Initial Margin is addressed by applying a set 
of conservative currency haircuts.
ICC Rules
    ICC proposes updates to Schedule 401 of the ICC Rules. 
Specifically, ICC proposes adding GBP to the list of ``all eligible 
collateral'' to meet Client-Related Initial Margin requirements 
identified in Schedule 401 of the ICC Rules. In addition, ICC proposes 
to modify the Client-Related Initial Margin liquidity requirements set 
forth in Schedule 401 of the ICC Rules as follows: For US dollar 
denominated products, ICC proposes changing the (i) minimum percentage 
of the overall Initial Margin requirement to be met in US dollar 
denominated assets (i.e., US dollar cash and US Treasuries) from 65% to 
45% and; (ii) percentage of the overall Initial Margin requirement that 
may be met in any eligible collateral (US dollar cash, Euro cash, GBP 
cash and US Treasuries) from 35% to 55%. For Client-Related Initial 
Margin requirements for Euro denominated products, ICC proposes 
changing (i) the minimum percentage of the overall Initial Margin 
requirement to be met in US dollar cash, Euro cash or US Treasuries 
from 100% to 45% and; (ii) adding a new category that permits the 
remaining 55% of the overall Initial Margin requirement to be met in 
any eligible collateral (US dollar cash, Euro cash, GBP cash and US 
Treasuries).
    Such proposed changes to the Client-Related Initial Margin 
thresholds are intended to modify the current conservative thresholds 
which are very restrictive as Client-Related Initial Margin is not part 
of ICC's Liquidity Risk Management Framework. The proposed modified 
thresholds reflect the fact that only the first-day liquidity needs 
(measured as 45% of Initial Margin requirements) must be met in a form 
of collateral for which ICC maintains committed repurchase agreements 
and committed FX facilities. The remaining 55% can be met in any type 
of accepted collateral. With the proposed modified thresholds, ICC 
continues to maintain a conservative approach by directly requiring 
that Client-Related first-day liquidity needs (i.e., 45% of Initial 
Margin requirements) are met in the forms of permitted collateral for 
which either collateral transformations are not necessary or committed 
agreement are in place to provide all necessary immediate liquidity.
ICC Treasury Policy
    ICC also proposes updates to the ICC Treasury Policy to add GBP 
cash as eligible margin to meet Client-Related Initial Margin 
requirements. The purpose of the ICC Treasury Policy is to articulate 
the policies and procedures used to support the ICC Treasury 
Department, which is responsible for daily cash and collateral 
management of margin and guaranty fund assets, including Client-Related 
Initial Margin assets. ICC proposes adding a `British Pound Sterling' 
sub-section to the `Investment Strategy' section of the ICC Treasury 
Policy to indicate that GBP cash posted to meet Client-Related Initial 
Margin will not be invested, rather, such GBP cash will be held in bank 
deposits.
    Also, ICC proposes updating the `Cash Settlement' section of the 
ICC Treasury Policy to add GBP to the existing 9:00 a.m. eastern time 
deadline for ICC Clearing Participants to notify ICC of its desire for 
EUR margin withdrawals or substitutions for EUR cash. With this change 
GBP Client-Related Initial Margin withdrawals and GBP substitutions 
will have the same 9:00 a.m. eastern time deadline as EUR for ICC 
Clearing Participants to notify ICC of their desire to withdraw 
available excess GBP Client-Related Initial Margin or to substitute for 
GBP cash. Further, ICC proposes to update the `Acceptable Collateral' 
section of the ICC Treasury Policy to add GBP cash to ICC's list of 
acceptable forms of collateral for Initial Margin, noting that GBP cash 
is only acceptable for Client-Related Initial Margin.
    In addition, ICC proposes to update the `Collateral Valuation' 
section of the ICC Treasury Policy to describe the valuation processes 
for GBP cash collateral as follows: (i) for GBP used to cover a US 
dollar denominated product requirement it is first converted to the US 
dollar value and then such US dollar value is haircut at the GBP 
currency haircut and (ii) for GBP used to cover a EUR denominated 
product requirement it is first converted to the US dollar value and 
then such US dollar value is haircut at the GBP currency haircut. In 
addition, the EUR denominated product requirement is converted to the 
US dollar value which is then grossed up by the EUR currency haircut. 
Furthermore, ICC proposes language clean up changes to this same 
section of the ICC Treasury Policy.
    ICC further proposes to update the `Eligible Client Collateral' 
section of the Treasury Policy to add GBP cash to ICC's list of 
eligible collateral for Client-Related Initial Margin, which currently 
includes US dollar cash, Euro cash, and US Treasuries. ICC proposes 
updates to the `Client-Related Initial Margin Liquidity Requirements' 
section of the Treasury Policy to reflect the proposed liquidity 
requirement changes, namely, for US dollar denominated products, ICC 
proposes changing the (i) minimum percentage of the overall Initial 
Margin requirement to be met in US dollar denominated assets (i.e., US 
dollar cash and US Treasuries) from 65% to 45% and (ii) percentage of 
the overall Initial Margin requirement that may be met in any eligible 
collateral (US dollar cash, Euro cash, GBP cash and US Treasuries) from 
35% to 55%. For Client-Related Initial Margin requirements for Euro 
denominated products, ICC proposes changing (i) the minimum percentage 
of the overall Initial Margin requirement to be met in US dollar cash, 
Euro cash or US Treasuries from 100% to 45% and (ii) adding a new 
category that permits the remaining 55% of the overall Initial Margin 
requirement to be met in any eligible collateral (US dollar cash, Euro 
cash, GBP cash and US Treasuries).
    Such proposed changes to the Client-Related Initial Margin 
thresholds are intended to modify the current conservative thresholds 
which are very restrictive as Client-Related Initial Margin is not part 
of ICC's Liquidity Risk Management Framework. The proposed modified 
thresholds reflect the fact that only the first-day liquidity needs 
(measured as 45% of Initial Margin requirements) must be met in a form 
of collateral for which ICC maintains committed repurchase agreements 
and committed FX facilities. The remaining 55% can be met in any type 
of accepted collateral. With the proposed modified thresholds, ICC 
continues to maintain a conservative approach by directly requiring 
that Client-Related first-day liquidity needs (i.e., 45% of Initial 
Margin requirements) are met in the forms of permitted collateral for 
which either

[[Page 19185]]

collateral transformations are not necessary or committed agreement are 
in place to provide all necessary immediate liquidity.
(b) Statutory Basis
    Section 17A(b)(3)(F) of the Act \6\ 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; to assure the safeguarding of securities and funds which 
are in the custody or control of the clearing agency or for which it is 
responsible; and to comply with the provisions of the Act and the rules 
and regulations thereunder. ICC believes that the proposed rule changes 
are consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to ICC, in particular, to Section 
17A(b)(3)(F),\7\ as ICC believes acceptance of GBP cash collateral 
minimizes exposure to FX fluctuations for those market participants 
that desire to post GBP cash with ICC, and the acceptance of GBP cash 
for Client-Related Initial Margin does not change the ICC liquidity 
profile. Therefore, ICC believes that adding GBP cash as eligible 
collateral to meet Client-Related Initial Margin requirements will 
promote the prompt and accurate clearance and settlement of securities 
transactions, derivatives agreements, contracts, and transactions, and 
contribute to the safeguarding of securities and funds associated with 
security-based swap transactions in ICC's custody or control, or for 
which ICC is responsible. Such changes are consistent with the eligible 
collateral accepted by other market participants.\8\ Further, the 
proposed updates will have no impact on ICC's liquidity profile as GBP 
cash will only be accepted with respect to Client-Related Initial 
Margin (and not for house Initial Margin or Guaranty Fund obligations) 
and ICC's immediate liquidity needs are not met by any Client-Related 
collateral. In addition to GBP cash, ICC will continue to accept US 
dollar cash, Euro cash, and US Treasuries as eligible collateral, in 
accordance with Schedule 401 of the ICC Rules. With the addition of 
GBP, the list of collateral accepted by ICC will remain limited to 
those collateral types with low credit, liquidity, and market risks 
consistent with Rule 17Ad-22(e)(5).\9\ Furthermore, ICC will apply 
conservative haircuts and concentration limits to GBP cash accepted as 
Client-Related Initial Margin, which will be reviewed no less than 
annually, consistent with Rule 17Ad-22(e)(5).\10\ Such collateral will 
continue to be held in a manner whereby risk of loss or of delay in 
access to them is minimized, consistent with Section 17A(b)(3)(F).\11\
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    \6\ 15 U.S.C. 78q-1(b)(3)(F).
    \7\ Id.
    \8\ See for example (i) ICE Clear Europe List of Permitted 
Cover, Margin Cover and Limits on Collateral (February 2023) 
available here: https://www.ice.com/publicdocs/clear_europe/list-of-permitted-covers.pdf and (ii) LCH SA list of acceptable currencies 
to cover margin requirements available here: https://www.lch.com/collateral-management/sa-collateral-management/sa-acceptable-collateral/sa-acceptable-cash.
    \9\ 17 CFR 240.17Ad-22(e)(5).
    \10\ Id.
    \11\ 15 U.S.C. 78q-1(b)(3)(F).
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(B) Clearing Agency's Statement on Burden on Competition

    ICC does not believe the proposed rule changes will have any 
impact, or impose any burden, on competition. The changes to ICC's 
eligible collateral apply uniformly across all market participants and 
the addition of GBP cash to the list of acceptable collateral does not 
require any market participant to deposit GBP with ICC, rather, the 
expansion of ICC's acceptable collateral list provides additional 
optional choices to all market participants with respect to the forms 
of collateral deposited at ICC. Therefore, ICC does not believe the 
proposed rule changes impose any burden on competition that is 
inappropriate in furtherance of the purposes of the Act.

(C) Clearing Agency's Statement on Comments on the Proposed Rule Change

    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 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 
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-2023-003 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-2023-003. 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.ice.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-2023-003 and should be 
submitted on or before April 20, 2023.


[[Page 19186]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-06559 Filed 3-29-23; 8:45 am]
BILLING CODE 8011-01-P