[Federal Register Volume 88, Number 74 (Tuesday, April 18, 2023)]
[Notices]
[Pages 23711-23713]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-08146]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97293; File No. SR-ICC-2023-005]


Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of 
Proposed Rule Change Relating to the Clearance of Additional Credit 
Default Swap Contracts

April 12, 2023.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 
1934,\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on 
March 30, 2023, ICE Clear Credit LLC (``ICC'') filed with the 
Securities and Exchange Commission (``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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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 
ICC Rulebook (the ``Rules'') to provide for the clearance of an 
additional Standard Emerging Market Sovereign CDS contract (the ``EM 
Contract'').

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 rule change is to adopt rules that will 
provide the basis for ICC to clear an additional credit default swap 
contract. ICC proposes to make such change effective following 
Commission approval of the proposed rule change. ICC believes the 
addition of this contract will benefit the market for credit default 
swaps by providing market participants the benefits of clearing, 
including reduction in counterparty risk and safeguarding of margin 
assets pursuant to clearing house rules. Clearing of the additional EM 
Contract will not require any changes to ICC's Risk Management 
Framework or other policies and procedures constituting rules within 
the meaning of the Securities Exchange Act of 1934 (``Act'').
    ICC proposes amending Subchapter 26D of its Rules to provide for 
the clearance of the additional EM Contract, specifically the Dominican 
Republic. This additional EM Contract has terms consistent with the 
other SES EM Contracts (Standard Emerging Market Sovereign (``SES'') 
Single Name) approved for clearing at ICC and governed by Subchapter 
26D of the Rules. Minor revisions to Subchapter 26D are made to provide 
for clearing the additional EM Contract. Specifically, in Rule 26D-102 
(Definitions), ``Eligible SES Reference Entities'' is modified to 
include the Dominican Republic in the list of specific Eligible SES 
Reference Entities to be cleared by ICC.
(b) Statutory Basis
    Section 17A(b)(3)(F) of the Act \3\ 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 ICC or for which it is responsible; 
and to comply with the provisions of the Act and the rules and 
regulations thereunder. The additional EM Contract proposed for 
clearing is similar to the SES contracts currently cleared by ICC, and 
will be cleared pursuant to ICC's existing clearing arrangements and 
related financial safeguards, protections and risk management 
procedures. Clearing of the additional EM Contract will allow market 
participants an increased ability to manage risk and ensure the 
safeguarding of margin assets pursuant to clearing house rules. ICC 
believes that acceptance of the new EM Contract, on the terms and 
conditions set out in the Rules, is 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, within the meaning of Section 17A(b)(3)(F) of the 
Act.\4\
---------------------------------------------------------------------------

    \3\ 15 U.S.C. 78q-1(b)(3)(F).
    \4\ Id.
---------------------------------------------------------------------------

    Clearing of the additional EM Contract will also satisfy the 
relevant requirements of Rule 17Ad-22,\5\ as set forth in the following 
discussion.
---------------------------------------------------------------------------

    \5\ 17 CFR 240.17Ad-22.
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(6)(i) \6\ requires each covered clearing agency to 
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, considers, and produces margin levels commensurate with, the 
risks and particular attributes of each relevant product, portfolio, 
and market. In terms of financial resources, ICC will apply its 
existing margin methodology to the new EM Contract, which are similar 
to the SES contracts currently cleared by ICC. ICC believes that this 
model will provide sufficient margin requirements to cover its credit 
exposure to its clearing members from clearing such contracts, 
consistent with the requirements of Rule 17Ad-22(e)(6)(i).\7\
---------------------------------------------------------------------------

    \6\ 17 CFR 240.17Ad-22(e)(6)(i).
    \7\ Id.
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(4)(ii) \8\ requires each covered clearing agency to 
establish, implement, maintain, and enforce written policies and 
procedures reasonably designed to effectively identify, measure, 
monitor, and manage its credit exposures to participants and those 
arising from its payment, clearing, and settlement processes, including 
by maintaining additional financial resources at the minimum to enable 
it to cover a wide range of foreseeable stress scenarios that include, 
but are not limited to, the default of the two participant families 
that would potentially cause the largest aggregate credit exposure for 
the covered clearing agency in extreme but plausible market conditions. 
ICC believes its Guaranty Fund, under its existing methodology,

[[Page 23712]]

will, together with the required initial margin, provide sufficient 
financial resources to support the clearing of the additional EM 
Contract, consistent with the requirements of Rule 17Ad-
22(e)(4)(ii).\9\
---------------------------------------------------------------------------

    \8\ 17 CFR 240.17Ad-22(e)(4)(ii).
    \9\ Id.
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(17) \10\ 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. ICC believes 
that its existing operational and managerial resources will be 
sufficient for clearing of the additional EM Contract, consistent with 
the requirements of Rule 17Ad-22(e)(17),\11\ as the new contracts are 
substantially the same from an operational perspective as existing 
contracts.
---------------------------------------------------------------------------

    \10\ 17 CFR 240.17Ad-22(e)(17)(i) and (ii).
    \11\ Id.
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(8), (9) and (10) \12\ requires each covered 
clearing agency to establish, implement, maintain, and enforce written 
policies and procedures reasonably designed to define the point at 
which settlement is final to be no later than the end of the day on 
which payment or obligation is due and, where necessary or appropriate, 
intraday or in real time; conduct its money settlements in central bank 
money, where available and determined to be practical by the Board, and 
minimize and manage credit and liquidity risk arising from conducting 
its money settlements in commercial bank money if central bank money is 
not used; and establish and maintain transparent written standards that 
state its obligations with respect to the delivery of physical 
instruments, and establish and maintain operational practices that 
identify, monitor, and manage the risks associated with such physical 
deliveries. ICC will use its existing rules, settlement procedures and 
account structures for the new EM Contract, which are similar to the 
SES contracts currently cleared by ICC, consistent with the 
requirements of Rule 17Ad-22(e)(8), (9) and (10) \13\ as to the 
finality and accuracy of its daily settlement process and addressing 
the risks associated with physical deliveries.
---------------------------------------------------------------------------

    \12\ 17 CFR 240.17Ad-22(e)(8), (9) and (10).
    \13\ Id.
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(2)(i) and (v) \14\ requires each covered clearing 
agency to 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. ICC determined to accept the additional 
EM Contract for clearing in accordance with its governance process, 
which included review of the contract and related risk management 
considerations by the ICC Risk Committee and approval by its Board. 
These governance arrangements continue to be clear and transparent, 
such that information relating to the assignment of responsibilities 
and the requisite involvement of the ICC Board and committees is 
clearly detailed in the ICC Rules and policies and procedures, 
consistent with the requirements of Rule 17Ad-22(e)(2)(i) and (v).\15\
---------------------------------------------------------------------------

    \14\ 17 CFR 240.17Ad-22(e)(2)(i) and (v).
    \15\ Id.
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(13) \16\ requires each covered clearing agency to 
establish, implement, maintain, and enforce written policies and 
procedures reasonably designed to ensure it has the authority and 
operational capacity to take timely action to contain losses and 
liquidity demands and continue to meet its obligations by, at a 
minimum, requiring its participants and, when practicable, other 
stakeholders to participate in the testing and review of its default 
procedures, including any close-out procedures, at least annually and 
following material changes thereto. ICC will apply its existing default 
management policies and procedures for the additional EM Contract. ICC 
believes that these procedures allow for it to take timely action to 
contain losses and liquidity demands and to continue meeting its 
obligations in the event of clearing member insolvencies or defaults in 
respect of the additional single name, in accordance with Rule 17Ad-
22(e)(13).\17\
---------------------------------------------------------------------------

    \16\ 17 CFR 240.17Ad-22(e)(13).
    \17\ Id.
---------------------------------------------------------------------------

(B) Clearing Agency's Statement on Burden on Competition

    ICC does not believe the proposed amendments will have any impact, 
or impose any burden, on competition not necessary or appropriate in 
furtherance of the purposes of the Act. As discussed above, the purpose 
of the proposed rule change is to adopt rules that will provide the 
basis for ICC to clear additional credit default swap contract. The 
additional EM Contract will be available to all ICC participants for 
clearing. The clearing of the additional EM Contract by ICC does not 
preclude the offering of the additional EM Contract for clearing by 
other market participants. Accordingly, ICC does not believe that 
clearance of the additional EM Contract will 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

    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-2023-005 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-2023-005. 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

[[Page 23713]]

internet website (https://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-2023-005 and 
should be submitted on or before May 9, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
---------------------------------------------------------------------------

    \18\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-08146 Filed 4-17-23; 8:45 am]
BILLING CODE 8011-01-P