[Federal Register Volume 88, Number 124 (Thursday, June 29, 2023)]
[Notices]
[Pages 42126-42128]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-13864]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97792; File No. SR-ICC-2023-008]


Self-Regulatory Organizations; ICE Clear Credit LLC; Order 
Approving Proposed Rule Change Relating to the ICC Clearing Participant 
Default Management Procedures

June 26, 2023.

I. Introduction

    On May 2, 2023, ICE Clear Credit LLC (``ICC'') filed with the 
Securities and Exchange Commission (``Commission''), pursuant to 
Section 19(b)(2) of the Securities Exchange Act of 1934 (the ``Act'') 
\1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to amend the 
ICC Clearing Participant Default Management Procedures. The proposed 
rule change was published for comment in the Federal Register on May 
12, 2023.\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.
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    \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 ICC Clearing 
Participant Default Management Procedures; Exchange Act Release No. 
97455 (May 8, 2023), 88 FR 30812 (May 12, 2023) (File No. SR-ICC-
2023-008) (``Notice'').
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II. Description of the Proposed Rule Change

    ICC is registered with the Commission as a clearing agency for the 
purpose of clearing CDS contracts. ICC clears CDS contracts for its 
members, which it refers to as Clearing Participants.\4\ Clearing CDS 
contracts for Clearing Participants presents certain risks to ICC, such 
as the risk that a Clearing Participant may default on payments or 
other obligations it owes to ICC. Accordingly, ICC has developed a 
comprehensive set of tools to manage and mitigate such risks. These 
tools include, among other things, collecting margin from Clearing 
Participants, maintaining a Guaranty Fund, and establishing procedures 
to manage a Clearing Participant's default.
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    \4\ Capitalized terms not otherwise defined herein have the 
meanings assigned to them in the ICC Clearing Participant Default 
Management Procedures or the ICC Clearing Rules.
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    The proposed rule change relates to the third set of risk 
management tools--procedures that explain what happens when a Clearing 
Participant is in default and how ICC responds to the default, which 
ICC refers to as its Clearing Participant Default Management Procedures 
(the ``Procedures''). The proposed rule change would amend the 
Procedures.
    The proposed rule change would add Section 4.6 to the Procedures, 
which would explain how ICC tests both its Recovery Plan and its Wind-
Down Plan (together the ``Plans''). ICC would test the Plans at least 
once every twelve months, and the purpose of these annual tests would 
be to demonstrate that ICC is ready to execute the Plans when needed. 
ICC would need to execute the plans, for example, in the following 
circumstances: (i) to address uncovered credit losses, liquidity 
shortfalls and general business risk, operational risk, or any other 
risk that threatens ICC's viability as a going concern and (ii) to 
wind-down ICC in an orderly manner.
    Section 4.6 would detail (i) the ICC personnel responsible for 
planning and conducting the tests and (ii) the overall scope of the 
tests. With respect to responsible personnel, the ICC Risk Oversight 
Officer (``ROO'') would have overall responsibility for planning and 
coordinating the execution of each test. In doing so, the ROO would 
work with other members of the Close-Out Team \5\ to determine the 
scope of the test. The proposed scope and format of the test would be 
presented to the ICC Board of Managers for review prior to execution of 
the test. After Board review, the Close-Out Team would then be 
responsible for executing the tests, capturing the results of the 
tests, and providing the results to the ROO.
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    \5\ The ICC Close-Out Team is comprised of ICC management, the 
ROO, and the most senior member of the ICC Treasury Department.
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    Once provided with the results, the ROO would collate the 
information, summarize any lessons learned, and identify possible 
revisions that should be made to the Plans. The ROO would then develop 
a presentation to summarize the tests. The Close-Out Team, ICC Risk 
Committee, and Board would review this presentation. Going forward, the 
ROO would maintain a list of work items for the future development and/
or enhancement of the business processes and capabilities necessary to 
execute the Plans.
    With respect to the overall scope of each test, this would include 
choosing the recovery and wind-down scenarios and the recovery tools to 
test. In choosing the scenarios and tools, ICC would give consideration 
to scenarios, business processes, and tools which have not been 
recently tested. In addition, ICC would consider the applicability of 
new Rules, procedures, or newly implemented ICC capabilities

[[Page 42127]]

(such as new cleared contracts). Finally, Section 4.6 would specify 
that ICC would always include in the test all three wind-down options 
set forth in the Wind-Down Plan.
    Section 4.6 would also state that ICC could conduct some of the 
testing as part of its annual default management tests. Specifically, 
Section 4.6 would explain that ICC may test those parts of the Plans 
that address a Clearing Participant's default, such as business 
processes and tools, as part of its annual default management tests. 
With respect to the business processes and tools to address losses not 
related to a Clearing Participant's default, however, Section 4.6 would 
clarify that ICC will test those in a separate table-top exercise. ICC 
will test those parts of the Plans that relate to non-default losses 
apart from its annual default management tests.

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.\6\ For the reasons given below, the Commission finds that 
the proposed rule change is consistent with Section 17A(b)(3)(F) of the 
Act \7\ and Rules 17Ad-22(e)(2)(i), (e)(2)(v), and (e)(3)(ii) \8\ 
thereunder.
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    \6\ 15 U.S.C. 78s(b)(2)(C).
    \7\ 15 U.S.C. 78q-1(b)(3)(F).
    \8\ 17 CFR 240.17Ad-22(e)(2)(i), (e)(2)(v), and (e)(3)(ii).
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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 ICE Clear Credit be designed to promote the prompt and 
accurate clearance and settlement of securities transactions and, to 
the extent applicable, derivative agreements, contracts, and 
transactions.\9\ Based on its review of the record, and for the reasons 
discussed below, the Commission believes the proposed changes to the 
Procedures are consistent with the promotion of the prompt and accurate 
clearance and settlement of securities transactions.
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    \9\ 15 U.S.C. 78q-1(b)(3)(F).
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    As discussed above, the proposed rule change would modify the 
Procedures to require that ICC conduct annual testing of the Plans. 
Section 4.6 also would detail (i) the ICC personnel responsible for 
planning and conducting the tests and (ii) the overall scope of the 
tests. The Commission believes that requiring annual testing and 
establishing relevant responsibilities for conducting the tests would 
each help to ensure that ICC tests the Plans at least once every twelve 
months. The Commission further believes that the proposed scope for the 
tests would help to ensure that the tests identify any possible issues 
with, or improvements to, the Plans. Thus, the Commission believes that 
the proposed rule change would help to ensure that ICC maintains and 
enforces an effective Recovery Plan and an effective Wind-Down Plan.
    The Commission believes that ICC's Recovery Plan is designed to 
help ICC promote the prompt and accurate clearance and settlement of 
securities transactions, by providing a roadmap for actions it may 
employ to monitor and manage its risks, and, as needed, to stabilize 
its financial condition in the event those risks materialize. The 
Commission similarly believes ICC's Wind-Down Plan is designed to help 
ICC to promote the prompt and accurate clearance and settlement of 
securities transactions by providing a roadmap to wind-down as needed. 
The Commission believes the actions set forth in the Plans would help 
to ensure the availability of ICC's services to the marketplace in the 
event of a recovery or wind-down, while reducing disruption to the 
operations of Clearing Participants and financial markets.\10\ The 
Commission thus believes both Plans would help ICC to avoid disruption 
to its operations, and therefore promote ICC's ability to promptly and 
accurately clear and settle transactions.
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    \10\ For a further discussion of the Plans, see Self-Regulatory 
Organizations; ICE Clear Credit LLC; Order Approving Proposed Rule 
Change Relating to the ICC Recovery Plan and the ICC Wind-Down Plan, 
Exchange Act Release No. 91806 (May 10, 2021), 86 FR 26561 (May 14, 
2021) (SR-ICC-2021-005).
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    Because the proposed rule change would help ICC to maintain, 
enforce, and improve the Plans, and because the Commission believes the 
Plans would promote the prompt and accurate clearance and settlement of 
securities transactions, the Commission therefore believes the proposed 
rule change would promote the prompt and accurate clearance and 
settlement of securities transactions, consistent with Section 
17A(b)(3)(F) of the Act.\11\
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    \11\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rules 17Ad-22(e)(2)(i) and (v)

    Rules 17Ad-22(e)(2)(i) and (v) require ICC to establish, implement, 
maintain, and enforce written policies and procedures reasonably 
designed to, as applicable, provide for governance arrangements that 
are clear and transparent and specify clear and direct lines of 
responsibility.\12\ The Commission believes the governance arrangements 
for testing the Plans, as discussed above, would be clear and 
transparent and would specify clear and direct lines of responsibility. 
For example, the ROO would, among other things, have overall 
responsibility for planning and coordinating the execution of each 
test; work with other members of the Close-Out Team to determine the 
scope of each the test; and collate and summarize the results of each 
test. The Close-Out Team would be responsible for executing the tests, 
capturing the results of the tests, and providing the results to the 
ROO. The Board would review the scope and format prior to the execution 
of each test as well as the results of each test. The Commission 
believes overall these arrangements would be clear and transparent and 
specify clear and direct responsibilities for the ROO, Close-Out Team, 
and Board, consistent with Rules 17Ad-22(e)(2)(i) and (v).\13\
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    \12\ 17 CFR 240.17Ad-22(e)(2)(i), (v).
    \13\ 17 CFR 240.17Ad-22(e)(2)(i), (v).
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C. Consistency With Rule 17Ad-22(e)(3)(ii)

    Rule 17Ad-22(e)(3)(ii) requires ICC to establish, implement, 
maintain, and enforce written policies and procedures reasonably 
designed to maintain a sound risk management framework for 
comprehensively managing legal, credit, liquidity, operational, general 
business, investment, custody, and other risks that arise in or are 
borne by ICC, which includes plans for the recovery and orderly wind-
down of ICC necessitated by credit losses, liquidity shortfalls, losses 
from general business risk, or any other losses.\14\ As discussed 
above, the Commission believes the proposed rule change would help ICC 
to maintain, enforce, and improve the Plans. The Commission further 
believes that the Plans generally would provide for the recovery and 
orderly wind-down of ICC necessitated by credit losses, liquidity 
shortfalls, losses from general business risk, or any other losses.\15\ 
The Commission therefore believes that the proposed rule change, in 
helping to maintain, enforce, and improve the

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Plans, would be consistent with Rule 17Ad-22(e)(3)(ii).\16\
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    \14\ 17 CFR 240.17Ad-22(e)(3)(ii).
    \15\ For a further discussion of the Plans, see Self-Regulatory 
Organizations; ICE Clear Credit LLC; Order Approving Proposed Rule 
Change Relating to the ICC Recovery Plan and the ICC Wind-Down Plan, 
Exchange Act Release No. 91806 (May 10, 2021), 86 FR 26561 (May 14, 
2021) (SR-ICC-2021-005).
    \16\ 17 CFR 240.17Ad-22(e)(3)(ii).
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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, and Rules 17Ad-22(e)(2)(i), (e)(2)(v), and (e)(3)(ii) 
thereunder.\17\
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    \17\ 15 U.S.C. 78q-1(b)(3)(F); 17 CFR 240.17Ad-22(e)(2)(i), 
(e)(2)(v), and (e)(3)(ii).
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    It is therefore ordered pursuant to Section 19(b)(2) of the Act 
\18\ that the proposed rule change (SR-ICC-2023-008), be, and hereby 
is, approved.\19\
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    \18\ 15 U.S.C. 78s(b)(2).
    \19\ 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.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 2023-13864 Filed 6-28-23; 8:45 am]
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