[Federal Register Volume 89, Number 151 (Tuesday, August 6, 2024)]
[Notices]
[Pages 63997-64000]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-17282]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100620; File No. SR-ICC-2024-004]


Self-Regulatory Organizations; ICE Clear Credit LLC; Order 
Approving Proposed Rule Change, as Modified by Amendment No. 1, 
Relating to the ICC Recovery Plan and the ICC Wind-Down Plan

July 31, 2024.

I. Introduction

    On June 4, 2024, 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 its 
Recovery Plan and Wind-Down Plan. On June 6, 2024, ICC filed Amendment 
No. 1 to the proposed rule change to make certain changes to Form 19b-4 
and Exhibit 1A.\3\ The proposed rule change, as modified by Amendment 
No. 1, was published for comment in the Federal Register on June 21, 
2024.\4\ 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\ Amendment No. 1 inserts a bullet point to the ``ICC Recovery 
Plan'' paragraph of the Form 19b-4 and the Exhibit 1A with the 
following text, ``description of Guaranty Fund Replenishment in 
Section VIII.B;''. Amendment No. 1 also removes the same bullet 
point from the ``ICC Wind-Down Plan'' paragraph of the Form 19b-4 
and Exhibit 1A.
    \4\ Self-Regulatory Organizations; ICE Clear Credit LLC; Notice 
of Filing of Proposed Rule Change, as Modified by Amendment No. 1, 
Relating to the ICC Recovery Plan and the ICC Wind-Down Plan; 
Exchange Act Release No. 100335 (June 14, 2024), 89 FR 52138 (June 
21, 2024) (File No. SR-ICC-2024-004) (``Notice'').
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II. Description of the Proposed Rule Change

A. Background

    ICC is registered with the Commission as a clearing agency for the 
purpose of clearing Credit Default Swap (``CDS'') contracts.\5\ The 
proposed rule change would amend both the Recovery Plan and the Wind-
Down Plan, which serve as plans for the recovery and orderly wind-down 
of ICC, respectively, if such recovery or wind-down is necessitated by 
credit losses, liquidity shortfalls, losses from general business risk, 
or any other losses incurred by ICC. The Recovery Plan is designed to 
establish ICC's actions to maintain its viability as a going concern by 
addressing any uncovered credit loss, liquidity shortfall, capital 
inadequacy, or business, operational or other structural weakness that 
threatens ICC's viability as a going concern. The Wind-Down Plan is 
designed to establish how ICC could be wound down in an orderly manner 
in the event that it cannot continue as a going concern.
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    \5\ Capitalized terms not otherwise defined herein have the 
meanings assigned to them in ICC's Recovery Plan, Wind-Down Plan, or 
Clearing Rules, as applicable.
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B. Recovery Plan

    ICC proposes general updates and edits to its Recovery Plan to 
promote clarity and to ensure that the information in it is current. 
The proposed amendments to the Recovery Plan reflect and relate to 
changes that impacted ICC in the past year. To that end, the current 
Recovery Plan includes in the introduction a disclaimer that, unless 
otherwise specified, all information provided in the plan is current as 
of December 31, 2022. The proposed rule change would update that date 
to December 31, 2023.
    The proposed amendments reflect and relate to changes that impacted 
ICC in the past year, including the addition of new ICC clearing 
participants (``CP'') (Intesa Sanpaolo S.P.A. and Royal Bank of 
Canada), the addition of British Pounds Sterling cash (``GBP'') as 
acceptable client-related initial margin, the removal of references to 
ICE Clear Europe Limited (``ICEEU'') CDS clearing as that service has 
closed, and a change to the Managers of the ICC Board of Managers (the 
``Board'').
    Section IV covers key recovery elements. Within this section, the 
proposed rule change would update clearing participation (IV.B), 
management and governance (IV.C), key

[[Page 63998]]

performance metrics (IV.D), and collateral management (IV.E). In 
Section IV.B, ICC proposes to add new CP Intesa Sanpaolo S.p.A and CP 
Royal Bank of Canada. In Section IV.C, ICC would update the description 
of the non-independent managers appointed by ICE US Holding Company 
L.P. The proposed rule change would amend the description to remove 
Christopher Edmonds as an independent director of ICE Inc. He is 
replaced by Elizabeth King, Head of Global Clearing and Chief 
Regulatory Officer at Intercontinental Exchange, Inc. Currently, Sumit 
Roy, an independent manager nominated by the ICC risk committee and 
appointed by ICE Holding, is listed as a Senior Portfolio Manager at 
Magnetar Capital. He is now listed as former Senior Portfolio Manager 
at Magnetar Capital. In Section IV.D, ICC would update its revenues, 
volumes, and expenses for years 2022 and 2023.
    In Sections IV.B and IV.E, ICC would make changes to collateral 
valuation \6\ and to reflect the addition of GBP as acceptable 
margin,\7\ which reflects recent ICC rule changes. In Section IV.B, ICC 
added language stating that acceptable forms of collateral for initial 
margin now include GBP. In response to the addition of GBP, ICC 
proposes to revise Section IV.E to clarify the description of ICC's 
collateral valuation process to cover all collateral types accepted by 
ICC. ICC previously made changes to its collateral valuation policy 
under its treasury policy. First, ICC changed the the way it values the 
collateral that Clearing Participants provide to ICC to cover their 
margin and guaranty fund requirements. Second, ICC made changes to 
address circumstances under which it would use a foreign exchange 
facility to convert one currency to another. ICC made changes to 
Section IV.E to amend its collateral valuation to reflect those 
changes.
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    \6\ Self-Regulatory Organizations; ICE Clear Credit LLC; Order 
Approving Proposed Rule Change Relating to to ICC's Treasury 
Operations Policies and Procedures, Exchange Act Release No. 98572 
(Sep. 27, 2023); 88 FR 68211 (Oct. 3, 2023) (SR-ICC-2023-013).
    \7\ Self-Regulatory Organizations; ICE Clear Credit LLC; Order 
Approving Proposed Rule Change Relating to British Pounds Sterling 
as Client-Related Margin, Exchange Act Release No. 97489 (May 11, 
2023); 88 FR 31571 (May 17, 2023) (SR-ICC-2023-003).
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    The proposed rule change also would amend Section VI of the 
Recovery Plan, which covers interconnections and interdependencies. 
Specifically, ICC proposes to amend the sections covering operational 
(VI.A) and financial (VI.B) interdependencies. The proposed rule change 
would update the Material Legal Entity (``MLE'') Interrconnections 
Chart in the introduction to Section VI. The proposed updates to 
Section VI.A would reflect changes in the last year and would update 
the descriptions of ICC's personnel and facilities, as well as its in-
house systems and third-party system. Section VI.B currently includes a 
``Counterparty Chart'' that lists all of ICC's CPs and indicates which 
function(s) each CP performs (i.e., Clearing Participant, Custodian, 
Depository, etc.). The proposed rule change would update this chart to 
reflect the addition of new CPs as discussed above.
    The proposed rule change would update the description of monitoring 
mechanisms for CP default in Section VII.A of the Recovery Plan, which 
addresses ICC's stress scenarios. In Section VII.A, ICC also proposes 
the addition of a citation to Exchange Act Rule 17Ad-22(e)(4) (17 CFR 
240.17Ad-22(e)(4)) to reflect and reference the applicable regulations 
more accurately.
    The proposed rule change would make several updates to Section VIII 
of the Recovery Plan, which addresses ICC's recovery tools, primarily 
in Section VIII.B. In Section VIII.B, the proposed rule change first 
would add a reference to ICC's initial auction procedures. In various 
subsections of Section VIII.B, the proposed rule change would update 
financial information to reflect the current information available. 
Within Section VIII, in relation to direct infusion of cash to ICC from 
Parent/ICE Group, ICC would update the current description of ICC's, 
ICE Inc.'s, and ICE Group's respective year-end cash balances to 
reflect their most current consolidated balance sheets and update the 
management contact. ICC also adds ``and SEC'' in referencing initial 
margin requirements and financial resource requirements of the CFTC, so 
that it now also includes SEC regulations. Section X of the Recovery 
Plan identifies ICC's Financial Resources for Recovery. The proposed 
rule change would update the expected costs of recovery and wind-down, 
including expenses related to legal services, consulting, operations, 
regulatory capital requirements, and other wind-down costs to reflect 
current estimates and expenses.
    Section XI of the Recovery Plan (financial information) provides 
the balance sheet and income statement for ICC and the consolidated 
balance sheet and income statement for ICE Inc. and its subsidiaries. 
The proposed rule change would update the financial information in this 
section to reflect the most current financial statements for both 
entities.
    In Section XIII, which covers management information systems, the 
proposed rule change would update the key ICC reports and descriptions 
to remove references to reports that ICC no longer uses and add 
references to new reports. The proposed rule change would update 
Section XI, Appendix C, which covers banking institutions and the 
percentage of the guaranty fund, customer margin, and house margin held 
at each institution as of December 31, 2021. ICC proposes to change the 
date to December 31, 2023 and update the percentage of holdings for the 
guaranty fund, customer margin, and house margin at each banking 
institution. Finally, the proposed rule change would make non-
substantive typographical fixes in the ICC Recovery Plan, including 
grammatical and formatting changes.

C. Wind-Down Plan

    ICC proposes updates and edits to the Wind-Down Plan that reflect 
and relate to changes that have impacted ICC in the past year, as well 
as general updates and edits to promote clarity and to ensure that the 
information provided is current. The changes that impacted ICC in the 
past year include the addition of new CPs (Intesa Sanpaolo S.p.A. and 
Royal Bank of Canada), the removal of references to ICEEU as that 
service has closed, and a change to the Managers of the Board.
    The current Wind-Down Plan includes in the introduction a 
disclaimer that, unless otherwise specified, all information provided 
in the plan is current as of December 31, 2022. The proposed rule 
change would update that date to December 31, 2023.
    Section II of the Wind-Down Plan is an overview of the structure of 
ICC. Section II.A addresses ownership of ICC. ICC states that, within 
the ICE Group's activities, there are eight derivatives exchanges and a 
total of six clearing houses including ICC. ICC proposes to remove the 
word ``to.'' Section IV addresses membership and ICC governance. The 
proposed rule change would amend Section IV.B to reflect that 
Christopher Edmonds was not reappointed and Elizabeth King, as 
discussed above, was appointed as an independent director instead. 
Additionally, the proposed rule change would update Section IV.A to 
reflect the addition of two new CPs, as discussed above.
    Section VII of the Wind-Down Plan discusses ICC's interconnections 
and interdependencies, and the impact of each on the Wind-Down Plan. 
For example, as explained in the introduction to this section, ICC 
relies

[[Page 63999]]

on affiliated entities for certain operational and financial services. 
The Wind-Down Plan considers certain of these affiliated entities to be 
``Material Legal Entities.'' As defined in the Wind-Down Plan, a 
Material Legal Entity is a legal entity that is significant to ICC's 
activities and the delivery of clearing services.
    The Wind-Down Plan identifies ICE Inc. as ICC's sole Material Legal 
Entity. Currently, the Wind-Down Plan explains that ICC relies on ICE 
Inc. for certain shared services, such as accounting, HR, facilities, 
and intellectually property. The proposed rule change would expand this 
list of examples to include corporate finance, internal audit, 
enterpretrise risk management, and systems operations. These additions 
would help ensure that the Wind-Down Plan describes the current scope 
of services provided to ICC by ICE Inc.
    Section VII.C describes ICC's operational services, including the 
facilities where it operates. The proposed rule change would add to the 
description of facilities a description of ICC's office in 
Jacksonville, Florida. This description would include a list of the 
activities performed out of the Jacksonville facility, such as legal 
and compliance functions. Also in VII.C, the proposed rule change would 
update the number of ICC employees to reflect the current headcount, 
including breakdowns by various functions. Finally, the proposed rule 
change would update the table of ICC's third-party systems and the 
table of ICC's in-house systems to remove certain systems no longer in 
use.
    Section VII.D describes financial services provided to ICC. Section 
VII.D contains a chart of ICC's counterparties and categorizes these 
counterparties by type (such as CP, custodian, investment manager). The 
proposed rule change would update this chart to reflect the new CPs 
noted above.
    Section IX of the Wind-Down Plan addresses financial resources to 
support wind-down. ICC would update this section to reflect current 
financial information, including revenues and operating costs.
    Finally, the proposed rule change would update Section XI, Appendix 
C, which covers banking institutions and the percentage of the guaranty 
fund, customer margin, and house margin held at each institution as of 
December 31, 2021. ICC proposes to change the date to December 31, 2023 
and update the percentage of holdings for the guaranty fund, customer 
margin, and house margin at each banking institution.

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.\8\ Under the Commission's Rules of Practice, the ``burden 
to demonstrate that a proposed rule change is consistent with the 
Exchange Act and the rules and regulations issued thereunder . . . is 
on the self-regulatory organization [`SRO'] that proposed the rule 
change.'' \9\
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    \8\ 15 U.S.C. 78s(b)(2)(C).
    \9\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR 
201.700(b)(3).
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    The description of a proposed rule change, its purpose and 
operation, its effect, and a legal analysis of its consistency with 
applicable requirements must all be sufficiently detailed and specific 
to support an affirmative Commission finding,\10\ and any failure of an 
SRO to provide this information may result in the Commission not having 
a sufficient basis to make an affirmative finding that a proposed rule 
change is consistent with the Exchange Act and the applicable rules and 
regulations.\11\ Moreover, ``unquestioning reliance'' on an SRO's 
representations in a proposed rule change is not sufficient to justify 
Commission approval of a proposed rule change.\12\
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    \10\ Id.
    \11\ Id.
    \12\ Susquehanna Int'l Group, LLP v. Securities and Exchange 
Commission, 866 F.3d 442, 447 (D.C. Cir. 2017) (``Susquehanna'').
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    After carefully considering the proposed rule change, the 
Commission finds that the proposed rule change is consistent with the 
requirements of the Exchange Act and the rules and regulations 
thereunder applicable to ICC. For the reasons given below, the 
Commission finds that the proposed rule change, as modified by 
Amendment No. 1, is consistent with Section 17A(b)(3)(F) of the Act 
\13\ and Rule 17Ad-22(e)(3)(ii).\14\
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    \13\ 15 U.S.C. 78q-1(b)(3)(F).
    \14\ 17 CFR 240.17Ad-22(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 ICC be designed, to promote the prompt and accurate 
clearance and settlement of securities transactions and, to the extent 
applicable, derivative agreements, contracts, and transactions, as well 
as to assure the safeguarding of securities and funds which are in the 
custody or control of ICC or for which it is responsible.\15\
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    \15\ 15 U.S.C. 78q-1(b)(3)(F).
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    As noted above, the proposed rule change primarily would update the 
Recovery Plan and Wind-Down Plan with current information about ICC's 
facilities, finances, and Board. By providing the most current 
information for ICC's revenues, volumes, and expenses, the proposed 
rule change will support ICC's ability to monitor its finances and 
compare its regulatory capital to its estimated recovery and wind-down 
costs. This in turn will help ensure ICC has the financial resources to 
promptly and accurately clear and settle transactions during recovery 
and, if necessary, conduct an orderly wind-down.
    Further, updating the Counterparty Chart to reflect both new CPs 
and the addition of GBP as acceptable margin will generally support 
those utilizing the Plans by providing users of the Plans with a 
correct overview of ICC's CPs and currencies accepted. These proposed 
changes would strengthen both plans by ensuring those utilizing them 
have information necessary to carry out recovery or an orderly wind-
down, which in turn should help ICC to promptly and accurately clear 
and settle transactions during recovery and, if necessary, conduct an 
orderly wind-down.
    ICC's CPs provide cash and securities to ICC to satisfy their 
various guaranty fund and margin requirements. ICC in turn allocates 
these funds and securities among different financial institutions, 
including its accounts at the Federal Reserve Bank of Chicago and at 
certain depository institutions. ICC proposes to update the description 
of the allocation of funds among these acccounts to reflect current 
allocations. Like the other changes discussed above, these proposed 
changes would strengthen the plans by providing a correct overview of 
ICC's usage of its financial accounts. Users of the plans could utilize 
this information to carry out recovery or an orderly wind-down. Thus, 
these changes would help ICC to promptly and accurately clear and 
settle transactions during recovery and, if necessary, conduct an 
orderly wind-down.
    For the reasons stated above, the Commission believes that the 
proposed rule change, as modified by Amendment No. 1, is consistent 
with Section 17A(b)(3)(F) of the Act.\16\
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    \16\ 15 U.S.C. 78q-1(b)(3)(F).

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[[Page 64000]]

B. 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.\17\
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    \17\ 17 CFR 240.17Ad-22(e)(3)(ii).
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    The proposed changes described above would support ICC's 
maintenance of plans for the recovery and orderly wind-down of ICC by 
helping ensure that the plans are updated with current, accurate 
financial, personnel, and Board information. The proposed rule change 
also updates details regarding the allocation of guaranty fund and 
margin among ICC's financial institutions, which helps ensure that 
those using the plans have current financial information and an 
accurate understanding of the potential resources available for 
recovery or an orderly wind-down.
    Therefore, the Commission finds that the proposed rule change, as 
modified by Amendment No. 1, is consistent with Rule 17Ad-
22(e)(3)(ii).\18\
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    \18\ 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 \19\ and Rule 17Ad-22(e)(3)(ii).\20\
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    \19\ 15 U.S.C. 78q-1(b)(3)(F).
    \20\ 17 CFR 240.17Ad-22(e)(3)(ii).
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    It is therefore ordered pursuant to Section 19(b)(2) of the Act 
\21\ that the proposed rule change, as modified by Amendment No. 1 (SR-
ICC-2024-004), be, and hereby is, approved.\22\
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    \21\ 15 U.S.C. 78s(b)(2).
    \22\ 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.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-17282 Filed 8-5-24; 8:45 am]
BILLING CODE 8011-01-P