[Federal Register Volume 89, Number 238 (Wednesday, December 11, 2024)]
[Notices]
[Pages 99917-99923]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-29038]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101820; File No. SR-ICC-2024-010)
Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of
Filing and Order Granting Accelerated Approval of Proposed Rule Change
Relating to the Governance Playbook and Seventh Amended and Restated
Operating Agreement
December 5, 2024
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
November 22, 2024, ICE Clear Credit LLC (``ICE Clear Credit'' or
``ICC'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II 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 and to approve the
proposed rule change on an accelerated basis.
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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 revise
ICC's (i) Governance Playbook (the ``Playbook''), and (ii) Seventh
Amended and Restated Operating Agreement (the ``Operating Agreement'').
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,
security-based swap submission, or advance notice and discussed any
comments it received on the proposed rule change, security-based swap
submission, or advance notice. 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, Security-Based Swap Submission, or
Advance Notice
(a) Purpose
The amendments are intended principally to provide for the
establishment of a Nominating Committee. ICC believes that such
revisions will facilitate the prompt and accurate clearance and
settlement of securities transactions and derivative agreements,
contracts, and transactions for which it is responsible. ICC proposes
to make such changes effective following Commission approval of the
proposed rule change. The proposed revisions are described in detail as
follows.
I. Operating Agreement
ICC would amend and restate its Operating Agreement \3\ to add a
Nominating Committee. As provided in revised Section 3.12 of the
Operating Agreement, the Board will establish and maintain a Board
level Nominating Committee which will be responsible for evaluating the
independence and fitness of the persons proposed to be designated as
Managers of the Board. In connection with this addition, the amendments
would add a definition of `Nominating Committee' to Section 1.01 of the
Operating Agreement. Furthermore, proposed Section 3.12(a) of the
Operating Agreement provides that the Nominating Committee will be
composed of at least three members, a majority of which are required to
be independent (i.e., either a Parent Independent Manager \4\ or a Risk
Committee Independent Manager \5\). Two of the members of the
Nominating Committee will be required to be Managers nominated to the
Board by the Risk Committee, and one of these Risk Committee nominees
will be required to be a Risk Committee Independent Manager, and the
other Risk Committee nominee is not required to be an independent
(i.e., they may be a Risk Committee Non-Independent Manager \6\). The
chairperson of the
[[Page 99918]]
Nominating Committee will be a Parent Independent Manager. Proposed
Section 3.12(b) of the Operating Agreement provides that the Nominating
Committee will have access to the records of ICC, as well as access to
Managers of the Board, and ICC officers and employees. The Nominating
Committee will meet as needed to fulfill its duties, but in no event
less than annually. Proposed Section 3.12(c) of the Operating Agreement
provides for the limitation of the fiduciary duties on the members of
the Nominating Committee. Such proposed limitation of fiduciary duties
on members of the Nominating Committee is analogous to the current
limitation of fiduciary duties provided in the Operating Agreement for
members of the ICC Audit Committee and Managers of the Board.
Specifically, proposed Section 3.12(c) provides that notwithstanding
any provision of, any duty otherwise existing under, or anything to the
contrary at applicable law (whether common or statutory), in equity or
otherwise, the Operating Agreement is not intended to, and does not,
create or impose any fiduciary duties on the members of the Nominating
Committee. Further, each of the Parent and the other parties to or
bound under the Operating Agreement waives any and all fiduciary duties
that, absent such waiver or otherwise, may be implied or may otherwise
apply under applicable law (whether common or statutory), in equity or
otherwise to the members of the Nominating Committee. In addition, the
parties to the Operating Agreement agree that the only duties and
obligations of the members of the Nominating Committee to ICC, the
Parent, ICC Clearing Participants, or any other person under applicable
law (whether common or statutory), in equity or otherwise, are limited
solely to performing those contractual duties expressly set forth in
the Operating Agreement. Proposed Section 3.12(c) further provides that
that none of the foregoing waivers or limitations shall be construed as
eliminating the implied covenant of good faith and fair dealing.
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\3\ Following Commission approval, ICC proposes to implement the
collective changes to the Operating Agreement proposed herein and
the changes to the Operating Agreement described in ICC rule filing
SR-ICC-2024-009 (approved by the Commission and available here:
https://www.federalregister.gov/documents/2024/10/24/2024-24638/self-regulatory-organizations-ice-clear-credit-llc-order-approving-proposed-rule-change-as-modified) in the same version of the amended
and restated Operating Agreement.
\4\ As defined in the Operating Agreement, `Parent Independent
Manager' means a Manager of the Board elected by the Parent that
meets the independence requirements of each of the New York Stock
Exchange listing standards, the Securities Exchange Act of 1934, and
Intercontinental Exchange, Inc. Board of Director Governance
Principles (collectively, the ``Independence Standards'').
\5\ As defined in the Operating Agreement, `Risk Committee
Independent Manager' means a Manager of the Board nominated by the
Risk Committee that meets the Independence Standards.
\6\ As defined in the Operating Agreement, `Risk Committee Non-
Independent Manager' means a Manager of the Board nominated by the
Risk Committee that is not required to meet the Independence
Standards.
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Furthermore, the amendments would modify Section 3.02 of the
Operating Agreement to add the Nominating Committee's role in the
evaluation of potential members of the Board. Specifically, Section
3.02(a) of the Operating Agreement would be revised to indicate that
the Parent shall not elect any person as a Manager of the Board until
the Nominating Committee provides their evaluation of such person to
the Parent. In addition, the amendments add the related definitions of
`Nominating Committee Evaluation' and `Nominating Committee Charter'
\7\ to Section 1.01 of the Operating Agreement.
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\7\ `Nominating Committee Evaluation' means, in respect of any
person, the Nominating Committee's written evaluation of such
person's independence and fitness for election as a Manager, based
on the standards and pursuant to the process set forth in the
Nominating Committee Charter. `Nominating Committee Charter' means
the Charter of the Nominating Committee.
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In addition, the amendments would add a definition of `SEC' to
Section 1.01 of the Operating Agreement. Furthermore, the amendments
would modify the current definition of `Governmental Authority'
contained in Section 1.01 of the Operating Agreement to include
reference to the SEC to reflect the list of governmental authorities
more accurately with jurisdiction over ICC. Lastly, the amendments
would add a reference to members of the Nominating Committee to the
definition of `Covered Persons' contained in Section 1.01 of the
Operating Agreement. Such change properly adds members of the new
Nominating Committee to the list of persons to which the liability and
indemnification provisions (contained in Article VI of the Operating
Agreement) apply.
II. Governance Playbook
ICE Clear Credit would also amend the Playbook to conform to the
amendments to the Operating Agreement discussed above. Section I and
Section III of the Playbook would be revised to add reference to
Commission Rule 17Ad-25 \8\ to the list of applicable regulations
covering the governance structure of ICC. Such change properly adds
reference to new Commission Rule 17Ad-25 \9\ as such rule applies to
the governance structure of Commission registered clearing agencies,
including ICC. Section II of the Playbook would be amended to add the
new Nominating Committee to the existing chart summarizing ICC's
governance structure. Section III of the Playbook would be amended to
add the defined term `Manager' to reference any individual member of
the Board. Furthermore, ICC's definition of the independence standards
it applies to independent Managers of the Board would be revised to
include a reference to Commission Rule 17Ad-25 \10\ which provides for
independence requirements for Commission registered clearing agencies,
including ICC. The amendments would also formalize the defined term
`Independence Standards.' Section III.A. of the Playbook would also be
amended to remove the fitness standards for serving as a Manager on
ICC's Board and, as a result, the related definition of `Qualified
Manager' would also be removed. As a replacement for these specified
fitness standards, the amendments would add a reference that the
fitness standards for serving as a Manager, and the criteria for
selecting new Managers will be specified by the new Nominating
Committee and thereafter approved by the Board. Such process for having
Manager fitness standards specified by the Nominating Committee is
intended to comply with new Commission Rule 17Ad-25(c)(3) \11\ which
requires this process. The amendments would add the defined term
`Manager Fitness Standards' to refer to these Nominating Committee
specified and Board approved fitness standards for Managers. The
Nominating Committee will be formed, and their process of specifying
the Manager Fitness Standards will occur, following Commission
approval, and ICC implementation, of these proposed rule changes. Once
such Manager Fitness Standards are specified by the new Nominating
Committee and are approved by the Board, they will be included as new
Appendix 1 to the Playbook. Due to the addition of Appendix 1,
subsequent appendices would be renumbered and references to such
appendices would be updated as well.
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\8\ 17 CFR 240.17ad-25.
\9\ Id.
\10\ Id.
\11\ 17 CFR 240.17ad-25(c)(3).
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Section III.B. of the Playbook would be revised to add the
Nominating Committee's role in the evaluation of potential members of
the Board. Specifically, the Nominating Committee shall provide their
evaluation and recommendation of an individual they believe to be
qualified to become a Manager of the Board to the Parent, consistent
with the Manager Fitness Standards. Furthermore, such section would be
amended to reference that the Nominating Committee may consult with the
Board, the Parent, the Risk Committee and ICC management regarding the
skills, experience, and incentives of the potential new Manager. As a
result of the addition of the Nominating Committee and its role in
evaluating potential new Managers, the provisions in Section III.B. of
the Playbook regarding the Parent's consultation and information
sharing related to potential new Managers is proposed to be removed as
this role will be assumed by the Nominating Committee. In addition, the
[[Page 99919]]
amendments will include a reference that the Parent will document their
election of a new Manager, typically through a unanimous written
consent of the directors of the Parent's general partner, to provide
additional transparency on current practices. Section III of the
Playbook would also be amended to add the Nominating Committee to the
list of parties that will be notified regarding the removal or
resignation of a current Manager. With respect to the election of
Managers designated by the Risk Committee, the amendments would add the
Nominating Committee to the list of parties that would receive the
biographical information of potential Managers designated by the Risk
Committee. The amendments would also indicate that the Nominating
Committees shall provide their evaluation and recommendation of
individuals designated by the Risk Committee for a Manager position.
Section III of the Playbook would also be revised with respect to
the annual election process of Managers by the Parent, noting that in
connection with this process, the Nominating Committee will provide the
Parent with their evaluation of any proposed new Manager which will be
based on the Board approved Manager Fitness Standards. With respect to
any re-designated Manager, the Nominating Committee will be added to
the list of parties that will receive details from ICC management
regarding each re-designated Manager's performance/attendance from the
previous year, including information specific to Nominating Committee
performance such as results from the Nominating Committee evaluation
process.
Section III.E. of the Playbook would be revised to add clarifying
information to ICC's conflicts of interest process regarding potential
Manager conflicts. Specifically, Section III.E. would be amended to
clarify that ICC's Code of Business Conduct and Ethics policy
applicable to Managers provides for the disclosure and resolution of
conflicts of interest, and further clarifies that resolution of Manager
conflicts of interest means mitigation or elimination.\12\ Such section
will also be amended to indicate that the ICC legal department will
maintain documentation of any conflicts of interest disclosed by
Managers and the mitigation or elimination thereof.
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\12\ Please note that the identification and resolution of
conflicts of interest covered in the Playbook relate to conflicts of
interest involving Managers. With respect to potential conflicts of
interest involving ICC staff (including senior managers), such
employee conflicts of interest are covered in other ICC policies and
procedures outside of the Playbook.
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Section III.F. of the Playbook would be revised to add the
Nominating Committee's role in evaluating and recommending to the Board
if each Manager, and any nominee for Manager, qualifies as independent
under the Independence Standards. Such evaluation by the Nominating
Committee shall be provided to the Board to aid in the Board's
independence determination with respect to each Manager. In addition,
ICC proposes amendments to clarify that (i) Nominating Committee
members shall recuse themselves from evaluating their own independence
and (ii) Managers shall recuse themselves from the determination of
their own independence. Such section would also be modified to use the
defined term Independence Standards. Furthermore, the independence
qualifications described in Section III.F. of the Playbook would be
modified to incorporate additional independence qualification
definitions provided in new Commission Rule 17Ad-25(a), for example the
definition of `family member.' To ensure compliance with the
independence qualification requirement of new Commission Rule 17Ad-
25(a),\13\ Section III.F. of the Playbook would be augmented with the
following additional relationships that would disqualify an individual
from being deemed independent:
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\13\ 17 CFR 240.17ad-25(a).
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In addition to an individual that is employee of an ICE
Group company, an individual that otherwise receives compensation from
an ICE Group company.
An individual with a family member that is (or has been in
the year prior to the determination date) an employee or otherwise
receives compensation from any ICE Group company.
An individual, or a family member of such individual, that
is or has been in the year prior to the determination date, receiving
payments from ICE Group companies that could reasonably affect the
independent judgement or decision-making of the individual (other than
director and committee fees of pension or other forms of deferred
compensation for prior services not contingent on continued service).
In addition to an individual that is an employee of a firm
that is the ICE Group's internal or external auditor, an individual
that has a family member who is either a partner of such auditing firm
or a current employee of such auditing firm, or the individual has a
family member that was within the prior year from the determination
date an employee or such auditing firm and personally worked on the ICE
Group audit within that time.
An individual with a family member that is, or has been
within the prior year from the determination date, employed as an
executive officer of another company where any of ICC's executive
officers at the same time serves or served on that company's
compensation committee.
An individual, or a family member of such individual, that
is or has been within the prior year from the determination date, a
partner or controlling shareholder on any organization to or from which
an ICE Group company is making or receiving payments for property or
services other than: (i) payments arising solely from investments in
the ICE Group company securities; or (ii) payments under non-
discretionary charitable contribution matching programs.
Further amendments would be made to the description of the ICC
annual independence questionnaire process to add the Nominating
Committee's role with respect to evaluating and recommending to the
Board if each Manager qualifies as independent under the Independence
Standards. Specifically, the section would be amended to indicate that
the completed independence questionnaires will be provided to the
Nominating Committee to aid in their evaluation/recommendation process.
In addition, ICC proposes amendments to describe the process followed
should the circumstances regarding an existing Manager's independence
change. Specifically, in such event, the Nominating Committee shall re-
evaluate and recommend to the Board whether such Manager continues to
qualify as independent under the Independence Standards. Following such
re-evaluation and recommendation by the Nominating Committee, the Board
shall determine if such Manager continues to be independent.
With respect to the Board performance review process described in
Section III.G. of the Playbook, such section would be revised to
indicate that the ICC General Counsel will provide a summary of all
Board performance survey results (including survey results related to
individual Board member performance) to the Nominating Committee.
In addition, Section IV of the Playbook would be revised to add the
Nominating Committee to the list of ICC's primary governance
committees. Furthermore, Section IV.B. would be
[[Page 99920]]
added to the Playbook to describe the Nominating Committee's purpose,
its membership composition, the new Nominating Committee member
administration procedures, the Nominating Committee meeting frequency,
the Nominating Committee performance review process, and the documents
relevant to the Nominating Committee. The additional sections
describing the Nominating Committee's purpose, its composition and its
meeting frequency reflect the same changes made to the Operating
Agreement described above. The section describing the new Nominating
Committee member administrative procedures provides an overview of the
steps that will be taken by the ICC legal department to onboard a new
member of the Nominating Committee (e.g., updating distribution lists
and updating the permissions of such individual on the Diligent
platform which is used to distribute materials to the Board and other
committees, including the Nominating Committee). The proposed revisions
also add a description of the Nominating Committee performance review
process and procedures. Such performance review process is conducted on
an annual basis and includes each member of the Nominating Committee
completing a self-evaluation survey. The annual review process is
designed to gather feedback on the operation of the Nominating
Committee and solicit suggestions for improvements, as well as provide
a forum for the identification of problems with respect to the
performance of the Nominating Committee. Such process includes the
compilation of a summary of the survey responses received from the
Nominating Committee by the ICC legal department, which are presented
to the entire Nominating Committee. Such summary shall include
disclosure of the minimum, maximum, and average score for each survey
item, as well as a summary of relevant comments received throughout the
process. The proposed process and procedures for the Nominating
Committee annual performance review process are fully analogous to the
performance review processes currently in place for both the Board and
the ICC Audit Committee. Lastly the revisions add information related
to relevant documents of the Nominating Committee (e.g., meeting
agendas, minutes and meeting materials), noting that such relevant
documents will be maintained by the ICC legal department on their
shared network drive.
ICC also proposes a number of other drafting clarifications and
conforming changes, such as updating use of relevant defined terms,
rule references and other non-substantive drafting improvements, would
also be made throughout the Playbook. Various provisions would also be
relabeled or renumbered in the Playbook. The amendments would also
update the revision history section to the Playbook.
(b) Statutory Basis
ICE Clear Credit believes that the proposed amendments to the
Operating Agreement and the Playbook are consistent with the
requirements of Section 17A of the Securities Exchange Act of 1934 (the
``Act'') \14\ and the regulations thereunder applicable to it. In
particular, Section 17A(b)(3)(F) of the Act \15\ 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, the safeguarding of securities and funds in the custody
or control of the clearing agency or for which it is responsible, and
the protection of investors and the public interest.
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\14\ 15 U.S.C. 78q-1.
\15\ 15 U.S.C. 78q-1(b)(3)(F).
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The proposed amendments are designed to reflect the addition of the
Nominating Committee to ICC's governance structure, consistent with
requirements of new Commission Rule 17Ad-25. The amendments provide
details on the purpose of the Nominating Committee and its composition.
In ICC's view, the amendments will improve ICC's governance structure
by reducing the likelihood that conflicts of interest may influence the
Board. Thus, the proposed amendments enhance the overall risk
management of ICC and are consistent with the prompt and accurate
clearance and settlement of securities transactions and derivatives
agreements, contracts and transactions, the safeguarding of securities
and funds which are in the custody or control of ICC or for which it is
responsible, and the protection of investors and the public interest in
the operation of clearing services, within the meaning of 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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The proposed amendments are also consistent with relevant
provisions of Rule 17Ad-22(e)(2) which provides that the ``covered
clearing agency shall establish, implement, maintain and enforce
written policies and procedures reasonably designed to, as applicable
[. . .] [p]rovide for governance arrangements that are [c]lear and
transparent'' \17\ and ``[c]onsider the interests of participants'
customers . . . and other relevant stakeholders of the covered clearing
agency.'' \18\ The proposed amendments are intended to add a Nominating
Committee to ICC's governance structure with the role of evaluating the
independence and fitness of the persons proposed to be designated as
Managers of the Board. As such, the Nominating Committee is intended to
improve ICC's governance structure by reducing the likelihood that
conflicts of interest my influence the Board. In ICC's view, the
amendments to the Operating Agreement and the Playbook are therefore
consistent with the requirements of Rule 17Ad-22(e)(2).\19\
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\17\ 17 CFR 240.17ad-22(e)(2)(i).
\18\ 17 CFR 240.17ad-22(e)(2)(vi).
\19\ 17 CFR 240.17ad-22(e)(2).
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The proposed amendments also are consistent with the relevant
provisions of Rule 17Ad-25(c) which provides that ``Each registered
clearing agency must establish a nominating committee and a written
evaluation process whereby such nominating committee shall evaluate
nominees for serving as directors and evaluate the independence of
nominees and directors.'' \20\ The proposed amendments add a new
Nominating Committee to ICC's governance structure with the role of
evaluating the independence and fitness of the persons proposed to be
designated as Managers of the Board. In ICC's view, the amendments to
the Operating Agreement and Playbook are therefore consistent with the
requirements of Rule 17Ad-25(c).\21\
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\20\ 17 CFR 240.17ad-25(c).
\21\ Id.
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The proposed amendments also are consistent with the relevant
provisions of Rule 17Ad-25(f) which provides for circumstances which
would ``preclude a director from being an independent director . . .
.'' \22\ The proposed amendments would add circumstances that would
disqualify individuals from being deemed independent consistent with
the requirements of Rule 17Ad-25(f).\23\ In ICC's view, the amendments
to the Operating Agreement and Playbook are therefore consistent with
the requirements of Rule 17Ad-25(f).\24\
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\22\ 17 CFR 240.17ad-25(f).
\23\ Id.
\24\ Id.
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(B) Clearing Agency's Statement on Burden on Competition
ICE Clear Credit does not believe the proposed amendments would
have any
[[Page 99921]]
impact, or impose any burden, on competition not necessary or
appropriate in furtherance of the purposes of the Act. The amendments
are being adopted to add a Nominating Committee. The amendments do not
otherwise change the rights and responsibilities of ICC or its market
participants. Accordingly, ICE Clear Credit does not believe the
amendments would affect the costs of clearing, the ability of market
participants to access clearing, or the market for clearing services
generally. Therefore, ICE Clear Credit does not believe the proposed
rule change imposes 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
Received From Members, Participants or Others
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. 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 (https://www.sec.gov/rules-regulations/self-regulatory-organization-rulemaking);
or
Send an email to [email protected]. Please include
File Number SR-ICC-2024-010 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-2024-010. 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 (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
a.m. and 3 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.
Do not include personal identifiable information in submissions;
you should submit only information that you wish to make available
publicly. We may redact in part or withhold entirely from publication
submitted material that is obscene or subject to copyright protection.
All submissions should refer to File Number SR-ICC-2024-010 and should
be submitted on or before December 31, 2024.
IV. Discussion and Commission's Findings
Section 19(b)(2)(C) of the Act requires the Commission to approve a
proposed rule change of a self-regulatory organization if it finds that
the proposed rule change is consistent with the requirements of the Act
and the rules and regulations thereunder applicable to the
organization.\25\ 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.'' \26\
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\25\ 15 U.S.C. 78s(b)(2)(C).
\26\ 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,\27\ 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 Act and the applicable rules and
regulations.\28\ 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.\29\
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\27\ Id.
\28\ Id.
\29\ 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 Act and the rules and regulations thereunder
applicable to ICC. More specifically, for the reasons given below, the
Commission finds that the proposed rule change is consistent with
Section 17A(b)(3)(A) and (F) of the Act \30\ and Rules 17Ad-22(e)(2)
and 17Ad-25 thereunder.\31\
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\30\ 15 U.S.C. 78q-1(b)(3)(F) and 15 U.S.C. 78q-1(b)(3)(F).
\31\ 17 CFR 240.17Ad-22(e)(2) and 17 CFR 240.17ad-25.
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A. Consistency With Section 17A(b)(3) of the Act
Section 17A(b)(3) of the Act requires, among other things, that ICC
be so organized and has the capacity to be able to comply with the
provisions of the Act and the rules and regulations thereunder,\32\ and
that ICC's rules be designed to foster cooperation and coordination
with persons engaged in the clearance and settlement of securities
transactions.\33\ Based on review of the record, and for the reasons
discussed below,\34\ ICC's changes are consistent with ICC being so
organized and having the capacity to comply with the provisions of the
Act and the rules and regulations thereunder and with fostering
cooperation and coordination with persons engaged in the clearance and
settlement of securities transactions. Accordingly, the proposed rule
change is consistent with the requirements of Sections 17A(b)(3)(A) and
(F) of the Act.\35\
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\32\ 15 U.S.C. 78q-1(b)(3)(A).
\33\ 15 U.S.C. 78q-1(b)(3)(F).
\34\ See infra Section IV. B. (Consistency with Rule 17Ad-
22(e)(2) under the Act).
\35\ 15 U.S.C. 78q-1(b)(3)(A) and 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rule 17Ad-22(e)(2) Under the Act
Rule 17Ad-22(e)(2) requires covered clearing agencies to, among
other things, provide for governance arrangements that are clear and
transparent,\36\ establish that the board of directors and senior
management have appropriate experience and skills to discharge their
duties and responsibilities,\37\ and specify clear and direct lines of
responsibility.\38\ In adopting Rule
[[Page 99922]]
17Ad-22(e)(2), the Commission provided guidance that a covered clearing
agency generally should consider in establishing and maintaining
policies and procedures, including, in part, whether the board of
directors contains suitable members with the appropriate skills and
incentives to fulfill the board's multiple roles, and whether the board
of directors should include non-executive board members.\39\
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\36\ 17 CFR 240.17Ad-22(e)(2)(i).
\37\ 17 CFR 240.17Ad-22(e)(2)(iv).
\38\ 17 CFR 240.17Ad-22(e)(2)(v).
\39\ Securities Exchange Act Release No. 78961 (Sept. 28, 2016),
81 FR 70786, 70806 (Oct. 13, 2016) (File No. S7-03-14) (``Standards
for Covered Clearing Agencies'').
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ICC's proposed changes would strengthen ICC's written independence
qualifications for current and potential Board members and establish a
Nominating Committee to evaluate Board members against these
independence qualifications. As discussed above, the proposed rule
change would update the Playbook to augment the list of relationships
that disqualify a person from being an independent member of the Board
by adding to the list new, additional relationships as specified in
Rule 17Ad-25 under the Exchange Act.\40\ For example, pursuant to the
current Playbook, an individual that is an employee of an ICE Group
company is not considered independent. Under the proposed rule change,
the Playbook would be updated to specify that an individual that
otherwise receives compensation from an ICE Group company also would
not be considered independent.
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\40\ 17 CFR 240.17ad-25.
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Strengthening the criteria by which ICC evaluates both current
Managers and nominees would help ICC review each individual nominee
within the broader context of the Board's overall makeup and the
specific skills, knowledge, experience, and perspectives represented by
each Manager and nominee. An increased focus on director independence
would help ensure that Managers have the appropriate incentives to
perform the Board's functions and fulfill its responsibilities.
Moreover, the addition of a Nominating Committee to ICC's governance
structure will help ensure that ICC evaluates the independence and
fitness of the persons proposed to be designated as Managers of the
Board as required by Rule 17Ad-25 under the Exchange Act.\41\
Accordingly, the proposed changes are consistent with ensuring that
ICC's board of directors contains members with the appropriate skills
and incentives to discharge their duties.
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\41\ 17 CFR 240.17ad-25.
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In addition to establishing the Nominating Committee, the proposed
changes also would establish the Nominating Committee's role,
responsibilities, and composition. Pursuant to ICC's revised Operating
Agreement, the Nominating Committee would have at least three members,
a majority of which would be independent. The Nominating Committee
would be responsible for evaluating and recommending individuals to be
members of the Board. For each potential member of the Board, the
Nominating Committee would produce a written evaluation of such
person's independence and fitness for election as a Manager, based on
the standards and pursuant to the process set forth in the Nominating
Committee Charter. These changes would establish clear and direct lines
of responsibility for the Nominating Committee.
Based on the foregoing, the proposed rule change is consistent with
the requirements of Rule 17Ad-22(e)(2) under the Act.\42\
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\42\ 17 CFR 240.17Ad-22(e)(2).
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C. Consistency With Rule 17Ad-25 Under the Act
Rule 17Ad-25 requires, among other things, that covered clearing
agencies establish a nominating committee, written evaluation process,
fitness standards, and evaluation of the independence of nominees and
directors.\43\
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\43\ 17 CFR 240.17ad-25.
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The amendments and revisions discussed above are consistent with
the relevant provisions of Rule 17Ad-25(c), which provides that
``[e]ach registered clearing agency must establish a nominating
committee and a written evaluation process whereby such nominating
committee shall evaluate nominees for serving as directors and evaluate
the independence of nominees and directors.'' \44\ As stated, ICC's
proposed changes would add a new Nominating Committee to ICC's Board,
with the role of evaluating the independence and fitness of the persons
proposed to be designated as members of the Board. The proposed changes
would establish the Nominating Committee's purpose, composition,
authority, and responsibilities. As discussed above, ICC's proposed
changes also would amend the Playbook to establish specific additional
relationships, as enumerated in Rule 17Ad-25,\45\ that would disqualify
a person from being an independent member of the Board.
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\44\ 17 CFR 240.17ad-25(c).
\45\ 17 CFR 240.17ad-25.
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Accordingly, based on the foregoing, the proposed rule change is
consistent with the requirements of Rule 17Ad-25 under the Act.\46\
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\46\ 17 CFR 240.17ad-25.
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V. Accelerated Approval of Proposed Rule Change
Under Section 19(b)(2) of the Act,\47\ the Commission may approve a
proposed rule change prior to the 30th day after the date of
publication of notice of filing of the proposed rule change in the
Federal Register if the Commission finds good cause for doing so.
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\47\ 15 U.S.C. 78s(b)(2).
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The Commission finds good cause, pursuant to Section 19(b)(2) of
the Act,\48\ to approve the proposed rule change prior to the 30th day
after the date of publication of notice of filing of the proposed rule
change in the Federal Register. As discussed above, the proposed rule
change would establish a Nominating Committee. The Nominating Committee
would have at least three members, a majority of which would be
independent. As further discussed above, the Nominating Committee would
be responsible for evaluating and recommending individuals to be
members of the Board. For each potential member of the Board, the
Nominating Committee would produce a written evaluation of such
person's independence and fitness for election as a Manager, based on
the standards and pursuant to the process set forth in the Nominating
Committee Charter.
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\48\ 15 U.S.C. 78s(b)(2).
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Moreover, as discussed above, the proposed rule change would add to
the list of relationships that disqualify a person from being an
independent member of the Board. ICC currently has a list of
relationships that disqualify a person from being considered
independent, and the proposed rule change would add new, additional
relationships to this list, based on the specific relationships
enumerated in Rule 17Ad-25 under the Exchange Act.\49\ For example,
currently an individual that is employee of an ICE Group company is not
considered independent. Under the proposed rule change, an individual
that otherwise receives compensation from an ICE Group company would
also not be considered independent.
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\49\ 17 CFR 240.17ad-25.
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Rule 17Ad-25 requires, among other things, that covered clearing
agencies establish: a nominating committee;
[[Page 99923]]
written evaluation process; fitness standards; and standards for the
evaluation of the independence of nominees and directors.\50\ The
proposed rule change would establish a Nominating Committee, make the
Nominating Committee responsible for evaluating and recommending
individuals to be potential members of the Board, and augment ICC's
existing independence standards to be consistent with Rule 17Ad-25.\51\
Based on the foregoing, and as discussed above, the proposed rule
change is consistent with the requirements of Rule 17Ad-25 under the
Act.\52\
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\50\ 17 CFR 240.17ad-25.
\51\ 17 CFR 240.17ad-25.
\52\ 17 CFR 240.17ad-25.
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The compliance date for Rule 17Ad-25 generally is December 5,
2024.\53\ Approving the proposed rule change on an accelerated basis
will allow ICC to establish, among other things, a nominating committee
and additional independence standards, by this compliance date.
Accordingly, the Commission finds good cause to approve the proposed
rule change on an accelerated basis prior to the 30th day after the
date of publication of notice of filing of the proposed rule change in
the Federal Register, pursuant to Section 19(b)(2) of the Act.\54\
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\53\ Securities Exchange Act Release No. 98959 (Nov. 16, 2023),
88 FR 84454 (Dec. 5, 2023) (File No. S7-21-22) (explaining that the
compliance date for Rule 17Ad-25 is December 5, 2024, except that
the compliance date for the independence requirements of the board
and board committees in Rules 17Ad-25(b)(1), (c)(2), and (e) is
December 5, 2025).
\54\ 15 U.S.C. 78s(b)(2).
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VI. 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, Sections 17A(b)(3)(A) and (F) of the Act \55\ and
Rules 17Ad-22(e)(2) and 17Ad-25.\56\
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\55\ 15 U.S.C. 78q-1(b)(3)(F).
\56\ 17 CFR 240.17Ad-22(e)(2) and 17 CFR 240.17ad-25.
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It is therefore ordered pursuant to Section 19(b)(2) of the Act
that the proposed rule change (SR-ICC-2024-010) be, and hereby is,
approved on an accelerated basis.\57\
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\57\ In approving the proposed rule change, the Commission
considered the proposal's impacts 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.\58\
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\58\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-29038 Filed 12-10-24; 8:45 am]
BILLING CODE 8011-01-P