[Federal Register Volume 90, Number 106 (Wednesday, June 4, 2025)]
[Notices]
[Pages 23736-23738]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-10121]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103148; File No. SR-ICC-2025-005]
Self-Regulatory Organizations; ICE Clear Credit LLC; Order
Approving Proposed Rule Change Relating to ICC's Treasury Operations
Policies and Procedures
May 29, 2025.
I. Introduction
On April 2, 2025, ICE Clear Credit LLC (``ICC'') filed with the
Securities and Exchange Commission (``Commission''), pursuant to
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\
and Rule 19b-4 thereunder,\2\ a proposed rule change to revise its
Treasury Operations Policies & Procedures (the ``Treasury Policy'')
(``Proposed Rule Change''). The Proposed Rule Change was published for
comment in the Federal Register on April 16, 2025.\3\ The Commission
has not received any comments on 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\ Securities Exchange Act Release No. 102814 (Apr. 10, 2025),
90 FR 16015 (Apr. 16, 2025) (File No. SR-ICC-2025-005) (``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
[[Page 23737]]
clearing CDS contracts,\4\ which means that it interposes itself as the
buyer to every seller and the seller to every buyer for these types of
financial transactions. As a clearing agency, one of ICC's functions is
to manage risks inherent to the clearance and settlement of securities
transactions. Because ICC is obligated to perform on the contracts it
clears, even where one of its Clearing Participants defaults, one such
risk to which ICC is exposed is credit risk in the form of exposure to
a Clearing Participant's trading activities. ICC manages such credit
risk, in part, by collecting collateral from its Clearing Participants,
both in the form of margin and in the form of a guaranty fund. Among
other things, ICC's Treasury Department manages these daily cash and
collateral requirements and movements in connection with ICC's daily
clearing process.
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\4\ Capitalized terms not otherwise defined herein have the
meanings assigned to them in ICC's Clearing Rules or the Treasury
Policy, as applicable.
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ICC proposes to amend its Treasury Policy, which includes the
policies and procedures that ICC uses to support its Treasury
Department. Specifically, ICC proposes to formally describe its
existing intraday margin call procedures in the Treasury Policy, which
are designed to be consistent with the requirements of Rule 17Ad-
22(e)(6)(ii).\5\ ICC's proposed changes to the Treasury Policy would
not change its current margin call practices, but rather ensure they
are fully documented and described in the Treasury Policy.
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\5\ 17 CFR 240.17ad-22(e)(6)(ii).
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A. Description of ICC's Intraday Margin Call Procedures
ICC proposes to add a description of its current intraday margin
call procedures in a new appendix to the Treasury Policy, entitled
``Appendix 6: Intraday Margin Call Procedures'' (``Appendix 6'').
Appendix 6 would describe the conditions and procedures for three
categories of intraday margin calls that ICC recognizes: Non-routine
Intraday Margin Calls, Selective Intraday Margin Calls, and
Discretionary Margin Calls.\6\
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\6\ Proposed Appendix 6.A notes that ICC also recognizes a
fourth category of intraday margin call, the Routine Intraday Margin
Call, which is meant to be executed at one or more pre-specified
times during the day, assuming that prices and positions are
updated. However, ICC does not perform this type of intraday margin
call because ICC does not execute the end-of-day price discovery
process on an intraday basis. See Notice at 16015.
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For Non-routine Intraday Margin Calls, Part B of Appendix 6 would
describe the steps that ICC currently follows prior to and during the
margin call process. Appendix 6.B states that ICC executes a Non-
routine Intraday Margin Call if the market suddenly becomes highly
volatile and the observed price/spread level changes increase the risk
exposure of ICC to certain Clearing Participants. For example, ICC
notes that such a call is triggered if a certain percentage of the
value of collateral on deposit has eroded due to the observed intraday
unrealized losses.\7\ Appendix 6.B lists the following steps: (1) the
ICC Risk Department uses its intraday system to capture intraday prices
and revalue Clearing Participant portfolios to estimate unrealized
profit/loss; (2) the Risk Department compares the unrealized profit/
loss to the collected Initial Margin (``IM'') requirement; (3) an
initial warning process is triggered if any Clearing Participant's IM
erodes by a specified early warning percentage; (4) the ICC Risk
Department identifies risk factors associated with the affected
Clearing Participant's greatest unrealized losses, and confirms the
viability of all adverse price changes in light of the Clearing
Participant's portfolio; (5) the senior Risk Department staff begins a
continuous intraday monitoring process, if not already begun; (6) the
intraday margin call execution process is triggered if any Clearing
Participant's Initial Margin erodes by a specific percentage threshold
and lasts for more than a specified length of time, prior to a specific
time of day; \8\ and (7) if the erosion level exceeds a specific
threshold after a specific time of day, the ICC Chief Risk Officer
(``CRO'') or the CRO's designee has the discretion to make intraday
margin calls based on various market condition considerations.\9\
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\7\ Id.
\8\ Appendix 6.B further describes the intraday margin call
execution process. The CRO or CRO's designee informs the Treasury
Department by email to execute the call; the email will contain the
Clearing Participant name(s) and amount(s) of the increase of the
USD IM required amount; and Senior Management, Compliance, and
Client Support Services will be copied on the email communication.
Furthermore, with respect to Non-routine Intraday Margin Calls, the
amount of the call will be consistent with the level of IM erosion
and the remaining time until the end-of-day price discovery process.
Finally, the Treasury Department will enter the amount of the
intraday margin call in its system, which may result (depending on
current funds on deposit for the affected Clearing Participant) in
the issuance of a direct debit message instructing the Clearing
Participant's designated bank to direct debit any margin payable.
Clearing Participants will have up to one hour to pay the intraday
margin call after the issuance of the direct debit message. Id.
\9\ Appendix 6.B further states that in the event the CRO or the
CRO's designee foregoes initiating an intraday margin call, the
decision will be communicated to Senior Management and a formal
document will be created that outlines the reasons for not
proceeding with the intraday margin call. Id.
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For Selective Intraday Margin Calls, ICC proposes for Part C of
Appendix 6 to describe the steps that ICC currently follows prior to
and during the call process. ICC considers executing a Selective
Intraday Margin Call when intraday changes in Clearing Participant
position sizes can lead to an insufficient level of collateralization.
Appendix 6.C states that, in such cases, the ICC Risk Department will
determine the increased IM amount by estimating the IM requirements for
the new positions as they were guaranteed by ICC at the start of the
trading day, and by following the first two steps from Appendix 6.B
(i.e., revaluing Clearing Participant portfolios to estimate unrealized
profit/loss and comparing such unrealized profit/loss to the collected
IM requirement, excluding concentration charges). Appendix 6.C further
notes that, in connection with Selective Intraday Margin Calls, the
Risk Department will follow the same internal notification process as
described in Appendix 6.B for Non-routine Intraday Margin Calls.
For Discretionary Margin Calls, ICC proposes for Part D of Appendix
6 to describe the steps that ICC currently follows prior to and during
the margin call process. Appendix 6.D states that Discretionary Margin
Calls are intraday margin calls to Clearing Participants whose
previously posted margin, in the CRO's judgment, does not provide
proper risk protection. ICC considers using Discretionary Margin Calls
where there is a fast deterioration of the creditworthiness of a
Clearing Participant, and/or adverse market conditions that could lead
to significant losses that may result in the default of a Clearing
Participant. Appendix 6.D further notes that the Risk Department will
follow the same internal notification process as described in Appendix
6.B, for Non-routine Intraday Margin Calls.
B. Additional References and Updates
The Proposed Rule Change would add language to Section IV.A.4
(``Non-Routine Settlement Procedures and Timeline'') of ICC's Treasury
Policy. The new language would generally refer to ICC's process for
monitoring the adequacy of collected IM on an intraday basis and would
also note that ICC may issue intraday margin calls to Clearing
Participant(s) whose margin on deposit does not provide prior risk
protection. The new language would also provide a cross-reference to
the intraday margin call procedures in new Appendix 6.
Additionally, the Proposed Rule Change would update Section X
(``Revision History'') of the Treasury
[[Page 23738]]
Policy to include a brief description of the proposed changes to the
Treasury Policy.
III. Discussion and Commission 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.\10\ 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.'' \11\ 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,\12\ 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.\13\ 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.\14\
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\10\ 15 U.S.C. 78s(b)(2)(C).
\11\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR
201.700(b)(3).
\12\ Id.
\13\ Id.
\14\ Susquehanna Int'l Group, LLP v. Securities and Exchange
Commission, 866 F.3d 442, 447 (D.C. Cir. 2017).
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After carefully considering the Proposed Rule Change, the
Commission finds that the Proposed Rule Change is consistent with
Section 17A(b)(3)(F) of the Act \15\ and Rule 17Ad-22(e)(6)(ii) \16\
thereunder, as described in detail below.
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\15\ 15 U.S.C. 78q-1(b)(3)(F).
\16\ 17 CFR 240.17ad-22(e)(6)(ii).
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A. Consistency With Section 17A(b)(3)(F) of the Act
Under Section 17A(b)(3)(F) of the Act, ICC's rules, among other
things, must be ``designed to promote the prompt and accurate clearance
and settlement of securities transactions . . . .'' \17\ Based on a
review of the record, and for the reasons discussed below, the Proposed
Rule Change is consistent with Section 17A(b)(3)(F).
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\17\ 15 U.S.C. 78q-1(b)(3)(F).
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ICC proposes to update its Treasury Policy to include a description
of its already-existing procedures for intraday margin calls. By
formally documenting the procedures in its Treasury Policy, ICC further
supports ICC's ability to, and increases the likelihood that its Risk
Department will, apply the correct intraday margin call procedure as
appropriate depending on the circumstances and the applicable intraday
margin call category. This will support and improve ICC's overall risk
management, which in turn supports the public's confidence in ICC's
approach to risk management and could encourage more participants to
clear transactions at ICC. Therefore, the update to ICC's Treasury
Policy is consistent with promoting the prompt and accurate clearance
and settlement of securities transactions.
Accordingly, the Proposed Rule Change is consistent with the
requirements of Section 17A(b)(3)(F) of the Act.\18\
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\18\ Id.
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B. Consistency With Rule 17Ad-22(e)(6)(ii)
Rule 17Ad-22(e)(6)(ii) requires ICC to ``establish, implement,
maintain and enforce written policies and procedures reasonably
designed to . . . [c]over, if the covered clearing agency provides
central counterparty services, its credit exposures to its participants
by establishing a risk-based margin system that, at a minimum . . .
[m]arks participant positions to market and collects margin (including
variation margin or equivalent charges if relevant) at least daily; . .
. [m]onitors intraday exposures on an ongoing basis; . . . [i]ncludes
the authority and operational capacity to make intraday margin calls,
as frequently as circumstances warrant, including the following
circumstances: . . . [w]hen risk thresholds specified by the covered
clearing agency are breached; or . . . [w]hen the products cleared or
markets served display elevated volatility; and . . . [d]ocuments when
the covered clearing agency determines not to make an intraday call
pursuant to its written policies and procedures . . . .'' \19\ Based on
a review of the record, and for the reasons discussed below, the
Proposed Rule Change is consistent with Rule 17Ad-22(e)(6)(ii).
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\19\ 17 CFR 240.17ad-22(e)(6)(ii).
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ICC's intraday margin call procedures, which the Proposed Rule
Change would add to the Treasury Policy, are consistent with the
requirements set forth in Rule 17Ad-22(e)(6)(ii). New Appendix 6
includes descriptions of various intraday margin call categories that
ICC recognizes, and the procedures that ICC follows for each category.
Specifically, Appendix 6 notes that ICC recognizes four different
categories of intraday margin calls, and the appendix further describes
specific procedures for the three categories of intraday margin calls
that are pertinent to ICC's operations. For each of these three
categories, ICC monitors intraday exposures on an ongoing basis to
capture intraday prices and re-value Clearing Participant portfolios to
estimate the unrealized profit/loss, and then compares the unrealized
profit/loss to the collected IM requirement, excluding funds attributed
to the concentration changes. Appendix 6 further describes ICC's
authority and operational capacity to make intraday margin calls,
including in circumstances when certain risk thresholds such as erosion
levels are breached, or when ICC's cleared products or served markets
display elevated volatility. Appendix 6 also states that ICC will
create a formal document outlining reasons for not proceeding with an
intraday margin call in the event the CRO or CRO's designee decides not
to do so despite specific risk thresholds being breached.
Accordingly, the Proposed Rule Change is consistent with the
requirements of Rule 17Ad-22(e)(6)(ii).\20\
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\20\ Id.
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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, Section 17A(b)(3)(F) of the Act \21\ and Rule 17Ad-
22(e)(6)(ii).\22\
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\21\ 15 U.S.C. 78q-1(b)(3)(F).
\22\ 17 CFR 240.17ad-22(e)(6)(ii).
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It is therefore ordered pursuant to Section 19(b)(2) of the Act
that the proposed rule change (SR-ICC-2025-005) be, and hereby is,
approved.\23\
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\23\ 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.\24\
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\24\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2025-10121 Filed 6-3-25; 8:45 am]
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