[Federal Register Volume 85, Number 67 (Tuesday, April 7, 2020)]
[Notices]
[Pages 19551-19553]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-07230]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88537; File No. SR-ICC-2020-003]
Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of
Filing of Proposed Rule Change Relating to the Clearance of Additional
Credit Default Swap Contracts
April 1, 2020.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of
1934,\1\ and Rule 19b-4,\2\ notice is hereby given that on March 26,
2020, ICE Clear Credit LLC (``ICC'') filed with the Securities and
Exchange Commission (``SEC'' or the ``Commission'') the proposed rule
change as described in Items I, II, and III below, which Items have
been prepared primarily by ICC. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
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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 the
ICC Rulebook (the ``Rules'') to provide for the clearance of an
additional Standard Emerging Market Sovereign CDS contract (the ``EM
Contract'') and additional Standard Western European Sovereign CDS
contracts (collectively, the ``SWES Contracts'').
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
(a) Purpose
The purpose of the proposed rule change is to adopt rules that will
provide the basis for ICC to clear additional credit default swap
contracts. ICC proposes to make such changes effective following
Commission approval of the proposed rule change. ICC believes the
addition of these contracts will benefit the market for credit default
swaps by providing market participants the benefits of clearing,
including reduction in counterparty risk and safeguarding of margin
assets pursuant to clearing house rules. Clearing of the additional EM
Contract and the additional SWES Contracts (collectively, the ``EM and
SWES Contracts'') will not require any changes to ICC's Risk Management
Framework or other policies and procedures constituting rules within
the meaning of the Securities Exchange Act of 1934 (``Act'').
ICC proposes amending Subchapter 26D of its Rules to provide for
the clearance of the additional EM Contract, namely the Republic of
Croatia. This additional EM Contract has terms consistent with the
other EM Contracts approved for clearing at ICC and governed by
Subchapter 26D of the Rules. Minor revisions to Subchapter 26D
(Standard Emerging Market Sovereign (``SES'') Single Name) are made to
provide for clearing the additional EM Contract. Specifically, in Rule
26D-102 (Definitions), ``Eligible SES Reference Entities'' is modified
to include the Republic of Croatia in the list of specific Eligible SES
Reference Entities to be cleared by ICC.
Additionally, ICC proposes amending Subchapter 26I of its Rules to
provide for the clearance of the additional SWES Contracts, namely the
Republic of Finland and the Hellenic Republic.
[[Page 19552]]
These additional SWES Contracts have terms consistent with the other
SWES Contracts approved for clearing at ICC and governed by Subchapter
26I of the Rules. Minor revisions to Subchapter 26I (Standard Western
European Sovereign (``SWES'') Single Name) are made to provide for
clearing the additional SWES Contracts. Specifically, in Rule 26I-102
(Definitions), ``Eligible SWES Reference Entities'' is modified to
include the Republic of Finland and the Hellenic Republic in the list
of specific Eligible SWES Reference Entities to be cleared by ICC.
(b) Statutory Basis
Section 17A(b)(3)(F) of the Act \3\ requires, among other things,
that the rules of a clearing agency be designed to promote the prompt
and accurate clearance and settlement of securities transactions and,
to the extent applicable, derivative agreements, contracts, and
transactions; to assure the safeguarding of securities and funds which
are in the custody or control of ICC or for which it is responsible;
and to comply with the provisions of the Act and the rules and
regulations thereunder. The additional EM and SWES Contracts proposed
for clearing are similar to the EM and SWES Contracts currently cleared
by ICC, and will be cleared pursuant to ICC's existing clearing
arrangements and related financial safeguards, protections and risk
management procedures. Clearing of the additional EM and SWES Contracts
will allow market participants an increased ability to manage risk and
ensure the safeguarding of margin assets pursuant to clearing house
rules. ICC believes that acceptance of the new EM and SWES Contracts,
on the terms and conditions set out in the Rules, is consistent with
the prompt and accurate clearance and settlement of securities
transactions and derivative agreements, contracts and transactions
cleared by ICC, the safeguarding of securities and funds in the custody
or control of ICC or for which it is responsible, and the protection of
investors and the public interest, within the meaning of Section
17A(b)(3)(F) of the Act.\4\
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\3\ 15 U.S.C. 78q-1(b)(3)(F).
\4\ Id.
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Clearing of the additional EM and SWES Contracts will also satisfy
the relevant requirements of Rule 17Ad-22,\5\ as set forth in the
following discussion.
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\5\ 17 CFR 240.17Ad-22.
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Margin Requirements. Rule 17Ad-22(b)(2) \6\ requires ICC to
establish, implement, maintain and enforce written policies and
procedures reasonably designed to use margin requirements to limit its
credit exposures to participants under normal market conditions and use
risk-based models and parameters to set margin requirements. In terms
of financial resources, ICC will apply its existing initial margin
methodology to the new EM and SWES Contracts, which are similar to the
EM and SWES Contracts currently cleared by ICC. ICC believes that this
model will provide sufficient initial margin requirements to cover its
credit exposure to its clearing members from clearing such contracts,
consistent with the requirements of Rule 17Ad-22(b)(2).\7\
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\6\ 17 CFR 240.17Ad-22(b)(2).
\7\ Id.
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Financial Resources. Rule 17Ad-22(b)(3) \8\ requires ICC to
establish, implement, maintain and enforce written policies and
procedures reasonably designed to maintain financial resources
sufficient to withstand, at a minimum, a default by the two participant
families to which it has the largest exposures in extreme but plausible
market conditions. ICC believes its Guaranty Fund, under its existing
methodology, will, together with the required initial margin, provide
sufficient financial resources to support the clearing of the
additional EM and SWES Contracts, consistent with the requirements of
Rule 17Ad-22(b)(3).\9\
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\8\ 17 CFR 240.17Ad-22(b)(3).
\9\ Id.
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Operational Resources. Rule 17Ad-22(d)(4) \10\ requires ICC to
establish, implement, maintain and enforce written policies and
procedures reasonably designed to identify sources of operational risk
and minimize them through the development of appropriate systems,
controls and procedures. ICC believes that its existing operational and
managerial resources will be sufficient for clearing of the additional
EM and SWES Contracts, consistent with the requirements of Rule 17Ad-
22(d)(4),\11\ as these new contracts are substantially the same from an
operational perspective as existing contracts.
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\10\ 17 CFR 240.17Ad-22(d)(4).
\11\ Id.
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Settlement Procedures. Rule 17Ad-22(d)(5), (12) and (15) \12\
requires ICC to establish, implement, maintain and enforce written
policies and procedures reasonably designed to employ money settlement
arrangements that eliminate or strictly limit ICC's settlement bank
risks and require funds transfers to ICC to be final when effected;
ensure that final settlement occurs no later than the end of the
settlement day, and require that intraday or real-time finality be
provided where necessary to reduce risks; and state to its participants
ICC's obligations with respect to physical deliveries and identify and
manage the risks from these obligations. ICC will use its existing
settlement procedures and account structures for the new EM and SWES
Contracts, which are similar to the EM and SWES Contracts currently
cleared by ICC, consistent with the requirements of Rule 17Ad-22(d)(5),
(12) and (15) \13\ as to the finality and accuracy of its daily
settlement process and avoidance of the risk to ICC of settlement
failures.
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\12\ 17 CFR 240.17Ad-22(d)(5), (12) and (15).
\13\ Id.
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Governance Arrangements. Rule 17Ad-22(d)(8) \14\ requires ICC to
establish, implement, maintain and enforce written policies and
procedures reasonably designed to have governance arrangements that are
clear and transparent to fulfill the public interest requirements in
Section 17A of the Act \15\ applicable to clearing agencies, to support
the objectives of owners and participants, and to promote the
effectiveness of ICC's risk management procedures. ICC determined to
accept the additional EM and SWES Contracts for clearing in accordance
with its governance process, which included review of the contracts and
related risk management considerations by the ICC Risk Committee and
approval by its Board. These governance arrangements continue to be
clear and transparent, such that information relating to the assignment
of responsibilities and the requisite involvement of the ICC Board and
committees is clearly detailed in the ICC Rules and policies and
procedures, consistent with the requirements of Rule 17Ad-22(d)(8).\16\
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\14\ 17 CFR 240.17Ad-22(d)(8).
\15\ 15 U.S.C. 78q-1.
\16\ 17 CFR 240.17Ad-22(d)(8).
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Default Procedures. Rule 17Ad-22(d)(11) \17\ requires ICC to
establish, implement, maintain and enforce written policies and
procedures reasonably designed to establish default procedures that
ensure that it can take timely action to contain losses and liquidity
pressures and to continue meeting its obligations in the event of a
participant default. ICC will apply its existing default management
policies and procedures for the additional EM and SWES Contracts. ICC
believes that these procedures allow for it to take timely action to
contain losses and liquidity pressures and to continue meeting its
obligations in the event of clearing member insolvencies or
[[Page 19553]]
defaults in respect of the additional single names, in accordance with
Rule 17Ad-22(d)(11).\18\
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\17\ 17 CFR 240.17Ad-22(d)(11).
\18\ Id.
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(B) Clearing Agency's Statement on Burden on Competition
The additional EM and SWES Contracts will be available to all ICC
participants for clearing. The clearing of these additional EM and SWES
Contracts by ICC does not preclude the offering of the additional EM
and SWES Contracts for clearing by other market participants.
Accordingly, ICC does not believe that clearance of the additional EM
and SWES Contracts will impose any burden on competition not necessary
or appropriate in furtherance of the purposes of the Act.
(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
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. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-ICC-2020-003 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-2020-003. 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 (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of such filings will also be available for inspection
and copying at the principal office of ICE Clear Credit and on ICE
Clear Credit's website at https://www.theice.com/clear-credit/regulation.
All comments received will be posted without change. Persons
submitting comments are cautioned that we do not redact or edit
personal identifying information from comment submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-ICC-2020-003 and should be
submitted on or before April 28, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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J. Matthew DesLesDernier,
Assistant Secretary.
[FR Doc. 2020-07230 Filed 4-6-20; 8:45 am]
BILLING CODE 8011-01-P