Notice2021-15993
Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of Proposed Rule Change Relating to the ICC Exercise Procedures
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
July 28, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 142 (Wednesday, July 28, 2021)</title>
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[Federal Register Volume 86, Number 142 (Wednesday, July 28, 2021)]
[Notices]
[Pages 40665-40667]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-15993]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92468; File No. SR-ICC-2021-016]
Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of
Proposed Rule Change Relating to the ICC Exercise Procedures
Pursuant to Section 19(b)(1) of the Securities Exchange Act of
1934, (the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby
given that on July 8, 2021, ICE Clear Credit LLC (``ICC'') filed with
the Securities and Exchange 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
Exercise Procedures in connection with the clearing of credit default
index swaptions (``Index Swaptions'').
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
ICC proposes revising the Exercise Procedures in connection with
the clearing of Index Swaptions. The Exercise Procedures supplement the
provisions of Subchapter 26R of the ICC Clearing Rules (the ``Rules'')
with respect to Index Swaptions \3\ and provide further detail as to
the manner in which Index Swaptions may be exercised by Swaption
Buyers, the manner in which ICC will assign such exercises to Swaption
Sellers, and certain actions that ICC may take in the event of
technical issues. ICC proposes to make the changes effective following
Commission approval of the proposed rule change. The proposed revisions
are described in detail as follows.
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\3\ Pursuant to an Index Swaption, one party (the ``Swaption
Buyer'') has the right (but not the obligation) to cause the other
party (the ``Swaption Seller'') to enter into an index credit
default swap transaction at a pre-determined strike price on a
specified expiration date on specified terms. In the case of Index
Swaptions cleared by ICC, the underlying index credit default swap
is limited to certain CDX and iTraxx index credit default swaps that
are accepted for clearing by ICC, and which would be automatically
cleared by ICC upon exercise of the Index Swaption by the Swaption
Buyer in accordance with its terms.
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ICC proposes changes related to certain fallback measures included
in the Exercise Procedures. ICC proposes to amend Paragraph 2.6, which
includes procedures to address a failure of the electronic system
established by ICC for exercise (``Exercise System Failure''). In such
case, Paragraph 2.6 currently provides ICC with the following options:
(i) Cancel and reschedule the Exercise Period (i.e., the period on the
expiration date of an Index Swaption during which the Swaption Buyer
may deliver an exercise notice to ICC to exercise all or part of such
Index Swaption); (ii) determine that automatic exercise will apply;
and/or (iii) take such other action as ICC determines to be appropriate
to permit exercising parties to submit exercise notices and to permit
ICC to assign such notices. The proposed changes remove the ability to
cancel and reschedule the Exercise Period and renumber the following
options accordingly.
[[Page 40666]]
ICC maintains the ability to effect an automatic exercise under
Paragraph 2.8, which addresses the situation where ICC will
automatically exercise on the expiration date each open position (of
all exercising parties) in an Index Swaption that is determined by ICC
to be ``in the money'' on such date. Whether an Index Swaption is ``in
the money'' is currently based on the average of the end-of-day
(``EOD'') price of the underlying CDS contract on the preceding
business day and on the expiration date, and where relevant, also based
on the average of the EOD price on the preceding business day and on
the expiration date of each single name constituent contract with
respect to which an Existing Restructuring \4\ has occurred. Under the
proposed changes, whether an Index Swaption is ``in the money'' is
based on the relevant market-observed prices for the underlying CDS
contract determined by ICC using the intraday market data available to
it at the time, or the EOD price of the underlying CDS contract on the
expiration date established at any Intercontinental Exchange, Inc.
(``ICE'') clearinghouse, and where relevant, also based on the last
available ICE EOD price of each single name constituent contract with
respect to which an Existing Restructuring has occurred. Such changes
provide ICC with additional flexibility, as ICC need not wait until EOD
to execute an automatic exercise, and allow this fallback measure to
coincide with the timing of the Exercise Period.\5\
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\4\ An Existing Restructuring is defined in ICC Rule 26R-319(c)
and is applicable upon the occurrence of an M(M)R Restructuring
Credit Event with respect to an Index Swaption for which the DC
Credit Event Announcement or Regional CDS Committee Restructuring
Announcement occurs on or prior to the expiration date.
\5\ The Exercise Period starts at the Swaption Exercise Start
Time (with respect to an Index Swaption referencing a CDX.NA index,
9:00 a.m., New York time and referencing an iTraxx Europe index,
9:00 a.m., London time) and ends at the Swaption Exercise Cut-Off
Time (with respect to an Index Swaption referencing a CDX.NA index,
11:00 a.m., New York time and referencing an iTraxx Europe index,
4:00 p.m., London time) under the Exercise Procedures.
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(b) Statutory Basis
ICC believes that the proposed rule change is consistent with the
requirements of Section 17A of the Act \6\ and the regulations
thereunder applicable to it, including the applicable standards under
Rule 17Ad-22.\7\ In particular, Section 17A(b)(3)(F) of the Act \8\
requires that the rule change be 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. ICC proposes changes related to certain fallback
measures in the Exercise Procedures. Removing the option to cancel and
reschedule the Exercise Period under Paragraph 2.6 would streamline and
simplify ICC's procedures in the case of an Exercise System Failure,
thereby reducing the potential for confusion regarding ICC's practices
under such circumstances. Moreover, to provide consistency where
possible in the event of an Exercise System Failure, amended Paragraph
2.8 allows the timing of automatic exercise to coincide with the timing
of the Exercise Period. Accordingly, in ICC's view, the proposed rule
change will facilitate understanding of how unforeseen operational or
technical issues are handled and promote preparedness by market
participants to enhance the implementation of the Exercise Procedures,
thereby promoting the prompt and accurate clearing and settlement of
the contracts cleared by ICC, including Index Swaptions, 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.\9\
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\6\ 15 U.S.C. 78q-1.
\7\ 17 CFR 240.17Ad-22.
\8\ 15 U.S.C. 78q-1(b)(3)(F).
\9\ Id.
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The amendments would also satisfy relevant requirements of Rule
17Ad-22.\10\ Rule 17Ad-22(e)(1) \11\ requires each covered clearing
agency to establish, implement, maintain, and enforce written policies
and procedures reasonably designed to provide for a well-founded,
clear, transparent, and enforceable legal basis for each aspect of its
activities in all relevant jurisdictions. The Exercise Procedures
supplement the provisions of Subchapter 26R of the Rules with respect
to Index Swaptions and further ensure that ICC's Rules clearly reflect
the terms and conditions applicable to Index Swaptions. As described
above, the proposed revisions would support the clearing of Index
Swaptions by ICC by providing additional consistency to market
participants and simplifying the procedures in the case of an Exercise
System Failure. The proposed rule change would continue to support the
legal basis for ICC's clearance of Index Swaptions and operation of the
exercise and assignment process, including addressing situations where
there are operational or technical issues. As such, the proposed rule
change would satisfy the requirements of the Rule 17Ad-22(e)(1).\12\
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\10\ 17 CFR 240.17Ad-22.
\11\ 17 CFR 240.17Ad-22(e)(1).
\12\ Id.
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Rule 17Ad-22(e)(17) \13\ requires, in relevant part, each covered
clearing agency to establish, implement, maintain, and enforce written
policies and procedures reasonably designed to manage its operational
risks by (i) identifying the plausible sources of operational risk,
both internal and external, and mitigating their impact through the use
of appropriate systems, policies, procedures, and controls; and (ii)
ensuring that systems have a high degree of security, resiliency,
operational reliability, and adequate, scalable capacity. The Exercise
Procedures allow ICC to manage the operational risks associated with
the exercise and assignment process by establishing procedures for the
exercise and assignment of Index Swaptions and including fallback
measures, which help mitigate the impact from operational or technical
issues and ensure that the system has a high degree of security,
resiliency, operational reliability, and adequate, scalable capacity.
The proposed changes remove the option to cancel and reschedule an
Exercise Period, which would reduce the potential for confusion
regarding ICC's practices under such circumstances. The proposed
changes also provide ICC with additional flexibility for determining
whether an Index Swaption is ``in the money'' such that ICC need not
wait until EOD to execute an automatic exercise to provide consistency
where possible in the case of an Exercise System Failure. ICC believes
that these amendments would streamline and simplify ICC's procedures in
the event of an Exercise System Failure and help mitigate the impact
from operational or technical issues. The proposed rule change is
therefore reasonably designed to meet the requirements of Rule 17Ad-
22(e)(17).\14\
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\13\ 17 CFR 240.17Ad-22(e)(17)(i)-(ii).
\14\ Id.
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(B) Clearing Agency's Statement on Burden on Competition
ICC does not believe the proposed amendments would have any impact,
or impose any burden, on competition not necessary or appropriate in
furtherance of the purpose of the Act. The proposed changes to the
Exercise Procedures will apply uniformly across all market
participants. Therefore, ICC does not
[[Page 40667]]
believe the proposed rule change imposes any burden on competition not
necessary or appropriate in furtherance of the purpose 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 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
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#6b191e070e46080406060e051f182b180e08450c041d"><span class="__cf_email__" data-cfemail="cdbfb8a1a8e0aea2a0a0a8a3b9be8dbea8aee3aaa2bb">[email protected]</span></a>. Please include
File Number SR-ICC-2021-016 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-2021-016. 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 (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
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 <a href="https://www.theice.com/clear-credit/regulation">https://www.theice.com/clear-credit/regulation</a>.
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-2021-016 and should be
submitted on or before August 18, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-15993 Filed 7-27-21; 8:45 am]
BILLING CODE 8011-01-P
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