Notice2022-09042
Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change Relating to the ICC Clearing Rules
Primary source
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Published
April 28, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 82 (Thursday, April 28, 2022)</title>
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[Federal Register Volume 87, Number 82 (Thursday, April 28, 2022)]
[Notices]
[Pages 25324-25327]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-09042]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94784; File No. SR-ICC-2022-005]
Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of
Filing and Order Granting Accelerated Approval of Proposed Rule Change
Relating to the ICC Clearing Rules
April 22, 2022.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on April 13, 2022, ICE Clear Credit LLC (``ICC'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change as described in Items I and II, which Items have been prepared
primarily by ICC. The Commission is publishing this notice and order 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 implement
certain amendments to the ICC Clearing Rules (the ``Rules'') relating
to implementation of Russia Sanctions (defined below).
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 III below. ICC has prepared
summaries, set forth in sections (A), (B), and (C) below, of the most
significant aspects of these statements.
[[Page 25325]]
(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
(a) Purpose
The purpose of the proposed changes is to modify certain provisions
of the Rules applicable to cleared CDS contracts (or components
thereof) for which the Russian Federation is a reference entity, in
light of the sanctions imposed by Directive 1A of February 22, 2022
(Prohibitions Related to Certain Sovereign Debt of the Russian
Federation) under Executive Order 14024 of April 21, 2021 (Blocking
Property With Respect To Specified Harmful Foreign Activities of the
Government of the Russian Federation \3\) (together, the ``Executive
Order'') and related implementing actions by the U.S. Treasury
Department Office of Foreign Asset Control (``OFAC''), as well as
similar sanctions imposed by sanctions authorities in Canada, the
European Union, Japan, Switzerland and the United Kingdom
(collectively, the ``Russia Sanctions'').
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\3\ 86 FR 20249 (April 15, 2021).
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The amendments will incorporate in the terms and conditions for
such contracts the Additional Provisions for Certain Russian Entities:
Excluded Obligations and Excluded Deliverable Obligations, published by
the International Swaps and Derivatives Association, Inc. (``ISDA'') on
March 25, 2022 (the ``Russia Additional Provisions''). Consistent with
the approach expected to be taken throughout the cleared and uncleared
CDS market, ICE Clear Credit will make the Russia Additional Provisions
applicable to relevant CDS contracts cleared by ICE Clear Credit
beginning on the industry-wide implementation date (currently expected
to be on or around April 25, 2022 (the ``Additional Provisions
Effective Date'')). Accordingly, the amendments to the Rules will
define the Additional Provisions Effective Date as April 25, 2022, or
such later date as may be designated by ICE Clear Credit Circular.
Among other provisions, the Russia Sanctions prohibit secondary
market transactions in or relating to certain bonds issued by the
Russian Federation (``Restricted Debt''). The Russia Additional
Provisions implement this prohibition by excluding Russia government
bonds that are Restricted Debt from being ``Obligations'' or
``Deliverable Obligations'' under the terms of a CDS contract. As such,
credit events with respect to such Restricted Debt could not be used to
trigger credit protection under a CDS contract, and such Restricted
Debt could not be used in settlement of a CDS contract. Pursuant to the
terms of the Russia Additional Provisions, these limitations would
cease to apply at such time as no relevant sanctions apply to secondary
trading in the relevant Restricted Debt.
ICE Clear Credit understands, through discussions with market
participants, that market participants generally are expected to adhere
to a protocol implementing the Russia Additional Provisions for
existing contracts in the uncleared CDS market, effective as of the
Additional Provisions Effective Date. In an effort to maintain
consistency across the CDS market, ICE Clear Credit plans to implement
the amendments discussed herein as of the same time.
ICE Clear Credit is proposing to amend its Rules to incorporate the
Russia Additional Provisions into existing Contracts. ICE Clear Credit
would amend Rule 26C-316, which applies to CDX.EM Contracts, an index
CDS contract for which Russia may be an index component. New subsection
(f) would provide that all open positions in CDX.EM Contracts that that
have a component transaction in which the Russian Federation is a
Reference Entity will be amended, effective as of the Additional
Provisions Effective Date, such that the Russia Additional Provisions
apply. For clarity, the amendment would also update the transaction
terms to reference the updated ISDA Credit Derivatives Physical
Settlement Matrix with the Additional Provisions Effective Date that
takes into account the Russia Additional Provisions.
Similarly, ICE Clear Credit is proposing to amend Rule 26D-616,
which applies to emerging market sovereign single-name CDS contracts.
New subsection (d) would provide that a sovereign single-name CDS
contract referencing the Russian Federation will be amended, effective
as of the Additional Provisions Effective Date, such that the Russia
Additional Provisions apply. For clarity, the amendment would also
update the transaction terms to reference the updated ISDA Credit
Derivatives Physical Settlement Matrix with the Additional Provisions
Effective Date that takes into account the Russia Additional
Provisions.
(b) Statutory Basis
ICE Clear Credit believes that the proposed amendments are
consistent with the requirements of Section 17A of the Act \4\ and the
regulations thereunder applicable to it, including the standards under
Rule 17Ad-22.\5\ Section 17A(b)(3)(F) of the Act \6\ 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.
Consistent with this Section, the amendments revise the terms of
single-name and index CDS contracts referencing the Russian Federation
in order to implement the Russia Additional Provisions and comply with
the relevant restrictions in the Russia Sanctions. In ICE Clear
Credit's view, the amendments will therefore facilitate its ability to
continue prompt and accurate clearing of such contracts, consistent
with applicable law and the public interest as set out in the Executive
Order and other Russia Sanctions.
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\4\ 15 U.S.C. 78q-1.
\5\ 17 CFR 240.17Ad-22.
\6\ 15 U.S.C. 78q-1(b)(3)(F).
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Moreover, the amendments are consistent with Rule 17Ad-22(e)(1),\7\
which requires that each covered clearing agency 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. As discussed herein, the amendments are
designed to facilitate compliance by ICE Clear Credit and its clearing
participants with the Russia Sanctions, by permitting clearing to
continue in accordance with the restrictions on Restricted Debt imposed
by the Russia Sanctions.
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\7\ 17 CFR 240.17Ad-22(e)(1).
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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 impact, or impose any burden, on competition not necessary or
appropriate in furtherance of the purposes of the Act. The changes will
apply to all clearing participants and other market participants. The
changes are being proposed in order to comply with the Russia Sanctions
and are being made in conjunction with an industry-wide effort to amend
relevant CDS contract terms. ICE Clear Credit does not believe the
amendments will impact competition among clearing members or other
market participants, affect the ability of market participants to
access
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clearing generally, or affect the cost of clearing. ICE Clear Credit
further believes that any impact on clearing results from the
restrictions imposed under the Russia Sanctions and is necessary and
appropriate to ensure compliance with those restrictions.
(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants or Others
Written comments relating to the proposed amendments have not been
solicited or received by ICE Clear Credit. ICE Clear Credit will notify
the Commission of any comments received with respect to the proposed
rule change.
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
<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#80f2f5ece5ade3efedede5eef4f3c0f3e5e3aee7eff6"><span class="__cf_email__" data-cfemail="d1a3a4bdb4fcb2bebcbcb4bfa5a291a2b4b2ffb6bea7">[email protected]</span></a>. Please include
File Number SR-ICC-2022-005 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-2022-005. 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-2022-005 and should be
submitted on or before May 19, 2022.
IV. Commission's Findings and Order Granting Accelerated Approval of
the Proposed Rule Change
Section 19(b)(2)(C) of the Act directs the Commission to approve a
proposed rule change of a self-regulatory organization if it finds that
such proposed rule change is consistent with the requirements of the
Act and the rules and regulations thereunder applicable to such
organization.\8\ For the reasons discussed below, the Commission finds
that the proposed rule change is consistent with Section 17A(b)(3)(F)
of the Act \9\ and Rule 17Ad-22(e)(1) thereunder.\10\
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\8\ 15 U.S.C. 78s(b)(2)(C).
\9\ 15 U.S.C. 78q-1(b)(3)(F).
\10\ 17 CFR 240.17Ad-22(e)(1).
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(A) Consistency With Section 17A(b)(3)(F) of the Act
Section 17A(b)(3)(F) of the Act requires, among other things, that
the rules of ICC be designed to promote the prompt and accurate
clearance and settlement of securities transactions.\11\ Based on its
review of the record, and for the reasons discussed below, the
Commission believes the proposed rule change is consistent with the
promotion of the prompt and accurate clearance and settlement of
transactions at ICC.
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\11\ 15 U.S.C. 78q-1(b)(3)(F).
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The Commission believes that the proposed rule change should help
to assure compliance with the Russia Sanctions. The Commission believes
that the proposed rule change should do so by incorporating the Russia
Additional Provisions into cleared CDS contracts that reference the
Russian Federation. As discussed above, the Russia Additional
Provisions are designed to implement the Russia Sanctions by, among
other things, excluding Russia government bonds that are Restricted
Debt from being ``Obligations'' or ``Deliverable Obligations'' under
the terms of a CDS contract.
The Commission believes that failure to comply with the Russia
Sanctions could potentially result in legal liability and other
consequences to ICC, like financial penalties. The Commission believes
that such liability and penalties could impede ICC's operations and
therefore its ability to clear and settle transactions. Moreover, the
Commission believes that failure to comply with the Russia sanctions
could specifically impede ICC's ability to process credit events and
other transactions affecting CDS contracts that reference the Russian
Federation. The Commission therefore believes that the proposed rule
change, by helping assure compliance with the Russia Sanctions, is
consistent with the promotion of the prompt and accurate clearance and
settlement of transactions at ICC.
The Commission further believes that the proposed rule change
should help to ensure consistency between cleared and uncleared CDS
contracts. The Commission notes ICC's representation that market
participants generally are expected to adhere to a protocol
implementing the Russia Additional Provisions for existing contracts in
the uncleared CDS market. The Commission believes that incorporating
into cleared CDS contracts the Russia Additional Provisions should help
to ensure that the CDS cleared at ICC are consistent with CDS in the
uncleared market. The Commission further believes that doing so should
help to ensure that ICC is able to accept such uncleared CDS if
counterparties later submit them for clearing. In this way, the
Commission believes the proposed rule change should promote the prompt
and accurate clearance and settlement of transactions at ICC.
Therefore, the Commission finds that the proposed rule change is
with Section 17A(b)(3)(F) of the Act.\12\
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\12\ 15 U.S.C. 78q-1(b)(3)(F).
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(B) Consistency With Rule 17Ad-22(e)(1)
Rule 17Ad-22(e)(1) requires that ICC 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.\13\ As discussed above, the Commission believes that the
proposed rule change should help to assure compliance with the Russia
Sanctions by incorporating the Russia Additional Provisions into
cleared CDS contracts that reference the Russian Federation. The
Commission further believes that
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failure to comply with the Russia Additional Provisions could
potentially result in legal liability and other consequences to ICC and
could impede the enforceability of cleared CDS that reference the
Russian Federation. For example, if there was a credit event that
triggered credit protection, then the Russian Sanctions could disrupt
settlement of such CDS by prohibiting secondary market transactions in
Restricted Debt. Such disrupted settlement could result in CDS buyers
not receiving any credit protection payments, effectively making the
CDS unenforceable. The Commission therefore believes that by assuring
compliance with the Russian Sanctions, the proposed rule change should
help assure that ICC's legal basis for clearing CDS contracts
referencing the Russian Federation is well-founded and enforceable.
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\13\ 17 CFR 240.17Ad-22(e)(1).
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Therefore, the Commission finds that the proposed rule change is
with Rule 17Ad-22(e)(1).\14\
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\14\ 17 CFR 240.17Ad-22(e)(1).
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(C) Accelerated Approval of the Proposed Rule Change
In its filing, ICC requests that the Commission grant accelerated
approval of the proposed rule change pursuant to Section
19(b)(2)(C)(iii) of the Act.\15\ Under Section 19(b)(2)(C)(iii) of the
Act,\16\ the Commission may grant accelerated approval of a proposed
rule change if the Commission finds good cause for doing so. ICC
believes that accelerated approval is warranted because incorporating
the Russia Additional Provisions is necessary for the maintenance of
fair and orderly markets in CDS contracts referencing the Russian
Federation in light of the restrictions on Restricted Debt imposed
under the Russia Sanctions. Moreover, ICC believes approving the
proposed rule change on an accelerated basis is needed for ICC to stay
consistent with the uncleared market, which plans to implement the new
provisions on or around April 25, 2022. Finally, ICC represents that
the proposed rule change will not affect the safeguarding of funds or
securities in the custody or control of ICC or for which it is
responsible.
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\15\ 15 U.S.C. 78s(b)(2)(C)(iii).
\16\ 15 U.S.C. 78s(b)(2)(C)(iii).
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The Commission finds good cause, pursuant to Section
19(b)(2)(C)(iii) of the Act,\17\ for approving the proposed rule change
on an accelerated basis prior to the 30th day after the date of
publication of notice in the Federal Register because the proposed rule
change is required to implement the Russia Additional Provisions on or
around April 25, 2022. As discussed above, the Commission believes that
implementing the Russia Additional Provisions should help assure
compliance with the Russia Sanctions, and therefore help avoid
potential legal liability and disruptions to ICC's operations. The
Commission further believes that implementing the Russia Additional
Provisions on or around April 25, 2022 should help assure that ICC
maintains a well-founded and enforceable legal basis for clearing CDS
contracts that reference the Russian Federation. Finally, the
Commission believes that implementing the Russia Additional Provisions
on or around April 25, 2022 should help assure that ICC stays
consistent with the uncleared market.
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\17\ 15 U.S.C. 78s(b)(2)(C)(iii).
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V. Conclusion
On the basis of the foregoing, the Commission finds that the
proposed rule change is consistent with the requirements of the Act and
in particular with the requirements of Section 17A(b)(3)(F) of the Act
\18\ and Rule 17Ad-22(e)(1) \19\ thereunder.
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\18\ 15 U.S.C. 78q-1(b)(3)(F).
\19\ 17 CFR 240.17Ad-22(e)(1).
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It is therefore ordered pursuant to Section 19(b)(2) of the Act
\20\ that the proposed rule change (SR-ICC-2022-005) be, and hereby is,
approved on an accelerated basis.\21\
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\20\ 15 U.S.C. 78s(b)(2).
\21\ In approving the proposed rule change, the Commission
considered the proposal's impact on efficiency, competition, and
capital formation. 15 U.S.C. 78c(f).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-09042 Filed 4-27-22; 8:45 am]
BILLING CODE 8011-01-P
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