Notice2022-11677
Self-Regulatory Organizations; ICE Clear Credit LLC; Order Approving Proposed Rule Change Relating to the ICC Recovery Plan and the ICC Wind-Down Plan
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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
June 1, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 105 (Wednesday, June 1, 2022)</title>
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[Federal Register Volume 87, Number 105 (Wednesday, June 1, 2022)]
[Notices]
[Pages 33223-33226]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-11677]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94983; File No. SR-ICC-2022-004]
Self-Regulatory Organizations; ICE Clear Credit LLC; Order
Approving Proposed Rule Change Relating to the ICC Recovery Plan and
the ICC Wind-Down Plan
May 25, 2022.
I. Introduction
On April 1, 2022, CE Clear Credit LCC (``ICC'') filed with the
Securities and Exchange Commission (``Commission''), pursuant to
Section 19(b)(1) of the Securities Exchange Act of 1934 (the
``Act''),\1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to
amend the ICC Recovery Plan and the ICC Wind-Down Plan (collectively,
the ``Plans''). The proposed rule change was published for comment in
the Federal Register on April 14, 2022.\3\ The Commission did not
receive comments regarding 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\ Self-Regulatory Organizations; ICE Clear Credit LLC; Notice
of Filing of Proposed Rule Change Relating to the ICC Recovery Plan
and the ICC Wind-Down Plan, Exchange Act Release No. 94650 (Apr. 8,
2022); 87 FR 22276 (Apr. 14, 2022) (File No. SR-ICC-2022-004)
(``Notice'').
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II. Description of the Proposed Rule Change
A. Background
As a ``covered clearing agency,'' \4\ ICC is required to, among
other things, ``establish, implement, maintain and enforce written
policies and procedures reasonably designed to . . . maintain a sound
risk management framework for comprehensively managing legal, credit,
liquidity, operational, general business, investment, custody, and
other risks that arise in or are borne by the covered clearing agency,
which . . . includes plans for the recovery and orderly wind-down of
the covered clearing agency necessitated by credit losses, liquidity
shortfalls, losses from general business risk, or any other losses.''
\5\ The Commission has previously clarified that it believes that such
recovery and wind-down plans are ``rules'' within the meaning of
Exchange Act Section 19(b) and Rule 19b-4 thereunder because such plans
would constitute changes to a stated policy, practice, or
interpretation of a covered clearing agency.\6\ Accordingly, a covered
clearing agency, such as ICC, is required to file its plans for
recovery and orderly wind-down with the Commission.\7\ Recovery and
Wind-Down Plans have been in place at ICC for a number of years and
approved by the Commission on May 10, 2021 for the first time since
becoming a ``covered clearing agency'' under the definition in Rule
17Ad-22(a)(5).\8\
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\4\ The term ``covered clearing agency'' is defined in Rule
17Ad-22(a)(5), 17 CFR 240.17Ad-22(a)(5). ICC became subject to the
requirements in Rule 17Ad-22(e) with the amendment to the definition
of the term ``covered clearing agency.'' See Definition of ``Covered
Clearing Agency,'' Exchange Act Release No. 88616 (Apr. 9, 2020), 85
FR 28853 (May 14, 2020) (File No. S7-23-16).
\5\ 17 CFR 240.17Ad-22(e)(3)(ii).
\6\ Standards for Covered Clearing Agencies, Exchange Act
Release No. 78961 (Sep. 28, 2016), 81 FR 70786, 70809 (Oct. 13,
2016) (File No. S7-03-14).
\7\ ICC became a ``covered clearing agency'' following a change
in the definition of the term in Rule 17Ad-22(a)(5). The previous
definition of ``covered clearing agency'' in Rule 17Ad-22(a)(5)
stated that ``covered clearing agency'' means a designated clearing
agency or a clearing agency involved in activities with a more
complex risk profile for which the Commodity Futures Trading
Commission is not the Supervisory Agency as defined in Section
803(8) of the Payment, Clearing and Settlement Supervision Act of
2010 (12 U.S.C. 5461 et seq.). Under this definition, ICC was not a
covered clearing agency. Under the revised definition, ``covered
clearing agency'' means a registered clearing agency that provides
the services of a central counterparty or central securities
depository. Under the revised definition, ICC is a covered clearing
agency. See Definition of ``Covered Clearing Agency'', Exchange Act
Release No. 88616 (Apr. 9, 2020), 85 FR 28853, 28854-55 (May 14,
2020) (File No. S7-23-16).
\8\ Self-Regulatory Organizations; ICE Clear Credit LLC; Order
Approving Proposed Rule Change Relating to the ICC Recovery Plan and
the ICC Wind-Down Plan, Exchange Act Release No. 91806 (May 10,
2021), 86 FR 26561 (May 14, 2021) (File No. SR-ICC-2021-005).
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B. Recovery Plan
The proposed rule change would make general updates to ensure that
the information in the Recovery Plan is current and relates to changes
that impacted ICC in the past year.\9\ The Recovery Plan would be
updated to specify that the information provided is current as of
December 31, 2021, unless otherwise stated.
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\9\ The descriptions of the Recovery and Wind-Down Plans are
substantially excerpted from the Notice. Moreover, capitalized terms
not otherwise defined herein have the meanings assigned to them in
ICC Rules (``Rules'') or the Plans.
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The proposed rule change would make the following updates related
to ICC's ownership and operations:
<bullet> In Section II.A, add one additional entity to the list of
companies owned by ICC's parent.
<bullet> In Section IV.A, adds iTraxx Index Swaptions as an example
of the Index Swaptions products for which ICC provides clearing
services.
<bullet> In Section IV.D, updates numbers for ICC's revenues,
volumes, and expenses and includes those for Index Swaptions.
<bullet> In Section VI.A, updates locations of facilities and
personnel headcount and functions.
<bullet> In Section X, updates the projected recovery and wind-down
costs and regulatory capital.
<bullet> In Section XI, updates ICC's and ICE Group's financial
statements.
<bullet> In Section XIII, updates the percentages held by financial
services providers of clearing participant cash and collateral.
The proposed rule change would also revise Section IV.C.1 to
reflect (i) the change of the Board size from eleven to nine managers,
consistent with the
[[Page 33224]]
adoption of the Sixth Amended and Restated Operating Agreement of ICC
in 2021, (ii) the reduction of the number of independent and non-
independent managers by one, (iii) the revision of manager titles, and
(iv) the removal of two specific managers.
The proposed rule change would also change Section IV.C.3 to update
the description of the responsibilities and membership composition of
the Participant Review Committee (``PRC'') and Credit Review
Subcommittee of the PRC (``CRS''), which are internal committees that
assist in fulfilling counterparty review responsibilities, consistent
with changes to their charters in 2021. The proposed rule change would
also make corresponding changes in Section VI.B.1 to describe the
advisory role of the CRS in making recommendations to the PRC and the
required role of the PRC in approving FSPs.
The proposed rule change would also amend Section IV.E.4 to state
that ICC monitors the FSPs daily, intraday, and monthly, consistent
with the processes described in the ICC Counterparty Monitoring
Procedures.
ICC would revise Section VII.B to remove discussion of a metric no
longer used to measure ICC's performance, and to update the date of a
referenced policy.
Under the proposed rule change, Section VII.C would specify that
ICC will make required disclosures pursuant to applicable regulations
once the Recovery Plan is initiated, and would include updated
regulatory contacts. In Section VIII.B.2, the proposed changes would
add minor language clarifications in describing the purpose of its
Liquidity Risk Management Framework. In Section VIII.B.3, the proposed
changes would make updates regarding the insurance coverage maintained
at the ICE Group level, which may be used as a recovery tool in a non-
clearing participant default scenario.
Under the proposed rule change, Section VIII.B.3 would reflect
updated balance sheet information that demonstrates the ability of
ICC's parent to make cash infusions to ICC as a recovery tool.
Relatedly, the proposed rule change would amend the procedures for
seeking such additional capital, including the individual within the
ICE Group with whom such discussions would begin. The proposed changes
would also identify the role of this individual within the ICE Group
and update the description of the composition of certain ICE Group
boards. Additionally, the proposed rule change would include updated
financial information relevant to the efficacy of several other
recovery tools that may be utilized in a non-clearing participant
default scenario.
ICC also proposed minor edits for clarity and consistency.
Specifically, Section IX would be amended to clarify that the Recovery
Plan is made available to regulators in accordance with relevant
regulations, and to incorporate a reference to the ICC Default
Management Procedures for details on ICC's default management testing.
Section XIV would include an updated index of exhibits referring to the
current versions of policies and procedures, consistent with updated
footnote references. Finally, the proposed rule change would make minor
typographical fixes in the Recovery Plan as well as conforming changes
in in the Wind-Down Plan, including updates to entity names, and
grammatical and formatting changes.
C. Wind-Down Plan
The proposed rule changes to the Wind-Down Plan are, in large part,
substantially similar to the proposed changes to the Recovery Plan,
including general updates, clarifying edits, and amendments to make the
information in the Wind-Down Plan current and reflect changes that have
impacted ICC in the past year, including changes to the composition of
the Board.
Similar to the Recovery Plan, the document would be amended
throughout to specify that the information provided is current as of
December 31, 2021, unless otherwise stated. Under the proposed rule
change, The Wind-Down Plan would also reflect the addition of one
entity to the list of companies owned by ICC's parent, as well as
updates to facilities and personnel information, the financial
resources available to support wind-down, and the percentages of cash
and collateral held by FSPs in Appendix C.
Further, as with the Recovery Plan, the proposed changes to the
Wind-Down Plan would update the description of the composition of the
Board to reflect changes from 2021, including changes to the Board size
from eleven to nine managers and revisions to manager titles. The
proposed changes also describe procedures for seeking certain required
consultations or approvals identified in the Wind-Down Plan, including
the individual within the ICE Group with whom such discussions would
begin. The proposed changes would identify the role of this individual
within the ICE Group and include information on the composition of a
relevant ICE Group board. The proposed changes would also specify that
ICC will make required disclosures pursuant to applicable regulations
once the decision to wind-down is made, and update ICC's regulatory
contacts.
Finally, Section X would be amended to note that the Wind-Down Plan
is made available to regulators in accordance with relevant regulations
and to state broadly that the testing of the Wind-Down Plan considers
various options. In Section XII, the proposed rule change would update
the index of exhibits to reflect the current versions of policies and
procedures.
III. Discussion and Commission Findings
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.\10\ For the reasons given below, the Commission finds
that the proposed rule change is consistent with Section 17A(b)(3)(F)
of the Act \11\ and Rule 17Ad-22(e)(2)(v),\12\ and (e)(3)(ii).\13\
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\10\ 15 U.S.C. 78s(b)(2)(C).
\11\ 15 U.S.C. 78q-1(b)(3)(F).
\12\ 17 CFR 240.17Ad-22(e)(2) (v).
\13\ 17 CFR 240.17Ad-22(e)(3)(ii).
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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 and, to the extent
applicable, derivative agreements, contracts, and transactions, as well
as to assure the safeguarding of securities and funds which are in the
custody or control of ICC or for which it is responsible, and, in
general, to protect investors and the public interest.\14\
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\14\ 15 U.S.C. 78q-1(b)(3)(F).
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As noted above, the proposed rule changes relate mainly to updating
the Recovery and Wind-Down Plans with current information about ICC's
facilities, finances, operations, and Board. The Commission believes
that by providing updated numbers for ICC's revenues, volumes, and
expenses, including projected recovery and wind-down costs and
regulatory capital, the proposed changes will enhance ICC's ability to
monitor its finances and compare its regulatory capital to its
estimated recovery and wind-down costs. This in turn will help ensure
ICC has the financial resources to promptly and accurately clear and
settle
[[Page 33225]]
transactions during recovery and, if necessary, conduct an orderly
wind-down.
Further, the Commission believes that adding iTraxx Index Swaptions
to the list of Index Swaptions products for which ICC provides clearing
services, adding the additional entity to the list of ICC parent-owned
companies, and providing an updated exhibit index will generally
support those utilizing the Plans by providing users of the Plans a
current overview of ICC's full operations, including all of its
businesses and cleared products.
As noted above, the proposed rule change would also update
description of the Board size and its composition as well as the
responsibilities and membership composition of the PRC and CRS. The
Commission believes that these proposed changes would strengthen the
Plans by ensuring that they delineate responsible individuals and their
duties, which will support efficient operation of ICC, including during
recovery or wind-down by ensuring they reflect the Sixth Amended and
Restated Operating Agreement of ICC and amended committee charters.
The proposed rule changes would also state that ICC monitors the
FSPs daily, intraday, and monthly, consistent with the processes
described in the ICC Counterparty Monitoring Procedures and update a
metric used to measure ICC's performance. The Commission believes that
these changes would enhance ICC's ability to manage its financial
resources by ensuring they reflect current ICC's Counterparty
Monitoring Procedures, which in turn will enable ICC to promptly and
accurately clear and settle securities transactions.
The Commission believes that the proposed changes to specify that
ICC will make required disclosures pursuant to applicable regulations
once the Plans are initiated, update regulatory contacts, and to state
that the Plans are made available to regulators in accordance with
relevant regulations enhance ICC's procedures for keeping regulatory
authorities informed thereby promoting the protection of investors and
the public interest.
As noted above, the proposed rule change would also amend the
procedures for seeking additional capital from ICC's parent by
including the current individual within the ICE Group with whom such
discussions would begin. The proposed changes would also include
procedures for seeking certain required consultations or approvals
identified in the Wind-Down Plan, including the individual within the
ICE Group with whom such discussions would begin. The proposed changes
would identify the role of this individual within the ICE Group. The
Commission believes that these proposed changes would strengthen the
plans by ensuring those utilizing them have all of the information
necessary to carryout recovery or an orderly wind-down, which in turn
would ensure ICC can promptly and accurately clear and settle trades
and safeguard of securities and funds which are in its custody or
control at these times.
For the reasons stated above, the Commission believes that the
proposed rule change is consistent with Section 17A(b)(3)(F) of the
Act.\15\
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\15\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rules 17Ad-22(e)(2)(v)
Rules 17Ad-22(e)(2)(v) requires that ICC establish, implement,
maintain, and enforce written policies and procedures reasonably
designed to, as applicable, provide for governance arrangements that
specify clear and direct lines of responsibility.\16\
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\16\ 17 CFR 240.17Ad-22(e)(2)(v).
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The Commission believes that the proposed rule changes help
contribute to establishing, implementing, maintaining, and enforcing
written policies and procedures reasonably designed to provide for
governance arrangements that specify lines of control and
responsibility because they update the number of board members, board
composition, titles, and roles of committees.
The Commission also believes that the proposed changes provide
clear and direct lines of authority because they identify the
individual within the ICE Group with whom discussions for seeking
additional capital in recovery from ICC's parent would begin as well as
the procedures for seeking certain required consultations or approvals
identified in the Wind-Down Plan, including the individual within the
ICE Group with whom such discussions would begin. Further, the
Commission believes that proposed changes to certain titles of managers
and the removal of former managers promotes governance arrangements
that specify lines of control and responsibility by including current
information about individuals and their roles.
Therefore, the Commission finds that the proposed rule change is
consistent with Rule 17Ad-22(e)(2)(v).\17\
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\17\ 17 CFR 240.17Ad-22(e)(2)(v).
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D. Consistency With Rule 17Ad-22(e)(3)(ii)
Rule 17Ad-22(e)(3)(ii) requires ICC to establish, implement,
maintain, and enforce written policies and procedures reasonably
designed to maintain a sound risk management framework for
comprehensively managing legal, credit, liquidity, operational, general
business, investment, custody, and other risks that arise in or are
borne by ICC, which includes plans for the recovery and orderly wind-
down of ICC necessitated by credit losses, liquidity shortfalls, losses
from general business risk, or any other losses.\18\
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\18\ 17 CFR 240.17Ad-22(e)(3)(ii).
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The Commission believes that the proposed changes described above
that would add current financial, personnel, and board information
support ICC's maintenance of plans for the recovery and orderly wind-
down of ICC with updated accurate information. For instance, the
Commission believes that current financial information provides
relevant information to those using the Plans to understand the
resources available for recovery or an orderly wind-down. Further, the
Commission believes that current information about the Board, updated
procedures for seeking additional capital from the ICE Group, and
updated procedures for seeking required consultations or approvals in a
wind-down scenario support the utilization of the recovery and wind-
down plans with accurate references to personnel and procedures.
Therefore, the Commission finds that the proposed rule change is
consistent with Rule 17Ad-22(e)(3)(ii).\19\
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\19\ 17 CFR 240.17Ad-22(e)(3)(ii).
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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, with the requirements of Section 17A(b)(3)(F) of the
Act \20\ and Rules 17Ad-22(e)(2)(v) and (e)(3)(ii) thereunder.\21\
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\20\ 15 U.S.C. 78q-1(b)(3)(F).
\21\ 17 CFR 240.17Ad-22(e)(2)(v) and (e)(3)(ii).
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It is therefore ordered pursuant to Section 19(b)(2) of the Act
\22\ that the proposed rule change (SR-ICC-2022-004) be, and hereby is,
approved.\23\
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\22\ 15 U.S.C. 78s(b)(2).
\23\ 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).
\24\ 17 CFR 200.30-3(a)(12).
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For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-11677 Filed 5-31-22; 8:45 am]
BILLING CODE 8011-01-P
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