Notice2022-18766
Self-Regulatory Organizations; ICE Clear Credit LLC; Order Approving Proposed Rule Change Relating to the Clearing Rules and the End-of-Day Price Discovery Policies and 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
August 31, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 168 (Wednesday, August 31, 2022)</title>
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[Federal Register Volume 87, Number 168 (Wednesday, August 31, 2022)]
[Notices]
[Pages 53529-53531]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-18766]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95603; File No. SR-ICC-2022-010]
Self-Regulatory Organizations; ICE Clear Credit LLC; Order
Approving Proposed Rule Change Relating to the Clearing Rules and the
End-of-Day Price Discovery Policies and Procedures
August 25, 2022.
I. Introduction
On July 7, 2022, 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 (the
``Act''),\1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to
amend its Clearing Rules (the ``Rules'') and End-of-Day Price Discovery
Policies and Procedures (the ``EOD Policy'') to establish an additional
class of Clearing Participant. The proposed rule change was published
for comment in the Federal Register on July 20, 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 Clearing Rules and
the End-of-Day Price Discovery Policies and Procedures; Exchange Act
Release No. 95279 (July 14, 2022), 87 FR 43351 (July 20, 2022) (File
No. SR-ICC-2022-010) (``Notice'').
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II. Description of the Proposed Rule Change
A. Background
The proposed rule change would amend the Rules and EOD Policy to
establish an additional class of Clearing Participant at ICC, the
Associate Clearing Participant (referred to herein as the ``ACP'').\4\
In general, an ACP would have the same rights, obligations, and
responsibilities as other Clearing Participants (referred to herein as
``Full Participants''), except with respect to certain price
submissions. Specifically, ICC would permit an ACP to submit prices
with respect to certain North American (``NA'') Credit Default Swap
(``CDS'') products at the end of the London trading day, rather than at
the end of the New York trading day. ICC represents this change is
intended to
[[Page 53530]]
facilitate the participation of United Kingdom and European entities
that may be unable to provide price submissions for North American
instruments outside of London trading hours.\5\ There is no
requirement, however, that an entity applying to become an ACP be based
in the United Kingdom or Europe.
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\4\ This description is substantially excerpted from the Notice,
87 FR at 43351. Capitalized terms not otherwise defined herein have
the meanings assigned to them in the Rules or EOD Policy, as
applicable.
\5\ Notice, 87 FR at 43351.
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B. Rules
With respect to the Rules, the proposed rule change would amend
Rule 102 and adopt a new Rule 212.
In Rule 102, the proposed rule change would add new defined terms:
``Associate Clearing Participant,'' ``Full Participant,'' ``NA
Instruments,'' and ``NA Instrument EU EOD Submission.'' The term
``Associate Clearing Participant'' would have the meaning assigned to
it in new Rule 212 (as discussed below), while the term ``Full
Participant'' would mean a Clearing Participant other than an ACP.
Similarly, the terms ``NA Instruments'' and ``NA Instrument EU EOD
Submission'' would have the meanings assigned to them in new Rule 212.
New Rule 212 would permit ICC to establish the ACP category of
Clearing Participants. Rule 212 would define ``ACP'' as a Clearing
Participant meeting the terms and conditions set out in the new rule.
Under Rule 212(a), each ACP would be a Clearing Participant for all
purposes under the Rules and ICC Procedures, with and subject to all
rights, obligations, limitations, conditions, restrictions,
representations, warranties, and acknowledgements of a Clearing
Participant, and subject to the initial and ongoing qualifications and
requirements for being a Clearing Participant, except as otherwise
provided in Rule 212 or the ICC Procedures.
Rule 212(b) would permit ICC to establish a new London end-of-day
price submission window for which ACPs would be required to make price
submissions with respect to NA Instruments. Rule 212(b) would define
``NA Instruments'' as Contracts relating to North American reference
entities or indices (as identified by ICC) and such other Contracts as
ICC may determine. Moreover, Rule 212(b) would define such price
submissions submitted by ACPs as ``NA Instrument EU EOD Submissions.''
Rule 212(b) further would permit ICC to establish firm trade
requirements \6\ with respect to NA Instrument EU EOD Submissions.
Finally, Full Participants could make NA Instrument EU EOD Submissions,
but would not be required to do so and would not be subject to firm
trade requirements in connection with such submissions.
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\6\ The term ``firm trade requirements'' refers to ICC's ability
to require that Clearing Participants enter into trades at the
prices they submit to ICC. ICC uses firm trade requirements to help
ensure accurate price submissions.
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Certain provisions of Rule 212 would permit ICC to establish
different standards and obligations for ACPs as compared to Full
Participants. Rule 212(c) would permit ICC to establish different daily
deadlines for submission of Trades by ACPs. Rule 212(d) would permit
ICC to establish different or supplemental margin requirements or
related parameters for ACPs. Rule 212(f) would permit ICC to establish
alternative or additional standards of business integrity, financial
capacity, creditworthiness, operational capability, experience, and
competence for ACPs. Finally, Rule 212(g) would permit ICC to require a
separate form of Participant Agreement for ACPs.\7\
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\7\ ICC anticipates requiring ACPs to submit trades by the close
of the London trading day but at this time does not anticipate
establishing any other additional or alternative standards. Notice,
87 FR at 43352.
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Rule 212(e) would prohibit ACPs from submitting any Trades on
behalf of Clients. ACPs would only be permitted to submit Trades for
their own accounts or for Affiliates as House positions. Moreover,
under Rule 212(h), no Affiliate of an existing Clearing Participant
could be an ACP. As stated in the notice, ICC believes that Clearing
Participants that engage in clearing on behalf of Clients should be
Full Participants, with the operational and other resources to submit
pricing at all relevant times for the full spectrum of products that
they or their Clients may submit.\8\
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\8\ Notice, 87 FR at 43352.
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C. EOD Policy
The proposed rule change would make related changes to the EOD
Policy to establish the price submission requirements for ACPs and to
differentiate these requirements from the requirements for Full
Participants.
First, the proposed rule change would create a new submission
window for NA Instruments. ICC uses different submission windows to
determine the prices of the different products it clears. For example,
ICC has an existing submission window, known as the EU Submission
Window, which occurs at the end of the London trading day for contracts
that are primarily traded in London hours. The proposed rule change
would create a new submission window for NA Instruments, which would
occur at the end of the London trading day (referred to as the ``NA
Instrument EU Submission Window''). Because the NA Instrument EU
Submission Window would occur at the end of the London trading day,
like the current EU Submission Window, the timings for all elements of
the price discovery process related to the NA Instrument EU Submission
Window would be the same as those for the EU Submission Window.
The proposed rule change also would amend the EOD Policy to provide
that if a Clearing Participant--both ACP and Full Participant--fails to
make a required end-of-day submission during the applicable window, ICC
may use the last intraday quote received prior to the close of that
window (if one has been received on that day) to serve as that Clearing
Participant's end-of-day submission.
Moreover, the proposed rule change would add a requirement to the
EOD Policy that ACPs provide price submissions for the NA Instrument EU
Submission Window. The proposed rule change would further add language
stating that Full Participants may, but are not required to, provide
price submissions for the NA Instrument EU Submission Window.
Similarly, the proposed change would revise the provisions of the
EOD Policy relating to firm trades. For the NA Instrument EU Submission
Window, ICC would only designate firm trades between ACPs (and, for the
avoidance of doubt, voluntary submissions by Full Participants in that
window will not be subject to firm trades). Further, firm trades
between ACPs originating from the NA Instrument EU Submission Window
would not be eligible for reversing transactions.\9\
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\9\ Under the EOD Policy, a reversing transaction is a second
firm trade with identical attributes to the initial firm trade, but
with the buyer and seller counterparties reversed, and at that day's
EOD price rather than the original firm trade price.
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The proposed rule change also would revise the EOD Policy to
provide that prices established in the NA Instrument EU Submission
Window would not be published externally by ICC. ICC would use prices
only for risk management purposes.\10\
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\10\ Notice, 87 FR at 43352.
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Finally, in the appendix to the EOD Policy, the proposed rule
change would update the timetables for the end-of-day submission
process to include the NA Instrument EU Submission Window (with timing
and deadlines consistent with the EU submission window, as noted
above).
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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.\11\ For the reasons discussed below, the Commission finds
that the proposed rule change is consistent with Section 17A(b)(3)(F)
of the Act \12\ and Rules 17Ad-22(e)(6)(iv) and 17Ad-22(e)(18)
thereunder.\13\
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\11\ 15 U.S.C. 78s(b)(2)(C).
\12\ 15 U.S.C. 78q-1(b)(3)(F).
\13\ 17 CFR 240.17Ad-22(e)(6)(iv) and (e)(18).
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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.\14\ 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
securities transactions at ICC because it would expand the group of
entities able to become members of ICC.
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\14\ 15 U.S.C. 78q-1(b)(3)(F).
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As discussed above, the proposed rule change would establish the
requirements applicable to ACPs. These requirements would largely
mirror those currently applicable to Full Participants, except that
ACPs would submit prices for NA Instruments during the NA Instrument EU
Submission Window. The Commission believes this would allow
participation by entities that may be unable to provide prices for NA
Instruments at the close of the New York trading day (as is required
for Full Participants). In doing so, the Commission believes the
proposed rule change would facilitate expanded participation at ICC and
therefore the additional clearance and settlement of transactions at
ICC by these additional participants. The Commission believes this
change therefore would promote the prompt and accurate clearance and
settlement of transactions at ICC, 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 Rule 17Ad-22(e)(6)(iv)
Rule 17Ad-22(e)(6)(iv) requires that ICC establish, implement,
maintain, and enforce written policies and procedures reasonably
designed to cover its credit exposures to its participants by
establishing a risk-based margin system that, among other things, uses
reliable sources of timely price data and uses procedures and sound
valuation models for addressing circumstances in which pricing data are
not readily available or reliable.\16\ As discussed above, proposed
Rule 212 and the revised EOD Policy would require ACPs to submit prices
for NA Instruments during the NA Instrument EU Submission Window. The
Commission believes this requirement would facilitate the submission of
prices for NA Instruments by ACPs, who may not have the operational
capability to provide prices for NA Instruments at the close of the New
York trading day (as is required for Full Participants). The Commission
therefore believes that ACPs could serve as a reliable source of timely
price data for NA Instruments, in addition to the price data that Full
Participants submit. The Commission therefore finds the proposed rule
change is consistent with Rule 17Ad-22(e)(6)(iv).\17\
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\16\ 17 CFR 240.17Ad-22(e)(6)(iv).
\17\ 17 CFR 240.17Ad-22(e)(2)(v).
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C. Consistency with Rule 17Ad-22(e)(18)
Rule 17Ad-22(e)(18) requires that ICC establish, implement,
maintain, and enforce written policies and procedures reasonably
designed to, among other things, establish objective, risk-based, and
publicly disclosed criteria for participation, which permit fair and
open access by direct and, where relevant, indirect participants and
other financial market utilities.\18\ As discussed above, proposed Rule
212 and the revised EOD Policy would require ACPs to submit prices for
NA Instruments during the NA Instrument EU Submission Window. The
Commission believes this represents an objective requirement that would
allow participation by persons that may be unable to provide prices for
NA Instruments at the close of the New York trading day (as is required
for Full Participants). Moreover, as discussed above, any person who
meets this requirement, and the other requirements for ACPs (which are
largely the same as those applicable to Full Participants) could become
an ACP. The Commission therefore believes the requirements applicable
ACPs represent objective criteria which any person could potentially
satisfy, thereby permitting fair and open access to ACP membership at
ICC. The Commission therefore find the proposed rule change is
consistent with Rule 17Ad-22(e)(18).\19\
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\18\ 17 CFR 240.17Ad-22(e)(18).
\19\ 17 CFR 240.17Ad-22(e)(18).
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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)(6)(iv) and 17Ad-22(e)(18) thereunder.\21\
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\20\ 15 U.S.C. 78q-1(b)(3)(F).
\21\ 17 CFR 240.17Ad-22(e)(6)(iv) and (e)(18).
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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-2022-010), 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).
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. 2022-18766 Filed 8-30-22; 8:45 am]
BILLING CODE 8011-01-P
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