Notice2023-08146
Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of Proposed Rule Change Relating to the Clearance of Additional Credit Default Swap Contracts
Primary source
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Published
April 18, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 74 (Tuesday, April 18, 2023)</title>
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[Federal Register Volume 88, Number 74 (Tuesday, April 18, 2023)]
[Notices]
[Pages 23711-23713]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-08146]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97293; File No. SR-ICC-2023-005]
Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of
Proposed Rule Change Relating to the Clearance of Additional Credit
Default Swap Contracts
April 12, 2023.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of
1934,\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on
March 30, 2023, ICE Clear Credit LLC (``ICC'') filed with the
Securities and Exchange Commission (``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'').
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 and
discussed any comments it received on the proposed rule change. 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 an additional credit default swap
contract. ICC proposes to make such change effective following
Commission approval of the proposed rule change. ICC believes the
addition of this contract 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 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, specifically the Dominican
Republic. This additional EM Contract has terms consistent with the
other SES EM Contracts (Standard Emerging Market Sovereign (``SES'')
Single Name) approved for clearing at ICC and governed by Subchapter
26D of the Rules. Minor revisions to Subchapter 26D 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 Dominican Republic in the list of specific Eligible SES
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 Contract proposed for
clearing is similar to the SES 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 Contract 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 Contract, 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 Contract 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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Rule 17Ad-22(e)(6)(i) \6\ requires each covered clearing agency to
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, at a
minimum, considers, and produces margin levels commensurate with, the
risks and particular attributes of each relevant product, portfolio,
and market. In terms of financial resources, ICC will apply its
existing margin methodology to the new EM Contract, which are similar
to the SES contracts currently cleared by ICC. ICC believes that this
model will provide sufficient margin requirements to cover its credit
exposure to its clearing members from clearing such contracts,
consistent with the requirements of Rule 17Ad-22(e)(6)(i).\7\
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\6\ 17 CFR 240.17Ad-22(e)(6)(i).
\7\ Id.
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Rule 17Ad-22(e)(4)(ii) \8\ requires each covered clearing agency to
establish, implement, maintain, and enforce written policies and
procedures reasonably designed to effectively identify, measure,
monitor, and manage its credit exposures to participants and those
arising from its payment, clearing, and settlement processes, including
by maintaining additional financial resources at the minimum to enable
it to cover a wide range of foreseeable stress scenarios that include,
but are not limited to, the default of the two participant families
that would potentially cause the largest aggregate credit exposure for
the covered clearing agency in extreme but plausible market conditions.
ICC believes its Guaranty Fund, under its existing methodology,
[[Page 23712]]
will, together with the required initial margin, provide sufficient
financial resources to support the clearing of the additional EM
Contract, consistent with the requirements of Rule 17Ad-
22(e)(4)(ii).\9\
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\8\ 17 CFR 240.17Ad-22(e)(4)(ii).
\9\ Id.
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Rule 17Ad-22(e)(17) \10\ 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. ICC believes
that its existing operational and managerial resources will be
sufficient for clearing of the additional EM Contract, consistent with
the requirements of Rule 17Ad-22(e)(17),\11\ as the new contracts are
substantially the same from an operational perspective as existing
contracts.
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\10\ 17 CFR 240.17Ad-22(e)(17)(i) and (ii).
\11\ Id.
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Rule 17Ad-22(e)(8), (9) and (10) \12\ requires each covered
clearing agency to establish, implement, maintain, and enforce written
policies and procedures reasonably designed to define the point at
which settlement is final to be no later than the end of the day on
which payment or obligation is due and, where necessary or appropriate,
intraday or in real time; conduct its money settlements in central bank
money, where available and determined to be practical by the Board, and
minimize and manage credit and liquidity risk arising from conducting
its money settlements in commercial bank money if central bank money is
not used; and establish and maintain transparent written standards that
state its obligations with respect to the delivery of physical
instruments, and establish and maintain operational practices that
identify, monitor, and manage the risks associated with such physical
deliveries. ICC will use its existing rules, settlement procedures and
account structures for the new EM Contract, which are similar to the
SES contracts currently cleared by ICC, consistent with the
requirements of Rule 17Ad-22(e)(8), (9) and (10) \13\ as to the
finality and accuracy of its daily settlement process and addressing
the risks associated with physical deliveries.
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\12\ 17 CFR 240.17Ad-22(e)(8), (9) and (10).
\13\ Id.
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Rule 17Ad-22(e)(2)(i) and (v) \14\ requires each covered clearing
agency to establish, implement, maintain, and enforce written policies
and procedures reasonably designed to provide for governance
arrangements that are clear and transparent and specify clear and
direct lines of responsibility. ICC determined to accept the additional
EM Contract for clearing in accordance with its governance process,
which included review of the contract 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(e)(2)(i) and (v).\15\
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\14\ 17 CFR 240.17Ad-22(e)(2)(i) and (v).
\15\ Id.
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Rule 17Ad-22(e)(13) \16\ requires each covered clearing agency to
establish, implement, maintain, and enforce written policies and
procedures reasonably designed to ensure it has the authority and
operational capacity to take timely action to contain losses and
liquidity demands and continue to meet its obligations by, at a
minimum, requiring its participants and, when practicable, other
stakeholders to participate in the testing and review of its default
procedures, including any close-out procedures, at least annually and
following material changes thereto. ICC will apply its existing default
management policies and procedures for the additional EM Contract. ICC
believes that these procedures allow for it to take timely action to
contain losses and liquidity demands and to continue meeting its
obligations in the event of clearing member insolvencies or defaults in
respect of the additional single name, in accordance with Rule 17Ad-
22(e)(13).\17\
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\16\ 17 CFR 240.17Ad-22(e)(13).
\17\ Id.
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(B) Clearing Agency's Statement on Burden on Competition
ICC does not believe the proposed amendments will have any impact,
or impose any burden, on competition not necessary or appropriate in
furtherance of the purposes of the Act. As discussed above, the purpose
of the proposed rule change is to adopt rules that will provide the
basis for ICC to clear additional credit default swap contract. The
additional EM Contract will be available to all ICC participants for
clearing. The clearing of the additional EM Contract by ICC does not
preclude the offering of the additional EM Contract for clearing by
other market participants. Accordingly, ICC does not believe that
clearance of the additional EM Contract 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
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
<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#8cfef9e0e9a1efe3e1e1e9e2f8ffccffe9efa2ebe3fa"><span class="__cf_email__" data-cfemail="1664637a733b75797b7b737862655665737538717960">[email protected]</span></a>. Please include
File Number SR-ICC-2023-005 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-2023-005. 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
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internet website (<a href="https://www.sec.gov/rules/sro.shtml">https://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-2023-005 and
should be submitted on or before May 9, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-08146 Filed 4-17-23; 8:45 am]
BILLING CODE 8011-01-P
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