Notice2023-08410
Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of Filing of Proposed Rule Change Relating to Clearance of Additional Credit Default Swap Contracts
Primary source
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Published
April 21, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 77 (Friday, April 21, 2023)</title>
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[Federal Register Volume 88, Number 77 (Friday, April 21, 2023)]
[Notices]
[Pages 24647-24649]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-08410]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97318; File No. SR-ICC-2023-004]
Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of
Filing of Proposed Rule Change Relating to Clearance of Additional
Credit Default Swap Contracts
April 17, 2023.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of
1934,\1\ 15 U.S.C. 78s(b)(1) \2\ and Rule 19b-4,\3\ 17 CFR 240.19b-4,
notice is hereby given that on April 3, 2023, 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 primarily prepared 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\ Id.
\3\ Id.
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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 change is for ICC to provide
for the clearance of Standard Subordinated European Insurance Corporate
Single Name CDS contracts (``STSEIC Contracts'').
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
The purpose of the proposed rule change is to adopt rules that will
provide the basis for ICC to clear additional credit default swap
contracts (``CDS''). Specifically, ICC proposes amending Chapter 26 \4\
of the ICC Rules to add Subchapter 26S to provide for the clearance of
STSEIC Contracts. ICC believes the addition of these contracts will
benefit the market for CDS by providing market participants the
benefits of clearing, including the reduction in counterparty risk, and
safeguarding of margin assets pursuant to clearing house rules. The
clearing of STSEIC Contracts 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'').\5\
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\4\ Chapter 26 of the ICC Rules covers the CDS products cleared
by ICC, with each subchapter of Chapter 26 defining the
characteristics and additional Rules applicable to the various
specific categories of CDS contracts cleared by ICC (e.g., Standard
European Corporate Single Names and Standard North American
Corporate Single Names).
\5\ 15 U.S.C. 78q-1.
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Rule Amendments
STSEIC Contracts have similar terms to Standard European Corporate
Single Name CDS contracts (``STEC Contracts'') currently cleared by ICC
and governed by Subchapter 26G of the ICC Rules. Accordingly, the
proposed rules found in Subchapter 26S largely mirror the ICC Rules for
STEC Contracts in Subchapter 26G, with certain modifications that
reflect differences in terms and market conventions between STEC
Contracts and STSEIC Contracts. STSEIC contracts will be denominated in
Euro.
In new Subchapter 26S, Rule 26S-102 (Definitions) sets forth the
definitions used for STSEIC Contracts. Except as noted below, the
definitions are substantially the same as the definitions found in
Subchapter 26G, other than the category of contract to be cleared. The
definitions section in Subchapter 26S does not contain a definition
analogous to ``Eligible STEC Sector'' that appears in Subchapter 26G
as, unlike STEC Contracts, there are no further subsectors for STSEIC
Contracts as these contracts are essentially already at a sub-sector
level and therefore a
[[Page 24648]]
definition for further sub-sectors is not necessary. Furthermore,
Subchapter 26S does not contain several provisions on restructuring
that are found in Subchapter 26G. The reason such provisions are not
needed in Subchapter 26S is that the market convention for STSEIC
Contracts (as set out in the ISDA Physical Settlement Matrix) is that
Modified Modified Restructuring (aka ``M(M)R Restructuring'') does not
apply. This differs from the STEC Contract category and therefore
various provisions that relate to M(M)R Restructuring that are included
in Subchapter 26G are not applicable for STSEIC Contracts and therefore
are not included in proposed Subchapter 26S. In addition, Subchapter
26G includes several references to ``2003-Type CDS Contracts'' which
are not included in proposed Subchapter 26S as it is not anticipated
that any cleared STSEIC Contracts will reference the older 2003 ISDA
Credit Derivatives Definitions and as a result those provision related
to the 2003 ISDA Credit Derivatives Definitions have not been included.
ICC Rules 26S-203 (Restrictions on Activity), 26S-206 (Notices Required
of Participants with respect to STSEIC Contracts), 26S-303 (STSEIC
Contract Adjustments), 26S-309 (Acceptance of STSEIC Contracts by ICE
Clear Credit), 26S-315 (Terms of the Cleared STSEIC Contract, 26S-316
(Relevant Physical Settlement Matrix Updates), 26S-502 (Specified
Actions), and 26S-616 (Contract Modifications) reflect or incorporate
the basic contract specifications for STSEIC Contracts and are
substantially the same as under Subchapter 26G of the ICC Rules. Under
26S-315(f) the Subordinated European Insurance Terms are deemed to
apply to the STSEIC Contracts as such terms are part of the market-
standard provisions that apply under the 2014 ISDA Credit Derivatives
Definitions. Furthermore, 26S-616 is slightly different from the
analogous provision under Subchapter 26G (i.e., 26G-616) as the NTCE
Supplement \6\ referenced in Rule 26G-616(c) was adopted while ICC had
open interest in STEC Contracts and therefore Rule 26G-616 was amended
to incorporate the NTCE Supplement into then currently open STEC
Contract positions.\7\ For new cleared contracts such as STSEIC
Contracts under Subchapter 26S, such specific reference to the NTCE
Supplement is not necessary as such supplement is part of the 2014 ISDA
Credit Derivatives Definitions and therefore will automatically apply
to STSEIC Contracts under the current ISDA Physical Settlement Matrix.
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\6\ The 2019 Narrowly Tailored Credit Event Supplement to the
2014 ISDA Credit Derivatives Definitions published by ISDA (the
``NTCE Supplement'').
\7\ See SEC Release No. 34-87612 (December 2, 2019) (notice), 85
FR 3724 (January 22, 2020) (SR-ICC-2019-013).
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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 \8\ and the regulations
thereunder applicable to it, including the applicable standards under
Rule 17Ad-22.\9\ In particular, Section 17A(b)(3)(F) of the Act \10\
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. As described above, the STSEIC Contracts proposed for
clearing are similar to 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 STSEIC Contracts will allow market participants an
increased ability to manage risk and ensure the safeguarding of margin
assets pursuant to ICC Rules. ICC believes that acceptance of the
STSEIC Contracts, on the terms and conditions set out in the ICC Rules,
is consistent with the prompt and accurate clearing and settlement of
the contracts 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.\11\
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\8\ 15 U.S.C. 78q-1.
\9\ 17 CFR 240.17Ad-22.
\10\ 15 U.S.C. 78q-1(b)(3)(F).
\11\ Id.
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Clearing of the STSEIC Contracts also will satisfy the relevant
requirements of Rule 17Ad-22.\12\ In particular, in terms of financial
resources, ICC will apply its existing initial margin methodology to
the clearing of the additional contracts. ICC believes this model will
provide sufficient initial margin to cover its credit exposure to its
clearing members commensurate with the risks and particular attributes
from clearing such contracts, consistent with the requirements of Rule
17Ad-22(e)(6).\13\ In addition, ICC believes its guaranty fund, under
its existing methodology, will together with the required initial
margin, provide sufficient financial resources to support the clearing
of the additional contracts consistent with the requirements of Rule
17Ad-22(e)(4).\14\ ICC also believes that its existing operational
systems, policies, procedures and controls are sufficient for clearing
the additional contracts, consistent with the requirements of Rule
17Ad-22(e)(17),\15\ as the new contracts are substantially the same
from an operational perspective as existing contracts and ICC will use
existing settlement procedures and account structures for the new
contracts. ICC determined to accept STSEIC Contracts for clearing in
accordance with its governance process, which included review of the
contracts and related risk management considerations by the ICC Risk
Committee and approval by the Board. These governance arrangements are
consistent with the requirements of Rule 17Ad-22(e)(2).\16\
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\12\ 17 CFR 240.17Ad-22.
\13\ 17 CFR 240.17Ad-22(e)(6), which requires covered clearing
agency policies and procedurs to cover its credit exposures to its
participants by establishing a risk-based margin system.
\14\ 17 CFR 240.17Ad-22(e)(4), which requires covered clearing
agency policies and procedures to effectively identify, measure,
monitor and manage its credit exposures to participants and those
arising from its payment, clearing, and settlement processes.
\15\ 17 CFR 240.17Ad-22(e)(17), which requires covered clearing
agency policies and procedures to manage its operational risks.
\16\ 17 CFR 240.17Ad-22(e)(2), which requires covered clearing
agency policies and procedures to provide for governance arrangments
which, among other things, are clear and transparent and prioritize
the safety and efficiency of the covered clearing agency.
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(B) Clearing Agency's Statement on Burden on Competition
The STSEIC Contracts will be available to all ICC participants for
clearing. The clearing of STSEIC Contracts by ICC does not preclude the
offering of the STSEIC Contracts for clearing by other market
participants. Accordingly, ICC does not believe that clearance of the
STSEIC Contracts will have any impact, or impose any burden, on
competition not necessary or appropriate in furtherance of the purposes
of the Act.\17\
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\17\ 15 U.S.C. 78q-1.
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(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.
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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.\18\ Comments may be submitted by any
of the following methods:
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\18\ Id.
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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#5624233a337b35393b3b333822251625333578313920"><span class="__cf_email__" data-cfemail="cebcbba2abe3ada1a3a3aba0babd8ebdabade0a9a1b8">[email protected]</span></a>. Please include
File Number SR-ICC-2023-004 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-ICC-2023-004. 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 Section, 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-2023-004 and should be
submitted on or before May 12, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-08410 Filed 4-20-23; 8:45 am]
BILLING CODE 8011-01-P
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