Notice2023-10129
Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of Filing of Proposed Rule Change Relating to the ICC Clearing Participant Default Management Procedures
Primary source
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Published
May 12, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 92 (Friday, May 12, 2023)</title>
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[Federal Register Volume 88, Number 92 (Friday, May 12, 2023)]
[Notices]
[Pages 30812-30815]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-10129]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97455; File No. SR-ICC-2023-008]
Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of
Filing of Proposed Rule Change Relating to the ICC Clearing Participant
Default Management Procedures
May 8, 2023.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4,\2\ notice is hereby given that on May
02, 2023, ICE Clear Credit LLC (``ICC'') filed with the Securities and
Exchange Commission (the ``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
ICC proposes a rule change to update the ICC Clearing Participant
(``CP'') Default Management Procedures (the ``ICC Default Management
Procedures''). These revisions do not require any changes to the ICC
Clearing Rules (the ``Rules'').
[[Page 30813]]
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
ICC proposes to update the ICC Clearing Participant Default
Management Procedures (the ``ICC Default Management Procedures''). The
ICC Default Management Procedures set forth ICC's default management
process, including the actions taken by ICC to determine that a CP is
in default of its obligations to ICC under the Rules, as well as the
actions taken by ICC in connection with the close-out of the
defaulter's portfolio (the ``Close-Out''). The proposed revisions are
designed to address Commission regulatory examination findings related
to the annual testing of the ICC Recovery Plan and the ICC Wind-Down
Plan (collectively, the ``Plans'').\3\ The proposed revisions are
limited to providing additional details with respect to ICC's testing
of the Plans included in the ICC Default Management Procedures. ICC
believes such revisions will facilitate the prompt and accurate
clearance and settlement of securities transactions and derivative
agreements, contracts, and transactions for which it is responsible.
ICC proposes to make such changes effective following Commission
approval of the proposed rule change. The proposed updates are
described in detail as follows.
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\3\ The ICC Recovery Plan and ICC Wind-Down Plan are the plans
for the recovery and orderly wind-down of ICC necessitated by credit
losses, liquidity shortfalls, losses from general business risk, or
other losses.
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Specifically, ICC purposes to revise the ICC Default Management
Procedures by adding Section 4.6 Recovery and Wind-Down Tests. Section
4.6 adds detailed procedures with respect to ICC's annual Recovery and
Wind-Down testing. ICC conducts Recovery and Wind-Down testing at least
every twelve months demonstrating ICC's readiness to execute the Plans
as applicable (i) to address uncovered credit losses, liquidity
shortfalls and general business risk, operational risk, or any other
risk that threatens ICC's viability as a going concern, and (ii) in the
event recovery actions fail to preserve ICC's viability as a going
concern or ICC makes a business decision to exit all clearing
activities, to wind-down ICC in an orderly manner (the ``Recovery and
Wind-Down Test'').
Proposed Section 4.6 also includes details on how the scope of each
Recovery and Wind-Down Test is determined. It is the responsibility of
the ICC Risk Oversight Officer (``ROO'') to plan and coordinate the
execution of the Recovery and Wind-Down Test, including the
determination of the scope of the Recovery and Wind-Down Test which
includes coordination with the ICC Close-Out Team.\4\ Such scope will
include which recovery and wind-down scenarios will be tested, the
selected stress scenario(s), and the recovery tools to be tested. In
the determination of which scenarios and tools are to be tested, ICC
will give consideration to scenarios, business processes, and tools
which have not been recently tested. In addition, ICC will consider the
applicability of new Rules, procedures, or newly implemented ICC
capabilities (e.g., new cleared contracts). The scope also will include
all three wind-down options set forth in the ICC Wind-Down Plan.
Section 4.6 further provides that with respect to the testing of
business processes and tools to address CP default scenarios, ICC may
choose to include such testing in ICC's default management tests, and
testing of non-CP default scenarios will be conducted through a
separate table-top exercise.
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\4\ The ICC Close-Out Team is comprised of ICC management, the
ROO, and the most senior member of the ICC Treasury Department.
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Furthermore, proposed Section 4.6 assigns responsibility for the
execution of the Recovery and Wind-Down Test to the ICC Close-Out Team,
capturing results, and making them available to the ROO. The ROO
collates the results and, identifies any issues or lessons learned,
including any revisions that should be made to the ICC Recovery Plan or
ICC Wind-Down Plan. The ROO collates the information from the Recovery
and Wind-Down Test into a presentation which is reviewed with the
Close-Out Team, the ICC Risk Committee and the ICC Board of Managers.
The ROO maintains a list of work items for the future development and/
or enhancement of the business processes and capabilities necessary to
execute the ICC Recovery Plan and ICC LLC Wind-Down Plan.
(b) Statutory Basis
Section 17A(b)(3)(F) of the Act \5\ 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 the clearing agency or for which it is
responsible; in general, to protect investors and the public interest;
and to comply with the provisions of the Act and the rules and
regulations thereunder. ICC believes that the proposed additional
procedural details to ICC's Default Management Procedures included in
the proposed rule change are consistent with the requirements of the
Act and the rules and regulations thereunder applicable to ICC, in
particular, to section 17(A)(b)(3)(F),\6\ because ICC believes that the
proposed additional procedural details to ICC's Default Management
Procedures enhances policies, practices and procedures with respect to
the testing of ICC Recovery Plan and the ICC Wind-Down Plan. Such sound
policies, practices and procedures are important to enhance ICC's
ability to withstand defaults and continue providing clearing services,
thereby promoting the prompt and accurate clearance and settlement of
securities transactions, derivatives agreements, contracts, and
transactions; the safeguarding of securities and funds which are in the
custody or control of ICC or for which it is responsible; and the
protection of investors and the public interest. As such, the proposed
rule change is designed to promote the prompt and accurate clearance
and settlement of securities transactions, derivatives agreements,
contracts, and transactions; to contribute to the safeguarding of
securities and funds associated with security-based swap transactions
in ICC's custody or control, or for which ICC is responsible; and, in
general, to protect investors and the public interest within the
meaning of section 17A(b)(3)(F) of the Act.\7\
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\5\ 15 U.S.C. 78q-1(b)(3)(F).
\6\ Id.
\7\ Id.
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In addition, the proposed rule change is consistent with the
relevant requirements of Rule 17Ad-22.\8\ Rule
[[Page 30814]]
17Ad-22(b)(3) \9\ requires ICC to establish, implement, maintain and
enforce written policies and procedures reasonably designed to maintain
sufficient financial resources to withstand, at a minimum, a default by
the two CP families to which it has the largest exposures in extreme
but plausible market conditions. ICC believes that such changes enhance
ICC's ability to manage a default by providing additional detail,
transparency and clarity with respect to ICC's default management rules
and procedures, thereby ensuring that ICC continues to maintain
sufficient financial resources to withstand, at a minimum, a default by
the two CP families to which it has the largest exposures in extreme
but plausible market conditions, consistent with the requirements of
Rule 17Ad-22(b)(3).\10\
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\8\ 17 CFR 240.17Ad-22.
\9\ 17 CFR 240.17Ad-22(b)(3).
\10\ Id.
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Rule 17Ad-22(e)(2)(i) and (v) \11\ 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. The Recovery and Wind-down Testing
updates to the ICC Default Management Procedures enhance the clarity
and transparency of such procedures by providing additional information
relating to the assignment of responsibilities in the determination of
the scope of the annual Recovery and Wind-down Test, and the assignment
of responsibilities in the execution of the annual Recovery and Wind-
Down Test, consistent with the requirements of Rule 17Ad-22(e)(2)(i)
and (v).\12\
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\11\ 17 CFR 240.17Ad-22(e)(2)(i) and (v).
\12\ Id.
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Rule 17Ad-22(e)(3)(ii) \13\ 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. The Default Management
Procedures continue to establish ICC's actions to maintain its
viability as a going concern to address any uncovered credit loss,
liquidity shortfall, capital inadequacy, or business, operational or
other structural weakness that threatens ICC's viability. The proposed
changes to the Default Management Procedures provide additional
detailed procedures with respect to the annual Recovery and Wind-Down
testing, improving both the comprehension and transparency of ICC's
Recovery and Wind-Down testing. In ICC's view, such proposed changes
will improve ICC's Default Management Procedures and ensure they remain
comprehensive and useful in providing for ICC's written policies and
procedures related to ICC's recovery and orderly wind-down, consistent
with the requirements of Rule 17Ad-22(e)(3)(ii).\14\
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\13\ 17 CFR 240.17Ad-22(e)(3)(ii).
\14\ Id.
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Rule 17Ad-22(e)(13) \15\ 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. The proposed changes to the Default
Management Procedures enhance the clarity and transparency of such
procedures by providing additional information relating to the
assignment of responsibilities in the determination of the scope of the
annual Recovery and Wind-down Test, and the assignment of
responsibilities in the execution of the annual Recovery and Wind-Down
Test. Such proposed changes, therefore, improve the design of ICC's
annual Recovery and Wind-Down Testing, consistent with the requirements
of Rule 17ad-22(e)(13).\16\
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\15\ 17 CFR 240.17Ad-22(e)(13).
\16\ Id.
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(B) Clearing Agency's Statement on Burden on Competition
ICC does not believe the proposed rule change would have any
impact, or impose any burden, on competition. The proposed rule change
to update the ICC Default Management Procedures will apply uniformly
across all market participants. Therefore, ICC does not believe the
proposed rule change imposes any burden on competition that is
inappropriate in furtherance of the purposes of the Act.
(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.
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#b4c6c1d8d199d7dbd9d9d1dac0c7f4c7d1d79ad3dbc2"><span class="__cf_email__" data-cfemail="2153544d440c424e4c4c444f5552615244420f464e57">[email protected]</span></a>. Please include
File Number SR-ICC-2023-008 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-2023-008. 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
[[Page 30815]]
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>.
Do not include personal identifiable information in submissions;
you should submit only information that you wish to make available
publicly. We may redact in part or withhold entirely from publication
submitted material that is obscene or subject to copyright protection.
All submissions should refer to File Number SR-ICC-2023-008 and should
be submitted on or before June 2, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-10129 Filed 5-11-23; 8:45 am]
BILLING CODE 8011-01-P
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