Notice2023-13864
Self-Regulatory Organizations; ICE Clear Credit LLC; Order Approving Proposed Rule Change Relating to the ICC Clearing Participant Default Management Procedures
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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 29, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 124 (Thursday, June 29, 2023)</title>
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[Federal Register Volume 88, Number 124 (Thursday, June 29, 2023)]
[Notices]
[Pages 42126-42128]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-13864]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97792; File No. SR-ICC-2023-008]
Self-Regulatory Organizations; ICE Clear Credit LLC; Order
Approving Proposed Rule Change Relating to the ICC Clearing Participant
Default Management Procedures
June 26, 2023.
I. Introduction
On May 2, 2023, ICE Clear Credit LLC (``ICC'') filed with the
Securities and Exchange Commission (``Commission''), pursuant to
Section 19(b)(2) of the Securities Exchange Act of 1934 (the ``Act'')
\1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to amend the
ICC Clearing Participant Default Management Procedures. The proposed
rule change was published for comment in the Federal Register on May
12, 2023.\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 Clearing
Participant Default Management Procedures; Exchange Act Release No.
97455 (May 8, 2023), 88 FR 30812 (May 12, 2023) (File No. SR-ICC-
2023-008) (``Notice'').
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II. Description of the Proposed Rule Change
ICC is registered with the Commission as a clearing agency for the
purpose of clearing CDS contracts. ICC clears CDS contracts for its
members, which it refers to as Clearing Participants.\4\ Clearing CDS
contracts for Clearing Participants presents certain risks to ICC, such
as the risk that a Clearing Participant may default on payments or
other obligations it owes to ICC. Accordingly, ICC has developed a
comprehensive set of tools to manage and mitigate such risks. These
tools include, among other things, collecting margin from Clearing
Participants, maintaining a Guaranty Fund, and establishing procedures
to manage a Clearing Participant's default.
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\4\ Capitalized terms not otherwise defined herein have the
meanings assigned to them in the ICC Clearing Participant Default
Management Procedures or the ICC Clearing Rules.
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The proposed rule change relates to the third set of risk
management tools--procedures that explain what happens when a Clearing
Participant is in default and how ICC responds to the default, which
ICC refers to as its Clearing Participant Default Management Procedures
(the ``Procedures''). The proposed rule change would amend the
Procedures.
The proposed rule change would add Section 4.6 to the Procedures,
which would explain how ICC tests both its Recovery Plan and its Wind-
Down Plan (together the ``Plans''). ICC would test the Plans at least
once every twelve months, and the purpose of these annual tests would
be to demonstrate that ICC is ready to execute the Plans when needed.
ICC would need to execute the plans, for example, in the following
circumstances: (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) to
wind-down ICC in an orderly manner.
Section 4.6 would detail (i) the ICC personnel responsible for
planning and conducting the tests and (ii) the overall scope of the
tests. With respect to responsible personnel, the ICC Risk Oversight
Officer (``ROO'') would have overall responsibility for planning and
coordinating the execution of each test. In doing so, the ROO would
work with other members of the Close-Out Team \5\ to determine the
scope of the test. The proposed scope and format of the test would be
presented to the ICC Board of Managers for review prior to execution of
the test. After Board review, the Close-Out Team would then be
responsible for executing the tests, capturing the results of the
tests, and providing the results to the ROO.
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\5\ 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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Once provided with the results, the ROO would collate the
information, summarize any lessons learned, and identify possible
revisions that should be made to the Plans. The ROO would then develop
a presentation to summarize the tests. The Close-Out Team, ICC Risk
Committee, and Board would review this presentation. Going forward, the
ROO would maintain a list of work items for the future development and/
or enhancement of the business processes and capabilities necessary to
execute the Plans.
With respect to the overall scope of each test, this would include
choosing the recovery and wind-down scenarios and the recovery tools to
test. In choosing the scenarios and tools, ICC would give consideration
to scenarios, business processes, and tools which have not been
recently tested. In addition, ICC would consider the applicability of
new Rules, procedures, or newly implemented ICC capabilities
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(such as new cleared contracts). Finally, Section 4.6 would specify
that ICC would always include in the test all three wind-down options
set forth in the Wind-Down Plan.
Section 4.6 would also state that ICC could conduct some of the
testing as part of its annual default management tests. Specifically,
Section 4.6 would explain that ICC may test those parts of the Plans
that address a Clearing Participant's default, such as business
processes and tools, as part of its annual default management tests.
With respect to the business processes and tools to address losses not
related to a Clearing Participant's default, however, Section 4.6 would
clarify that ICC will test those in a separate table-top exercise. ICC
will test those parts of the Plans that relate to non-default losses
apart from its annual default management tests.
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.\6\ For the reasons given below, the Commission finds that
the proposed rule change is consistent with Section 17A(b)(3)(F) of the
Act \7\ and Rules 17Ad-22(e)(2)(i), (e)(2)(v), and (e)(3)(ii) \8\
thereunder.
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\6\ 15 U.S.C. 78s(b)(2)(C).
\7\ 15 U.S.C. 78q-1(b)(3)(F).
\8\ 17 CFR 240.17Ad-22(e)(2)(i), (e)(2)(v), and (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 ICE Clear Credit be designed to promote the prompt and
accurate clearance and settlement of securities transactions and, to
the extent applicable, derivative agreements, contracts, and
transactions.\9\ Based on its review of the record, and for the reasons
discussed below, the Commission believes the proposed changes to the
Procedures are consistent with the promotion of the prompt and accurate
clearance and settlement of securities transactions.
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\9\ 15 U.S.C. 78q-1(b)(3)(F).
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As discussed above, the proposed rule change would modify the
Procedures to require that ICC conduct annual testing of the Plans.
Section 4.6 also would detail (i) the ICC personnel responsible for
planning and conducting the tests and (ii) the overall scope of the
tests. The Commission believes that requiring annual testing and
establishing relevant responsibilities for conducting the tests would
each help to ensure that ICC tests the Plans at least once every twelve
months. The Commission further believes that the proposed scope for the
tests would help to ensure that the tests identify any possible issues
with, or improvements to, the Plans. Thus, the Commission believes that
the proposed rule change would help to ensure that ICC maintains and
enforces an effective Recovery Plan and an effective Wind-Down Plan.
The Commission believes that ICC's Recovery Plan is designed to
help ICC promote the prompt and accurate clearance and settlement of
securities transactions, by providing a roadmap for actions it may
employ to monitor and manage its risks, and, as needed, to stabilize
its financial condition in the event those risks materialize. The
Commission similarly believes ICC's Wind-Down Plan is designed to help
ICC to promote the prompt and accurate clearance and settlement of
securities transactions by providing a roadmap to wind-down as needed.
The Commission believes the actions set forth in the Plans would help
to ensure the availability of ICC's services to the marketplace in the
event of a recovery or wind-down, while reducing disruption to the
operations of Clearing Participants and financial markets.\10\ The
Commission thus believes both Plans would help ICC to avoid disruption
to its operations, and therefore promote ICC's ability to promptly and
accurately clear and settle transactions.
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\10\ For a further discussion of the Plans, see 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) (SR-ICC-2021-005).
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Because the proposed rule change would help ICC to maintain,
enforce, and improve the Plans, and because the Commission believes the
Plans would promote the prompt and accurate clearance and settlement of
securities transactions, the Commission therefore believes the proposed
rule change would promote the prompt and accurate clearance and
settlement of securities transactions, consistent with Section
17A(b)(3)(F) of the Act.\11\
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\11\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rules 17Ad-22(e)(2)(i) and (v)
Rules 17Ad-22(e)(2)(i) and (v) require ICC to establish, implement,
maintain, and enforce written policies and procedures reasonably
designed to, as applicable, provide for governance arrangements that
are clear and transparent and specify clear and direct lines of
responsibility.\12\ The Commission believes the governance arrangements
for testing the Plans, as discussed above, would be clear and
transparent and would specify clear and direct lines of responsibility.
For example, the ROO would, among other things, have overall
responsibility for planning and coordinating the execution of each
test; work with other members of the Close-Out Team to determine the
scope of each the test; and collate and summarize the results of each
test. The Close-Out Team would be responsible for executing the tests,
capturing the results of the tests, and providing the results to the
ROO. The Board would review the scope and format prior to the execution
of each test as well as the results of each test. The Commission
believes overall these arrangements would be clear and transparent and
specify clear and direct responsibilities for the ROO, Close-Out Team,
and Board, consistent with Rules 17Ad-22(e)(2)(i) and (v).\13\
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\12\ 17 CFR 240.17Ad-22(e)(2)(i), (v).
\13\ 17 CFR 240.17Ad-22(e)(2)(i), (v).
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C. 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.\14\ As discussed
above, the Commission believes the proposed rule change would help ICC
to maintain, enforce, and improve the Plans. The Commission further
believes that the Plans generally would provide for the recovery and
orderly wind-down of ICC necessitated by credit losses, liquidity
shortfalls, losses from general business risk, or any other losses.\15\
The Commission therefore believes that the proposed rule change, in
helping to maintain, enforce, and improve the
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Plans, would be consistent with Rule 17Ad-22(e)(3)(ii).\16\
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\14\ 17 CFR 240.17Ad-22(e)(3)(ii).
\15\ For a further discussion of the Plans, see 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) (SR-ICC-2021-005).
\16\ 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, and Rules 17Ad-22(e)(2)(i), (e)(2)(v), and (e)(3)(ii)
thereunder.\17\
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\17\ 15 U.S.C. 78q-1(b)(3)(F); 17 CFR 240.17Ad-22(e)(2)(i),
(e)(2)(v), and (e)(3)(ii).
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It is therefore ordered pursuant to Section 19(b)(2) of the Act
\18\ that the proposed rule change (SR-ICC-2023-008), be, and hereby
is, approved.\19\
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\18\ 15 U.S.C. 78s(b)(2).
\19\ 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.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 2023-13864 Filed 6-28-23; 8:45 am]
BILLING CODE 8011-01-P
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