Notice2023-15357
Self-Regulatory Organizations; ICE Clear Credit LLC; Order Approving Proposed Rule Change Relating to ICC's New Initiatives Approval Policy and Procedural Framework
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
July 20, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 88 Issue 138 (Thursday, July 20, 2023)</title>
</head>
<body><pre>
[Federal Register Volume 88, Number 138 (Thursday, July 20, 2023)]
[Notices]
[Pages 46823-46826]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-15357]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97914; File No. SR-ICC-2023-006]
Self-Regulatory Organizations; ICE Clear Credit LLC; Order
Approving Proposed Rule Change Relating to ICC's New Initiatives
Approval Policy and Procedural Framework
July 14, 2023.
I. Introduction
On May 12, 2023, 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 (``Act''),\1\
and Rule 19b-4 thereunder,\2\ a proposed rule change to update the ICC
New Initiatives Approval Policy and Procedural Framework (``NIA
Policy''). The proposed rule change was published for comment in the
Federal Register on June 1, 2023.\3\ The Commission has not received
any comments on the proposed rule change. For the reasons discussed
below, the Commission is approving the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 97586 (May 25, 2023), 88
FR 35934 (June 1, 2023) (File No. SR-ICC-2023-006) (``Notice'').
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
A. Background
ICC is registered with the Commission as a clearing agency for the
purpose of clearing CDS contracts.\4\ From time to time, ICC implements
new projects. After ICC's Steering Committee \5\ approves some
projects, ICC's New Initiative Approval Committee (``NIAC'') must then
approve them prior to their launch.\6\ New Steering Committee-approved
projects that must be approved by the NIAC prior to their launch are
called New Initiatives.\7\ New Initiatives may involve new and material
modifications to the risk or pricing methodology; potentially
significant changes to the processing system, ICC Clearing Rules, or
clearing operating procedures; or Model Changes classified as
Materiality A \8\ under ICC's Model Validation Framework.\9\ The NIA
Policy sets forth ICC's policies and procedures for the review and
approval of New Initiatives to be offered or implemented by ICC.\10\
The NIA Policy is meant to notify all relevant ICC departments of the
introduction of the New Initiative, provide for information sharing
between departments, ensure prior to the launch of a New Initiative
[[Page 46824]]
that all required governance and regulatory filings have been completed
and New Initiative risks are considered, and establish requirements for
the pre-launch verification and testing of the New Initiative.\11\
---------------------------------------------------------------------------
\4\ Capitalized terms not otherwise defined herein have the
meanings assigned to them in ICC's Clearing Rules.
\5\ The Steering Committee is an ICC management committee
responsible for prioritizing the implementation of initiatives and
monitoring and guiding delivery of those initiatives. Notice, 88 FR
at 35934.
\6\ Id.
\7\ Id.
\8\ ICC classifies its Model Changes based on how substantially
the Model Change affects the ICC risk management system's assessment
of risk for the related risk driver. Model Changes classified as
Materiality A have a substantial impact on the risk management
system's assessment of risk for a related risk driver. Securities
Exchange Act Release No. 85105 (Feb. 11, 2019), 84 FR 4570 n.18
(Feb. 15, 2019) (File No. SR-ICC-2018-011) (``Order'').
\9\ Id.
\10\ Notice, 88 FR at 35934.
\11\ Id.
---------------------------------------------------------------------------
ICC proposes three groups of changes to its NIA Policy. First, ICC
proposes edits to a review and approval process described in the NIA
Policy. Second, ICC proposes formalizing two existing review and
approval processes by formally incorporating them into the NIA Policy.
Third, ICC seeks to formalize non-material changes to the NIA Policy
that were reviewed and approved by the NIAC in 2019 and 2020.\12\
---------------------------------------------------------------------------
\12\ Id. at 35935.
---------------------------------------------------------------------------
1. Edits to a Review and Approval Process in the NIA Policy
ICC seeks to edit the review and approval process for New
Initiatives. As noted above, New Initiatives are any new projects
approved by the Steering Committee and identified by the New Initiative
Approval Committee as requiring approval prior to launch.\13\ ICC seeks
to change the title of the first step of the New Initiatives review and
approval process from ``Submission'' to ``Creation.'' In the first step
of the New Initiatives review and approval process, the Steering
Committee creates a new project proposal and submits it to the NIAC for
review. Although the first step of the process remains unchanged, ICC
believes that changing the title of the first step from ``Submission''
to ``Creation'' will better describe the first step of the New
Initiatives review and approval process.\14\
---------------------------------------------------------------------------
\13\ Id. at 35934.
\14\ Id. at 35935.
---------------------------------------------------------------------------
2. Description of Existing Review and Approval Processes
ICC also proposes describing two existing review and approval
processes in its NIA Policy, specifically, the review and approval
process for Approvals Matrices and Risk Assessments.
a. Approvals Matrix Review and Approval Process
ICC seeks to describe in the NIA Policy its existing three-step
review and approval process for Approvals Matrices. An Approvals Matrix
is a document reviewed by the New Initiative Approval Committee that
evidences and ensures that all necessary approvals have been obtained
and all relevant comments have been addressed.\15\ For example, the
Approvals Matrix would help ensure that ICC has obtained all necessary
regulatory approvals for a New Initiative. ICC is describing in the NIA
Policy the existing \16\ review and approval process for Approvals
Matrices to formalize and describe ICC's procedures regarding the use
of an Approvals Matrix in its review and approval of a given New
Initiative.\17\
---------------------------------------------------------------------------
\15\ New Initiatives Approval Policy and Procedural Framework,
Section II.A.
\16\ ICC's current NIA Policy defines Approvals Matrix. It also
includes a template for the Approvals Matrix and discusses aspects
of the Approvals Matrix review and approval process, for example it
identifies certain persons responsible for review of the Approvals
Matrix. New Initiatives Approval Policy and Procedural Framework.
\17\ Notice, 88 FR at 35934.
---------------------------------------------------------------------------
The first step of the Approvals Matrix review and approval process
is ``Creation.'' In this step, the NIAC Chair requests an initial draft
Approvals Matrix. The NIAC Chair may request an initial draft Approvals
Matrix prior to completion of a New Initiative, and in any case prior
to ICC being granted all required approvals. Upon this request, the ICC
Legal Department prepares the initial draft Approvals Matrix. The
Approvals Matrix should include items requiring approval (e.g., ICC
Clearing Rules or ICC Procedures); required filings/approvals related
to each item (e.g., CFTC, SEC, and ICC Board of Managers); and the date
on which approvals were requested, the date on which regulatory filings
were filed, and/or the date on which approvals were granted. The list
of required approvals included in the Approvals Matrix should be
complete. This means that it should include both granted and to-be-
granted approvals. Ultimately, the ICC Compliance Department and ICC
Risk Oversight Officer both review the initial draft Approvals Matrix,
provide their feedback, and confirm that the information captured in
the Matrix is accurate.
The second step of the Approvals Matrix review and approval process
is ``Review/Maintenance.'' As part of the review and maintenance
process, there may be meetings, such as NIAC meetings and a Pre-Launch
Verification meeting.\18\ The NIAC Chair may include a review of the
Approvals Matrix in a NIAC meeting pertaining to the relevant New
Initiative, and must include a review of the Approvals Matrix in the
relevant Pre-Launch Verification meeting. If the Approvals Matrix must
be changed, the ICC Legal Department will make the necessary changes at
the request of the NIAC Chair. To indicate which version of the
Approvals Matrix is the most current as it moves through the New
Initiatives process, the Approvals Matrix will be dated and marked
accordingly.
---------------------------------------------------------------------------
\18\ Pre-Launch Verification meetings are meant to allow for
review of the applicable Approvals Matrix, the risk assessments, and
any post-launch stipulations in advance of the approval of the New
Initiative. Id. at 35935 n.3.
---------------------------------------------------------------------------
The third step of the Approvals Matrix review and approval process
is ``Finalization.'' During this step of the review and approval
process, the NIAC Chair confirms with the ICC Legal Department that all
required approvals have been received. At the request of the NIAC
Chair, the ICC Legal Department must circulate the final Approvals
Matrix to the ICC Compliance Department and ICC Risk Oversight Officer.
The ICC Legal Department must then provide confirmation to the NIAC
Chair that the ICC Compliance Department and the ICC Risk Oversight
Officer have reviewed the Approvals Matrix.
b. Risk Assessment Review and Approval Process
ICC also seeks to describe in the NIA Policy its existing three-
step review and approval process for Risk Assessments. A Risk
Assessment is a document reviewed by the NIAC that describes key risks
identified by the ICC Functional Area Heads \19\ and includes
mitigation plans, residual impact ratings, and other comments.\20\ ICC
proposes describing the review and approval process for Risk
Assessments in the NIA Policy to formalize ICC's current \21\ New
Initiatives risk review and approval process.\22\
---------------------------------------------------------------------------
\19\ Some examples of ICC Functional Area Heads include the
General Counsel, Chief Compliance Officer, Chief Operating Officer,
Chief Risk Officer, and Head of ICC Technology. Id. at 35935 n.5.
\20\ Id. at 35935 n.4.
\21\ ICC's current NIA Policy defines Risk Assessment. It also
includes a template for the Risk Assessment and discusses aspects of
the Risk Assessment review and approval process, for example it
identifies certain persons responsible for review of the Risk
Assessment. New Initiatives Approval Policy and Procedural
Framework.
\22\ Notice, 88 FR at 35935.
---------------------------------------------------------------------------
The first step of the Risk Assessment review and approval process
is ``Creation.'' This section of the Risk Assessment review and
approval process provides detailed instructions with respect to how the
initial draft Risk Assessment should be created and reviewed. It
requires the NIAC Chair to request that the ICC President, General
Counsel, Chief Compliance Officer, Chief Operating Officer, Chief Risk
Officer, and Head of ICC Technology all perform initial risk
assessments and document these assessments in the Risk Assessment
document. Once the ICC
[[Page 46825]]
President and Functional Area Heads complete and document their
assessments, all Functional Area Heads must provide their section of
the initial draft Risk Assessment to the NIAC Chair. At that point, it
is the NIAC Chair's responsibility to compile the sections received
from the Functional Area Heads into a single initial draft Risk
Assessment and circulate that Risk Assessment to all Functional Area
Heads for their review. As they review the initial draft Risk
Assessment, Functional Area Heads should each provide a residual risk
rating for each identified risk in the initial draft Risk Assessment.
This review and residual risk rating of each identified risk may be
completed during an NIAC meeting, at the discretion of the NIAC Chair.
The final version of the initial draft Risk Assessment will be
circulated to all Functional Area Heads by the NIAC Chair.
The proposed ``Creation'' portion of the Risk Assessment review and
approval process, in the NIA Policy, also specifies the content of the
initial draft Risk Assessment. Under the proposed change, when
completing the Risk Assessment, each Functional Area Head should
consider the key risks for their functional area. Functional Area Heads
should also document in the Risk Assessment their view of the main
risks and any related mitigations. The documentation of the main risks
includes: a description of the risk, a description of any expected/
implemented risk mitigations, and a high/medium/low rating of the
residual risk after considering the expected/implemented risk
mitigations. Each Functional Area Head should include reference to any
work logs or other supporting materials used by the Functional Area
Head when performing the Risk Assessment. In the event that an initial
draft Risk Assessment is requested prior to the completion of a New
Initiative, it should reflect the information available at that time
related to the risks and/or expected risks associated with the New
Initiative.
The second step of the Risk Assessment review and approval process
is ``Review/Maintenance'' of the Risk Assessment. During the ``Review/
Maintenance'' portion of the Risk Assessment review and approval
process, Functional Area Heads may change their risk ratings as
mitigation plans evolve to eliminate or reduce risk. The Pre-Launch
Verification meeting must include a review of the Risk Assessment. At
the discretion of the NIAC Chair, NIAC meetings related to a New
Initiative may include a review of the Risk Assessment. During this
step, the NIAC Chair also coordinates the post-review update and
recirculation of the Risk Assessment to the Functional Area Heads and
marks the Risk Assessment to indicate which version of the document is
most current.
The third step of the Risk Assessment review and approval process
is ``Finalization'' of the Risk Assessment. At the Pre-Launch
Verification NIAC meeting, the NIAC reviews the latest version of the
Risk Assessment and residual risk ratings. The NIAC Chair is made aware
of any further revisions to the Risk Assessment prior to the NIAC
voting to approve the New Initiative. The NIAC Chair sends the final
Risk Assessment to the NIAC after the Pre-Launch Verification NIAC
meeting. Ultimately, the Functional Area Heads provide their sign-off
on the final Risk Assessment via email to the NIAC Chair.
3. 2019 and 2020 Non-Material Updates
ICC seeks to formalize changes to the NIA Policy, reviewed and
approved by the NIAC in 2019 and 2020, that ICC deems non-material.
These changes were made to reflect changes in ICC's officer positions
and titles.\23\
---------------------------------------------------------------------------
\23\ Id. at 35935.
---------------------------------------------------------------------------
In 2019, ICC made changes to the positions comprising the NIAC and
the NIAC's leadership. Section II.G describes and identifies who is on
the NIAC and who chairs it. It previously listed the Senior Director,
Products and Services and Head of Special Projects as members of the
NIAC, and identified the Head of Special Projects as the NIAC Chair.
The changes delete these positions from the NIAC as they no longer
exist. ICC also adds text to Section II.G to reflect that any member of
the NIAC may now be the NIAC Chair. The term NIAC Chair is defined in
Section II.H. Since the Head of Special Projects can no longer be the
NIAC Chair because that position title no longer exists at ICC, ICC has
changed the definition of NIAC Chair to ``the individual designated to
serve as Chair of the New Initiative Approval Committee by ICC
management.'' Additional references to either the Head of Special
Projects, its role as the NIAC Chair or both have been deleted in
Section III.B, Attachment C, and Attachment F of the NIA Policy as
well.
In 2020, ICC made additional changes to the NIA Policy related to
the 2019 changes. Attachment D of the NIA Policy contains the NIAC
Charter. ICC added text to Attachment D making it clear that ICC
Management designates one of the NIAC members to serve as the NIAC
Chair. Additionally, references to the Head of Special Projects have
been removed from Exhibit A of Attachment D. Specifically, Exhibit A of
Attachment D no longer lists the Head of Special Projects as the NIAC
Chair and indicates that the Chair of the NIAC, rather than the Head of
Special Projects, may designate who will serve as Committee Secretary.
III. Discussion and Commission Findings
Section 19(b)(2)(C) of the Act requires the Commission to approve a
proposed rule change of a self-regulatory organization if it finds that
the proposed rule change is consistent with the requirements of the Act
and the rules and regulations thereunder applicable to the
organization.\24\ For the reasons given below, the Commission finds
that the proposed rule change is consistent with Section 17A(b)(3)(F)
of the Act \25\ and Rules 17Ad-22(e)(2) \26\ and (e)(17).\27\
---------------------------------------------------------------------------
\24\ 15 U.S.C. 78s(b)(2)(C).
\25\ 15 U.S.C. 78q-1(b)(3)(F).
\26\ 17 CFR 240Ad-22(e)(2).
\27\ 17 CFR 240Ad-22(e)(17).
---------------------------------------------------------------------------
A. Consistency With Section 17A(b)(3)(F) of the Act
Under Section 17A(b)(3)(F) of the Act, ICC's rules, among other
things, must 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 . . . and, in general, to protect investors and the public
interest . . . .'' \28\ Based on its review of the record, and for the
reasons discussed below, the Commission believes that ICC's proposed
rule change is consistent with Section 17A(b)(3)(F) because it helps
ensure that New Initiatives are clearly and consistently identified,
reviewed, and approved according to appropriate policies and
procedures.
---------------------------------------------------------------------------
\28\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
The Commission has stated that New Initiatives may pose operational
or other risks to ICC if not clearly and consistently identified,
reviewed, and approved according to appropriate policies and
procedures.\29\ The proposed changes to the NIA Policy make the NIA
Policy clearer. For example, ICC seeks to better describe the steps of
the review and approval process for New Initiatives with its edits to
the existing New Initiatives review and approval process. ICC's
description of a review and approval process for Approvals Matrices and
Risk
[[Page 46826]]
Assessments clarifies a process through which ICC ensures that it
obtains all necessary approvals and identifies and addresses all
relevant risks with respect to a New Initiative. By incorporating the
2019 and 2020 revisions into the NIA Policy, ICC helps ensure that the
NIA Policy is accurate in that it reflects current NIAC membership,
persons eligible for NIAC positions, and the persons responsible for
naming others to specific NIAC positions. Because the proposed changes
make the NIA Policy clearer, they should allow the policy to be applied
consistently as well. As such, the proposed revisions should enhance
ICC's ability to manage risks and avoid potential disruptions to
operations related to New Initiatives. This enhances ICC's ability to
ensure the prompt and accurate clearance and settlement of securities
transactions which also helps ICC assure the safeguarding of securities
and funds which are in its custody and control, or for which it is
responsible.
---------------------------------------------------------------------------
\29\ Order, 84 FR at 4570.
---------------------------------------------------------------------------
The Commission believes, therefore, that the proposed rule change
is consistent with the requirements of Section 17A(b)(3)(F) of the
Act.\30\
---------------------------------------------------------------------------
\30\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
B. Consistency with Rule 17Ad-22(e)(2)(i) and (v)
Rule 17Ad-22(e)(2)(i) and (v) require ICC to establish, implement,
maintain, and enforce written policies and procedures reasonably
designed to provide for governance arrangements that are clear and
transparent and that specify clear and direct lines of
responsibility.\31\ The proposed rule change identifies who is eligible
to serve as NIAC Chair, which makes the lines of responsibility
described in the NIA Policy clearer. As such, ICC's governance
arrangements are made clearer and more transparent overall as a result
of the proposed rule change. The proposed rule change also identifies
who designates the NIAC Chair and Committee Secretary and identifies
individuals responsible for tasks in each step of the review and
approval process for Approvals Matrices and Risk Assessments. Including
a description of these responsibilities in the NIA Policy helps ensure
that clear and transparent information is available regarding roles and
responsibilities related to New Initiatives. Thus, the Commission
believes, that the proposed rule change is consistent with the
requirements of Rules 17Ad-22(e)(2)(i) and (v) of the Act.\32\
---------------------------------------------------------------------------
\31\ 17 CFR 240.17Ad-22(e)(2).
\32\ 17 CFR 240.17Ad-22(e)(2).
---------------------------------------------------------------------------
C. Consistency With Rule 17Ad-22(e)(17)
Rule 17Ad-22(e)(17) requires ICC to establish, implement, maintain,
and enforce written policies and procedures reasonably designed to
identify the plausible sources of operational risk, both internal and
external, and mitigate their impact through the use of appropriate
systems, policies, procedures and controls.\33\ Operational risk refers
to the likelihood that deficiencies in information systems or internal
controls, human errors or misconduct, management failures, unauthorized
intrusions into corporate or production systems, or disruptions from
external events such as natural disasters, would adversely affect the
functioning of a clearing agency.\34\ As noted above, New Initiatives
may pose operational or other risks to ICC if not clearly and
consistently identified, reviewed, and approved according to
appropriate policies and procedures.\35\ The proposed rule change
describes a standardized method for creating, reviewing, and finalizing
Approvals Matrices and Risk Assessments. In doing so it helps ensure
that New Initiatives are clearly and consistently identified, reviewed,
and approved. The proposed rule change thereby identifies and aids in
mitigating a plausible source of operational risk. Thus, the Commission
believes, that the proposed rule change is consistent with the
requirements of Rule 17Ad-22(e)(17) of the Act.\36\
---------------------------------------------------------------------------
\33\ 17 CFR 240.17Ad-22(e)(17).
\34\ Securities Exchange Act Release No. 78961 (Sept. 28, 2016),
81 FR 70786, 70837 (Oct. 13, 2016) (File No. S7-03-14).
\35\ Order, 84 FR at 4570.
\36\ 17 CFR 240.17Ad-22(e)(17).
---------------------------------------------------------------------------
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, Section 17A(b)(3)(F) of the Act \37\ and Rules 17Ad-
22(e)(2) \38\ and (e)(17) thereunder.\39\
---------------------------------------------------------------------------
\37\ 15 U.S.C. 78q-1(b)(3)(F).
\38\ 17 CFR 240.17Ad-22(e)(2).
\39\ 17 CFR 240.17Ad-22(e)(17).
---------------------------------------------------------------------------
It is therefore ordered pursuant to Section 19(b)(2) of the Act
that the proposed rule change (SR-ICC-2023-006) be, and hereby is,
approved.\40\
---------------------------------------------------------------------------
\40\ In approving the proposed rule change, the Commission
considered the proposal's impacts 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.\41\
---------------------------------------------------------------------------
\41\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2023-15357 Filed 7-19-23; 8:45 am]
BILLING CODE 8011-01-P
</pre></body>
</html>Indexed from Federal Register on July 20, 2023.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.