Notice2023-17102
Self-Regulatory Organizations; ICE Clear Credit LLC; Order Approving Proposed Rule Change Relating to the ICC Recovery Plan and the ICC Wind-Down Plan
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
August 10, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 153 (Thursday, August 10, 2023)</title>
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[Federal Register Volume 88, Number 153 (Thursday, August 10, 2023)]
[Notices]
[Pages 54370-54373]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-17102]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98055; File No. SR-ICC-2023-007]
Self-Regulatory Organizations; ICE Clear Credit LLC; Order
Approving Proposed Rule Change Relating to the ICC Recovery Plan and
the ICC Wind-Down Plan
August 4, 2023.
I. Introduction
On June 5, 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 its
Recovery Plan and Wind-Down Plan. The proposed rule change was
published for comment in the Federal Register on June 22, 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 Proposed Rule Change Relating to the ICC Recovery Plan and the
ICC Wind-Down Plan; Exchange Act Release No. 97734 (June 15, 2023),
88 FR 40874 (June 22, 2023) (File No. SR-ICC-2023-007) (``Notice'').
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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\ The proposed rule change would
amend both the Recovery Plan and the Wind-Down Plan, which serve as
plans for the recovery and orderly wind-down of ICC, respectively, if
such recovery or wind-down is necessitated by credit losses, liquidity
shortfalls, losses from general business risk, or any other losses
incurred by ICC. The Recovery Plan is designed to establish ICC's
actions to maintain its viability as a going concern by addressing any
uncovered credit loss, liquidity shortfall, capital inadequacy, or
business, operational or other structural weakness that threatens ICC's
viability as a going concern. The Wind-Down Plan is designed to
establish how ICC could be wound down in an orderly manner in the event
that it cannot continue as a going concern.
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\4\ Capitalized terms not otherwise defined herein have the
meanings assigned to them in ICC's Clearing Rules.
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B. Recovery Plan
ICC proposes general updates and edits to its Recovery Plan to
promote clarity and to ensure that the information in it is current.
The proposed amendments to the Recovery Plan reflect and relate to
changes that impacted ICC in the past year. To that end, the current
Recovery Plan includes in the introduction a disclaimer that, unless
otherwise specified, all information provided in the plan is current as
of December 31, 2021. The proposed rule change would update that date
to December 31, 2022. The proposed amendments to the Recovery Plan also
would include changes to the coverage amount under the ICC clearing
participant (``CP'') default insurance policy (``CP Default Insurance
Policy''), and the addition of ICC-specific procedures for financial
resource calculations.
Section IV covers key recovery elements. Within this section, the
proposed rule change would amend clearing participation (IV.B),
management and governance (IV.C), and key performance metrics (IV.D).
In Section IV.B, ICC would create a reference to a membership category,
Associate Clearing Participant. In Section IV.C, ICC would make a
correction to the Management/Governance chart to indicate that the
business continuity plan (``BCP'') and disaster recovery (``DR'')
Oversight Committee is not a sub-committee of the ICC Audit Committee.
In Section IV.C, ICC would update the description of ICE Holding Board
Chairman Vincent Tese, who is currently listed as an independent
director of both ICE Holding and ICE Inc. The proposed rule change
would amend the description to remove his listing as an independent
director of Ice Inc. In Section IV.D, ICC would update its revenues,
volumes, and expenses for years 2021 and 2022.
The proposed rule change also would amend Section VI of the
Recovery Plan, which covers interconnections and interdependencies.
Specifically, ICC proposes to amend Sections VI.A
[[Page 54371]]
(Operational), VI.B (Financial), and VI.C (Contractual Agreements). The
proposed updates to Section VI.A would reflect changes in the last year
and would update the descriptions of ICC's personnel and facilities, as
well as its in-house systems. Section VI.B currently includes a
``Counterparty Chart'' that lists all of ICC's various counterparties
and indicates which function(s) each counterparty performs (i.e.,
Clearing Participant, Custodian, Depository, etc.) would update the
roles in its counterparty chart. The proposed changes to Section VI.B
would update that chart to reflect changes to the functions performed
by certain counterparties. The only proposed update to Section VI.C
would be to the chart of counterparty contractual agreements in that
section. Specifically, ICC would remove the reference to a service no
longer received from a specific external service provider (i.e.,
receipt of market data to value FX positions and collateral).
The proposed rule change would make several updates to Section VIII
of the Recovery Plan, which addresses ICC's recovery tools, primarily
in Section VIII.B. First, the proposed rule change would update the
name of the carrier for ICC's CP Default Insurance Policy, which is
maintained at the ICE Group level and may be used as a recovery tool in
a CP default scenario pursuant to ICC's Rules, provided certain
conditions are met. Second, it would amend the amount of coverage to
reflect that the Policy coverage amount has increased to $75 million
(from $50 million, as reflected in the current Recovery Plan); third,
it would update the points of contact for ICC's Default Insurance
Policy; and fourth, it would update the coverage amount under the
Professional Liability/Cyber (E&O) Insurance Policy from $110 million
to $120 million to reflect that coverage amount under that policy has
increased since the last update to the Recovery Plan. Fifth, in Section
VIII.B.1.iii (Direct Infusion of Cash to ICC from Parent/ICE Group),
ICC would update the current description of ICC's, ICE Inc's, and ICE
Group's respective year-end cash balances to reflect their most current
consolidated balance sheets. Finally, the proposed rule change would
add a footnote in Section VIII.B that references and describes ICC's
Risk Appetite Statements and Metrics, which define the thresholds ICC
has established with respect to regulatory capital requirements and
provide for alerts in the event that ICC is nearing a breach of these
amounts (i.e., the current alert is triggered if ICC maintains 110% or
less of its required regulatory capital). The reference to and
description of ICC's Risk Appetite Statements and Metrics is intended
to provide further details on how decreases in ICC's regulatory capital
will trigger escalation within ICC, which in turn may lead to potential
remedial actions, including whether ICC should initiate its plan to
raise additional equity.
Section X of the Recovery Plan identifies ICC's Financial Resources
for Recovery. The proposed rule change would add details regarding the
calculation of ICC's financial resources available for recovery to
reflect new ICC-specific Financial Resource Calculation Procedures that
ICC has added since the last update to the Recovery Plan. Specifically,
the Recovery Plan would specify that ICC completes a voluntary annual
calculation of regulatory requirements under European Market
Infrastructure Regulation (``EMIR'') guidelines. It would note that
ICC's calculation approximates the EMIR requirements and is calculated
by ICE Treasury on an annual basis upon the finalization of ICC's
statutory audit and financial statements, as well as a discussion of
future expectations with the ICC Treasury Director, and specify that
the EMIR Estimate includes four elements relating to: winding down/
restructuring; operational and legal risks; credit and counterparty
risk/market risk; and business risks. The proposed update would also
include a reference to the Financial Resource Calculation Procedures
and note that the procedures include additional details regarding the
calculation of regulatory capital requirements under EMIR guidelines.
The proposed rule change also would amend Section X to update the
expected costs of recovery and wind-down, including expenses related to
legal services, consulting, operations, regulatory capital
requirements, and other wind down costs.
Section XI of the Recovery Plan (Financial Information) provides
the balance sheet and income statement for ICC and the consolidated
balance sheet and income statement for ICE Inc. and its subsidiaries.
The proposed rule change would update the financial information in this
section to reflect the most current financial statements for both
entities.
The proposed rule change would make minor edits to Section XIII,
Appendix G, which covers form default insurance proof of loss, by
updating the carrier and policy number for ICC's CP Default Insurance
Policy. In Section XIV, which contains the index of exhibits, the
proposed rule change would update the index of exhibits with the
current versions of policies and procedures, consistent with updated
footnote references. Finally, the proposed rule change would make non-
substantive typographical fixes in the ICC Recovery Plan, as well as
conforming changes in the ICC Wind-Down Plan, including updates to
entity names, and grammatical and formatting changes.
C. Wind-Down Plan
ICC proposes updates and edits to promote clarity and to ensure
that the information provided in the Wind-Down Plan is current. The
proposed rule change reflects and relates to changes that have impacted
ICC in the past year, including the addition of ICC-specific procedures
for financial resource calculations. The current Wind-Down Plan
includes in the introduction a disclaimer that, unless otherwise
specified, all information provided in the plan is current as of
December 31, 2021. The proposed rule change would update that date to
December 31, 2022.
Section II of the Wind-Down Plan is an overview of the structure of
ICC. Section II.A addresses ownership of ICC. The proposed rule change
would add additional language for the headquarter location for ICC.
Section IV addresses membership and ICC governance. The proposed rule
change would amend the Management and Governance chart in Section IV.B
because the previous chart incorrectly indicated that the BCP and DR
Oversight Committee are sub-committees of the ICC Audit Committee.
Additionally, the proposed rule change would update the description of
Vincent Tese in Section IV.B, so that he is listed as just an
independent director of ICC, but is no longer listed as an independent
director of ICE Inc.
In the beginning of Section VII, which addresses interconnections
and interdependencies, the proposed rule change would update ICC
revenue. Later in VII.C.2, the proposed rule change would update the
number of personnel and facilities. In Section VII.C, which addresses
operational services, the proposed rule change would update a list of
in-house systems. Section VII.D addresses financial services and the
proposed rule change would update the roles on its counterparty chart.
Section IX addresses financial resources to support wind-down. In
this section, the proposed rule change would include additional details
regarding the calculation of ICC's financial resources available for
wind-down to reflect the new ICC-specific Financial Resource
[[Page 54372]]
Calculation Procedures. The proposed rule change would add details
regarding the calculation of regulatory capital requirements under EMIR
guidelines. Similar to the proposed changes in the Recovery Plan, the
proposed rule change would specify that calculations are performed by
ICE Treasury on an annual basis upon the finalization of ICC's
statutory audit and financial statements and include a discussion of
future expectations with the ICC Treasury Director. Similar to the
proposed changes in the Recovery Plan, the proposed rule change would
note that ICC's calculation approximates the EMIR requirements and is
calculated by ICE Treasury on an annual basis upon the finalization of
ICC's statutory audit and financial statements, as well as a discussion
of future expectations with the ICC Treasury Director, and specify that
the EMIR Estimate includes four elements relating to: winding down/
restructuring; operational and legal risks; credit and counterparty
risk/market risk; and business risks. The proposed update would also
include a reference to the Financial Resource Calculation Procedures
and note that the procedures include additional details regarding the
calculation of regulatory capital requirements under EMIR guidelines.
The proposed rule change would update and edit to promote clarity
and consistency in the ICC Wind-Down Plan. In the counterparty
contractual agreements chart in Section VIII, the proposed rule change
would remove the reference to a service no longer received from a
specific external service provider (i.e., receipt of market data to
value FX positions and collateral). In Section XII, the proposed rule
change would update the index of exhibits with the current versions of
policies and procedures, consistent with updated footnote references.
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.\5\ For the reasons given below, the Commission finds that
the proposed rule change is consistent with Section 17A(b)(3)(F) of the
Act \6\ and Rule 17Ad-22(e)(3)(ii).\7\
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\5\ 15 U.S.C. 78s(b)(2)(C).
\6\ 15 U.S.C. 78q-1(b)(3)(F).
\7\ 17 CFR 240.17Ad-22(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 ICC be designed, to promote the prompt and accurate
clearance and settlement of securities transactions and, to the extent
applicable, derivative agreements, contracts, and transactions, as well
as to assure the safeguarding of securities and funds which are in the
custody or control of ICC or for which it is responsible.\8\
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\8\ 15 U.S.C. 78q-1(b)(3)(F).
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As noted above, the proposed rule change primarily would update the
Recovery Plan and Wind-Down Plan with current information about ICC's
facilities, finances, operations, and Board. The Commission believes
that by providing the most current information for ICC's revenues,
volumes, and expenses, the proposed rule change will support ICC's
ability to monitor its finances and compare its regulatory capital to
its estimated recovery and wind-down costs. This in turn will help
ensure ICC has the financial resources to promptly and accurately clear
and settle transactions during recovery and, if necessary, conduct an
orderly wind-down.
Further, the Commission believes that updating the Counterparty
Chart to reflect current roles and changes to the functions performed
by certain counterparties will generally support those utilizing the
Plans by providing users of the Plans a correct overview of ICC's
counterparties. Similarly, the Commission believes that updating the
description of ICC's Default Insurance Policy and Professional
Liability/Cyber (E&O) Insurance Policy to reflect increase coverage
amounts and current points of contact will generally support those
utilizing the Plans by providing users of the Plans a correct overview
of these insurance policies. The Commission believes that these
proposed changes would strengthen both plans by ensuring those
utilizing them have information necessary to carry out recovery or an
orderly wind-down, which in turn should help ICC to promptly and
accurately clear and settle transactions during recovery and, if
necessary, conduct an orderly wind-down.
ICC also proposed to include a reference to the thresholds for
regulatory capital requirements that would trigger alerts for ICC
nearing a capital requirement breach. This may lead to potential
remedial actions, including whether ICC should initiate its plan to
raise additional equity. The Commission believes that these proposed
changes would strengthen the plans by ensuring those utilizing them
have all of the information necessary to carry out recovery or an
orderly wind-down, which in turn will help ensure ICC can promptly and
accurately clear and settle trades and safeguard of securities and
funds which are in its custody or control at these times.
For the reasons stated above, the Commission believes that the
proposed rule change is consistent with Section 17A(b)(3)(F) of the
Act.\9\
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\9\ 15 U.S.C. 78q-1(b)(3)(F).
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B. 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.\10\
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\10\ 17 CFR 240.17Ad-22(e)(3)(ii).
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The Commission believes the proposed changes described above that
would add current financial, personnel, and board information support
ICC's maintenance of plans for the recovery and orderly wind-down of
ICC with updated accurate information. The proposed rule change also
would addi details regarding the calculation of ICC's financial
resources available for wind-down to reflect the new ICC Financial
Resource Calculation Procedures. Additionally, ICC adds a reference to
its thresholds for regulatory capital requirements that would trigger
alerts for when ICC is nearing a capital requirement breach. The
Commission believes that current financial information provides
relevant information to those using the Plans to understand the
resources available for recovery or an orderly wind-down.
Therefore, the Commission finds that the proposed rule change is
consistent with Rule 17Ad-22(e)(3)(ii).\11\
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\11\ 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
[[Page 54373]]
Section 17A(b)(3)(F) of the Act \12\ and Rule 17Ad-22(e)(3)(ii).\13\
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\12\ 15 U.S.C. 78q-1(b)(3)(F).
\13\ 17 CFR 240.17Ad-22(e)(3)(ii).
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It is therefore ordered pursuant to Section 19(b)(2) of the Act
\14\ that the proposed rule change (SR-ICC-2023-007), be, and hereby
is, approved.\15\
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\14\ 15 U.S.C. 78s(b)(2).
\15\ 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.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-17102 Filed 8-9-23; 8:45 am]
BILLING CODE 8011-01-P
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