Notice2024-24638

Self-Regulatory Organizations; ICE Clear Credit LLC; Order Approving Proposed Rule Change, as Modified by Partial Amendment No. 1, Relating to the Clearing Rules, Risk Management Framework, Governance Playbook and Sixth Amended and Restated Operating Agreement

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Published
October 24, 2024

Issuing agencies

Securities and Exchange Commission

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<title>Federal Register, Volume 89 Issue 206 (Thursday, October 24, 2024)</title>
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[Federal Register Volume 89, Number 206 (Thursday, October 24, 2024)]
[Notices]
[Pages 84979-84983]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-24638]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101382; File No. SR-ICC-2024-009]


Self-Regulatory Organizations; ICE Clear Credit LLC; Order 
Approving Proposed Rule Change, as Modified by Partial Amendment No. 1, 
Relating to the Clearing Rules, Risk Management Framework, Governance 
Playbook and Sixth Amended and Restated Operating Agreement

October 18, 2024.

I. Introduction

    On August 19, 2024, ICE Clear Credit LLC (``ICC'') filed with the 
Securities and Exchange Commission (the ``Commission''), pursuant to 
Section 19(b)(1) of the Securities Exchange Act of 1934 (the ``Act'') 
\1\ and Rule 19b-4,\2\ a proposed rule change to revise the ICC (i) 
Clearing Rules (the ``Rules''), (ii) Risk Management Framework (the 
``Framework''), (iii) Governance Playbook (the ``Playbook''), and (iv) 
Sixth Amended and Restated Operating Agreement (the ``Operating 
Agreement'').\3\ On August 27, 2024, ICC filed Partial Amendment No. 1 
to the proposed rule change (hereafter, ``proposed rule change'').\4\ 
The proposed rule change was published for comment in the Federal 
Register on September 5, 2024.\5\ 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\ Capitalized terms used but not defined herein have the 
meanings specified in the Rules, Framework, Playbook, and Operating 
Agreement, as applicable.
    \4\ Partial Amendment No. 1 amends the Exhibit 5A to correct a 
typographical error.
    \5\ Self-Regulatory Organizations; ICE Clear Credit LLC; Notice 
of Filing of Proposed Rule Change, as Modified by Partial Amendment 
No. 1, Relating to the Clearing Rules, Risk Management Framework, 
Governance Playbook and Sixth Amended and Restated Operating 
Agreement; Exchange Act Release No. 34-100876 (Aug. 29, 2024), 89 FR 
72538 (Sep. 5, 2024) (SR-ICC-2024-009) (``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 Credit Default Swap (``CDS'') contracts.\6\ The 
Proposed Rule Change amends the Rules, the Framework, the Playbook, and 
the Operating Agreement. The amendments primarily eliminate ICC's 
existing Risk Management Subcommittee; establish a new Risk Advisory 
Working Group; and add to ICC's Risk Committee representatives of 
persons that are not Clearing Participants but have an interest in the 
operations of ICC, such as customers of Clearing Participants. The 
amendments are discussed below according to the document being amended.
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    \6\ Capitalized terms not otherwise defined herein have the 
meanings assigned to them in the Rules, the Framework, the Playbook, 
and the Operating Agreement, as applicable.
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B. Rules

    As noted above, ICC proposes to add representatives of non-Clearing 
Participant parties to its existing Risk Committee, eliminate its Risk 
Management Subcommittee, and establish a Risk Advisory Working Group. 
Currently, as described in ICC Rule 509, the Risk Management 
Subcommittee is a subcommittee of the Risk Committee, and it includes, 
as a member, a representative of a Non-Participant Party.\7\ As with 
the Risk Committee, ICC may not take certain actions, such as 
determining products eligible for clearing, without first consulting 
the Risk Management Subcommittee.
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    \7\ The term ``Non-Participant Party'' is defined in the Rules 
as a Person that is not ICE Clear Credit, a Participant or an 
Affiliate of a Participant, including, without limitation, a 
``cleared swaps customer'' as defined in CFTC Rule 22.1.
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    Going forward, ICC proposes including representatives of Non-
Participant Parties as members of the Risk Committee, rather than a 
subcommittee of the Risk Committee. ICC is therefore adding these 
representatives directly to the Risk Committee. Accordingly, amendments 
to Rule 501 state that the Risk Committee will include representatives 
of Non-Participant Parties. These amendments also add a more general 
description of the role of the Risk Committee with respect to ICC's 
Board, to better reflect the inclusion of non-Participants. The Board 
will consult with the Risk Committee on any matters that may materially 
affect the risk profile of ICC, and the Board will consider and respond 
to the proposals, recommendations and other input provided by the Risk 
Committee. Consistent with this more general description of the role of 
ICC's Risk Committee, ICC is amending Rule 502 to clarify that the 
specific actions subject to Risk Committee consultation, which are 
already listed in Rule 502, are not intended to limit the general 
provisions described above in Rule 501.
    Moreover, ICC is amending Rule 503(a) to make certain changes to 
the composition of the Risk Committee,

[[Page 84980]]

increase the size of the Risk Committee from twelve to fourteen 
members, and add both the requirement to have and the process for 
selecting two Risk Committee members who are representatives of Non-
Participant Parties. Amended Rule 503(a) requires that: (1) two Non-
Participant Parties each appoint a representative to serve on the Risk 
Committee; (2) the two Non-Participant Parties making those 
appointments themselves be selected by a majority vote of the other 
Risk Committee Members; and (3) those Non-Participant Parties making 
the appointments be active in clearing transactions at ICC. Amended 
Rule 503 further requires that the appointed representatives have risk 
management experience and expertise and be subject to the Risk 
Committee's approval, which could not be unreasonably withheld, 
conditioned, or delayed.\8\ Additionally, the rule requires that the 
representatives be employees of the Non-Participant Parties or 
Affiliates thereof. The amended rule provides that a Non-Participant 
Appointee may be removed at any time without cause by the Non-
Participant Party that appointed the individual, and that if the 
position becomes vacant, the Non-Participant Party may appoint another 
individual. Finally, new Rule 503(c) requires that a Non-Participant 
Party appointing someone to the Risk Committee execute a 
confidentiality agreement and cause its appointee to execute an 
acknowledgment of their confidentiality obligations. The amendments 
also make conforming changes to the Confidentiality Agreement for Risk 
Committee participants to specify that it is being executed by a Market 
Participant rather than a Clearing House member.
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    \8\ Existing Rule 503(a)(ii) requires that the Board approve 
each member of the Risk Committee, and that such approval cannot be 
unreasonably withheld, conditioned or delayed.
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    To support and facilitate these changes, ICC also is amending Rule 
505 to revise the definition of a quorum to a majority of the Risk 
Committee. The amendments to Rule 505 also delete an additional 
requirement in the existing Rule that at least half of the Participant 
Appointees must be present, and reflect the appointment of members by 
Non-Participant Parties.
    As a result of adding representatives of Non-Participant Parties to 
the Risk Committee ICC has determined to eliminate its existing Risk 
Management Subcommittee. As discussed above, the Risk Management 
Subcommittee is a subcommittee of the Risk Committee and includes a 
representative of a Non-Participant Party. Going forward Non-
Participant Parties will have two representatives directly on the Risk 
Committee, rather than one representative on the subcommittee.
    Accordingly, ICC is amending the Rules to remove references to the 
Risk Management Subcommittee and to update certain rules to reflect the 
elimination of the subcommittee. For example, Rule 201 currently 
provides that the Risk Management Subcommittee will have consultation 
rights over certain changes to the qualifications for Clearing 
Participants and the admission of new Clearing Participants. The 
amendments replace references in Rule 201 to the Risk Management 
Subcommittee with references to the Risk Committee. Similarly, Rule 202 
currently provides that ICC's Board will make decisions on a potential 
Clearing Participant's application on the advice of the ICC management 
and the Risk Management Subcommittee. The amendments replace references 
in Rule 202 to the Risk Management Subcommittee with references to the 
Risk Committee. The amendments also remove references to consultation 
with the Risk Management Subcommittee from Rule 601(b), which describes 
circumstances in which the Board or an officer of ICC is excused from 
consulting with the Risk Committee or subcommittee. Finally, the 
amendments eliminate a reference to the Risk Management Committee in 
Rule 703, which relates to investigations of potential violations of 
the Rules by ICC's Clearing Participants.
    With the elimination of the Risk Management Subcommittee, ICC is 
also establishing a new Risk Advisory Working Group. The Risk Advisory 
Working Group will include representatives of Participants and Non-
Participant Parties and is intended to be a broad forum for risk-based 
input. Accordingly, ICC is amending Rule 509 to create the Risk 
Advisory Working Group. The amendments clarify that the role of the 
working group is advisory, such that neither the Board nor the Risk 
Committee is required to accept or act upon any proposal of the working 
group. The amendments specify that the Risk Advisory Working Group must 
include as members a minimum of two representatives of Participants and 
a minimum of two representatives of Non-Participant Parties. Other 
amendments remove a reference to reporting requirements to the CFTC and 
SEC.
    ICC proposes other changes to reflect the new Risk Advisory Working 
Group. For example, another amendment to Rule 503(a) provides for a 
minimum number of Participant and Non-Participant Party members on the 
Risk Advisory Working Group. ICC is revising the limitations on 
liability in Rule 512 to apply to the Risk Advisory Working Group and 
its members. Amendments to Rule 512 also provides that the Risk 
Advisory Working Group meet at least twice per year, and that the 
working group provide the Risk Committee with a summary of the topics 
discussed and main points raised at each meeting.
    Finally, the amendments make drafting corrections and 
clarifications to account for the other changes being made, including 
the deletion of definitions relevant to the Risk Management 
Subcommittee. For example, ICC is amending Rule 507 to allow 
participation in meetings by audio or video conference. In addition, 
the amendments add the definitions of Non-Participant Appointees and 
Risk Advisory Working Group.

C. Framework

    ICC is amending the Framework to reflect the changes being made to 
the Rules as described above. All references to the Risk Management 
Subcommittee will be replaced with references to the new Risk Advisory 
Working Group. Additionally, the governance structure chart will be 
updated to remove the Risk Management Subcommittee and add the Risk 
Advisory Working Group. Similarly, the Risk subsection will be updated 
to describe the role of the Risk Advisory Working Group in providing 
risk-based feedback to ICC on all matters that could materially affect 
the risk profile of ICC as discussed above.
    The amendments also remove references to ICC's existing Advisory 
Committee. The Advisory Committee was intended to be a forum to solicit 
input from Non-Participant Parties. ICC has found that participation in 
the Advisory Committee has been very limited, to the point that the 
Advisory Committee is effectively dormant and has not met for years.\9\ 
As a result, ICC is discontinuing the Advisory Committee and is instead 
providing roles for Non-Participant Parties on the Risk Committee and 
the Risk Advisory Working Group, as discussed above.
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    \9\ Notice, 89 FR at 72540.
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    Finally, the amendments also add a new revision history section to 
the Framework and re-number the Appendices.

D. Playbook

    ICE Clear Credit is amending the Playbook to conform to the 
amendments to the Rules and Framework discussed

[[Page 84981]]

above and to make other changes, as discussed below.
    The amendments revise Section III of the Playbook as it relates to 
the election of ICC Board members. Currently, ICC's Parent must 
annually elect all Board members no less than five business days after 
March 14, which is the date that the Risk Committee is reconstituted 
each year. The amendments eliminate the five business day requirement 
and instead require that ICC's Parent annually elect all Board members 
following the reconstitution date of March 14. ICC is making this 
change to allow Risk Committee members sufficient time, following 
reconstitution of the Risk Committee, to consider and nominate 
appointees to the Board.\10\ Although ICC is removing the five business 
day requirement, pursuant to Section 3.03(e) of the Operating 
Agreement, ICC's parent must still elect all managers annually at a 
meeting to be held during the first four months of each calendar year.
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    \10\ Notice, 89 FR at 72540.
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    The amendments also revise Section IV of the Playbook, which 
describes ICC's various governance committees. Here the amendments 
update the description of the Risk Committee; eliminate the 
descriptions of the Advisory Committee, Risk Management Subcommittee, 
and the FCM Executive Council; \11\ add a description of the Risk 
Advisory Working Group; and revise the description of the Steering 
Committee. With respect to the Risk Committee, the amendments specify 
that the Risk Committee includes representatives of customers of ICC 
CPs and that the Board is required to consult with the Risk Committee 
with respect to matters that could materially affect the risk profile 
of ICC. The amendments increase the size of the Risk Committee from 
twelve to fourteen members and require two members of the Risk 
Committee to be representatives of customers of CPs. The amendments to 
Section IV of the Playbook also summarize the procedures for selecting 
the two representatives of customers of CP members, as set out in 
amended Rule 503, add a reference to Chapter 5 of the Rules, which 
describes the Risk Committee, and rename the Chairman of the Risk 
Committee to the Chairperson.
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    \11\ Like the Advisory Committee, the FCM Executive Council is a 
dormant committee that has not met for years. Notice, 89 FR at 
72540.
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    The amendments to the Playbook also add a description of the 
purpose and membership of the Risk Advisory Working Group. The 
amendments provide that the ICC Chief Risk Officer will serve as 
Chairperson of the Risk Advisory Working Group, a minimum of two 
members will be representatives of CPs, and a minimum of two members 
will be representatives of customers of CPs. Another amendment details 
that the Members of the Risk Advisory Working Group will be appointed 
by the ICC President, subject to the approval of the Risk Committee. 
The amendments also specify that the Risk Advisory Working Group will 
meet at least two times a year, and additionally as needed to consult 
all matters that could affect ICC's risk profile. The amendments 
specify the documents relevant to the Risk Advisory Working Group will 
be maintained on a shared Legal network drive, including the Risk 
Advisory Working Group charter, meeting materials, and summaries of the 
main points and topics discussed during meetings. Additionally, 
administrative procedures in the Playbook that refer to the use of 
ICC's Diligent account for distributing information to Risk Management 
Subcommittee Members will be removed because ICC will not use the 
Diligent system to distribute information to members of the Risk 
Management Working Group. Finally, references to ICC websites will be 
updated.
    In the description of the Steering Committee in the Playbook, the 
amendments remove references to ICE Clear Europe. Because ICE Clear 
Europe discontinued its CDS clearing offering in late 2023 it no longer 
participates in the Steering Committee.\12\
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    \12\ Notice, 89 FR at 72540.
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    Finally, the amendments to the Playbook make conforming changes to 
the description and composition of the Risk Committee, consistent with 
the amendments to the Rules discussed above. References to the Risk 
Management Subcommittee and Advisory Committee will be eliminated or 
replaced with references to the Risk Advisory Working Group, as 
applicable.

E. Operating Agreement

    In accordance with the changes discussed above, ICC is amending and 
restating its Operating Agreement to delete any reference to the 
Advisory Committee, including the deletion in its entirety of Section 
3.12 of the Operating Agreement, which describes the establishment and 
composition of the Advisory Committee. The amendments also remove the 
defined term ``Buy-Side Firms,'' because that term is only used in 
Section 3.12, which, as noted, is being deleted in its entirety.

III. Discussion

    Section 19(b)(2)(C) of the Act directs the Commission to approve a 
proposed rule change of a self-regulatory organization if such proposed 
rule change is consistent with the requirements of the Act and the 
rules and regulations thereunder applicable to such organization.\13\ 
For the reasons discussed below, the proposed rule change is consistent 
with Section 17A(b)(3)(F) of the Act \14\ and Rule 17Ad-22(e)(2), and 
Rule 17Ad-22(e)(3).\15\
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    \13\ 15 U.S.C. 78s(b)(2)(C).
    \14\ 15 U.S.C. 78q-1(b)(3)(F).
    \15\ 17 CFR 240.17Ad-22(e)(2)-(3).
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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 and the 
protection of investors and the public interest.\16\ Based on a review 
of the record, and for the reasons discussed below, the proposed 
changes to the Rules, Framework, Playbook, and Operating Agreement are 
consistent with the promotion of the prompt and accurate clearance and 
settlement of transactions at ICC.
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    \16\ 15 U.S.C. 78q-1(b)(3)(F).
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    As noted above, the proposed rule change eliminates the Risk 
Management Subcommittee and Advisory Committee and adds the Risk 
Advisory Working Group. Specifically, the proposal amends the Rules, 
Framework, Governance Playbook, and Operating Agreement to remove 
references to the Risk Management Subcommittee and Advisory Committee 
and add rules to create the new Risk Advisory Working Group. The Risk 
Advisory Working Group will be chaired by the ICC Chief Risk Officer, 
with a minimum of two members representing Clearing Participants and a 
minimum of two members representing customers of Clearing Participants. 
The Risk Advisory Working Group will meet at least twice a year, or 
more frequently as needed, and will consult on all matters that could 
affect ICC's risk profile.
    These changes enhance ICC's risk management. Rather than having the 
Risk Committee rely on a subcommittee to perform various risk 
management monitoring and responsibilities, the Risk Committee will 
directly perform them. Moving the responsibilities of the Risk 
Management Subcommittee into the Risk Committee will allow the

[[Page 84982]]

Board-level Risk Committee itself to be more engaged in monitoring and 
managing ICC's risk profile. Because ICC's Board is ultimately 
responsible for ensuring that ICC complies with all relevant regulatory 
requirements,\17\ this enhanced monitoring and management of risk at 
the Board level is consistent with the prompt and accurate clearance 
and settlement of securities transactions and 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 in 
the operation of clearing services.
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    \17\ See ICC Governance Playbook, Section III and ICC Operating 
Agreement, Section 3.01.
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    Additionally, as noted above, the proposal expands the Risk 
Committee to include representatives of Non-Participant Parties and 
requires the Board to consult with the Risk Committee on any matters 
that may materially affect ICC's risk profile. The two Non-Participant 
Parties will be representatives of customers of clearing members. 
Moreover, the Board also will be required to consider and respond to 
the proposals and recommendations provided by the Risk Committee. These 
changes will encourage participation by Non-Participant Parties at ICC, 
which in turn could encourage the clearing of transactions involving 
Non-Participant Parties. These changes also will provide ICC's Board 
with input from Non-Participant Parties on risk-related matters, 
potentially broadening the outlook and advice the Board receives. For 
these reasons, these changes as well are consistent with the prompt and 
accurate clearance and settlement of securities transactions.
    Eliminating a dormant Advisory Committee and instead expanding the 
Risk Committee to have representatives of customers of clearing 
participants will help ensure the Risk Committee has a broad view from 
more stakeholders of the risks ICC faces. Consequently, ICC's Board 
could be in a better position to navigate risks as they arise. Further, 
by requiring the Board to consider and respond to Risk Committee 
proposals and recommendations, ICC's Board will be better informed and 
equipped to consider, respond to, and address the various risks faced 
by ICC. These changes to the Risk Committee also promote the prompt and 
accurate clearance of settlement and securities transactions and 
derivative agreements, contracts and transactions cleared by ICC.
    For the reasons stated above, the Commission finds that the 
proposed rule change is consistent with Section 17A(b)(3)(F) of the 
Act.\18\
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    \18\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rule 17Ad-22(e)(2)

    Rules 17Ad-22(e)(2)(i) and (vi) require each covered clearing 
agency to establish, implement, maintain, and enforce written policies 
and procedures reasonably designed to, as applicable, provide for 
governance arrangements that are clear and transparent,\19\ and 
consider the interests of participants' customers and other relevant 
stakeholders.\20\
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    \19\ 17 CFR 240.17Ad-22(e)(2)(i).
    \20\ 17 CFR 240.17Ad-22(e)(2)(vi).
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    As described above, the proposed changes to the Rules, Framework, 
Playbook, and Operating Agreement expand the Risk Committee to include 
two representatives of Non-Participant Parties. In addition, the 
proposed changes also create a Risk Advisory Working Group that also 
includes, at a minimum, two representatives from Non-Participant 
Parties. The inclusion of Non-Participant Parties will help the Risk 
Committee and Risk Advisory Working Group to better consider matters 
that may materially affect the risk profile of ICC by including a wider 
array of viewpoints. Accordingly, the Risk Committee and Risk Advisory 
Working Group will be better able to advise the Board on how ICC can 
manage its risk profile.
    The proposed changes also clearly describe the duties of the Risk 
Committee and Risk Advisory Working Group to consult on any matters 
that may materially affect ICC's risk profile and require the Board to 
both consider and respond to any proposals from the Risk Committee. 
Additionally, the proposed changes require the Risk Advisory Working 
Group to meet at least twice a year and provide the Risk Committee with 
a summary of topics discussed at each meeting.
    By clearly describing the responsibilities of the Risk Advisory 
Working Group and Risk Committee, these proposed changes provide for 
clear and transparent governance arrangements and consideration of 
participants' customers and relevant stakeholders.
    For the reasons stated above, the Commission finds the proposed 
rule changes are consistent with Rules 17Ad-22(e)(2)(i) and (vi).\21\
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    \21\ 17 CFR 240.17Ad-22(e)(2)(i) and (e)(2)(vi).
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C. Consistency With Rule 17Ad-22(e)(3) Under the Act

    Rule 17ad-22(e)(3) requires each covered clearing agency to 
establish, implement, maintain and enforce written policies and 
procedures reasonably designed to, as applicable, 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 the covered clearing agency, 
which, among other things, includes risk management policies, 
procedures, and systems designed to identify, measure, monitor, and 
manage the range of risks that arise in or are borne by the covered 
clearing agency.\22\
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    \22\ 17 CFR 240.17Ad-22(e)(3).
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    As discussed above, the proposed rule changes create a Risk 
Advisory Working Group that will meet at least twice annually and 
advise both the Risk Committee and the Board on any issues that could 
materially affect the risk profile of ICC. The Risk Committee as well 
will meet at least twice annually and advise the Board on any issues 
that could materially affect ICC's risk profile. In turn, the proposed 
rules require the Board to consider and respond to any Risk Committee 
proposals. Having both a Risk Advisory Working Group and Risk Committee 
considering risks that could affect ICC will help the Board identify, 
measure, monitor, and manage the range of risks ICC faces.
    For these reasons, the Commission finds that the proposed rule 
change is consistent with Rule 17Ad-22(e)(3)(i) and (iv) under the 
Act.\23\
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    \23\ Id.
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IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rule change, as modified by Partial Amendment No. 1, is 
consistent with the requirements of the Act, and in particular, with 
the requirements of Section 17A(b)(3)(F) of the Act \24\ and Rules 
17Ad-22(e)(2) \25\ and 17Ad-22(e)(3) \26\ thereunder.
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    \24\ 15 U.S.C. 78q-1(b)(3)(F).
    \25\ 17 CFR 240.17Ad-22(e)(2)(i) and (e)(2)(vi).
    \26\ 17 CFR 240.17Ad-22(e)(3).
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    It is therefore ordered pursuant to Section 19(b)(2) of the Act 
\27\ that the proposed rule change, as modified by Partial Amendment 
No. 1 (SR-ICC-2024-009), be, and hereby is, approved.\28\
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    \27\ 15 U.S.C. 78s(b)(2).
    \28\ 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).


[[Page 84983]]


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    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2024-24638 Filed 10-23-24; 8:45 am]
BILLING CODE 8011-01-P


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Indexed from Federal Register on October 24, 2024.

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.