Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of Filing of Proposed Rule Change Relating to the ICC End-of-Day Price Discovery Policies and Procedures

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November 6, 2024

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Securities and Exchange Commission

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<title>Federal Register, Volume 89 Issue 215 (Wednesday, November 6, 2024)</title>
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[Federal Register Volume 89, Number 215 (Wednesday, November 6, 2024)]
[Notices]
[Pages 88094-88097]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-25730]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101489; File No. SR-ICC-2024-012]

Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of
Filing of Proposed Rule Change Relating to the ICC End-of-Day Price
Discovery Policies and Procedures

October 31, 2024.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of
1934,\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on
October 21, 2024, ICE Clear Credit LLC (``ICC'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change as described in Items I, II and III below, which Items have been
primarily prepared by ICC. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change

The principal purpose of the proposed rule change is to revise the
End-of-Day Price Discovery Policies and Procedures (``EOD
Procedures''). These revisions do not require any changes to the ICC
Clearing Rules (the ``Rules'').

II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change

In its filing with the Commission, ICC included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. ICC has prepared summaries, set forth in sections (A),
(B), and (C) below, of the most significant aspects of these
statements.

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change

(a) Purpose
ICC proposes to revise the EOD Procedures, which sets out ICC's
end-of-day (``EOD'') price discovery process that provides prices for
cleared contracts using submissions made by Clearing Participants
(``CPs''). ICC believes such revisions will facilitate the prompt and
accurate clearance and settlement of securities transactions and
derivative agreements, contracts, and

[[Page 88095]]

transactions for which it is responsible. ICC proposes to make such
changes effective following Commission approval of the proposed rule
change. The proposed amendments are described in detail as follows.
The primary purpose of the proposed revisions is to address
Commodity Futures Trading Commission (``CFTC'') exam findings. As
requested for clarification purposes by the CFTC, the proposed changes
highlight that the meaning of the term `Most-Actively-Traded-
Instrument' (``MATI'') is context-dependent. As MATI is defined to
refer to the most-liquid instrument in a specified group of
instruments, application of MATI is context-dependent on the specific
group of instruments under review.
In order to clarify the meaning of MATI the proposed revisions
provide examples of the meaning of MATI when used in the context of
different groups of instruments defined as: (i) index risk factors,\3\
(ii) single name risk factors \4\ and (iii) single name risk sub-
factors.\5\ The proposed examples illustrate the most common contexts
for the use of the term MATI throughout the EOD Procedures.
Specifically, ICC proposes to revise Section 1.2.3., in which the term
MATI is defined, to include the following examples of the application
of the term MATI to different groups of instruments. In the context of
index risk factors, the proposed revisions provide that the MATI for
this category typically is the contract (i) with a scheduled
termination date corresponding to the 5-year ``tenor'' and (ii) being
the most recent series and version of the applicable cleared credit
default swap (``CDS'') index instrument. In the context of single name
risk factors, the proposed revisions provide an example of the MATI for
a Standard North American Corporate single name risk factor (which is
an example of a single name risk factor) which typically is the
contract (i) with a scheduled termination date corresponding to the 5-
year ``tenor,'' (ii) having US Dollar as the currency of denomination,
(iii) having a coupon of 100 basis points, (iv) referencing deliverable
obligations having a senior debt tier, and (v) having `XR14' \6\
restructuring clause. In the context of single name risk sub-factor,
proposed revisions provide the example of the MATI which is the most
actively traded coupon and scheduled termination date in the group of
single name instruments sharing the same reference entity, currency of
denomination, reference entity debt tier and restructuring clause. In
addition, ICC proposes to add a second example of the MATI in the
context of a specific coupon within a single name risk sub-factor,
which is the most actively traded schedule termination date (i.e.,
tenor) in the group of single name instruments sharing the same
reference entity, currency of denomination, reference entity debt tier,
restructuring clause and coupon.
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\3\ Index risk factor is defined in Section 1.2.1.a. of the EOD
Procedures as a group of clearable CDS index instruments sharing the
same index or sub-index (e.g., CDX.NA.IG), but having any
combination of series, version and scheduled termination date (i.e.,
tenor).
\4\ Single name risk factor is defined in Section 1.2.1.b. of
the EOD Procedures as the group of clearable single name CDS
instruments sharing the same refence entity but having any
combination of currency of denomination, reference obligation debt
tier, restructuring clause, coupon and scheduled termination date.
\5\ Single name sub-risk factor is defined in Section 1.2.1.b.
of the EOD Procedures as a group of clearable single name CDS
instruments sharing the same refence entity, currency of
denomination, reference obligation debt tier, but having any
combination of coupon and scheduled termination date.
\6\ Under applicable ISDA Credit Derivatives Definitions, `XR14'
references no restructuring under the 2014 ISDA Definitions.
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In addition, ICC proposes additional clarifying revisions to
Section 1.2.3. of the EOD Procedures to clarify that the term Most
Actively Traded Coupon (``MATC'') refers to the coupon of the MATI for
a single name risk factor, or single name risk sub-factor, depending on
the stated context.
ICC believes its proposed revisions to describe the use of the
terms MATI and MATC provides a clearer, more robust context to the
information presented in the EOD Procedures. Also, ICC proposes to
revise Section 5, Table 12 `Glossary of Commonly Used Terms', to align
with the revised terms presented earlier in the EOD Procedures.
Furthermore, ICC proposes revisions to Sections 2.1.2. of the EOD
Procedures to clarify the definition and use of consensus bid-offer
widths (``BOW''). As background, BOWs are estimates of the bid-offer
widths for the two-way market available for each clearing-eligible
instrument at a specific time on each business day.\7\ ICC proposes to
clarify in Section 2.1.2. to describe consensus BOW as the estimate of
the prevailing market BOW during a given period. In addition, such
revisions clarify that ICC determines a consensus BOW for each on-the-
run index and for all single name benchmark-instruments at the
appropriate EOD BOW execution time. ICC also proposes to add further
detail to Section 2.1.2. with respect to ICC's estimates of consensus
BOWs to add that such estimations are performed with respect to each
index risk factor MATI. Also, with respect to consensus BOWs for single
name instruments, ICC proposes to add additional detail to Section
2.1.2. to clarify that ICC estimates a consensus BOW from Clearing
Participant submitted mid-prices for all single name benchmark-
instruments.
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\7\ Section 2.1 of the EOD Procedures.
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In addition, ICC proposes to revise Section 2.1.4. of the EOD
Procedures to more accurately describe the calculation of EOD BOWs,
which is the BOW calculated for each clearing-eligible instrument at
the applicable end of the clearing day. Specifically, ICC proposes to
revise Section 2.1.4.a. to clarify that the reference to consensus BOW
means such consensus BOW established of the instrument for which the
EOD BOW is being calculated. Furthermore, ICC proposes to revise
Section 2.1.4.b. which describes the process for calculating EOD BOWs
for single name instruments. Such proposed revisions are intended to
improve clarity and readability. In the description of the factors ICC
applies to each consensus BOW, the proposes revisions clarify that such
list of factors includes observed intraday price variability. Also, the
proposed revisions add the description that the benchmark-instrument
BOW resulting after applying the listed factors to the benchmark-
instrument consensus BOW is referred to in the EOD Procedures as the
benchmark-instrument `systematic' BOW. Further, ICC proposes to add
details related to ICC's determination of the systematic BOW for each
benchmark-instrument for non-MATC coupons to clarify that ICC's
calculation involves use of the benchmark-instrument consensus BOW
established for non-MATC benchmark-instruments belonging to the given
single name risk sub-factor. The proposed amendments also modify the
titles in Table 2, Table 4, and Table 6, which present very similar
information, to clarify their distinct uses. ICC proposes to (i) modify
the title of Table 2 to indicate the presented data is for the purpose
of determining the variability band for each market proxy group, (ii)
modify the title of Table 4 to indicate the presented data is for the
purpose of selecting which market proxy group's variability band to
apply to each index risk factor, and (iii) modify the title of Table 6
to indicate the presented data is for the purpose of selecting which
market-proxy groups' variability band to apply to the benchmark-
instruments associated with each given single name risk factor.
Furthermore, ICC proposes to revise the content of Table 4 to remove
obsolete

[[Page 88096]]

references to the CDX-NAIGHVOL and iTraxx HiVol index risk factors as
those index types are no longer clearing eligible at ICC. Also, ICC
proposes to update the content of Table 6 to clarify that both the
Standard Latin American and Standard Australia single name risk factors
includes not only sovereign single instruments, but also corporate
instruments, to more accurately reflect the single name risk factors
currently cleared at ICC.
Finally, ICC purposes to revise Section 2.5. of the EOD Procedures
to revise the instruments for which ICC publishes daily EOD prices on
the Intercontinental Exchange, Inc. (``ICE, Inc.'') website. This
proposed change is to address a CFTC exam finding related to
publication of CDS index instrument daily settlement prices. ICC
currently publishes EOD prices for a subset of cleared index
instruments to the website, but proposes to revise this practice to
instead publish EOD prices for every clearing eligible index instrument
as required by the CFTC. Furthermore, ICC proposes to revise Section
2.5. to clarify the description of the single name instruments for
which it publishes daily EOD prices on the website. Section 2.5.
currently states that ICC publishes prices for every listed risk sub-
factor, and ICC proposes to clarify this description to state that for
every single name risk sub-factor, ICC publishes the price of all MATI
for each clearable coupon, which is a more accurate description of the
daily single name settlement prices ICC publishes on the ICE, Inc.
Website. ICC believes the proposed daily publication of settlement
prices for all clearing eligible index instruments will improve pricing
transparency to market participants and the public.
ICC also proposes a number of other drafting clarifications and
conforming changes to the EOD Procedures, such as updating the use of
relevant defined terms, section cross-references and other non-
substantive drafting improvements The amendments would also update the
revision history section to the EOD Procedures.
(b) Statutory Basis
ICC believes that the proposed rule change is consistent with the
requirements of Section 17A of the Act \8\ and the regulations
thereunder applicable to it, including the applicable standards under
Rule 17Ad-22.\9\ In particular, Section 17A(b)(3)(F) of the Act \10\
requires that the rule change be consistent with the prompt and
accurate clearance and settlement of securities transactions and
derivative agreements, contracts and transactions cleared by ICC, the
safeguarding of securities and funds in the custody or control of ICC
or for which it is responsible, and the protection of investors and the
public interest. ICC believes that the proposed amendments promote its
ability to maintain the effectiveness and integrity of its EOD price
discovery process. The clarifications to the MATI, MATC and BOW further
ensure that the EOD Procedures remain effective, clear, and up-to-date
to support the effectiveness of ICC's EOD price discovery process. The
proposed rule change is therefore consistent with the prompt and
accurate clearing and settlement of the contracts cleared by ICC, the
safeguarding of securities and funds in the custody or control of ICC
or for which it is responsible, and the protection of investors and the
public interest, within the meaning of Section 17A(b)(3)(F) of the
Act.\11\
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\8\ 15 U.S.C. 78q-1.
\9\ 17 CFR 240.17ad-22.
\10\ 15 U.S.C. 78q-1(b)(3)(F).
\11\ Id.
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The amendments would also satisfy relevant requirements of Rule
17Ad-22.\12\ Rule 17Ad-22(e)(2)(i) and (v) \13\ requires each covered
clearing agency to establish, implement, maintain, and enforce written
policies and procedures reasonably designed to provide for governance
arrangements that are clear and transparent and specify clear and
direct lines of responsibility. The EOD Procedures continue to subject
the ICC EOD price discovery process to a governance and oversight
structure that promotes transparency and accountability and clearly
assigns and documents responsibility for relevant actions and
decisions. ICC believes that the proposed changes would promote
transparency in ICC's price discovery process by providing additional
clarity and transparency in ICC's EOD price discovery process by
clarifying and defining the use of MATI, MATC and consensus BOW. As
such, the proposed revisions continue to ensure that ICC maintains
policies and procedures that are reasonably designed to provide for
clear and transparent governance arrangements and specify clear and
direct lines of responsibility, consistent with the requirements of
Rule 17Ad-22(e)(2)(i) and (v).\14\
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\12\ 17 CFR 240.17ad-22.
\13\ 17 CFR 240.17ad-22(e)(2)(i) and (v).
\14\ Id.
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Rule 17Ad-22(e)(3)(i) \15\ requires each covered clearing agency 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 the covered clearing agency, which
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, that are subject to review
on a specified periodic basis and approved by the board of directors
annually. ICC maintains a sound risk management framework that
identifies, measures, monitors, and manages the range of risks that it
faces. The EOD Procedures is a key aspect of ICC's risk management
approach, which continues to be subject to review on a specified
periodic basis and approved by the Board annually. The proposed
amendments provide for additional clarity regarding the calculation of
EOD prices, and the expansion of the daily publication of EOD prices.
In ICC's view, such changes would promote transparency in ICC's price
discovery process and thus enhance implementation of the EOD
Procedures. The proposed changes would thus strengthen ICC's ability to
manage risk associated with its price discovery process, and ICC's risk
management more generally as ICC uses the resulting EOD prices for risk
management purposes, and ICC would continue to derive reliable, market-
driven prices from its price discovery process. As such, the amendments
would satisfy the requirements of Rule 17Ad-22(e)(3)(i).\16\
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\15\ 17 CFR 240.17ad-22(e)(3)(i).
\16\ Id.
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(B) Clearing Agency's Statement on Burden on Competition

ICC does not believe the proposed rule change would have any
impact, or impose any burden, on competition. The proposed changes to
the EOD Procedures will apply uniformly across all market participants.
Therefore, ICC does not believe the amendments would impose any burden
on competition not necessary or appropriate in furtherance of the
purposes of the Act.

Written comments relating to the proposed rule change have not been
solicited or received. ICC will notify the Commission of any written
comments received by ICC.

[[Page 88097]]

III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.

IV. Solicitation of Comments

Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:

Electronic Comments

<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules-regulations/self-regulatory-organization-rulemaking">https://www.sec.gov/rules-regulations/self-regulatory-organization-rulemaking</a>);
or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#2654534a430b45494b4b434852556655434508414950"><span class="__cf_email__" data-cfemail="780a0d141d551b1715151d160c0b380b1d1b561f170e">[email&#160;protected]</span></a>. Please include
file number SR-ICC-2024-012 on the subject line.

Paper Comments

Send paper comments in triplicate to Secretary, Securities and
Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to file number SR-ICC-2024-012. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="https://www.sec.gov/rules-regulations/self-regulatory-organization-rulemaking">https://www.sec.gov/rules-regulations/self-regulatory-organization-rulemaking</a>). Copies of the
submission, all subsequent amendments, all written statements with
respect to the proposed rule change that are filed with the Commission,
and all written communications relating to the proposed rule change
between the Commission and any person, other than those that may be
withheld from the public in accordance with the provisions of 5 U.S.C.
552, will be available for website viewing and printing in the
Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10 a.m. and 3
p.m. Copies of such filings will also be available for inspection and
copying at the principal office of ICE Clear Credit and on ICE Clear
Credit's website at <a href="https://www.ice.com/clear-credit/regulation">https://www.ice.com/clear-credit/regulation</a>.
Do not include personal identifiable information in submissions;
you should submit only information that you wish to make available
publicly. We may redact in part or withhold entirely from publication
submitted material that is obscene or subject to copyright protection.
All submissions should refer to file number SR-ICC-2024-012 and should
be submitted on or before November 27, 2024.

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-25730 Filed 11-5-24; 8:45 am]
BILLING CODE 8011-01-P

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