Notice2024-30778
Self-Regulatory Organizations; ICE Clear Credit LLC; Order Approving Proposed Rule Change Relating to the ICC End-of-Day Price Discovery Policies and Procedures
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Published
December 27, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 248 (Friday, December 27, 2024)</title>
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[Federal Register Volume 89, Number 248 (Friday, December 27, 2024)]
[Notices]
[Pages 105654-105657]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-30778]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101970; File No. SR-ICC-2024-012]
Self-Regulatory Organizations; ICE Clear Credit LLC; Order
Approving Proposed Rule Change Relating to the ICC End-of-Day Price
Discovery Policies and Procedures
December 19, 2024.
I. Introduction
On October 21, 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 thereunder,\2\ a proposed rule change to revise
ICC's End-of-Day Price Discovery Policies and Procedures.\3\ The
proposed rule change was published for comment in the Federal Register
on November 6, 2024.\4\ 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 End-of-Day Price Discovery Policies and
Procedures (``EOD Procedures'') as applicable.
\4\ Securities Exchange Act Release No. 101489 (Oct. 31, 2024),
89 FR 88094 (Nov. 6, 2024) (File No. SR-ICC-2024-012) (``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.\5\ ICC's
EOD Procedures set out ICC's end-of-day (``EOD'') price discovery
process, which provides prices for cleared contracts using submissions
made by Clearing Participants. ICC uses its EOD price discovery process
to provide market-driven prices for cleared CDS instruments and cleared
derivatives of CDS instruments. ICC uses the resulting EOD prices for
risk management purposes and distributes them to Clearing Participants
and their clients. ICC also publishes a subset of EOD prices on its
public website.
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\5\ Capitalized terms not otherwise defined herein have the
meanings assigned to them in EOD Procedures, as applicable.
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ICC proposes to revise the EOD Procedures. The primary purpose of
the proposed revisions is to address Commodity Futures Trading
Commission (``CFTC'') exam findings.\6\ The proposed revisions clarify
the meanings of certain terms used in the EOD Procedures, specifically
Most-Actively-Traded-Instrument; Most-Actively-Traded-Coupon; and bid-
offer widths. The proposed changes also make other miscellaneous
updates to the EOD Procedures.
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\6\ Notice, 89 FR 88095.
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B. Most-Actively-Traded-Instrument
The term Most-Actively-Traded-Instrument (``MATI'') is used by ICC
throughout the EOD Procedures to refer to the most-liquid instrument in
a specified group of instruments. Because the most-liquid instrument in
a given group of instruments will depend on the specific group of
instruments at issue, the MATI varies. Currently, Section 1.2.3 of the
EOD Procedures, titled Most-Actively-Traded Instrument, defines the
term MATI as ``the most-liquid instrument in the group of instruments''
and specifies the typical MATI for index risk sub factors and corporate
single name risk sub factors. To highlight the context-dependent nature
of the term MATI, the proposed rule change would modify the definition
[[Page 105655]]
of MATI and provide examples of a typical MATI for a given risk factor
rather than identifying a specific MATI. The proposed examples would
illustrate the specific contexts in which the term MATI is most
commonly used.
Specifically, ICC would strike a statement that the term MATI is
``defined'' as ``the most-liquid instrument in the group of
instruments'' and replace it with a statement that ICC uses the term
MATI ``to refer to the most-liquid instrument in a specified group of
instruments.''
Similarly, with regard to the specific contexts in which the term
MATI is most commonly used, the proposed rule change would strike two
statements describing the ``typical'' MATI for ``index risk sub
factors'' and ``investment grade North American and European corporate
[single name] risk sub factors.'' The statement regarding index risk
sub factors would be replaced with an example of the MATI for ``an
index risk factor,'' which typically is the contract with a scheduled
termination date corresponding to the 5-year ``tenor'' and being the
most recent series and version of the applicable cleared CDS index
instrument. The current statement regarding single name risk factors
would be replaced with an example of the MATI for a single name risk
factor ``for investment grade North American corporate SN risk
factors,'' which typically is the contract with a scheduled termination
date corresponding to the 5-year ``tenor,'' having U.S. Dollar as the
currency of denomination, having a coupon of 100 basis points,
referencing deliverable obligations having a senior debt tier, and
having an ``XR14'' restructuring clause.\7\
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\7\ Under applicable ISDA Credit Derivatives Definitions, `XR14'
references no restructuring under the 2014 ISDA Definitions.
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The examples in subsection 1.2.3 would further be expanded to
include examples of the MATI for ``a SN risk sub-factor and the MATI
for ``a specific coupon within a SN risk sub-factor,'' which typically
would be 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, and 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, respectively.
C. Most Actively Traded Coupon
Subsection 1.2.3 also currently defines the term Most-Actively-
Traded Coupon (``MATC'') as the coupon associated with a single name
risk sub factor's MATI. ICC proposes additional clarifying revisions to
this provision of subsection 1.2.3. Specifically, the current statement
that ``ICC further defines the coupon associated with a SN risk sub-
factor's MATI as the most-actively traded coupon (``MATC'') for that
risk sub-factor'' would be replaced with a statement that ``ICC uses
the term'' MATC to refer to the coupon of the MATI for a SN risk
factor, or SN risk sub-factor, depending on the stated context.
D. Bid-Offer Widths
Section 2 of the EOD Procedures addresses ICC's methodology for
producing EOD prices. ICC is proposing to make changes to clarify the
use of bid-offer widths (``BOW'') in Section 2 of the EOD Procedures.
ICC proposes revisions to subsection 2.1.2, which addresses
consensus BOWs, to clarify the definition and use of consensus BOWs.
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. ICC proposes to amend subsection 2.1.2 to describe a
consensus BOW as the estimate of the prevailing market BOW during a
given period. The revisions would further 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 subsection 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. With respect to
consensus BOWs for single name instruments, ICC proposes to add
additional detail to subsection 2.1.2 to clarify that ICC estimates a
consensus BOW from Clearing Participant-submitted mid-prices for all
single name benchmark-instruments.
ICC proposes to revise subsection 2.1.4, which covers EOD BOWs, to
describe the calculation of EOD BOWs more accurately. The EOD BOW is
the BOW calculated for each clearing-eligible instrument at the
applicable end of the clearing day. ICC calculates the EOD BOW by first
determining a consensus BOW for an instrument.
Subsection 2.1.4.a describes how ICC determines EOD BOWs for index
instruments. Section 2.1.4.a currently includes a statement that ``ICC
compares the consensus BOW to the three predefined BOWs.'' The proposed
rule change would revise that statement to clarify that ``ICC compares
the consensus BOW established for that instrument to the three
predefined BOWS.''
ICC also proposes to revise subsection 2.1.4.b, which describes the
process for calculating EOD BOWs for single name instruments. In the
description of the factors ICC applies to each consensus BOW, the
proposed revisions clarify that such list of factors includes observed
intraday price variability. The proposed revisions also add a statement
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. Finally,
ICC proposes to add to subsection 2.1.4.b details related to ICC's
determination of the systematic BOW for each benchmark instrument for
non-MATC coupons. These proposed changes 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.
E. Other Updates
Within Section 2, ICC proposes to amend subsection 2.1.3 and 2.1.4,
which covers variability bands and EOD BOWs respectively. The proposed
amendments modify the titles of Table 2, Table 4, and Table 6, and
clarify the uses of the tables. The titles of Table 2 and Table 4 are
currently ``Assignment of Index Risk Factors to Market Proxy Groups.''
ICC proposes to expand the title of Table 2 to include a statement that
the table is used for the purpose of determining the variability band
for each market proxy group. ICC proposes to add language to the
caption for Table 4 to clarify that the table is used for the purpose
of selecting which market proxy groups variability band to apply to
each index risk factor. ICC also proposes to revise the content of
Table 4 to remove obsolete references to the CDX-NAIGHVOL and iTraxx
HiVol index risk factors, as those index types are no longer clearing
eligible at ICC.
The title of Table 6 is currently ``Assignment of SN Risk Factors
to Market Proxy Groups.'' ICC proposes to expand the title of Table 6
to include a statement that the table is used for the purpose of
selecting which market-proxy groups variability band to apply to the
benchmark instruments associated with each given risk factor. ICC also
proposes to update the content
[[Page 105656]]
of Table 6 to clarify that both the Standard Latin American and
Standard Australian single name risk factors include not only sovereign
single instruments, but also corporate instruments, to more accurately
reflect the single name risk factors currently cleared at ICC.
Specifically, ICC proposes to append the phrase ``& Corporates'' to the
current bullets for ``Standard Australia Sovereign'' and ``Standard
Asia Sovereign.''
ICC proposes to revise subsection 2.5, which addresses distribution
of EOD prices, to revise the instruments for which ICC publishes daily
EOD prices on the Intercontinental Exchange, Inc. (``ICE, Inc.'')
website. With respect to index instruments, ICC currently publishes EOD
prices for a subset of cleared index instruments to the website. The
proposed rule change would modify this practice such that ICC would
instead publish EOD prices for every clearing eligible index instrument
as required by the CFTC.\8\ With respect to single name instruments,
the proposed rule change would not substantively modify the EOD prices
that ICC publishes on the ICE, Inc. Website, but rather would revise
subsection 2.5 to clarify the description of the single name
instruments for which it publishes daily EOD prices on the website.
Specifically, subsection 2.5 currently states that ICC publishes prices
for every listed risk sub-factor. The proposed rule change would
clarify this description to state that, for every single name risk sub-
factor, ICC publishes the price of all MATI for each clearable coupon.
In ICC's view, this is a more accurate description of the daily single
name settlement prices ICC publishes on the ICE, Inc. Website.\9\ 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.\10\
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\8\ Notice, 89 FR 88096.
\9\ Id.
\10\ Id.
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Finally, ICC proposes 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 of the EOD Procedures.
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.\11\ Under the Commission's Rules of Practice, the
``burden to demonstrate that a proposed rule change is consistent with
the Exchange Act and the rules and regulations issued thereunder . . .
is on the self-regulatory organization [`SRO'] that proposed the rule
change.'' \12\
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\11\ 15 U.S.C. 78s(b)(2)(C).
\12\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR
201.700(b)(3).
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The description of a proposed rule change, its purpose and
operation, its effect, and a legal analysis of its consistency with
applicable requirements must all be sufficiently detailed and specific
to support an affirmative Commission finding,\13\ and any failure of an
SRO to provide this information may result in the Commission not having
a sufficient basis to make an affirmative finding that a proposed rule
change is consistent with the Exchange Act and the applicable rules and
regulations.\14\ Moreover, ``unquestioning reliance'' on an SRO's
representations in a proposed rule change is not sufficient to justify
Commission approval of a proposed rule change.\15\
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\13\ Id.
\14\ Id.
\15\ Susquehanna Int'l Group, LLP v. Securities and Exchange
Commission, 866 F.3d 442, 447 (D.C. Cir. 2017).
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After carefully considering the proposed rule change, the
Commission finds that the proposed rule change is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to ICC. More specifically, for the reasons given below, the
Commission finds that the proposed rule change is consistent with
Section 17A(b)(3)(F) of the Act \16\ and Rule 17Ad-22(e)(6)(iv).\17\
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\16\ 15 U.S.C. 78q-1(b)(3)(F).
\17\ 17 CFR 240.17Ad-22(e)(6)(iv) and (e)(18).
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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.\18\ As discussed
above, the proposed rule change would clarify ICC's EOD pricing
methodology, including 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. The proposed rule change would also
more accurately describe the calculation of EOD BOW and require that
ICC publish EOD prices for every clearing eligible index instrument
instead of just a subset of them. These changes would clarify ICC's
methodology for EOD and BOW calculations, thereby enhancing ICC's
ability to calculate accurate EOD prices. Further, EOD prices are
distributed to Clearing Participants and their clients. Enhancing ICC's
ability to calculate accurate EOD prices is critical to ICC's ability
to manage the risks of clearing and settling CDS given that ICC bases
margin and guaranty fund requirements on these prices. Moreover,
ensuring that ICC's Clearing Participants, their clients, and other
market participants have correct pricing information for the
instruments that ICC clears would promote the prompt and accurate
clearance and settlement of CDS transactions by reducing the chance
there are inaccuracies in the settlement of such transactions.
Accordingly, the proposed rule change would promote the prompt and
accurate clearance and settlement of transactions at ICC, consistent
with Section 17A(b)(3)(F) of the Act.\19\
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\18\ 15 U.S.C. 78q-1(b)(3)(F).
\19\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rule 17Ad-22(e)(6)(iv)
Rule 17Ad-22(e)(6)(iv) requires that ICC establish, implement,
maintain, and enforce written policies and procedures reasonably
designed to cover its credit exposures to its participants by
establishing a risk-based margin system that, among other things, uses
reliable sources of timely price data and uses procedures and sound
valuation models for addressing circumstances in which pricing data are
not readily available or reliable.\20\ As discussed above, the proposed
rule change would clarify how ICC's price data--EOD BOWs--are
calculated, and how consensus BOWs are defined and calculated. The
proposed rule change also would require that ICC publish EOD prices for
every clearing eligible index instrument rather than just a subset of
them, as is ICC's current practice. Clarifying ICC's EOD pricing
methodology and ensuring that EOD prices for all clearing eligible
index instruments are published will help ICC ensure that the sources
for its price data are both timely and reliable, which in turn will
support and enhance ICC's risk-based margin system. Accordingly, the
proposed rule change is consistent with Rule 17Ad-22(e)(6)(iv).\21\
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\20\ 17 CFR 240.17Ad-22(e)(6)(iv).
\21\ 17 CFR 240.17Ad-22(e)(2)(v).
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[[Page 105657]]
IV. Conclusion
On the basis of the foregoing, the Commission finds that the
proposed rule change is consistent with the requirements of the Act,
and in particular, with the requirements of Section 17A(b)(3)(F) of the
Act \22\ and Rule 17Ad-22(e)(6)(iv) \23\ thereunder.
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\22\ 15 U.S.C. 78q-1(b)(3)(F).
\23\ 17 CFR 240.17Ad-22(e)(2)(v).
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It is therefore ordered pursuant to Section 19(b)(2) of the Act
\24\ that the proposed rule change (SR-ICC-2024-012) be, and hereby is,
approved.\25\
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\24\ 15 U.S.C. 78s(b)(2).
\25\ 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.\26\
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\26\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2024-30778 Filed 12-26-24; 8:45 am]
BILLING CODE 8011-01-P
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