Notice2025-06859
Self-Regulatory Organizations; ICE Clear Credit LLC; Order Approving Proposed Rule Change Relating to the ICC Procedures for Identification of Contract Reference Obligations
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Published
April 22, 2025
Issuing agencies
Securities and Exchange Commission
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<title>Federal Register, Volume 90 Issue 76 (Tuesday, April 22, 2025)</title>
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[Federal Register Volume 90, Number 76 (Tuesday, April 22, 2025)]
[Notices]
[Pages 16891-16893]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-06859]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102871; File No. SR-ICC-2025-002]
Self-Regulatory Organizations; ICE Clear Credit LLC; Order
Approving Proposed Rule Change Relating to the ICC Procedures for
Identification of Contract Reference Obligations
April 16, 2025.
I. Introduction
On February 13, 2025, 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 the
ICE Clear Credit Rules (the ``Rules'') and adopt new Procedures for
Identification of Contract Reference Obligations (the
``Procedures'').\3\ The proposed rule change was published for comment
in the Federal Register on March 5, 2025.\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 Procedures for Identification of Contract
Reference Obligations or in the Rule for the Determination of
Substitute Reference Obligation as applicable.
\4\ Securities Exchange Act Release No. 102504 (Feb. 27, 2025),
90 FR 11348 (Mar. 5, 2025) (File No. SR-ICC-2025-002) (``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. ICC is
proposing to revise the Rules and adopt the new Procedures to codify
and specify in further detail its processes used for selecting Contract
Reference Obligations, including selecting a new Contract Reference
Obligation to replace an existing one. Under its current Rules, ICC
generally selects the Contract Reference Obligation for each cleared
single-name CDS Contract and selects a replacement obligation when
required. The Contract Reference Obligation is the obligation of a
Reference Entity that is the subject of a CDS contract, like debt
issued by a private company or bonds issued by a sovereign entity.\5\
As such, the Contract Reference Obligation is relevant for determining
if a Credit Event has occurred pursuant to the Applicable Credit
Derivatives Definitions \6\ of a CDS contract and the obligations of a
Reference Entity that can be delivered pursuant to the CDS contract
when a Credit Event has occurred.\7\
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\5\ In the Rules, ICC defines a reference obligation for each
particular CDS contract it clears, as specified under the applicable
subchapter of the Rules for a particular single-name transaction
type (such as a SNAC Contract Reference Obligation).
\6\ The term ``Applicable Credit Derivatives Definitions'' is a
defined term in ICC Rule 20-102. It means the particular set of
contract definitions that apply to a CDS contract. The contract
definitions that apply to a CDS contract are the 2014 definitions or
2003 definitions, both as published by the International Swaps and
Derivatives Association, Inc., and as supplemented from time to
time.
\7\ Specifically, pursuant to the Applicable Credit Derivatives
Definitions, it is generally the case that (i) the Contract
Reference Obligation will be a Deliverable Obligation, regardless of
whether it meets the otherwise applicable Deliverable Obligation
criteria, and (ii) in order to be eligible as such, other
Deliverable Obligations must not be subordinated in right of payment
to the Contract Reference Obligation.
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B. Rule 20-601
ICC is proposing to adopt Rule 20-601, titled ``Determination of
Substitute Reference Obligations.'' Rule 20-601 clarifies ICC's
responsibilities when selecting a substitute Contract Reference
Obligation. Under the proposed rule, ICC's role as a Calculation Agent
pursuant to the Applicable Credit Derivatives Definitions \8\ with
respect to identifying a Substitute Reference Obligation to replace a
Contract Reference Obligation for which a Substitute Event has occurred
will be limited to performing the functions set out in the new
Procedures. Rule 20-601 will also define ``Contract Reference
Obligation'' for this purpose to be the applicable Contract Reference
Obligation for the relevant single-name transaction type under the
Rules.
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\8\ Under the Applicable Credit Derivatives Definitions, the
Calculation Agent is the person responsible for making certain
determinations required by a CDS contract, such as finding that an
entity is the successor to the original Reference Entity of a CDS
contract or finding a new Reference Obligation to replace an
existing Reference Obligation. ICC serves as the Calculation Agent
for the CDS contracts it clears.
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C. Reference Obligation Procedures
The new Procedures contain the methodology and process for the
identification of Contract Reference Obligations with respect to each
Single-Name CDS Contract accepted for clearing by ICC (both as an
initial matter and following a Substitution Event). The Procedures
codify ICC's current practices for the selection of Contract Reference
Obligations, while also establishing a new process for public
consultation regarding such selections, including a process for
resolving any objections raised during the public consultation process.
Pursuant to the Procedures, ICC will first identify a Contract
Reference Obligation for the Reference Entity for a single name CDS
Contract when ICC begins clearing the contract. The Procedures refer to
this reference obligation as the Original Reference Obligation.
ICC will identify a Substitute Reference Obligation to replace this
Original Reference Obligation in accordance with new Rule 20-601 and
the Procedures. ICC chooses a Substitute Reference Obligation to
replace the Original Reference Obligation when the Original Reference
Obligation is no longer an obligation of the entity referenced in the
CDS contract. This can occur, for example, when a company redeems the
debt that is the subject of the CDS contract.
As provided in the Procedures, ICC will not select an Original
Reference Obligation, or a Substitute Reference Obligation, where
either ``Standard Reference Obligation'' or ``No Reference Obligation''
is indicated on the List of Eligible Reference Entities for the
relevant transaction type maintained by ICC, as published on its
website.
The Procedures also state ICC's overall objective in selecting
Contract Reference Obligations. ICC's objective in doing so is to
reflect CDS market participants' consensus as to the most appropriately
representative obligation of the relevant seniority of the Reference
Entity. The Procedures include factors that market participants may
consider relevant for this purpose, including outstanding principal
amount, remaining maturity, liquidity, and availability of public
information concerning the obligation.
ICC will begin the selection process by using commercially
available reference data from a data vendor to identify the most liquid
reference obligation used in connection with the trading of CDS on the
applicable Reference Entity. This is ICC's starting point when
selecting either an Original
[[Page 16892]]
Reference Obligation or a Substitute Reference Obligation. The
Procedures refer to the most liquid reference obligation used in
connection with the trading of CDS on the applicable Reference Entity
as the ``Preferred'' reference obligation. ICC will identify a proposed
Original Reference Obligation based on the current Preferred, if
available, or a proposed Substitute Reference Obligation based on a
change in the Preferred.
The Procedures specify how ICC will consult with Clearing
Participants and the public when selecting an Original or Substitute
Reference Obligation. After identifying an Original or Substitute
Reference Obligation, ICC will take the following steps:
<bullet> submit the proposal to the ICC Operations Working Group
(``OWG'') for review;
<bullet> submit the proposal to the ICC Trading Advisory Group
(``TAG'') for review; and
<bullet> publish the proposal on its website for review by other
market participants and members of the public.
ICC's OWG consists of operations personnel from ICC's Clearing
Participants. The role of the OWG is to review and provide feedback
regarding various operational matters, including consultation regarding
the selection and substitution of Contract Reference Obligations. The
OWG typically meets weekly, and OWG meeting materials are distributed
by ICC's Client Services Department to all OWG members in advance of
the meeting date. There is no limit to the number of Clearing
Participant operational personnel that can participate in OWG meetings,
no quorum requirements, and no mandatory attendees. OWG Members may
object to any proposed Original or Substitute Reference Obligation,
either at an OWG meeting or by email to ICC any time before the
deadline set by ICC (the ``Objection Date'').
ICC's TAG consists of trading personnel from ICC's Clearing
Participants. The role of the TAG is to provide market insight into a
variety of trading topics, including consultation regarding the
selection and substitution of Contract Reference Obligations. The TAG
typically meets weekly, and proposed new or substitute Contract
Reference Obligations are sent to the members of the TAG in advance of
meetings via email. There is no limit to the number of Clearing
Participant trading personnel that can participate in TAG meetings, no
quorum requirements, and no mandatory attendees. TAG members may object
to any proposed Original or Substitute Reference Obligation, either at
a TAG meeting or by email to ICC prior to the Objection Date. The
Procedures set out the process for OWG or TAG members to make
objections.
The process for public consultation, noted above, takes place in
conjunction with, and is in addition to, consultations with the OWG and
TAG. During the time of consultation with the OWG and TAG, ICC
publishes any proposed Original or Substitute Reference Obligation on
its website and invites market participants and the public to submit
any objections by the Objection Date. A person may object by emailing
the reasons for objection to ICC prior to the Objection Date.
The Procedures also explain how ICC will resolve any objections
raised through these consultations. First, ICC will postpone adopting
the proposed Original or Substitute Reference Obligation until ICC has
addressed the objections to its satisfaction. The Procedures describe a
series of non-exhaustive steps that ICC may take to resolve the
objections as it determines appropriate, recognizing that different
steps may be appropriate for different situations or objections.
Potential steps include the following:
<bullet> obtaining additional information from the objector;
<bullet> contacting (or asking the objector to contact) the
relevant market data vendor that has identified a reference obligation
as Preferred;
<bullet> conducting a legal review of the available documentation
for the proposed Original or Substitute Reference Obligation;
<bullet> consulting OWG or TAG members and other market
participants with relevant views or information, such as the person
that objected;
<bullet> consulting ICC's CDS Risk Committee; and
<bullet> submitting (directly or indirectly) a question to the
relevant Credit Derivatives Determinations Committee whether a proposed
Substitute Reference Obligation is an appropriate choice.
If the consultation noted above leads to the data vendor
identifying a different Preferred reference obligation, ICC will
consider such obligation as an alternative proposed Contract Reference
Obligation. ICC will then take this alternative through the
consultation process, including the process for resolving any
objections raised to this alternative, pursuant to the same processes
described above.
Finally, the Procedures specify that they do not apply to the
determination of a Contract Reference Obligation for a new trade
resulting from a Restructuring Credit Event (which would be determined
in accordance with the Rules). The Procedures also permit ICC to
deviate from the public consultation process in certain limited
circumstances. Specifically, with respect to a Succession Event that
requires the identification of a new Contract Reference Obligation, or
when a Contract Reference Obligation is changed in connection with the
re-naming of a Reference Entity, the Procedures require ICC to follow
the industry-agreed timelines for implementing the Succession Event or
re-naming. In such instances, the industry-agreed timeline may not
allow sufficient time for ICC to go through the normal consultation
process or would require an abbreviated one. ICC would, however, follow
as much of the normal consultation process as possible given the
applicable timeline.
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.\9\ 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.'' \10\
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\9\ 15 U.S.C. 78s(b)(2)(C).
\10\ 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,\11\ 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.\12\ 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.\13\
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\11\ Id.
\12\ Id.
\13\ 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
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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,\14\ Rule 17Ad-22(e)(1),\15\ and Rule 17Ad-
22(e)(23)(ii).\16\
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\14\ 15 U.S.C. 78q-1(b)(3)(F).
\15\ 17 CFR 240.17Ad-22(e)(1).
\16\ 17 CFR 240.17Ad-22(e)(23)(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.\17\ The proposed
new Procedures clarify ICC's process for selecting Original and
Substitute Reference Obligations, while also establishing a new process
for public consultation and addressing any objections that are raised
during such consultation. Pursuant to the Procedures, when ICC selects
an Original or Substitute Reference Obligation, ICC will review and
consult with its OWG, TAG, external market participants, and members of
the public, and take appropriate steps, as described in the Procedures,
to resolve any objections raised during these consultations. These
processes will help ensure any Original Reference Obligation, or
changes thereto, are accurate, representative of the Reference Entity,
and reflect market expectations. In doing so, the proposed rule change
helps promote the consistent clearance and settlement of single-name
CDS transactions at ICC. Accordingly, the proposed rule change promotes
the prompt and accurate clearance and settlement of transactions at
ICC, consistent with Section 17A(b)(3)(F) of the Act.\18\
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\17\ 15 U.S.C. 78q-1(b)(3)(F).
\18\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rule 17Ad-22(e)(1)
Rule 17Ad-22(e)(1) requires that ICC establish, implement,
maintain, and enforce written policies and procedures reasonably
designed to provide for a well-founded, clear, transparent, and
enforceable legal basis for each aspect of its activities in all
relevant jurisdictions.\19\ By explaining how ICC selects an Original
or Substitute Reference Obligation and by requiring ICC to consult with
market participants regarding such selection, the Procedures help
establish a clear and transparent basis for ICC's selection of an
Original or Substitute Reference Obligation. Similarly, by allowing
members of the OWG and the TAG, market participants, and the public an
opportunity to raise objections, and by requiring ICC to take steps to
resolve any such objections, the Procedures help establish a clear and
enforceable basis for ICC's selection of an Original or Substitute
Reference Obligation. If any OWG or TAG members, market participants,
or the public raise any objections, ICC would postpone the adoption of
the proposed Original or Substitute Contract Reference Obligation until
any objections have been sufficiently addressed. Finally, new Rule 20-
601 establishes that, in acting as Calculation Agent pursuant to the
Applicable Credit Derivatives Definitions, with respect to identifying
a Substitute Reference Obligation to replace a Contract Reference
Obligation for which a Substitution Event has occurred, ICC's role is
limited to following the process set out in the Procedures. This
ensures that the process set out in the Procedures is enforceable
against ICC. By establishing enforceable procedures that establish the
process ICC must follow in consulting both internally and externally
when selecting a new Contract Reference Obligation for CDS, ICC is
increasing the clarity, transparency, and enforceability of the legal
basis for its activities in connection with selecting Original and
Substitute Contract Reference Obligations. Accordingly, the proposed
rule change is consistent with Rule 17Ad-22(e)(1).\20\
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\19\ 17 CFR 240.17Ad-22(e)(1).
\20\ 17 CFR 240.17Ad-22(e)(1).
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C. Consistency With Rule 17Ad-22(e)(23)(ii)
Rule 17Ad-22(e)(23)(ii) requires that ICC establish, implement,
maintain, and enforce written policies and procedures reasonably
designed to provide for sufficient information to enable participants
to identify and evaluate the risks, fees, and other material costs they
incur by participating in the covered clearing agency.\21\ The proposed
rule change enables market participants to better understand the risks
associated with participating with ICC. The Procedures explain how ICC
selects an Original or Substitute Reference Obligation, and how ICC
consults with market participants regarding its selection. The
Procedures are publicly available. Thus, in adopting the Procedures,
the proposed rule change enables market participants to understand how
ICC determines Original and Substitute Reference Obligations, therefore
allowing market participants to better understand the risks associated
with clearing CDS at ICC. Accordingly, the proposed rule change is
consistent with Rule 17Ad-22(e)(23)(ii).\22\
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\21\ 17 CFR 240.17Ad-22(e)(23)(ii).
\22\ 17 CFR 240.17Ad-22(e)(23)(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 Section 17A(b)(3)(F) of the
Act,\23\ Rule 17Ad-22(e)(1),\24\ and Rule 17Ad-22(e)(23)(ii) \25\
thereunder.
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\23\ 15 U.S.C. 78q-1(b)(3)(F).
\24\ 17 CFR 240.17Ad-22(e)(1).
\25\ 17 CFR 240.17Ad-22(e)(23)(ii).
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It is therefore ordered pursuant to Section 19(b)(2) of the Act
\26\ that the proposed rule change (SR-ICC-2025-002) be, and hereby is,
approved.\27\
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\26\ 15 U.S.C. 78s(b)(2).
\27\ 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.\28\
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\28\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-06859 Filed 4-21-25; 8:45 am]
BILLING CODE 8011-01-P
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