Notice2025-14752
Self-Regulatory Organizations; ICE Clear Credit LLC; Order Approving Proposed Rule Change Relating to ICC's Clearing Participant Default Management Procedures & ICC Clearing Rules
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Published
August 5, 2025
Issuing agencies
Securities and Exchange Commission
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<title>Federal Register, Volume 90 Issue 148 (Tuesday, August 5, 2025)</title>
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[Federal Register Volume 90, Number 148 (Tuesday, August 5, 2025)]
[Notices]
[Pages 37612-37615]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-14752]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103601; File No. SR-ICC-2025-010]
Self-Regulatory Organizations; ICE Clear Credit LLC; Order
Approving Proposed Rule Change Relating to ICC's Clearing Participant
Default Management Procedures & ICC Clearing Rules
July 31, 2025.
I. Introduction
On June 3, 2025, ICE Clear Credit LLC (``ICC'') filed with the
Securities and Exchange Commission (``Commission''), pursuant to
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\
and Rule 19b-4 thereunder,\2\ a proposed rule change to revise its
Clearing Participant Default Management Procedures (the ``Default
Management Procedures'') and the ICC Clearing Rules (the ``Rules'')
related to ICC Clearing Participant (``CP'') default management (the
``Proposed Rule Change''). The Proposed Rule Change was published for
comment in the Federal Register on June 20, 2025.\3\ The Commission has
not received any comments on 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\ Securities Exchange Act Release No. 103266 (Jun. 16, 2025),
90 FR 26360 (Jun. 20, 2025) (File No. SR-ICC-2025-010) (``Notice'').
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II. Description of the Proposed Rule Change
ICC is registered with the Commission as a clearing agency for the
purpose of clearing CDS contracts for its Clearing Participants
(``CPs'').\4\ ICC is a central counterparty, which means that it
interposes itself as the buyer to every seller and the seller to every
buyer for these types of financial transactions.\5\ As such, ICC is
obligated to perform on the contracts it clears, should a CP default.
Accordingly, ICC has a default management process to determine if a CP
is in default of its obligations to ICC under the Rules, and to close
out the defaulting CP's portfolio as needed.
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\4\ Capitalized terms not otherwise defined herein have the
meanings assigned to them in ICC's Treasury Policy or, if not
defined therein, the Rules. The Rules are available at <a href="https://www.ice.com/clear-credit/regulation">https://www.ice.com/clear-credit/regulation</a>.
\5\ Because it acts as a central counterparty, ICC is a
``covered clearing agency'' as defined in Rule 17ad-22(a). Rule
17ad-22(a) defines ``covered clearing agency'' as a ``registered
clearing agency that provides the services of a central counterparty
or central securities depository.'' 17 CFR 240.17ad-22(a).
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ICC proposes to amend (i) its Default Management Procedures, which
describe how ICC determines if a CP has defaulted and how ICC closes
out the defaulting CP's portfolio, and (ii) its Rules. Specifically,
ICC proposes to (i) remove Direct Liquidation \6\ transactions as both
a hedging and liquidation mechanism; (ii) update ICC's position porting
functionality, by replacing its manual Porting Tool process with an
automated Default Management System (``DMS'') porting functionality;
and (iii) make general updates and clarifications.
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\6\ Direct Liquidation is defined in Rule 20-605(d)(v), but in
general means direct transactions with market participants.
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A. Removal of Direct Liquidation Transactions
ICC states that it is proposing to remove Direct Liquidation
transactions as a hedging and liquidation mechanism, as such
transactions are no longer necessary or desirable because such
functionality is now fully available through ICC's DMS hedge and
liquidation auction capabilities.\7\
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\7\ Notice, 90 FR at 26360.
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ICC currently has the option to perform Direct Liquidation
transactions to liquidate a CP's remaining default portfolio. Current
Section 8.6 of the Default Management Procedures states that although
the preferred method for liquidating the Remaining Default Portfolio is
via auction, ICC's Risk Department may, in consultation with the CDS
Default Committee, decide to execute bilateral Direct Liquidation
transactions in the market to liquidate positions. For liquidating a
defaulting CP's portfolio, ICC states that the automated liquidation
auction capabilities of the DMS offer a more efficient and transparent
approach to liquidating a defaulting CP's portfolio as compared to
Direct Liquidation transactions. As a result, ICC states that the DMS
liquidation auction process has superseded the need for ICC to maintain
the capability to directly execute bilateral Direct Liquidation
transactions.\8\
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\8\ Notice, 90 FR at 26360.
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Similarly, for hedging a defaulting CP's portfolio, the current
Default Management Procedures include the option for the direct
execution of Initial Cover Transactions. Current Section 8.4 of the
Default Management Procedures notes that the preferred method of
executing Initial Cover Transactions is by way of an auction, as
described in Section 8.3 of the Default Management Procedures. ICC
proposes to remove
[[Page 37613]]
Direct Liquidation transactions in the context of hedging a defaulting
CP's portfolio. ICC states that the automated hedge auction
capabilities of the DMS offer a more efficient and transparent approach
to hedging a defaulting CP's portfolio as compared to the direct
execution of an Initial Cover Transaction.\9\ As a result, ICC states
that the DMS hedge auction process has superseded the need for ICC to
maintain the capability to directly execute bilateral Initial Cover
Transactions.
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\9\ Notice, 90 FR at 26361.
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In summary, ICC proposes the following changes to its Default
Management Procedures:
1. remove ``Direct Liquidation'' as a defined term in Section 2;
2. remove ``Direct Liquidation'' as a Standard Default Management
Action \10\ in Section 3;
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\10\ Rule 20-605(d) defines certain Standard Default Management
Actions that ICC has the right to take in effecting the closing-out
process.
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3. remove language from Section 6.5.2 that describes the
operational setup necessary to execute hedging and/or liquidation
transactions directly with CP counterparties, because the operational
setup will no longer be necessary;
4. remove Direct Liquidation transactions from the list of items
that the CDS Default Committee \11\ may be consulted on in Section 7;
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\11\ Rule 20-617(a) defines the CDS Default Committee, which is
responsible for taking certain actions provided in the Rules and ICC
procedures upon a CP default.
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5. remove Direct Liquidation transactions in the context of
liquidating a defaulting CP's portfolio from the Default Management
Procedures, by deleting Section 8.6 in its entirety; \12\
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\12\ Section 8.6 currently describes the process and steps that
ICC would follow should it determine to execute Direct Liquidation
transactions to liquidate a defaulting CP's portfolio by way of
bilateral transactions directly with counterparties. 90 FR at 26360.
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6. remove direct execution of transactions in the context of
hedging a defaulting CP's portfolio from the Default Management
Procedures by removing Section 8.4. in its entirety; \13\ and
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\13\ Section 8.4 currently describes the process and steps that
ICC would follow should it determine to execute an Initial Cover
Transaction by way of bilateral transactions directly with
counterparties. 90 FR at 26360.
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7. remove a reference to executing Initial Cover Transactions with
market participants in Section 7.3 that is no longer necessary, given
the removal of the option for the direct execution of Initial Cover
Transactions.
ICC also proposes to make analogous changes to the Rules to remove
Direct Liquidation transactions as both a hedging and liquidation
mechanism. ICC proposes the following changes to its Rules:
1. remove the definition of ``Direct Liquidation'' from Rule 102;
2. remove Rule 20-605(d)(v)(ii), which covers the option to execute
hedge or liquidation transactions by way of direct transactions with
market participants;
3. further revise Rule 20-605(d)(v) to indicate that hedge and
liquidation transactions ``shall'' (instead of ``may'') be entered into
pursuant to Default Auctions \14\ and, as with the proposed revisions,
Default Auctions will be the only mechanism remaining for the execution
of hedge and liquidation transactions; and
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\14\ Default Auctions are defined in Rule 102, but is generally
understood to mean an auction conducted pursuant to the Default
Auction Procedures.
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4. delete references to Direct Liquidation from Rule 20-605(l),
including with respect to entering trades through Direct Liquidation
and using resources to cover certain obligations from a Direct
Liquidation.
As a result of the above-described changes, certain sub-sections of
Rules 20-605(d)(v) and 20-605(l) are proposed to be re-numbered or re-
lettered as appropriate.
B. Update to ICC's Position Porting Functionality
ICC is updating its position porting capabilities. Currently, ICC's
Client Services and Support department (``CSS'') uses a manual Excel-
based tool, referred to as the Porting Tool, to generate emails and
attachments required as part of the post-default porting process.\15\
ICC states that the automated DMS porting functionality removes the
need for CSS to use such a manual Excel-based tool, and that moving to
the automated DMS porting functionality will improve the efficiency and
accuracy of ICC's post-default porting process by reducing manual steps
and reducing the risk of error.\16\ Accordingly, ICC proposes to make
changes to the Default Management Procedures, to remove many references
to the Porting Tool.
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\15\ As part of the post-default porting process, ICC shares
with its Futures Commission Merchant/Broker Dealer CPs (``potential
receiving CPs'') certain client portfolios cleared by the defaulting
CP(s), identifies potential receiving CPs willing to take on the
portfolios, and subsequently selects to which potential receiving
CPs each client portfolio is transferred, if any. Notice, 90 FR at
26361.
\16\ Notice, 90 FR at 26361.
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Specifically, ICC proposes the following changes to its Default
Management Procedures:
1. remove ``Porting Tool'' as a defined term in Section 2;
2. remove the entirety of Section 4.3.2.3, which discusses how ICC
maintains and updates certain information in the Porting Tool;
3. revise Section 10.1 to remove all references to the steps
necessary to use the manual Porting Tool, including removal of
references to the ICC Chief Operating Officer (who currently requests
use of the Porting Tool) and references to CSS (who currently performs
the described Porting Tool steps). As a replacement for the manual
Porting Tool steps, ICC proposes to add to Section 10.1 a description
of the steps necessary to execute the DMS porting functionality,
including the following: (i) creation of a porting event in the DMS;
(ii) selection of the client accounts at the defaulting CP(s) that will
be offered for porting; (iii) making available for download the
portfolios associated with the client accounts offered for porting to
the identified non-defaulting CPs; and (iv) enabling each non-
defaulting CP to select in the DMS which client account they are
willing to accept;
4. modify Section 10.1 to note that the above-listed steps related
to the porting functionality of the DMS will be performed by the ICC
Risk department upon the request of the ICC Chief Risk Officer;
5. amend Section 10.4 to remove language on the use of the Porting
Tool and include language on the use of the DMS porting functionality
in respect of a porting event, including canceling a porting event in
the DMS if the ICC Chief Risk Officer determines not to transfer any
porting portfolios (i.e., client portfolios of the defaulting CP);
6. amend Sections 10.5 and 10.6, which discuss how ICC determines
which porting portfolios to try to transfer to potential receiving CPs
and the portfolio assignment process, to reflect receiving CPs using
the DMS's automated processes to select the client accounts that they
are willing to receive, to reflect the Risk Department's and CDS
Default Committee's assignment of client accounts, and to record and
communicate such assignments;
7. amend Section 10.6 to instruct the ICC Head of Treasury, upon
instruction of the ICC Chief Operating Officer, to perform any required
money movements associated with the transfer of client account
positions;
8. remove Section 10.7 in its entirety, which describes the use of
the Porting Tool to execute transfers; and
9. add new Section 11, which would describe how the DMS maintains
position records reflecting the execution of relevant default
management actions. Specifically, at the end of each day, the
[[Page 37614]]
DMS generates position files and CSS coordinates with relevant teams to
execute the position transfers/adjustments in the clearing system.
C. General Updates and Clarifications
ICC also proposes to make certain clarifying, conforming, and other
non-substantive changes throughout the Default Management Procedures.
For example, ICC proposes the following changes to its Default
Management Procedures:
1. remove ``Approved Auction Participants'' as a defined term in
Section 2 because this term is not used elsewhere in the Default
Management Procedures;
2. amend the title of Table 1 in Section 4.3.2.2 to correct a
typographical error;
3. add the ``Transfer Coordinator'' role to Table 1 in Section
4.3.2.2 to clarify relevant roles and responsibilities and reflect
current practices;
4. correct a typographical error in Section 10 to change ``non-
Defaulting'' to ``non-defaulting;''
5. replace certain manual tasks associated with the use of the
Porting Tool and reflect the use of the DMS in Section 10, for example,
replacing ``distributes'' with ``makes available'' and ``collates''
with ``reviews;''
6. update the revision history in current Section 12;
7. update footnote 4 and remove footnote 5 which contain procedures
that were previously retired; and
8. renumber section references and footnotes based on the changes
described above.\17\
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\17\ Notice, 90 FR at 26362.
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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.\18\ 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.'' \19\
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\18\ 15 U.S.C. 78s(b)(2)(C).
\19\ 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,\20\ 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.\21\ 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.\22\
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\20\ Id.
\21\ Id.
\22\ 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
Section 17A(b)(3)(F) of the Act \23\ and Rules 17ad-22(e)(13) and 17ad-
22(e)(14) \24\ thereunder, as described in detail below.
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\23\ 15 U.S.C. 78q-1(b)(3)(F).
\24\ 17 CFR 240.17ad-22(e)(13) and (14).
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A. Consistency With Section 17A(b)(3)(F) of the Act
Under Section 17A(b)(3)(F) of the Act, ICC's rules, among other
things, must be ``designed to promote the prompt and accurate clearance
and settlement of securities transactions and . . . to assure the
safeguarding of securities and funds which are in the custody or
control of the clearing agency or for which it is responsible . . . .''
\25\ Based on a review of the record, and for the reasons discussed
below, the Proposed Rule Change is consistent with Section
17A(b)(3)(F).
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\25\ 15 U.S.C. 78q-1(b)(3)(F).
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The Proposed Rule Change would remove Direct Liquidation
transactions as a hedging and liquidation mechanism. This would leave
Default Auctions as the only mechanism for executing hedge and
liquidation transactions. By retaining its Default Auction process,
ICC's hedging and liquidation mechanisms should remain efficient and
transparent. Such efficiency and transparency should allow ICC to more
easily manage its defaulting CP's portfolio. This increases ICC's
likelihood of successfully navigating a CP default without interruption
to its clearance and settlement functions.
The Proposed Rule Change would also replace ICC's Porting Tool with
an automated DMS porting functionality. These changes reduce the manual
steps in ICC's post-default porting process and reduce the risk of
error which makes the porting process more efficient and accurate.
Improving the efficiency and accuracy of the porting process may help
to avoid delays or miscommunications in ICC's efforts to port a
client's positions following the default of the customer's CP.
Delays and miscommunications could also be avoided through ICC's
proposed changes clarifying, conforming, and other non-substantive
changes to the Default Management Procedures. More specifically, these
proposed changes include removal of unnecessary or out of date items,
correction of typographical errors, and updates aligning the Default
Management Procedures with the Proposed Rule Change, current practices,
and procedures. These changes improve the clarity and accuracy of the
Default Management Procedures. By improving the clarity and accuracy of
the Default Management Procedures, they also work to help to avoid
delays or miscommunications in ICC's efforts to manage a defaulting
Clearing Participant's portfolio.
By ensuring the prompt resolution of a CP default, ICC reduces the
chances that its clearing and settlement of transactions is
interrupted. Further, prompt resolution of a CP default helps ICC avoid
potential losses which could impact its ability to operate. By
protecting ICC's ability to operate, the Proposed Rule Change would
help assure the safeguarding of securities and funds in ICC's custody
and control.
Accordingly, the Proposed Rule Change is consistent with the
requirements of Section 17A(b)(3)(F) of the Act.\26\
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\26\ Id.
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B. Consistency With Rule 17ad-22(e)(13)
Under Rule 17ad-22(e)(13), ICC must, ``establish, implement,
maintain and enforce written policies and procedures reasonably
designed to . . . ensure the covered clearing agency has the authority
and operational capacity to take timely action to contain losses and
liquidity demands and continue to meet its obligations . . . .'' \27\
Based on a review of the record, and for the reasons discussed below,
the Proposed Rule Change is consistent with Rule 17ad-22(e)(13).
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\27\ 17 CFR 240.17ad-22(e)(13).
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ICC proposes several changes aimed at removing Direct Liquidation
transactions as a hedging and liquidation mechanism (thereby leaving
Default Auctions as the only mechanism for executing hedge and
liquidation transactions). While clearing agencies may manage
defaulting Clearing
[[Page 37615]]
Participant positions through direct transactions, Rule 17ad-22(e)(13)
does not prescribe any specific mechanisms to manage such
positions.\28\ ICC maintains procedures governing Default Auctions, and
replacing the current manual processes the automated processes
described above makes those procedures more efficient and
transparent.\29\ As such, ICC has clear authority to manage defaulting
Clearing Participant positions to contain losses and liquidity demands.
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\28\ See Standards for Covered Clearing Agencies, Securities
Exchange Act Release No. 78961, 81 FR 70786, 70830 (Oct. 13, 2016)
(``the Commission recognizes that there may be a number of ways to
address compliance with Rule 17Ad-22(e)(13)'').
\29\ See Securities Exchange Act Release No. 98147 (Aug. 16,
2023), 88 FR 57164 (Aug. 22, 2023) (File No. SR ICC-2023-009);
Securities Exchange Act Release No. 87804 (Dec. 19, 2019), 84 FR
71501 (Dec. 27, 2019) (File No. SR-ICC-2019-011); Securities
Exchange Act Release No. 79750 (Jan. 6, 2017), 82 FR 3831 (Jan. 12,
2017) (File No. SR-ICC-2016-013).
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Accordingly, the Proposed Rule Change is consistent with the
requirements of Rule 17ad-22(e)(13).\30\
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\30\ 17 CFR 240.17ad-22(e)(13).
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C. Consistency With Rule 17ad-22(e)(14)
Under Rule 17ad-22(e)(14), ICC must, ``establish, implement,
maintain and enforce written policies and procedures reasonably
designed to . . . enable . . . the segregation and portability of
positions of a participant's customers and the collateral provided to
the covered clearing agency with respect to those positions and
effectively protect such positions and related collateral from the
default or insolvency of that participant.''
ICC proposes several changes related to replacing its Porting Tool
with an automated DMS porting functionality. Through these changes, ICC
reduces manual steps in its post-default porting process and reduces
the risk of error. By reducing its risk of error in the post-default
porting process, ICC should make its post-default porting process more
efficient and accurate. An efficient and accurate porting process helps
to ensure that ICC can port a client's positions and effectively
protect those positions and collateral from the default of a client's
CP.
Accordingly, the Proposed Rule Change is consistent with the
requirements of Rule 17ad-22(e)(14).\31\
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\31\ 17 CFR 240.17ad-22(e)(14).
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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, Section 17A(b)(3)(F) of the Act \32\ and Rules 17Ad-
22(e)(13) and (14).\33\
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\32\ 15 U.S.C. 78q-1(b)(3)(F).
\33\ 17 CFR 240.17ad-22(e)(13) and (14).
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It is therefore ordered pursuant to Section 19(b)(2) of the Act
that the proposed rule change (SR-ICC-2025-010) be, and hereby is,
approved.\34\
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\34\ In approving the proposed rule change, the Commission
considered the proposal's impacts 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.\35\
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\35\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-14752 Filed 8-4-25; 8:45 am]
BILLING CODE 8011-01-P
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