
[Federal Register Volume 79, Number 119 (Friday, June 20, 2014)]
[Notices]
[Pages 35399-35400]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-14420]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72397; File No. SR-ICC-2014-05]


Self-Regulatory Organizations; ICE Clear Credit LLC; Order 
Approving Proposed Rule Change To Update ICC's Policy Regarding 
Valuation of Maturing U.S. Treasury Securities and Update ICC's 
Collateral Asset Haircut Methodology

June 16, 2014.

I. Introduction

    On April 22, 2014, ICE Clear Credit LLC (``ICC'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change SR-ICC-2014-05 pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder.\2\ The 
proposed rule change was published for comment in the Federal Register 
on May 8, 2014.\3\ The Commission received no comment letters regarding 
the proposed change. For the reasons discussed below, the Commission is 
granting approval of 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. 34-72083 (May 2, 2014), 
79 FR 26490 (May 8, 2014) (SR-ICC-2014-05).
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II. Description

    ICC is proposing to update (1) its policy regarding valuation of 
maturing U.S. Treasury securities, and (2) its collateral asset haircut 
methodology. Under the proposed change, ICC will reduce the collateral 
valuation of maturing securities to $0 two business days prior to 
maturity. Clearing Participants will receive notice the week prior to 
any collateral maturity dates and will be encouraged to replace 
maturing securities with other acceptable collateral. If collateral 
matures while on deposit with ICC, proceeds will be credited to the 
margin or guaranty fund account, as appropriate, when received by ICC 
on the maturity day.
    ICC has stated that it and other IntercontinentalExchange, Inc. 
clearing houses have applied this methodology when nearing the U.S. 
debt ceiling, so that this proposed rule change will provide consistent 
collateral valuation certainty at all times, as well as consistent 
implementation of this policy across other IntercontinentalExchange, 
Inc. clearing houses. ICC has also stated that revaluing the maturing 
securities two business days prior to maturity will allow for 
collection of additional margin or guaranty fund, if required, prior to 
maturity. ICC's Treasury Operations Policies and Procedures will be 
updated to reflect this change, and ICC plans to notify Clearing 
Participants of the change via circular, upon approval by the 
Commission.
    Furthermore, in order to provide consistency in the calculation of 
collateral asset haircuts among the IntercontinentalExchange, Inc. 
clearing houses, ICC is updating its Risk Management Framework pursuant 
to the proposed change. Currently at ICC, haircuts for relevant assets 
(e.g. U.S. Treasury securities and currencies) are calculated using a 
five-day liquidation period and a 99% confidence interval expected 
shortfall calculation. Under the proposed rule change, the 
IntercontinentalExchange, Inc. clearing houses will calculate haircuts 
for relevant assets using the greater (which may be rounded to the 
nearest 1%) of: (i) The haircut determined using a five-day liquidation 
period and a 99% confidence interval expected shortfall calculation 
(currently used at ICC), and (ii) the haircut determined using a two 
day holding period and 99.9% confidence interval Value-at-Risk 
calculation. ICC has stated that because the haircut currently used by 
ICC, that is, the haircut determined by using the five-day liquidation 
period and a 99% confidence interval expected shortfall calculation, is 
usually greater than the haircut determined using the two day holding 
period and a 99.9% confidence interval Value-at-Risk calculation, the 
haircut currently used at ICC will continue to be the driver of 
haircuts and thus, this proposed rule change will have little practical 
impact on ICC's current haircut values. Furthermore, ICC has stated 
that as applied to currencies, should ICC choose to use one haircut for 
a given foreign exchange pair (e.g. USD v. Euro, Euro v. USD), ICC will 
apply the more conservative haircut. ICC has also stated that the 
changes to the methodology for calculation of collateral asset haircuts 
do not require any operational changes.

III. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act \4\ directs the Commission to 
approve a proposed rule change of a self-regulatory organization if the 
Commission finds that such proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to such self-regulatory organization. Section 17A(b)(3)(F) 
of the Act \5\ requires, among other things, that the rules of a 
clearing agency are designed to promote the prompt and accurate 
clearance and settlement of securities transactions and, to the extent 
applicable, derivative agreements, contracts, and transactions, 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 and, in general, to protect investors and the public 
interest.
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    \4\ 15 U.S.C. 78s(b)(2)(C).
    \5\ 15 U.S.C. 78q-1(b)(3)(F).
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    The Commission finds that the proposed rule change is consistent 
with the requirements of Section 17A of the Act.\6\ The proposed change 
to ICC's valuation of maturing securities will ensure ICC maintains 
adequate liquidity and the proposed change to ICC's haircut methodology 
will provide appropriate collateral valuation in a manner consistent or 
more conservative than existing policy. The proposed changes, 
therefore, are each consistent

[[Page 35400]]

with the requirements of Section 17A(b)(3)(F) of the Act \7\ of 
promoting the prompt and accurate clearance and settlement of 
securities transactions and, to the extent applicable, derivatives 
agreements, contracts, and transactions, and helping to protect 
investors and the public interest.
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    \6\ 15 U.S.C. 78q-1.
    \7\ 15 U.S.C. 78q-1(b)(3)(F).
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IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposal is consistent with the requirements of the Act and in 
particular with the requirements of Section 17A of the Act \8\ and the 
rules and regulations thereunder.
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    \8\ 15 U.S.C. 78q-1.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\9\ that the proposed rule change (File No. SR-ICC-2014-05) be, and 
hereby is, approved.\10\
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    \9\ 15 U.S.C. 78s(b)(2).
    \10\ 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.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-14420 Filed 6-19-14; 8:45 am]
BILLING CODE 8011-01-P


