
[Federal Register Volume 79, Number 134 (Monday, July 14, 2014)]
[Notices]
[Pages 40796-40798]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-16365]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72556; File No. SR-ICC-2014-08]


Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of 
Filing of Proposed Rule Change Related to ICC's Authority To Use 
Guaranty Fund and House Initial Margin as an Internal Liquidity 
Resource

July 8, 2014.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder \2\ notice is hereby given that 
on June 24, 2014, 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 prepared primarily by ICC.

[[Page 40797]]

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. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The principal purpose of the proposed rule change is to formalize 
ICC's Liquidity Risk Management Framework and to clarify ICC's 
authority to use, and to provide details as to how ICC would use, 
Guaranty Fund and House Initial Margin as an internal liquidity 
resource.

II. Self-Regulatory Organization'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. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    ICC proposes to formalize a comprehensive Liquidity Risk Management 
Framework, including its comprehensive liquidity monitoring program, 
that describes ICC's liquidity resources as well as the methodology for 
testing the sufficiency of these resources. In addition, ICC proposes 
changes to ICC Clearing Rules 402 and 802 to clarify ICC's authority to 
use, and provide details as to how ICC would use, Guaranty Fund and 
House Initial Margin as an internal liquidity resource.
    ICC's Liquidity Risk Management Framework includes a discussion of 
all resources available to ICC and the order ICC would use these 
resources if necessary. Additionally, the Liquidity Risk Management 
Framework contains details about ICC's comprehensive liquidity testing.
    Under the Liquidity Risk Management Framework, ICC will use all 
available resources to meet its liquidity needs when managing one or 
more Clearing Participant defaults. The liquidity waterfall defines the 
order, to the extent practicable, that ICC would use its available 
liquidity resources (``ALR'') to meet its currency-specific cash 
payment obligations. ALR consist of the available deposits currently in 
cash of the required denomination, and the cash equivalent of the 
available deposits in collateral types that ICC can convert to cash, in 
the required currency of denomination, rapidly enough to meet the 
relevant, currency-specific payout deadlines. The liquidity waterfall 
classifies ALR on any given day into four levels. Level One includes 
the House Initial Margin and Guaranty Fund cash deposits of the 
defaulting Clearing Participant. Level Two includes Guaranty Fund cash 
deposits of: (i) ICC; and (ii) non-defaulting Clearing Participants. 
Level Three includes House Initial Margin cash deposits of the non-
defaulting Clearing Participants. Level Four includes ICC's committed 
credit facility to access additional cash, and contemplates the 
establishment of other committed facilities to convert U.S. Treasuries 
to USD cash. The Liquidity Risk Management Framework also describes the 
methodology used by ICC to estimate its minimum day-of-default ALR 
based on its liquidity risk management model.
    ICC's Liquidity Risk Management Framework includes two kinds of 
testing: A historical analysis based on back testing considerations, 
and a forward-looking analysis based on stress testing. In the 
historical analysis based on back testing considerations, ICC uses the 
currency-specific historical profit/loss associated with cleared 
portfolios to explore the level of liquid resources required under 
historical market conditions. In the forward-looking analysis based on 
stress testing, ICC explores the required level of liquidity resources 
in forward-looking market conditions by applying a number of liquidity 
stress scenarios to determine the currency-specific hypothetical 
profits or losses for each Clearing Participant.
    ICC's Liquidity Risk Management Framework provides for the 
governance of ICC's liquidity testing, specifically the performance 
frequency of various testing and the subsequent analysis and reporting 
of the results. The Liquidity Risk Management Framework details the 
required governance for amending the liquidity program as well as the 
procedure for additional risk measures to be taken, as necessary, based 
upon testing results.
    Currently, under the ICC Rules, ICC has broad authority to use and 
invest cash, securities, and other property held in the Guaranty Fund 
or as Initial Margin. In order to provide clarity and transparency in 
the ICC Rules regarding the use of House Initial Margin and Guaranty 
Fund assets as a liquidity resource, ICC is proposing to adopt ICC 
Rules 402(j) and 802(f)(iv).
    New Rule 402(j) relates to the use of a Clearing Participant House 
Initial Margin as a liquidity resource. Rule 402(j) clarifies that ICC 
may generally, in connection with a Clearing Participant default, use 
any Clearing Participant's cash, securities or other property (whether 
or not such Clearing Participant is in default) constituting Initial 
Margin for its House account from time to time to support liquidity 
arrangements (including borrowing, repurchase transactions, exchange of 
Initial Margin for other assets or similar transactions, under which 
equivalent value is provided for such Initial Margin and such 
equivalent value will be held as Initial Margin and used or applied by 
ICC solely for the purposes for which Initial Margin in the House 
Account may be used) relating to payment obligations of ICC, in a 
manner consistent with ICC's liquidity policies and applicable law. ICC 
may, in connection with a Participant default, (i) exchange House 
Initial Margin held in the form of cash for securities of equivalent 
value and/or (ii) exchange House Initial Margin held in the form of 
cash in one currency for cash of equivalent value in a different 
currency.
    New Rule 802(f)(iv) provides additional clarity and transparency 
regarding ICC's use of Guaranty Fund assets as a liquidity resource. 
ICC currently has broad rights to use Guaranty Fund assets under 
Chapter 8 of the ICC Rulebook (specifically Rules 801 & 802). Proposed 
Rule 802(f)(iv) provides transparency related to the exercise of such 
authority by the clearing house. Rule 802(f)(iv) will provide clarity 
and transparency regarding ICC's authority to pledge assets in the 
guaranty fund to secure loans made to the clearing house, including for 
purposes of default management or to transfer such assets to 
counterparties under repurchase transactions or similar transactions on 
terms and conditions deemed necessary or advisable by ICC (including 
the collateralization thereof) in its sole discretion. Under Rule 
802(f)(iv), the proceeds of such borrowings could be used for the same 
purposes for which guaranty fund assets are authorized to be used under 
current ICC Rules. Proposed Rule 802(f)(iv) provides that ICC may in 
connection with a Clearing Participant default (A) exchange cash held 
in the Guaranty Fund for securities of equivalent value and/or (B) 
exchange cash in one currency for cash of equivalent value in a 
different currency, in each case on such terms (including, if 
applicable, the relevant duration of

[[Page 40798]]

any such exchange) as ICC may determine in accordance with its 
liquidity policies and procedures.
    Section 17A(b)(3)(F) of the Act \3\ requires, among other things, 
that the rules of a clearing agency be designed to promote the prompt 
and accurate clearance and settlement of securities transactions, and 
to the extent applicable, derivative agreements, contracts and 
transactions and to comply with the provisions of the Act and the rules 
and regulations thereunder. ICC believes that the proposed rule changes 
are consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to ICC, in particular, to Section 
17(A)(b)(3)(F),\4\ because ICC believes that the proposed rule changes 
will assure the prompt and accurate clearance and settlement of 
securities transactions, derivatives agreements, contracts, and 
transactions. ICC's Liquidity Risk Management Framework describes ICC's 
liquidity resources as well as the methodology for testing the 
sufficiency of these resources. The proposed changes to the ICC Rules 
clarify ICC's authority to use, and provide details as to how ICC would 
use, Guaranty Fund and House Initial Margin as an internal liquidity 
resource. ICC believes the proposed revisions provide clarity and 
transparency in the ICC Rules, consistent with the ICC Liquidity Risk 
Management Framework regarding the use of House Initial Margin and 
Guaranty Fund assets as a liquidity resource. ICC believes clarity and 
transparency in its Rules is of value to the market in order to provide 
a comprehensive understanding of ICC's available liquidity resources 
and default management procedures related to liquidity. In addition, if 
needed, the available liquidity will allow ICC to meet is liquidity 
needs when managing one or more Clearing Participant defaults. As such, 
the proposed rule changes are designed to promote the prompt and 
accurate clearance and settlement of securities transactions, 
derivatives agreements, contracts, and transactions within the meaning 
of Section 17A(b)(3)(F) \5\ of the Act.
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    \3\ 15 U.S.C. 78q-1(b)(3)(F).
    \4\ Id.
    \5\ Id.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    ICC does not believe the proposed rule changes would have any 
impact, or impose any burden, on competition. The clarification of 
ICC's authority to use Guaranty Fund and House Initial Margin as an 
internal liquidity resource applies uniformly across all market 
participants. Therefore, ICC does not believe the proposed rule changes 
impose any burden on competition that is inappropriate in furtherance 
of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    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.

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

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-ICC-2014-08 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-2014-08. 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 Web site (http://www.sec.gov/rules/sro.shtml). 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 Web site 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 
10:00 a.m. and 3:00 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 Web site at https://www.theice.com/notices/Notices.shtml?regulatoryFilings.
    All comments received will be posted without change; the Commission 
does not edit personal identifying information from submissions. You 
should submit only information that you wish to make available 
publicly. All submissions should refer to File Number SR-ICC-2014-08 
and should be submitted on or before August 4, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-16365 Filed 7-11-14; 8:45 am]
BILLING CODE 8011-01-P


