
[Federal Register Volume 80, Number 48 (Thursday, March 12, 2015)]
[Notices]
[Pages 13046-13047]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-05602]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74449; File No. SR-ICC-2015-001]


Self-Regulatory Organizations; ICE Clear Credit LLC; Order 
Approving Proposed Rule Change To Revise ICC End-of-Day Price Discovery 
Policies and Procedures

March 6, 2015.

I. Introduction

    On January 5, 2015 ICE Clear Credit LLC (``ICC'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change SR-ICC-2015-001 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 January 21, 2015.\3\ The Commission did not receive any comments. 
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. 34-74053 (Jan. 14, 
2015), 80 FR 2985 (January 21, 2015) (File No. SR-ICC-2015-001).
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II. Description of the Proposed Rule Change

    ICC proposed revising its End-of-Day Price Discovery Policies and 
Procedures to incorporate enhancements to its price discovery process. 
ICC currently utilizes a ``cross and lock'' algorithm as part of its 
price discovery process. Under this algorithm, standardized bids and 
offers derived from Clearing Participant (``CP'') submissions are 
matched by sorting them from highest to lowest and lowest to highest 
levels, respectively. This sorting process pairs the CP submitting the 
highest bid price with the CP submitting the lowest offer price, the CP 
submitting the second highest bid price with the CP submitting the 
second-lowest offer price, and so on. The algorithm then identifies 
crossed and/or locked markets. Crossed markets are the CP pairs 
generated by the sorting and ranking process for which the bid price of 
one CP is above the offer price of the matched CP. The algorithm 
identifies locked markets, where the bid and the offer are equal, in a 
similar fashion.
    Whenever there are crossed and/or locked matched markets, the 
algorithm applies a set of rules designed to identify standardized 
submissions that are ``obvious errors.'' The algorithm sets a high bid 
threshold equal to the preliminary end-of-day (``EOD'') level plus one 
EOD bid offer width (``BOW''), and a low offer threshold equal to the 
preliminary EOD level minus one EOD BOW. The algorithm considers a CP's 
standardized submission to be an ``obvious error'' if the bid is higher 
than the high bid threshold, or the offer is lower than the low offer 
threshold.
    CP pairs identified by the algorithm as crossed or locked markets 
are required from time to time, under the End-of-Day Price Discovery 
Policies and Procedures, to enter into cleared trades with each other 
as part of the ICC EOD price discovery process (``Firm Trade''). 
Currently, ICC excludes standardized submissions it identifies as 
obvious errors from Firm Trades and does not use these submissions in 
its determination of published EOD levels.
    ICC has proposed to include all standardized submissions, including 
those classified as obvious errors, in the process of determining Firm 
Trades. Further, ICC asserts that it will effectively execute its 
current EOD algorithm twice, initially in the same way it does today, 
by eliminating obvious errors, to generate the final EOD levels, and 
again, without excluding obvious errors, to generate Firm Trades and 
reversing transactions.
    To limit the potential exposure created through Firm Trades that 
include a bid or offer from an obvious error submission, ICC proposes 
to adjust trade prices, where appropriate, to fall within a predefined 
band on either side of the EOD price such that the potential profit or 
loss (``P/L'') realized by unwinding the trade at the EOD level is 
capped.
    To prevent CPs from receiving Firm Trades with large P/L impact in 
Index instruments that are less actively traded, and therefore more 
difficult and/or more expensive to manage the associated risk, ICC 
proposes to have the ability to automatically generate reversing 
transactions at the EOD level for specific Index instruments (i.e., for 
specific index risk sub-factors as defined by specific combinations of 
index/sub-index and series) based on liquidity. Currently, reversing 
transactions are only available for Single Name instruments. ICC 
represents that there are no changes to ICC's Clearing Rules as a 
result of these changes.

[[Page 13047]]

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 ICC's proposed revisions to its End-of-
Day Price Discovery Policies and Procedures is consistent with the 
requirements of Section 17A of the Act \6\ and regulations thereunder 
applicable to it, including the standards under Rule 17Ad-22.\7\ The 
proposed rule change is designed to enhance ICC's price discovery 
process by including all price submissions (including those classified 
as obvious errors) in the process of determining Firm Trades, thereby 
reducing price submissions that may be classified as obvious errors. In 
addition, the proposed rule change would adjust the trading prices of 
Firm Trades that include a bid or offer classified as an obvious error 
to fall within a predefined range on either side of the EOD price, 
thereby limiting CPs' potential P/L exposure to obvious errors from the 
risk management perspective, while holding them accountable for their 
price submissions. Finally, the proposed rule change would assist CPs 
in unwinding Firm Trades in certain index products by generating 
reversing trades at the EOD level based on liquidity. The Commission 
believes that the proposal is therefore designed to promote the prompt 
and accurate clearance and settlement of securities transactions and 
derivative agreements, contracts and transactions cleared by ICC, 
consistent with Section 17A(b)(3)(F) of the Act.\8\
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    \6\ 15 U.S.C. 78q-1.
    \7\ 17 CFR 240.17Ad-22.
    \8\ 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 \9\ and the 
rules and regulations thereunder.
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    \9\ 15 U.S.C. 78q-1.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\10\ that the proposed rule change (SR-ICC-2015-001) be, and hereby 
is, approved.\11\
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    \10\ 15 U.S.C. 78s(b)(2).
    \11\ 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.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015-05602 Filed 3-11-15; 8:45 am]
 BILLING CODE 8011-01-P


