
[Federal Register Volume 81, Number 91 (Wednesday, May 11, 2016)]
[Notices]
[Pages 29309-29311]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-11012]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77771; File No. SR-ICC-2016-007]


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

May 5, 2016.
    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 April 22, 2016, 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. 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 revise the 
ICC End-of-Day Price Discovery Policies and Procedures to change the 
calculation of single name Firm Trade notional limits to be at a 
Clearing Participant (``CP'') affiliate group level. These revisions do 
not require any changes to the ICC Clearing Rules.

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 revising its End-of-Day Price Discovery Policies and 
Procedures to change the calculation of single name Firm Trade notional 
limits to be at a CP affiliate group level. ICC believes such revisions 
will facilitate the prompt and

[[Page 29310]]

accurate clearance and settlement of securities transactions and 
derivative agreements, contracts, and transactions cleared by ICC. The 
proposed revisions are described in detail as follows.
    As part of ICC's end-of-day price discovery process, ICC CPs are 
required to submit end-of-day prices for specific instruments related 
to their open interest at ICC, in accordance with ICC Clearing Rule 
404(b) and ICC procedures. ICC determines end-of-day levels directly 
from these CP price submissions using a proprietary algorithm. To 
encourage CPs to provide high quality end-of-day submissions, on random 
days, ICC selects a subset of instruments which are eligible for Firm 
Trades. In order to determine Firm Trade requirements, the algorithm 
sorts and ranks all CP submissions and identifies ``crossed and/or 
locked markets.'' Crossed markets are pairs of CP submitted prices 
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.
    Certain crossed and/or locked markets are designated as Firm Trades 
and CPs are entered into cleared transactions. ICC establishes pre-
defined notional amounts for Firm Trades. No single Firm Trade can have 
a larger notional amount than specified by the pre-defined notional 
amount for the relevant instrument. On a given Firm Trade day, all 
potential-trades resulting from the cross-and-lock algorithm in any 
Firm Trade eligible instrument are designated Firm Trades, unless they 
breach a CP's notional limits.
    Currently single name Firm Trade notional limits are set at the CP 
level. ICC designed the Firm Trade system to incentivize trading desks 
to provide quality end-of-day price submissions for use in its end-of-
day price discovery process, while limiting the total overnight risk 
that a given institution may be required to manage in case of 
submission errors or outlying pricing submissions which may lead to 
Firm Trades. One mechanism introduced to provide these protections is 
single name Firm Trade notional limits per CP. At the time of its 
introduction, this mechanism achieved its goal of limiting overnight 
risk limits per institution. However, with the increase in client 
clearing and in multiple CP memberships per holding company, the limit 
provided to a given institution is multiples of that originally 
contemplated.
    In addition, because of recent changes to ICC's End-of-Day Price 
Discovery Policies and Procedures to extend the process for determining 
Firm Trades to include all submissions, including those classified as 
outlying pricing submissions (or ``obvious errors''),\3\ CPs are 
eligible to receive Firm Trades on a wider range of price submissions. 
Due to the broadened scope of the Firm Trade process, there is 
heightened interest in adjusting the allocation process so that CPs are 
not over-penalized for Firm Trades in terms of overnight risk exposure.
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    \3\ See Securities Exchange Act Release No. 34-74053 (January 
14, 2015), 80 FR 2985 (January 21, 2015) (SR-ICC-2015-001).
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    In order to maintain the original intent of the end-of-day price 
discovery process, ICC proposes changes to its End-of-Day Price 
Discovery Policies and Procedures to implement single name Firm Trade 
notional limits at the CP affiliate group level, as opposed to the CP 
level. The proposed changes will return the process to its original 
design and limit the total overnight risk that a given institution may 
be required to manage in the case of submission errors or outlying 
pricing submissions which may lead to Firm Trades.
    A ``CP affiliate group'' is defined as the set of all affiliated 
CPs (i.e. any CPs that own, are owned by, or are under common ownership 
with another CP). As the sequence of crosses is considered, the 
executed single name Firm Trade notional value will be tracked for all 
CPs in a CP affiliate group. No additional single name Firm Trades will 
be executed against any CP in a CP affiliate group once the CP 
affiliate group notional limit for single name Firm Trades is reached. 
There are no changes to the Firm Trade algorithm as a result of these 
changes. Setting single name Firm Trade notional limits on an affiliate 
group basis is consistent with price submission practices where end-of-
day submissions from multiple affiliated entities often reflect the 
institution's overall view on the market.
    The proposal returns single name Firm Trade notional limits to the 
original design while maintaining the system's price submission 
incentives. All CPs within an affiliate group are still subject to 
potential Firm Trades for any given submission, on a randomized basis. 
Though Firm Trade notional limits will be implemented at the CP 
affiliate group level, the potential implication for a given trading 
desk of providing an off-market submission for a given instrument 
remains the same.
    ICC is confident that the changes will have no effect to the 
integrity and effectiveness of the Firm Trade process. As noted above, 
under the proposed approach, CPs will still be subject to potential 
Firm Trades for any given price submission on a randomized basis. As 
such, ICC believes there will be no change in price submission behavior 
as a result of the changes, and the Firm Trade process will remain an 
effective tool for ensuring quality price submissions.
    Section 17A(b)(3)(F) \4\ of the Act requires, among other things, 
that the rules of a clearing agency be designed to protect investors 
and the public interest 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),\5\ 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, as the proposed revisions limit the total 
overnight risk that a given institution may be required to manage as a 
result of the Firm Trade process. As such, the proposed 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) \6\ of the Act.
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    \4\ 15 U.S.C. 78q-1(b)(3)(F).
    \5\ Id.
    \6\ Id.
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    Section 17A(b)(3)(F) \7\ of the Act also requires that the rules of 
a clearing agency are not designed to permit unfair discrimination 
among participants in the use of the clearing agency. ICC believes that 
the proposed 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),\8\ because the proposed changes 
correct unintended consequences of the Firm Trade system as related to 
CP affiliate groups by eliminating the potential for a CP affiliate 
group to be overly penalized or disadvantaged in the Firm Trade 
process. Such changes ensure that no CP affiliate group is overly 
penalized or disadvantaged in the Firm Trade process for maintaining 
multiple CP memberships at the clearing house. As such, the proposed 
changes are designed to avoid unfair discrimination among participants 
in the use of the

[[Page 29311]]

clearing agency within the meaning of Section 17A(b)(3)(F) \9\ of the 
Act.
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    \7\ Id.
    \8\ Id.
    \9\ Id.
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    Finally, Section 17A(b)(3)(D) \10\ of the Act requires that the 
rules of a clearing agency provide for the equitable allocation of 
reasonable dues, fees, and other charges among its participants. ICC 
believes that the proposed 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)(D),\11\ because under the 
proposed changes all CPs, including those within an affiliate group, 
remain subject to potential Firm Trades for any given submission, on a 
randomized basis. For example, in the instance where only one CP within 
an affiliate group provides an off market submission resulting in a 
Firm Trade, the notional limit will be the full notional limit amount. 
The proposed changes provide risk mitigation by limiting the cumulative 
risk exposure that one institution may be required to hold overnight as 
a result of a trading desk providing an off-market submission multiple 
times, for affiliated entities in a CP affiliate group. As such, the 
proposed changes provide for the equitable allocation of reasonable 
dues, fees, and other charges among ICC's participants within the 
meaning of Section 17A(b)(3)(D) \12\ of the Act.
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    \10\ 15 U.S.C. 78q-1(b)(3)(D).
    \11\ Id.
    \12\ Id.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    ICC does not believe the proposed rule change would have any 
impact, or impose any burden, on competition. The proposed changes to 
the calculation of single name Firm Trade notional limits apply 
uniformly across all CPs. ICC has identified an increase in multiple CP 
memberships per holding company, as holding companies maintain 
membership as a self-clearing member (``SCM'') and as a futures 
commission merchant (``FCM'')/broker-dealer (``BD''). Under the current 
system, those CPs who maintain multiple memberships may be unduly 
burdened under ICC's end-of-day process, which was established prior to 
this membership construct. Such changes will correct this discrepancy. 
Further, such changes do not improperly overly burden single CPs in 
furtherance of the purposes of the Act. The notional limits are 
designed to balance the need to incentivize CPs to provide quality end-
of-day submissions with the maintenance of a safe and secure clearing 
system. Therefore, ICC does not believe the 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-2016-007 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-2016-007. 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/clear-credit/regulation.
    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-2016-007 
and should be submitted on or before June 1, 2016.
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    \13\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-11012 Filed 5-10-16; 8:45 am]
 BILLING CODE 8011-01-P


