
[Federal Register Volume 81, Number 156 (Friday, August 12, 2016)]
[Notices]
[Pages 53530-53531]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-19170]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78501; File No. SR-ICC-2016-007]


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

August 8, 2016

I. Introduction

    On April 22, 2016, ICE Clear Credit LLC (``ICC'') filed with the 
Securities and Exchange Commission (``Commission''), pursuant to 
Section 19(b)(1) of the Securities Exchange Act (``Act'') \1\ and Rule 
19b-4 thereunder,\2\ a proposed rule change relating to ICC's End-of-
Day Price Discovery Policies and Procedures (the ``EOD Policy''). The 
proposed rule change was published for comment in the Federal Register 
on May 11, 2016.\3\ On June 23, 2016, the Commission extended the time 
period in which to either approve, disapprove, or institute proceedings 
to determine whether to disapprove the proposed rule change to August 
9, 2016.\4\ The Commission did not receive 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. 34-77771 (May 5, 2016), 
81 FR 29309 (May 11, 2016) (SR-ICC-2016-007).
    \4\ Securities Exchange Act Release No. 34-78144 (June 23, 
2016), 81 FR 42018 (June 28, 2016) (SR-ICC-2016-007).
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II. Description of the Proposed Rule Change

    The principal purpose of the proposed rule change is to revise the 
EOD Policy to change the calculation of single name firm trade (``Firm 
Trade'') notional limits to be at a Clearing Participant (``CP'') 
affiliate group level.
    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. 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.
    ICC designates certain crossed and/or locked markets as Firm Trades 
and CPs are entered into cleared transactions. ICC establishes pre-
defined notional amounts for Firm Trades. According to ICC, 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. According to ICC, it 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 was single name Firm Trade notional limits 
per CP. ICC believes that 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, ICC asserts that the limit 
provided to a given institution is multiples of that originally 
contemplated.
    In addition, because of recent changes to the EOD Policy to extend 
the process for determining Firm Trades to include all submissions, 
including those classified as outlying pricing submissions (or 
``obvious errors''),\5\ ICC asserts that CPs are eligible to receive 
Firm Trades on a wider range of price submissions. Due to the broadened 
scope of the Firm Trade process, ICC asserts a 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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    \5\ 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 has proposed changes to its EOD Policy to 
implement single name Firm Trade notional limits at the CP affiliate 
group level, as opposed to the

[[Page 53531]]

CP level. ICC represents that 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'' will be 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). According to ICC, 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. ICC states 
that 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. ICC asserts there are no 
changes to the Firm Trade algorithm as a result of these changes. ICC 
further asserts that 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.
    ICC states that the proposal returns single name Firm Trade 
notional limits to the original design while maintaining the system's 
price submission incentives. ICC represents that all CPs within an 
affiliate group will still be subject to potential Firm Trades for any 
given submission, on a randomized basis. ICC also asserts that 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 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.

III. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act \6\ directs the Commission to 
approve a proposed rule change of a self-regulatory organization if the 
Commission finds that the 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 \7\ 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, 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. Section 17A(b)(3)(F) \8\ 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.
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    \6\ 15 U.S.C. 78s(b)(2)(C).
    \7\ 15 U.S.C. 78q-1(b)(3)(F).
    \8\ Id.
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    The proposed application of the Firm Trade notional limit to CP 
affiliate groups is intended to manage what is, in ICC's view, an 
inappropriate overnight risk to its members without negatively 
impacting the integrity of its price discovery process. Moreover, the 
proposed rule change is intended to apply the EOD Policy fairly to 
participants, and ICC has represented that the proposed rule change 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. As such, the Commission believes that the 
proposed rule change is 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) \9\ of the Act.
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    \9\ Id.
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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 \10\ and the 
rules and regulations thereunder.\11\
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    \10\ 15 U.S.C. 78q-1.
    \11\ 17 CFR 240.17Ad-22.
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    IT IS THEREFORE ORDERED, pursuant to Section 19(b)(2) of the 
Act,\12\ that the proposed rule change (File No. SR-ICC-2016-007) be, 
and hereby is, approved.\13\
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    \12\ 15 U.S.C. 78s(b)(2).
    \13\ 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.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-19170 Filed 8-11-16; 8:45 am]
 BILLING CODE 8011-01-P


