[Federal Register Volume 83, Number 29 (Monday, February 12, 2018)]
[Notices]
[Pages 6078-6080]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-02724]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82641; File No. SR-ICC-2018-002]


Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of 
Filing of Proposed Rule Change, Security-Based Swap Submission, or 
Advance Notice Relating to ICC's End-of-Day Price Discovery Policies 
and Procedures

February 6, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 
1934,\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on 
January 26, 2018, ICE Clear Credit LLC (``ICC'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change, security-based swap submission, or advance notice 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. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The principal purpose of the proposed rule change is to make 
revisions to the ICC End-of-Day Price Discovery Policies and Procedures 
(``Pricing Policy'') related to the bid-offer width (``BOW'') 
methodology for Single Name instruments. These revisions do not require 
any changes to the ICC Clearing Rules.

II. Clearing Agency'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, 
security-based swap submission, or advance notice and discussed any 
comments it received on the proposed rule change, security-based swap 
submission, or advance notice. 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) Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    ICC proposes revising its Pricing Policy to enhance the methodology 
used to determine bid-offer widths for Single Name instruments. ICC 
believes the enhancement will facilitate the prompt and accurate 
clearance and settlement of securities transactions and derivative 
agreements, contracts, and transactions cleared by ICC.
(a) Summary of Proposed Changes
    Each business day, ICC determines end-of-day (``EOD'') levels 
through its established price discovery process, based on EOD 
submissions from its Clearing Participants. ICC uses these levels for 
mark-to-market and risk management purposes. As part of its price 
discovery process, ICC determines BOWs for each clearing-eligible 
instrument. The BOWs are then used in ICC's price discovery process as 
inputs in the determination of EOD levels and Firm Trades.
    The current methodology for determining BOWs for CDS instruments 
referencing a given Single Name reference entity is based on observed 
intraday bid and offer spread-levels for the most actively traded 
instrument (``MATI'') across the term structure and cleared coupons. 
ICC begins with a spread-based consensus BOW derived from intraday 
quotes for the MATI. This consensus BOW is then multiplied by a 
``scrape factor'' to reflect any differences between the BOWs provided 
in intraday quotes and BOWs achieved in the market. Once the consensus 
BOW is determined, ICC applies various factors to the consensus BOW to 
reflect differences in instrument liquidity at longer and shorter 
maturities, and at higher and lower coupons. Scaling across maturities 
is performed in spread terms, while scaling of BOWs across coupons is 
performed in price terms. The transformations from spread to price are 
achieved using the ISDA Standard Model.
    ICC is proposing to enhance the methodology for determining Single 
Name BOWs. The proposed enhancement eliminates the use of the ISDA 
Standard Model from the computation of Single Name BOWs.\3\ ICC 
established its current BOW methodology at a time when it accepted 
submissions to its EOD price discovery process in both spread and price 
terms, at the discretion of its Clearing Participants. Since that time, 
ICC has enhanced its EOD price discovery process to accept Single Name 
submissions only in price terms, eliminating the need for spread-based 
BOWs. The proposed enhancement also determines BOWs consistently across 
Single Names on all reference entities, including those for which only 
sparse intraday data is available. Further, the enhancement extends the 
application of price-based BOW floors from the 0/3 month, 6 month and 1 
year benchmark-tenors to the entire set of benchmark-tenors from 0 
month to 10 years. Finally, the proposed enhancement introduces a 
dynamic feature that can widen BOWs in response to the observed 
dispersion of price-space mid-levels submitted in the EOD price-
discovery process.
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    \3\ Note that the ISDA Standard Model is not used in ICC's 
methodology for determining BOWs for Index instruments, and that the 
proposed enhancements do not change ICC's methodology for 
determining BOWs for Index instrument.
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    Under the proposed enhancement ICC will compute a consensus BOW, as 
described below, not only for the MATI as in the current methodology, 
but for each benchmark instrument. Rather than consensus BOWs being 
derived from intraday quotes, they will be computed as a price-based 
floor plus a relative BOW multiplied by the currently-observed level, 
where the currently-observed level is the average of price-space mid-
levels submitted in the EOD price discovery process. The

[[Page 6079]]

Risk Management Department will determine relative BOWs and price-based 
floors in consultation with the Trading Advisory Committee (``TAC''). 
The relative BOWs will reflect observed variability in SN levels for 
MATIs. The price-based floors will reflect BOWs established for Indices 
representing baskets of the most distressed SNs.
    As stated above, ICC currently applies various factors to consensus 
BOWs to reflect differences in instrument liquidity at longer and 
shorter maturities, and at higher and lower coupons. Under the proposed 
enhancement, ICC will apply analogous factors to consensus BOWs. 
Specifically, to determine a systematic EOD BOW for each benchmark-
instrument at the most-actively-traded coupon (``MATC''), ICC will 
apply tenor scaling-factors to the corresponding consensus BOWs. These 
tenor-scaling factors reflect the BOW of each tenor relative to the BOW 
of the most-actively-traded tenor. To determine the systematic EOD BOWs 
for each benchmark-instrument at other coupons, ICC will apply a 
combination of tenor scaling-factors and coupon scaling-factors to the 
corresponding consensus BOWs. The coupon scaling-factors reflect 
increased BOWs at coupons larger or smaller than the MATC. The tenor 
and coupon scaling factors will be set by the ICC Risk Management 
Department, in consultation with the TAC, to reflect ratios of observed 
variability in SN levels at the MATI and at a given tenor/coupon. As 
with the current methodology, once all applicable factors have been 
applied, ICC will then apply the appropriate Single Name variability 
factor,\4\ resulting in the final systematic BOWs.
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    \4\ The Single Name variability factor is an existing feature of 
the system, used to widen Single Name BOWs in response to the 
variability of intraday quotes. See SR-ICC-2017-006.
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    Under the proposed enhancement, ICC will determine the final EOD 
BOWs as the greater of an instrument's systematic BOW, and a dynamic 
BOW established for the instrument. The dynamic BOW is the dispersion 
of price-space mid-levels submitted to the EOD price-discovery process 
for the given instrument.
    ICC proposes revisions to the Governance section of the Pricing 
Policy to note that under the proposed approach, the responsibilities 
of the ICC Risk Management department include determining the price-
based floors, relative BOWs, tenor scaling factors, and coupon scaling 
factors used to establish BOWs. ICC also proposes generalizing language 
to note that the ICC Risk Management department is responsible for 
ensuring that appropriate EOD levels are determined. ICC proposes to 
remove references to scrape factors, which under the current approach 
are applied to consensus BOWs determined from intraday quotes 
``scraped'' from trader emails, but are not applicable under the 
proposed approach in which the determination of consensus BOWs does not 
involve ``scraped'' intraday quotes. ICC also proposes to add 
clarification that parameters used in the EOD price discovery process 
are established by the ICC Risk Management department in consultation 
with the TAC.
    ICC proposes a revision to note that under the proposed approach, 
the TAC will review and provide input on revisions to BOW price-based 
floors. ICC proposes to remove reference to the TAC's review of scrape 
factors, which are not applicable under the proposed approach.
    ICC proposes clarifying changes to the Pricing Policy. ICC proposes 
adding a clarifying footnote regarding ICC's use of the ISDA Standard 
Model. To improve clarity, ICC proposes to remove a sentence 
summarizing the inputs used by ICC to determine EOD BOWs for Single 
Name and index instruments, as these inputs are described in detail 
elsewhere in the document. ICC proposes a revision to note that trading 
desks at each self clearing member (``SCM'') are requested to copy ICC 
on the intraday quotes they provide market participants via email. ICC 
proposes removing outdated references regarding the computation of 
Single Name consensus BOWs. ICC proposes a revision to correct a 
typographical error by including the adjustment of trade levels to 
limit profit/loss impact (if required), in a list of ``cross-and-lock'' 
algorithm components. ICC proposes a clarifying edit to note that, for 
a given index, the EOD BOWs are computed based on the consensus BOW of 
the on-the-run instrument. ICC also proposes minor updates to the times 
of various end-of-day processes for different settlement windows, to 
reflect current practice. Finally, ICC proposes updates to section 
numbering and correction of a typographical error in a heading.
(b) Statutory Basis
    Section 17A(b)(3)(F) of the Act \5\ 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),\6\ 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 allow for an 
enhanced methodology for determining Single Name BOWs, based on a 
function of the observed and submitted EOD levels. Following such 
changes, ICC will continue to maintain a robust EOD price discovery 
process, which includes the determination of EOD pricing levels and 
Firm Trade determinations. 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) \7\ of the Act.
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    \5\ 15 U.S.C. 78q-1(b)(3)(F).
    \6\ Id.
    \7\ Id.
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(B) Clearing Agency'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 proposed changes to 
ICC's BOW methodology for Single Name instruments will apply 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) Clearing Agency's Statement on Comments on the Proposed Rule Change

    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

    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.

[[Page 6080]]

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 [email protected]. Please include 
File Number SR-ICC-2018-002 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-2018-002. 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 website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change, security-based 
swap submission, or advance notice that are filed with the Commission, 
and all written communications relating to the proposed rule change, 
security-based swap submission, or advance notice 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 website 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 website 
at https://www.theice.com/clear-credit/regulation.
    All comments received will be posted without change. Persons 
submitting comments are cautioned that we do not redact or edit 
personal identifying information from comment submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-ICC-2018-002 and should be 
submitted on or before March 5, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-02724 Filed 2-9-18; 8:45 am]
 BILLING CODE 8011-01-P


