[Federal Register Volume 83, Number 80 (Wednesday, April 25, 2018)]
[Notices]
[Pages 18108-18110]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-08617]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83071; File No. SR-ICC-2018-003]


Self-Regulatory Organizations; ICE Clear Credit LLC; Order 
Approving Proposed Rule Change Relating to Amendments to the ICC 
Operational Risk Management Framework

April 19, 2018.

I. Introduction

    On February 23, 2018, ICE Clear Credit LLC (``ICC'') filed with the 
Securities and Exchange Commission (``Commission''), pursuant to 
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act''),\1\ 
and Rule 19b-4 thereunder,\2\ a proposed rule change to update the ICC 
Operational Risk Management Framework (``Framework''). The proposed 
rule change was published for comment in the Federal Register on March 
7, 2018.\3\ The Commission did not receive comments regarding 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. 82798 (March 1, 2018), 
83 FR 9786 (March 7, 2018) (SR-ICC-2018-003) (``Notice'').
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II. Description of the Proposed Rule Change

    The Framework details ICC's program of operational risk assessment 
and oversight.\4\ The proposed rule change would modify the Framework 
to remove the role of the Operational Risk Manager (``ORM'') and assign 
several of its responsibilities to the ICE, Inc. Enterprise Risk 
Management Chief Risk Officer for North American Clearing Houses 
(``ERM'').\5\ The ORM was an ICC employee responsible for implementing 
the Framework across ICC, and reported directly to ICC's Chief 
Compliance Officer. The ERM, in contrast, is an ICE, Inc. employee and 
is responsible for the ICE, Inc. Enterprise Risk Management 
Department's (``ERM Department'') coverage of ICC,\6\ which provides 
the oversight and framework for identifying, assessing, managing, 
monitoring, and reporting on risk across the ICE, Inc. organization as 
a whole.\7\ Going forward, responsibility for overseeing the management 
of the Framework will rest with the ERM, in conjunction with the ICC 
Compliance Committee.\8\
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    \4\ Notice, 83 FR at 9787. Capitalized terms used herein but not 
otherwise defined have the meaning set forth in the ICE Clear Europe 
rulebook, which is available at https://www.theice.com/clear-europe/regulation#rulebook.
    \5\ Id.
    \6\ Id.
    \7\ Id.
    \8\ Id.
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    The proposed rule change would remove from the risk assessment 
process all references to the ORM and assign to the ERM the ORM's 
responsibilities under the identify, monitor, mitigate, and report 
components of the Operational Risk Lifecycle.\9\ Similarly, the 
proposed rule change would remove from the performance objective 
setting and monitoring process all references to the ORM and assign to 
ICC Systems Operations and the ERM the ORM's responsibilities under the 
mitigate and report components of the Operational Risk Lifecycle.\10\ 
The proposed rule change would eliminate the ORM's responsibilities 
related to business continuity planning (``BCP'') and disaster recovery 
(``DR'') from the ``Business Continuity Planning and Disaster 
Recovery'' risk focus area and reassign those responsibilities to ICC, 
the ICC BCP and DR Oversight Committee, and the ICC Compliance 
Committee.\11\ Finally, the proposed rule change would remove from the 
``New Products, Processes and Initiatives'' risk focus area reference 
to the ORM's role on the ICC New Initiative Approval Committee and note 
that the ERM conducts post-implementation reviews of new 
initiatives.\12\
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    \9\ Id. ICC's operational risk program is framed by an 
Operational Risk Lifecycle, the goal of which is to actively 
identify, assess, monitor, mitigate, and report on all plausible 
sources of operational risk. See Securities Exchange Act Release No. 
77769 (May 5, 2016), 81 FR 29312 (May 11, 2016) (SR-ICC-2016-003) 
(describing the Framework).
    \10\ Notice, 83 FR at 9787.
    \11\ Id.
    \12\ Id.
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    The proposed rule change would revise the ``Vendor Assessment'' 
risk focus area of the Framework to clarify that the ICC BCP and DR 
Oversight Committee will replace the ORM in performing the following 
functions: (1) Reviewing and recommending that the ICC Compliance 
Committee approve the inventory of critical vendors and (2) conducting 
a service provider risk assessment for each critical vendor.\13\ The 
proposed rule change would also add to the Framework procedures for the 
assessment process of critical vendors.\14\
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    \13\ Id.
    \14\ Id.
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    The proposed rule change would modify the ``ICE Information 
Security'' risk focus area of the Framework to refer to the ICE 
Information Security Department's overall governing document and to 
reflect changes to the membership of the Department's governance 
committee.\15\
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    \15\ Notice, 83 FR at 9787.
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    Finally, the proposed rule change would make clarifying edits to 
the Framework to reflect current practices and other non-material 
changes.\16\ For example, the proposed rule change would make minor 
grammatical and structural changes to the Framework and update the 
appendix to more clearly summarize and describe the regulatory 
requirements and industry guidance to which ICC is subject.\17\
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    \16\ Id.
    \17\ Id. at 9787-9788.

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[[Page 18109]]

III. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act directs the Commission to approve a 
proposed rule change of a self-regulatory organization if it finds that 
such proposed rule change is consistent with the requirements of the 
Act and the rules and regulations thereunder applicable to such 
organization.\18\ For the reasons given below, the Commission finds 
that the proposal is consistent with Section 17A(b)(3)(F) of the Act 
\19\ and Rules 17Ad-22(d)(4) and 17Ad-22(d)(8) thereunder.\20\
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    \18\ 15 U.S.C. 78s(b)(2)(C).
    \19\ 15 U.S.C. 78q-1(b)(3)(F).
    \20\ 17 CFR 240.17Ad-22(d)(4) and (8).
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A. Consistency With Section 17A(b)(3)(F) of the Act

    Section 17A(b)(3)(F) of the Act requires, among other things, that 
the rules of a registered clearing agency be designed to promote the 
prompt and accurate clearance and settlement of securities 
transactions, 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.\21\ Sound policies, practices, and procedures with respect to 
assessment and oversight of operational risk are an important component 
of a registered clearing agency's ability to comply with these 
requirements because disruptions to clearing agency operations can 
impair the prompt and accurate clearance and settlement of securities 
transactions, safeguarding of securities and funds, and protection of 
investors and the public interest.\22\
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    \21\ 15 U.S.C. 78q-1(b)(3)(F).
    \22\ See Clearing Agency Standards, Securities Exchange Act 
Release No. 68080 (Oct. 22, 2012), 77 FR 66220, 66249 (Nov. 2, 2012) 
(noting that efforts to ``address risks posed by potential 
operational deficiencies to a clearing agency and its participants'' 
support ``the requirement in Section 17A of the Exchange Act that a 
clearing agency must be so organized and have the capacity to be 
able to facilitate prompt and accurate clearance and settlement'').
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    The Commission believes the proposed rule change will enhance ICC's 
ability to control its operational risk, and consequently promote the 
prompt and accurate clearance and settlement of securities 
transactions, by ensuring that the Framework accurately reflects the 
current assignment of responsibilities among ICC and ICE, Inc. 
personnel. It also will add to the Framework procedures for the 
assessment of critical vendors, which will both increase ICC's ability 
to identify critical vendors and enable ICC to manage the risks posed 
by its critical vendors. Finally, by eliminating the ORM from, and 
incorporating the ERM Department into, the oversight process for the 
management of the Framework, the personnel overseeing the management of 
the Framework will no longer be limited to the ICC organization, but 
instead will have a broad view of how the Framework interacts with and 
is affected by the ICE, Inc. organization as a whole. This will, among 
other things, allow ICC to rely on the ERM Department in responding to 
broad risks that affect ICC as part of the larger ICE, Inc. 
organization while simultaneously focusing on operational risks unique 
to ICC.
    Taken together, the Commission believes these proposed changes will 
improve ICC's ability to assess and manage operational risks, including 
by identifying sources of operational risk and minimizing them through 
the development of appropriate systems, controls, and procedures, 
thereby enhancing ICC's ability to promote the prompt and accurate 
clearance and settlement of securities transactions, assure the 
safeguarding of securities and funds which are in the custody or 
control of ICC or for which it is responsible and, in general, protect 
investors and the public interest. Therefore, the Commission finds that 
the proposed rule change is designed to promote the prompt and accurate 
clearance and settlement of securities transactions, assure the 
safeguarding of securities and funds which are in the custody or 
control of ICC or for which it is responsible and, in general, protect 
investors and the public interest, consistent with Section 17A(b)(3)(F) 
of the Act.\23\
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    \23\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rule 17Ad-22(d)(4)

    Rule 17Ad-22(d)(4) requires that a registered clearing agency that 
is not a covered clearing agency establish, implement, maintain and 
enforce written policies and procedures reasonably designed to identify 
sources of operational risk and minimize them through the development 
of appropriate systems, controls, and procedures.\24\ As discussed in 
detail above in Section III.A, the proposed rule change will make a 
number of enhancements to the Framework that, taken together, will 
improve ICC's ability to assess and manage operational risks, including 
by identifying sources of operational risk and minimizing them through 
the development of appropriate systems, controls, and procedures. 
Accordingly, the Commission finds that the proposed rule change is 
reasonably designed to identify sources of operational risk and 
minimize them through the development of appropriate systems, controls, 
and procedures, consistent with Rule 17Ad-22(d)(4).\25\
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    \24\ 17 CFR 240.17Ad-22(d)(4).
    \25\ 17 CFR 240.17Ad-22(d)(4).
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C. Consistency With Rule 17Ad-22(d)(8)

    Rule 17Ad-22(d)(8) requires that a registered clearing agency that 
is not a covered clearing agency establish, implement, maintain and 
enforce written policies and procedures reasonably designed to have 
governance arrangements that are clear and transparent to fulfill the 
public interest requirements in Section 17A of the Act \26\ applicable 
to clearing agencies, to support the objectives of owners and 
participants, and to promote the effectiveness of the clearing agency's 
risk management procedures.\27\ By updating the Framework so that it 
identifies and refers to appropriate personnel and accurately reflects 
the assignment of responsibilities among ICC and ICE, Inc. personnel, 
the proposed rule change will ensure that ICC's governance of the 
Framework is clear, transparent, and documented accurately. Therefore, 
the Commission finds that the proposed rule change establishes 
governance arrangements that are clear and transparent to fulfill the 
public interest requirements of Section 17A of the Act \28\ applicable 
to clearing agencies and the objectives of participants and to promote 
the effectiveness of the clearing agency's risk management procedures, 
consistent with Rule 17Ad-22(d)(8).\29\
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    \26\ 15 U.S.C. 78q-1.
    \27\ 17 CFR 240.17Ad-22(d)(8).
    \28\ 15 U.S.C. 78q-1.
    \29\ 17 CFR 240.17Ad-22(d)(8).
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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 \30\ and 
Rules 17Ad-22(d)(4) and (8) thereunder.\31\
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    \30\ 15 U.S.C. 78q-1.
    \31\ 17 CFR 240.17Ad-22(d)(4) and (8).
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    It is therefore ordered pursuant to Section 19(b)(2) of the Act 
\32\ that the proposed rule change (SR-ICC-2018-003) be, and hereby is, 
approved.\33\
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    \32\ 15 U.S.C. 78s(b)(2).
    \33\ 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).


[[Page 18110]]


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    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\34\
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    \34\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-08617 Filed 4-24-18; 8:45 am]
 BILLING CODE 8011-01-P


