[Federal Register Volume 84, Number 167 (Wednesday, August 28, 2019)]
[Notices]
[Pages 45191-45196]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-18480]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86729; File No. SR-ICC-2019-010]


Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of 
Filing of Proposed Rule Change, Security-Based Swap Submission, or 
Advance Notice Relating to the ICC Clearing Rules

August 22, 2019.
    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 
August 8, 2019, ICE Clear Credit LLC (``ICC'') filed with the 
Securities and Exchange 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 by ICC. The Commission is 
publishing this notice to solicit comments on the proposed rule change, 
security-based swap submission, or advance notice 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, Security-Based Swap Submission, or Advance Notice

    The principal purpose of the proposed rule change is to make 
changes to the ICC Clearing Rules (the ``ICC Rules'') to address the 
treatment of certain investment losses, custodial losses and other non-
default losses.

[[Page 45192]]

II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change, Security-Based Swap Submission, or 
Advance Notice

    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, Security-Based Swap Submission, or 
Advance Notice

(a) Purpose
    ICC is proposing amendments to its Rules to address the treatment 
of certain investment losses, custodial losses and other non-default 
losses (in each case, losses that do not arise from the default of a 
clearing participant (a ``Participant'')).

I. Summary of Proposed Amendments

    The amendments would, among other matters:
     Define three exclusive categories of relevant losses: (1) 
Investment losses, (2) custodial losses and (3) non-default losses,
     specify the ICC resources that will be applied to cover 
each such category of losses,
     specify the responsibility of Participants, in appropriate 
circumstances, to make contributions with respect to investment losses 
and custodial losses, and
     address the treatment of recoveries by ICC with respect to 
such losses.
    ICC proposes to make such changes effective after Commission 
approval of the proposed rule change and after ICC is permitted to do 
so under Commodity Futures Trading Commission (``CFTC'') regulation.\3\ 
The proposed amendments are described in more detail below.
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    \3\ As a derivatives clearing organization designated as 
systemically important under Title VIII of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act, ICC submitted to the 
CFTC, pursuant to CFTC Rule 40.10, as an advance notice of a 
proposed rule change the amendments to the Rules discussed herein.
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II. Definitions of Loss Categories

    In Rule 102, new definitions of ``Investment Losses'' and ``Non-
Default Losses'' would be added, and the definition of ``Custodial 
Losses'' would be revised.

Investment Losses

    Investment Losses would be defined as losses incurred or suffered 
by ICC in connection with the default of the issuer of any investment 
of Margin or General Guaranty Fund assets by ICC or the default of the 
counterparty to any repurchase or reverse repurchase contract or 
similar transaction used to invest or reinvest such Margin or General 
Guaranty Fund assets. Investment Losses would also include other losses 
with respect to such investments, including from a change in value due 
to market movements. However, Investment Losses would not include 
Custodial Losses (as discussed below) or losses resulting directly from 
a failure by ICC to comply with its own investment policies.
    Certain other circumstances would not constitute Investment Losses. 
For example, a negative yield or interest rate on an ICC investment 
will not be an Investment Loss. If a Participant posts securities or 
non-cash assets as Margin or General Guaranty Fund contributions, any 
gain or loss in such assets will not be an Investment Loss for purposes 
of the Rules.

Custodial Losses

    Under the revised Rules, Custodial Losses would be defined as 
losses of Margin or General Guaranty Fund assets (including declines in 
the value thereof) as a result of (1) the insolvency or failure of a 
Custodian or (2) the embezzlement or theft of such assets by any person 
(other than ICC or its employees or representatives). A Custodian for 
this purpose would include a bank or trust company, central bank, 
central securities depository or other third party settlement system 
used by ICC for the deposit, holding, custody or transfer of cash or 
securities. Custodial Losses would not include Investment Losses.

Non-Default Losses

    Non-Default Losses would be defined to cover losses incurred or 
suffered by ICC that are neither Investment Losses nor Custodial Losses 
and arise in connection with an event other than a Participant default. 
The definition thus captures losses from general business or 
operational risk that do not constitute custodial or investment losses.

III. Treatment of Losses

    The amendments set out in new Rule 811 (and related additional 
definitions in Rule 102) describe the clearing house's approach to the 
treatment of Non-Default Losses, Investment Losses and Custodial 
Losses.

Non-Default Losses

    Under new Rule 811(b), Non-Default Losses would be met from 
available ICC capital and other ICC assets (including available 
retained earnings). Non-Default Losses would not be covered from ICC 
contributions to default resources (the ICE Clear Credit Initial 
Contribution, ICE Clear Credit Continuing Contribution or Additional 
ICC Collateral Deposits). Non-Default Losses would not be allocated to 
Participants, or otherwise covered using Margin, General Guaranty Fund 
contributions or Assessment Contributions of Participants.

Investment Losses

    New Rules 811(c)-(e) would set out the treatment of Investment 
Losses. Under Rule 811(c), in the case of an Investment Loss, ICC would 
first apply to the loss any available Investment Loss Resources held by 
ICC. Investment Loss Resources would be defined in Rule 102 to be $20 
million of ICC's own assets designated by ICC as available to be 
applied to Investment Losses. The ICC Board may modify the amount of 
Investment Loss Resources from time to time, and that determination 
would be risk-based in light of ICC's potential exposure to Investment 
Losses.
    In the event the Investment Loss Resources were insufficient to 
cover the Investment Loss (an ``Investment Loss Shortfall''), ICC would 
have the right, under Rule 811(d), to allocate the Investment Loss 
Shortfall to all Participants (including any Defaulting Participants). 
In that case, each Participant would be obligated to make a 
contribution (an ``Investment Loss Contribution''), based on its pro 
rata share of the Investment Loss Shortfall, determined based on the 
proportion of its aggregate Initial Margin (both house and customer) 
and General Guaranty Fund contributions (its ``Participant IM/GF 
Contribution'') as compared to the aggregate Participant IM/GF 
Contributions for all Participants. Under Rule 811(e), the maximum 
contribution of a Participant for an Investment Loss Contribution in 
respect of any event giving rise to an Investment Loss may not exceed 
its Participant IM/GF Contribution. Investment Loss Contributions could 
only be applied to Investment Loss Shortfalls (and not Custodial Loss 
Shortfalls).

Custodial Losses

    New Rules 811(f)-(h) would set out the treatment of Custodial 
Losses. Similarly to the treatment of Investment

[[Page 45193]]

Losses, under Rule 811(f), in the case of a Custodial Loss, ICC would 
first apply to the loss any available Custodial Loss Resources held by 
ICC. Custodial Loss Resources would be defined to be $32 million of 
ICC's own assets designated by ICC as available to be applied to 
Custodial Losses. As with Investment Loss Resources, the ICC Board may 
modify the amount of Custodial Loss Resources from time to time, and 
such determination would be risk-based in light of ICC's potential 
exposure to Custodial Losses.
    In the event the Custodial Loss Resources were insufficient to 
cover the Custodial Loss (a ``Custodial Loss Shortfall''), ICC would 
have the right, under Rule 811(g), to allocate the Custodial Loss 
Shortfall to all Participants (including any Defaulting Participants). 
In that case, each Participant would be liable to make a contribution 
(a ``Custodial Loss Contribution''), based on its pro rata share of the 
Custodial Loss Shortfall, determined based on the proportion of its 
Participant IM/GF Contribution to the aggregate Participant IM/GF 
Contributions for all Participants. Under Rule 811(h), the maximum 
contribution of a Participant for a Custodial Loss Contribution in 
respect of any event giving rise to an Investment Loss may not exceed 
its Participant IM/GF Contribution. Custodial Loss Contributions could 
only be applied to Custodial Loss Shortfalls (and not Investment Loss 
Shortfalls).
    Notwithstanding the foregoing, in the event of a Custodial Loss 
where the Custodian is a central bank, ICC is not obligated to apply 
Custodial Loss Resources, and the entire Custodial Loss would 
constitute a Custodial Loss Shortfall subject to allocation to 
Participants as described above.

IV. Allocation of Recoveries

    The amendments would address any recoveries that ICC is able to 
obtain in respect of an Investment Loss or Custodial Loss after 
Investment Loss Contributions or Custodial Loss Contributions 
(collectively, ``Loss Contributions'') have been made. Rule 811(l) 
would provide a ``reverse waterfall'' for allocation of such 
recoveries, after deduction of expenses of ICC, to the parties that 
bore the loss (whether ICC, Participants or both) in the reverse order 
from which they were initially applied. The amendments would also set 
out ICC's obligations to seek recoveries in respect of Investment 
Losses and Custodial Losses, generally using the same degree of care as 
it exercises with respect to its own assets that are not subject to 
allocation under Rule 811.

V. Additional Provisions

    Rule 811(u) would contain a general disclaimer by ICC of losses 
resulting from the holding, deposit, custody, transfer or investment of 
Margin, General Guaranty Fund contributions and Assessment 
Contributions, except as otherwise provided in Rule 811, and provided 
that Rule 811(u) will not limit any liability of ICC for its own gross 
negligence or willful misconduct. Rule 406 would also be amended to 
remove an existing disclaimer for custodial losses, which would be 
superseded by the new provisions.
    New Rule 402(k) would address investment of cash Initial Margin 
provided by a Participant in respect of its client origin account. The 
Participant would be required to instruct ICC whether or not ICC should 
invest such Initial Margin. If instructed to invest, ICC would invest 
the cash in accordance with its Rules and investment policies 
procedures and applicable law. If instructed not to invest, ICC would 
hold the cash in a deposit account with a Custodian in accordance with 
ICC's policies and procedures. If a Participant does not provide an 
instruction, (1) for US dollar cash, the Participant would be deemed to 
have instructed ICC not to invest such cash, and (2) for cash in other 
currencies, the Participant would be deemed to have instructed ICC to 
invest such cash.
    Rule 811 would also address certain procedures for notices to 
Participants of the use of Investment Loss Resources and Custodial Loss 
Resources and of required Loss Contributions in respect of Investment 
Losses and Custodial Losses. The Rule would also provide for timing and 
manner of collection of Loss Contributions (including through offset 
against obligations of ICC to return margin or other assets), and for 
currency conversions as necessary. The Rule would clarify that the 
requirement to make Loss Contributions does not reduce or otherwise 
affect other obligations of a Participant to make payments or 
deliveries to ICC under the Rules, or otherwise limit ICC's netting, 
setoff and other rights under the Rules. In particular, obligations to 
make Loss Contributions would be separate from any obligation to make 
an Assessment Contribution, and the limitations on Assessments under 
the Rules would not apply to liabilities for Loss Contributions. Use of 
the Loss Contribution procedures under Rule 811 would also not be 
deemed to constitute an ICE Clear Credit Default under the Rules.
    ICC would be required to disclose to Participants the amount of 
Custodial Loss Resources and Investment Loss Resources, and to notify 
Participants in advance of any changes in such amounts. If such loss 
resources are applied as a result of a loss event, any replenishment of 
such resources by ICC would not reduce the amount of any Custodian Loss 
Shortfall or Investment Loss Shortfall (or resulting Loss 
Contributions) for that loss event. ICC's liability for Custodial 
Losses or Investment Losses would not exceed the amount of designated 
Custodial Loss Resources or Investment Loss Resources, as applicable, 
from time to time.
(b) Statutory Basis
    ICC believes that the proposed rule change is consistent with the 
requirements of Section 17A of the Act \4\ and the regulations 
thereunder applicable to it, including the applicable standards under 
Rule 17Ad-22.\5\ In particular, Section 17A(b)(3)(F) of the Act \6\ 
requires that the rule change be consistent with the prompt and 
accurate clearance and settlement of securities transactions, and to 
the extent applicable, derivative agreements, contracts and 
transactions, the safeguarding of securities and funds in the custody 
or control of ICC or for which it is responsible, and the protection of 
investors and the public interest.
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    \4\ 15 U.S.C. 78q-1.
    \5\ 17 CFR 240.17Ad-22.
    \6\ 15 U.S.C. 78q-1(b)(3)(F).
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    As discussed herein, the proposed rule change is principally 
designed to address the risks posed to ICC by a significant loss event 
not resulting from a default by one or more Participants. These events 
may include investment losses and custodial losses with respect to 
margin and General Guaranty Fund contributions, as well as other losses 
resulting from general business risk, operational risk or other non-
default scenarios. ICC, like all clearing organizations, faces the risk 
that such a loss event could affect its ability to continue orderly 
clearing operations or otherwise affect its viability as a going 
concern. The amendments are thus intended to enhance the ability of ICC 
to manage the risk of certain losses that do not arise from Participant 
default or defaults. The amendments provide a mechanism for fully 
allocating Investment Losses and Custodial Losses, first to resources 
provided by ICC in the first instance and thereafter to Participants. 
The amendments also clarify the responsibility of ICC for Non-

[[Page 45194]]

Default Losses (and clarify that Participants are not responsible for 
such losses). The amendments thus enhance ICC's ability to address 
general business risk, operational risk and other risks that may 
otherwise threaten the viability of the clearing house as a going 
concern. The amendments also enhance the ability of ICC to manage 
custody and investment risk and settlement bank risk in the remote 
circumstances where its ordinary course procedures are insufficient and 
a Custodian, investment counterparty or settlement bank fails. Overall, 
the amendments will strengthen the ability of the clearing house to 
manage the risks of, and withstand and/or recover from, significant 
non-default loss events.
    The amendments also more clearly allocate certain losses as among 
ICC and Participants. ICE Clear Credit believes that the amendments 
also reflect the legitimate interests of clearing participants, 
customers and other stakeholders. The amendments are designed to plan 
for remote and unprecedented, but potentially extreme, types of loss 
event, including Investment Losses, Custodial Losses and Non-Default 
Losses. In particular, Investment Losses and Custodial Losses, to the 
extent they exceed clearing house resources dedicated for such 
purposes, will necessarily and adversely affect some or all 
Participants, customers or other stakeholders. ICE Clear Credit 
believes that the amendments take a balanced approach that distributes 
potential losses to both ICC and Participants. ICE Clear Credit also 
believes that the amendments further the interests of Participants in 
having greater certainty as to the consequences of such losses, their 
potential liability for them and the resources that would be available 
to support clearing operations, to allow stakeholders to evaluate more 
fully the risks and benefits of clearing.
    In light of discussions with Participants and others, ICE Clear 
Credit believes that the amendments provide an appropriate and 
equitable method to allocate the loss from an extreme non-default loss 
scenario. ICE Clear Credit further believes that the approach taken 
will facilitate the ability of the clearing house to allocate such 
losses so that it can continue clearing operations. The amendments 
therefore further the prompt and accurate clearance and settlement of 
cleared transactions. In so doing, in light of the importance of 
clearing houses to the financial markets they serve, the policy in 
favor of clearing of financial transactions as set out in the Dodd-
Frank Wall Street Reform and Consumer Protection Act, and the potential 
consequences of a clearing house failure, the amendments will support 
the stability of the broader financial system and the public interest. 
Accordingly, in ICC's view, the amendments are consistent with the 
prompt and accurate clearance and settlement of securities 
transactions, derivatives agreements, contracts, and transactions, the 
safeguarding of securities and funds in the custody or control of ICC 
or for which it is responsible, and the protection of investors and the 
public interest, within the meaning of Section 17A(b)(3)(F) of the 
Act.\7\
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    \7\ Id.
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    In addition to the Act, the amendments are intended to satisfy the 
requirements of CFTC Rule 39.39,\8\ applicable to ICC as a derivatives 
clearing organization designated as systemically important under Title 
VIII of the Dodd-Frank Wall Street Reform and Consumer Protection Act, 
that ICC have rules to facilitate recovery or orderly wind-down 
necessitated by general business risk, operational risk or any other 
risk that threatens its viability as a going concern. The amendments 
are also intended to be consistent with relevant international 
standards, including the Principles of Financial Market Infrastructure 
developed by the Committee on Payments and Market Infrastructures 
(CPMI) and the International Organization of Securities Commissions 
(IOSCO).
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    \8\ 17 CFR 39.39.
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    The amendments will also satisfy the specific relevant requirements 
of Rule 17Ad-22,\9\ as set forth in the following discussion.
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    \9\ 17 CFR 240.17Ad-22.
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    Rule 17Ad-22(b)(3) \10\ requires ICC to establish, implement, 
maintain and enforce written policies and procedures reasonably 
designed to maintain sufficient financial resources to withstand, at a 
minimum, a default by the two CP families to which it has the largest 
exposures in extreme but plausible market conditions. ICC does not 
propose in these amendments to change the amount or composition of 
financial resources required of Participants as Initial Margin or 
contributions to the General Guaranty Fund. ICC is also not proposing 
to change its own resources that it contributes to default resources. 
Under the amendments, ICC would designate clearly that ICC's own 
capital and other assets (other than its contributions to default 
resources) are available to cover Non-Default Losses (and that 
Participants are not responsible for such losses). In addition, ICC 
would designate specific amounts of its own assets to serve as 
Investment Loss Resources and Custodial Loss Resources, to provide 
risk-based, ``first loss'' coverage of Investment Losses and Custodial 
Losses incurred by ICC.
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    \10\ 17 CFR 240.17Ad-22(b)(3).
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    Specifically, ICC has selected the level of Investment Loss 
Resources based on its assessment of its potential exposure to 
investment losses under its investment policies and procedures, and the 
ICC Board would periodically conduct a risk-based assessment of the 
appropriate level of Investment Loss Resources. As an initial measure 
of its potential exposure to investment losses, ICC has taken into 
account components of the European Union capital requirements 
applicable to central counterparties \11\ (even though such 
requirements are not directly applicable to ICC), in particular the 
capital requirements for credit, counterparty and market risks and 
operational and legal risks. ICC would not be obligated under the 
amended Rules to use this methodology, and could in the future 
determine to adopt a different risk-based methodology based on its 
experience with investment losses or other market or regulatory 
developments.
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    \11\ Commission Delegated Regulation (EU) No 152/2013 of 19 
December 2012 supplementing Regulation (EU) No 648/2012 of the 
European Parliament and the Council with regard to regulatory 
technical standards on the capital requirements for central 
counterparties.
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    Under the amendments, with respect to Custodial Losses involving 
Custodians other than a central bank, ICC would be responsible for 
losses up to the amount of Custodial Loss Resources, which is 
established under the proposed Rule amendments and will be subject to 
risk-based adjustment by the ICC Board from time to time. As with the 
Investment Loss Resources, ICC has determined the initial level of 
Custodial Loss Resources taking into account components of the European 
Union capital requirements applicable to central counterparties, in 
particular the capital requirements for credit, counterparty and market 
risks and operational and legal risks. ICC would not be obligated under 
the amended Rules to use this methodology, and could in the future 
determine to adopt a different risk-based methodology based on its 
experience with custodial losses or other market or regulatory 
developments.
    The amendments would also provide for allocation of Investment 
Losses and Custodial Losses in excess of such resources to 
Participants, who would be obligated to pay Loss Contributions to the 
extent of such excess. With respect

[[Page 45195]]

to Investment Losses, ICC has designed its existing investment policies 
and procedures such that investments are limited to instruments with 
minimal credit, market and liquidity risks. An Investment Loss 
resulting from an investment made in accordance with its policies and 
procedures is ultimately outside the control of the clearing house. 
Furthermore, as a regulatory matter ICC is not obligated to, and is not 
commercially in a position to, guarantee investments against defaults 
by an investment issuer or counterparty. As a result, in ICC's view, it 
is appropriate for remote losses in excess of the Investment Loss 
Resources to be borne by its Participants. Absent an ability to 
allocate such losses to Participants, an extreme Investment Loss event, 
beyond the resources of the clearing house, could result in clearing 
house failure or interference with the clearing house's ability to 
continue operations. Additionally, for Custodial Losses, ICC's existing 
policies are intended to mitigate the risk of custodial failure through 
appropriate selection and ongoing monitoring of Custodians and use of 
central bank custody where practical. These procedures are designed to 
permit the clearing house to hold assets in a manner that minimizes the 
risk of loss or delay in the access of ICC to such assets. A Custodial 
Loss from a custodial failure is ultimately outside the control of ICC. 
ICC is not itself a depository but is rather an intermediary. ICC is 
ultimately not in a position to backstop or guarantee performance by 
third-party Custodians. If ICC were responsible for all Custodial 
Losses in excess of the defined resources, a custodial failure could 
lead to a clearing house failure or other interference with clearing 
operations. As a result, ICC believes it is appropriate for the 
Participants to share in Custodial Losses that exceed ICC's Custodial 
Loss Resources as set out in the proposed Rules. With respect to 
Custodial Losses arising from a central bank custodial failure, ICC 
believes that such a scenario is extremely remote, and entirely outside 
of its control. ICC also notes the preference among regulators and 
Participants for the use of central bank custody. As a result, ICC 
believes it is appropriate in that case that Participants fully bear 
any such Custodial Losses.
    For Non-Default Losses, ICC would be solely responsible for 
covering such losses through ICC capital and other ICC resources. In 
light of the remote and unpredictable nature of such Non-Default 
Losses, ICC does not believe allocation of such Non-Default Losses to 
Participants is appropriate. ICC believes that its capital and other 
resources at the clearing house are sufficient to permit it to cover 
its expected operating expenses, consistent with regulatory 
requirements.
    Under the amendments, losses in excess of the amount of Investment 
Loss Resources or Custodial Loss Resources would be shared among 
Participants, proportionally based on their respective aggregate 
initial margin and guaranty fund contributions. ICC has determined that 
the allocation of Investment Losses or Custodial Losses, as the case 
may be, to Participants should be made proportionately based on the 
relative Participant IM/GF Contributions. The approach mutualizes both 
Investment Losses and Custodial Losses across all Participants, in 
these remote loss scenarios where such losses exceed applicable ICC 
resources allocated to such losses. Participants may be required to 
make Loss Contributions that are independent of the particular mix of 
cash and securities provided by the Participant as margin or guaranty 
fund assets, or any investment elections made by the Participant with 
respect to its customer origin account. Nonetheless, ICC believes that 
the approach is appropriate in light of the remote nature of the 
potential losses, the fact that Participant margin and guaranty fund 
assets are invested and custodied collectively, and the practical and 
operational considerations that would be required for an approach that 
attempted to allocate losses based on a Participant's particular assets 
and elections. In this regard, in ICC's view, individual elections by a 
Participant with respect to its customer origin account are unlikely to 
affect the overall risk of Investment Loss and Custodial Loss (and 
indeed, investment elections by Participants will generally only shift 
the balances between investment assets (subject to Investment Losses) 
and custodial assets (subject to Custodial Losses)). Regardless of any 
elections, the balance of investments, and the particular investments 
made, may change on a daily (or more frequent) basis, as may the 
balance of assets (and types of assets) held with any individual 
Custodian, meaning that any attempt to allocate based on specific 
Participant positions would have to be done on a real-time basis. 
Furthermore, all Participant assets are held and invested on an 
aggregate basis (such that investments cannot be allocated to 
particular Participants), and all Participants receive a blended rate 
of return from aggregate clearing house investment activity. As a 
result, ICC does not believe it would be operationally feasible, or 
beneficial to Participants, to attempt to allocate Investment or 
Custodial Losses based on particular investment elections made or 
assets maintained by individual Participants with the clearing house on 
a real time basis. Instead, ICC believes it is more appropriate, in 
light of these operational and other considerations, to allocate 
Investment Losses and Custodial Losses, if any, to Participants based 
on their respective aggregate amount of Margin and General Guaranty 
Fund assets at the clearing house.
    As a result, the amendments clarify the resources available to 
address Investment Losses, Custodial Losses and other losses not 
resulting from Participant default. The provisions relating to 
Investment and Custodial Losses also, in effect, provide protection 
against the loss of the financial resources provided by Participants to 
support the default waterfall. The amendments thus enhance the ability 
of ICC to manage the risk of certain losses that do not arise from 
Participant default or defaults, thereby ensuring that ICC continues to 
maintain sufficient financial resources to withstand, at a minimum, a 
default by the two CP families to which it has the largest exposures in 
extreme but plausible market conditions, consistent with the 
requirements of Rule 17Ad-22(b)(3).\12\
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    \12\ 17 CFR 240.17Ad-22(b)(3).
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    Rule 17Ad-22(d)(3) \13\ requires ICC to establish, implement, 
maintain and enforce written policies and procedures reasonably 
designed to hold assets in a manner that minimizes risk of loss or of 
delay in its access to them and invest assets in instruments with 
minimal credit, market, and liquidity risks. ICC's existing investment 
policies and procedures provide for the investment of cash provided by 
Participants as Margin or General Guaranty Fund contributions in 
investments with minimal credit, market and liquidity risks. Similarly, 
the policies provide for the use by ICC of custodians to hold cash and 
securities in a manner designed to minimize the risk of loss or delay 
in access to such assets. ICC does not propose to change such policies 
and procedures. The amendments address the remote scenario where, 
despite the protections under such procedures, there is a failure by an 
investment issuer or counterparty or custodian. Such a circumstance 
would be remote in ICC's view, and in any event, outside the control of 
ICC. In such circumstances, the amendments would allocate the loss as 
between ICC and Participants, with

[[Page 45196]]

ICC being responsible for a first loss position up to the amount of 
defined resources (except in certain cases of a central bank failure) 
and with Participants being responsible for the remaining loss, in 
proportion to their margin and guaranty fund contributions. The 
amendments would thus enhance the protection of funds and assets 
provided to ICC as margin or guaranty fund contributions and are 
therefore reasonably designed to meet the requirements of Rule 17Ad-
22(d)(3).\14\
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    \13\ 17 CFR 240.17Ad-22(d)(3).
    \14\ Id.
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    Rule 17Ad-22(d)(8) \15\ requires ICC to 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 
\16\ 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. ICE Clear Credit believes 
the amendments discussed herein satisfy these requirements. The 
amendments are designed to address extreme loss scenarios other than 
those resulting from Participant default, and provide an orderly means 
for recovery from such scenarios if necessary. The amendments set out 
the responsibilities of the ICE Clear Credit Board in connection with 
establishing the appropriate level of Investment Loss Resources and 
Custodial Loss Resources provided by ICC. In taking such decisions, the 
Rules, the ICC mission statement, and the relevant governance committee 
charters will require the Board to take into consideration both the 
interests of Participants, customers and other stakeholders and the 
broader goal of providing safe and sound central counterparty services 
to reduce systemic risk in an efficient and compliant manner, 
consistent with the requirements of Rule 17Ad-22(d)(8).\17\
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    \15\ 17 CFR 240.17Ad-22(d)(8).
    \16\ 15 U.S.C. 78q-1.
    \17\ 17 CFR 240.17Ad-22(d)(8).
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    For the foregoing reasons, ICE Clear Credit believes that the 
proposed rule change is consistent with the requirements of Section 17A 
of the Act \18\ and the regulations thereunder applicable to it, 
including the standards under Rule 17Ad-22.\19\
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    \18\ 15 U.S.C. 78q-1.
    \19\ 17 CFR 240.17Ad-22.
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(B) Clearing Agency'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 ICC Rules will apply uniformly across all market participants. 
Therefore, ICC does not believe the proposed rule change imposes 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, Security-Based Swap Submission, or Advance Notice 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, Security-Based 
Swap Submission, or Advance Notice 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, security-based swap submission, or advance notice 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-2019-010 on the subject line.

Paper Comments

    Send paper comments in triplicate to Secretary, Securities and 
Exchange Commission, 100 F Street NE, Washington, DC 20549.

All submissions should refer to File Number SR-ICC-2019-010. 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 a.m. and 3 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-2019-010 and should be 
submitted on or before September 18, 2019.
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    \20\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-18480 Filed 8-27-19; 8:45 am]
 BILLING CODE 8011-01-P


