[Federal Register Volume 84, Number 222 (Monday, November 18, 2019)]
[Notices]
[Pages 63693-63696]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-24867]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87502; File No. SR-ICC-2019-011]


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 Default Auction Procedures--Initial 
Default Auctions and the ICC Secondary Auction Procedures

November 12, 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 
October 31, 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 revise 
ICC's Default Auction Procedures--Initial Default Auctions (``Initial 
Default Auction Procedures'') and Secondary Auction Procedures 
(collectively, ``the Auction Procedures''). These revisions do not 
require any changes to the ICC Clearing Rules (the ``Rules'').\3\
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    \3\ Capitalized terms used but not defined herein have the 
meanings specified in the Rules.
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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 proposes to revise its Initial Default Auction Procedures and 
to make analogous changes to its Secondary Auction Procedures. The 
Initial Default Auction Procedures are designed to facilitate 
liquidation of the defaulter's portfolio through a multi-lot modified 
Dutch auction. The Secondary Auction Procedures, which also use a 
modified Dutch auction format, are intended to provide for an effective 
final auction of the entire remaining portfolio. ICC believes such 
revisions will facilitate the prompt and accurate clearance and 
settlement of securities transactions and derivative agreements, 
contracts, and transactions for which it is responsible. ICC proposes 
to make such changes effective following Commission approval of the 
proposed rule change. The proposed revisions are described in detail as 
follows.
    The purpose of the proposed amendments is to incorporate the 
automated Default Management System (``DMS'') and All or Nothing 
Bidding into the Auction Procedures and make additional clarification 
and clean-up changes. ICC proposes revisions that reflect the use of 
the automated DMS to replace certain manual tasks in the auction 
process. ICC also proposes to allow for All or Nothing Bidding in the 
Auction Procedures. Currently, should a bid (``Standard Bid'') for 100% 
of the portfolio be a winning bid, the portion of the auction portfolio 
awarded to the 100% Standard Bid is shared with any more competitively 
priced Standard Bids, in which case the award related to the 100% 
Standard Bid is for less than 100%. Under the revised procedures, in 
addition to the submission of Standard Bids, participants will be 
allowed to optionally submit an All or Nothing Bid, in addition to, or 
in lieu of, one or more Standard Bids. Should an All or Nothing Bid be 
a winning bid, 100% of the auction portfolio will be awarded to the All 
or Nothing Bidder, without the award being split amongst any more 
competitively priced Standard Bids.
Initial Default Auction Procedures
    ICC proposes to amend `The Auction Process' section to incorporate 
the DMS and make clarifying edits regarding the auction process. 
Participants currently have an obligation to bid for each lot in a 
minimum amount determined by ICC (``Minimum Bid Requirement''). ICC 
proposes to reflect the use of the DMS to communicate the Minimum Bid 
Requirement and to remove Annex B that contains a template for 
communicating the Minimum Bid Requirement. ICC also proposes clarifying 
language regarding the case where a Participant has outsourced its 
Minimum Bid Requirement to an affiliated Participant. Moreover, under 
the revised procedures, Auction Specifications (i.e., information on 
contracts to be auctioned, timing for the bidding process, etc.) are 
communicated through the DMS and Annex A, which contains a template for 
communicating Auction Specifications, is removed. ICC proposes to 
specify that bids must be submitted through the DMS (``Bid 
Submission''), only during a specified time window and prior to the 
``Bidding Close Time'', and make corresponding changes throughout the 
document. ICC further proposes updates relating to the submission of 
bids through the DMS, including preventing the submission of bids below 
the minimum bid size.
    ICC proposes changes to `The Bidding Process' section to allow for 
All or Nothing Bidding. ICC proposes to define ``AP'' as the auction 
clearing price for a lot, proportionally scaled to a portfolio

[[Page 63694]]

size representing 100% of the relevant lot. ICC proposes to define 
``BP'' as the more competitive of (1) the weighted average bid price of 
all valid Standard Bids made by such auction participant and (2) the 
price of any valid All or Nothing Bid made by such auction participant, 
both proportionately scaled to a portfolio size representing 100% of 
the relevant lot. If an auction participant submits only an All or 
Nothing Bid, or submits an All or Nothing Bid and Standard Bids but the 
Standard Bids do not meet the Minimum Bid Requirement, then the average 
price is the price of the All or Nothing Bid. If an auction participant 
submits only Standard Bids, then the average bid price calculation is 
unchanged from the current procedures. ICC proposes further revisions 
that distinguish All or Nothing Bids from Standard Bids. Additionally, 
to satisfy the Minimum Bid Requirement, ICC proposes to note that any 
individual bid must be equal to or larger than any applicable minimum 
bid size.
    ICC proposes to update the `Participation by Customers in the 
Auction' section, stating that a Participant may make separate bids in 
respect of its customers and adding a reference to the Auction 
Specifications.
    ICC proposes to amend the `Selection of the Winning Bid' section. 
ICC proposes updates related to sorting the submitted bids and 
determining the auction clearing price. ICC proposes revisions to 
Examples 1-3, which show the calculation of the auction clearing price, 
to be more descriptive and incorporate All or Nothing Bidding. The 
proposed amendments change the first column heading from ``Ranking'' to 
``Price Rank''; change the second column heading from ``Cash Bid'' to 
``Size x Price'' and move this column second from last; add a column 
titled ``Is All or Nothing Bid'' directly after the first column; 
change the third column heading from ``% of Portfolio'' to ``Bid Size 
(% of Auction Portfolio)''; change the fourth column heading from 
``Cash/1%'' to ``Bid Price (Payment per 100%)'' and update the numbers 
in the column accordingly; and update the auction clearing price to be 
per 100%. ICC proposes to add a new Example 4, to show the calculation 
of the auction clearing price with an All or Nothing Bid. ICC also 
proposes explanatory language relating to All or Nothing Bidding. 
Specifically, if an All or Nothing Bid sets the auction clearing price, 
no Standard Bids will receive a share of the auction portfolio even if 
their bid prices are higher than or equal to the auction clearing 
price. If there are multiple All or Nothing Bids at the auction 
clearing price, the portfolio will be allocated equally among the 
auction participants submitting such All or Nothing Bids. For the case 
where ICC determines the auction clearing price for less than 100% of 
the portfolio, ICC proposes clarifications regarding All or Nothing 
Bidding and updates to such example calculation to conform with 
Examples 1-3. ICC proposes additional amendments, including publishing 
an Auction Specification to the DMS for a second auction; making minor 
grammatical edits, such as replacing definite article ``the'' with 
indefinite article ``a'' in the phrase ``the `Winning Bidder' '' and 
replacing the phrase ``relevant Participant'' with ``relevant 
Participant(s)''; and using the DMS to notify a bidder of a winning 
bid.
Secondary Auction Procedures
    ICC proposes analogous changes to the Secondary Auction Procedures. 
ICC proposes to revise `The Auction Process' section to be consistent 
with the Initial Default Auction Procedures. ICC proposes to reflect 
the use of the DMS to communicate the Minimum Bid Requirement and to 
add clarifying language regarding the case where a Participant has 
outsourced its Minimum Bid Requirement to an affiliated Participant. 
The revised procedures use the DMS to communicate Secondary Auction 
Specifications, clarify that Bid Submission occurs through the DMS 
until the ``Bidding Close Time'' and make conforming changes throughout 
the document, and include updates relating to the submission of bids 
using the DMS.
    ICC proposes revisions to `The Bidding Process' section to allow 
for All or Nothing Bidding to maintain uniformity with the Initial 
Default Auction Procedures. ICC proposes to similarly define ``BP'' as 
the more competitive of (1) the weighted average bid price of all valid 
Standard Bids made by such secondary auction participant and (2) the 
price of any valid All or Nothing Bid made by such auction participant, 
both proportionately scaled to a portfolio size representing 100% of 
the relevant lot. If a secondary auction participant submits only an 
All or Nothing Bid, or submits an All or Nothing Bid and Standard Bids 
but the Standard Bids do not meet the Minimum Bid Requirement, then the 
average price is the price of the All or Nothing Bid. If a secondary 
auction participant submits only Standard Bids, then the average bid 
price calculation is unchanged from the current procedures. ICC 
proposes further revisions that distinguish All or Nothing Bids from 
Standard Bids. To satisfy the Minimum Bid Requirement, ICC also 
proposes to note that any individual bid must be equal to or larger 
than any applicable minimum bid size.
    ICC similarly proposes to update the `Participation by Customers in 
the Auction' section, stating that a Participant may make separate bids 
in respect of its customers and adding a reference to the Auction 
Specifications.
    ICC proposes amendments to the `Selection of the Winning Bid' 
section to be consistent with the Initial Default Auction Procedures. 
ICC proposes updates related to sorting the submitted bids and 
determining the auction clearing price. With respect to Examples 1-3 
and new Example 4, ICC proposes parallel updates to those described in 
the Initial Default Auction Procedures. Similarly, under the revised 
procedures, if an All or Nothing Bid sets the secondary auction 
clearing price, no Standard Bids will receive a share of the auction 
portfolio even if their bid prices are higher than or equal to the 
secondary auction clearing price. If there are multiple All or Nothing 
Bids at the secondary auction clearing price, the portfolio will be 
allocated equally among the secondary auction participants submitting 
such All or Nothing Bids. ICC proposes additional changes, including 
making minor grammatical edits, such as replacing definite article 
``the'' with indefinite article ``a'' in the phrase ``the `Winning 
Bidder' '' and replacing the phrase ``relevant Participant'' with 
``relevant Participant(s)'' and using the DMS to notify a bidder of a 
winning bid.
(b) Statutory Basis
    Section 17A(b)(3)(F) of the Act \4\ 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; in general, 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 change is 
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 changes to 
the Auction Procedures enhance ICC's

[[Page 63695]]

ability to manage the risk of defaults. The proposed changes introduce 
All or Nothing Bidding to ICC's existing auction methodology. This new 
bid type rewards auction participants for bidding competitively on both 
size and price, rather than just price. If an All or Nothing Bid sets 
the auction clearing price, the revised Auction Procedures award 100% 
to that bid, rather than splitting the award with participants bidding 
more competitively on price but with smaller size. Such changes 
incentivize competitive bidding by rewarding auction participants for 
bidding competitively on both price and size and are designed to 
promote effective and efficient auctions to facilitate the close-out of 
the defaulter's portfolio. Moreover, the proposed changes reflect the 
use of the automated DMS to replace certain manual tasks in the auction 
process, including communicating the Minimum Bid Requirement and 
Auction Specifications, submitting bids, and notifying winning bidders. 
Such changes allow ICC to more efficiently and safely manage its 
auction process and reduce the risk of error. The clarification and 
clean-up changes provide greater specificity and transparency with 
respect to the Auction Procedures such that auction participants have 
greater certainty regarding the process for auction participation. ICC 
believes that the proposed amendments augment ICC's procedures relating 
to default management and enhance ICC's ability to withstand defaults 
and continue providing clearing services, thereby promoting the prompt 
and accurate clearance and settlement of securities transactions, 
derivatives agreements, contracts, and transactions; the safeguarding 
of securities and funds which are in the custody or control of ICC or 
for which it is responsible; and the protection of investors and the 
public interest. As such, the proposed rule change is designed to 
promote the prompt and accurate clearance and settlement of securities 
transactions, derivatives agreements, contracts, and transactions; to 
contribute to the safeguarding of securities and funds associated with 
security-based swap transactions in ICC's custody or control, or for 
which ICC is responsible; and, in general, to protect investors and the 
public interest within the meaning of Section 17A(b)(3)(F) of the 
Act.\6\
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    \4\ 15 U.S.C. 78q-1(b)(3)(F).
    \5\ Id.
    \6\ Id.
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    In addition, the proposed rule change is consistent with the 
relevant requirements of Rule 17Ad-22.\7\ Rule 17Ad-22(b)(3) \8\ 
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 
participant families to which it has the largest exposures in extreme 
but plausible market conditions. ICC believes that the proposed 
revisions enhance its Auction Procedures. As described above, the 
optional All or Nothing Bid incentivizes competitive bidding, promoting 
the goal of reaching an efficient auction clearing price that permits 
ICC to close out the defaulter's portfolio and return ICC to a matched 
book. Such new bid type rewards auction participants for bidding 
competitively on both size and price and may increase the willingness 
and ability of Participants and their customers to participate in an 
auction and absorb the defaulter's positions through the default 
management process. Moreover, the proposed changes that reflect the use 
of the automated DMS to replace certain manual tasks in the auction 
process promote ICC's ability to efficiently and safely manage its 
auction process in a default event. In ICC's view, these enhancements 
represent tools that strengthen ICC's ability to manage its financial 
resources and withstand the pressures of defaults, consistent with the 
requirements of Rule 17Ad-22(b)(3).\9\
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    \7\ 17 CFR 240.17Ad-22.
    \8\ 17 CFR 240.17Ad-22(b)(3).
    \9\ Id.
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    Rule 17Ad-22(d)(8) \10\ requires that ICC 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 
\11\ applicable to clearing agencies, to support the objectives of 
owners and participants, and to promote the effectiveness of ICC's risk 
management procedures. Under the Auction Procedures, ICC will consult 
with the ICC CDS Default Committee (consisting of trading personnel 
seconded from Participants to assist with default management) for key 
decisions relating to initial default auctions and secondary auctions, 
including dividing the defaulter's portfolio into discrete auctions, 
determining the auction clearing price for less than 100% of the 
portfolio, running additional auctions, or delaying the Bidding Close 
Time. These governance arrangements continue to be clear and 
transparent, such that information relating to the assignment of 
responsibilities and the requisite involvement of the ICC CDS Default 
Committee is clearly documented, and promote the effectiveness of ICC's 
risk management procedures by detailing the responsibilities of the ICC 
CDS Default Committee throughout the Auction Procedures, consistent 
with the requirements of Rule 17Ad-22(d)(8).\12\
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    \10\ 17 CFR 240.17Ad-22(d)(8).
    \11\ 15 U.S.C. 78q-1.
    \12\ 17 CFR 240.17Ad-22(d)(8).
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    Rule 17Ad-22(d)(11) \13\ requires ICC to establish, implement, 
maintain and enforce written policies and procedures reasonably 
designed to make key aspects of the clearing agency's default 
procedures publicly available and establish default procedures that 
ensure that the clearing agency can take timely action to contain 
losses and liquidity pressures and to continue meeting its obligations 
in the event of a participant default. ICC's default management rules 
and procedures contained in the ICC Rules, the Initial Default Auction 
Procedures, and the Secondary Auction Procedures are publically 
available on ICC's website. The proposed clarification and clean-up 
changes described above provide further specificity and transparency 
and thus enhance readability of the publically available Auction 
Procedures. Moreover, the proposed addition of All or Nothing Bidding 
and the automated DMS enhance ICC's ability to withstand defaults and 
continue providing clearing services, including by incentivizing 
competitive bidding to promote effective and efficient auctions that 
facilitate the close-out of the defaulter's portfolio and maximizing 
ICC's ability to efficiently and safely manage its auction process in 
default events, to ensure that ICC can take timely action to contain 
losses and liquidity pressures and to continue meeting its obligations 
in the event of a participant default, consistent with the requirements 
of Rule 17Ad-22(d)(11).\14\
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    \13\ 17 CFR 240.17Ad-22(d)(11).
    \14\ Id.
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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 
ICC's Initial Default Auction Procedures and Secondary Auction 
Procedures 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.

[[Page 63696]]

(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-2019-011 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-2019-011. 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-2019-011 and should be submitted on 
or before December 9, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-24867 Filed 11-15-19; 8:45 am]
BILLING CODE 8011-01-P


