[Federal Register Volume 85, Number 1 (Thursday, January 2, 2020)]
[Notices]
[Pages 157-159]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-28277]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87859; File No. SR-ICC-2019-012]


Self-Regulatory Organizations; ICE Clear Credit LLC; Order 
Approving Proposed Rule Change Relating to ICC's Treasury Operations 
Policies and Procedures

December 26, 2019.

I. Introduction

    On November 1, 2019, 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 (the 
``Act''),\1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
revise the ICC Treasury Operations Policies and Procedures (``Treasury 
Policy''). The proposed rule change was published for comment in the 
Federal Register on November 21, 2019.\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\ Self-Regulatory Organizations; ICE Clear Credit LLC; Notice 
of Filing of Proposed Rule Change Relating to ICC's Treasury 
Operations Policies and Procedures; Exchange Act Release No. 34-
87549 (Nov. 15, 2019); 84 FR 64379 (Nov. 21, 2019) (``Notice'').
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II. Description of the Proposed Rule Change

    ICC proposes to revise its Treasury Operations Policies and 
Procedures to make clarification updates related to its use of a 
committed repurchase (``repo'')

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facility, acceptable forms of United States (``US'') Treasury 
collateral, and its collateral valuation process.\4\
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    \4\ The description herein is substantially excerpted from the 
Notice, 84 FR 64379.
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A. Committed Repo Facility

    ICC proposes amendments to the `Funds Management' section of the 
Treasury Policy with respect to its use of a committed repo facility. 
Specifically, ICC proposes to clarify that the committed repo facility 
can be used to generate temporary liquidity through the sale and 
agreement to repurchase securities pledged by ICC Clearing Participants 
to satisfy their Initial Margin (``IM'') and Guaranty Fund (``GF'') 
requirements. ICC proposes to include that, when applicable, the 
facility can be used to rehypothecate sovereign debt from overnight 
repo investments in the event of a counterparty default. ICC also 
proposes to note that the facility can be used to sell, with the 
agreement to repurchase, sovereign debt securities that are held by ICC 
pursuant to direct investments in such securities.

B. Acceptable Collateral

    ICC proposes to update the `Custodial Assets' section of the 
Treasury Policy regarding acceptable forms of US Treasury collateral. 
Specifically, under the Treasury Policy, acceptable forms of non-cash 
collateral for IM and GF are limited to US Treasury securities. ICC 
proposes to specify that Floating Rate Notes and STRIPS are not 
acceptable forms of US Treasury collateral for IM and GF.

C. Collateral Valuation

    ICC also proposes to add language stating that, with respect to its 
collateral valuation process, Euros that are used to cover a US Dollar 
denominated product requirement is first converted to the USD value and 
that the USD value is haircut at the Euro currency haircut.

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.\5\ For the reasons given below, the Commission finds that 
the proposed rule change is consistent with Section 17A(b)(3)(F) of the 
Act \6\ and Rules 17Ad-22(b)(3) \7\ and 17Ad-22(d)(3) \8\ thereunder.
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    \5\ 15 U.S.C. 78s(b)(2)(C).
    \6\ 15 U.S.C. 78q-1(b)(3)(F).
    \7\ 17 CFR 240.17Ad-22(b)(3).
    \8\ 17 CFR 240.17Ad-22(d)(3).
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A. Consistency With Section 17A(b)(3)(F) of the Act

    Section 17A(b)(3)(F) of the Act \9\ 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.
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    \9\ 15 U.S.C. 78q-1(b)(3)(F).
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    As described above, the proposed rule change would clarify the 
additional ways that ICC can utilize the committed repo facility to 
generate liquidity when needed such as during a default. The Commission 
believes that these changes enhance and strengthen ICC's financial 
condition by giving it additional ways to generate needed liquidity. 
This in turn would help ensure that ICC has the money to continue to 
clear and settle trades even during defaults.
    Additionally, the Commission believes that ICC's proposal to revise 
its Treasury Policy to state that Floating Rate Notes and STRIPS are 
not acceptable forms of US Treasury collateral for IM and GF enhances 
ICC's documentation as to what securities meet its criteria for 
acceptable collateral and facilitates its ability to accept only such 
securities as collateral. The Commission believes that this in turn 
would enhance ICC's financial position by ensuring it holds 
sufficiently liquid collateral to meet its IM and GF needs. This in 
turn would help ensure that ICC can liquidate collateral as needed in a 
prompt manner so that it has the funds to continue to clear and settle 
trades.
    Further, the Commission believes that by adding language stating 
that, with respect to its collateral valuation process, Euros used to 
cover a US Dollar denominated product requirement will be subject to a 
haircut, ICC ensures that it is following its process for collateral 
valuation and discounting for native market and related currency risk. 
The Commission believes that this too would help strengthen ICC's 
financial condition by facilitating the accurate valuation of its 
financial resources, which in turn would help ensure that ICC can 
monitor its collateral and know whether it needs to bolster these 
resources so that they are enough to meet ICC's obligations to clear 
and settle trades.
    Therefore, for the reasons stated above, the Commission finds that 
the proposed rule change would promote the prompt and accurate 
clearance and settlement of securities transactions, assure the 
safeguarding of securities and funds in ICC's custody and control, and, 
in general, protect investors and the public interest, consistent with 
the Section 17A(b)(3)(F) of the Act.\10\
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    \10\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rule 17Ad-22(b)(3)

    Rule 17Ad-22(b)(3) \11\ 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 Clearing Participant (``CP'') families to 
which it has the largest exposures in extreme but plausible market 
conditions. Because the committed repo facility can be used to support 
its clearance and settlement obligations by offering ways to generate 
cash when a default makes the sale of securities on a timely basis or 
same-day basis difficult, the Commission believes that the revisions to 
the Treasury Policy, which clarify various additional ways that that 
the committed repo facility can be used to generate temporary liquidity 
in the event of a default, enhances ICC's ability to maintain 
sufficient financial resources to withstand, at a minimum, a default by 
the two CP families to which it has the largest exposures. 
Additionally, the Commission believes that the revisions to what is 
considered acceptable collateral will strengthen ICC's financial 
resources by ensuring that it only holds sufficiently liquid securities 
that it can sell to meet its financial obligations and exclude those 
securities that are not as easily liquidated.
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    \11\ 17 CFR 240.17Ad-22(b)(3).
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    Therefore, for the reasons stated above, the Commission finds that 
the proposed rule change is consistent with Rule 17Ad-22(b)(3).\12\
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    \12\ Id.
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C. Consistency With Rule 17Ad-22(d)(3)

    Rule 17Ad-22(d)(3) \13\ requires ICC to establish, implement, 
maintain and enforce written policies and procedures reasonably 
designed, as applicable, to hold assets in a manner that minimizes risk 
of loss or of delay in its access to them and to invest assets in 
instruments with minimal credit, market, and liquidity risks.
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    \13\ 17 CFR 240.17Ad-22(d)(3).

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    The Commission believes that in clarifying that the committed repo 
facility can be used to generate temporary liquidity through sale and 
agreement to repurchase pledged securities, to rehypothecate sovereign 
debt from overnight repos, and to sell, with the agreement to 
repurchase, sovereign debt held by ICC pursuant to direct investments 
in such securities, ICC is strengthening its ability to hold assets in 
a manner that minimizes delay in access to them by describing ways to 
utilize securities to quickly generate cash when the sale of those 
securities cannot otherwise be accomplished in a timely manner due to a 
clearing participant default. Further, the Commission believes that 
because ICC can use the facility to sell, with the agreement to 
repurchase, sovereign debt held by ICC pursuant to direct investments 
in such securities, it is lowering the liquidity risk of this 
particular sovereign debt.
    Therefore, for the reasons stated above, the Commission finds that 
the proposed rule change is consistent with Rule 17Ad-22(d)(3).\14\
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    \14\ 17Ad-22(d)(3).
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IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act, 
and in particular, with the requirements of Section 17A(b)(3)(F) of the 
Act \15\ and Rules 17Ad-22(b)(3) and (d)(3) thereunder.\16\
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    \15\ 15 U.S.C. 78q-1(b)(3)(F).
    \16\ 17 CFR 240.17Ad-22(b)(3) and 17 CFR 240.17Ad-22(d)(3).
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    It is therefore ordered pursuant to Section 19(b)(2) of the Act 
\17\ that the proposed rule change (SR-ICC-2019-012), be, and hereby 
is, approved.\18\
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    \17\ 15 U.S.C. 78s(b)(2).
    \18\ In approving the proposed rule change, the Commission 
considered the proposal's impact on efficiency, competition, and 
capital formation. 15 U.S.C. 78c(f).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2019-28277 Filed 12-31-19; 8:45 am]
 BILLING CODE 8011-01-P


