[Federal Register Volume 86, Number 65 (Wednesday, April 7, 2021)]
[Notices]
[Pages 18087-18090]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-07115]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91450; File No. SR-ICC-2021-006]


Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of 
Proposed Rule Change Relating to the ICC Clearing Rules and ICC 
Exercise Procedures

April 1, 2021.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 
1934, 15 U.S.C. 78s(b)(1) and Rule 19b-4, 17 CFR 240.19b-4, notice is 
hereby given that on March 25, 2021, ICE Clear Credit LLC (``ICC'') 
filed with the Securities and Exchange Commission the proposed rule 
change 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 from interested persons.

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 revise the 
ICC Clearing Rules (the ``Rules'') and the ICC Exercise Procedures in 
connection with the clearing of credit default index Swaptions.\1\
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    \1\ 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

    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

(a) Purpose
    ICC proposes revising the ICC Rules and the ICC Exercise Procedures 
related to the clearing of credit default index Swaptions (``Index 
Swaptions''). Pursuant to an Index Swaption, one party (the ``Swaption 
Buyer'') has the right (but not the obligation) to cause the other 
party (the ``Swaption Seller'') to enter into an index credit default 
swap transaction at a pre-determined strike price on a specified 
expiration date on specified terms. In the case of Index Swaptions 
cleared by ICC, the underlying index credit default swap is limited to 
certain CDX and iTraxx index credit default swaps that are accepted for 
clearing by ICC, and which would be automatically cleared by ICC upon 
exercise of the Index Swaption by the Swaption Buyer in accordance with 
its terms. ICC proposes minor revisions to support the clearing of 
Index Swaptions, including updates related to iTraxx Index Swaptions, 
an enhancement to the exercise and assignment process, and other 
clarifications. ICC proposes to make the changes effective following 
Commission approval of the proposed rule change. The proposed revisions 
are described in detail as follows.
I. Rule Amendments
    The proposed amendments consist of minor revisions to Rule 26R-319, 
which addresses procedures for settlement of an exercised Index 
Swaption. Additional settlements may be required under Rule 26R-319(b) 
if one or more Credit Events has occurred with respect to the 
underlying index at or prior to the expiration date of the Index 
Swaption. Regarding the determination of Index Swaption settlement 
amounts, Rule 26R-319(b)(ii) currently contemplates the inclusion of an 
additional accrual-related component (``Additional Accrual'') which is 
specified as zero in accordance with ICC Circular 2020/070.\2\ The 
circular describes how ICC determines settlement amounts for cleared 
Index Swaptions in light of industry discussions and refers market 
participants to a detailed presentation on ICC's website.\3\ Amended 
Rule 26R-319(b)(ii) would omit the description of the Additional 
Accrual. The circular and presentation on the determination of Index 
Swaption settlement amounts would remain on ICC's website.
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    \2\ ICC Circular 2020/070, issued on November 6, 2020, available 
at: https://www.theice.com/publicdocs/clear_credit/circulars/Circular_2020_070.pdf.
    \3\ The presentation on Index Swaption settlement amounts is 
available at: https://www.theice.com/publicdocs/Index_Option_Settlement_Payments.pdf.
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    Regarding iTraxx Index Swaptions, ICC proposes to amend Rule 26R-
319(c), which applies in the case of a relevant M(M)R Restructuring 
Credit Event. ICC proposes to omit paragraph (i), related to the 
delivery of MP Notices by Swaption Buyer and Swaption Sellers. ICC does 
not proposes any changes to paragraph (ii), which details how an 
Underlying New Trade comes into effect. An Underlying New Trade remains 
defined in Rule 26R-102 as a new single name CDS trade that would arise 
upon exercise of an Index Swaption where a relevant Restructuring 
Credit Event, if applicable, has occurred with respect to a reference 
entity in the relevant index. ICC proposes to amend paragraph (iii) and 
remove paragraph (iv) which currently discuss the treatment of the 
Underlying New Trade in respect of the Event Determination Date. 
Instead, amended paragraph (iii) would discuss the treatment of the 
Underlying New Trade depending on whether the expiration date occurred 
prior to, or on or following, the commencement of the CEN Triggering 
Period (as defined in the

[[Page 18088]]

Restructuring Procedures).\4\ If the expiration date occurs prior to 
commencement of the period, the Underlying New Trade will be subject to 
the provisions of the CDS Restructuring Rules in Subchapter 26E (and 
may become a Triggered Restructuring CDS Transaction thereunder). If 
the Expiration Date occurs on or following commencement of such period, 
neither party will be permitted to deliver an MP Notice, the Underlying 
New Trade cannot become a Triggered Restructuring CDS Transaction and 
no Event Determination Date or settlement will occur.
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    \4\ ICC Restructuring Procedures available at: https://www.theice.com/publicdocs/clear_credit/ICE_Clear_Credit_Restructuring_Procedures.pdf.
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II. Exercise Procedures
    The Exercise Procedures supplement the provisions of Subchapter 26R 
of the Rules with respect to Index Swaptions and provide further detail 
as to the manner in which Index Swaptions may be exercised by Swaption 
Buyers, the manner in which ICC will assign such exercises to Swaption 
Sellers, and certain actions that ICC may take in the event of 
technical issues.
    ICC proposes an enhancement to the exercise and assignment process 
in the Exercise Procedures. ICC proposes to revise Paragraph 1, which 
sets out key definitions used for the exercise of Index Swaptions, to 
reference Paragraph 2.2(e) in respect of the Pre-Exercise Notification 
Period. Paragraph 2.2(e) describes the Pre-Exercise Notification Period 
during which an exercising party can submit, modify, and/or withdraw 
preliminary exercise notices. The Exercise Procedures allow firms to 
submit preliminary exercise notices such that the preliminary 
instructions can be used as the final exercise instructions in the 
event of a communications failure during the exercise window. The 
proposed changes allow ICC to identify each exercising party's ``in the 
money'' Index Option open positions for the relevant expiration date 
and submit, on behalf of the exercising party, preliminary exercise 
notices for all such in ``the money'' positions. Such preliminary 
exercise notices submitted by ICC for an exercising party may be 
modified or withdrawn by the exercising party during the Pre-Exercise 
Notification Period. Additionally, ICC proposes a related change to 
Paragraph 2.2(i) to reference ICC's ability to submit, on behalf of an 
exercising party, a preliminary exercise notice.
    ICC proposes updates to Paragraphs 2.6 and 2.8, which include 
procedures to address a failure of the electronic system established by 
ICC for exercise (``Exercise System Failure''). In such case, Paragraph 
2.6 provides ICC with several options including, canceling and 
rescheduling the Exercise Period (i.e., the period on the expiration 
date of an Index Swaption during which the Swaption Buyer may deliver 
an exercise notice to ICC to exercise all or part of such Index 
Swaption). The proposed changes clarify that canceling and rescheduling 
the Exercise Period may include scheduling a new Pre-Exercise 
Notification Period, in which case any preliminary exercise notices and 
exercise notices submitted prior will be ineffective. Paragraph 2.8 
addresses the situation where ICC will automatically exercise on the 
expiration date each open position (of all exercising parties) in an 
Index Swaption that is determined by ICC to be ``in the money'' on such 
date. ICC proposes the inclusion of additional language relating to its 
determination of whether an Index Swaption is ``in the money'' in 
connection with the clearing of iTraxx Index Swaptions.
(b) Statutory Basis
    ICC believes that the proposed rule change is consistent with the 
requirements of Section 17A of the Act \5\ and the regulations 
thereunder applicable to it, including the applicable standards under 
Rule 17Ad-22.\6\ In particular, Section 17A(b)(3)(F) of the Act \7\ 
requires that the rule change be consistent with the prompt and 
accurate clearance and settlement of securities transactions and 
derivative agreements, contracts and transactions cleared by ICC, 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. ICC proposes minor changes to the Rules and Exercise 
Procedures to support the clearing of Index Swaptions. As described 
above, with respect to iTraxx Index Swaptions, ICC proposes amending 
the procedures for an M(M)R Restructuring Credit Event in Rule 26R-
319(c) and for the determination of whether an Index Swaption is ``in 
the money'' in Paragraph 2.8 the Exercise Procedures. The amended 
Exercise Procedures incorporate an additional safety feature, including 
in the case of a technology or communication error, to allow ICC to 
submit preliminary exercise notices on behalf of exercising parties, as 
described in Paragraph 2.2(e). The additional clarifications ensure 
that the Rules and Exercise Procedures remain effective, clear, and up-
to-date, including by omitting the description of Additional Accrual in 
Rule 26R-319(b), which ICC does not consider necessary in the Rules. 
Accordingly, in ICC's view, the proposed rule change will further 
ensure that ICC's Rules and policies and procedures clearly reflect the 
terms and conditions applicable to Index Swaptions and is thus 
consistent with the prompt and accurate clearing and settlement of the 
contracts cleared by ICC, including Index Swaptions, 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.\8\
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    \5\ 15 U.S.C. 78q-1.
    \6\ 17 CFR 240.17Ad-22.
    \7\ 15 U.S.C. 78q-1(b)(3)(F).
    \8\ Id.
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    The amendments would also satisfy relevant requirements of Rule 
17Ad-22.\9\ Rule 17Ad-22(e)(1) \10\ requires each covered clearing 
agency to establish, implement, maintain, and enforce written policies 
and procedures reasonably designed to provide for a well-founded, 
clear, transparent, and enforceable legal basis for each aspect of its 
activities in all relevant jurisdictions. The Exercise Procedures 
supplement the provisions of Subchapter 26R of the Rules with respect 
to Index Swaptions and further ensure that ICC's Rules clearly reflect 
the terms and conditions applicable to Index Swaptions. The proposed 
changes would support the clearing of Index Swaptions by ICC, including 
updates related to iTraxx Index Swaptions and other clarifications, to 
ensure that the ICC Rules and Exercise Procedures clearly and 
accurately reflect the requirements and procedures applicable to iTraxx 
Index Swaptions and Index Swaptions more generally. The proposed rule 
change would continue to support the legal basis for ICC's clearance of 
Index Swaptions and operation of the exercise and assignment process, 
including addressing situations where there are technical issues. As 
such, the proposed rule change would satisfy the requirements of the 
Rule 17Ad-22(e)(1).\11\
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    \9\ 17 CFR 240.17Ad-22.
    \10\ 17 CFR 240.17Ad-22(e)(1).
    \11\ Id.
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    Rule 17Ad-22(e)(10) \12\ requires each covered clearing agency to 
establish, implement, maintain, and enforce written policies and 
procedures reasonably designed to establish and maintain transparent 
written standards that state its obligations with respect to the 
delivery of physical instruments,

[[Page 18089]]

and establish and maintain operational practices that identify, 
monitor, and manage the risks associated with such physical deliveries. 
The Rules continue to clearly set out the procedures for settlement of 
Index Swaptions on exercise, which result in the creation of a cleared 
underlying index CDS Contract (and in some cases in the event of a 
Restructuring Credit Event, an Underlying New Trade. The proposed Rule 
amendments consist of changes related to the clearing of iTraxx Index 
Swaptions and other clarifications. ICC proposes to omit the 
description of Additional Accrual in Rule 26R-319(b), which ICC does 
not consider necessary in the Rules. A more comprehensive explanation 
on the determination of Index Swaption settlement amounts would remain, 
and is more fitting, in the circular and presentation on ICC's website. 
Regarding of iTraxx Index Swaptions, ICC would revise Rule 26R-319(c), 
applicable in the case of a relevant M(M)R Restructuring Credit Event, 
and the treatment of the Underlying New Trade would depend on whether 
the expiration date occurred prior to, or on or following, the 
commencement of the CEN Triggering Period. In ICC's view, the Rules 
continue to enable ICC to identify and manage the risks of settlement 
of Index Swaptions on exercise. As such, the amendments would satisfy 
the requirements of Rule 17Ad-22(e)(10).\13\
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    \12\ 17 CFR 240.17Ad-22(e)(10).
    \13\ Id.
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    Rule 17Ad-22(e)(17) \14\ requires, in relevant part, each covered 
clearing agency to establish, implement, maintain, and enforce written 
policies and procedures reasonably designed to manage its operational 
risks by (i) identifying the plausible sources of operational risk, 
both internal and external, and mitigating their impact through the use 
of appropriate systems, policies, procedures, and controls; and (ii) 
ensuring that systems have a high degree of security, resiliency, 
operational reliability, and adequate, scalable capacity. The Exercise 
Procedures allow ICC to manage the operational risks associated with 
the exercise and assignment process by establishing procedures for the 
exercise and assignment of Index Swaptions, which allows ICC to 
identify plausible sources of operational risks in clearing Index 
Swaptions and minimize their impact through appropriate systems, 
policies, procedures, and controls. The proposed changes allow ICC to 
identify each exercising party's ``in the money'' Index Option open 
positions for the relevant expiration date and submit preliminary 
exercise notices for all such in ``the money'' positions. These 
revisions are intended to serve as a safety feature, including in the 
case of a technology or communication error, and such preliminary 
exercise notices submitted by ICC may be modified or withdrawn by the 
exercising party during the Pre-Exercise Notification Period. Such 
procedures are designed to help mitigate the impact from technical 
issues to ensure that the system has a high degree of security, 
resiliency, operational reliability, and adequate, scalable capacity. 
The proposed rule change is therefore reasonably designed to meet the 
requirements of Rule 17Ad-22(e)(17).\15\
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    \14\ 17 CFR 240.17Ad-22(e)(17)(i)-(ii).
    \15\ Id.
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(B) Clearing Agency's Statement on Burden on Competition

    ICC does not believe the proposed amendments would have any impact, 
or impose any burden, on competition not necessary or appropriate in 
furtherance of the purpose of the Act. The proposed changes to the ICC 
Rules and ICC Exercise Procedures will apply uniformly across all 
market participants. Therefore, ICC does not believe the proposed rule 
change imposes any burden on competition not necessary or appropriate 
in furtherance of the purpose of the Act.

(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
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 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 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-2021-006 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-2021-006. 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 that are filed with 
the Commission, and all written communications relating to the proposed 
rule change 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-2021-006 and should be 
submitted on or before April 28, 2021.
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    \16\ 17 CFR 200.30-3(a)(12).


[[Page 18090]]


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    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-07115 Filed 4-6-21; 8:45 am]
BILLING CODE 8011-01-P


