[Federal Register Volume 86, Number 86 (Thursday, May 6, 2021)]
[Notices]
[Pages 24425-24427]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-09528]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91733; File No. SR-ICC-2021-013]


Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of 
Filing of Proposed Rule Change Relating to the ICC End-of-Day Price 
Discovery Policies and Procedures

April 30, 2021.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on April 23, 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 
primarily by ICC. The Commission is publishing this notice to solicit 
comments on the proposed rule change 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

    The principal purpose of the proposed rule change is to make 
changes to ICC's End-of-Day Price Discovery Policies and Procedures 
(``Pricing Policy''). These revisions do not require any changes to the 
ICC Clearing Rules (the ``Rules'').

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 to revise the Pricing Policy, which sets out ICC's 
end-of-day (``EOD'') price discovery process that provides prices for 
cleared contracts using submissions made by Clearing Participants 
(``CPs''). 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 
amendments are described in detail as follows.
    ICC proposes updates related to firm trade obligations and other 
clarifications. Under the Pricing Policy, to encourage CPs to provide 
the best possible EOD submissions, ICC selects a subset of the 
potential trades generated and designates them as firm trades, which 
CPs are entered into as cleared transactions. ICC selects specific 
dates on which it can require CPs to execute firm trades (``firm trade 
days''). For each firm trade day, ICC specifies the instruments that 
may become firm trade eligible, subject to certain specified criteria. 
Amended Section 2.4.1 incorporates additional criteria that must be met 
for the generation of firm trades, referred to as the trade price 
deviation constraint (the ``constraint''). The proposed changes 
reference the constraint throughout Section 2.4.1, specifically in 
subsections (a), (b), and (c), and describe the constraint in 
subsection (d). Under the constraint, ICC avoids creating a high number 
of trades around its EOD levels by not designating potential trades as 
firm trades if the magnitude of the hypothetical profit/loss is smaller 
in magnitude than the absolute value of the difference between the EOD 
level and either the bid price or offer price. ICC would only designate 
a potential trade as a firm trade if the trade level fell outside the 
EOD level plus/minus one half the EOD bid-offer width (``BOW'') for the 
given instrument. Such constraint would not apply when the potential 
firm trade is formed by crossing two outlying submission trades.
    With respect to credit default index swaptions (``Index Options''), 
ICC proposes additional language on the designation of a potential 
trade as a firm trade, subject to the CP open interest and ICC open 
interest requirements in amended Subsection 2.4.1.c. Similar 
requirements are currently incorporated in the Pricing Policy for 
indices and single names. Under the CP open interest requirement, for 
ICC to designate a potential trade as a firm trade, both parties must 
have cleared open interest, as of the designated times, in one or more 
Index Option instrument sharing the same underlying index instrument, 
expiration date, strike convention, exercise style and transaction 
type. Under the ICC open interest requirement, ICC only designates a 
potential trade in a given Index Option instrument as a firm trade if 
ICC has cleared open interest in that instrument.
    ICC proposes additional clarifications to the Pricing Policy. In 
Section 2.2.2, ICC proposes to abbreviate a term. ICC proposes 
revisions to Section 2.6 to more clearly set out the circumstances 
under which a CP may participate in the EOD price discovery process on 
behalf of another CP. The amendments specify that a CP may allow an 
affiliated CP to participate in the EOD price discovery process on its 
behalf. In Section 3, ICC proposes to memorialize that the Pricing 
Policy is subject to review by the Risk Committee and review and 
approval by the Board at least annually.
(b) Statutory Basis
    ICC believes that the proposed rule change is consistent with the 
requirements of Section 17A of the Act \3\ and the regulations 
thereunder applicable to it, including the applicable standards under 
Rule 17Ad-22.\4\ In particular, Section 17A(b)(3)(F) of the Act \5\ 
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 believes that the proposed amendments promote its 
ability to maintain the effectiveness and integrity of its EOD price 
discovery process. Under the proposed constraint, ICC avoids creating a 
high number of trades around its EOD levels by not designating 
potential trades as firm trades if the magnitude of the hypothetical 
profit/loss is smaller in magnitude than the absolute value of the 
difference between the EOD level and either the bid price or offer 
price. The purpose of EOD firm trades is to maintain the robustness of 
the

[[Page 24426]]

established price discovery process, and on-market firm trades do not 
incentivize the correction of outlying submissions. The additional 
clarifications further ensure that the Pricing Policy remain effective, 
clear, and up-to-date to support the effectiveness of ICC's EOD price 
discovery process, including by incorporating language on the 
designation of a potential trade as a firm trade, subject to the CP 
open interest and ICC open interest requirements for Index Options; 
clarifying the circumstances under which a CP may participate in the 
EOD price discovery process on behalf of another CP; and memorializing 
the review and approval process for the document. The proposed rule 
change is therefore consistent with the prompt and accurate clearing 
and settlement of the contracts 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, within the meaning of Section 17A(b)(3)(F) of the Act.\6\
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    \3\ 15 U.S.C. 78q-1.
    \4\ 17 CFR 240.17Ad-22.
    \5\ 15 U.S.C. 78q-1(b)(3)(F).
    \6\ Id.
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    The amendments would also satisfy relevant requirements of Rule 
17Ad-22.\7\ Rule 17Ad-22(e)(2)(i) and (v) \8\ requires each covered 
clearing agency to establish, implement, maintain, and enforce written 
policies and procedures reasonably designed to provide for governance 
arrangements that are clear and transparent and specify clear and 
direct lines of responsibility. The Pricing Policy subjects the ICC EOD 
price discovery process to a governance and oversight structure that 
promotes transparency and accountability and clearly assigns and 
documents responsibility for relevant actions and decisions. The 
proposed changes strengthen the governance procedures and arrangements 
detailed in the Pricing Policy by memorializing the review and approval 
of the document by relevant groups at least annually. As such, in ICC's 
view, the proposed rule change continues to ensure that ICC maintains 
policies and procedures that are reasonably designed to provide for 
clear and transparent governance arrangements and specify clear and 
direct lines of responsibility, consistent with Rule 17Ad-22(e)(2)(i) 
and (v).\9\
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    \7\ 17 CFR 240.17Ad-22.
    \8\ 17 CFR 240.17Ad-22(e)(2)(i) and (v).
    \9\ Id.
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    Rule 17Ad-22(e)(3)(i) \10\ requires each covered clearing agency to 
establish, implement, maintain, and enforce written policies and 
procedures reasonably designed to maintain a sound risk management 
framework for comprehensively managing legal, credit, liquidity, 
operational, general business, investment, custody, and other risks 
that arise in or are borne by the covered clearing agency, which 
includes risk management policies, procedures, and systems designed to 
identify, measure, monitor, and manage the range of risks that arise in 
or are borne by the covered clearing agency, that are subject to review 
on a specified periodic basis and approved by the board of directors 
annually. ICC maintains a sound risk management framework that 
identifies, measures, monitors, and manages the range of risks that it 
faces. The Pricing Policy is a key aspect of ICC's risk management 
approach, and the proposed amendments would memorialize that the 
document is reviewed by the Risk Committee and reviewed and approved by 
the Board at least annually. As such, the amendments would satisfy the 
requirements of Rule 17Ad-22(e)(3)(i).\11\
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    \10\ 17 CFR 240.17Ad-22(e)(3)(i).
    \11\ Id.
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    Rule 17Ad-22(e)(6)(iv) \12\ requires each covered clearing agency 
to establish, implement, maintain, and enforce written policies and 
procedures reasonably designed to cover its credit exposures to its 
participants by establishing a risk-based margin system that, at a 
minimum uses reliable sources of timely price data and uses procedures 
and sound valuation models for addressing circumstances in which 
pricing data are not readily available or reliable. ICC believes that 
the proposed constraint is appropriately designed to support and 
maintain the effectiveness of ICC's EOD price discovery process that 
provides reliable prices, which ICC uses for risk management purposes. 
As described above, under the proposed constraint, ICC would only 
designate a potential trade as a firm trade if the trade level fell 
outside the EOD level plus/minus one half the EOD BOW for the given 
instrument. The purpose of EOD firm trades is to maintain the 
robustness of the established price discovery process, and on-market 
firm trades do not incentivize the correction of outlying submissions. 
The constraint would not apply when the potential firm trade is formed 
by crossing two outlying submission trades. Moreover, the proposed 
clarifications ensure that the Pricing Policy remains effective and 
transparent by adding language on the designation of a potential trade 
in an Index Option as a firm trade, subject to the CP open interest and 
ICC open interest requirements, and by clarifying the circumstances 
under which a CP may participate in the EOD price discovery process on 
behalf of another CP. In ICC's view, such changes are appropriately 
designed to promote and maintain the effectiveness and integrity of the 
Pricing Policy and the EOD price discovery process that provides 
reliable prices, consistent with the requirements of Rule 17Ad-
22(e)(6)(iv).\13\
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    \12\ 17 CFR 240.17Ad-22(e)(6)(iv).
    \13\ 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 
the Pricing Policy will apply uniformly across all market participants. 
Therefore, ICC does not believe the amendments would impose any burden 
on competition not necessary or appropriate in furtherance of the 
purposes 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-2021-013 on the subject line.

[[Page 24427]]

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-2021-013. 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-2021-013 and should be 
submitted on or before May 27, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-09528 Filed 5-5-21; 8:45 am]
BILLING CODE 8011-01-P


