[Federal Register Volume 86, Number 233 (Wednesday, December 8, 2021)]
[Notices]
[Pages 69699-69703]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-26530]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93705; File No. SR-ICC-2021-021]


Self-Regulatory Organizations; ICE Clear Credit LLC; Order 
Approving Proposed Rule Change Relating to the Counterparty Monitoring 
Procedures and the Credit Rating System Model Description and 
Parameterization

December 2, 2021.

I. Introduction

    On October 13, 2021, 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,\2\ a proposed rule change to adopt the ICC 
Counterparty Monitoring Procedures (the ``Procedures'') and the ICC 
Credit Rating System Model Description and Parameterization (the ``CRS 
Policy''). The proposed rule change was published for comment in the 
Federal Register on November 1, 2021.\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 the Counterparty 
Monitoring Procedures and the Credit Rating System Model Description 
and Parameterization; Exchange Act Release No. 34-93429 (Oct. 26, 
2021); 86 FR 60305 (Nov. 1, 2021) (SR-ICC-2021-021) (``Notice'').
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II. Description of the Proposed Rule Change

A. Introduction

    The new Procedures would describe ICC's policies and practices for 
monitoring its counterparties, specifically its Clearing Participants 
and the entities to which ICC has actual or potential credit exposure, 
such as settlement banks and custodians (collectively, ``Financial 
Service Providers'' or ``FSPs'').\4\ The new CRS Policy would describe 
ICC's Credit Rating System (``CRS''), which ICC uses to analyze the 
risks associated with counterparties.
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    \4\ Capitalized terms not otherwise defined herein have the 
meanings assigned to them in the Procedures, the CRS Policy, or the 
ICE Clear Credit Rules, as applicable.
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B. Procedures

    The new Procedures would be a consolidation of two existing ICC 
procedures with respect to counterparty credit risk--the ICC CDS 
Clearing Counterparty Monitoring Procedures: Bank Counterparties 
(``Bank CMPs'') and the ICC CDS Clearing Counterparty Monitoring 
Procedures: FCM Counterparties (``FCM CMPs''). Although the new 
Procedures would be substantially the same as these two existing 
policies, the Procedures would contain some changes from the existing 
policies, as further described below.
    The Procedures would consist of eleven sections, each of which is 
described below: (i) Introduction and overview; (ii) roles and 
responsibilities; (iii) standards for counterparty relationships; (iv) 
monitoring scope and procedures; (v) counterparty credit rating system; 
(vi) watch list criteria; (vii) actions available to the clearing 
house; (viii) information privacy; (ix) record keeping; (x) referenced 
documentation; (xi) revision history.
    Section one would provide an introduction to, and overview of, the 
Procedures. This section would note that the performance of ICC depends 
on the financial stability of its Clearing Participants and FSPs, and 
accordingly, ICC monitors its relationships with such counterparties. 
Section one would note further that a variety of entities could be 
Clearing Participants and FSPs, such as broker-dealers and futures 
commission merchants in the case of Clearing Participants, and 
settlement banks and repo counterparties in the case of FSPs. Using the 
CRS, ICC would rate its counterparties and identify counterparties that 
exhibit inconsistent financial and operational performance, or that 
show signs of weakness and require more intensive examination. Section 
one of the new Procedures would be largely the same as the introductory 
sections of the Bank CMPs and FCM CMPs.
    Section two would describe the roles and responsibilities of ICC 
personnel and committees. With respect to the counterparties 
themselves, the Procedures would note that Clearing Participants and 
FSPs are responsible for providing information requested by ICC, and 
that Clearing Participants in particular must comply with the 
qualifications and requirements set out in the ICC Rules. With respect 
to ICC, the Risk Department would monitor all counterparties intra-day, 
daily, and monthly and would implement the CRS. The Risk Department 
also would present information regarding counterparties to the 
Participant Review Committee and the Credit Review Subcommittee. The 
Participant Review Committee would be responsible for (i) reviewing 
applications for membership at ICC; (ii) monitoring ongoing compliance 
with ICC membership

[[Page 69700]]

requirements (including financial, operational, legal, and compliance 
requirements); (iii) overseeing the due diligence and approval of FSPs; 
(iv) recommending to the ICC Chief Risk Officer (``CRO'') a 
counterparty for suspension/termination or for placement on or removal 
from the Watch List; and (v) overseeing the withdrawal process for 
Clearing Participants and FSPs. The Credit Review Subcommittee of the 
Participant Review Committee would assist in carrying out these 
responsibilities, review reports, and present recommendations to the 
Participant Review Committee or CRO. The CRO would be responsible for 
reviewing and validating the Risk Department's counterparty credit 
findings and recommendations and for determining if a counterparty 
should be added to, or removed from, the Watch List. Finally, the 
Operations Department would be responsible for monitoring the 
operational and settlement process performance of all counterparties, 
and the Treasury Department would be responsible for monitoring the 
money movements between Clearing Participants and ICC. The information 
in Section two of the new Procedures would be largely the same as what 
is currently found in the Bank CMPs and FCM CMPs, with a few changes. 
For example, under the new Procedures, the Participant Review Committee 
would be responsible for overseeing the due diligence and approval of 
FSPs, while this responsibility is not explicitly assigned under the 
current Bank CMPs and FCM CMPs. Moreover, the new Procedures would 
assign responsibility for implementing the CRS explicitly to the Risk 
Department.
    Section three would describe the minimum standards applicable to 
counterparties as well as the onboarding and withdrawal of 
counterparties. The Procedures would note that the minimum standards 
for Clearing Participants are found in Chapter 2 of the ICC Rules, as 
well as certain other ICC policies and procedures. With respect to 
FSPs, the Procedures would explain that all FSPs must meet the 
following minimum requirements: (i) Approval by the Participant Review 
Committee; (ii) satisfaction of all the operational requirements of the 
ICC Treasury Department; and (iii) subject to regulation and 
supervision by a competent authority. Section three also would note 
that the onboarding and withdrawal process is found in certain other 
ICC policies and procedures and would describe the responsibilities of 
the Risk Department and Participant Review Committee with respect to 
onboarding and withdrawal of FSPs. Specifically, for FSPs the Risk 
Department would: (i) Collect all relevant financial and market 
information necessary to compute credit scores; (ii) require the 
potential new FSP to complete the risk review questionnaire; (iii) 
present the completed risk review questionnaire including the final 
credit score to the Credit Review Subcommittee and Participant Review 
Committee; and (iv) obtain approval from the Participant Review 
Committee for the new FSP. With respect to the withdrawal of FSPs, the 
Participant Review Committee would: (i) Obtain written confirmation 
from the ICC Treasury Department that at all exposures to the FSP have 
been closed out and (ii) obtain written confirmation from the ICC Legal 
Department that all legal agreements with the FSP have been terminated. 
Section three would be a new section under the Procedures.
    Section four of the Procedures would describe how ICC monitors 
counterparties. Section four would first describe what ICC monitors 
counterparties for--financial stability, creditworthiness, operational 
capability, and competence. Section four also would note that the 
financial stability elements of such monitoring are set out in ICC Rule 
201. Section four would note further that in addition to those 
financial elements, ICC would monitor Clearing Participants for: (i) 
Material breach of the rules or regulations of any regulatory, self-
regulatory, or other entity to which the Clearing Participant is 
subject; (ii) participation in the End of Day price discovery process; 
(iii) participation in disaster recovery and default management 
simulations. Moreover, specific to FSPs, ICC also would review their 
liquidity and cash management.
    ICC would conduct this monitoring intra-day and daily, monthly, and 
periodically as needed. With respect to intra-day and daily monitoring, 
the ICC Risk Department would, among other things, (i) monitor the Risk 
Filter Threshold, meaning the intraday risk associated with incoming 
real-time position changes to a portfolio that may require pre-funding; 
(ii) review end-of-day changes to Initial Margin and Guaranty Fund 
requirements; and (iii) monitor the daily news and market metrics for 
Clearing Participants and FSPs. The Risk Department would escalate to 
the Chief Risk Officer any issues identified during the intra-day and 
daily monitoring.
    For monthly monitoring, the Risk Department would prepare a credit 
report on the financial condition of all counterparties. The Chief Risk 
Officer and the Credit Review Subcommittee would each review the 
report. The report would include, among other things, information on 
the exposure of ICC to counterparties and the watch list. Monthly 
monitoring also would include, among other things, review of ICC's 
overall exposure to each Clearing Participant and FSP and their credit 
scores and review of investment allocation for investment 
counterparties. The Risk Department would escalate to the Chief Risk 
Officer any issues identified during the monthly monitoring.
    As part of this intra-day, daily, and monthly monitoring, ICC would 
monitor its aggregate exposure to counterparties. This aggregate 
exposure would include all exposure ICC has to an entity and its 
affiliates, including exposure resulting from multiple relationships 
with an entity (such as a Clearing Participant that is also a FSP). ICC 
would manage its exposures to FSPs using investment allocations and its 
exposures to Clearing Participants using Risk Filter Threshold 
(``RFT'') allocations. Investment allocations would be the limit 
established by the Risk Department for each FSP. The Risk Department 
would review the investment allocations annually, or more frequently as 
needed (such as when a FSP is placed on the watch list). The Risk 
Department would review RFT allocations monthly, or more frequently as 
needed (such as when a Clearing Participant is placed on the watch 
list).
    In addition to intra-day, daily, and monthly monitoring, ICC also 
would conduct periodic risk reviews of counterparties. ICC would 
conduct an initial risk review of all counterparties as part of the 
onboarding process for new counterparties. After the initial risk 
review, the Risk Department would periodically update and amend any 
relevant information related to the review. Section four of the 
Procedures would describe this update process as a Periodic Risk 
Review, and the Risk Department would complete a Periodic Risk Review 
for each counterparty within a four-year timeframe. The Periodic Risk 
Review would be specific to the type of counterparty, Clearing 
Participant or FSP, and with respect to FSPs, specific to the service 
provided by the FSP. Section four of the Procedures would describe the 
process for completing a Periodic Risk Review, which would include, 
among other steps, sending a questionnaire to the counterparty and 
reviewing the information provided by the counterparty. A Periodic Risk 
Review

[[Page 69701]]

could result in: (i) A satisfactory finding, meaning the counterparty 
has the process and procedures in place to provide reasonable assurance 
that the counterparty will be able to perform as required under the 
counterparty contractual obligations, or (ii) an unsatisfactory 
finding, meaning the counterparty does not have the process and 
procedures in place to provide reasonable assurance that it will be 
able to perform as required under the contractual obligations. Finally, 
ICC could perform more frequent Periodic Risk Reviews where: (i) The 
latest Periodic Risk Review was considered unsatisfactory or (ii) the 
counterparty was recently placed on the highest watch list level.
    The information in section four of the new Procedures would be 
substantively the same as the information currently found in the Bank 
CMPs and FCM CMPs, with additional detail. For example, the details 
regarding the monitoring of the RFT threshold consumption and the 
description of how issues are escalated and resulting actions are 
documented, would be new, but ICC represents these would not be a 
material change to current ICC practice.\5\ The description of ICC's 
monitoring and management of aggregate exposure to entities with which 
ICC maintains multiple counterparty relationships, the procedures 
associated with FSP investment allocation and RFT limits, and the 
description of the periodic risk reviews also would be new, additional 
details versus the current Bank CMPs and FCM CMPs.\6\ The current Bank 
CMPs and FCM CMPs contain a list of general information maintained for 
each counterparty, and while ICC still maintains this information, the 
new Procedures describe the responsibilities associated with 
maintaining this information rather than listing all of the 
information.\7\ Moreover, the current Bank CMPs and FCM CMPs contain a 
description of annual monitoring, and this annual monitoring would be 
part of the monthly monitoring under the new Procedures.\8\
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    \5\ Notice, 86 FR at 60307.
    \6\ Notice, 86 FR at 60307.
    \7\ Notice, 86 FR at 60307.
    \8\ Notice, 86 FR at 60307.
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    Section five would provide a summary description of ICC's CRS. The 
CRS Policy, as described below, would provide the specific details with 
respect to the CRS. Section five of the new Procedures would be largely 
the same as the corresponding sections of the Bank CMPs and FCM CMPs.
    Section six would describe ICC's watch list. The watch list is a 
list of counterparties that could pose additional risk to ICC; thus, it 
is a tool that ICC uses to separate counterparties that pose a greater 
risk than others. ICC would automatically place counterparties on the 
watch list if they have certain credit scores under the CRS. Moreover, 
ICC would consider certain qualitative factors for placing 
counterparties on the watch list, such as decreasing levels of 
capitalization. Except for automatic placements resulting from certain 
credit scores under the CRS, the Chief Risk Officer would determine 
whether to add a counterparty to the watch list. The Chief Risk Officer 
also would determine whether to remove a counterparty from the watch 
list, but counterparties would need to have a stable credit score below 
3.0 for at least three months to be removed from the watch list. The 
information in this section would be largely the same as the 
corresponding sections of the Bank CMPs and FCM CMPs, except that the 
new Procedures would provide additional information about automatic 
placement on the watch list.
    Section seven would describe the actions that ICC could take for 
counterparties placed on the watch list. As an initial matter, the 
Chief Risk Officer would review ICC's exposure relative to the 
counterparty's risk profile to determine if any action is necessary. 
With respect to a Clearing Participant, the Chief Risk Officer would 
review the Clearing Participant's net positions, collateral held, 
market movements and magnitude of the Clearing Participant in the 
relevant marketplace. The Risk Department would contact the 
counterparty to discuss the activity that raised the concern. The Chief 
Risk Officer would document the details, rationale, and criteria used 
in determining the actions taken against the CP, and present this 
documentation to the Credit Review Subcommittee. With respect to FSPs, 
concerns would be escalated to the ICC Senior Management, who would 
evaluate the issues and determine what, if any, additional actions 
should be taken. Among other actions, the Chief Risk Officer could 
determine to increase initial margin requirements, reduce a Clearing 
Participant's positions, or terminate a relationship with a FSP. The 
information in this section would be largely the same as the 
corresponding sections of the Bank CMPs and FCM CMPs.
    Section eight would describe how ICC maintains the confidentiality 
and privacy of credit scores and other information related to 
counterparties. This would be a new section under the Procedures.
    Section nine would summarize how ICC maintains the documents, 
reports, and other records required under the Procedures, in accordance 
with its overall document retention policy. This would be a new section 
under the Procedures.
    Section ten would provide a list of other ICC documentation 
referenced by the Procedures. This would be a new section under the 
Procedures.
    Finally, section eleven would describe the revision history of the 
Procedures. This would be a new section under the Procedures.

C. CRS Policy

    The CRS Policy would describe ICC's CRS. The CRS Policy would 
consist of nine sections, each of which is described below: (i) 
Executive summary; (ii) credit rating system scope; (iii) model 
foundations and approach; (iv) model specification; (v) credit rating 
system data description; (vi) model performance testing; (vii) 
assessment of assumptions and limitations; (viii) bibliography and 
appendices; (ix) revision history.
    Like the new Procedures, the CRS Policy would incorporate certain 
sections from the Bank CMPs and FCM CMPs. These sections would include 
information on internal ratings, data sources, and the CRS model. While 
the CRS Policy would take the same approach as currently found in the 
Bank CMPs and FCM CMPs, the CRS Policy would contain additional detail 
with respect to: (i) ICC's credit scoring approach in section one; (ii) 
model foundations and selection of credit risk factors and metrics in 
section three; (iii) testing of the weights between metrics and model 
performance testing in sections four and six; (iv) data sources and 
data quality in section five; and (v) assumptions and limitations of 
the CRS in section seven.\9\
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    \9\ Notice, 86 FR at 60307.
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    The first section would summarize the CRS, including its purpose, 
assumptions, and limitations. As mentioned above, ICC uses the CRS to 
analyze the risks associated with counterparties. The CRS would do so 
by estimating a credit score for each counterparty. The credit score 
would range from one to five, with one being the best and five being 
the worst. Credit scores themselves would be a weighted combination of 
scores under seven individual credit risk factors. As would be noted, 
credit scores would not be intended to estimate probabilities of

[[Page 69702]]

default or forecast counterparty defaults and would depend on the 
quality and stability of the input data used to compute the credit 
scores.
    The second section would describe the scope of the CRS. The CRS 
would consist of two credit scoring models: (i) One for counterparties 
that are banks and investment subsidiaries engaged in the business of 
buying and selling securities and other financial products as well as 
custodian and depository services, including Self-Clearing Members, 
which do not solicit or accept orders from customers; (ii) and another 
for Clearing Participants that solicit or accept orders from customers. 
Each credit scoring model would consist of seven credit risk factors, 
with a different percentage weight assigned to each credit risk factor 
under the two different models. Moreover, section two would describe 
the interpretation of credit scores, ranging from one to five, and 
would summarize the data required to compute the credit scores. 
Finally, section two would describe where the CRS fits in ICC's 
technology structure.
    Section three would describe the foundations and approach of the 
CRS model, which, as discussed, consistent of seven credit risk 
factors. The credit risk factors would be divided into financial and 
market metrics. Financial metrics would provide a point-in-time view of 
the state of the company, while market metrics would be used to capture 
frequent changes in the market sentiment of the companies facing ICC. 
Section three would include descriptions of the credit risk factors. 
For each credit risk factor, section three would specify corresponding 
metrics, relevant definitions, formulas, applicability based on type of 
counterparty, and key regulatory requirements, among other information. 
The CRS also would consider a qualitative assessment, which allows 
flexibility to incorporate additional information (e.g., business risk, 
litigation risk, management actions) regarding the counterparty into 
the credit score, and provides a range of possible qualitative 
assessment scores and qualitative assessment score interpretations. 
Furthermore, section three would explain that ICC could use other data 
as a proxy for certain financial metrics that some counterparties may 
not report.
    Section four would detail the specifications of the CRS model, 
including the calibration of model weights and parameterization. Each 
credit risk factor would receive its own credit risk factor-specific 
weight. Section four would note how credit risk factor weights are 
determined and would discuss the testing of the weights between the 
financial and market metrics to measure the effectiveness of the 
scoring model in identifying early signs of weakness. Section four also 
would discuss metric parameterization for each credit risk factor and 
would describe, among other things, input values, metric descriptions, 
graphical representations, assumptions, parameter sets, and calibrated 
values.
    Section five would describe the data that the CRS would use to 
calculate credit scores. This section also would describe the sources 
for that data, and how ICC would ensure the adequacy of the data and 
the remediation of any inconsistencies. Section five also would 
describe how ICC adjusts and reallocates component weights based on the 
availability of data.
    Section six would describe how ICC tests the performance of the CRS 
model. ICC would review the credit risk factors, corresponding metrics, 
and parameterization at least once a year to assess the model's 
discriminative power. This assessment would include reviewing the 
historical performance of the model.
    Section seven would describe the assumptions and limitations of the 
CRS. Among other things, section seven would note that credit scores 
would not represent a probability of default or forecast company 
defaults and further that the CRS assumes that market data upon which 
scores are based is reliable and is representative of the current 
market conditions.
    Section eight would contain a list of references and section nine 
would describe the revision history of the CRS Policy.
    Finally, there would be four appendices to the CRS Policy, which 
would include other relevant information for the CRS, such as a list of 
systemically important financial institutions.

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.\10\ For the reasons discussed below, the Commission finds 
that the proposed rule change is consistent with Section 17A(b)(3)(F) 
of the Act,\11\ and Rules 17Ad-22(e)(2)(v) and (e)(3)(i).\12\
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    \10\ 15 U.S.C. 78s(b)(2)(C).
    \11\ 15 U.S.C. 78q-1(b)(3)(F).
    \12\ 17 CFR 240.17Ad-22(e)(2)(v) and (e)(3)(i).
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A. Consistency With Section 17A(b)(3)(F) of the Act

    Section 17A(b)(3)(F) of the Act requires, among other things, that 
the rules of ICC be designed to promote the prompt and accurate 
clearance and settlement of securities transactions and, to the extent 
applicable, derivative agreements, contracts, and transactions, as well 
as to assure the safeguarding of securities and funds which are in the 
custody or control of ICC or for which it is responsible.\13\
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    \13\ 15 U.S.C. 78q-1(b)(3)(F).
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    The Commission believes that taken together, the Procedures and CRS 
Policy would help ICC to manage the risk arising from its exposures to 
counterparties. For example, the Commission believes that the 
Procedures would help to ensure that ICC personnel are engaged in 
reviewing and limiting ICC's exposure to counterparties, by making 
various ICC personnel responsible for rating and monitoring 
counterparties, and for taking mitigating actions as needed. Moreover, 
the Commission believes that the minimum standards for counterparties, 
such as being subject to regulation and supervision by a competent 
authority, would help to ensure that all Clearing Participants and FSPs 
have a baseline of financial and operational reliability. The 
Commission further believes that intra-day, daily, monthly, and 
periodic monitoring, as well as the use of the watch list, would help 
to ensure that ICC identifies counterparties at risk of financial or 
operational difficulty. Reviewing end-of-day changes to Initial Margin 
and Guaranty Fund requirements and monitoring overall aggregate 
exposure, through the Risk Filter Threshold and Investment Allocations, 
should similarly help ICC to measure its exposure to counterparties. 
Monitoring and measuring ICC's exposure to counterparties should in 
turn trigger mitigating actions also needed to help ICC to reduce or 
eliminate its exposure to a Clearing Member or FSP. Finally, the 
Commission believes that the CRS Policy, in describing the CRS and 
ICC's credit scoring models, would be an essential part of ICC's 
monitoring and mitigation of the risk arising from its exposures to 
Clearing Participants and FSPs.
    The Commission believes that counterparty credit risk poses a risk 
to ICC's financial resources because

[[Page 69703]]

default by a Clearing Participant could leave ICC under-collateralized 
and default by an FSP could cause ICC to lose its investments or 
expected return of cash. The Commission therefore believes that default 
by a Clearing Participant and default by an FSP could cause ICC to lose 
default resources and operational capital. The Commission believes that 
such losses could, in turn, threaten ICC's ability to operate and 
therefore clear and settle transactions and assure the safeguarding of 
securities and funds.
    Thus, the Commission believes that effective management of ICC's 
counterparty credit risk could help ICC to control risks to the 
financial resources needed to clear and settle transactions and to 
assure the safeguarding of securities and funds in its custody or 
control. The Commission therefore believes that, by establishing the 
actions ICC would take to assess, monitor, and mitigate counterparty 
credit risk, the Procedures and CRS Policy would help ICC to manage 
counterparty credit risk and thereby would promote the prompt and 
accurate clearance and settlement of securities transactions and assure 
the safeguarding of securities and funds which are in the custody or 
control of ICC or for which it is responsible.
    Therefore, the Commission finds that the proposed rule change is 
consistent with Section 17A(b)(3)(F) of the Act.\14\
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    \14\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rule 17Ad-22(e)(2)(v)

    Rule 17Ad-22(e)(2)(v) requires that ICC establish, implement, 
maintain, and enforce written policies and procedures reasonably 
designed to provide for governance arrangements that specify clear and 
direct lines of responsibility.\15\ As discussed above, the Procedures 
would assign roles and responsibilities to various ICC groups and 
personnel. For example, the Risk Department would monitor all 
counterparties intra-day, daily, and monthly and would implement the 
CRS; the Operations Department would monitor the operational and 
settlement process performance of all counterparties; the Treasury 
Department would monitor money movements between Clearing Participants 
and ICC; and the CRO would be responsible for reviewing and validating 
the Risk Department's counterparty credit findings and recommendations 
and for determining if a counterparty should be added to, or removed 
from, the Watch List. The Commission believes that these provisions, as 
well as the other roles and responsibilities described above, would 
specify clear and direct lines of responsibility for ICC groups and 
personnel.
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    \15\ 17 CFR 240.17Ad-22(e)(2)(v).
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    Therefore, the Commission finds that the proposed rule change is 
consistent with Rule 17Ad-22(e)(2)(v).\16\
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    \16\ 17 CFR 240.17Ad-22(e)(2)(v).
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C. Consistency With Rule 17Ad-22(e)(3)(i)

    Rule 17Ad-22(e)(3)(i) requires that ICC establish, implement, 
maintain and enforce written policies and procedures reasonably 
designed to, as applicable, 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 ICC, which, among other things, 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 
ICC, that are subject to review on a specified periodic basis and 
approved by the board of directors annually.\17\
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    \17\ 17 CFR 240.17Ad-22(e)(3)(i).
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    As discussed above, the Procedures and CRS Policy would describe 
how ICC evaluates and monitors risks posed by its counterparties, and 
how ICC mitigates such risks. The Commission believes that together 
these documents would allow ICC to measure comprehensively the credit 
risk posed by Clearing Participants and FSPs through, among other 
things, assessing the financial status of Clearing Participants and 
FSPs and determining ICC's aggregate exposure to Clearing Participants 
and FSPs. The Commission further believes that the CRS, watch list, 
periodic monitoring, and exposure limits would provide ICC a 
comprehensive means of monitoring the credit risk posed by Clearing 
Participants and FSPs. Finally, the Commission believes that the 
mitigating actions discussed above would reduce or eliminate ICC's 
exposure to a Clearing Participant or FSP, thereby helping ICC manage 
overall credit risk.
    Therefore, the Commission finds that the proposed rule change is 
consistent with Rule 17Ad-22(e)(3)(i).\18\
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    \18\ 17 CFR 240.17Ad-22(e)(3)(i).
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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 \19\ Rules 17Ad-22(e)(2)(v) and (e)(3)(i).\20\
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    \19\ 15 U.S.C. 78q-1(b)(3)(F).
    \20\ 17 CFR 240.17Ad-22(e)(2)(v) and (e)(3)(i).
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    It is therefore ordered pursuant to Section 19(b)(2) of the Act 
\21\ that the proposed rule change (SR-ICC-2021-021), be, and hereby 
is, approved.\22\
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    \21\ 15 U.S.C. 78s(b)(2).
    \22\ 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.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-26530 Filed 12-7-21; 8:45 am]
BILLING CODE 8011-01-P


