[Federal Register Volume 86, Number 242 (Tuesday, December 21, 2021)]
[Notices]
[Pages 72291-72293]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-27546]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93795; File No. SR-ICC-2021-022]


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

December 15, 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 thereunder,\2\ a proposed rule change to 
revise ICC's End-of-Day Price Discovery Policies and Procedures (the 
``Pricing Policy''). The Pricing Policy formalizes ICC's end-of-day 
(``EOD'') price discovery process that provides prices for cleared 
credit default swap (``CDS'') contracts based on submissions from ICC's 
Clearing Participants.\3\ The proposed rule change was published for 
comment in the Federal Register on November 2, 2021.\4\ 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\ Capitalized terms used but not defined herein have the 
meanings specified in the Pricing Policy.
    \4\ 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, Exchange Act Release No. 
93432 (Oct. 27, 2021); 86 FR 60493 (Nov. 2, 2021) (SR-ICC-2021-022) 
(``Notice'').
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II. Description of the Proposed Rule Change

    As part of ICC's current EOD price discovery process to obtain 
reliable, market-driven prices of cleared CDS instruments, ICC Clearing 
Participants (``CPs'') are required to submit daily EOD prices for 
cleared single name CDS instruments, index CDS instruments, and options 
on index CDS instruments related to their open positions at ICC in 
accordance with the Pricing Policy. ICC uses the resulting EOD prices 
for risk management purposes. ICC is proposing to revise the Pricing 
Policy with respect to CPs' EOD price submissions for index CDS 
instruments (``index submissions'').\5\
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    \5\ The description herein is substantially excerpted from the 
Notice.
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    The Pricing Policy currently allows CPs to provide index 
submissions in either spread convention or price convention. The 
proposed rule change would remove the ability for CPs to provide index 
submissions in spread convention and would require CPs to provide all 
index submissions in price convention, which ICC explains would 
standardize its instrument submission requirements and allow ICC to 
avoid converting between spread and price.\6\ ICC represents that it 
intends to implement the proposed rule change in a phased approach 
following Commission approval and the completion of any other required 
governance or internal processes.\7\ The proposed specific amendments 
are summarized as follows.
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    \6\ See Notice at 60494.
    \7\ Id.
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    ICC proposes to amend Subsection 2.2.3 of the Pricing Policy, which 
sets out the submission format requirements for index instruments. 
Currently, index submissions may be provided in spread convention or 
price convention depending on the instrument, as illustrated in Table 
8. Under the proposed changes, index submissions would be provided only 
in price convention, which has two acceptable types, price or upfront. 
The proposed changes remove Table 8 and language regarding the 
submission of recovery rates, which relate to submissions provided in 
spread terms. ICC proposes minor changes to renumber the tables in the 
Pricing Policy accordingly, and to spell out an abbreviated term ``RR'' 
as ``recovery rate'' in this subsection.
    ICC proposes to amend Subsection 2.2.4 related to the 
standardization of submissions. Currently, the cross-and-lock algorithm 
used by ICC to determine EOD prices and potential trades requires 
inputs in bid-offer format and executes in price terms or spread terms 
depending on the convention for the considered instrument. Currently, 
ICC standardizes CP submissions into bid-

[[Page 72292]]

offer format in either price or spread terms, depending on the 
convention. Under the proposed changes, the cross-and-lock algorithm 
would execute in price terms only. The proposed changes would remove 
language referencing spread terms and distinguishing between price and 
spread terms. The proposed changes also would remove language 
differentiating between submissions in price or spread in subpart (a) 
of Subsection 2.2.4.
    ICC proposes similar changes to Subsection 2.3 (End-of-Day Levels 
and Potential-Trades). As proposed, ICC would no longer determine EOD 
levels in terms of either spread or price. Specifically, the proposed 
changes would remove language requiring ICC to execute the cross-and-
lock algorithm in spread-space for index instruments with a quote 
convention of spread, in price-space for index instruments with a quote 
convention of price, and in price-space for all single name and index 
option instruments. Under Subsection 2.3.1(g) of the Pricing Policy, 
ICC currently adjusts outlying submission trade prices for index 
option, single name, and index instruments with a cross-and-lock 
convention of price and outlying submission trade spreads for index 
instruments with a cross-and-lock convention of spread. For index 
instruments with a cross-and-lock convention of spread, ICC performs a 
conversion between trade price and spread. The proposed changes would 
remove the need for ICC to adjust outlying submission trade spreads, 
including the need for a conversion between trade price and spread.

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.\8\ For the reasons given below, the Commission finds that 
the proposed rule change is consistent with Section 17A(b)(3)(F) of the 
Act and Rule 17Ad-22(e)(6)(iv) thereunder.\9\
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    \8\ 15 U.S.C. 78s(b)(2)(C).
    \9\ 17 CFR 240.17Ad-22(e)(6)(iv).
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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.\10\
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    \10\ 15 U.S.C. 78q-1(b)(3)(F).
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    As noted above, the proposed rule change would amend several 
subsections of the Pricing Policy to require CPs to provide all index 
submissions in price convention rather than in spread convention. 
Specifically, in Subsection 2.2.3, ICC would remove Table 8 given that 
ICC's submission requirements for index instruments would no longer 
accommodate spread convention, and also related language regarding the 
submission of recovery rates, which relate to submissions provided in 
spread terms. In Subsection 2.2.4, ICC would amend the cross-and-lock 
algorithm to execute in price terms (rather than in price or spread 
terms depending on the convention for the considered instrument), and 
remove language referencing spread terms and other language that 
distinguishes or differentiates between price and spread terms. In 
Subsection 2.3, ICC would remove language requiring ICC to execute the 
cross-and-lock algorithm in spread-space for index instruments with a 
quote convention of spread, in price-space for index instruments with a 
quote convention of price, and in price-space for all single name and 
index option instruments, and also eliminate the need to adjust 
outlying submission trade spreads, including the need for conversion 
between trade price and spread for index instruments with a cross-and-
lock convention of spread.
    The Commission believes that these aspects of the proposed rule 
change would simplify the EOD price discovery process for index CDS 
instruments with standardized submission requirements, and thereby 
facilitate ICC's risk management of such instruments. Specifically, the 
Commission believes that, by requiring CPs to provide all index 
submissions in price convention, ICC would avoid spending additional 
time and resources for adjusting outlying submission trade spreads and 
converting between trade price and spread, thereby helping to reduce 
potential operational risks and inefficiencies in ICC's EOD price 
discovery and risk management processes for cleared index CDS 
instruments. The Commission believes that reducing operational risk and 
inefficiencies by simplifying the EOD submission process would, in 
turn, enhance the efficiency of ICC's EOD price discovery process and 
help promote the prompt and accurate clearance and settlement of index 
CDS.
    As noted above, the proposed rule change includes administrative 
revisions designed to support the substantive changes relating to 
simplification of the EOD submission process (e.g., removal of Table 8; 
deletion of language regarding the submission of recovery rates; 
renumbering of other tables in the Pricing Policy; and providing a 
complete reference to an abbreviated term). The Commission believes 
that these administrative changes would also promote the prompt and 
accurate clearance and settlement of such instruments to the extent 
such changes support the substantive changes described above.
    Therefore, the Commission believes that the proposed rule change is 
consistent with Section 17A(b)(3)(F) of the Act.\11\
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    \11\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rule 17Ad-22(e)(6)(iv) Under the Act

    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. The Commission 
believes the proposed rule change, by amending several subsections of 
the Pricing Policy, as described above, to require CPs to provide all 
index submissions only in price convention rather than allowing 
submission in either price or spread, should help ICC establish more 
timely price data on which it may rely when calculating margin 
requirements that will account for the risks posed by index CDS 
instruments as part of its overall risk-based margin system and risk 
management processes.
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    \12\ 17 CFR 240.17Ad-22(e)(6)(iv).
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    The Commission believes that the proposed rule change is therefore 
consistent with Rule 17Ad-22(e)(6)(iv).\13\
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    \13\ 17 CFR 240.17Ad-22(e)(6)(iv).
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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 and Rule 17Ad-22(e)(6)(iv) thereunder.\14\
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    \14\ 17 CFR 240.17Ad-22(e)(6)(iv).

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[[Page 72293]]

    It is therefore ordered pursuant to Section 19(b)(2) of the Act 
\15\ that the proposed rule change (SR-ICC-2021-022), be, and hereby 
is, approved.\16\
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    \15\ 15 U.S.C. 78s(b)(2).
    \16\ 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.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-27546 Filed 12-20-21; 8:45 am]
BILLING CODE 8011-01-P


