[Federal Register Volume 87, Number 145 (Friday, July 29, 2022)]
[Notices]
[Pages 45840-45844]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-16251]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95357; File No. SR-ICC-2022-012]


Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of 
Filing of Proposed Rule Change Relating to the Clearing Rules

July 25, 2022.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on July 19, 2022, ICE Clear Credit LLC (``ICE Clear Credit'' or 
``ICC'') filed with the Securities and Exchange Commission 
(``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 implement 
certain amendments to ICC's Clearing Rules (the ``Rules'') to permit it 
to take advantage of certain additional settlement finality protections 
under applicable UK and EU law. The text of the proposed amendments is 
attached in Exhibit 5 [sic].

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
    The purpose of the proposed changes is to modify certain provisions 
of the Rules to permit the clearing house to take advantage of certain 
protections for default rights and remedies under applicable United 
Kingdom (``UK'') and European Union (``EU'') Settlement Finality Laws 
and regulations. The amendments are expected to be principally relevant 
in the case of an insolvency of an ICC clearing participant 
(``Participant'') domiciled in the UK or an EU member state. The 
amendments would rely on certain protections in such Settlement 
Finality Laws and regulations that provide additional support (on top 
of existing protections in applicable law) for the enforceability of 
the clearing house's default rights and remedies under the Rules 
without interference in such an insolvency.
    By way of background, the EU Settlement Finality Directive \3\ 
introduced various insolvency-related protections in relation to 
``designated systems'' used by EU participants to transfer financial 
instruments and payments, and participation in those systems. The 
Settlement Finality Directive aims to ensure that as a matter of EU 
member state laws, transfer orders which enter into such systems are 
finally settled, regardless of whether the sending participant has gone 
into an insolvency process. Transfer orders for this purpose include 
instructions to make cash payments (including margin payments) and 
instructions to transfer securities (including as margin or in physical 
settlement of a cleared transaction, if applicable). Under the 
Settlement Finality Directive, transfer orders and related netting 
arrangements

[[Page 45841]]

are enforceable, even in the event of insolvency proceedings against a 
participant, provided that the transfer order was entered into the 
system before the opening of the insolvency proceeding.\4\ Further, 
under the Settlement Finality Directive, the right of the operator of a 
designated system to realize and apply collateral security provided by 
a participant would not be affected by insolvency proceedings against 
the participant.\5\
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    \3\ EU Directive 98/26/EC.
    \4\ Settlement Finality Directive Article 3(1).
    \5\ Settlement Finality Directive Article 9.
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    ``Designated systems'' are defined as formal arrangements between 
three or more participants with common rules and standard arrangements 
for clearing or execution of transfer orders between participants which 
are governed by the law of an EU member state and have been designated 
as a system and notified to the European Securities and Markets 
Authority (``ESMA'').\6\ Although the Settlement Finality Directive 
itself does not establish an equivalent regime for systems operated 
under the laws of a non-EU member state (``third-country systems''), 
such as United States (``US'') clearing houses, Recital 7 of the 
Settlement Finality Directive provides that member states may choose to 
apply the provisions of the Settlement Finality Directive to their 
domestic institutions which participate directly in third country 
systems and to collateral security provided in connection with 
participation in such systems. As a result, in some EU member states it 
is possible for a third country system such as ICE Clear Credit to 
receive national designation or be otherwise protected as a designated 
system for the purposes of that member state's national law.
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    \6\ Settlement Finality Directive Article 2(a).
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    The UK has implemented similar settlement finality regulations that 
continue to apply following the withdrawal of the UK from the EU, and 
which are also potentially applicable to UK institutions that 
participate in third country systems (such as a US clearing house).\7\
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    \7\ Financial Markets and Insolvency (Settlement Finality) 
Regulations 1999.
    As used herein, the EU Settlement Finality Directive, national 
implementing legislation and the UK Settlement Finality Regulations 
are collectively referred to as ``Settlement Finality Laws.''
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    As discussed in further detail herein, ICE Clear Credit is 
proposing to adopt amendments to its Rules to introduce explicit 
provisions relating to the settlement finality of transfer orders, in 
order to take advantage of the protections of Settlement Finality Laws. 
Specifically, the amendments would address which ``transfer orders'' 
arise in its system, when they become irrevocable, who is bound by them 
and when they terminate. ICE Clear Credit believes that the amendments 
would facilitate obtaining the relevant protections of the Settlement 
Finality Directive and UK Settlement Finality Regulations, which will 
principally be relevant in the case of an insolvency of a Participant 
that is domiciled in an EU member state or in the UK. The amendments 
would not otherwise affect the clearing house's rights and obligations 
under the Rules, including default rights and remedies, and would not 
be expected to be relevant to an insolvency proceeding involving a 
Participant organized in the US or otherwise outside of the EU or the 
UK. ICC proposes to move forward with implementation of these changes 
following Commission approval of the proposed rule change.
    ICE Clear Credit would adopt a new Part 10 of the Rules addressing 
Settlement Finality Laws. Rule 1000 would add a number of related 
definitions, including definitions for relevant legislation and 
regulations, such as ``EMIR,'' ``Financial Collateral Directive,'' 
``Financial Collateral Regulations,'' ``FSMA,'' ``Settlement Finality 
Directive,'' ``Settlement Finality Regulations'' and ``UK EMIR.'' The 
rule would also adopt key definitions relating to the settlement 
finality provisions, including ``ICE Systems'' (referencing ICE Clear 
Credit's trade registration, clearing processing and finance systems), 
``SFD System'' (referencing the third country system operated by ICE 
Clear Credit for purposes of the Settlement Finality Laws), ``Payment 
Transfer Order,'' ``Securities Transfer Order'' and ``Transfer Order'' 
(representing the types of transfer orders used in the ICE system and 
covered by the Settlement Finality Laws), ``SFD Participant'' 
(referencing ICE Clear Credit itself, its Participants organized in the 
European Economic Area (``EEA'') or in the UK, among certain other 
relevant persons), ``SFD Custodian'' (referencing a custodian located 
in the EEA or the UK used by ICE Clear Credit or a Participant for the 
holding or transfer of Non-Cash Collateral), ``SFD Financial 
Institution'' (referencing a financial institution located in the EEA 
or UK used by ICE Clear Credit or a Participant for purpose of the 
deposit or transfer of cash), ``SFD Security'' (referencing a security 
as defined in the Settlement Finality Laws), ``Indirect Participant'' 
(referencing Non-Participant Parties that fall within the definition of 
indirect participant under the Settlement Finality Laws), and ``Non-
Cash Collateral'' (referencing Margin or Collateral in the form of a 
security).
    New Rule 1001 would set out general principles relevant to 
implementation of the EU and UK settlement finality arrangements. 
Subsection (a) would provide that ICC is the operator of a third 
country system for purposes of relevant Settlement Finality Laws, and 
that Chapter 10 of the Rules would apply to ICE Clear Credit and SFD 
Participants to the extent that the Settlement Finality Laws are 
applicable to such persons. Subsection (b) would require SFD 
Participants to comply with actions taken by ICC pursuant to Chapter 10 
and the relevant Settlement Finality Laws, and to acknowledge that the 
Settlement Finality Laws modify certain otherwise applicable provisions 
of insolvency laws. Subsection (c) would provide that each SFD 
Participant is on notice of the provisions of Chapter 10, and by virtue 
of participating in the SFD System, is deemed to agree to the 
application of Chapter 10 (including in the event of any conflict with 
any other agreement or obligation). Subsection (d) would provide an 
additional acknowledgment that Margin and Collateral transferred to ICC 
under the Rules fall within certain protections for collateral 
arrangements under the Settlement Finality Laws.
    New Rule 1002 would address the timing and circumstances in which 
various types of Transfer Orders would arise for purposes of the ICC 
SFD System, specifically Payment Transfer Orders and Securities 
Transfer Orders in various circumstances, including for transfer of 
positions (``Position Transfer Orders''), transfer of non-cash 
collateral (``Collateral Transfer Orders''), submission of new trades 
for clearing (``New Transaction Clearing Orders''), backloading trades 
for clearing (``Backloaded Transaction Clearing Orders, and together 
with New Transaction Clearing Orders, ``Transaction Clearing Orders''), 
and physical settlement under cleared CDS contracts (``CDS Physical 
Settlement Orders''). The rule would also specify the subject matter of 
each type of Transfer Order (e.g., a payment in respect of a Payment 
Transfer Order) and the parties in respect of which each type of 
Transfer Order would apply and have effect (e.g., in the case of a 
Payment Transfer Order, the affected Participant (if it is an SFD 
Participant), ICE Clear Credit, and any affected SFD Financial 
Institution). Rule 1002 would also address the possibility of multiple 
Transfer Orders existing in respect of the same obligation (which may 
exist, but would not result in the duplication

[[Page 45842]]

of any obligation), and the fact that netting or close out of Contracts 
would not affect the status of Transfer Orders. The rule also states, 
consistent with the general approach of the Rules, that where a 
Transfer Order applies to an Indirect Participant, it would not affect 
the liability of any SFD Participant pursuant to the same Transfer 
Order.
    Rule 1003 would specify the time at which each type of Transfer 
Order (specifically, Payment Transfer Orders, Position Transfer Orders, 
Collateral Transfer Orders, Transaction Clearing Orders and CDS 
Physical Settlement Orders) becomes irrevocable for purposes of the 
relevant Settlement Finality Laws. Payment Transfer Orders would become 
irrevocable at the earlier of the time payment is received or at the 
time the relevant financial institution used by ICC for this purpose 
sends a SWIFT or other confirmation that payment has been made. 
Collateral Transfer Orders similarly would become irrevocable at the 
earlier of the time the transfer is received or a related securities 
transfer order in a relevant securities transfer system becomes 
irrevocable. Position Transfer Orders would become irrevocable at the 
time the position transfer is recorded in the ICC systems, and 
Transaction Clearing Orders would become irrevocable at the applicable 
Novation Time under the Rules. CDS Physical Settlement Orders would 
become irrevocable at the earliest of (1) the time the Matched Delivery 
Buyer has irrevocably instructed its custodian to transfer the relevant 
securities to the Matched Delivery Seller, (2) the time the relevant 
instrument is delivered or assigned, or (3) the time notice is 
otherwise given under the Rules that the Matched Delivery Pair have 
settled the relevant Matched Delivery Contracts. Under the Rule, as 
from the time when the Transfer Order becomes irrevocable, it cannot be 
revoked or purported to be revoked by any SFD Participant or ICE Clear 
Credit and will be binding on all SFD Participants.
    Rule 1004 would address variations or cancellations of Transfers 
Orders prior to the time they become irrevocable, in specified 
circumstances. These circumstances include, for any Transfer Order, 
cases where the order is affected by manifest or proven error or an 
error agreed by all affected SFD Participants. Additional grounds for 
variation or cancellation apply for particular types of Transfer Order, 
including, in the case of a Payment Transfer Order or Collateral 
Transfer Order, where the underlying Contract is void or avoided under 
the Rules or appliable law, or amended as a result of ICC exercising 
its discretion under the Rules. Transaction Clearing Orders may be 
subject to variation or cancellation where the underlying trade is not 
eligible for clearing or otherwise not accepted for clearing, and 
Backloaded Transaction Clearing Orders may be subject to variation or 
cancellation if an error or omission is noted to ICC prior to the 
Novation Time. Similarly, variation or cancellation of a CDS Physical 
Settlement Order may be made if a NOPS Amendment Notice is validly 
delivered under the Rules or ICE Clear Credit Procedures. Under Rule 
1004, in these circumstances, ICC would be permitted to make 
appropriate modifications to the relevant Transfer Order, or in the 
alternative to cancel the relevant Transfer Order. Rule 1004 also would 
not preclude ICC from taking steps to give rise to a new Transfer Order 
with opposite effect to an existing Transfer Order or part thereof. 
Rule 1004 also would provide for notice of any modification or 
cancellation of a Transfer Order to affected SFD Participants.
    Rule 1005 would specify the circumstances under which Transfer 
Orders are deemed satisfied. Specifically, Payment Transfer Orders are 
satisfied upon all required payments being received in immediately 
available funds or full satisfaction of the underlying obligation is 
otherwise made and recorded in ICC's systems, free of any encumbrances. 
Position Transfer Orders would be deemed satisfied upon becoming 
irrevocable (at which time the relevant positions have been transferred 
under the Rules). Collateral Transfer Orders would be deemed satisfied 
upon ICC or the Participant, as applicable, receiving the Non-Cash 
Collateral in its account or upon the definitive record of the assets 
transferred by the Participant being updated to reflect the successful 
transfer of the relevant collateral. Transaction Clearing Orders would 
be deemed satisfied at the time the relevant cleared contracts arise 
under the Rules. A CDS Physical Settlement Order would be deemed 
satisfied at the time ICC updates its records to reflect that physical 
delivery of the relevant security has been completed or the delivery 
obligations of the parties are otherwise discharged or settled.
    Rule 1006 would set out certain acknowledgements of ICC, 
Participants and Non-Participant Parties with respect to matters 
relating to Margin or Collateral to the extent they fall to be 
determined under the laws of an EEA member state or the UK. The 
amendments would clarify that such arrangements are subject to the EU 
Financial Collateral Directive or UK Financial Collateral Regulations, 
as applicable, and would provide that Participants and Non-Participant 
Parties would not dispute that characterization. The amendments would 
further provide that arrangements for the provision of cash Margin and 
Collateral constitute ``title transfer financial collateral 
arrangements'' and arrangements for the provision of Pledged Items 
constitute ``security financial collateral arrangements'', in each case 
for purposes of the EU Financial Collateral Directive or UK Financial 
Collateral Arrangements, that all such Margin and Collateral constitute 
``financial collateral'' for purposes of such laws, and that ICC has 
possession or control of such Margin and Collateral for purposes of 
such laws. The amendments would also state that for purposes of UK law, 
the security arrangements under the Rules constitute a ``market 
charge'' for purposes of the Companies Act 1989, which provides certain 
protections for the enforceability of such arrangements in the event of 
the insolvency of a clearing participant.
    ICC also proposes to make certain amendments to Rule 611, which 
currently addresses the treatment of certain Rules under various 
insolvency laws and other protections for the enforceability of default 
remedies in the event of the insolvency of a clearing participant. The 
amendments would add a new subsection (f), which would provide that 
specified Rules providing for default rights and remedies would 
constitute default rules, procedures and similar arrangements as 
defined for purposes of relevant EU and UK law, including EMIR, UK 
EMIR, and the Settlement Finality Laws.
(b) Statutory Basis
    ICE Clear Credit believes that the proposed amendments are 
consistent with the requirements of Section 17A of the Act \8\ and the 
regulations thereunder applicable to it, including the standards under 
Rule 17Ad-22.\9\ Section 17A(b)(3)(F) of the Act \10\ 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, the safeguarding of securities and funds 
in the custody or control of the clearing agency or for which it is 
responsible, and the protection of investors and the public interest.
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    \8\ 15 U.S.C. 78q-1.
    \9\ 17 CFR 240.17Ad-22.
    \10\ 15 U.S.C. 78q-1(b)(3)(F).

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[[Page 45843]]

    The amendments are intended to permit the clearing house explicitly 
to take advantage of certain additional protections for the 
enforceability of default rights and remedies that may be available 
under EU and UK law, principally in the context of the insolvency of a 
Participant domiciled in the EU or the UK. The amendments would not 
themselves change any of the existing default rights or remedies of 
ICC. Rather, the amendments adopt explicit provisions relating to 
settlement finality of transfer orders relating to various clearing 
activities, most importantly the payment and transfer of Margin and 
Collateral, and the enforcement of ICC's rights with respect thereto, 
in order to facilitate potential reliance by the clearing house on 
settlement finality protections existing under relevant Settlement 
Finality Laws. The amendments would thus provide additional legal 
certainty as to the ability of the clearing house to enforce its 
default rights and remedies (including its rights to use Margin and 
Collateral provided by Participants under the Rules) in the event of 
the insolvency of a Participant domiciled in the EU or the UK (on top 
of existing protections for the enforceability of such rights and 
remedies on which the clearing house may currently rely). As such, the 
amendments are, in ICC's view, consistent with the prompt and accurate 
clearance and settlement of securities transactions and derivative 
agreements, contracts and transactions, the safeguarding of securities 
and funds in the custody or control of the clearing agency or for which 
it is responsible, and the protection of the investors and the public 
interest, within the meaning of Section 17A(b)(3)(F).\11\
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    \11\ 15 U.S.C. 78q-1(b)(3)(F).
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    Moreover, the amendments are consistent with relevant provisions of 
Rule 17Ad-22.\12\ In particular, Rule 17Ad-22(e)(1) requires that each 
covered clearing agency ``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.'' \13\ As 
discussed above, the amendments would provide an additional legal basis 
to support the enforceability of the clearing house's default rules in 
the context of an insolvency of a Participant that is domiciled in an 
EU member state or in the UK. The amendments would in particular 
facilitate the clearing house's taking advantage of protections for the 
enforceability of transfer orders, including in default scenarios, 
based on the EU Settlement Finality Directive and UK Settlement 
Finality Regulations. The amendments thus enhance the legal certainty 
of the framework supporting ICC's activities in those jurisdictions. As 
a result, ICC believes the amendments are consistent with the 
requirements of Rule 17Ad-22(e)(1).\14\
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    \12\ 17 CFR 240.17Ad-22.
    \13\ 17 CFR 240.17Ad-22(e)(1).
    \14\ 17 CFR 240.17Ad-22(e)(1).
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    Rule 17Ad-22(e)(13) requires that each covered clearing agency 
``establish, implement, maintain and enforce written policies and 
procedures reasonably designed to . . . ensure the covered clearing 
agency has the authority and operational capacity to take timely action 
to contain losses and liquidity demands and continue to meet its 
obligations . . .'' \15\ As discussed herein, ICC is not proposing to 
change the substance of its existing default remedies and procedures 
under the Rules and the ICE Clear Credit Procedures. The amendments to 
the Rules are intended to enhance the legal certainty of those existing 
default remedies and procedures in the context of an insolvency of a 
clearing participant domiciled in the EU or the UK by facilitating the 
clearing house's ability to take advantage of protections for transfer 
orders under applicable Settlement Finality Laws. As such, in ICC view, 
the amendments will further compliance with the requirements of Rule 
17Ad-22(e)(13).\16\
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    \15\ 17 CFR 240.17Ad-22(e)(13).
    \16\ 17 CFR 240.17Ad-22(e)(13).
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(B) Clearing Agency's Statement on Burden on Competition

    ICE Clear Credit does not believe the proposed amendments would 
have any impact, or impose any burden, on competition not necessary or 
appropriate in furtherance of the purposes of the Act. The amendments 
will not change the substantive default rights and remedies under the 
Rules, and so will not affect the rights or obligations of ICC itself 
or those of Participants. The changes are intended to enhance the legal 
certainty of existing clearing house default rights and remedies in the 
context of the insolvency of a Participant domiciled in the UK or EU, 
and thereby enhance the overall clearing framework. As a result, ICE 
Clear Credit does not believe the amendments will impact competition 
among clearing members or other market participants, adversely affect 
the ability of market participants to access clearing generally, or 
adversely affect the cost of clearing. ICE Clear Credit thus does not 
believe the proposed amendments would have any impact, or 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 amendments have not been 
solicited or received by ICE Clear Credit. ICE Clear Credit will notify 
the Commission of any comments received with respect to the proposed 
rule change.

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 [email protected]. Please include 
File Number SR-ICC-2022-012 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-2022-012. 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

[[Page 45844]]

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-2022-012 and should be 
submitted on or before August 19, 2022.
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    \17\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-16251 Filed 7-28-22; 8:45 am]
BILLING CODE 8011-01-P


