[Federal Register Volume 88, Number 77 (Friday, April 21, 2023)]
[Notices]
[Pages 24647-24649]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-08410]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97318; File No. SR-ICC-2023-004]


Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of 
Filing of Proposed Rule Change Relating to Clearance of Additional 
Credit Default Swap Contracts

April 17, 2023.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 
1934,\1\ 15 U.S.C. 78s(b)(1) \2\ and Rule 19b-4,\3\ 17 CFR 240.19b-4, 
notice is hereby given that on April 3, 2023, 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 primarily prepared 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\ Id.
    \3\ Id.
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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 change is for ICC to provide 
for the clearance of Standard Subordinated European Insurance Corporate 
Single Name CDS contracts (``STSEIC Contracts'').

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 rule change is to adopt rules that will 
provide the basis for ICC to clear additional credit default swap 
contracts (``CDS''). Specifically, ICC proposes amending Chapter 26 \4\ 
of the ICC Rules to add Subchapter 26S to provide for the clearance of 
STSEIC Contracts. ICC believes the addition of these contracts will 
benefit the market for CDS by providing market participants the 
benefits of clearing, including the reduction in counterparty risk, and 
safeguarding of margin assets pursuant to clearing house rules. The 
clearing of STSEIC Contracts will not require any changes to ICC's Risk 
Management Framework or other policies and procedures constituting 
rules within the meaning of the Securities Exchange Act of 1934 
(``Act'').\5\
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    \4\ Chapter 26 of the ICC Rules covers the CDS products cleared 
by ICC, with each subchapter of Chapter 26 defining the 
characteristics and additional Rules applicable to the various 
specific categories of CDS contracts cleared by ICC (e.g., Standard 
European Corporate Single Names and Standard North American 
Corporate Single Names).
    \5\ 15 U.S.C. 78q-1.
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Rule Amendments
    STSEIC Contracts have similar terms to Standard European Corporate 
Single Name CDS contracts (``STEC Contracts'') currently cleared by ICC 
and governed by Subchapter 26G of the ICC Rules. Accordingly, the 
proposed rules found in Subchapter 26S largely mirror the ICC Rules for 
STEC Contracts in Subchapter 26G, with certain modifications that 
reflect differences in terms and market conventions between STEC 
Contracts and STSEIC Contracts. STSEIC contracts will be denominated in 
Euro.
    In new Subchapter 26S, Rule 26S-102 (Definitions) sets forth the 
definitions used for STSEIC Contracts. Except as noted below, the 
definitions are substantially the same as the definitions found in 
Subchapter 26G, other than the category of contract to be cleared. The 
definitions section in Subchapter 26S does not contain a definition 
analogous to ``Eligible STEC Sector'' that appears in Subchapter 26G 
as, unlike STEC Contracts, there are no further subsectors for STSEIC 
Contracts as these contracts are essentially already at a sub-sector 
level and therefore a

[[Page 24648]]

definition for further sub-sectors is not necessary. Furthermore, 
Subchapter 26S does not contain several provisions on restructuring 
that are found in Subchapter 26G. The reason such provisions are not 
needed in Subchapter 26S is that the market convention for STSEIC 
Contracts (as set out in the ISDA Physical Settlement Matrix) is that 
Modified Modified Restructuring (aka ``M(M)R Restructuring'') does not 
apply. This differs from the STEC Contract category and therefore 
various provisions that relate to M(M)R Restructuring that are included 
in Subchapter 26G are not applicable for STSEIC Contracts and therefore 
are not included in proposed Subchapter 26S. In addition, Subchapter 
26G includes several references to ``2003-Type CDS Contracts'' which 
are not included in proposed Subchapter 26S as it is not anticipated 
that any cleared STSEIC Contracts will reference the older 2003 ISDA 
Credit Derivatives Definitions and as a result those provision related 
to the 2003 ISDA Credit Derivatives Definitions have not been included. 
ICC Rules 26S-203 (Restrictions on Activity), 26S-206 (Notices Required 
of Participants with respect to STSEIC Contracts), 26S-303 (STSEIC 
Contract Adjustments), 26S-309 (Acceptance of STSEIC Contracts by ICE 
Clear Credit), 26S-315 (Terms of the Cleared STSEIC Contract, 26S-316 
(Relevant Physical Settlement Matrix Updates), 26S-502 (Specified 
Actions), and 26S-616 (Contract Modifications) reflect or incorporate 
the basic contract specifications for STSEIC Contracts and are 
substantially the same as under Subchapter 26G of the ICC Rules. Under 
26S-315(f) the Subordinated European Insurance Terms are deemed to 
apply to the STSEIC Contracts as such terms are part of the market-
standard provisions that apply under the 2014 ISDA Credit Derivatives 
Definitions. Furthermore, 26S-616 is slightly different from the 
analogous provision under Subchapter 26G (i.e., 26G-616) as the NTCE 
Supplement \6\ referenced in Rule 26G-616(c) was adopted while ICC had 
open interest in STEC Contracts and therefore Rule 26G-616 was amended 
to incorporate the NTCE Supplement into then currently open STEC 
Contract positions.\7\ For new cleared contracts such as STSEIC 
Contracts under Subchapter 26S, such specific reference to the NTCE 
Supplement is not necessary as such supplement is part of the 2014 ISDA 
Credit Derivatives Definitions and therefore will automatically apply 
to STSEIC Contracts under the current ISDA Physical Settlement Matrix.
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    \6\ The 2019 Narrowly Tailored Credit Event Supplement to the 
2014 ISDA Credit Derivatives Definitions published by ISDA (the 
``NTCE Supplement'').
    \7\ See SEC Release No. 34-87612 (December 2, 2019) (notice), 85 
FR 3724 (January 22, 2020) (SR-ICC-2019-013).
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(b) Statutory Basis
    ICC believes that the proposed rule change is consistent with the 
requirements of Section 17A of the Act \8\ and the regulations 
thereunder applicable to it, including the applicable standards under 
Rule 17Ad-22.\9\ In particular, Section 17A(b)(3)(F) of the Act \10\ 
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. As described above, the STSEIC Contracts proposed for 
clearing are similar to contracts currently cleared by ICC and will be 
cleared pursuant to ICC's existing clearing arrangements and related 
financial safeguards, protections and risk management procedures. 
Clearing of the STSEIC Contracts will allow market participants an 
increased ability to manage risk and ensure the safeguarding of margin 
assets pursuant to ICC Rules. ICC believes that acceptance of the 
STSEIC Contracts, on the terms and conditions set out in the ICC Rules, 
is 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.\11\
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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).
    \11\ Id.
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    Clearing of the STSEIC Contracts also will satisfy the relevant 
requirements of Rule 17Ad-22.\12\ In particular, in terms of financial 
resources, ICC will apply its existing initial margin methodology to 
the clearing of the additional contracts. ICC believes this model will 
provide sufficient initial margin to cover its credit exposure to its 
clearing members commensurate with the risks and particular attributes 
from clearing such contracts, consistent with the requirements of Rule 
17Ad-22(e)(6).\13\ In addition, ICC believes its guaranty fund, under 
its existing methodology, will together with the required initial 
margin, provide sufficient financial resources to support the clearing 
of the additional contracts consistent with the requirements of Rule 
17Ad-22(e)(4).\14\ ICC also believes that its existing operational 
systems, policies, procedures and controls are sufficient for clearing 
the additional contracts, consistent with the requirements of Rule 
17Ad-22(e)(17),\15\ as the new contracts are substantially the same 
from an operational perspective as existing contracts and ICC will use 
existing settlement procedures and account structures for the new 
contracts. ICC determined to accept STSEIC Contracts for clearing in 
accordance with its governance process, which included review of the 
contracts and related risk management considerations by the ICC Risk 
Committee and approval by the Board. These governance arrangements are 
consistent with the requirements of Rule 17Ad-22(e)(2).\16\
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    \12\ 17 CFR 240.17Ad-22.
    \13\ 17 CFR 240.17Ad-22(e)(6), which requires covered clearing 
agency policies and procedurs to cover its credit exposures to its 
participants by establishing a risk-based margin system.
    \14\ 17 CFR 240.17Ad-22(e)(4), which requires covered clearing 
agency policies and procedures to effectively identify, measure, 
monitor and manage its credit exposures to participants and those 
arising from its payment, clearing, and settlement processes.
    \15\ 17 CFR 240.17Ad-22(e)(17), which requires covered clearing 
agency policies and procedures to manage its operational risks.
    \16\ 17 CFR 240.17Ad-22(e)(2), which requires covered clearing 
agency policies and procedures to provide for governance arrangments 
which, among other things, are clear and transparent and prioritize 
the safety and efficiency of the covered clearing agency.
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(B) Clearing Agency's Statement on Burden on Competition

    The STSEIC Contracts will be available to all ICC participants for 
clearing. The clearing of STSEIC Contracts by ICC does not preclude the 
offering of the STSEIC Contracts for clearing by other market 
participants. Accordingly, ICC does not believe that clearance of the 
STSEIC Contracts will have any impact, or impose any burden, on 
competition not necessary or appropriate in furtherance of the purposes 
of the Act.\17\
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    \17\ 15 U.S.C. 78q-1.
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(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.

[[Page 24649]]

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.\18\ Comments may be submitted by any 
of the following methods:
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    \18\ Id.
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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-2023-004 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-ICC-2023-004. 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 Section, 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-2023-004 and should be 
submitted on or before May 12, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-08410 Filed 4-20-23; 8:45 am]
BILLING CODE 8011-01-P


