[Federal Register Volume 86, Number 28 (Friday, February 12, 2021)]
[Notices]
[Pages 9404-9406]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-02868]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91075; File No. SR-ICC-2020-014]


Self-Regulatory Organizations; ICE Clear Credit LLC; Order 
Approving Proposed Rule Change Relating to the ICC Clearing Participant 
Default Management Procedures

February 8, 2021.

Introduction

    On December 22, 2020, 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 (``Act'') \1\ 
and Rule 19b-4 thereunder,\2\ a proposed rule change to revise its 
Clearing Participant (``CP'') Default Management Procedures (the 
``Default Management Procedures'').\3\ The proposed rule change was 
published for comment in the Federal Register on January 8, 2020.\4\ 
The Commission did not receive comments on 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 ICC Clearing Rules (the ``Rules'').
    \4\ Self-Regulatory Organizations; ICE Clear Credit LLC; Notice 
of Filing of Proposed Rule Change Relating to the ICC Clearing 
Participant Default Management Procedures, Exchange Act Release No. 
90841 (January 4, 2021), 86 FR 1555 (January 8, 2021) (SR-ICC-2020-
014) (``Notice'').
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II. Description of the Proposed Rule Change

    ICC's proposed rule change would make clarifying changes to the 
Default Management Procedures to formalize the process for convening 
remote meetings of ICC's CDS Default Committee, and to update certain 
procedures for notifications by designated ICC officers as part of its 
CP default management process.\5\ This process includes the actions 
that ICC takes to determine that a CP is in default and to close-out 
the defaulting CP's portfolio.\6\
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    \5\ The description herein is substantially excerpted from the 
Notice.
    \6\ See Notice, 86 FR at 1555.
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    Specifically, ICC proposes revisions to Subsection 4.4 (Secure 
Trading Facility) of the Default Management Procedures related to 
convening the ICC CDS Default Committee, which consists of designated 
employees of eligible CPs that have CDS trading experience and are 
deemed seconded to ICC to assist with default management and the close-
out process. Currently, Subsection 4.4 provides only for an in-person 
meeting of the CDS Default Committee in a private room at ICC's New 
York offices (``Secure Trading Facility''). The proposed changes 
specify that ICC may convene its CDS Default Committee at the Secure 
Trading Facility or remotely by teleconference (``Remote Trader 
Consultation'') in the event the Committee is unable to meet in person. 
The proposed changes also specify that the ICC Chief Risk Officer 
(``CRO'') will decide whether to convene the CDS Default Committee in 
person or remotely, and that such decision will depend on the 
circumstances at the time of the declaration of the default.
    ICC also proposes updates to Section 6 (Default Declaration). 
Currently, Subsection 6.1.5 (CCO Pre-Declaration Initiated Actions) 
requires the ICC Chief Compliance Officer (``CCO'') to inform default 
contacts at the Commission and the Commodity Futures Trading Commission 
(``CFTC'') by telephone of a potential CP default. The proposed changes 
to Subsection 6.1.5 would allow the CCO to inform the default contacts 
at Commission and the CFTC by telephone or email of a potential 
default, and further direct the CCO to inform other regulators of the 
potential default as may be required. Amended Subsection 6.4 (Default 
Declaration Notification) similarly directs the CCO to notify other 
regulators (in addition to the Commission and the CFTC) of a default if 
applicable, and replaces the word ``all'' with ``above'' in the phrase 
``Upon the CCO confirming all notifications have been completed,'' in 
the last paragraph of this subsection.
    The proposed updates to Subsection 6.5.3 (CRO Post-Declaration 
Preparation) relate to the CRO's actions to convene the CDS Default 
Committee after a declaration of default and to determine whether this 
Committee will meet in person or remotely at such post-declaration 
phase. If the CRO convenes an in-person CDS Default Committee meeting 
at the Secure Trading Facility, the proposed updates to Subsection 
6.5.3 clarify that the CRO will work with ICC's Risk Committee and 
other ICC staff as required to perform certain specified actions. The 
proposed revisions to Subsection 6.5.4 (CCO Post-Declaration Actions) 
make clarifications in respect of the notice that the CCO provides to 
the compliance personnel of a CDS Default Committee member following a 
declaration of a default, including the prospect that the CDS Default 
Committee may meet by teleconference.

[[Page 9405]]

    ICC also proposes changes to Section 7 (CDS Default Committee 
Consultation). The proposed changes reference ICC's ability to convene 
the CDS Default Committee remotely. Amended Subsection 7.1 (Convening a 
CDS Default Committee Meeting) formalizes the process for convening a 
CDS Default Committee for Remote Trader Consultation, including the 
procedure for the CRO to request that ICC's Risk Department will 
provide the notice via email to CDS Default Committee members and what 
information is included in the notice. The changes also specify the 
particular email contents and other actions that would be taken for 
convening the CDS Default Committee at the Secure Trading Facility or 
by Remote Trader Consultation, respectively, or by either means. 
Amended Subsection 7.3 (Initial CDS Default Committee Meeting) 
specifies that ICC's provision of access to the cleared portfolios of 
defaulting CPs are conducted where technologically practicable during 
the initial CDS Default Committee meeting. Current Subsection 7.3 does 
not contain the phrase ``where technologically practicable.'' In 
addition, amended Subsection 7.3 makes minor grammatical updates, 
including adding a parenthetical and updating the sentence structure 
for clarity.

III. 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 
the proposed rule change is consistent with the requirements of the Act 
and the rules and regulations thereunder applicable to the organization 
presenting it.\7\ For the reasons given below, the Commission finds 
that the proposed rule change is consistent with Section 17A(b)(3)(F) 
of the Act \8\ and Rules 17Ad-22(e)(2)(i), (e)(2)(v), and (e)(13) 
thereunder.\9\
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    \7\ 15 U.S.C. 78s(b)(2)(C).
    \8\ 15 U.S.C. 78q-1(b)(3)(F).
    \9\ 17 CFR 240.17Ad-22(e)(2)(i), (e)(2)(v), and (e)(13).
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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, to 
assure the safeguarding of securities and funds which are in the 
custody or control of ICC or for which it is responsible, and, in 
general, to protect investors and the public interest.\10\
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    \10\ 15 U.S.C. 78q-1(b)(3)(F).
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    The Commission believes that, by clarifying ICC's process for 
convening remote meetings of its CDS Default Committee and updating its 
default notification procedures to regulators and CP trading and 
compliance personnel, the proposed rule change should enhance ICC's 
ability to manage the risks associated with a CP default and the timely 
close-out of the defaulter's CDS portfolio. Specifically, the 
Commission believes that, by including explicit authorization and 
instructions for the CRO to convene the CDS Default Committee for 
Remote Trader Consultation via teleconference if circumstances prevent 
the CDS Default Committee from meeting in person, the proposed rule 
change would enhance the ability of ICC to respond promptly to the 
risks posed by a given CP default situation and would provide 
particular processes for addressing a default via a Remote Trader 
Consultation. Likewise, the Commission believes that, by including 
updated notification procedures related to a CP default, ICC's relevant 
stakeholders, such as the CDS Default Committee members, CP trading and 
compliance personnel, and regulators, would be better informed of the 
status of a CP default situation, thus facilitating their ability to 
participate in the default management process as needed and provide 
prompt and responsive feedback.
    Therefore, the Commission believes that the proposed rule change 
generally should provide ICC with enhanced clarity, efficiency and 
flexibility in how it manages and responds to the risks of CP defaults, 
which in turn should help ICC maintain its resilience in the event of a 
default. By improving ICC's ability to manage a CP default, the 
Commission believes that the proposed rule change should also improve 
ICC's ability to avoid losses that could result from a CP default. The 
Commission further believes that such losses, if not properly managed, 
could hinder ICC's ability to continue operations and therefore clear 
and settle securities transactions and safeguard securities and funds 
in its custody or control. Therefore, for these reasons, the Commission 
finds that the proposed rule change should promote the prompt and 
accurate clearance and settlement of securities transactions and assure 
the safeguarding of securities and funds in ICC's custody and control, 
consistent with the 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 Rules 17Ad-22(e)(2)(i) and (v)

    Rules 17Ad-22(e)(2)(i) and (v) require, in relevant part, that ICC 
establish, implement, maintain, and enforce written policies and 
procedures reasonably designed to provide for governance arrangements 
that are clear and transparent and that specify clear and direct lines 
of responsibility.\12\
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    \12\ 17 CFR 240.17Ad-22(e)(2)(i) and (v).
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    The Commission believes that the proposed rule change's revisions 
to assign clear and updated responsibilities to the CRO and CCO during 
each phase of the default declaration process in the Default Management 
Procedures provide for governance arrangements that are clear and 
transparent and that specify clear and direct lines of responsibility. 
Specifically, the proposed rule change would update and clarify the 
CCO's pre-declaration, default declaration, and post-declaration 
notification responsibilities, so that information is imparted to all 
relevant stakeholders. Further, the proposed rule change would update 
and clarify the CRO's post-declaration responsibilities, including 
documenting the CRO's decision-making authority and actions for 
convening the CDS Default Committee at either an in-person meeting at 
the Secure Trading Facility or via Remote Trader Consultation by 
teleconference, depending on the circumstances at the time of the 
default declaration. In the Commission's view, including these 
responsibilities should ensure that the relevant stakeholders have 
clear and transparent information on their respective roles and 
responsibilities at each phase of the default management process. 
Accordingly, the Commission believes that the proposed revisions to the 
Default Management Procedures are reasonably designed to provide for 
governance arrangements that are clear and transparent and that specify 
clear and direct lines of responsibility, consistent with Rules 17Ad-
22(e)(2)(i) and (v).\13\
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    \13\ 17 CFR 240.17Ad-22(e)(2)(i) and (v).
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C. Consistency With Rule 17Ad-22(e)(13)

    Rule 17Ad-22(e)(13) requires ICC to establish, implement, maintain 
and enforce written policies and procedures reasonably designed to 
ensure that it has the authority and operational capacity to take 
timely action to contain losses and liquidity demands and continue to 
meet its obligations by, at a minimum, requiring its participants and, 
when practicable, other stakeholders to

[[Page 9406]]

participate in the testing and review of its default procedures, 
including any close-out procedure, at least annually and following 
material changes thereto.
    By amending the Default Management Procedures to document and 
formalize the procedures for convening the CDS Default Committee 
remotely by teleconference, the proposed rule change would promote 
ICC's ability to efficiently and safely manage its close-out process 
when the CDS Default Committee cannot meet in person, which would help 
to ensure that ICC has the authority and operational capacity to take 
timely action to contain losses and liquidity demands and continue to 
meet its obligations in the event of default. In addition, the 
Commission believes the proposed updates and clarification changes to 
the default notification procedures would ensure that ICC's relevant 
stakeholders stay informed throughout the default management process 
and enable them to provide responsive feedback that may also help ICC 
to take timely action to contain losses and liquidity demands while 
meeting its obligations. For these reasons, the Commission finds that 
the proposed rule change is consistent with Rule 17Ad-22(e)(13).\14\
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    \14\ 17 CFR 240.17Ad-22(e)(13).
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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 \15\ and Rules 17Ad-22(e)(2)(i), (e)(2)(v), and (e)(13) 
thereunder.\16\
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    \15\ 15 U.S.C. 78q-1(b)(3)(F).
    \16\ 17 CFR 240.17Ad-22(e)(2)(i), (e)(2)(v), and (e)(13).
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    It is therefore ordered pursuant to Section 19(b)(2) of the Act 
\17\ that the proposed rule change (SR-ICC-2020-014) be, and hereby is, 
approved.\18\
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    \17\ 15 U.S.C. 78s(b)(2).
    \18\ 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).
    \19\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-02868 Filed 2-11-21; 8:45 am]
BILLING CODE 8011-01-P