[Federal Register Volume 83, Number 126 (Friday, June 29, 2018)]
[Notices]
[Pages 30802-30804]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-13985]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83513; File No. SR-ICC-2018-006]


Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of 
Filing of Proposed Rule Change Relating to Amending the ICC Clearing 
Rules Regarding Mark-to-Market Margin

June 25, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given that on June 
13, 2018, 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 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\ 17 CFR 240.19b-4.
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change, Security-Based Swap Submission, or Advance Notice

    The principal purpose of the proposed changes is to make changes to 
the ICC Clearing Rules (the ``ICC Rules'') to more clearly characterize 
Mark-to-Market Margin payments as settled-to-market rather than 
collateralized-to-market.

II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change, Security-Based Swap Submission, or 
Advance Notice

    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, Security-Based Swap Submission, or 
Advance Notice

(a) Purpose
    ICC proposes revisions to Chapters 4, 8, and 20 of the ICC Rules to 
more clearly characterize Mark-to-Market Margin payments as settlement 
payments (``settled-to-market'') rather

[[Page 30803]]

than collateral (``collateralized-to-market''). Under the settled-to-
market model, the transfer of Mark-to-Market Margin constitutes a 
settlement of the contract's outstanding exposure, with the receiving 
party taking outright title to the Mark-to-Market Margin and the 
transferring party retaining no rights to such margin. Under the 
collateralized-to-market model, the transfer of Mark-to-Market Margin 
constitutes a pledge of collateral, such that the transferring party 
has a right to reclaim the collateral and the receiving party has an 
obligation to return the collateral.\3\
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    \3\ Use of a settled-to-market model, rather than a 
collateralized-to-market model, is consistent with requirements 
applicable to a derivatives clearing organization, as interpreted by 
Commodity Futures Trading Commission (``CFTC'') staff. CFTC 
Interpretive Letter No. 17-51 (Oct. 12, 2017) (``CFTC Letter''). Use 
of a settled-to-market model also may result in more favorable 
capital treatment for positions in cleared derivatives for market 
participants that are subject to regulations of U.S. banking 
supervisors implementing the Basel III capital framework. See Office 
of the Comptroller of the Currency, Board of Governors of the 
Federal Reserve System, Federal Deposit Insurance Corporation, 
Regulatory Capital Treatment of Certain Centrally-cleared Derivative 
Contracts Under Regulatory Capital Rules (Aug. 14, 2017).
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    ICC previously revised the Rules in 2015 to clarify that Mark-to-
Market Margin constituted a settlement payment. Such revisions did not 
result in a change in the manner in which Mark-to-Market Margin was 
calculated, paid or collected, and were intended to provide further 
clarity regarding the finality of ICC's settlement cycle.\4\ ICC is 
proposing additional clarifying changes to the Rules. As with the prior 
changes, the proposed amendments do not change the manner in which 
Mark-to-Market Margin is calculated, or other current ICC operational 
practices. Rather, such changes consist of additional revisions to 
terminology to further clarify the legal characterization that payments 
of Mark-to-Market Margin represent settlement rather than collateral 
payments. These clarifying changes result from further legal analysis 
with respect to ICC's characterization of Mark-to-Market Margin 
payments as settlement rather than as posting of collateral, as 
requested by its Clearing Participants (``CPs''). The proposed 
revisions are described in detail as follows.
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    \4\ SR-ICC-2015-008.
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    ICC proposes revising Rule 401 to reference Mark-to-Market Margin 
Balance, a new term that is defined in Rule 404 and refers to the 
aggregate amount of Mark-to-Market Margin paid or received. The term is 
used in several calculations, avoids the need to repeat the definition, 
and allows ICC to more clearly and fully describe specifics pertaining 
to its Mark-to-Market Margin calculation in a single section without 
combining it with other concepts. ICC proposes adding language to Rule 
401(a), which governs House Margin, to state that ICC calculates a net 
amount of Mark-to-Market Margin by subtracting a CP's Mark-to-Market 
Margin Balance from a CP's Mark-to-Market Margin Requirement. ICC 
proposes corresponding changes referencing Mark-to-Market Margin 
Balance in Rule 401(b)(ii), which covers Client-Related Mark-to-Market 
Margin. Such changes are not intended to modify the current calculation 
of Mark-to-Market Margin, or other operational practices, but, instead, 
replace certain specifics relating to ICC's Mark-to-Market Margin 
calculation with the defined term. The amendments do not change the 
manner in which Initial Margin is calculated, posted and held.
    Further, ICC proposes to specify that a CP's Mark-to-Market Margin 
Balance is adjusted by an amount called the price alignment amount in 
revised Rule 401(g). Specifically, ICC proposes to state that it will 
pay or charge a CP price alignment amounts on any Mark-to-Market Margin 
and interest on any cash Initial Margin at a rate that may be negative. 
A price alignment amount is economically equivalent to the ``interest'' 
that ICC pays or charges a CP for any net Mark-to-Market Margin 
transferred between the parties under current Rule 401(g). However, 
since the term interest may be more typically associated with 
collateral, ICC proposes to refer to such an amount as price alignment 
to avoid confusion over the proper characterization of Mark-to-Market 
Margin as settlement payments.\5\ Such change will not affect 
operations, since ICC will continue to pay or charge a CP an amount, 
which serves the same purpose and is calculated identically, for any 
net Mark-to-Market Margin transferred between the parties. ICC also 
proposes separate clarifying language to note that the rate at which it 
pays or charges such an amount may be negative, to more clearly address 
the possibility of negative market rate environments.
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    \5\ See CFTC Letter, supra, for a discussion of the use of price 
alignment amount instead of price alignment interest.
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    ICC proposes to specifically reference the applicable category of 
margin to avoid confusion over the proper characterization of Mark-to-
Market Margin under the ICC Rules. ICC proposes to update Rule 401(h) 
to refer to substitutions of Initial Margin, and Rule 401(l) to refer 
to settlement finality in relation to Mark-to-Market Margin. The 
proposed changes to Rule 402, which governs ICC's rights with respect 
to the use of margin, exclude Mark-to-Market Margin from subsections 
(a) and (b), remove details relating to Mark-to-Market Margin from 
subsection (b), and specify subsection (c)'s applicability to Initial 
Margin. ICC proposes adding language to Rule 402(e) to more clearly 
state that Mark-to-Market Margin payments constitute a settlement. 
Further, ICC proposes adding new subsection (c) to Rule 404 to define 
Mark-to-Market Margin Balance as a sum equal to the Mark-to-Market 
Margin value transferred by the CP to ICC minus the Mark-to-Market 
Margin value transferred by ICC to the CP. To avoid uncertainty, ICC 
also proposes to specifically reference the applicable category of 
margin in Rule 406(c). Namely, ICC proposes to clarify that the 
requirements set forth in Rule 406(c) regarding Client-Related 
Positions apply to Initial Margin.
    ICC proposes clarifications and conforming changes to Chapters 8 
and 20 of the ICC Rules. ICC proposes clarifying language in Rule 
801(a)(i) to refer to the transfer of Mark-to-Market Margin to avoid 
confusion over the proper characterization of Mark-to-Market Margin as 
settlement payments, since ICC considers the loss after the application 
of Initial Margin and taking into account settlement of Mark-to-Market 
Margin to be uncollateralized loss. Under the proposed updates, Rule 
808 includes a conforming reference to Mark-to-Market Margin Balance. 
The proposed changes to Rule 810(e) replace terminology that is 
commonly used in conjunction with collateral to avoid confusion over 
the proper characterization of Mark-to-Market Margin as settlement 
payments. ICC proposes to clarify in Rule 20-605(c)(i)(B), which 
specifies the resources to be used to cover losses with respect to 
Client-Related Positions, that ICC will use the defaulting CP's Client-
Related Mark-to-Market Margin, to the extent not previously applied to 
pay Mark-to-Market Margin to other CPs.
(b) Statutory Basis
    Section 17A(b)(3)(F) of the Act \6\ 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; to assure the safeguarding of securities and funds which 
are in the custody or control of the clearing agency or for which it is

[[Page 30804]]

responsible; and to comply with the provisions of the Act and the rules 
and regulations thereunder. ICC believes that the proposed rule changes 
are consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to ICC, in particular, to Section 
17A(b)(3)(F),\7\ because ICC believes that the proposed rule changes 
will promote the prompt and accurate clearance and settlement of 
securities transactions, derivatives agreements, contracts, and 
transactions, and contribute to the safeguarding of securities and 
funds associated with security-based swap transactions in ICC's custody 
or control, or for which ICC is responsible. The proposed changes to 
the ICC Rules are consistent with the current calculation of Mark-to-
Market Margin and related operational practices and are intended to 
more clearly reflect the legal characterization of Mark-to-Market 
Margin payments as settlement rather than collateral payments. The 
proposed changes are designed to add certainty to ICC's Rules by 
incorporating clarifying language and changes to avoid a potential 
mischaracterization of Mark-to-Market Margin payments. The proposed 
revisions will provide market participants with certainty surrounding 
ICC's treatment of Mark-to-Market Margin, which will facilitate 
compliance with market participants' own capital requirements and 
therefore further the public interest. As such, the proposed changes 
provide additional clarity and transparency in the ICC Rules and are 
designed to promote the prompt and accurate clearance and settlement of 
securities transactions, derivatives agreements, contracts, and 
transactions within the meaning of Section 17A(b)(3)(F) \8\ of the Act.
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    \6\ 15 U.S.C. 78q-1(b)(3)(F).
    \7\ Id.
    \8\ Id.
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(B) Clearing Agency's Statement on Burden on Competition

    ICC does not believe the proposed rule changes would have any 
impact, or impose any burden, on competition. The changes, which 
further clarify that payments of Mark-to-Market Margin represent 
settlement rather than collateral payments, result in no operational 
changes and apply uniformly across all market participants. Therefore, 
ICC does not believe the proposed rule changes impose any burden on 
competition that is inappropriate in furtherance of the purposes of the 
Act.

(C) Clearing Agency's Statement on Comments on the Proposed Rule 
Change, Security-Based Swap Submission, or Advance Notice 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.

III. Date of Effectiveness of the Proposed Rule Change, Security-Based 
Swap Submission, or Advance Notice 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, security-based swap submission, or advance notice is consistent 
with the Act. Comments may be submitted by any of the following 
methods:

Electronic Comments

    <bullet> Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#4f3d3a232a622c2022222a213b3c0f3c2a2c61282039"><span class="__cf_email__" data-cfemail="b9cbccd5dc94dad6d4d4dcd7cdcaf9cadcda97ded6cf">[email protected]</span></a>. Please include 
File Number SR-ICC-2018-006 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-2018-006. 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, security-based 
swap submission, or advance notice that are filed with the Commission, 
and all written communications relating to the proposed rule change, 
security-based swap submission, or advance notice 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-2018-006 and should be submitted on 
or before July 20, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-13985 Filed 6-28-18; 8:45 am]
 BILLING CODE 8011-01-P


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