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[Federal Register Volume 89, Number 248 (Friday, December 27, 2024)]
[Notices]
[Pages 105654-105657]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-30778]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101970; File No. SR-ICC-2024-012]

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 19, 2024.

I. Introduction

    On October 21, 2024, ICE Clear Credit LLC (``ICC'') filed with the 
Securities and Exchange Commission (the ``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.\3\ The 
proposed rule change was published for comment in the Federal Register 
on November 6, 2024.\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 End-of-Day Price Discovery Policies and 
Procedures (``EOD Procedures'') as applicable.
    \4\ Securities Exchange Act Release No. 101489 (Oct. 31, 2024), 
89 FR 88094 (Nov. 6, 2024) (File No. SR-ICC-2024-012) (``Notice'').
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II. Description of the Proposed Rule Change

A. Background

    ICC is registered with the Commission as a clearing agency for the 
purpose of clearing Credit Default Swap (``CDS'') contracts.\5\ ICC's 
EOD Procedures set out ICC's end-of-day (``EOD'') price discovery 
process, which provides prices for cleared contracts using submissions 
made by Clearing Participants. ICC uses its EOD price discovery process 
to provide market-driven prices for cleared CDS instruments and cleared 
derivatives of CDS instruments. ICC uses the resulting EOD prices for 
risk management purposes and distributes them to Clearing Participants 
and their clients. ICC also publishes a subset of EOD prices on its 
public website.
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    \5\ Capitalized terms not otherwise defined herein have the 
meanings assigned to them in EOD Procedures, as applicable.
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    ICC proposes to revise the EOD Procedures. The primary purpose of 
the proposed revisions is to address Commodity Futures Trading 
Commission (``CFTC'') exam findings.\6\ The proposed revisions clarify 
the meanings of certain terms used in the EOD Procedures, specifically 
Most-Actively-Traded-Instrument; Most-Actively-Traded-Coupon; and bid-
offer widths. The proposed changes also make other miscellaneous 
updates to the EOD Procedures.
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    \6\ Notice, 89 FR 88095.
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B. Most-Actively-Traded-Instrument

    The term Most-Actively-Traded-Instrument (``MATI'') is used by ICC 
throughout the EOD Procedures to refer to the most-liquid instrument in 
a specified group of instruments. Because the most-liquid instrument in 
a given group of instruments will depend on the specific group of 
instruments at issue, the MATI varies. Currently, Section 1.2.3 of the 
EOD Procedures, titled Most-Actively-Traded Instrument, defines the 
term MATI as ``the most-liquid instrument in the group of instruments'' 
and specifies the typical MATI for index risk sub factors and corporate 
single name risk sub factors. To highlight the context-dependent nature 
of the term MATI, the proposed rule change would modify the definition

[[Page 105655]]

of MATI and provide examples of a typical MATI for a given risk factor 
rather than identifying a specific MATI. The proposed examples would 
illustrate the specific contexts in which the term MATI is most 
commonly used.
    Specifically, ICC would strike a statement that the term MATI is 
``defined'' as ``the most-liquid instrument in the group of 
instruments'' and replace it with a statement that ICC uses the term 
MATI ``to refer to the most-liquid instrument in a specified group of 
instruments.''
    Similarly, with regard to the specific contexts in which the term 
MATI is most commonly used, the proposed rule change would strike two 
statements describing the ``typical'' MATI for ``index risk sub 
factors'' and ``investment grade North American and European corporate 
[single name] risk sub factors.'' The statement regarding index risk 
sub factors would be replaced with an example of the MATI for ``an 
index risk factor,'' which typically is the contract with a scheduled 
termination date corresponding to the 5-year ``tenor'' and being the 
most recent series and version of the applicable cleared CDS index 
instrument. The current statement regarding single name risk factors 
would be replaced with an example of the MATI for a single name risk 
factor ``for investment grade North American corporate SN risk 
factors,'' which typically is the contract with a scheduled termination 
date corresponding to the 5-year ``tenor,'' having U.S. Dollar as the 
currency of denomination, having a coupon of 100 basis points, 
referencing deliverable obligations having a senior debt tier, and 
having an ``XR14'' restructuring clause.\7\
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    \7\ Under applicable ISDA Credit Derivatives Definitions, `XR14' 
references no restructuring under the 2014 ISDA Definitions.
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    The examples in subsection 1.2.3 would further be expanded to 
include examples of the MATI for ``a SN risk sub-factor and the MATI 
for ``a specific coupon within a SN risk sub-factor,'' which typically 
would be the most actively traded coupon and scheduled termination date 
in the group of single name instruments sharing the same reference 
entity, currency of denomination, reference entity debt tier, and 
restructuring clause, and the most actively traded schedule termination 
date (i.e., tenor) in the group of single name instruments sharing the 
same reference entity, currency of denomination, reference entity debt 
tier, restructuring clause, and coupon, respectively.

C. Most Actively Traded Coupon

    Subsection 1.2.3 also currently defines the term Most-Actively-
Traded Coupon (``MATC'') as the coupon associated with a single name 
risk sub factor's MATI. ICC proposes additional clarifying revisions to 
this provision of subsection 1.2.3. Specifically, the current statement 
that ``ICC further defines the coupon associated with a SN risk sub-
factor's MATI as the most-actively traded coupon (``MATC'') for that 
risk sub-factor'' would be replaced with a statement that ``ICC uses 
the term'' MATC to refer to the coupon of the MATI for a SN risk 
factor, or SN risk sub-factor, depending on the stated context.

D. Bid-Offer Widths

    Section 2 of the EOD Procedures addresses ICC's methodology for 
producing EOD prices. ICC is proposing to make changes to clarify the 
use of bid-offer widths (``BOW'') in Section 2 of the EOD Procedures.
    ICC proposes revisions to subsection 2.1.2, which addresses 
consensus BOWs, to clarify the definition and use of consensus BOWs. 
BOWs are estimates of the bid-offer widths for the two-way market 
available for each clearing-eligible instrument at a specific time on 
each business day. ICC proposes to amend subsection 2.1.2 to describe a 
consensus BOW as the estimate of the prevailing market BOW during a 
given period. The revisions would further clarify that ICC determines a 
consensus BOW for each on-the-run index and for all single name 
benchmark-instruments at the appropriate EOD BOW execution time. ICC 
also proposes to add further detail to subsection 2.1.2 with respect to 
ICC's estimates of consensus BOWs to add that such estimations are 
performed with respect to each index risk factor MATI. With respect to 
consensus BOWs for single name instruments, ICC proposes to add 
additional detail to subsection 2.1.2 to clarify that ICC estimates a 
consensus BOW from Clearing Participant-submitted mid-prices for all 
single name benchmark-instruments.
    ICC proposes to revise subsection 2.1.4, which covers EOD BOWs, to 
describe the calculation of EOD BOWs more accurately. The EOD BOW is 
the BOW calculated for each clearing-eligible instrument at the 
applicable end of the clearing day. ICC calculates the EOD BOW by first 
determining a consensus BOW for an instrument.
    Subsection 2.1.4.a describes how ICC determines EOD BOWs for index 
instruments. Section 2.1.4.a currently includes a statement that ``ICC 
compares the consensus BOW to the three predefined BOWs.'' The proposed 
rule change would revise that statement to clarify that ``ICC compares 
the consensus BOW established for that instrument to the three 
predefined BOWS.''
    ICC also proposes to revise subsection 2.1.4.b, which describes the 
process for calculating EOD BOWs for single name instruments. In the 
description of the factors ICC applies to each consensus BOW, the 
proposed revisions clarify that such list of factors includes observed 
intraday price variability. The proposed revisions also add a statement 
that the benchmark-instrument BOW resulting after applying the listed 
factors to the benchmark-instrument consensus BOW is referred to in the 
EOD Procedures as the benchmark-instrument ``systematic'' BOW. Finally, 
ICC proposes to add to subsection 2.1.4.b details related to ICC's 
determination of the systematic BOW for each benchmark instrument for 
non-MATC coupons. These proposed changes clarify that ICC's calculation 
involves use of the benchmark-instrument consensus BOW established for 
non-MATC benchmark instruments belonging to the given single name risk 
sub-factor.

E. Other Updates

    Within Section 2, ICC proposes to amend subsection 2.1.3 and 2.1.4, 
which covers variability bands and EOD BOWs respectively. The proposed 
amendments modify the titles of Table 2, Table 4, and Table 6, and 
clarify the uses of the tables. The titles of Table 2 and Table 4 are 
currently ``Assignment of Index Risk Factors to Market Proxy Groups.'' 
ICC proposes to expand the title of Table 2 to include a statement that 
the table is used for the purpose of determining the variability band 
for each market proxy group. ICC proposes to add language to the 
caption for Table 4 to clarify that the table is used for the purpose 
of selecting which market proxy groups variability band to apply to 
each index risk factor. ICC also proposes to revise the content of 
Table 4 to remove obsolete references to the CDX-NAIGHVOL and iTraxx 
HiVol index risk factors, as those index types are no longer clearing 
eligible at ICC.
    The title of Table 6 is currently ``Assignment of SN Risk Factors 
to Market Proxy Groups.'' ICC proposes to expand the title of Table 6 
to include a statement that the table is used for the purpose of 
selecting which market-proxy groups variability band to apply to the 
benchmark instruments associated with each given risk factor. ICC also 
proposes to update the content

[[Page 105656]]

of Table 6 to clarify that both the Standard Latin American and 
Standard Australian single name risk factors include not only sovereign 
single instruments, but also corporate instruments, to more accurately 
reflect the single name risk factors currently cleared at ICC. 
Specifically, ICC proposes to append the phrase ``& Corporates'' to the 
current bullets for ``Standard Australia Sovereign'' and ``Standard 
Asia Sovereign.''
    ICC proposes to revise subsection 2.5, which addresses distribution 
of EOD prices, to revise the instruments for which ICC publishes daily 
EOD prices on the Intercontinental Exchange, Inc. (``ICE, Inc.'') 
website. With respect to index instruments, ICC currently publishes EOD 
prices for a subset of cleared index instruments to the website. The 
proposed rule change would modify this practice such that ICC would 
instead publish EOD prices for every clearing eligible index instrument 
as required by the CFTC.\8\ With respect to single name instruments, 
the proposed rule change would not substantively modify the EOD prices 
that ICC publishes on the ICE, Inc. Website, but rather would revise 
subsection 2.5 to clarify the description of the single name 
instruments for which it publishes daily EOD prices on the website. 
Specifically, subsection 2.5 currently states that ICC publishes prices 
for every listed risk sub-factor. The proposed rule change would 
clarify this description to state that, for every single name risk sub-
factor, ICC publishes the price of all MATI for each clearable coupon. 
In ICC's view, this is a more accurate description of the daily single 
name settlement prices ICC publishes on the ICE, Inc. Website.\9\ ICC 
believes the proposed daily publication of settlement prices for all 
clearing eligible index instruments will improve pricing transparency 
to market participants and the public.\10\
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    \8\ Notice, 89 FR 88096.
    \9\ Id.
    \10\ Id.
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    Finally, ICC proposes other drafting clarifications and conforming 
changes to the EOD Procedures, such as updating the use of relevant 
defined terms, section cross-references, and other non-substantive 
drafting improvements. The amendments would also update the revision 
history section of the EOD Procedures.

III. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act requires 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.\11\ Under the Commission's Rules of Practice, the 
``burden to demonstrate that a proposed rule change is consistent with 
the Exchange Act and the rules and regulations issued thereunder . . . 
is on the self-regulatory organization [`SRO'] that proposed the rule 
change.'' \12\
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    \11\ 15 U.S.C. 78s(b)(2)(C).
    \12\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR 
201.700(b)(3).
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    The description of a proposed rule change, its purpose and 
operation, its effect, and a legal analysis of its consistency with 
applicable requirements must all be sufficiently detailed and specific 
to support an affirmative Commission finding,\13\ and any failure of an 
SRO to provide this information may result in the Commission not having 
a sufficient basis to make an affirmative finding that a proposed rule 
change is consistent with the Exchange Act and the applicable rules and 
regulations.\14\ Moreover, ``unquestioning reliance'' on an SRO's 
representations in a proposed rule change is not sufficient to justify 
Commission approval of a proposed rule change.\15\
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    \13\ Id.
    \14\ Id.
    \15\ Susquehanna Int'l Group, LLP v. Securities and Exchange 
Commission, 866 F.3d 442, 447 (D.C. Cir. 2017).
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    After carefully considering the proposed rule change, the 
Commission finds that the proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to ICC. More specifically, for the reasons given below, the 
Commission finds that the proposed rule change is consistent with 
Section 17A(b)(3)(F) of the Act \16\ and Rule 17Ad-22(e)(6)(iv).\17\
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    \16\ 15 U.S.C. 78q-1(b)(3)(F).
    \17\ 17 CFR 240.17Ad-22(e)(6)(iv) and (e)(18).
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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.\18\ As discussed 
above, the proposed rule change would clarify ICC's EOD pricing 
methodology, including that ICC determines a consensus BOW for each on-
the-run index and for all single name benchmark instruments at the 
appropriate EOD BOW execution time. The proposed rule change would also 
more accurately describe the calculation of EOD BOW and require that 
ICC publish EOD prices for every clearing eligible index instrument 
instead of just a subset of them. These changes would clarify ICC's 
methodology for EOD and BOW calculations, thereby enhancing ICC's 
ability to calculate accurate EOD prices. Further, EOD prices are 
distributed to Clearing Participants and their clients. Enhancing ICC's 
ability to calculate accurate EOD prices is critical to ICC's ability 
to manage the risks of clearing and settling CDS given that ICC bases 
margin and guaranty fund requirements on these prices. Moreover, 
ensuring that ICC's Clearing Participants, their clients, and other 
market participants have correct pricing information for the 
instruments that ICC clears would promote the prompt and accurate 
clearance and settlement of CDS transactions by reducing the chance 
there are inaccuracies in the settlement of such transactions. 
Accordingly, the proposed rule change would promote the prompt and 
accurate clearance and settlement of transactions at ICC, consistent 
with Section 17A(b)(3)(F) of the Act.\19\
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    \18\ 15 U.S.C. 78q-1(b)(3)(F).
    \19\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rule 17Ad-22(e)(6)(iv)

    Rule 17Ad-22(e)(6)(iv) requires that ICC 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, among other things, 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.\20\ As discussed above, the proposed 
rule change would clarify how ICC's price data--EOD BOWs--are 
calculated, and how consensus BOWs are defined and calculated. The 
proposed rule change also would require that ICC publish EOD prices for 
every clearing eligible index instrument rather than just a subset of 
them, as is ICC's current practice. Clarifying ICC's EOD pricing 
methodology and ensuring that EOD prices for all clearing eligible 
index instruments are published will help ICC ensure that the sources 
for its price data are both timely and reliable, which in turn will 
support and enhance ICC's risk-based margin system. Accordingly, the 
proposed rule change is consistent with Rule 17Ad-22(e)(6)(iv).\21\
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    \20\ 17 CFR 240.17Ad-22(e)(6)(iv).
    \21\ 17 CFR 240.17Ad-22(e)(2)(v).

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[[Page 105657]]

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 \22\ and Rule 17Ad-22(e)(6)(iv) \23\ thereunder.
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    \22\ 15 U.S.C. 78q-1(b)(3)(F).
    \23\ 17 CFR 240.17Ad-22(e)(2)(v).
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    It is therefore ordered pursuant to Section 19(b)(2) of the Act 
\24\ that the proposed rule change (SR-ICC-2024-012) be, and hereby is, 
approved.\25\
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    \24\ 15 U.S.C. 78s(b)(2).
    \25\ 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.\26\
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    \26\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2024-30778 Filed 12-26-24; 8:45 am]
BILLING CODE 8011-01-P
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