Eric Nield

General Counsel July 6, 2023

Re: Updates to ICC Default Auction 

Procedures—Initial Default Auctions

Pursuant to Section 5c(c)(1) of the 

Commodity Exchange Act and Commission 

Regulation 40.6(a)

VIA ELECTRONIC PORTAL

Mr. Christopher Kirkpatrick

Secretary

Commodity Futures Trading Commission

Three Lafayette Centre

1155 21st Street, NW

Washington, D.C. 20581

Dear Mr. Kirkpatrick:

ICE Clear Credit LLC (“ICC”) hereby submits, pursuant to Section 5c(c)(1) of the Commodity Exchange Act 

(the “Act”) and Commodity Futures Trading Commission (“Commission”) Regulation 40.6(a), a selfcertification of changes to ICC’s Default Auction Procedures—Initial Default Auctions (the “Auction 

Procedures”).1ICC is registered with the Commission as a derivatives clearing organization (“DCO”). ICC 

intends to implement the changes no sooner than the tenth business day following the filing of this 

submission with the Commission at its Washington, D.C. headquarters and with its Chicago regional office.

ICC proposes to revise its Auction Procedures. In the event of the default of an ICC Clearing Participant 

(“CP”), the Auction Procedures are designed to facilitate liquidation of the defaulter’s portfolio through a

multi-lot modified Dutch auction. 

The purpose of the proposed amendments is to incorporate feedback received from market participants 

during ICC’s 2022 default test to revise the Auction Procedures to provide ICC greater flexibility to 

determine that a minimum bid requirement is not appropriate for an auction participant in certain 

circumstances and/or to decide for a particular auction lot that so-called “juniorization” of participants’ 

guaranty fund contributions based on competitiveness of bidding is not appropriate. With respect to the 

minimum bid requirement, market participants expressed concern that certain market participants may not 

trade, or have the operational, risk management or other capacity to trade or otherwise manage, particular 

products cleared through ICC (e.g., index swaptions). If a participant were forced to bid for lots including 

such products, the participant might acquire in the default auction products for which it may not have the 

ready capability to manage the risk of its positions. Forcing participants to acquire such positions may result 

in an increase in systemic risk. Similarly, market participants have expressed concerns that while 

juniorization may in general incentivize robust bidding in the auction process, there may be particular 

situations where, in the light of the characteristics of the lot and participants involved in the auction, the risk 

of juniorization could make it more difficult to auction the lot successfully or might otherwise be undesirable 

or inappropriate for the auction. 

To address these concerns, ICC proposes the following amendments to the Auction Procedures. Currently, 

under Section 2.4 of the Auction Procedures, all non-defaulting CPs and Direct Participating Customers2

(collectively, “Auction Participants”) are required to bid for a minimum notional amount of contracts for each 

1 Capitalized terms used but not defined herein have the meanings specified in the Rules.

2 A Direct Participating Customer is a customer of a CP that has been authorized to participate in an 

ICC default auction pursuant to the requirements set out in the Auction Procedures.
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auction lot determined pro rata based on its required contribution to the ICC guaranty fund (“Minimum Bid 

Requirement”), subject to certain exceptions. ICC proposes to amend Section 2.4 to provide an additional 

exception to the extent ICC determines that the Minimum Bid Requirement would be inappropriate for 

certain Auction Participant(s) in light of: (i) the operational and other capabilities of such Auction 

Participant(s) to clear contracts in the relevant auction lot, or (ii) the conditions in the market for the contracts 

in the relevant auction lot. These amendments would allow ICC to determine that a Minimum Bid 

Requirement should not apply, among other cases, where the relevant Auction Participant does not have 

risk management or other operational capabilities to clear the relevant contracts. It also provides ICC with 

flexibility to eliminate a Minimum Bid Requirement in other circumstances it determines to be appropriate, 

to address market conditions and other circumstances that may be prevailing at the time. 

Furthermore, ICC proposes amending Section 2.6 of the Auction Procedures to allow ICC to determine that 

for a particular auction lot, all Auction Participants will be treated as Senior Bidders in circumstances where 

ICC determines that “juniorization” may negatively impact ICC’s ability to conduct a successful default 

auction given the then current market conditions. The effect of such a determination would be that 

“juniorization” of Lot Guaranty Fund Contributions and Lot Assessment Contributions will not occur, such 

that all such contributions will be applied on a pro rata basis rather than based on the relative 

competitiveness of bids made. ICC believes this flexibility is appropriate to address potential scenarios 

where juniorization may make it more difficult to run a successful auction or is otherwise inappropriate or 

undesirable for the auction in light of the particular circumstances at the time. 

In addition, ICC received feedback from market participants during ICC’s 2022 default test that making the 

foregoing revisions to ICC’s Auction Procedures would better align such procedures with the default 

procedures of other clearing houses (e.g., LCH Ltd, LCH SA, and Eurex). According to such market 

participants, the foregoing clearing houses have rules and/or default procedures that, in general, exclude 

non-defaulting clearing members from mandatory participation in default auctions where such nondefaulting clearing members do not have exposure to the products in the default auction portfolio. 

Core Principle Review:

ICC reviewed the DCO core principles (“Core Principles”) as set forth in the Act. During this review, ICC 

identified the following Core Principles as being impacted:

Financial Resources: The revisions to the Auction Procedures are consistent with the financial resources 

requirements of Core Principle B and the financial resource requirements set forth in Commission 

Regulation 39.33. The proposed changes provide ICC greater flexibility to determine that a minimum bid 

requirement is not appropriate for an auction participant in certain circumstances and/or to decide for a 

particular auction lot that so-called “juniorization” of participants’ guaranty fund contributions based on 

competitiveness of bidding is not appropriate. The revisions would allow ICC to determine that a Minimum 

Bid Requirement should not apply, among other cases, where the relevant Auction Participant does not 

have risk management or other operational capabilities to clear the relevant contracts. Such revisions 

provide ICC with flexibility to eliminate a Minimum Bid Requirement in other circumstances it determines to 

be appropriate, to address market conditions and other circumstances that may be prevailing at the time. 

Such changes are designed to promote effective and efficient auctions to facilitate the close-out of a 

defaulter’s portfolio. In ICC’s view, these enhancements strengthen ICC’s ability to manage its financial 

resources and withstand the pressures of defaults, consistent with the requirements of Core Principle B. 

Risk Management: The revisions to the Auction Procedures are consistent with the risk management 

requirements of Core Principle D and the risk management requirements set forth in Commission 

Regulation 39.36. As described above, the revisions are designed to protect against auction participants 

acquiring products in a default auction for which it may not have the ready capability to manage the risk of 

its positions. Forcing auction participants to acquire such positions may result in an increase in systemic 

risk, and the revisions are designed to avoid this increase in systemic risk. Such changes allow ICC to more 
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efficiently and safely manage its auction process. ICC believes that the proposed revisions augment ICC’s 

procedures relating to default management and enhance ICC’s ability to withstand defaults and continue 

providing clearing services. The proposed changes thus serve to promote the soundness of ICC’s risk 

management system, thereby ensuring that ICC possesses the ability to manage the risks associated with 

discharging its responsibilities, consistent with the risk management requirements of Core Principle D. 

Default Management: The revisions to the Auction Procedures and consistent with default procedure 

requirements of Core Principle G and the default procedure requirements set forth in Commission 

Regulation 39.16. ICC’s default management rules and procedures contained in the ICC Rules and the 

Auction Procedures are publicly available on ICC’s website. The proposed amendments enhance ICC’s 

ability to withstand defaults and continue providing clearing services, including by promoting effective and 

efficient default auctions by adding flexibility in the application of minimum bid requirements and maximizing 

ICC’s ability to efficiently and safely manage its auction process in default events, to ensure that ICC can 

take timely action to contain losses and liquidity pressures and to continue meeting its obligations in the 

event of a participant default. In ICC’s view, the revisions to the Auction Procedures enhance ICC’s default 

procedures by increasing the likelihood of ICC conducting an effective and efficient default auction, 

consistent with the default procedure requirements of Core Principle G.

Amended Rules:

The proposed changes consist of revisions to the ICC Initial Default Auction Procedures.

Annexed as an Exhibit hereto is the following:

A. Proposed amendments to the ICC Initial Default Auction Procedures

Certifications:

ICC hereby certifies that the changes comply with the Act and the regulations thereunder. There were no 

substantive opposing views to the changes.

ICC certifies that, concurrent with this filing, a copy of the submission was posted on ICC’s website, which 

may be accessed at: https://www.theice.com/clear-credit/regulation.

ICC would be pleased to respond to any questions the Commission or the staff may have regarding this 

submission. Please direct any questions or requests for information to the attention of the undersigned at 

eric.nield@ice.com or 312-836-6742.

Sincerely,

Eric Nield

General Counsel