Self-Regulatory Organizations; ICE Clear Credit LLC; Order Granting Approval of Proposed Rule Change To Revise the ICC Risk Management Framework, 77578-77579 [2014-30120]

Download as PDF 77578 Federal Register / Vol. 79, No. 247 / Wednesday, December 24, 2014 / Notices SECURITIES AND EXCHANGE COMMISSION [Release No. 34–73877; File No. SR–ICC– 2014–18] Self-Regulatory Organizations; ICE Clear Credit LLC; Order Granting Approval of Proposed Rule Change To Revise the ICC Risk Management Framework December 18, 2014. I. Introduction On October 22, 2014, ICE Clear Credit LLC (‘‘ICC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change SR–ICC–2014–18 pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder.2 The proposed rule change was published for comment in the Federal Register on November 3, 2014.3 The Commission received no comment letters regarding the proposed change. For the reasons discussed below, the Commission is granting approval of the proposed rule change. II. Description of the Proposed Rule Change ICC is proposing to revise the ICC Risk Management Framework to incorporate certain risk model enhancements. The revisions do not require any changes to the ICC Clearing Rules. ICC proposes revising the ICC Risk Management Framework to facilitate compliance with requirements under the European Market Infrastructure Regulations, specifically antiprocyclicality conditions described in Article 28 of the Regulatory Technical Standards.4 Currently, according to ICC, it considers three levels of volatility in its Risk Management Framework to account for stable but prudent margin requirements. ICC proposes adding a fourth volatility scale that assigns a 25% weight to a stress period (currently the stress period is set to January 14, 2008 to December 31, 2008) and the remaining 75% to the immediate most recent 250 observations, consistent with Article 28(b) of the Regulatory Technical Standards. According to ICC, 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 Securities Exchange Act Release No. 34–73444 (Oct. 28, 2014), 79 FR 65270 (Nov. 3, 2014) (SR– ICC–2014–18). 4 Commission Delegated Regulation (EU) No. 153/ 2013 of 19 December 2012 Supplementing Regulation (EU) No. 648/2012 of the European Parliament and of the Council with regard to Regulatory Technical Standards on Requirements for Central Counterparties (the ‘‘Regulatory Technical Standards’’). mstockstill on DSK4VPTVN1PROD with NOTICES 2 17 VerDate Sep<11>2014 16:34 Dec 23, 2014 Jkt 235001 the revised initial margin requirements are expected to result in more conservative initial margin figures for some risk factors. In addition, ICC proposes introducing devolatilization enhancements to describe spread logreturn time series that span market periods associated with different volatility regimes. Additionally, ICC proposes a revised approach to computing index liquidity charges. As described by ICC, the enhancement consists of reducing the portfolio liquidity benefits across different index series. As part of its product offering, ICC clears credit default swap (‘‘CDS’’) index series. A new series of CDS indices is issued every six months, and the new series is referred to as being ‘‘on-the-run,’’ while previous series are referred to as being ‘‘off-the-run.’’ ICC states that the revised calculation establishes series-specific liquidity charges by considering the series-specific positions and establishing series-specific position directionality based on the corresponding 5-year equivalent notional amount directionality. Further, to capture the market behavior around index rolls when the bid/offer width for index-roll transactions (i.e., trading the on-the-run vs. first off-the-run indices) is typically smaller than the bid/offer width of each individual leg, ICC proposes implementing time-dependent long/short liquidity charge portfolio benefits for the on-the-run and the first off-the run series. The proposed revisions to the liquidity charges are expected by ICC to result in more conservative requirements than the ones associated with the current approach. ICC also proposes enhancements to the calculation of its concentration charges by introducing index seriesspecific concentration charges. According to ICC, the revised calculation establishes series-specific concentration charges for positions exceeding series-specific concentration threshold limits based on the direction of the 5-year equivalent notional amount or the net notional amount. Under the revised calculation, ICC states it will estimate series-specific concentration charge threshold limits based on the distribution of seriesspecific open interest information at the Clearing House. ICC believes that the estimated series-specific concentration charge threshold limits reflect the average open interest over a 5-day period. ICC expects the proposed revisions to the concentration charge will result in more conservative requirements than the ones associated with the current approach. PO 00000 Frm 00138 Fmt 4703 Sfmt 4703 III. Discussion and Commission Findings Section 19(b)(2)(C) of the Act 5 directs the Commission to approve a proposed rule change of a self-regulatory organization if the Commission finds that such proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to such selfregulatory organization. Section 17A(b)(3)(F) of the Act 6 requires, among other things, that the rules of a clearing agency are 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 responsible and, in general, to protect investors and the public interest. The Commission finds that the proposed rule change is consistent with section 17A of the Act 7 and the rules thereunder applicable to ICC. The proposed changes to the ICC Risk Management Framework are expected to impose more prudent initial margin requirements, meeting the requirements of Rule 17Ad–22(b)(1) and (2).8 The proposed changes, when considered together with ICC’s existing Guaranty Fund methodology, are expected to result in total financial resources maintained by ICC sufficient to withstand, at a minimum, a default by the two participant families to which it has the largest exposures in extreme but plausible market conditions in accordance with Rule 17Ad–22(b)(3).9 Therefore, ICC’s proposed changes are reasonably designed to meet the margin and financial resource requirements of Rule 17Ad–22(b)(1)—(3).10 The Commission therefore believes that the changes will promote the prompt and accurate settlement of securities and derivatives transactions, consistent with the requirements of section 17A(b)(3)(F) of the Act.11 IV. Conclusion On the basis of the foregoing, the Commission finds that the proposal is consistent with the requirements of the Act and in particular with the requirements of section 17A of the 5 15 U.S.C. 78s(b)(2)(C). U.S.C. 78q–1(b)(3)(F). 7 15 U.S.C. 78q–1. 8 17 CFR 240.17Ad–22(b)(1) and (2). 9 17 CFR 240.17Ad–22(b)(3). 10 17 CFR 240.17Ad–22(b)(1)—(3). 11 15 U.S.C. 78q–1(b)(3)(F). 6 15 E:\FR\FM\24DEN1.SGM 24DEN1 Federal Register / Vol. 79, No. 247 / Wednesday, December 24, 2014 / Notices Act 12 and the rules and regulations thereunder. It is therefore ordered, pursuant to section 19(b)(2) of the Act,13 that the proposed rule change (File No. SR–ICC– 2014–18) be, and hereby is, approved.14 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.15 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2014–30120 Filed 12–23–14; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–73878; File No. SR–BOX– 2014–28] II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The self-regulatory organization has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose Self-Regulatory Organizations; BOX Options Exchange LLC; Notice of Filing of Proposed Rule Change To Adopt New Rule 7300 To Allow the Exchange To Trade Preferenced Orders December 18, 2014. Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on December 8, 2014, BOX Options Exchange LLC (the ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change mstockstill on DSK4VPTVN1PROD with NOTICES The Exchange proposes to adopt new Rule 7300 to allow the Exchange to trade Preferenced Orders. The text of the proposed rule change is available from the principal office of the Exchange, at the Commission’s Public Reference Room and also on the Exchange’s Internet Web site at https:// boxexchange.com. 12 15 U.S.C. 78q–1. U.S.C. 78s(b)(2). 14 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). 15 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 13 15 VerDate Sep<11>2014 19:29 Dec 23, 2014 Jkt 235001 The Exchange proposes to adopt new Rule 7300 (Preferenced Orders) to allow BOX Options Participants (‘‘Participants’’) to submit orders for which a Market Maker is designated to receive an allocation preference on the Exchange (‘‘Preferenced Orders’’). This proposal provides an enhanced allocation to a Preferred Market Maker when it is quoting at NBBO. This is a competitive filing based on the rules of a number of competing options exchanges.3 This proposal will allow the Exchange to be competitive with other options exchanges that provide similar enhanced allocation opportunities to Market Makers to reward them for attracting order flow to the Exchange. Preferenced Orders A Preferenced Order, as proposed, is any order submitted by a Participant to the Exchange for which a Market Maker is designated (a ‘‘Preferred Market Maker’’) to receive execution priority, with respect to a portion of the Preferenced Order, upon meeting certain qualifications described below. Preferenced Orders are submitted by a Participant by designating an order as such and identifying a Preferred Market Maker when entering the order. Preferenced Orders may be submitted by any Participant on the Exchange. All existing order types and designations may be entered as Preferenced Orders, with the exception of Customer Cross Orders (which do not involve Market Makers) and Directed Orders (which relate to the PIP and COPIP matching algorithms). If a Market-on-Opening 3 See, e.g. Phlx Rule 1080(l), CBOE Rule 8.13, ISE Supplementary Material .03 to Rule 713, MIAX Rule 514. PO 00000 Frm 00139 Fmt 4703 Sfmt 4703 77579 Order or a Complex Order is submitted as a Preferenced Order, the designation as a Preferenced Order will be disregarded and such order will be treated on the Exchange the same as if it were not a Preferenced Order. Preferenced Orders may interact with auctions and other functionality of the Exchange. Participants may designate an order as a Preferenced Order and identify the applicable Preferred Market Maker across all forms of connectivity to the Exchange. Preferenced Orders will be displayed on the Exchange’s High Speed Vendor Feed (‘‘HSVF’’) the same as orders that are not designated as Preferenced Orders. A Preferred Market Maker must maintain a continuous two-sided market, pursuant to Rule 8050(c)(1), throughout the trading day, in option classes for which it accepts Preferenced Orders, for 99% of the time the Exchange is open for trading in each such option class; provided, however, that for purposes of this requirement, a Preferred Market Maker is not required to quote in intra-day add-on series or series that have a time to expiration of nine months or more in classes for which it receives Preferenced Orders and a Market Maker may still be a Preferred Market Maker in any such series if the Market Maker otherwise complies with the Preferred Market Maker requirements. Compliance with this requirement will be determined on a monthly basis; however, determining compliance with this requirement on a monthly basis does not relieve a Preferred Market Maker from meeting this quoting requirement on a daily basis, nor does it prohibit the Exchange from taking disciplinary action against a Preferred Market Maker for failing to meet this requirement each trading day. If a technical failure or limitation of a system of the Exchange prevents a Market Maker from maintaining, or prevents a Market Maker from communicating to the Exchange, timely and accurate electronic quotes in an option class, the duration of such failure will be disregarded in determining whether the Market Maker has satisfied this requirement. The Exchange may consider other exceptions to this obligation based on a demonstrated legal or regulatory requirement or other mitigating circumstances. Except as described below, orders submitted to the Exchange as Preferenced Orders will be treated the same as other orders submitted to the Exchange, including being executed in price/time priority according to the existing matching algorithm on the Exchange. E:\FR\FM\24DEN1.SGM 24DEN1

Agencies

[Federal Register Volume 79, Number 247 (Wednesday, December 24, 2014)]
[Notices]
[Pages 77578-77579]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-30120]



[[Page 77578]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73877; File No. SR-ICC-2014-18]


Self-Regulatory Organizations; ICE Clear Credit LLC; Order 
Granting Approval of Proposed Rule Change To Revise the ICC Risk 
Management Framework

December 18, 2014.

I. Introduction

    On October 22, 2014, ICE Clear Credit LLC (``ICC'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change SR-ICC-2014-18 pursuant to section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder.\2\ The 
proposed rule change was published for comment in the Federal Register 
on November 3, 2014.\3\ The Commission received no comment letters 
regarding the proposed change. For the reasons discussed below, the 
Commission is granting approval of the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 34-73444 (Oct. 28, 
2014), 79 FR 65270 (Nov. 3, 2014) (SR-ICC-2014-18).
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II. Description of the Proposed Rule Change

    ICC is proposing to revise the ICC Risk Management Framework to 
incorporate certain risk model enhancements. The revisions do not 
require any changes to the ICC Clearing Rules.
    ICC proposes revising the ICC Risk Management Framework to 
facilitate compliance with requirements under the European Market 
Infrastructure Regulations, specifically anti-procyclicality conditions 
described in Article 28 of the Regulatory Technical Standards.\4\ 
Currently, according to ICC, it considers three levels of volatility in 
its Risk Management Framework to account for stable but prudent margin 
requirements. ICC proposes adding a fourth volatility scale that 
assigns a 25% weight to a stress period (currently the stress period is 
set to January 14, 2008 to December 31, 2008) and the remaining 75% to 
the immediate most recent 250 observations, consistent with Article 
28(b) of the Regulatory Technical Standards. According to ICC, the 
revised initial margin requirements are expected to result in more 
conservative initial margin figures for some risk factors. In addition, 
ICC proposes introducing devolatilization enhancements to describe 
spread log-return time series that span market periods associated with 
different volatility regimes.
---------------------------------------------------------------------------

    \4\ Commission Delegated Regulation (EU) No. 153/2013 of 19 
December 2012 Supplementing Regulation (EU) No. 648/2012 of the 
European Parliament and of the Council with regard to Regulatory 
Technical Standards on Requirements for Central Counterparties (the 
``Regulatory Technical Standards'').
---------------------------------------------------------------------------

    Additionally, ICC proposes a revised approach to computing index 
liquidity charges. As described by ICC, the enhancement consists of 
reducing the portfolio liquidity benefits across different index 
series. As part of its product offering, ICC clears credit default swap 
(``CDS'') index series. A new series of CDS indices is issued every six 
months, and the new series is referred to as being ``on-the-run,'' 
while previous series are referred to as being ``off-the-run.'' ICC 
states that the revised calculation establishes series-specific 
liquidity charges by considering the series-specific positions and 
establishing series-specific position directionality based on the 
corresponding 5-year equivalent notional amount directionality. 
Further, to capture the market behavior around index rolls when the 
bid/offer width for index-roll transactions (i.e., trading the on-the-
run vs. first off-the-run indices) is typically smaller than the bid/
offer width of each individual leg, ICC proposes implementing time-
dependent long/short liquidity charge portfolio benefits for the on-
the-run and the first off-the run series. The proposed revisions to the 
liquidity charges are expected by ICC to result in more conservative 
requirements than the ones associated with the current approach.
    ICC also proposes enhancements to the calculation of its 
concentration charges by introducing index series-specific 
concentration charges. According to ICC, the revised calculation 
establishes series-specific concentration charges for positions 
exceeding series-specific concentration threshold limits based on the 
direction of the 5-year equivalent notional amount or the net notional 
amount. Under the revised calculation, ICC states it will estimate 
series-specific concentration charge threshold limits based on the 
distribution of series-specific open interest information at the 
Clearing House. ICC believes that the estimated series-specific 
concentration charge threshold limits reflect the average open interest 
over a 5-day period. ICC expects the proposed revisions to the 
concentration charge will result in more conservative requirements than 
the ones associated with the current approach.

III. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act \5\ directs the Commission to 
approve a proposed rule change of a self-regulatory organization if the 
Commission finds that such proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to such self-regulatory organization. Section 17A(b)(3)(F) 
of the Act \6\ requires, among other things, that the rules of a 
clearing agency are 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 
responsible and, in general, to protect investors and the public 
interest.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78s(b)(2)(C).
    \6\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    The Commission finds that the proposed rule change is consistent 
with section 17A of the Act \7\ and the rules thereunder applicable to 
ICC. The proposed changes to the ICC Risk Management Framework are 
expected to impose more prudent initial margin requirements, meeting 
the requirements of Rule 17Ad-22(b)(1) and (2).\8\ The proposed 
changes, when considered together with ICC's existing Guaranty Fund 
methodology, are expected to result in total financial resources 
maintained by ICC sufficient to withstand, at a minimum, a default by 
the two participant families to which it has the largest exposures in 
extreme but plausible market conditions in accordance with Rule 17Ad-
22(b)(3).\9\ Therefore, ICC's proposed changes are reasonably designed 
to meet the margin and financial resource requirements of Rule 17Ad-
22(b)(1)--(3).\10\ The Commission therefore believes that the changes 
will promote the prompt and accurate settlement of securities and 
derivatives transactions, consistent with the requirements of section 
17A(b)(3)(F) of the Act.\11\
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78q-1.
    \8\ 17 CFR 240.17Ad-22(b)(1) and (2).
    \9\ 17 CFR 240.17Ad-22(b)(3).
    \10\ 17 CFR 240.17Ad-22(b)(1)--(3).
    \11\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposal is consistent with the requirements of the Act and in 
particular with the requirements of section 17A of the

[[Page 77579]]

Act \12\ and the rules and regulations thereunder.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\13\ that the proposed rule change (File No. SR-ICC-2014-18) be, 
and hereby is, approved.\14\
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78s(b)(2).
    \14\ 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.\15\
---------------------------------------------------------------------------

    \15\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-30120 Filed 12-23-14; 8:45 am]
BILLING CODE 8011-01-P
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