Self-Regulatory Organizations; ICE Clear Credit LLC; Order Approving Proposed Rule Change Relating to ICC's Treasury Operations Policies and Procedures, 157-159 [2019-28277]
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lotter on DSKBCFDHB2PROD with NOTICES
Federal Register / Vol. 85, No. 1 / Thursday, January 2, 2020 / Notices
request for approval of the collection of
information discussed below.
Rule 0–4 (17 CFR 275.0–4) under the
Investment Advisers Act of 1940 (‘‘Act’’
or ‘‘Advisers Act’’) (15 U.S.C. 80b–1 et
seq.) entitled ‘‘General Requirements of
Papers and Applications,’’ prescribes
general instructions for filing an
application seeking exemptive relief
with the Commission. Rule 0–4
currently requires that every application
for an Order for which a form is not
specifically prescribed and which is
executed by a corporation, partnership
or other company and filed with the
Commission contain a statement of the
applicable provisions of the articles of
incorporation, bylaws or similar
documents, relating to the right of the
person signing and filing such
application to take such action on behalf
of the applicant, and a statement that all
such requirements have been complied
with and that the person signing and
filing the application is fully authorized
to do so. If such authorization is
dependent on resolutions of
stockholders, directors, or other bodies,
such resolutions must be attached as an
exhibit to or quoted in the application.
Any amendment to the application must
contain a similar statement as to the
applicability of the original statement of
authorization. When any application or
amendment is signed by an agent or
attorney, rule 0–4 requires that the
power of attorney evidencing his
authority to sign shall state the basis for
the agent’s authority and shall be filed
with the Commission. Every application
subject to rule 0–4 must be verified by
the person executing the application by
providing a notarized signature in
substantially the form specified in the
rule. Each application subject to rule 0–
4 must state the reasons why the
applicant is deemed to be entitled to the
action requested with a reference to the
provisions of the Act and rules
thereunder, the name and address of
each applicant, and the name and
address of any person to whom any
questions regarding the application
should be directed. Rule 0–4 requires
that a proposed notice of the proceeding
initiated by the filing of the application
accompany each application as an
exhibit and, if necessary, be modified to
reflect any amendment to the
application.
The requirements of rule 0–4 are
designed to provide Commission staff
with the necessary information to assess
whether granting the Orders of
exemption are necessary and
appropriate in the public interest and
consistent with the protection of
investors and the intended purposes of
the Act.
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Applicants for Orders under the
Advisers Act can include registered
investment advisers, affiliated persons
of registered investment advisers, and
entities seeking to avoid investment
adviser status, among others.
Commission staff estimates that it
receives up to 4 applications per year
submitted under rule 0–4 of the Act
seeking relief from various provisions of
the Advisers Act and, in addition, up to
3 applications per year submitted under
Advisers Act rule 206(4)–5, which
addresses certain ‘‘pay to play’’
practices and also provides the
Commission the authority to grant
applications seeking relief from certain
of the rule’s restrictions. Although each
application typically is submitted on
behalf of multiple applicants, the
applicants in the vast majority of cases
are related entities and are treated as a
single respondent for purposes of this
analysis. Most of the work of preparing
an application is performed by outside
counsel and, therefore, imposes no
hourly burden on respondents. The cost
outside counsel charges applicants
depends on the complexity of the issues
covered by the application and the time
required. Based on conversations with
applicants and attorneys, the cost for
applications ranges from approximately
$13,600 for preparing a wellprecedented, routine (or otherwise less
involved) application to approximately
$212,800 to prepare a complex or novel
application. We estimate that the
Commission receives 1 of the most timeconsuming applications annually, 3
applications of medium difficulty, and 3
of the least difficult applications subject
to rule 0–4.1 This distribution gives a
total estimated annual cost burden to
applicants of filing all applications of
$392,500 [(1 × $212,800) + (3 × $46,300)
+ (3 × $13,600)]. The estimate of annual
cost burden is made solely for the
purposes of the Paperwork Reduction
Act, and is not derived from a
comprehensive or even representative
survey or study of the costs of
Commission rules and forms.
The requirements of this collection of
information are required to obtain or
retain benefits. Responses will not be
kept confidential. An agency may not
conduct or sponsor, and a person is not
required to respond to a collection of
information unless it displays a
currently valid control number.
The public may view the background
documentation for this information
collection at the following website,
www.reginfo.gov. Comments should be
1 The estimated 3 least difficult applications
include the estimated 3 applications per year
submitted under Advisers Act rule 206(4)–5.
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157
directed to: (i) Desk Officer for the
Securities and Exchange Commission,
Office of Information and Regulatory
Affairs, Office of Management and
Budget, Room 10102, New Executive
Office Building, Washington, DC 20503,
or by sending an email to:
Lindsay.M.Abate@omb.eop.gov; and (ii)
Charles Riddle, Acting Director/Chief
Information Officer, Securities and
Exchange Commission, c/o Candace
Kenner, 100 F Street NE, Washington,
DC 20549 or send an email to: PRA_
Mailbox@sec.gov. Comments must be
submitted to OMB within 30 days of
this notice.
Dated: December 27, 2019.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2019–28319 Filed 12–31–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–87859; File No. SR–ICC–
2019–012]
Self-Regulatory Organizations; ICE
Clear Credit LLC; Order Approving
Proposed Rule Change Relating to
ICC’s Treasury Operations Policies
and Procedures
December 26, 2019.
I. Introduction
On November 1, 2019, 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 (the ‘‘Act’’),1 and Rule 19b–4
thereunder,2 a proposed rule change to
revise the ICC Treasury Operations
Policies and Procedures (‘‘Treasury
Policy’’). The proposed rule change was
published for comment in the Federal
Register on November 21, 2019.3 The
Commission did not receive comments
regarding the proposed rule change. For
the reasons discussed below, the
Commission is approving the proposed
rule change.
II. Description of the Proposed Rule
Change
ICC proposes to revise its Treasury
Operations Policies and Procedures to
make clarification updates related to its
use of a committed repurchase (‘‘repo’’)
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 Self-Regulatory Organizations; ICE Clear Credit
LLC; Notice of Filing of Proposed Rule Change
Relating to ICC’s Treasury Operations Policies and
Procedures; Exchange Act Release No. 34–87549
(Nov. 15, 2019); 84 FR 64379 (Nov. 21, 2019)
(‘‘Notice’’).
2 17
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158
Federal Register / Vol. 85, No. 1 / Thursday, January 2, 2020 / Notices
facility, acceptable forms of United
States (‘‘US’’) Treasury collateral, and
its collateral valuation process.4
the Act 6 and Rules 17Ad–22(b)(3) 7 and
17Ad–22(d)(3) 8 thereunder.
A. Committed Repo Facility
ICC proposes amendments to the
‘Funds Management’ section of the
Treasury Policy with respect to its use
of a committed repo facility.
Specifically, ICC proposes to clarify that
the committed repo facility can be used
to generate temporary liquidity through
the sale and agreement to repurchase
securities pledged by ICC Clearing
Participants to satisfy their Initial
Margin (‘‘IM’’) and Guaranty Fund
(‘‘GF’’) requirements. ICC proposes to
include that, when applicable, the
facility can be used to rehypothecate
sovereign debt from overnight repo
investments in the event of a
counterparty default. ICC also proposes
to note that the facility can be used to
sell, with the agreement to repurchase,
sovereign debt securities that are held
by ICC pursuant to direct investments in
such securities.
B. Acceptable Collateral
ICC proposes to update the ‘Custodial
Assets’ section of the Treasury Policy
regarding acceptable forms of US
Treasury collateral. Specifically, under
the Treasury Policy, acceptable forms of
non-cash collateral for IM and GF are
limited to US Treasury securities. ICC
proposes to specify that Floating Rate
Notes and STRIPS are not acceptable
forms of US Treasury collateral for IM
and GF.
C. Collateral Valuation
ICC also proposes to add language
stating that, with respect to its collateral
valuation process, Euros that are used to
cover a US Dollar denominated product
requirement is first converted to the
USD value and that the USD value is
haircut at the Euro currency haircut.
lotter on DSKBCFDHB2PROD with NOTICES
III. Discussion and 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 such
proposed rule change is consistent with
the requirements of the Act and the
rules and regulations thereunder
applicable to such organization.5 For the
reasons given below, the Commission
finds that the proposed rule change is
consistent with Section 17A(b)(3)(F) of
4 The
description herein is substantially
excerpted from the Notice, 84 FR 64379.
5 15 U.S.C. 78s(b)(2)(C).
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A. Consistency With Section
17A(b)(3)(F) of the Act
Section 17A(b)(3)(F) of the Act 9
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
responsible.
As described above, the proposed rule
change would clarify the additional
ways that ICC can utilize the committed
repo facility to generate liquidity when
needed such as during a default. The
Commission believes that these changes
enhance and strengthen ICC’s financial
condition by giving it additional ways to
generate needed liquidity. This in turn
would help ensure that ICC has the
money to continue to clear and settle
trades even during defaults.
Additionally, the Commission
believes that ICC’s proposal to revise its
Treasury Policy to state that Floating
Rate Notes and STRIPS are not
acceptable forms of US Treasury
collateral for IM and GF enhances ICC’s
documentation as to what securities
meet its criteria for acceptable collateral
and facilitates its ability to accept only
such securities as collateral. The
Commission believes that this in turn
would enhance ICC’s financial position
by ensuring it holds sufficiently liquid
collateral to meet its IM and GF needs.
This in turn would help ensure that ICC
can liquidate collateral as needed in a
prompt manner so that it has the funds
to continue to clear and settle trades.
Further, the Commission believes that
by adding language stating that, with
respect to its collateral valuation
process, Euros used to cover a US Dollar
denominated product requirement will
be subject to a haircut, ICC ensures that
it is following its process for collateral
valuation and discounting for native
market and related currency risk. The
Commission believes that this too
would help strengthen ICC’s financial
condition by facilitating the accurate
valuation of its financial resources,
which in turn would help ensure that
ICC can monitor its collateral and know
whether it needs to bolster these
resources so that they are enough to
U.S.C. 78q–1(b)(3)(F).
CFR 240.17Ad–22(b)(3).
8 17 CFR 240.17Ad–22(d)(3).
9 15 U.S.C. 78q–1(b)(3)(F).
meet ICC’s obligations to clear and settle
trades.
Therefore, for the reasons stated
above, the Commission finds that the
proposed rule change would promote
the prompt and accurate clearance and
settlement of securities transactions,
assure the safeguarding of securities and
funds in ICC’s custody and control, and,
in general, protect investors and the
public interest, consistent with the
Section 17A(b)(3)(F) of the Act.10
B. Consistency With Rule 17Ad–22(b)(3)
Rule 17Ad–22(b)(3) 11 requires ICC to
establish, implement, maintain and
enforce written policies and procedures
reasonably designed to maintain
sufficient financial resources to
withstand, at a minimum, a default by
the two Clearing Participant (‘‘CP’’)
families to which it has the largest
exposures in extreme but plausible
market conditions. Because the
committed repo facility can be used to
support its clearance and settlement
obligations by offering ways to generate
cash when a default makes the sale of
securities on a timely basis or same-day
basis difficult, the Commission believes
that the revisions to the Treasury Policy,
which clarify various additional ways
that that the committed repo facility can
be used to generate temporary liquidity
in the event of a default, enhances ICC’s
ability to maintain sufficient financial
resources to withstand, at a minimum,
a default by the two CP families to
which it has the largest exposures.
Additionally, the Commission believes
that the revisions to what is considered
acceptable collateral will strengthen
ICC’s financial resources by ensuring
that it only holds sufficiently liquid
securities that it can sell to meet its
financial obligations and exclude those
securities that are not as easily
liquidated.
Therefore, for the reasons stated
above, the Commission finds that the
proposed rule change is consistent with
Rule 17Ad–22(b)(3).12
C. Consistency With Rule 17Ad–22(d)(3)
Rule 17Ad–22(d)(3) 13 requires ICC to
establish, implement, maintain and
enforce written policies and procedures
reasonably designed, as applicable, to
hold assets in a manner that minimizes
risk of loss or of delay in its access to
them and to invest assets in instruments
with minimal credit, market, and
liquidity risks.
6 15
10 15
7 17
11 17
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U.S.C. 78q–1(b)(3)(F).
CFR 240.17Ad–22(b)(3).
12 Id.
13 17
E:\FR\FM\02JAN1.SGM
CFR 240.17Ad–22(d)(3).
02JAN1
Federal Register / Vol. 85, No. 1 / Thursday, January 2, 2020 / Notices
The Commission believes that in
clarifying that the committed repo
facility can be used to generate
temporary liquidity through sale and
agreement to repurchase pledged
securities, to rehypothecate sovereign
debt from overnight repos, and to sell,
with the agreement to repurchase,
sovereign debt held by ICC pursuant to
direct investments in such securities,
ICC is strengthening its ability to hold
assets in a manner that minimizes delay
in access to them by describing ways to
utilize securities to quickly generate
cash when the sale of those securities
cannot otherwise be accomplished in a
timely manner due to a clearing
participant default. Further, the
Commission believes that because ICC
can use the facility to sell, with the
agreement to repurchase, sovereign debt
held by ICC pursuant to direct
investments in such securities, it is
lowering the liquidity risk of this
particular sovereign debt.
Therefore, for the reasons stated
above, the Commission finds that the
proposed rule change is consistent with
Rule 17Ad–22(d)(3).14
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(b)(3) and (d)(3)
thereunder.16
It is therefore ordered pursuant to
Section 19(b)(2) of the Act 17 that the
proposed rule change (SR–ICC–2019–
012), be, and hereby is, approved.18
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2019–28277 Filed 12–31–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Submission for OMB Review;
Comment Request
Upon Written Request, Copies Available
From: Securities and Exchange
lotter on DSKBCFDHB2PROD with NOTICES
14 17Ad–22(d)(3).
15 15
U.S.C. 78q–1(b)(3)(F).
CFR 240.17Ad–22(b)(3) and 17 CFR
240.17Ad–22(d)(3).
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).
16 17
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Commission, Office of FOIA Services,
100 F Street NE, Washington, DC
20549–2736
Extension:
Rule 22c–1; SEC File No. 270–793, OMB
Control No. 3235–0734
Notice is hereby given that pursuant
to the Paperwork Reduction Act of 1995
(44 U.S.C. 3501–3520), the Securities
and Exchange Commission (the
‘‘Commission’’) has submitted to the
Office of Management and Budget a
request for extension of the previously
approved collection of information
discussed below.
Rule 22c–1 (17 CFR 270.22c–1) under
the Investment Company Act of 1940
(15 U.S.C. 80a) (the ‘‘Investment
Company Act’’ or ‘‘Act’’) enables a fund
to choose to use ‘‘swing pricing’’ as a
tool to mitigate shareholder dilution.
Rule 22c–1 is intended to promote
investor protection by providing funds
with an additional tool to mitigate the
potentially dilutive effects of
shareholder purchase or redemption
activity and a set of operational
standards that allow funds to gain
comfort using swing pricing as a means
of mitigating potential dilution.
The respondents to amended rule
22c–1 are open-end management
investment companies (other than
money market funds or exchange-traded
funds) that engage in swing pricing.
Compliance with rule 22c–1(a)(3) is
mandatory for any fund that chooses to
use swing pricing to adjust its NAV in
reliance on the rule.
While we are not aware of any funds
that have engaged in swing pricing,1 we
are estimating for the purpose of this
analysis that 5 fund complexes have
funds that may adopt swing pricing
policies and procedures in the future
pursuant to the rule. We estimate that
the total burden associated with the
preparation and approval of swing
pricing policies and procedures by those
fund complexes that would use swing
pricing will be 280 hours.2 We also
estimate that it will cost a fund complex
$43,406 to document, review and
initially approve these policies and
procedures, for a total cost of $217,030.3
1 No funds have engaged in swing pricing as
reported on Form N–CEN as of August 14, 2019.
2 This estimate is based on the following
calculation: (48 + 2 + 6) hours × 5 fund complexes
= 280 hours.
3 These estimates are based on the following
calculations: 24 hours × $201 (hourly rate for a
senior accountant) = $4,824; 24 hours × $463
(blended hourly rate for assistant general counsel
($433) and chief compliance officer ($493)) =
$11,112; 2 hours (for a fund attorney’s time to
prepare materials for the board’s determinations) ×
$340 (hourly rate for a compliance attorney) = $680;
6 hours × $4,465 (hourly rate for a board of 8
directors) = $26,790; ($4,824 + $11,112 + $680 +
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159
Rule 22c–1 requires a fund that uses
swing pricing to maintain the fund’s
swing policies and procedures that are
in effect, or at any time within the past
six years were in effect, in an easily
accessible place.4 The rule also requires
a fund to retain a written copy of the
periodic report provided to the board
prepared by the swing pricing
administrator that describes, among
other things, the swing pricing
administrator’s review of the adequacy
of the fund’s swing pricing policies and
procedures and the effectiveness of their
implementation, including the impact
on mitigating dilution and any backtesting performed.5 The retention of
these records is necessary to allow the
staff during examinations of funds to
determine whether a fund is in
compliance with its swing pricing
policies and procedures and with rule
22c–1. We estimate a time cost per fund
complex of $292.6 We estimate that the
total for recordkeeping related to swing
pricing will be 20 hours, at an aggregate
cost of $1,460, for all fund complexes
that we believe include funds that have
adopted swing pricing policies and
procedures.7
Amortized over a three-year period,
we believe that the hour burdens and
time costs associated with rule 22c–1,
including the burden associated with
the requirements that funds adopt
policies and procedures, obtain board
approval, and periodic review of an
annual written report from the swing
pricing administrator, and retain certain
records and written reports related to
swing pricing, will result in an average
aggregate annual burden of 113.3 hours,
and average aggregate time costs of
$73,803.8
These estimates of average costs are
made solely for the purposes of the
$26,790) = $43,406; $43,406 × 5 fund complexes =
$217,030. The hourly wages used are from SIFMA’s
Management & Professional Earnings in the
Securities Industry 2013, modified by Commission
staff to account for an 1800-hour work-year and
inflation, and multiplied by 5.35 to account for
bonuses, firm size, employee benefits, and
overhead. The staff previously estimated in 2009
that the average cost of board of director time was
$4,000 per hour for the board as a whole, based on
information received from funds and their counsel.
Adjusting for inflation, the staff estimates that the
current average cost of board of director time is
approximately $4,465.
4 See rule 22c–1(a)(3)(iii).
5 See id.
6 This estimate is based on the following
calculations: 2 hours × $58 (hourly rate for a general
clerk) = $116; 2 hours × $88 (hourly rate for a senior
computer operator) = $176. $116 + $176 = $292.
7 These estimates are based on the following
calculations: 4 hours × 5 fund complexes = 20
hours. 5 fund complexes × $292 = $1,460.
8 These estimates are based on the following
calculations: (280 hours (year 1) + (3 × 20 hours)
(years 1, 2 and 3)) ÷ 3 = 113.3 hours; ($217,030 (year
1) + (3 × $1,460) (years 1, 2 and 3)) ÷ 3 = $73,803.
E:\FR\FM\02JAN1.SGM
02JAN1
]]>Agencies
[Federal Register Volume 85, Number 1 (Thursday, January 2, 2020)]
[Notices]
[Pages 157-159]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-28277]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87859; File No. SR-ICC-2019-012]
Self-Regulatory Organizations; ICE Clear Credit LLC; Order
Approving Proposed Rule Change Relating to ICC's Treasury Operations
Policies and Procedures
December 26, 2019.
I. Introduction
On November 1, 2019, 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 (the
``Act''),\1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to
revise the ICC Treasury Operations Policies and Procedures (``Treasury
Policy''). The proposed rule change was published for comment in the
Federal Register on November 21, 2019.\3\ The Commission did not
receive comments regarding the proposed rule change. For the reasons
discussed below, the Commission is approving the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Self-Regulatory Organizations; ICE Clear Credit LLC; Notice
of Filing of Proposed Rule Change Relating to ICC's Treasury
Operations Policies and Procedures; Exchange Act Release No. 34-
87549 (Nov. 15, 2019); 84 FR 64379 (Nov. 21, 2019) (``Notice'').
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
ICC proposes to revise its Treasury Operations Policies and
Procedures to make clarification updates related to its use of a
committed repurchase (``repo'')
[[Page 158]]
facility, acceptable forms of United States (``US'') Treasury
collateral, and its collateral valuation process.\4\
---------------------------------------------------------------------------
\4\ The description herein is substantially excerpted from the
Notice, 84 FR 64379.
---------------------------------------------------------------------------
A. Committed Repo Facility
ICC proposes amendments to the `Funds Management' section of the
Treasury Policy with respect to its use of a committed repo facility.
Specifically, ICC proposes to clarify that the committed repo facility
can be used to generate temporary liquidity through the sale and
agreement to repurchase securities pledged by ICC Clearing Participants
to satisfy their Initial Margin (``IM'') and Guaranty Fund (``GF'')
requirements. ICC proposes to include that, when applicable, the
facility can be used to rehypothecate sovereign debt from overnight
repo investments in the event of a counterparty default. ICC also
proposes to note that the facility can be used to sell, with the
agreement to repurchase, sovereign debt securities that are held by ICC
pursuant to direct investments in such securities.
B. Acceptable Collateral
ICC proposes to update the `Custodial Assets' section of the
Treasury Policy regarding acceptable forms of US Treasury collateral.
Specifically, under the Treasury Policy, acceptable forms of non-cash
collateral for IM and GF are limited to US Treasury securities. ICC
proposes to specify that Floating Rate Notes and STRIPS are not
acceptable forms of US Treasury collateral for IM and GF.
C. Collateral Valuation
ICC also proposes to add language stating that, with respect to its
collateral valuation process, Euros that are used to cover a US Dollar
denominated product requirement is first converted to the USD value and
that the USD value is haircut at the Euro currency haircut.
III. Discussion and 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
such proposed rule change is consistent with the requirements of the
Act and the rules and regulations thereunder applicable to such
organization.\5\ For the reasons given below, the Commission finds that
the proposed rule change is consistent with Section 17A(b)(3)(F) of the
Act \6\ and Rules 17Ad-22(b)(3) \7\ and 17Ad-22(d)(3) \8\ thereunder.
---------------------------------------------------------------------------
\5\ 15 U.S.C. 78s(b)(2)(C).
\6\ 15 U.S.C. 78q-1(b)(3)(F).
\7\ 17 CFR 240.17Ad-22(b)(3).
\8\ 17 CFR 240.17Ad-22(d)(3).
---------------------------------------------------------------------------
A. Consistency With Section 17A(b)(3)(F) of the Act
Section 17A(b)(3)(F) of the Act \9\ 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
responsible.
---------------------------------------------------------------------------
\9\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
As described above, the proposed rule change would clarify the
additional ways that ICC can utilize the committed repo facility to
generate liquidity when needed such as during a default. The Commission
believes that these changes enhance and strengthen ICC's financial
condition by giving it additional ways to generate needed liquidity.
This in turn would help ensure that ICC has the money to continue to
clear and settle trades even during defaults.
Additionally, the Commission believes that ICC's proposal to revise
its Treasury Policy to state that Floating Rate Notes and STRIPS are
not acceptable forms of US Treasury collateral for IM and GF enhances
ICC's documentation as to what securities meet its criteria for
acceptable collateral and facilitates its ability to accept only such
securities as collateral. The Commission believes that this in turn
would enhance ICC's financial position by ensuring it holds
sufficiently liquid collateral to meet its IM and GF needs. This in
turn would help ensure that ICC can liquidate collateral as needed in a
prompt manner so that it has the funds to continue to clear and settle
trades.
Further, the Commission believes that by adding language stating
that, with respect to its collateral valuation process, Euros used to
cover a US Dollar denominated product requirement will be subject to a
haircut, ICC ensures that it is following its process for collateral
valuation and discounting for native market and related currency risk.
The Commission believes that this too would help strengthen ICC's
financial condition by facilitating the accurate valuation of its
financial resources, which in turn would help ensure that ICC can
monitor its collateral and know whether it needs to bolster these
resources so that they are enough to meet ICC's obligations to clear
and settle trades.
Therefore, for the reasons stated above, the Commission finds that
the proposed rule change would promote the prompt and accurate
clearance and settlement of securities transactions, assure the
safeguarding of securities and funds in ICC's custody and control, and,
in general, protect investors and the public interest, consistent with
the Section 17A(b)(3)(F) of the Act.\10\
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\10\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rule 17Ad-22(b)(3)
Rule 17Ad-22(b)(3) \11\ requires ICC to establish, implement,
maintain and enforce written policies and procedures reasonably
designed to maintain sufficient financial resources to withstand, at a
minimum, a default by the two Clearing Participant (``CP'') families to
which it has the largest exposures in extreme but plausible market
conditions. Because the committed repo facility can be used to support
its clearance and settlement obligations by offering ways to generate
cash when a default makes the sale of securities on a timely basis or
same-day basis difficult, the Commission believes that the revisions to
the Treasury Policy, which clarify various additional ways that that
the committed repo facility can be used to generate temporary liquidity
in the event of a default, enhances ICC's ability to maintain
sufficient financial resources to withstand, at a minimum, a default by
the two CP families to which it has the largest exposures.
Additionally, the Commission believes that the revisions to what is
considered acceptable collateral will strengthen ICC's financial
resources by ensuring that it only holds sufficiently liquid securities
that it can sell to meet its financial obligations and exclude those
securities that are not as easily liquidated.
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\11\ 17 CFR 240.17Ad-22(b)(3).
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Therefore, for the reasons stated above, the Commission finds that
the proposed rule change is consistent with Rule 17Ad-22(b)(3).\12\
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\12\ Id.
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C. Consistency With Rule 17Ad-22(d)(3)
Rule 17Ad-22(d)(3) \13\ requires ICC to establish, implement,
maintain and enforce written policies and procedures reasonably
designed, as applicable, to hold assets in a manner that minimizes risk
of loss or of delay in its access to them and to invest assets in
instruments with minimal credit, market, and liquidity risks.
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\13\ 17 CFR 240.17Ad-22(d)(3).
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[[Page 159]]
The Commission believes that in clarifying that the committed repo
facility can be used to generate temporary liquidity through sale and
agreement to repurchase pledged securities, to rehypothecate sovereign
debt from overnight repos, and to sell, with the agreement to
repurchase, sovereign debt held by ICC pursuant to direct investments
in such securities, ICC is strengthening its ability to hold assets in
a manner that minimizes delay in access to them by describing ways to
utilize securities to quickly generate cash when the sale of those
securities cannot otherwise be accomplished in a timely manner due to a
clearing participant default. Further, the Commission believes that
because ICC can use the facility to sell, with the agreement to
repurchase, sovereign debt held by ICC pursuant to direct investments
in such securities, it is lowering the liquidity risk of this
particular sovereign debt.
Therefore, for the reasons stated above, the Commission finds that
the proposed rule change is consistent with Rule 17Ad-22(d)(3).\14\
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\14\ 17Ad-22(d)(3).
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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(b)(3) and (d)(3) thereunder.\16\
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\15\ 15 U.S.C. 78q-1(b)(3)(F).
\16\ 17 CFR 240.17Ad-22(b)(3) and 17 CFR 240.17Ad-22(d)(3).
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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-2019-012), 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).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2019-28277 Filed 12-31-19; 8:45 am]
BILLING CODE 8011-01-P
