Self-Regulatory Organizations; ICE Clear Credit LLC; Order Approving Proposed Rule Change, as Modified by Partial Amendment No. 1 and Partial Amendment No. 2, Relating to Amendments to the ICC Clearing Rules To Address Non-Default Losses, on an Accelerated Basis, 11129-11136 [2020-03775]
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Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Notices
provision, then the staff would need to
address the Backfit Rule or the criteria
for avoiding issue finality as described
in the applicable issue finality
provision.
The Commission’s forward fitting
policy generally does not apply when an
applicant files an initial licensing action
for a new facility. Nevertheless, the staff
does not, at this time, intend to impose
the positions represented in the draft
ISG section (if finalized) in a manner
that would constitute forward fitting. If,
in the future, the staff seeks to impose
a position in the draft ISG (if finalized)
in a manner that constitutes forward
fitting, then the staff would need to
address the forward fitting criteria in
Management Directive 8.4.
Dated at Rockville, Maryland, this 21st day
of February 2020.
For the Nuclear Regulatory Commission.
Joseph P. Doub,
Acting Chief, Environmental Review New
Reactors Branch, Division of Rulemaking,
Environmental, and Financial Support, Office
of Nuclear Material Safety and Safeguards.
[FR Doc. 2020–03856 Filed 2–25–20; 8:45 am]
BILLING CODE 7590–01–P
POSTAL REGULATORY COMMISSION
[Docket No. CP2020–97]
New Postal Product
Postal Regulatory Commission.
ACTION: Notice.
AGENCY:
The Commission is noticing a
recent Postal Service filing for the
Commission’s consideration concerning
a negotiated service agreement. This
notice informs the public of the filing,
invites public comment, and takes other
administrative steps.
DATES: Comments are due: February 28,
2020.
ADDRESSES: Submit comments
electronically via the Commission’s
Filing Online system at https://
www.prc.gov. Those who cannot submit
comments electronically should contact
the person identified in the FOR FURTHER
INFORMATION CONTACT section by
telephone for advice on filing
alternatives.
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SUMMARY:
FOR FURTHER INFORMATION CONTACT:
David A. Trissell, General Counsel, at
202–789–6820.
SUPPLEMENTARY INFORMATION:
Table of Contents
17:22 Feb 25, 2020
II. Docketed Proceeding(s)
1. Docket No(s).: CP2020–97; Filing
Title: Notice of United States Postal
Service of Filing a Functionally
Equivalent Global Expedited Package
Services 7 Negotiated Service
Agreement and Application for NonPublic Treatment of Materials Filed
Under Seal; Filing Acceptance Date:
February 20, 2020; Filing Authority: 39
CFR 3015.5; Public Representative:
1 See Docket No. RM2018–3, Order Adopting
Final Rules Relating to Non-Public Information,
June 27, 2018, Attachment A at 19–22 (Order No.
4679).
I. Introduction
II. Docketed Proceeding(s)
VerDate Sep<11>2014
I. Introduction
The Commission gives notice that the
Postal Service filed request(s) for the
Commission to consider matters related
to negotiated service agreement(s). The
request(s) may propose the addition or
removal of a negotiated service
agreement from the market dominant or
the competitive product list, or the
modification of an existing product
currently appearing on the market
dominant or the competitive product
list.
Section II identifies the docket
number(s) associated with each Postal
Service request, the title of each Postal
Service request, the request’s acceptance
date, and the authority cited by the
Postal Service for each request. For each
request, the Commission appoints an
officer of the Commission to represent
the interests of the general public in the
proceeding, pursuant to 39 U.S.C. 505
(Public Representative). Section II also
establishes comment deadline(s)
pertaining to each request.
The public portions of the Postal
Service’s request(s) can be accessed via
the Commission’s website (https://
www.prc.gov). Non-public portions of
the Postal Service’s request(s), if any,
can be accessed through compliance
with the requirements of 39 CFR
3007.301.1
The Commission invites comments on
whether the Postal Service’s request(s)
in the captioned docket(s) are consistent
with the policies of title 39. For
request(s) that the Postal Service states
concern market dominant product(s),
applicable statutory and regulatory
requirements include 39 U.S.C. 3622, 39
U.S.C. 3642, 39 CFR part 3010, and 39
CFR part 3020, subpart B. For request(s)
that the Postal Service states concern
competitive product(s), applicable
statutory and regulatory requirements
include 39 U.S.C. 3632, 39 U.S.C. 3633,
39 U.S.C. 3642, 39 CFR part 3015, and
39 CFR part 3020, subpart B. Comment
deadline(s) for each request appear in
section II.
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11129
Christopher C. Mohr; Comments Due:
February 28, 2020.
This Notice will be published in the
Federal Register.
Erica A. Barker,
Secretary.
[FR Doc. 2020–03819 Filed 2–25–20; 8:45 am]
BILLING CODE 7710–FW–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88253; File No. SR–ICC–
2019–010]
Self-Regulatory Organizations; ICE
Clear Credit LLC; Order Approving
Proposed Rule Change, as Modified by
Partial Amendment No. 1 and Partial
Amendment No. 2, Relating to
Amendments to the ICC Clearing Rules
To Address Non-Default Losses, on an
Accelerated Basis
February 20, 2020.
I. Introduction
On August 8, 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
amend ICC’s Clearing Rules (the
‘‘Rules’’) 3 to address treatment of losses
not related to a Clearing Participant
default. The proposed rule change was
published for comment in the Federal
Register on August 28, 2019.4 The
Commission received comments
regarding the proposed rule change.5
On October 4, 2019, the Commission
designated a longer period of time for
Commission action on the proposed rule
change until November 26, 2019.6 On
October 7, 2019, ICC filed a partial
amendment (‘‘Partial Amendment No.
1’’) to modify the proposed rule
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 Capitalized terms used but not defined herein
have the meanings specified in the Rules.
4 Self-Regulatory Organizations; ICE Clear Credit
LLC; Proposed Rule Change, Security-Based Swap
Submission, or Advance Notice Relating to the ICC
Clearing Rules; Exchange Act Release No. 86729
(Aug. 22, 2019); 84 FR 45191 (Aug. 28, 2019) (SR–
ICC–2019–010) (‘‘Notice’’).
5 Comments are available at https://www.sec.gov/
comments/sr-icc-2019-010/sricc2019010.htm.
6 Self-Regulatory Organizations; ICE Clear Credit
LLC; Notice of Designation of Longer Period for
Commission Action on Proposed Rule Change
Relating to Amendments to the ICC Clearing Rules
To Address Non-Default Losses; Exchange Act
Release No. 87225 (Oct. 4, 2019); 84 FR 54712 (Oct.
10, 2019) (SR–ICC–2019–010).
2 17
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Federal Register / Vol. 85, No. 38 / Wednesday, February 26, 2020 / Notices
change.7 On November 25, 2019, the
Commission published notice of Partial
Amendment No. 1, solicited comments
from interested persons on the proposed
rule change as modified by Partial
Amendment No. 1, and instituted
proceedings under Section 19(b)(2)(B) of
the Act 8 to determine whether to
approve or disapprove the proposed
rule change as modified by Partial
Amendment No. 1.9 On January 24,
2020, ICC filed Partial Amendment No.
2 to the proposed rule change.10 Notice
of Partial Amendment No. 2 was
published in the Federal Register on
February 3, 2020, and in that notice the
Commission requested comments on the
proposed rule change, as modified by
Partial Amendments No. 1 and No. 2.11
The Commission did not receive any
comments in response to the Notice of
Partial of Amendment No. 2.
For the reasons discussed below, the
Commission is approving the proposed
rule change, as modified by Partial
Amendment No. 1 and Partial
Amendment No. 2 (hereinafter,
‘‘proposed rule change’’) on an
accelerated basis.
operations or otherwise maintain its
viability as a going concern in the event
that such losses are realized.12 To that
end, the proposed rule change would
define three exclusive categories of
losses not related to a Clearing
Participant default: (i) Investment
Losses, (ii) Custodial Losses, and (iii)
Non-Default Losses. In addition, with
respect to the treatment of such losses,
the proposed rule change would: (i)
Define the resources of ICC that ICC
would apply to cover each such
category of losses; (ii) assign
responsibility to Clearing Participants,
in certain circumstances, to make
contributions with respect to Investment
Losses and Custodial Losses (but not
Non-Default Losses); and (iii) in the
event that ICC recovers funds related to
Investment Losses or Custodial Losses,
address the treatment of recoveries by
ICC with respect to such losses. The
proposed rule change would also make
additional changes related to all three
categories of losses, including changes
to take into account the effect of the
proposed rule change on other ICC
rules.
II. Background
The proposed rule change is
principally designed to address and
manage the risks posed to ICC by
potential non-default loss events,
including investment losses, custodial
losses with respect to margin and
General Guaranty Fund contributions,
and other losses resulting from general
business risk, operational risk, or other
non-default scenarios, to ensure that ICC
has a mechanism to fully allocate any
such losses and thereby enhance its
ability to continue orderly clearing
A. Loss Categories
The proposed rule change would add
to Rule 102 new definitions for
‘‘Investment Losses’’ and ‘‘Non-Default
Losses’’ and revise the definition of
‘‘Custodial Losses.’’
Under the proposed rule change,
Investment Losses would be defined as
losses incurred or suffered by ICC in
connection with the default of the issuer
of any investment of Margin or General
Guaranty Fund assets by ICC, or the
default of the counterparty to any
repurchase, reverse repurchase contract,
or similar transaction used to invest or
reinvest such Margin or General
Guaranty Fund assets. The proposed
rule change would also include as an
Investment Loss change in value of
investments due to market movements,
but would exclude a Custodial Loss, a
negative yield or interest rate on an
investment, and a loss on a security or
non-cash asset posted by a Clearing
Participant as a Margin or Guaranty
Fund contribution.
Currently, Rule 406(g) defines
Custodial Losses as those arising out of
or relating to the holding, investment, or
use of the Client Omnibus Margin
Account or assets credited thereto from
time to time, and specifies that ICC shall
not be liable for any such losses except
to the extent that they result from the
gross negligence or willful misconduct
of ICC, or from the investment of such
assets by ICC in its discretion within the
7 In Partial Amendment No. 1 to the proposed
rule change, ICC provided additional details and
analyses surrounding the proposed rule change in
the form of a confidential Exhibit 3.
8 15 U.S.C. 78s(b)(2)(B).
9 Self-Regulatory Organizations; ICE Clear Credit
LLC; Notice of Filing of Partial Amendment No. 1
and Order Instituting Proceedings To Determine
Whether To Approve or Disapprove Proposed Rule
Change, as Modified by Partial Amendment No. 1,
Relating to Amendments to the ICC Clearing Rules
To Address Non-Default Losses; Exchange Act
Release No. 87622 (Nov. 25, 2019); 84 FR 66041
(Dec. 2, 2019) (SR–ICC–2019–010).
10 In Partial Amendment No. 2 to the proposed
rule change, ICC modified the initial filing to (1)
differentiate the treatment of investment losses in
the Client Origin Account from the treatment of
investment losses in the House Origin Account and
(2) limit the allocation of investment losses to those
Clearing Participants that have instructed, or are
deemed to have instructed, ICC to invest the cash
Initial Margin in the Client Origin Account.
11 Self-Regulatory Organizations; ICE Clear Credit
LLC; Notice of Filing of Partial Amendment No. 2
to Proposed Rule Change Relating to Amendments
to the ICC Clearing Rules to Address Non-Default
Losses; Exchange Act Release No. 88064 (Jan. 28,
2020); 85 FR 6007 (Feb. 3, 2020).
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17:22 Feb 25, 2020
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meaning of CFTC Rule 1.29(b). The
proposed rule change would move the
definition of Custodial Losses to Section
102 of ICC’s Rules (Definitions) and
revise it to mean losses of Margin or
General Guaranty Fund assets
(including declines in the value thereof)
as a result of (i) the insolvency or failure
of a Custodian or (ii) the embezzlement
or theft of such assets by any person
(other than ICC or its employees or
representatives). The proposed rule
change would define a Custodian for
this purpose as a bank or trust company,
central bank, central securities
depository or other third party
settlement system used by ICC for the
deposit, holding, custody or transfer of
cash or securities. Additionally, because
the proposed rule change would create
a stand-alone definition of Investment
Losses, as described above, the revised
definition of Custodial Losses would
specify that Custodial Losses would not
include Investment Losses.
The proposed rule change would
define Non-Default Losses to include
losses incurred or suffered by ICC that
are neither Investment Losses nor
Custodial Losses and arise in
connection with an event other than a
Clearing Participant’s default. The
definition thus would capture losses
from general business or operational
risk that do not constitute Custodial
Losses or Investment Losses.
B. Treatment of Losses
i. ICC Resources
The proposed rule change would
require that, with respect to an
Investment Loss or Custodial Loss, ICC
would first apply any available
Investment Loss Resources or Custodial
Loss Resources, as applicable. ICC
would determine the amount of such
resources based on its assessment of its
potential exposure to investment losses
under its investment policies and
procedures, and the ICC Board would
periodically conduct a risk-based
assessment of the appropriate level of
Investment Loss Resources.13 As an
initial measure of its potential exposure
to investment losses, ICC has taken into
account components of the European
Union capital requirements applicable
to central counterparties (which are not
directly applicable to ICC), in particular
the capital requirements for credit,
counterparty and market risks and
operational and legal risks.14 Based on
its initial assessment of ICC’s potential
Investment Losses utilizing this
methodology, ICC determined that its
13 See
12 See
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14 See
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Notice, 84 FR at 45194.
id.
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potential exposure to Investment Losses
is $20 million, and therefore the
proposed rule change would initially
define Investment Loss Resources as $20
million of ICC’s own assets designated
by ICC as available to be applied to
Investment Losses. Similarly, based on
ICC’s initial assessment of its potential
Custodial Losses utilizing this
methodology, ICC determined that its
potential exposure to Custodial Losses
is $32 million, and therefore the
proposed rule change would initially
define Custodial Loss Resources as $32
million of ICC’s own assets designated
by ICC as available to be applied to
Custodial Losses. In either case, as
noted, the ICC Board could modify the
amount from time to time, and such
determination would be risk-based in
light of ICC’s potential exposure to such
losses.
Unlike Investment Losses and
Custodial Losses, the proposed rule
change would not define or place a cap
on the specific ICC resources available
to satisfy Non-Default Losses. Rather,
proposed Rule 811(b) would require that
Non-Default Losses, whatever the
amount, be met from available ICC
capital and other ICC assets (including
available retained earnings, Investment
Loss Resources, and Custodial Loss
Resources). Thus, the proposed rule
change would make ICC solely
responsible for Non-Default Losses and
would not allocate Non-Default Losses
to Participants. Similarly, proposed
Rule 811(b) would prohibit ICC from
covering Non-Default Losses with ICC
contributions to default resources or
with Clearing Participant contributions
to Margin, General Guaranty Fund, or
Assessments.
ii. Responsibility of Clearing
Participants
Unlike Non-Default Losses, for which
ICC would be solely responsible, in the
event Investment Loss Resources are
insufficient to cover an Investment Loss
(an ‘‘Investment Loss Shortfall’’), ICC
would have the right, under proposed
Rule 811(d), to allocate the Investment
Loss Shortfall to Clearing Participants
(including any Defaulting Participants).
In that event, the Clearing Participants
would be obligated to make a
contribution (an ‘‘Investment Loss
Contribution’’), based on their pro rata
share of the Investment Loss Shortfall,
determined based on the methodology
described below. Investment Loss
Contributions could only be applied to
Investment Loss Shortfalls (and not
Custodial Loss Shortfalls). Under
proposed Rule 811(e), a Clearing
Participant’s pro rata Investment Loss
Contribution in respect of any event
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17:22 Feb 25, 2020
Jkt 250001
giving rise to an Investment Loss could
not exceed its aggregate Initial Margin
(both house and customer) and General
Guaranty Fund contributions (its
‘‘Participant IM/GF Contribution’’).
The method for determining a
Clearing Participant’s Investment Loss
Contribution would depend on whether
the Investment Loss occurred with
respect to the House Origin Account or
Client Origin Account. In the case of an
Investment Loss in the House Origin
Account, a Clearing Participant’s
Investment Loss Contribution would be
based on the proportion of its
Participant IM/GF Contribution as
compared to the aggregate Participant
IM/GF Contributions for all Participants.
In the case of an Investment Loss in the
Client Origin Account, only those
Clearing Participants that are ‘‘Investing
Participants’’ (as defined below) would
be obligated to make an Investment Loss
Contribution. Specifically, each
Investing Participant would be obligated
to pay an Investment Loss Contribution
equal to its pro rata share of the
Investment Loss Shortfall, determined
based on the proportion of its
Participant IM/GF Contribution to the
aggregate Participant IM/GF
Contributions of all Investing
Participants, rather than the aggregate
Participant IM/GF Contributions of all
Clearing Participants (as would be the
case in the House Origin Account). In
the event of simultaneous Investment
Losses for the House Origin Account
and Client Origin Account, ICC would
apply available Investment Loss
Resources pro rata based on the amount
of such Investment Losses. Thus, with
respect to an Investment Loss Shortfall
in the Client Origin Account, only those
Clearing Participants that are Investing
Participants would be required to
contribute to the shortfall, rather than
all Clearing Participants, and, moreover,
each Investing Participant’s pro rata
share of the shortfall would be
determined by the ratio of its Participant
IM/GF Contribution to the aggregate
Participant IM/GF Contributions of all
Investing Participants.
Proposed Rule 402(k) would define
‘‘Investing Participant’’ as any Clearing
Participant that (1) has instructed ICC to
invest the cash Initial Margin in its
Client Origin Account or (2) is deemed
to have instructed ICC to invest the cash
Initial Margin in its Client Origin
Account. As provided in proposed Rule
402(k), a Clearing Participant would be
required to instruct ICC whether ICC
should invest cash Initial Margin. If
instructed to invest, ICC would invest
the cash in accordance with its Rules
and investment policies procedures and
applicable law. If instructed not to
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11131
invest, ICC would hold the cash in a
deposit account with a Custodian in
accordance with ICC’s policies and
procedures. If a Clearing Participant
does not provide an instruction, then (i)
for U.S. dollar cash, the Clearing
Participant would be deemed to have
instructed ICC not to invest such cash,
and (ii) for cash in other (non U.S.
dollar) currencies, the Clearing
Participant would be deemed to have
instructed ICC to invest such cash.
Thus, the term Investing Participant and
therefore responsibility for an
Investment Loss Shortfall in the Client
Origin Account would apply to any
Clearing Participant that instructs ICC to
invest cash Initial Margin or that makes
no instruction with respect to cash
Initial Margin in currencies other than
U.S. dollars.
Likewise, in the event that Custodial
Loss Resources are insufficient to cover
a Custodial Loss (a ‘‘Custodial Loss
Shortfall’’), ICC would have the right,
under proposed Rule 811(f), to allocate
the Custodial Loss Shortfall to all
Clearing Participants (including any
Defaulting Participants). The proposed
rule change would give ICC the right to
allocate Custodial Loss Shortfalls to
Clearing Participants in the same
fashion as ICC would allocate
Investment Loss Shortfalls in the House
Origin Account. In other words, each
Clearing Participant would be obligated
to make a contribution based on its pro
rata share of the Custodial Loss
Shortfall, determined based on the
proportion of its Participant IM/GF
Contribution as compared to the
aggregate Participant IM/GF
Contributions for all Participants. In the
event of a Custodial Loss where the
Custodian is a central bank, however,
proposed Rule 811(f) would make the
entire Custodial Loss as a Custodial Loss
Shortfall subject to allocation to
Clearing Participants (as opposed to first
applying Custodial Loss Resources). As
discussed in the Notice, ICC believes
such an approach is justified by the
remote nature of such a failure by a
central bank and the preference among
regulators and Clearing Participants for
central bank custody.15 Finally, as with
Investment Losses, a Clearing
Participant’s pro rata contribution in
respect of any event giving rise to a
Custodial Loss could not exceed its
Participant IM/GF Contribution.
iii. Recoveries by ICC
Proposed Rule 811(l) would provide a
‘‘reverse waterfall’’ for allocation of any
recoveries ICC obtains with respect to
an Investment Loss or Custodial Loss
15 Notice,
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84 FR at 45195.
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allocated to Clearing Participants. Under
the proposed rule, after deduction of
expenses of ICC, ICC would provide the
recoveries to the parties that bore the
loss (whether ICC, Clearing Participants,
or both) in the reverse order from which
they were initially applied. The
proposed rule change would also set out
ICC’s obligations to seek recoveries in
respect of Investment Losses and
Custodial Losses, generally using the
same degree of care as it exercises with
respect to its own assets that are not
subject to allocation under proposed
Rule 811.
C. Additional Changes
Proposed Rule 811(u) would contain
a general disclaimer by ICC of losses
resulting from the holding, deposit,
custody, transfer, or investment of
Margin, General Guaranty Fund
contributions and Assessment
Contributions, except as otherwise
provided in Rule 811, and provided that
Rule 811 would not limit any liability
of ICC for its own gross negligence or
willful misconduct. The proposed rule
change would relatedly amend Rule 406
to remove an existing disclaimer for
custodial losses, which would be
superseded by the new provisions in the
proposed rule change.
Proposed Rule 811 would also
address certain procedures for notices to
Participants of the use of Investment
Loss Resources and Custodial Loss
Resources and of required Loss
Contributions in respect of Investment
Losses and Custodial Losses. The
proposed rule would also define the
timing and manner of collection of Loss
Contributions (including through offset
against obligations of ICC to return
margin or other assets), and for currency
conversions as necessary. The proposed
rule would specify that the requirement
to make Loss Contributions would not
reduce or otherwise affect other
obligations of a Clearing Participant to
make payments or deliveries to ICC
under the Rules, or otherwise limit
ICC’s netting, setoff and other rights
under the Rules. In particular, the
proposed rule would separate
obligations to make Loss Contributions
from any obligation to make an
Assessment Contribution and would
specify that the limitations on
Assessments under the Rules would not
apply to liabilities for Loss
Contributions. The proposed rule would
similarly explain that use of the Loss
Contribution procedures would also not
be deemed to constitute an ICE Clear
Credit Default under the Rules.
Finally, proposed Rule 811 would
require ICC to disclose to Clearing
Participants the amount of Custodial
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17:22 Feb 25, 2020
Jkt 250001
Loss Resources and Investment Loss
Resources at least annually, and to
notify Clearing Participants promptly
following any changes in such amounts.
Proposed Rule 811 would further
specify that if such loss resources are
applied as a result of a loss event, any
replenishment of such resources by ICC
would not reduce the amount of any
Custodian Loss Shortfall or Investment
Loss Shortfall (or resulting Loss
Contributions) for that loss event.
Finally, proposed Rule 811 would
explicitly limit ICC’s liability for
Custodial Losses or Investment Losses
to the amount of designated Custodial
Loss Resources or Investment Loss
Resources, as applicable, from time to
time.
III. Statutory Standards
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.16 The
Commission addresses in its review of
the proposed rule change the following
relevant provisions of the Exchange Act
and the rules and regulations
thereunder applicable to registered
clearing agencies:
• Section 17A(b)(3)(D) of the
Exchange Act requires, in part, that the
rules of ICC provide for the equitable
allocation of reasonable dues, fees, and
other charges among its participants.17
• Section 17A(b)(3)(F) of the
Exchange Act requires, in part, that the
rules of ICC be designed to promote the
prompt and accurate clearance and
settlement of securities transactions, to
assure the safeguarding of securities and
funds which are in the custody or
control of ICC or for which it is
responsible, and to protect investors and
the public interest.18
• Rule 17Ad–22(d)(3) under the
Exchange Act requires that ICC
establish, implement, maintain and
enforce written policies and procedures
reasonably designed to hold assets in a
way that minimizes risk of loss or of
delay in its access to them.19
• Rule 17Ad–22(d)(8) under the
Exchange act requires that ICC establish,
implement, maintain and enforce
written policies and procedures
reasonably designed to have governance
arrangements that are clear and
transparent to fulfill the public interest
requirements in Section 17A of the Act
applicable to clearing agencies, to
support the objectives of owners and
participants, and to promote the
effectiveness of ICC’s risk management
procedures.20
IV. Discussion and Commission
Findings
After considering the entire record,
and for the reasons given below, the
Commission finds that the proposed
rule change is consistent with Section
17A(b)(3)(F) and (D) of the Act 21 and
Rules 17Ad–22(d)(3) and 17Ad–22(d)(8)
thereunder.22
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
and, to the extent applicable, derivative
agreements, contracts, and transactions,
as well as to assure the safeguarding of
securities and funds which are in the
custody or control of ICC or for which
it is responsible, and, in general, to
protect investors and the public
interest.23 Based on its review of the
record, the Commission finds the
proposal is consistent with Section
17A(b)(3)(F) of the Exchange Act.
The Commission believes that the
proposed rule change as a whole would
help enhance ICC’s ability to manage
non-default losses generally, and more
specifically to continue operating as a
going concern in the event that it incurs
potential operational, general business
risk, or other non-default losses by,
among other things, ensuring that ICC’s
Rules clearly and transparently identify,
define and address specific categories of
potential non-default risks that ICC will
attempt to assess and cover. For
example, ICC has assessed its potential
exposure to Investment, Custodial, and
Non-Default Losses—taking into
account relevant components of the
European Union capital requirements
applicable to central counterparties,
including the capital requirements for
credit, counterparty, market,
operational, and legal risks—to
determine an initial measure of ICC’s
exposure to such risks, and has selected
and set its level of Investment Loss
Resources and Custodial Loss Resources
to be commensurate with those
measures.24 At the same time, ICC
20 15
16 15
U.S.C. 78s(b)(2)(C).
17 15 U.S.C. 78q–1(b)(3)(D).
18 15 U.S.C. 78q–1(b)(3)(F).
19 15 U.S.C. 17Ad–22(d)(3).
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U.S.C. 17Ad–22(d)(8).
U.S.C. 78q–1(b)(3)(F), (D).
22 17 CFR 240.17Ad–22(d)(3) and (d)(8).
23 15 U.S.C. 78q–1(b)(3)(F).
24 See Notice, 84 FR at 45194.
21 15
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proposes to designate the specific ICC
resources that would be used to cover
such losses and the process for
replenishing such resources should
such losses materialize. Similarly, with
respect to Non-Default Losses, ICC
proposes to designate that such losses
be met from available ICC capital and
other ICC assets and to prohibit the use
of ICC contributions to default resources
or Clearing Participant contributions to
Margin, General Guaranty Fund, or
Assessments to cover such losses. In
addition, ICC also proposes to
periodically conduct risk-based
assessments of the appropriate level of
ICC resources designed to fully cover
such potential losses and to reserve the
ability to adjust such resources as
needed.25 Correspondingly, ICC
proposes to create new definitions for
Investment Losses and Non-Default
Losses and the term Custodian, and
modify the existing definition of
Custodial Losses to ensure consistency
with the above descriptions. The
Commission did not receive any
comments on these aspects of the
proposal.
The proposed rule change would also
limit ICC’s liability for Custodial Losses
or Investment Losses in various ways.
For example, the proposed rule change
would specify that ICC’s liability for
Custodial and Investment Losses would
be limited to the amount of the
designated Custodial Loss Resources or
Investment Loss Resources,
respectively, and would clarify that ICC
would not be liable for losses resulting
from the holding, deposit, custody,
transfer, or investment of Margin,
General Guaranty Fund contributions,
and Assessment Contributions, absent
ICC’s own gross negligence or willful
misconduct. As such, the proposed rule
change is designed to align the
limitation of ICC’s liability for Custodial
and Investment Losses with the amount
that ICC has determined is sufficient to
fully cover its potential exposure to
such losses.
As discussed in more detail in the
Notice, ICC views potential loss
scenarios where Investment or Custodial
Losses could exceed applicable ICC
resources (i.e., an Investment Loss
Shortfall or Custodial Loss Shortfall), as
extreme and therefore remote.26
Nevertheless, by stipulating that ICC
may only allocate Investment Loss
Shortfalls in the House Origin Account
and Custodial Loss Shortfalls to
Clearing Participants and Investment
Loss Shortfalls in the Client Origin
Account to Investing Participants (up to
25 See
Id.
26 Notice, 84 FR at 45195.
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their Participant IM/GF Contribution),
the proposed rule change is designed to
allow ICC to plan for, and fully allocate
Investment Losses and Custodial Losses
that materialize as a result of, remote
and unprecedented, but potentially
extreme, loss events that could exceed
ICC’s designated Investment Loss and
Custodial Loss Resources.27 The
Commission believes that this aspect of
the proposed rule change also would
enhance ICC’s ability to fully cover its
potential exposure to potential
Investment and Custodial Losses,
including such losses that could exceed
ICC’s available Investment Loss and
Custodial Loss Resources.
Relatedly, the proposed rule change
would enhance ICC’s ability to
replenish the resources available to
satisfy Investment Losses and Custodial
Losses in the event that such Losses
materialize by putting in place a process
for collecting and using Loss
Contributions, defining the timing and
manner of notices to Participants on the
amount and use Loss Contributions, and
defining the timing and manner of
collection of Loss Contributions, which
ICC could, in turn, use to satisfy
Investment Loss Shortfalls and
Custodial Loss Shortfalls. The proposed
rule change also would define ICC’s
responsibility for, and the standard of
care it would be required to utilize in,
seeking recoveries from Investment
Losses and Custodial Losses, and how
ICC would allocate such recoveries.
Finally, the Commission believes that
various aspects of the proposed rule
change would help to ensure that NonDefault Losses, Investment Losses, and
Custodial Losses would not affect ICC’s
ability to cover losses arising from the
default of a Clearing Participant. In
particular, the proposed rule change
would: (i) Specify that Loss
Contributions would not reduce or
otherwise affect other obligations of a
Clearing Participant to make payments
or deliveries to ICC under the Rules, or
otherwise limit ICC’s netting, setoff and
other rights under the Rules; (ii)
separate a Clearing Participant’s
obligation to make Loss Contributions
from any obligation to make an
Assessment Contribution; (iii) specify
that the limitations on Assessments
under the Rules would not apply to
liabilities for Loss Contributions; and
27 Notice, 84 FR at 45193–45194. As discussed in
more detail below, one commenter expressed the
belief that ICC’s Clearing Participants should not be
responsible for Investment Losses and Custodial
Losses but rather ICC should ensure adequate
capitalization to address all non-default losses,
including Investment Losses and Custodial Losses.
The Commission discusses and addresses this
comment below in Section 0.
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(iv) clarify that action by ICC under
proposed Rule 811 (specifying ICC’s
treatment of Non-Default Losses,
Investment Losses, and Custodial
Losses) would not be deemed to
constitute an ICE Clear Credit Default
under the Rules. The Commission
believes that these provisions will help
ensure that ICC’s treatment and
allocation of losses not arising from the
default of a Clearing Participant do not
hinder ICC’s ability to cover and fully
allocate losses arising from the default
of one or more Clearing Participants.
Taken together, the Commission
believes that the various components of
the proposed rule change discussed
above would enhance ICC’s ability to
manage the specific categories of general
business risk, operational risk, and other
non-default scenarios that ICC has
identified and assessed, which in turn
would reduce the risk that ICC would be
unavailable to clear and settle securitybased swap transactions and therefore is
consistent with promoting prompt and
accurate clearance and settlement of
such transactions. Accordingly, the
Commission finds that the proposed
rule change is consistent with the
requirements of Section 17A(b)(3)(F) of
the Act.28
B. Consistency With Section
17A(b)(3)(D) of the Act
Section 17A(b)(3)(D) of the Act
requires that the rules of ICC provide for
the equitable allocation of reasonable
dues, fees, and other charges among its
participants.29 As discussed below,
based on its review of the record, the
Commission finds that ICC’s proposed
rule change—as relevant here, the
proposal to allocate Investment Losses
and Custodial Losses to Clearing
Participants in the event that such
Losses exceed ICC’s Investment Loss
and Custodial Loss Resources—is
consistent with Section 17A(b)(3)(D) of
the Exchange Act.30
As noted, the purpose of the proposed
rule change as a whole is to ensure that
ICC has resources sufficient to recover
operations and continue as a going
concern in the vent that it incurs nondefault losses. To that end, as discussed
above, ICC has assessed its potential
exposure to Investment, Custodial, and
Non-Default Losses—taking into
account relevant components of the
European Union capital requirements
applicable to central counterparties,
including the capital requirements for
credit, counterparty, market,
28 15
29 15
U.S.C. 78q–1(b)(3)(F).
U.S.C. 78q–1(b)(3)(D).
30 Id.
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operational, and legal risks 31—and
designated specific ICC resources in the
form of $20 million in Investment Loss
Resources and $32 million in Custodial
Loss Resources that ICC believes should
be sufficient to cover such potential
Losses. The Commission did not receive
any comments on this aspect of the
proposed rule change. Based on our
review of the record, the Commission
believes that ICC’s efforts to determine
its reasonable potential exposure to
Investment and Custodial Losses are
reasonable.
As discussed above, the proposed rule
change would make ICC’s Clearing
Participants responsible for any amount
of Investment Losses and Custodial
Losses beyond ICC’s contributions of
$20 million and $32 million
respectively, and solely responsible for
any amount of Custodial Loss where the
Custodian is a central bank. ICC views
the potential risk of such Losses as
remote, but intends this aspect of the
proposed rule change as necessary to
allow it to ‘‘plan for remote and
unprecedented, but potentially extreme,
types of loss event[s] . . . . ’’ 32
One commenter, the Futures Industry
Association (‘‘FIA’’), submitted a
comment letter generally expressing the
belief that ICC’s Clearing Participants
should not be responsible for
Investment Losses and Custodial Losses
but rather ICC should ensure adequate
capitalization to address all non-default
losses, including Investment Losses and
Custodial Losses.33 The FIA suggests
this is appropriate because it believes
that Investment Losses and Custodial
Losses are under the exclusive control
and governance of ICC.34 As evidence,
the FIA points to ICC’s investment
policy and its relationships with, and
oversight of, Custodians, which the FIA
maintains are determined and approved
by ICC without the involvement of
Clearing Participants.35 In support of its
argument the FIA also contends that
‘‘participants are provided with a
specified return on collateral posted and
do not directly receive the gain from
ICC’s investment of funds.’’ 36
ICC disputes the FIA’s
characterization and offers, as evidence,
the regulations applicable to ICC as a
31 See
Notice, 84 FR at 45194.
32 Notice, 84 FR at 45194.
33 See letter from Jacqueline Mesa, Chief
Operating Officer & Senior Vice President of Global
Policy, Futures Industry Association, dated
September 18, 2019, to Vanessa Countryman,
Secretary, Commission (‘‘FIA Letter’’) at 2.
34 FIA Letter at 2.
35 FIA Letter at 1, 2.
36 FIA Letter at 1.
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registered clearing agency.37 ICC
maintains that these regulations dictate
how ICC may invest Margin and
Guaranty Fund assets, by requiring that
ICC hold such assets in a manner that
minimizes the risk of loss or delay in
access and only invest in instruments
and counterparties with minimal credit,
market and liquidity risk.38 ICC further
explains that its investment and
custodial policies are reviewed and
approved by ICC’s Risk Committee,
which is made up predominantly of
representatives of ICC’s Clearing
Participants, and ICC’s Board of
Managers, which includes
representatives of Clearing
Participants.39 Similarly, ICC represents
that ICC’s procedures for the monitoring
of ICC’s Custodians, investment
counterparties and depositories, are
subject to review by ICC’s Risk
Committee.40 In response to the FIA’s
contention that participants are
provided with a specified return on
collateral posted, ICC asserts that the
majority of the investment yield and
depository interest received related to
such custodial and investment activity
is credited to Clearing Participants and
therefore ICC effectively acts as an agent
for the Clearing Participants and their
clients.41 Thus, ICC maintains that, in
taking custody and investing Margin
and Guaranty Fund assets, ICC
essentially is acting on behalf of
Clearing Participants.42
Based on our review of the record, the
Commission does not agree with the
FIA’s characterization of Investment
Losses and Custodial Losses as under
the exclusive control and governance of
ICC. As an initial matter, the
Commission notes that ICC’s ability to
invest Margin and Guaranty Fund assets
is subject to the requirements of
Exchange Act Rule 17Ad–22(d)(3),
which requires that ICC‘‘[h]old assets in
a manner that minimizes risk of loss or
of delay in its access to them; and invest
assets in instruments with minimal
credit, market and liquidity risks.’’ 43
Moreover, ICC invests pursuant to its
policies and procedures, which must be
filed with and approved by the
Commission pursuant to Section
19(b)(1) of the Exchange Act 44 and Rule
19b–4 thereunder,45 and which, once
37 See letter from Stanislav Ivanov, President, ICC,
dated October 15, 2019, to Vanessa Countryman,
Secretary, Commission (‘‘ICC Letter’’) at 1.
38 ICC Letter at 1.
39 ICC Letter at 2.
40 ICC Letter at 2.
41 ICC Letter at 2.
42 ICC Letter at 2.
43 17 CFR 240.17Ad–22(d)(3).
44 15 U.S.C. 78s(b)(1).
45 17 CFR 240.19b–4.
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approved, ICC must comply with under
Section 19(g) 46 of the Exchange Act.47
Specifically, under ICC Rule 502, ICC
may not modify its policies and
procedures regarding investment of
Initial Margin and Guaranty Fund assets
without consulting the Risk
Committee,48 and under ICC Rule 503,
a majority of the Risk Committee
consists of representatives of Clearing
Participants.49 Taken together, in the
Commission’s view, these factors limit
how and where ICC may invest its
Clearing Participants’ Initial Margin and
Guaranty Fund assets.
The FIA also states its belief that ICC
has a duty of care to its clearing
members and that ICC should not be
able to pass through losses that are
within the sole control of ICC.50 As an
initial matter, with respect to the FIA’s
assertion that ICC owes Clearing
Participants a duty of care, the
Commission notes that ICC is subject to
the requirements of Section 17A(b)(3)(F)
of the Act, which requires that ICC’s
Rules be designed to, among other
things, assure the safeguarding of
securities and funds which are in ICC’s
custody or control or for which it is
responsible,51 as well as the
requirements of Rule 17Ad-22(d)(3),
which requires ICC to establish,
implement, maintain, and enforce
written policies and procedures
reasonably designed to hold assets,
including Clearing Participants’
securities and funds, in a way 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.52 As
discussed in more detail below, the
Commission believes that ICC’s
proposal is consistent with these
46 15
U.S.C. 78s(g).
e.g., Exchange Act Release No. 87859 (Dec.
26, 2019); 85 FR 157 (Jan. 2, 2020) (SR–ICC–2019–
012); Exchange Act Release No. 84312 (Sep. 28,
2018); 83 FR 50124 (Oct. 4, 2018) (SR–ICC–2018–
009); Exchange Act Release No. 78566 (Aug. 12,
2016); 81 FR 55254 (Aug. 18, 2016) (SR–ICC–2016–
009); Exchange Act Release No. 76733 (Dec. 22,
2015); 80 FR 81384 (Dec. 29, 2015) (SR–ICC–2015–
017); Exchange Act Release No. 74456 (Mar. 6,
2015); 80 FR 13055 (Mar. 12, 2015) (SR–ICC–2015–
002); Exchange Act Release No. 72762 (Aug. 5,
2014); 79 FR 46896 (Aug. 11, 2014) (SR–ICC–2014–
12).
48 See ICC Rule 502(b) and (c) (‘‘ICE Clear Credit
shall not take nor permit to be taken any of the
following actions without prior consultation with
the Risk Committee . . . Modify the ICE Provisions
that relate to . . . the application, or the use,
rehypothecation or investment, of Margin and . . .
Modify the ICE Provisions that relate to . . . the
use, rehypothecation or investment of Collateral on
deposit in the General Guaranty Fund . . . .’’).
49 See ICC Rule 503(a) regarding appointment of
nine Participant Appointees.
50 FIA Letter at 2.
51 15 U.S.C. 78q–1(b)(3)(F).
52 17 CFR 240.17Ad–22(d)(3).
47 See,
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requirements. Further, as discussed
above, in the Commission’s view, where
and how ICC may invest Margin and
Guaranty Fund assets is subject to
applicable Exchange Act requirements
and Rules and ICC’s own Rules, and
therefore the Commission does not agree
with the FIA’s characterization of
Investment Losses and Custodial Losses
as under the exclusive control and
governance of ICC.
Finally, the FIA states that it ‘‘is
unclear . . . why ICC’s own funds
would not be used first’’ in case of a
Custodial Loss resulting from a central
bank acting as Custodian.53 In response,
ICC points to international standards,
which encourage clearing houses to
fully utilize central bank services.54
Moreover, as ICC explained in the
Notice, ‘‘[w]ith respect to Custodial
Losses arising from a central bank
custodial failure, ICC believes that such
a scenario is extremely remote, and
entirely outside of its control.’’ 55 The
Commission recognizes ICC’s point that
clearing agencies may be encouraged in
various ways to utilize central bank
services when available and believes
that ICC’s position that a scenario
involving Custodial Losses arising from
a central bank custodial failure could be
extremely remote is reasonable, and on
that basis finds ICC’s view on this point
compelling.56 Accordingly, the
Commission believes that ICC’s
proposal to allocate to Clearing
Participants all Custodial Losses arising
from a central bank acting as custodian
without first utilizing ICC’s Loss
Resources is reasonable.
In the Commission’s view, because
ICC uses Initial Margin and Guaranty
Fund assets to manage the risks
associated with clearing security-based
swap transactions, it is vital to the
ongoing operation of ICC that ICC have
the ability to quickly replenish any
Margin and Guaranty Fund assets
depleted by Investment Losses and
Custodial Losses. Based on its review of
the record, the Commission finds the
specific allocation of the Investment
Losses and Custodial Losses that could
potentially result from the investment of
such assets between ICC and its Clearing
Participants to be reasonable because
ICC would be assuming liability
commensurate with the risks associated
to it with investment of the Margin and
Guaranty Fund assets. As discussed
above, ICC has assessed its potential
exposure to Investment, Custodial, and
Non-Default Losses—taking into
53 FIA
Letter at 2.
Letter at 1.
55 Notice, 84 FR at 45195.
56 ICC Letter at 1.
account relevant components of the
European Union capital requirements
applicable to central counterparties,
including the capital requirements for
credit, counterparty, market,
operational, and legal risks—to
determine an initial measure of ICC’s
exposure to such risks, and has selected
and set its level of Investment Loss,
Custodial Loss, and Non-Default Loss
Resources to be commensurate with
those measures.57 As noted above, based
on its review of the record, the
Commission believes that ICC’s efforts
to determine its reasonable potential
exposure to Investment and Custodial
Losses are reasonable. At the same time,
ICC proposes to designate the specific
ICC resources that would be used to
cover such losses and the process for
replenishing such resources should
such losses materialize. In addition, ICC
also proposes to periodically conduct
risk-based assessments of the
appropriate level of ICC resources
designed to fully cover such potential
losses and to reserve the ability to adjust
such resources as needed.58 It would
only be in the event that ICC incurred
Investment or Custodial Losses that
exceed ICC’s Investment Loss or
Custodial Loss Resources—an
eventuality that ICC views as remote—
that ICC would have the discretion to
require Clearing Participants to make an
Investment Loss Contribution or
Custodial Loss Contribution. And, as
noted above, in that event each Clearing
Participant’s Loss Contribution could
not exceed that Clearing Participant’s
IM/GF Contribution. In the
Commission’s view, ICC’s proposal to
use its own resources to absorb
Investment and Custodial Losses up to
the amounts that ICC has determined
represent reasonable assessments of
such potential Losses, and to allocate
Investment and Custodial Losses to
Clearing Participants on a pro rata basis
based on relevant Initial Margin and
Guaranty Fund assets only in the event
that such Losses exceed ICC’s
Resources, represents an appropriate
and reasonable allocation of potential
contingent non-default losses to
Clearing Participants.
Finally, as discussed above, the
proposed rule change would allocate
Investment Losses and Custodial Losses
to Clearing Participants based on their
participation in the investment of cash
Initial Margin and their share of the
total Initial Margin and Guaranty Fund
assets. Moreover, each Clearing
Participant’s liability for an Investment
Loss or Custodial Loss exceeding ICC’s
initial contributions could not exceed
that Participant’s aggregate
contributions to the Guaranty Fund and
the Initial Margin provided by the
Participant, for both the House Origin
Account and Client Origin Account. The
Commission believes this allocation is
equitable because it would distribute
the losses based on each Clearing
Participant’s share of the Margin and
Guaranty Fund assets that were
depleted by the Investment Losses and
Custodial Losses, and each Clearing
Participant’s liability could not exceed
the total amount it contributed to
Margin and the Guaranty Fund. Thus,
the Commission believes this should
help to ensure that Clearing Participants
only contribute to the recovery from
such losses in amounts commensurate
with their contribution to Margin and
Guaranty Fund assets in the first
instance. Finally, in limiting the
allocation of Investment Losses in the
Client Origin Account to those Clearing
Participants that have instructed, or are
deemed to have instructed, ICC to invest
cash Initial Margin, the Commission
believes that the proposed rule change
would help to ensure that only those
Clearing Participants that have
participated in an investment would
contribute to the recovery of losses
suffered on that investment.
For the reasons discussed above, the
Commission believes that the proposed
rule change is consistent with the
requirement that ICC’s rules provide for
the equitable allocation of fees.
Accordingly, the Commission finds that
the proposed rule change is consistent
with the requirements of Section
17A(b)(3)(D) of the Act.59
C. Consistency With Rule 17Ad–22(d)(3)
Rule 17Ad–22(d)(3) requires that ICC
establish, implement, maintain and
enforce written policies and procedures
reasonably designed to hold assets in a
way that minimizes risk of loss or of
delay in its access to them.60 The
Commission believes that, in specifying
that Clearing Participants must instruct
ICC whether to invest cash Initial
Margin in a Client Origin Account and
that without an instruction to invest,
ICC would (i) not invest US dollar cash
and (ii) invest cash in other currencies
in accordance with its rules and
procedures, the proposed rule change
would provide a procedure reasonably
designed for ICC to hold cash Initial
Margin in a Client Origin Account that
minimizes risk of loss and of delay in
access to such cash Initial Margin.
54 ICC
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57 See
58 See
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59 15
60 15
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Further, in limiting the allocation of
Investment Losses in the Client Origin
Account to those Clearing Participants
that have instructed, or are deemed to
have instructed, ICC to invest cash
Initial Margin in the Client Origin
Account, the Commission believes that
the proposed rule change would help to
minimize risk of loss and of delay in
access to cash Initial Margin by
providing a means for Clearing
Participants to opt out responsibility for
Investment Losses with respect to the
Client Origin Account.
Accordingly, the Commission finds
that the proposed rule change is
consistent with the requirements of Rule
17Ad–22(d)(3).61
D. Consistency With Rule 17Ad–22(d)(8)
Rule 17Ad–22(d)(8) requires that ICC
establish, implement, maintain and
enforce written policies and procedures
reasonably designed to have governance
arrangements that are clear and
transparent to fulfill the public interest
requirements in Section 17A of the Act
applicable to clearing agencies, to
support the objectives of owners and
participants, and to promote the
effectiveness of ICC’s risk management
procedures.62
The Commission believes that the
proposed rule change, in providing that
the ICC Board could modify the amount
of Investment Loss Resources and
Custodial Loss Resources from time to
time, and specifying that such
determination would be risk-based in
light of ICC’s potential exposure to such
losses, would establish clear and
transparent governance arrangements
for determining the amount of such
resources.
Accordingly, the Commission finds
that the proposed rule change is
consistent with the requirements of Rule
17Ad–22(d)(8).63
V. Accelerated Approval of the
Proposed Rule Change, as Modified by
Partial Amendment No. 1 and Partial
Amendment No. 2
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The Commission finds good cause,
pursuant to Section 19(b)(2) of the
Act,64 to approve the proposed rule
change prior to the 30th day after the
date of publication of Partial
61 15
U.S.C. 17Ad–22(d)(3).
62 15 U.S.C. 17Ad–22(d)(8).
63 15 U.S.C. 17Ad–22(d)(8).
64 15 U.S.C. 78s(b)(2).
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Amendment No. 2 in the Federal
Register. As discussed above, Partial
Amendment No. 2 modifies the initial
proposed rule change to (1) differentiate
the treatment of Investment Losses in
the Client Origin Account from the
treatment of Investment Losses in the
House Origin Account and (2) limit the
allocation of Investment Losses to those
Clearing Participants that have
instructed, or are deemed to have
instructed, ICC to invest cash Initial
Margin in the Client Origin Account. In
so doing, Partial Amendment No. 2
provides for a more clear and
comprehensive understanding of the
treatment of Investment Losses and the
impact of the proposed rule change on
Clearing Participants, which helps to
improve the Commission’s review of the
proposed rule change for consistency
with the Act.
For similar reasons as discussed
above, the Commission finds that Partial
Amendment No. 2 is designed to help
assure the prompt and accurate
clearance and settlement of securities
transactions and the safeguarding of
securities and funds which are in the
custody or control of ICC, consistent
with Section 17A(b)(3)(F) of the Act,65
and the equitable allocation of
reasonable dues, fees, and other charges
among ICC’s Clearing Participants,
consistent with the Section 17A(b)(3)(D)
of the Act.66 Accordingly, the
Commission finds good cause for
approving the proposed rule change, as
modified by Partial Amendment No. 2,
on an accelerated basis, pursuant to
Section 19(b)(2) of the Exchange Act.67
VI. Conclusion
On the basis of the foregoing, the
Commission finds that the proposed
rule change, as modified by Partial
Amendment No. 1 and Partial
Amendment No. 2, is consistent with
the requirements of the Act, and in
particular, with the requirements of
Section 17A(b)(3)(F) and (D) of the
Act 68 and Rules 17Ad–22(d)(3) and
(d)(8) thereunder.69
It is therefore ordered pursuant to
Section 19(b)(2) of the Act 70 that the
proposed rule change, as modified by
Partial Amendment No. 1 and Partial
Amendment No. 2 (SR–ICC–2019–010),
be, and hereby is, approved on an
accelerated basis.71
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.72
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2020–03775 Filed 2–25–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Sunshine Act Meetings
7:20 p.m. on Thursday,
February 20, 2020.
PLACE: The meeting was held at the
Commission’s headquarters, 100 F
Street NE, Washington, DC 20549.
STATUS: This meeting was closed to the
public.
MATTERS TO BE CONSIDERED:
Commissioners, Counsel to the
Commissioners, the Secretary to the
Commission, and recording secretaries
attended the closed meeting. Certain
staff members who have an interest in
the matter were also present.
The General Counsel of the
Commission, or his designee, has
certified that, in his opinion, one or
more of the exemptions set forth in 5
U.S.C. 552b(c)(3), (5), (6), (7), (8), 9(B)
and (10) and 17 CFR 200.402(a)(3),
(a)(5), (a)(6), (a)(7), (a)(8), (a)(9)(ii) and
(a)(10), permit consideration of the
scheduled matter at the closed meeting.
This notice is being made publicly
available at the earliest practicable time.
The subject matter of the closed
meeting consisted of the following
topic: Other matter relating to
enforcement proceedings.
CONTACT PERSON FOR MORE INFORMATION:
For further information; please contact
Vanessa A. Countryman from the Office
of the Secretary at (202) 551–5400.
TIME AND DATE:
Dated: February 21, 2020.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2020–03922 Filed 2–24–20; 11:15 am]
BILLING CODE 8011–01–P
65 15
U.S.C. 78q–1(b)(3)(F).
66 15 U.S.C. 78q–1(b)(3)(D).
67 15 U.S.C. 78s(b)(2).
68 15 U.S.C. 78q–1(b)(3)(F), (D).
69 17 CFR 240.17Ad–22(d)(3) and (d)(8).
70 15 U.S.C. 78s(b)(2).
PO 00000
Frm 00092
Fmt 4703
Sfmt 4703
71 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).
72 17 CFR 200.30–3(a)(12).
E:\FR\FM\26FEN1.SGM
26FEN1
]]>Agencies
[Federal Register Volume 85, Number 38 (Wednesday, February 26, 2020)]
[Notices]
[Pages 11129-11136]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-03775]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88253; File No. SR-ICC-2019-010]
Self-Regulatory Organizations; ICE Clear Credit LLC; Order
Approving Proposed Rule Change, as Modified by Partial Amendment No. 1
and Partial Amendment No. 2, Relating to Amendments to the ICC Clearing
Rules To Address Non-Default Losses, on an Accelerated Basis
February 20, 2020.
I. Introduction
On August 8, 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
amend ICC's Clearing Rules (the ``Rules'') \3\ to address treatment of
losses not related to a Clearing Participant default. The proposed rule
change was published for comment in the Federal Register on August 28,
2019.\4\ The Commission received comments regarding the proposed rule
change.\5\
---------------------------------------------------------------------------
\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 Rules.
\4\ Self-Regulatory Organizations; ICE Clear Credit LLC;
Proposed Rule Change, Security-Based Swap Submission, or Advance
Notice Relating to the ICC Clearing Rules; Exchange Act Release No.
86729 (Aug. 22, 2019); 84 FR 45191 (Aug. 28, 2019) (SR-ICC-2019-010)
(``Notice'').
\5\ Comments are available at https://www.sec.gov/comments/sr-icc-2019-010/sricc2019010.htm.
---------------------------------------------------------------------------
On October 4, 2019, the Commission designated a longer period of
time for Commission action on the proposed rule change until November
26, 2019.\6\ On October 7, 2019, ICC filed a partial amendment
(``Partial Amendment No. 1'') to modify the proposed rule
[[Page 11130]]
change.\7\ On November 25, 2019, the Commission published notice of
Partial Amendment No. 1, solicited comments from interested persons on
the proposed rule change as modified by Partial Amendment No. 1, and
instituted proceedings under Section 19(b)(2)(B) of the Act \8\ to
determine whether to approve or disapprove the proposed rule change as
modified by Partial Amendment No. 1.\9\ On January 24, 2020, ICC filed
Partial Amendment No. 2 to the proposed rule change.\10\ Notice of
Partial Amendment No. 2 was published in the Federal Register on
February 3, 2020, and in that notice the Commission requested comments
on the proposed rule change, as modified by Partial Amendments No. 1
and No. 2.\11\ The Commission did not receive any comments in response
to the Notice of Partial of Amendment No. 2.
---------------------------------------------------------------------------
\6\ Self-Regulatory Organizations; ICE Clear Credit LLC; Notice
of Designation of Longer Period for Commission Action on Proposed
Rule Change Relating to Amendments to the ICC Clearing Rules To
Address Non-Default Losses; Exchange Act Release No. 87225 (Oct. 4,
2019); 84 FR 54712 (Oct. 10, 2019) (SR-ICC-2019-010).
\7\ In Partial Amendment No. 1 to the proposed rule change, ICC
provided additional details and analyses surrounding the proposed
rule change in the form of a confidential Exhibit 3.
\8\ 15 U.S.C. 78s(b)(2)(B).
\9\ Self-Regulatory Organizations; ICE Clear Credit LLC; Notice
of Filing of Partial Amendment No. 1 and Order Instituting
Proceedings To Determine Whether To Approve or Disapprove Proposed
Rule Change, as Modified by Partial Amendment No. 1, Relating to
Amendments to the ICC Clearing Rules To Address Non-Default Losses;
Exchange Act Release No. 87622 (Nov. 25, 2019); 84 FR 66041 (Dec. 2,
2019) (SR-ICC-2019-010).
\10\ In Partial Amendment No. 2 to the proposed rule change, ICC
modified the initial filing to (1) differentiate the treatment of
investment losses in the Client Origin Account from the treatment of
investment losses in the House Origin Account and (2) limit the
allocation of investment losses to those Clearing Participants that
have instructed, or are deemed to have instructed, ICC to invest the
cash Initial Margin in the Client Origin Account.
\11\ Self-Regulatory Organizations; ICE Clear Credit LLC; Notice
of Filing of Partial Amendment No. 2 to Proposed Rule Change
Relating to Amendments to the ICC Clearing Rules to Address Non-
Default Losses; Exchange Act Release No. 88064 (Jan. 28, 2020); 85
FR 6007 (Feb. 3, 2020).
---------------------------------------------------------------------------
For the reasons discussed below, the Commission is approving the
proposed rule change, as modified by Partial Amendment No. 1 and
Partial Amendment No. 2 (hereinafter, ``proposed rule change'') on an
accelerated basis.
II. Background
The proposed rule change is principally designed to address and
manage the risks posed to ICC by potential non-default loss events,
including investment losses, custodial losses with respect to margin
and General Guaranty Fund contributions, and other losses resulting
from general business risk, operational risk, or other non-default
scenarios, to ensure that ICC has a mechanism to fully allocate any
such losses and thereby enhance its ability to continue orderly
clearing operations or otherwise maintain its viability as a going
concern in the event that such losses are realized.\12\ To that end,
the proposed rule change would define three exclusive categories of
losses not related to a Clearing Participant default: (i) Investment
Losses, (ii) Custodial Losses, and (iii) Non-Default Losses. In
addition, with respect to the treatment of such losses, the proposed
rule change would: (i) Define the resources of ICC that ICC would apply
to cover each such category of losses; (ii) assign responsibility to
Clearing Participants, in certain circumstances, to make contributions
with respect to Investment Losses and Custodial Losses (but not Non-
Default Losses); and (iii) in the event that ICC recovers funds related
to Investment Losses or Custodial Losses, address the treatment of
recoveries by ICC with respect to such losses. The proposed rule change
would also make additional changes related to all three categories of
losses, including changes to take into account the effect of the
proposed rule change on other ICC rules.
---------------------------------------------------------------------------
\12\ See Notice, 84 FR at 45193.
---------------------------------------------------------------------------
A. Loss Categories
The proposed rule change would add to Rule 102 new definitions for
``Investment Losses'' and ``Non-Default Losses'' and revise the
definition of ``Custodial Losses.''
Under the proposed rule change, Investment Losses would be defined
as losses incurred or suffered by ICC in connection with the default of
the issuer of any investment of Margin or General Guaranty Fund assets
by ICC, or the default of the counterparty to any repurchase, reverse
repurchase contract, or similar transaction used to invest or reinvest
such Margin or General Guaranty Fund assets. The proposed rule change
would also include as an Investment Loss change in value of investments
due to market movements, but would exclude a Custodial Loss, a negative
yield or interest rate on an investment, and a loss on a security or
non-cash asset posted by a Clearing Participant as a Margin or Guaranty
Fund contribution.
Currently, Rule 406(g) defines Custodial Losses as those arising
out of or relating to the holding, investment, or use of the Client
Omnibus Margin Account or assets credited thereto from time to time,
and specifies that ICC shall not be liable for any such losses except
to the extent that they result from the gross negligence or willful
misconduct of ICC, or from the investment of such assets by ICC in its
discretion within the meaning of CFTC Rule 1.29(b). The proposed rule
change would move the definition of Custodial Losses to Section 102 of
ICC's Rules (Definitions) and revise it to mean losses of Margin or
General Guaranty Fund assets (including declines in the value thereof)
as a result of (i) the insolvency or failure of a Custodian or (ii) the
embezzlement or theft of such assets by any person (other than ICC or
its employees or representatives). The proposed rule change would
define a Custodian for this purpose as a bank or trust company, central
bank, central securities depository or other third party settlement
system used by ICC for the deposit, holding, custody or transfer of
cash or securities. Additionally, because the proposed rule change
would create a stand-alone definition of Investment Losses, as
described above, the revised definition of Custodial Losses would
specify that Custodial Losses would not include Investment Losses.
The proposed rule change would define Non-Default Losses to include
losses incurred or suffered by ICC that are neither Investment Losses
nor Custodial Losses and arise in connection with an event other than a
Clearing Participant's default. The definition thus would capture
losses from general business or operational risk that do not constitute
Custodial Losses or Investment Losses.
B. Treatment of Losses
i. ICC Resources
The proposed rule change would require that, with respect to an
Investment Loss or Custodial Loss, ICC would first apply any available
Investment Loss Resources or Custodial Loss Resources, as applicable.
ICC would determine the amount of such resources based on its
assessment of its potential exposure to investment losses under its
investment policies and procedures, and the ICC Board would
periodically conduct a risk-based assessment of the appropriate level
of Investment Loss Resources.\13\ As an initial measure of its
potential exposure to investment losses, ICC has taken into account
components of the European Union capital requirements applicable to
central counterparties (which are not directly applicable to ICC), in
particular the capital requirements for credit, counterparty and market
risks and operational and legal risks.\14\ Based on its initial
assessment of ICC's potential Investment Losses utilizing this
methodology, ICC determined that its
[[Page 11131]]
potential exposure to Investment Losses is $20 million, and therefore
the proposed rule change would initially define Investment Loss
Resources as $20 million of ICC's own assets designated by ICC as
available to be applied to Investment Losses. Similarly, based on ICC's
initial assessment of its potential Custodial Losses utilizing this
methodology, ICC determined that its potential exposure to Custodial
Losses is $32 million, and therefore the proposed rule change would
initially define Custodial Loss Resources as $32 million of ICC's own
assets designated by ICC as available to be applied to Custodial
Losses. In either case, as noted, the ICC Board could modify the amount
from time to time, and such determination would be risk-based in light
of ICC's potential exposure to such losses.
---------------------------------------------------------------------------
\13\ See Notice, 84 FR at 45194.
\14\ See id.
---------------------------------------------------------------------------
Unlike Investment Losses and Custodial Losses, the proposed rule
change would not define or place a cap on the specific ICC resources
available to satisfy Non-Default Losses. Rather, proposed Rule 811(b)
would require that Non-Default Losses, whatever the amount, be met from
available ICC capital and other ICC assets (including available
retained earnings, Investment Loss Resources, and Custodial Loss
Resources). Thus, the proposed rule change would make ICC solely
responsible for Non-Default Losses and would not allocate Non-Default
Losses to Participants. Similarly, proposed Rule 811(b) would prohibit
ICC from covering Non-Default Losses with ICC contributions to default
resources or with Clearing Participant contributions to Margin, General
Guaranty Fund, or Assessments.
ii. Responsibility of Clearing Participants
Unlike Non-Default Losses, for which ICC would be solely
responsible, in the event Investment Loss Resources are insufficient to
cover an Investment Loss (an ``Investment Loss Shortfall''), ICC would
have the right, under proposed Rule 811(d), to allocate the Investment
Loss Shortfall to Clearing Participants (including any Defaulting
Participants). In that event, the Clearing Participants would be
obligated to make a contribution (an ``Investment Loss Contribution''),
based on their pro rata share of the Investment Loss Shortfall,
determined based on the methodology described below. Investment Loss
Contributions could only be applied to Investment Loss Shortfalls (and
not Custodial Loss Shortfalls). Under proposed Rule 811(e), a Clearing
Participant's pro rata Investment Loss Contribution in respect of any
event giving rise to an Investment Loss could not exceed its aggregate
Initial Margin (both house and customer) and General Guaranty Fund
contributions (its ``Participant IM/GF Contribution'').
The method for determining a Clearing Participant's Investment Loss
Contribution would depend on whether the Investment Loss occurred with
respect to the House Origin Account or Client Origin Account. In the
case of an Investment Loss in the House Origin Account, a Clearing
Participant's Investment Loss Contribution would be based on the
proportion of its Participant IM/GF Contribution as compared to the
aggregate Participant IM/GF Contributions for all Participants. In the
case of an Investment Loss in the Client Origin Account, only those
Clearing Participants that are ``Investing Participants'' (as defined
below) would be obligated to make an Investment Loss Contribution.
Specifically, each Investing Participant would be obligated to pay an
Investment Loss Contribution equal to its pro rata share of the
Investment Loss Shortfall, determined based on the proportion of its
Participant IM/GF Contribution to the aggregate Participant IM/GF
Contributions of all Investing Participants, rather than the aggregate
Participant IM/GF Contributions of all Clearing Participants (as would
be the case in the House Origin Account). In the event of simultaneous
Investment Losses for the House Origin Account and Client Origin
Account, ICC would apply available Investment Loss Resources pro rata
based on the amount of such Investment Losses. Thus, with respect to an
Investment Loss Shortfall in the Client Origin Account, only those
Clearing Participants that are Investing Participants would be required
to contribute to the shortfall, rather than all Clearing Participants,
and, moreover, each Investing Participant's pro rata share of the
shortfall would be determined by the ratio of its Participant IM/GF
Contribution to the aggregate Participant IM/GF Contributions of all
Investing Participants.
Proposed Rule 402(k) would define ``Investing Participant'' as any
Clearing Participant that (1) has instructed ICC to invest the cash
Initial Margin in its Client Origin Account or (2) is deemed to have
instructed ICC to invest the cash Initial Margin in its Client Origin
Account. As provided in proposed Rule 402(k), a Clearing Participant
would be required to instruct ICC whether ICC should invest cash
Initial Margin. If instructed to invest, ICC would invest the cash in
accordance with its Rules and investment policies procedures and
applicable law. If instructed not to invest, ICC would hold the cash in
a deposit account with a Custodian in accordance with ICC's policies
and procedures. If a Clearing Participant does not provide an
instruction, then (i) for U.S. dollar cash, the Clearing Participant
would be deemed to have instructed ICC not to invest such cash, and
(ii) for cash in other (non U.S. dollar) currencies, the Clearing
Participant would be deemed to have instructed ICC to invest such cash.
Thus, the term Investing Participant and therefore responsibility for
an Investment Loss Shortfall in the Client Origin Account would apply
to any Clearing Participant that instructs ICC to invest cash Initial
Margin or that makes no instruction with respect to cash Initial Margin
in currencies other than U.S. dollars.
Likewise, in the event that Custodial Loss Resources are
insufficient to cover a Custodial Loss (a ``Custodial Loss
Shortfall''), ICC would have the right, under proposed Rule 811(f), to
allocate the Custodial Loss Shortfall to all Clearing Participants
(including any Defaulting Participants). The proposed rule change would
give ICC the right to allocate Custodial Loss Shortfalls to Clearing
Participants in the same fashion as ICC would allocate Investment Loss
Shortfalls in the House Origin Account. In other words, each Clearing
Participant would be obligated to make a contribution based on its pro
rata share of the Custodial Loss Shortfall, determined based on the
proportion of its Participant IM/GF Contribution as compared to the
aggregate Participant IM/GF Contributions for all Participants. In the
event of a Custodial Loss where the Custodian is a central bank,
however, proposed Rule 811(f) would make the entire Custodial Loss as a
Custodial Loss Shortfall subject to allocation to Clearing Participants
(as opposed to first applying Custodial Loss Resources). As discussed
in the Notice, ICC believes such an approach is justified by the remote
nature of such a failure by a central bank and the preference among
regulators and Clearing Participants for central bank custody.\15\
Finally, as with Investment Losses, a Clearing Participant's pro rata
contribution in respect of any event giving rise to a Custodial Loss
could not exceed its Participant IM/GF Contribution.
---------------------------------------------------------------------------
\15\ Notice, 84 FR at 45195.
---------------------------------------------------------------------------
iii. Recoveries by ICC
Proposed Rule 811(l) would provide a ``reverse waterfall'' for
allocation of any recoveries ICC obtains with respect to an Investment
Loss or Custodial Loss
[[Page 11132]]
allocated to Clearing Participants. Under the proposed rule, after
deduction of expenses of ICC, ICC would provide the recoveries to the
parties that bore the loss (whether ICC, Clearing Participants, or
both) in the reverse order from which they were initially applied. The
proposed rule change would also set out ICC's obligations to seek
recoveries in respect of Investment Losses and Custodial Losses,
generally using the same degree of care as it exercises with respect to
its own assets that are not subject to allocation under proposed Rule
811.
C. Additional Changes
Proposed Rule 811(u) would contain a general disclaimer by ICC of
losses resulting from the holding, deposit, custody, transfer, or
investment of Margin, General Guaranty Fund contributions and
Assessment Contributions, except as otherwise provided in Rule 811, and
provided that Rule 811 would not limit any liability of ICC for its own
gross negligence or willful misconduct. The proposed rule change would
relatedly amend Rule 406 to remove an existing disclaimer for custodial
losses, which would be superseded by the new provisions in the proposed
rule change.
Proposed Rule 811 would also address certain procedures for notices
to Participants of the use of Investment Loss Resources and Custodial
Loss Resources and of required Loss Contributions in respect of
Investment Losses and Custodial Losses. The proposed rule would also
define the timing and manner of collection of Loss Contributions
(including through offset against obligations of ICC to return margin
or other assets), and for currency conversions as necessary. The
proposed rule would specify that the requirement to make Loss
Contributions would not reduce or otherwise affect other obligations of
a Clearing Participant to make payments or deliveries to ICC under the
Rules, or otherwise limit ICC's netting, setoff and other rights under
the Rules. In particular, the proposed rule would separate obligations
to make Loss Contributions from any obligation to make an Assessment
Contribution and would specify that the limitations on Assessments
under the Rules would not apply to liabilities for Loss Contributions.
The proposed rule would similarly explain that use of the Loss
Contribution procedures would also not be deemed to constitute an ICE
Clear Credit Default under the Rules.
Finally, proposed Rule 811 would require ICC to disclose to
Clearing Participants the amount of Custodial Loss Resources and
Investment Loss Resources at least annually, and to notify Clearing
Participants promptly following any changes in such amounts. Proposed
Rule 811 would further specify that if such loss resources are applied
as a result of a loss event, any replenishment of such resources by ICC
would not reduce the amount of any Custodian Loss Shortfall or
Investment Loss Shortfall (or resulting Loss Contributions) for that
loss event. Finally, proposed Rule 811 would explicitly limit ICC's
liability for Custodial Losses or Investment Losses to the amount of
designated Custodial Loss Resources or Investment Loss Resources, as
applicable, from time to time.
III. Statutory Standards
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.\16\ The Commission addresses in its review of the
proposed rule change the following relevant provisions of the Exchange
Act and the rules and regulations thereunder applicable to registered
clearing agencies:
---------------------------------------------------------------------------
\16\ 15 U.S.C. 78s(b)(2)(C).
---------------------------------------------------------------------------
Section 17A(b)(3)(D) of the Exchange Act requires, in
part, that the rules of ICC provide for the equitable allocation of
reasonable dues, fees, and other charges among its participants.\17\
---------------------------------------------------------------------------
\17\ 15 U.S.C. 78q-1(b)(3)(D).
---------------------------------------------------------------------------
Section 17A(b)(3)(F) of the Exchange Act requires, in
part, that the rules of ICC be designed to promote the prompt and
accurate clearance and settlement of securities transactions, to assure
the safeguarding of securities and funds which are in the custody or
control of ICC or for which it is responsible, and to protect investors
and the public interest.\18\
---------------------------------------------------------------------------
\18\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
Rule 17Ad-22(d)(3) under the Exchange Act requires that
ICC establish, implement, maintain and enforce written policies and
procedures reasonably designed to hold assets in a way that minimizes
risk of loss or of delay in its access to them.\19\
---------------------------------------------------------------------------
\19\ 15 U.S.C. 17Ad-22(d)(3).
---------------------------------------------------------------------------
Rule 17Ad-22(d)(8) under the Exchange act requires that
ICC establish, implement, maintain and enforce written policies and
procedures reasonably designed to have governance arrangements that are
clear and transparent to fulfill the public interest requirements in
Section 17A of the Act applicable to clearing agencies, to support the
objectives of owners and participants, and to promote the effectiveness
of ICC's risk management procedures.\20\
---------------------------------------------------------------------------
\20\ 15 U.S.C. 17Ad-22(d)(8).
---------------------------------------------------------------------------
IV. Discussion and Commission Findings
After considering the entire record, and for the reasons given
below, the Commission finds that the proposed rule change is consistent
with Section 17A(b)(3)(F) and (D) of the Act \21\ and Rules 17Ad-
22(d)(3) and 17Ad-22(d)(8) thereunder.\22\
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\21\ 15 U.S.C. 78q-1(b)(3)(F), (D).
\22\ 17 CFR 240.17Ad-22(d)(3) and (d)(8).
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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 and, to the extent
applicable, derivative agreements, contracts, and transactions, as well
as to assure the safeguarding of securities and funds which are in the
custody or control of ICC or for which it is responsible, and, in
general, to protect investors and the public interest.\23\ Based on its
review of the record, the Commission finds the proposal is consistent
with Section 17A(b)(3)(F) of the Exchange Act.
---------------------------------------------------------------------------
\23\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
The Commission believes that the proposed rule change as a whole
would help enhance ICC's ability to manage non-default losses
generally, and more specifically to continue operating as a going
concern in the event that it incurs potential operational, general
business risk, or other non-default losses by, among other things,
ensuring that ICC's Rules clearly and transparently identify, define
and address specific categories of potential non-default risks that ICC
will attempt to assess and cover. For example, ICC has assessed its
potential exposure to Investment, Custodial, and Non-Default Losses--
taking into account relevant components of the European Union capital
requirements applicable to central counterparties, including the
capital requirements for credit, counterparty, market, operational, and
legal risks--to determine an initial measure of ICC's exposure to such
risks, and has selected and set its level of Investment Loss Resources
and Custodial Loss Resources to be commensurate with those
measures.\24\ At the same time, ICC
[[Page 11133]]
proposes to designate the specific ICC resources that would be used to
cover such losses and the process for replenishing such resources
should such losses materialize. Similarly, with respect to Non-Default
Losses, ICC proposes to designate that such losses be met from
available ICC capital and other ICC assets and to prohibit the use of
ICC contributions to default resources or Clearing Participant
contributions to Margin, General Guaranty Fund, or Assessments to cover
such losses. In addition, ICC also proposes to periodically conduct
risk-based assessments of the appropriate level of ICC resources
designed to fully cover such potential losses and to reserve the
ability to adjust such resources as needed.\25\ Correspondingly, ICC
proposes to create new definitions for Investment Losses and Non-
Default Losses and the term Custodian, and modify the existing
definition of Custodial Losses to ensure consistency with the above
descriptions. The Commission did not receive any comments on these
aspects of the proposal.
---------------------------------------------------------------------------
\24\ See Notice, 84 FR at 45194.
\25\ See Id.
---------------------------------------------------------------------------
The proposed rule change would also limit ICC's liability for
Custodial Losses or Investment Losses in various ways. For example, the
proposed rule change would specify that ICC's liability for Custodial
and Investment Losses would be limited to the amount of the designated
Custodial Loss Resources or Investment Loss Resources, respectively,
and would clarify that ICC would not be liable for losses resulting
from the holding, deposit, custody, transfer, or investment of Margin,
General Guaranty Fund contributions, and Assessment Contributions,
absent ICC's own gross negligence or willful misconduct. As such, the
proposed rule change is designed to align the limitation of ICC's
liability for Custodial and Investment Losses with the amount that ICC
has determined is sufficient to fully cover its potential exposure to
such losses.
As discussed in more detail in the Notice, ICC views potential loss
scenarios where Investment or Custodial Losses could exceed applicable
ICC resources (i.e., an Investment Loss Shortfall or Custodial Loss
Shortfall), as extreme and therefore remote.\26\ Nevertheless, by
stipulating that ICC may only allocate Investment Loss Shortfalls in
the House Origin Account and Custodial Loss Shortfalls to Clearing
Participants and Investment Loss Shortfalls in the Client Origin
Account to Investing Participants (up to their Participant IM/GF
Contribution), the proposed rule change is designed to allow ICC to
plan for, and fully allocate Investment Losses and Custodial Losses
that materialize as a result of, remote and unprecedented, but
potentially extreme, loss events that could exceed ICC's designated
Investment Loss and Custodial Loss Resources.\27\ The Commission
believes that this aspect of the proposed rule change also would
enhance ICC's ability to fully cover its potential exposure to
potential Investment and Custodial Losses, including such losses that
could exceed ICC's available Investment Loss and Custodial Loss
Resources.
---------------------------------------------------------------------------
\26\ Notice, 84 FR at 45195.
\27\ Notice, 84 FR at 45193-45194. As discussed in more detail
below, one commenter expressed the belief that ICC's Clearing
Participants should not be responsible for Investment Losses and
Custodial Losses but rather ICC should ensure adequate
capitalization to address all non-default losses, including
Investment Losses and Custodial Losses. The Commission discusses and
addresses this comment below in Section 0.
---------------------------------------------------------------------------
Relatedly, the proposed rule change would enhance ICC's ability to
replenish the resources available to satisfy Investment Losses and
Custodial Losses in the event that such Losses materialize by putting
in place a process for collecting and using Loss Contributions,
defining the timing and manner of notices to Participants on the amount
and use Loss Contributions, and defining the timing and manner of
collection of Loss Contributions, which ICC could, in turn, use to
satisfy Investment Loss Shortfalls and Custodial Loss Shortfalls. The
proposed rule change also would define ICC's responsibility for, and
the standard of care it would be required to utilize in, seeking
recoveries from Investment Losses and Custodial Losses, and how ICC
would allocate such recoveries.
Finally, the Commission believes that various aspects of the
proposed rule change would help to ensure that Non-Default Losses,
Investment Losses, and Custodial Losses would not affect ICC's ability
to cover losses arising from the default of a Clearing Participant. In
particular, the proposed rule change would: (i) Specify that Loss
Contributions would not reduce or otherwise affect other obligations of
a Clearing Participant to make payments or deliveries to ICC under the
Rules, or otherwise limit ICC's netting, setoff and other rights under
the Rules; (ii) separate a Clearing Participant's obligation to make
Loss Contributions from any obligation to make an Assessment
Contribution; (iii) specify that the limitations on Assessments under
the Rules would not apply to liabilities for Loss Contributions; and
(iv) clarify that action by ICC under proposed Rule 811 (specifying
ICC's treatment of Non-Default Losses, Investment Losses, and Custodial
Losses) would not be deemed to constitute an ICE Clear Credit Default
under the Rules. The Commission believes that these provisions will
help ensure that ICC's treatment and allocation of losses not arising
from the default of a Clearing Participant do not hinder ICC's ability
to cover and fully allocate losses arising from the default of one or
more Clearing Participants.
Taken together, the Commission believes that the various components
of the proposed rule change discussed above would enhance ICC's ability
to manage the specific categories of general business risk, operational
risk, and other non-default scenarios that ICC has identified and
assessed, which in turn would reduce the risk that ICC would be
unavailable to clear and settle security-based swap transactions and
therefore is consistent with promoting prompt and accurate clearance
and settlement of such transactions. Accordingly, the Commission finds
that the proposed rule change is consistent with the requirements of
Section 17A(b)(3)(F) of the Act.\28\
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\28\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Section 17A(b)(3)(D) of the Act
Section 17A(b)(3)(D) of the Act requires that the rules of ICC
provide for the equitable allocation of reasonable dues, fees, and
other charges among its participants.\29\ As discussed below, based on
its review of the record, the Commission finds that ICC's proposed rule
change--as relevant here, the proposal to allocate Investment Losses
and Custodial Losses to Clearing Participants in the event that such
Losses exceed ICC's Investment Loss and Custodial Loss Resources--is
consistent with Section 17A(b)(3)(D) of the Exchange Act.\30\
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\29\ 15 U.S.C. 78q-1(b)(3)(D).
\30\ Id.
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As noted, the purpose of the proposed rule change as a whole is to
ensure that ICC has resources sufficient to recover operations and
continue as a going concern in the vent that it incurs non-default
losses. To that end, as discussed above, ICC has assessed its potential
exposure to Investment, Custodial, and Non-Default Losses--taking into
account relevant components of the European Union capital requirements
applicable to central counterparties, including the capital
requirements for credit, counterparty, market,
[[Page 11134]]
operational, and legal risks \31\--and designated specific ICC
resources in the form of $20 million in Investment Loss Resources and
$32 million in Custodial Loss Resources that ICC believes should be
sufficient to cover such potential Losses. The Commission did not
receive any comments on this aspect of the proposed rule change. Based
on our review of the record, the Commission believes that ICC's efforts
to determine its reasonable potential exposure to Investment and
Custodial Losses are reasonable.
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\31\ See Notice, 84 FR at 45194.
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As discussed above, the proposed rule change would make ICC's
Clearing Participants responsible for any amount of Investment Losses
and Custodial Losses beyond ICC's contributions of $20 million and $32
million respectively, and solely responsible for any amount of
Custodial Loss where the Custodian is a central bank. ICC views the
potential risk of such Losses as remote, but intends this aspect of the
proposed rule change as necessary to allow it to ``plan for remote and
unprecedented, but potentially extreme, types of loss event[s] . . . .
'' \32\
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\32\ Notice, 84 FR at 45194.
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One commenter, the Futures Industry Association (``FIA''),
submitted a comment letter generally expressing the belief that ICC's
Clearing Participants should not be responsible for Investment Losses
and Custodial Losses but rather ICC should ensure adequate
capitalization to address all non-default losses, including Investment
Losses and Custodial Losses.\33\ The FIA suggests this is appropriate
because it believes that Investment Losses and Custodial Losses are
under the exclusive control and governance of ICC.\34\ As evidence, the
FIA points to ICC's investment policy and its relationships with, and
oversight of, Custodians, which the FIA maintains are determined and
approved by ICC without the involvement of Clearing Participants.\35\
In support of its argument the FIA also contends that ``participants
are provided with a specified return on collateral posted and do not
directly receive the gain from ICC's investment of funds.'' \36\
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\33\ See letter from Jacqueline Mesa, Chief Operating Officer &
Senior Vice President of Global Policy, Futures Industry
Association, dated September 18, 2019, to Vanessa Countryman,
Secretary, Commission (``FIA Letter'') at 2.
\34\ FIA Letter at 2.
\35\ FIA Letter at 1, 2.
\36\ FIA Letter at 1.
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ICC disputes the FIA's characterization and offers, as evidence,
the regulations applicable to ICC as a registered clearing agency.\37\
ICC maintains that these regulations dictate how ICC may invest Margin
and Guaranty Fund assets, by requiring that ICC hold such assets in a
manner that minimizes the risk of loss or delay in access and only
invest in instruments and counterparties with minimal credit, market
and liquidity risk.\38\ ICC further explains that its investment and
custodial policies are reviewed and approved by ICC's Risk Committee,
which is made up predominantly of representatives of ICC's Clearing
Participants, and ICC's Board of Managers, which includes
representatives of Clearing Participants.\39\ Similarly, ICC represents
that ICC's procedures for the monitoring of ICC's Custodians,
investment counterparties and depositories, are subject to review by
ICC's Risk Committee.\40\ In response to the FIA's contention that
participants are provided with a specified return on collateral posted,
ICC asserts that the majority of the investment yield and depository
interest received related to such custodial and investment activity is
credited to Clearing Participants and therefore ICC effectively acts as
an agent for the Clearing Participants and their clients.\41\ Thus, ICC
maintains that, in taking custody and investing Margin and Guaranty
Fund assets, ICC essentially is acting on behalf of Clearing
Participants.\42\
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\37\ See letter from Stanislav Ivanov, President, ICC, dated
October 15, 2019, to Vanessa Countryman, Secretary, Commission
(``ICC Letter'') at 1.
\38\ ICC Letter at 1.
\39\ ICC Letter at 2.
\40\ ICC Letter at 2.
\41\ ICC Letter at 2.
\42\ ICC Letter at 2.
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Based on our review of the record, the Commission does not agree
with the FIA's characterization of Investment Losses and Custodial
Losses as under the exclusive control and governance of ICC. As an
initial matter, the Commission notes that ICC's ability to invest
Margin and Guaranty Fund assets is subject to the requirements of
Exchange Act Rule 17Ad-22(d)(3), which requires that ICC``[h]old assets
in a manner that minimizes risk of loss or of delay in its access to
them; and invest assets in instruments with minimal credit, market and
liquidity risks.'' \43\ Moreover, ICC invests pursuant to its policies
and procedures, which must be filed with and approved by the Commission
pursuant to Section 19(b)(1) of the Exchange Act \44\ and Rule 19b-4
thereunder,\45\ and which, once approved, ICC must comply with under
Section 19(g) \46\ of the Exchange Act.\47\ Specifically, under ICC
Rule 502, ICC may not modify its policies and procedures regarding
investment of Initial Margin and Guaranty Fund assets without
consulting the Risk Committee,\48\ and under ICC Rule 503, a majority
of the Risk Committee consists of representatives of Clearing
Participants.\49\ Taken together, in the Commission's view, these
factors limit how and where ICC may invest its Clearing Participants'
Initial Margin and Guaranty Fund assets.
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\43\ 17 CFR 240.17Ad-22(d)(3).
\44\ 15 U.S.C. 78s(b)(1).
\45\ 17 CFR 240.19b-4.
\46\ 15 U.S.C. 78s(g).
\47\ See, e.g., Exchange Act Release No. 87859 (Dec. 26, 2019);
85 FR 157 (Jan. 2, 2020) (SR-ICC-2019-012); Exchange Act Release No.
84312 (Sep. 28, 2018); 83 FR 50124 (Oct. 4, 2018) (SR-ICC-2018-009);
Exchange Act Release No. 78566 (Aug. 12, 2016); 81 FR 55254 (Aug.
18, 2016) (SR-ICC-2016-009); Exchange Act Release No. 76733 (Dec.
22, 2015); 80 FR 81384 (Dec. 29, 2015) (SR-ICC-2015-017); Exchange
Act Release No. 74456 (Mar. 6, 2015); 80 FR 13055 (Mar. 12, 2015)
(SR-ICC-2015-002); Exchange Act Release No. 72762 (Aug. 5, 2014); 79
FR 46896 (Aug. 11, 2014) (SR-ICC-2014-12).
\48\ See ICC Rule 502(b) and (c) (``ICE Clear Credit shall not
take nor permit to be taken any of the following actions without
prior consultation with the Risk Committee . . . Modify the ICE
Provisions that relate to . . . the application, or the use,
rehypothecation or investment, of Margin and . . . Modify the ICE
Provisions that relate to . . . the use, rehypothecation or
investment of Collateral on deposit in the General Guaranty Fund . .
. .'').
\49\ See ICC Rule 503(a) regarding appointment of nine
Participant Appointees.
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The FIA also states its belief that ICC has a duty of care to its
clearing members and that ICC should not be able to pass through losses
that are within the sole control of ICC.\50\ As an initial matter, with
respect to the FIA's assertion that ICC owes Clearing Participants a
duty of care, the Commission notes that ICC is subject to the
requirements of Section 17A(b)(3)(F) of the Act, which requires that
ICC's Rules be designed to, among other things, assure the safeguarding
of securities and funds which are in ICC's custody or control or for
which it is responsible,\51\ as well as the requirements of Rule 17Ad-
22(d)(3), which requires ICC to establish, implement, maintain, and
enforce written policies and procedures reasonably designed to hold
assets, including Clearing Participants' securities and funds, in a way
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.\52\ As discussed in more detail below, the Commission believes
that ICC's proposal is consistent with these
[[Page 11135]]
requirements. Further, as discussed above, in the Commission's view,
where and how ICC may invest Margin and Guaranty Fund assets is subject
to applicable Exchange Act requirements and Rules and ICC's own Rules,
and therefore the Commission does not agree with the FIA's
characterization of Investment Losses and Custodial Losses as under the
exclusive control and governance of ICC.
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\50\ FIA Letter at 2.
\51\ 15 U.S.C. 78q-1(b)(3)(F).
\52\ 17 CFR 240.17Ad-22(d)(3).
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Finally, the FIA states that it ``is unclear . . . why ICC's own
funds would not be used first'' in case of a Custodial Loss resulting
from a central bank acting as Custodian.\53\ In response, ICC points to
international standards, which encourage clearing houses to fully
utilize central bank services.\54\ Moreover, as ICC explained in the
Notice, ``[w]ith respect to Custodial Losses arising from a central
bank custodial failure, ICC believes that such a scenario is extremely
remote, and entirely outside of its control.'' \55\ The Commission
recognizes ICC's point that clearing agencies may be encouraged in
various ways to utilize central bank services when available and
believes that ICC's position that a scenario involving Custodial Losses
arising from a central bank custodial failure could be extremely remote
is reasonable, and on that basis finds ICC's view on this point
compelling.\56\ Accordingly, the Commission believes that ICC's
proposal to allocate to Clearing Participants all Custodial Losses
arising from a central bank acting as custodian without first utilizing
ICC's Loss Resources is reasonable.
---------------------------------------------------------------------------
\53\ FIA Letter at 2.
\54\ ICC Letter at 1.
\55\ Notice, 84 FR at 45195.
\56\ ICC Letter at 1.
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In the Commission's view, because ICC uses Initial Margin and
Guaranty Fund assets to manage the risks associated with clearing
security-based swap transactions, it is vital to the ongoing operation
of ICC that ICC have the ability to quickly replenish any Margin and
Guaranty Fund assets depleted by Investment Losses and Custodial
Losses. Based on its review of the record, the Commission finds the
specific allocation of the Investment Losses and Custodial Losses that
could potentially result from the investment of such assets between ICC
and its Clearing Participants to be reasonable because ICC would be
assuming liability commensurate with the risks associated to it with
investment of the Margin and Guaranty Fund assets. As discussed above,
ICC has assessed its potential exposure to Investment, Custodial, and
Non-Default Losses--taking into account relevant components of the
European Union capital requirements applicable to central
counterparties, including the capital requirements for credit,
counterparty, market, operational, and legal risks--to determine an
initial measure of ICC's exposure to such risks, and has selected and
set its level of Investment Loss, Custodial Loss, and Non-Default Loss
Resources to be commensurate with those measures.\57\ As noted above,
based on its review of the record, the Commission believes that ICC's
efforts to determine its reasonable potential exposure to Investment
and Custodial Losses are reasonable. At the same time, ICC proposes to
designate the specific ICC resources that would be used to cover such
losses and the process for replenishing such resources should such
losses materialize. In addition, ICC also proposes to periodically
conduct risk-based assessments of the appropriate level of ICC
resources designed to fully cover such potential losses and to reserve
the ability to adjust such resources as needed.\58\ It would only be in
the event that ICC incurred Investment or Custodial Losses that exceed
ICC's Investment Loss or Custodial Loss Resources--an eventuality that
ICC views as remote--that ICC would have the discretion to require
Clearing Participants to make an Investment Loss Contribution or
Custodial Loss Contribution. And, as noted above, in that event each
Clearing Participant's Loss Contribution could not exceed that Clearing
Participant's IM/GF Contribution. In the Commission's view, ICC's
proposal to use its own resources to absorb Investment and Custodial
Losses up to the amounts that ICC has determined represent reasonable
assessments of such potential Losses, and to allocate Investment and
Custodial Losses to Clearing Participants on a pro rata basis based on
relevant Initial Margin and Guaranty Fund assets only in the event that
such Losses exceed ICC's Resources, represents an appropriate and
reasonable allocation of potential contingent non-default losses to
Clearing Participants.
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\57\ See Notice, 84 FR at 45194.
\58\ See Id.
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Finally, as discussed above, the proposed rule change would
allocate Investment Losses and Custodial Losses to Clearing
Participants based on their participation in the investment of cash
Initial Margin and their share of the total Initial Margin and Guaranty
Fund assets. Moreover, each Clearing Participant's liability for an
Investment Loss or Custodial Loss exceeding ICC's initial contributions
could not exceed that Participant's aggregate contributions to the
Guaranty Fund and the Initial Margin provided by the Participant, for
both the House Origin Account and Client Origin Account. The Commission
believes this allocation is equitable because it would distribute the
losses based on each Clearing Participant's share of the Margin and
Guaranty Fund assets that were depleted by the Investment Losses and
Custodial Losses, and each Clearing Participant's liability could not
exceed the total amount it contributed to Margin and the Guaranty Fund.
Thus, the Commission believes this should help to ensure that Clearing
Participants only contribute to the recovery from such losses in
amounts commensurate with their contribution to Margin and Guaranty
Fund assets in the first instance. Finally, in limiting the allocation
of Investment Losses in the Client Origin Account to those Clearing
Participants that have instructed, or are deemed to have instructed,
ICC to invest cash Initial Margin, the Commission believes that the
proposed rule change would help to ensure that only those Clearing
Participants that have participated in an investment would contribute
to the recovery of losses suffered on that investment.
For the reasons discussed above, the Commission believes that the
proposed rule change is consistent with the requirement that ICC's
rules provide for the equitable allocation of fees. Accordingly, the
Commission finds that the proposed rule change is consistent with the
requirements of Section 17A(b)(3)(D) of the Act.\59\
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\59\ 15 U.S.C. 78q-1(b)(3)(D).
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C. Consistency With Rule 17Ad-22(d)(3)
Rule 17Ad-22(d)(3) requires that ICC establish, implement, maintain
and enforce written policies and procedures reasonably designed to hold
assets in a way that minimizes risk of loss or of delay in its access
to them.\60\ The Commission believes that, in specifying that Clearing
Participants must instruct ICC whether to invest cash Initial Margin in
a Client Origin Account and that without an instruction to invest, ICC
would (i) not invest US dollar cash and (ii) invest cash in other
currencies in accordance with its rules and procedures, the proposed
rule change would provide a procedure reasonably designed for ICC to
hold cash Initial Margin in a Client Origin Account that minimizes risk
of loss and of delay in access to such cash Initial Margin.
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\60\ 15 U.S.C. 17Ad-22(d)(3).
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[[Page 11136]]
Further, in limiting the allocation of Investment Losses in the
Client Origin Account to those Clearing Participants that have
instructed, or are deemed to have instructed, ICC to invest cash
Initial Margin in the Client Origin Account, the Commission believes
that the proposed rule change would help to minimize risk of loss and
of delay in access to cash Initial Margin by providing a means for
Clearing Participants to opt out responsibility for Investment Losses
with respect to the Client Origin Account.
Accordingly, the Commission finds that the proposed rule change is
consistent with the requirements of Rule 17Ad-22(d)(3).\61\
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\61\ 15 U.S.C. 17Ad-22(d)(3).
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D. Consistency With Rule 17Ad-22(d)(8)
Rule 17Ad-22(d)(8) requires that ICC establish, implement, maintain
and enforce written policies and procedures reasonably designed to have
governance arrangements that are clear and transparent to fulfill the
public interest requirements in Section 17A of the Act applicable to
clearing agencies, to support the objectives of owners and
participants, and to promote the effectiveness of ICC's risk management
procedures.\62\
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\62\ 15 U.S.C. 17Ad-22(d)(8).
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The Commission believes that the proposed rule change, in providing
that the ICC Board could modify the amount of Investment Loss Resources
and Custodial Loss Resources from time to time, and specifying that
such determination would be risk-based in light of ICC's potential
exposure to such losses, would establish clear and transparent
governance arrangements for determining the amount of such resources.
Accordingly, the Commission finds that the proposed rule change is
consistent with the requirements of Rule 17Ad-22(d)(8).\63\
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\63\ 15 U.S.C. 17Ad-22(d)(8).
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V. Accelerated Approval of the Proposed Rule Change, as Modified by
Partial Amendment No. 1 and Partial Amendment No. 2
The Commission finds good cause, pursuant to Section 19(b)(2) of
the Act,\64\ to approve the proposed rule change prior to the 30th day
after the date of publication of Partial Amendment No. 2 in the Federal
Register. As discussed above, Partial Amendment No. 2 modifies the
initial proposed rule change to (1) differentiate the treatment of
Investment Losses in the Client Origin Account from the treatment of
Investment Losses in the House Origin Account and (2) limit the
allocation of Investment Losses to those Clearing Participants that
have instructed, or are deemed to have instructed, ICC to invest cash
Initial Margin in the Client Origin Account. In so doing, Partial
Amendment No. 2 provides for a more clear and comprehensive
understanding of the treatment of Investment Losses and the impact of
the proposed rule change on Clearing Participants, which helps to
improve the Commission's review of the proposed rule change for
consistency with the Act.
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\64\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------
For similar reasons as discussed above, the Commission finds that
Partial Amendment No. 2 is designed to help assure the prompt and
accurate clearance and settlement of securities transactions and the
safeguarding of securities and funds which are in the custody or
control of ICC, consistent with Section 17A(b)(3)(F) of the Act,\65\
and the equitable allocation of reasonable dues, fees, and other
charges among ICC's Clearing Participants, consistent with the Section
17A(b)(3)(D) of the Act.\66\ Accordingly, the Commission finds good
cause for approving the proposed rule change, as modified by Partial
Amendment No. 2, on an accelerated basis, pursuant to Section 19(b)(2)
of the Exchange Act.\67\
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\65\ 15 U.S.C. 78q-1(b)(3)(F).
\66\ 15 U.S.C. 78q-1(b)(3)(D).
\67\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion
On the basis of the foregoing, the Commission finds that the
proposed rule change, as modified by Partial Amendment No. 1 and
Partial Amendment No. 2, is consistent with the requirements of the
Act, and in particular, with the requirements of Section 17A(b)(3)(F)
and (D) of the Act \68\ and Rules 17Ad-22(d)(3) and (d)(8)
thereunder.\69\
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\68\ 15 U.S.C. 78q-1(b)(3)(F), (D).
\69\ 17 CFR 240.17Ad-22(d)(3) and (d)(8).
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It is therefore ordered pursuant to Section 19(b)(2) of the Act
\70\ that the proposed rule change, as modified by Partial Amendment
No. 1 and Partial Amendment No. 2 (SR-ICC-2019-010), be, and hereby is,
approved on an accelerated basis.\71\
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\70\ 15 U.S.C. 78s(b)(2).
\71\ 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.\72\
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\72\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2020-03775 Filed 2-25-20; 8:45 am]
BILLING CODE 8011-01-P
