Self-Regulatory Organizations; ICE Clear Credit LLC; Order Approving Proposed Rule Change Relating to the ICC CDS Instrument On-Boarding Policies and Procedures, 32073-32075 [2020-11401]
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Federal Register / Vol. 85, No. 103 / Thursday, May 28, 2020 / Notices
ETP Holders to modify their order entry
and/or cancellation practices so that
fewer orders or shares are cancelled
without resulting in an execution,
thereby promoting price discovery and
transparency and enhancing order
execution opportunities on the
Exchange.
Intramarket Competition. The
Exchange believes the proposed Ratio
Threshold Fees would not place any
undue burden on intramarket
competition that is not necessary or
appropriate in furtherance of the
purposes of the Act because the
proposed fees are designed to encourage
ETP Holders to submit orders or shares
into the market that are actionable.
Further, the proposal would apply to all
ETP Holders on an equal basis, and, as
such, the proposed change would not
impose a disparate burden on
competition among market participants
on the Exchange. To the extent that
these purposes are achieved, the
Exchange believes that the proposal
would serve as an incentive for ETP
Holders to modify their order entry
practices, thus enhancing the quality of
the market and increase the volume of
orders or shares directed to, and
executed on, the Exchange. In turn, all
the Exchange’s market participants
would benefit from the improved
market liquidity.
Intermarket Competition. The
Exchange operates in a highly
competitive market in which market
participants can readily favor other
exchange and off-exchange venues. In
such an environment, the Exchange
must continually review, and consider
adjusting its services along with its fees
and rebates, to remain competitive with
other exchanges and with off-exchange
venues. Because competitors are free to
modify their own services, and their
fees and credits in response, the
Exchange does not believe the proposed
fee change can impose any burden on
intermarket competition.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
jbell on DSKJLSW7X2PROD with NOTICES
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective
upon filing pursuant to Section
19(b)(3)(A) 28 of the Act and
subparagraph (f)(2) of Rule 19b–4 29
thereunder, because it establishes a due,
fee, or other charge imposed by the
Exchange.
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
under Section 19(b)(2)(B) 30 of the Act to
determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSEArca–2020–45 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSEArca–2020–45. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
29 17
28 15
U.S.C. 78s(b)(3)(A).
VerDate Sep<11>2014
16:32 May 27, 2020
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CFR 240.19b–4(f)(2).
U.S.C. 78s(b)(2)(B).
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32073
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–NYSEArca–2020–45, and
should be submitted on or before June
18, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.31
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–11405 Filed 5–27–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[[Release No. 34–88925; File No. SR–ICC–
2020–004]
Self-Regulatory Organizations; ICE
Clear Credit LLC; Order Approving
Proposed Rule Change Relating to the
ICC CDS Instrument On-Boarding
Policies and Procedures
May 21, 2020.
I. Introduction
On March 30, 2020, 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–4,2
a proposed rule change to update and
formalize the ICC CDS Instrument Onboarding Policies and Procedures
(‘‘Instrument On-boarding Policy’’). The
proposed rule change was published for
comment in the Federal Register on
April 8, 2020.3 The Commission did not
receive comments regarding the
proposed rule change. For the reasons
discussed below, the Commission is
approving the proposed rule change.
17 CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Self-Regulatory Organizations; ICE Clear Credit
LLC; Notice of Filing of Proposed Rule Change,
Security-Based Swap Submission, or Advance
Notice Relating to the ICC CDS Instrument Onboarding Policies and Procedures; Exchange Act
Release No. 88545 (Apr. 2, 2020); 85 FR 19785 (Apr.
8, 2020) (SR–ICC–2020–004) (‘‘Notice’’).
31
1 15
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Federal Register / Vol. 85, No. 103 / Thursday, May 28, 2020 / Notices
II. Description of the Proposed Rule
Change
The proposed rule change would
update and formalize the Instrument
On-boarding Policy.4 The Instrument
On-boarding Policy would describe
ICC’s procedures for selecting new
products for clearing, and would
organize those procedures into the
following components: Instrument
selection, on-boarding governance,
operational setup, risk evaluation,
pricing evaluation, and dress rehearsal.
With respect to instrument selection,
ICC would, as described in the
Instrument On-boarding Policy,
establish an initial universe of new
products that it potentially could clear.
ICC would establish this initial universe
based on (1) its current business
strategy, (2) products that are actively
traded bilaterally between ICC Clearing
Participants but not cleared at ICC, and
(3) feedback from Clearing Participants
and the Trading Advisory Group
regarding the products they would like
ICC to clear. From there, ICC would
analyze the initial universe of new
products that it potentially could clear
to see which of those products met ICC’s
guiding principles. As described in the
On-boarding Policy, these guiding
principles would require that ICC
consider products that meet certain
standards for open interest and volume,
be capable of being cleared through
ICC’s existing systems and processes,
and support industry wide initiatives
and protocols.
Once ICC has determined that a
product meets its guiding principles, it
would next proceed with the
appropriate governance actions for
clearing the proposed new product. As
described in the Instrument Onboarding Policy, the specific governance
actions required before clearing the
product would depend on which of four
categories the product falls into: (1) A
new product that falls under a
previously approved product category
and type, such as a previously approved
CDS corporate single name (e.g., North
American Corporate Single Names) or a
previously approved CDS sovereign
single name type (e.g., Emerging Market
Sovereign Single Names), (2) a new
product that falls under an approved
product category but is a new type that
is not considered in the ICC Rules (e.g.,
a new type of single name CDS not
already considered in the ICC Rules), (3)
a new product that falls under a new
product category that is not considered
4 Capitalized terms not otherwise defined herein
have the meanings assigned to them in the
Instrument On-boarding Policy or the ICC Rules, as
applicable.
VerDate Sep<11>2014
16:32 May 27, 2020
Jkt 250001
in the ICC Rules (e.g., a product in a
category other than CDS on indices and
CDS on single names), and (4) a new
product that falls out of scope of the
standard on-boarding process, such as a
new CDS index issued after a credit
event affecting one of the companies in
the index. For each category, the
Instrument On-boarding Policy would
explain the governance process,
including notification to and review and
approval by relevant stakeholders such
as ICC’s Board, committees and working
groups, and regulators. Moreover, for all
of the categories, ICC would review with
the Risk Committee a risk impact
analysis and pricing analysis with
respect to clearing the new product and
would also review the risk and pricing
parameters and evaluation results with
the Trading Advisory Committee and
Risk Working Group.
The Instrument On-boarding Policy
would also require that ICC complete an
operational configuration before
clearing a new product. Specifically,
ICC would be required to configure its
systems to evaluate and accept
transactions, process and net
transactions, and price the proposed
product. Moreover, the On-boarding
Policy would describe how ICC defines
the reference obligation (meaning the
particular bond that is either guaranteed
or issued by the reference entity) for a
new product and further would describe
how ICC defines the legal and economic
terms of a new product using the ISDA
Credit Derivatives Physical Settlement
Matrix.
Regarding risk evaluation, the
Instrument On-boarding Policy would
describe how ICC would ensure that its
risk model adequately captures the risks
associated with the new product. As
described in the Instrument Onboarding Policy, ICC would do so by
performing back-testing and stresstesting on portfolios containing the
proposed new product. In doing so, ICC
would seek to demonstrate that the risks
associated with the proposed product
are appropriately accounted for by ICC’s
risk models and that Initial Margin and
Guaranty Fund requirements will
provide adequate protection to ICC and
its Clearing Participants.
Similarly, for pricing evaluation, the
Instrument On-boarding Policy would
require that ICC ensure its end-of-day
price discovery process operates
effectively with the proposed product
and adequately captures the price
dynamics of the new product.
Additional detail with respect to the
end-of-day price discovery process
would be available in ICC’s End-of-Day
Price Discovery Policies and
Procedures.
PO 00000
Frm 00072
Fmt 4703
Sfmt 4703
Finally, before launching clearing of a
new product, the Instrument Onboarding Policy would require that ICC
perform a dress rehearsal, lasting at least
two weeks, during which the end-of-day
price discovery process would be
executed for the new product each
business day. During the dress
rehearsal, ICC would collect price
submissions and fine tune pricing
parameters, as needed.
Once ICC has successfully completed
this dress rehearsal and the other steps
in the on-boarding process and received
any required regulatory approvals, the
Instrument On-boarding Policy would
allow ICC to deem a product eligible for
clearing and add it to the ICC Cleared
Products list.
III. Discussion and Commission
Findings
Section 19(b)(2)(C) of the Act directs
the Commission to approve a proposed
rule change of a self-regulatory
organization if it finds that such
proposed rule change is consistent with
the requirements of the Act and the
rules and regulations thereunder
applicable to such organization.5 For the
reasons given below, the Commission
finds that the proposed rule change is
consistent with Section 17A(b)(3)(F) of
the Act 6 and Rule 17Ad–22(d)(4).7
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.8 As discussed above,
the proposed rule change would update
and formalize the Instrument Onboarding Policy. The Instrument Onboarding Policy would describe ICC’s
procedures for selecting new products
for clearing, including instrument
selection, governance, operational
setup, risk evaluation, pricing
evaluation, and dress rehearsal. In doing
so, the Commission believes that the
Instrument On-boarding Policy should
provide a method for ICC to determine
whether to clear new products and
prepare for the clearance of such new
products, thereby promoting the
5 15
U.S.C. 78s(b)(2)(C).
U.S.C. 78q–1(b)(3)(F).
7 17 CFR 240.17Ad–22(d)(4).
8 15 U.S.C. 78q–1(b)(3)(F).
6 15
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Federal Register / Vol. 85, No. 103 / Thursday, May 28, 2020 / Notices
jbell on DSKJLSW7X2PROD with NOTICES
accurate clearance and settlement of
transactions in such products.
Moreover, the Commission believes
the Instrument On-boarding Policy, by
setting standards for instrument
selection, operational set up, risk and
pricing evaluation, and governance for
clearing new products would help to
mitigate potential risks created by
clearing new products, such as the risk
that ICC’s risk model would not
adequately manage the risks associated
with a new product. Similarly, the
Commission believes that the required
dress rehearsal would allow ICC to
identify potential issues with the endof-day pricing process before accepting
a new product for clearing. The
Commission believes that the risks
associated with clearing a new product,
including application of ICC’s existing
risk model and end-of-day pricing
process, could, if not adequately
managed, disrupt ICC’s ability to clear
and settle transactions in other products
and safeguard securities and funds in its
custody and control. Thus the
Commission believes that, in providing
ICC means for managing the risks
associated with clearing a new product,
the proposed rule change should help to
promote the prompt and accurate
clearance and settlement of securities
transactions and assure the safeguarding
of securities and funds in ICC’s custody
and control.
Therefore, the Commission finds that
the proposed rule change would
promote the prompt and accurate
clearance and settlement of securities
transactions and assure the safeguarding
of securities and funds in ICC’s custody
and control, consistent with the Section
17A(b)(3)(F) of the Act.9
B. Consistency With Rule 17Ad–22(d)(4)
Rule 17Ad–22(d)(4) requires that ICC
establish, implement, maintain and
enforce written policies and procedures
reasonably designed to identify sources
of operational risk and minimize them
through the development of appropriate
systems, controls, and procedures.10 As
discussed above, the Commission
believes that the Instrument Onboarding Policy would help to mitigate
potential risks associated with new
products. In particular, the Commission
believes that in requiring ICC to
complete an operational configuration
to evaluate and accept transactions,
process and net transactions, and price
the proposed new product, the
Instrument On-boarding Policy should
help ICC to identify potential
operational risks before clearing the new
9 15
U.S.C. 78q–1(b)(3)(F).
U.S.C. 17Ad–22(d)(4).
10 15
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16:32 May 27, 2020
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32075
product. Similarly, the Commission
believes that the required dress
rehearsal should allow ICC to identify
potential operational issues with the
end-of-day pricing process and
settlement before accepting a new
product for clearing. Taken together, the
Commission believes the Instrument
On-boarding Policy should enable ICC
to identify the operational risks
associated with a new product and
minimize those risks prior to clearing a
new product. For these reasons, the
Commission finds that the proposed
rule change is consistent with Rule
17Ad–22(d)(4).11
2020, ICE Clear Europe Limited (‘‘ICE
Clear Europe’’ or the ‘‘Clearing House’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule changes described in
Items I, II and III below, which Items
have been prepared by ICE Clear
Europe. On May 20, 2020, ICE Clear
Europe filed Partial Amendment No. 1
to the proposed rule change.3 The
Commission is publishing this notice to
solicit comments on the proposed rule
change, as modified by Partial
Amendment No. 1 (hereinafter the
‘‘proposed rule change’’), from
interested persons.
IV. Conclusion
On the basis of the foregoing, the
Commission finds that the proposed
rule change is consistent with the
requirements of the Act, and in
particular, with the requirements of
Section 17A(b)(3)(F) of the Act 12 and
Rule 17Ad–22(d)(4).13
It is therefore ordered pursuant to
Section 19(b)(2) of the Act 14 that the
proposed rule change (SR–ICC–2020–
004), be, and hereby is, approved.15
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
ICE Clear Europe Limited (‘‘ICE Clear
Europe’’ or the ‘‘Clearing House’’)
proposes to amend its Auction Terms
for CDS Default Auctions (the ‘‘CDS
Auction Terms’’) and CDS Default
Management Policy (the ‘‘Policy’’),
formerly the CDS Default Management
Framework. The revisions do not
involve any changes to the ICE Clear
Europe Clearing Rules (the ‘‘Rules’’) or
other Procedures.4
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.16
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–11401 Filed 5–27–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88928; File No. SR–ICEEU–
2020–007]
Self-Regulatory Organizations; ICE
Clear Europe Limited; Notice of Filing
of Proposed Rule Change, as Modified
by Partial Amendment No. 1, Relating
to the ICE Clear Europe Auction Terms
for CDS Default Auctions and CDS
Default Management Policy (formerly
the CDS Default Management
Framework).
May 21, 2020.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on May 12,
11 15
U.S.C. 17Ad–22(d)(4).
U.S.C. 78q–1(b)(3)(F).
13 17 CFR 240.17Ad–22(d)(4).
14 15 U.S.C. 78s(b)(2).
15 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).
16 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
12 15
PO 00000
Frm 00073
Fmt 4703
Sfmt 4703
II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
In its filing with the Commission, ICE
Clear Europe included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. ICE
Clear Europe has prepared summaries,
set forth in sections (A), (B), and (C)
below, of the most significant aspects of
such statements.
(A) Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
(a) Purpose
ICE Clear Europe is proposing to
amend its CDS Auction Terms and the
Policy. The proposed amendments to
the CDS Auction Terms would (1) add
a new ‘‘all or nothing’’ bidding type, (2)
clarify certain procedures regarding
determination of minimum bid
requirements, (3) provide for the use of
ICEU’s default management system, in
lieu of email or other manual forms of
communication, for submission of bids
3 Partial Amendment Number 1 amended Exhibit
5A of the filing to correct the paragraph numbering
in Part 2 of the CDS Auction Terms.
4 Capitalized terms used but not defined herein
have the meanings specified in the Rules.
E:\FR\FM\28MYN1.SGM
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]]>Agencies
[Federal Register Volume 85, Number 103 (Thursday, May 28, 2020)]
[Notices]
[Pages 32073-32075]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-11401]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[[Release No. 34-88925; File No. SR-ICC-2020-004]
Self-Regulatory Organizations; ICE Clear Credit LLC; Order
Approving Proposed Rule Change Relating to the ICC CDS Instrument On-
Boarding Policies and Procedures
May 21, 2020.
I. Introduction
On March 30, 2020, 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,\2\ a proposed rule change to update and
formalize the ICC CDS Instrument On-boarding Policies and Procedures
(``Instrument On-boarding Policy''). The proposed rule change was
published for comment in the Federal Register on April 8, 2020.\3\ The
Commission did not receive comments regarding the proposed rule change.
For the reasons discussed below, the Commission is approving the
proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Self-Regulatory Organizations; ICE Clear Credit LLC; Notice
of Filing of Proposed Rule Change, Security-Based Swap Submission,
or Advance Notice Relating to the ICC CDS Instrument On-boarding
Policies and Procedures; Exchange Act Release No. 88545 (Apr. 2,
2020); 85 FR 19785 (Apr. 8, 2020) (SR-ICC-2020-004) (``Notice'').
---------------------------------------------------------------------------
[[Page 32074]]
II. Description of the Proposed Rule Change
The proposed rule change would update and formalize the Instrument
On-boarding Policy.\4\ The Instrument On-boarding Policy would describe
ICC's procedures for selecting new products for clearing, and would
organize those procedures into the following components: Instrument
selection, on-boarding governance, operational setup, risk evaluation,
pricing evaluation, and dress rehearsal.
---------------------------------------------------------------------------
\4\ Capitalized terms not otherwise defined herein have the
meanings assigned to them in the Instrument On-boarding Policy or
the ICC Rules, as applicable.
---------------------------------------------------------------------------
With respect to instrument selection, ICC would, as described in
the Instrument On-boarding Policy, establish an initial universe of new
products that it potentially could clear. ICC would establish this
initial universe based on (1) its current business strategy, (2)
products that are actively traded bilaterally between ICC Clearing
Participants but not cleared at ICC, and (3) feedback from Clearing
Participants and the Trading Advisory Group regarding the products they
would like ICC to clear. From there, ICC would analyze the initial
universe of new products that it potentially could clear to see which
of those products met ICC's guiding principles. As described in the On-
boarding Policy, these guiding principles would require that ICC
consider products that meet certain standards for open interest and
volume, be capable of being cleared through ICC's existing systems and
processes, and support industry wide initiatives and protocols.
Once ICC has determined that a product meets its guiding
principles, it would next proceed with the appropriate governance
actions for clearing the proposed new product. As described in the
Instrument On-boarding Policy, the specific governance actions required
before clearing the product would depend on which of four categories
the product falls into: (1) A new product that falls under a previously
approved product category and type, such as a previously approved CDS
corporate single name (e.g., North American Corporate Single Names) or
a previously approved CDS sovereign single name type (e.g., Emerging
Market Sovereign Single Names), (2) a new product that falls under an
approved product category but is a new type that is not considered in
the ICC Rules (e.g., a new type of single name CDS not already
considered in the ICC Rules), (3) a new product that falls under a new
product category that is not considered in the ICC Rules (e.g., a
product in a category other than CDS on indices and CDS on single
names), and (4) a new product that falls out of scope of the standard
on-boarding process, such as a new CDS index issued after a credit
event affecting one of the companies in the index. For each category,
the Instrument On-boarding Policy would explain the governance process,
including notification to and review and approval by relevant
stakeholders such as ICC's Board, committees and working groups, and
regulators. Moreover, for all of the categories, ICC would review with
the Risk Committee a risk impact analysis and pricing analysis with
respect to clearing the new product and would also review the risk and
pricing parameters and evaluation results with the Trading Advisory
Committee and Risk Working Group.
The Instrument On-boarding Policy would also require that ICC
complete an operational configuration before clearing a new product.
Specifically, ICC would be required to configure its systems to
evaluate and accept transactions, process and net transactions, and
price the proposed product. Moreover, the On-boarding Policy would
describe how ICC defines the reference obligation (meaning the
particular bond that is either guaranteed or issued by the reference
entity) for a new product and further would describe how ICC defines
the legal and economic terms of a new product using the ISDA Credit
Derivatives Physical Settlement Matrix.
Regarding risk evaluation, the Instrument On-boarding Policy would
describe how ICC would ensure that its risk model adequately captures
the risks associated with the new product. As described in the
Instrument On-boarding Policy, ICC would do so by performing back-
testing and stress-testing on portfolios containing the proposed new
product. In doing so, ICC would seek to demonstrate that the risks
associated with the proposed product are appropriately accounted for by
ICC's risk models and that Initial Margin and Guaranty Fund
requirements will provide adequate protection to ICC and its Clearing
Participants.
Similarly, for pricing evaluation, the Instrument On-boarding
Policy would require that ICC ensure its end-of-day price discovery
process operates effectively with the proposed product and adequately
captures the price dynamics of the new product. Additional detail with
respect to the end-of-day price discovery process would be available in
ICC's End-of-Day Price Discovery Policies and Procedures.
Finally, before launching clearing of a new product, the Instrument
On-boarding Policy would require that ICC perform a dress rehearsal,
lasting at least two weeks, during which the end-of-day price discovery
process would be executed for the new product each business day. During
the dress rehearsal, ICC would collect price submissions and fine tune
pricing parameters, as needed.
Once ICC has successfully completed this dress rehearsal and the
other steps in the on-boarding process and received any required
regulatory approvals, the Instrument On-boarding Policy would allow ICC
to deem a product eligible for clearing and add it to the ICC Cleared
Products list.
III. Discussion and Commission Findings
Section 19(b)(2)(C) of the Act directs the Commission to approve a
proposed rule change of a self-regulatory organization if it finds that
such proposed rule change is consistent with the requirements of the
Act and the rules and regulations thereunder applicable to such
organization.\5\ For the reasons given below, the Commission finds that
the proposed rule change is consistent with Section 17A(b)(3)(F) of the
Act \6\ and Rule 17Ad-22(d)(4).\7\
---------------------------------------------------------------------------
\5\ 15 U.S.C. 78s(b)(2)(C).
\6\ 15 U.S.C. 78q-1(b)(3)(F).
\7\ 17 CFR 240.17Ad-22(d)(4).
---------------------------------------------------------------------------
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.\8\ As
discussed above, the proposed rule change would update and formalize
the Instrument On-boarding Policy. The Instrument On-boarding Policy
would describe ICC's procedures for selecting new products for
clearing, including instrument selection, governance, operational
setup, risk evaluation, pricing evaluation, and dress rehearsal. In
doing so, the Commission believes that the Instrument On-boarding
Policy should provide a method for ICC to determine whether to clear
new products and prepare for the clearance of such new products,
thereby promoting the
[[Page 32075]]
accurate clearance and settlement of transactions in such products.
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\8\ 15 U.S.C. 78q-1(b)(3)(F).
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Moreover, the Commission believes the Instrument On-boarding
Policy, by setting standards for instrument selection, operational set
up, risk and pricing evaluation, and governance for clearing new
products would help to mitigate potential risks created by clearing new
products, such as the risk that ICC's risk model would not adequately
manage the risks associated with a new product. Similarly, the
Commission believes that the required dress rehearsal would allow ICC
to identify potential issues with the end-of-day pricing process before
accepting a new product for clearing. The Commission believes that the
risks associated with clearing a new product, including application of
ICC's existing risk model and end-of-day pricing process, could, if not
adequately managed, disrupt ICC's ability to clear and settle
transactions in other products and safeguard securities and funds in
its custody and control. Thus the Commission believes that, in
providing ICC means for managing the risks associated with clearing a
new product, the proposed rule change should help to promote the prompt
and accurate clearance and settlement of securities transactions and
assure the safeguarding of securities and funds in ICC's custody and
control.
Therefore, the Commission finds that the proposed rule change would
promote the prompt and accurate clearance and settlement of securities
transactions and assure the safeguarding of securities and funds in
ICC's custody and control, consistent with the Section 17A(b)(3)(F) of
the Act.\9\
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\9\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rule 17Ad-22(d)(4)
Rule 17Ad-22(d)(4) requires that ICC establish, implement, maintain
and enforce written policies and procedures reasonably designed to
identify sources of operational risk and minimize them through the
development of appropriate systems, controls, and procedures.\10\ As
discussed above, the Commission believes that the Instrument On-
boarding Policy would help to mitigate potential risks associated with
new products. In particular, the Commission believes that in requiring
ICC to complete an operational configuration to evaluate and accept
transactions, process and net transactions, and price the proposed new
product, the Instrument On-boarding Policy should help ICC to identify
potential operational risks before clearing the new product. Similarly,
the Commission believes that the required dress rehearsal should allow
ICC to identify potential operational issues with the end-of-day
pricing process and settlement before accepting a new product for
clearing. Taken together, the Commission believes the Instrument On-
boarding Policy should enable ICC to identify the operational risks
associated with a new product and minimize those risks prior to
clearing a new product. For these reasons, the Commission finds that
the proposed rule change is consistent with Rule 17Ad-22(d)(4).\11\
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\10\ 15 U.S.C. 17Ad-22(d)(4).
\11\ 15 U.S.C. 17Ad-22(d)(4).
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IV. Conclusion
On the basis of the foregoing, the Commission finds that the
proposed rule change is consistent with the requirements of the Act,
and in particular, with the requirements of Section 17A(b)(3)(F) of the
Act \12\ and Rule 17Ad-22(d)(4).\13\
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\12\ 15 U.S.C. 78q-1(b)(3)(F).
\13\ 17 CFR 240.17Ad-22(d)(4).
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It is therefore ordered pursuant to Section 19(b)(2) of the Act
\14\ that the proposed rule change (SR-ICC-2020-004), be, and hereby
is, approved.\15\
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\14\ 15 U.S.C. 78s(b)(2).
\15\ 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.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-11401 Filed 5-27-20; 8:45 am]
BILLING CODE 8011-01-P
