Self-Regulatory Organizations; ICE Clear Credit LLC; Order Approving Proposed Rule Change Relating to the ICC's Treasury Operations Policies and Procedures, 27136-27138 [2021-10498]
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Federal Register / Vol. 86, No. 95 / Wednesday, May 19, 2021 / Notices
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,
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–NASDAQ–2021–038, and
should be submitted on or before June
9, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.12
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–10495 Filed 5–18–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–91894; File No. SR–ICC–
2021–007]
Self-Regulatory Organizations; ICE
Clear Credit LLC; Order Approving
Proposed Rule Change Relating to the
ICC’s Treasury Operations Policies
and Procedures
May 13, 2021.
khammond on DSKJM1Z7X2PROD with NOTICES
I. Introduction
On March 29, 2021, 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 (‘‘Act’’),1 and Rule 19b–4
thereunder,2 a proposed rule change to
revise the ICC Treasury Operations
Policies and Procedures (the ‘‘Treasury
Policy’’). The proposed rule change was
published for comment in the Federal
Register on April 13, 2021.3 The
Commission did not receive comments
on the proposed rule change. For the
12 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
Relating to the ICC’s Treasury Operations Policies
and Procedures, Exchange Act Release No. 91489
(April 7, 2021), 86 FR 19311 (April 13, 2021) (SR–
ICC–2021–007) (‘‘Notice’’).
1 15
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16:43 May 18, 2021
Jkt 253001
reasons discussed below, the
Commission is approving the proposed
rule change.
II. Description of the Proposed Rule
Change
ICC is proposing amendments to its
Treasury Policy to make certain
clarifications and updates with respect
to governance arrangements and
collateral asset haircuts, as well as
minor clean-up changes. The proposed
amendments are summarized below.4
ICC proposes to amend the ‘‘Revision
History’’ section of the Treasury Policy.
The proposed changes would remove an
incorrect statement that the document’s
revision history is limited to the last
three years. The proposed changes
would also memorialize ICC’s review
and approval process of the Treasury
Policy document, which consists of
review by the ICC Risk Committee and
review and approval by the ICC Board
of Managers (the ‘‘Board’’) at least
annually. Additionally, ICC would
update the revision history table to
include the most recent changes to the
document.
ICC also proposes updates and
clarification changes to the ‘‘Collateral
Assets Risk Management Framework’’
appendix to the Treasury Policy
(‘‘Appendix 6’’). Under the Treasury
Policy, ICC accounts for the risk
associated with fluctuations in the value
of collateral assets by discounting, or
applying ‘‘haircuts’’ to, such assets
based on the risk measures and risk
factors set forth in Appendix 6. The ICC
Risk Department (the ‘‘Risk
Department’’) calculates such haircuts
for various collateral assets as described
in Appendix 6 on an ongoing basis. ICC
proposes to change Appendix 6 to
update the measure of daily changes for
collateral assets such as sovereign debt.
Specifically, the proposed changes
would amend and remove certain
language that differentiates between
yield rates greater than and less than or
equal to one basis point in respect of
sovereign debt collateral haircuts. ICC
represents that such amendments do not
represent a change to the methodology
and would provide a more generalized
and consistent collateral risk
management framework for sovereign
debt.5 ICC proposes additional
clarifications, including with respect to
time series used for determining
sovereign debt collateral haircuts and a
formula regarding a risk-factor specific
haircut. ICC also proposes a
grammatical update to change a
reference to ‘‘haircuts’’ from plural to
singular.
ICC further proposes additional detail
on the process of reviewing and
updating collateral asset haircuts.
Appendix 6 currently states that such
haircuts are reviewed monthly. ICC
proposes to clarify that the Risk
Department will establish haircuts for
the respective collateral asset types
within measured intervals, and review
them at least monthly to determine the
need for updates. ICC also proposes to
specify that the Risk Department may
use discretion to update collateral asset
haircuts during periods of extreme
market stress, and specifically during
periods when collateral assets
appreciate in response to central banks’
policy implementations, as a temporary
means to reduce procyclical impacts.
III. 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. For the
reasons given below, the Commission
finds that the proposed rule change is
consistent with Section 17A(b)(3)(F) of
the Act 6 and Rules 17Ad–22(e)(2)(i) and
(v), (e)(3)(i), and (e)(5) thereunder.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
and 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 described above, the proposed rule
change would update and clarify the
revision history of the Treasury Policy
document and memorialize the
governance arrangements for its review
and approval. The Commission believes
that these proposed changes should
help ICC maintain a complete and
transparent history of changes to the
Treasury Policy and ensure that the
Treasury Policy is reviewed and
approved at least annually to support
ICC’s ongoing treasury functions,
including collateral asset risk
6 15
4 The
following description of the proposed rule
change is substantially excerpted from the Notice.
5 See Notice, 86 FR at 19311.
PO 00000
Frm 00074
Fmt 4703
Sfmt 4703
U.S.C. 78q–1(b)(3)(F).
CFR 240.17Ad–22(e)(2)(i) and (v), (e)(3)(i),
and (e)(5).
8 15 U.S.C. 78q–1(b)(3)(F).
7 17
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Federal Register / Vol. 86, No. 95 / Wednesday, May 19, 2021 / Notices
management. The Commission believes
these aspects of the proposed rule
change should facilitate ICC’s ability to
maintain CDS clearing services that are
supported by, and consistent with, clear
and transparent governance
arrangements that comply with internal
Treasury policies and procedures,
which should, in turn, help ICC
continue to promote the prompt and
accurate settlement of CDS transactions.
ICC would also update and clarify its
collateral assets risk management
framework in Appendix 6 of the
Treasury Policy by changing certain risk
measures for calculating collateral asset
haircuts. Specifically, as described
above, the proposed rule change would
update the measure of daily changes for
collateral assets such as sovereign debt,
including with respect to time series
used for sovereign debt collateral
haircuts and a formula regarding a riskfactor specific haircut. ICC would also
change a reference to ‘‘haircuts’’ from
plural to singular. Further, ICC also
proposes additional detail in Appendix
6 on the process and frequency of
reviewing and updating collateral asset
haircuts. ICC proposes to clarify that the
Risk Department will establish haircuts
for the respective collateral asset types
within measured intervals, and review
them at least monthly to determine the
need for updates. ICC also proposes to
specify that the Risk Department may
use discretion to update collateral asset
haircuts during periods of extreme
market stress to reduce procyclicality.
Taken together, the proposed changes
to Appendix 6 should enhance the
accuracy of ICC’s collateral asset
haircuts and help ICC to ensure that,
even in stressed market conditions, it
will continue to collect sufficient
collateral from its clearing participants
and that such collateral could be
liquidated in a timely manner to meet
its financial obligations as a central
counterparty while also limiting the
likelihood of procyclical impacts from
haircuts as issuer creditworthiness
deteriorates and haircuts increase.
Moreover, these proposed changes
should enhance ICC’s ability to manage
the credit, liquidity, and market risks it
faces from collateral posted by its
participants. Accordingly, the
Commission believes that ICC’s
proposed changes to Appendix 6 should
help ICC to continue providing prompt
and accurate settlement of CDS
transactions and to enhance ICC’s
ability to safeguard securities and funds
which are in its custody or control or for
which it is responsible.
For these reasons, the Commission
finds that the proposed rule change is
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16:43 May 18, 2021
Jkt 253001
consistent with the Section 17A(b)(3)(F)
of the Act.9
B. Consistency With Rule 17Ad–
22(e)(2)(i) and (v)
Rules 17Ad–22(e)(2)(i) and (v) require
that ICC establish, implement, maintain,
and enforce written policies and
procedures reasonably designed to
provide for governance arrangements
that are clear and transparent and
specify clear and direct lines of
responsibility.10
As noted above, the proposed rule
change would enhance the governance
arrangements for reviewing and
approving the Treasury Policy
document generally, including clear
governance arrangements for reviewing
and updating haircuts under the
collateral asset risk management
framework in Appendix 6. Specifically,
the proposed rule change provides that
the Treasury Policy document is subject
to review by the Risk Committee and
review and approval by the Board at
least annually. Further, the proposed
rule change would clarify and update
the current statement in Appendix 6
that collateral asset haircuts are
reviewed monthly, by specifying that
the Risk Committee will establish
haircuts for the respective collateral
asset types within measured intervals,
and review them at least monthly to
determine the need for updates. The
proposed rule change would also clarify
that the Risk Committee may exercise
discretion to review and update haircut
values more frequently, if it deems
necessary, and may make incremental,
temporary adjustments to existing
haircuts in response to specific market
conditions. The Commission therefore
believes that these aspects of the
proposed rule change will maintain
ICC’s Treasury operations policies and
procedures in a manner reasonably
designed to provide for governance
arrangements that are clear and
transparent and specify clear and direct
lines of responsibility.
For these reasons, the Commission
finds that the proposed rule change is
consistent with Rules 17Ad–22(e)(2)(i)
and (v).11
C. Consistency With Rule 17Ad–
22(e)(3)(i)
Rule 17Ad–22(e)(3)(i) requires, among
other things, that ICC establish,
implement, maintain, and enforce
written policies and procedures
reasonably designed to, as applicable,
maintain a sound risk management
U.S.C. 78q–1(b)(3)(F).
CFR 240.17Ad–22(e)(2)(i) and (v).
11 17 CFR 240.17Ad–22(e)(2)(i) and (v).
framework that identifies, measures,
monitors, and manages the range of
risks that it faces.12
As described above, ICC’s proposed
changes to its collateral assets risk
framework in Appendix 6 would refine
and update certain risk measures and
risk factors for determining collateral
asset haircuts that can be accepted from
an ICC clearing participant. The
proposed changes would also require
the Risk Department to review and
update haircut values at least monthly,
or more frequently as it deems
necessary, and to incrementally update
such haircuts during periods of extreme
market stress. The Commission believes
that these updated collateral asset risk
management procedures should allow
ICC to continue to mitigate collateral
price and liquidation risk through
setting acceptable haircuts and
providing governance guidelines for
monitoring haircut values and managing
any deviations or related issues, thereby
continuing to maintain a sound risk
management framework in this regard.
For these reasons, the Commission
finds that the proposed rule change is
consistent with Rule 17Ad–22(e)(3)(i).13
D. Consistency With Rule 17Ad–22(e)(5)
Rule 17Ad–22(e)(5) requires that ICC
establish, implement, maintain and
enforce written policies and procedures
reasonably designed to, as applicable,
limit the assets it accepts as collateral to
those with low credit, liquidity, and
market risks, and set and enforce
appropriately conservative haircuts and
concentration limits if the covered
clearing agency requires collateral to
manage its or its participants’ credit
exposure; and require a review of the
sufficiency of its collateral haircuts and
concentration limits to be performed not
less than annually.14
The Commission believes that the
proposed changes in Appendix 6
regarding the factors and other
considerations with respect to
acceptable collateral asset haircuts
should continue to maintain ICC’s
ability to limit the assets it accepts as
collateral to those with low credit,
liquidity, and market risks, and to set
and enforce appropriately conservative
haircuts for sovereign debt and other
acceptable collateral assets. Further, the
proposed updates to the governance
arrangements for the risk management
framework of collateral assets haircuts
in Appendix 6 would ensure that the
Risk Department establishes haircuts for
the respective collateral asset types
9 15
12 17
10 17
13 17
PO 00000
Frm 00075
Fmt 4703
Sfmt 4703
27137
CFR 240.17Ad–22(e)(3)(i).
CFR 240.17Ad–22(e)(3)(i).
14 17 CFR 240.17Ad–22(e)(5).
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Federal Register / Vol. 86, No. 95 / Wednesday, May 19, 2021 / Notices
within measured intervals, and
continues to review haircuts at least
monthly, subject to regular reviews and
more frequent valuation updates, if
needed.
For these reasons, the Commission
finds that the proposed rule change is
consistent with Rule 17Ad–22(e)(5).15
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 16 and
Rules 17Ad–22(e)(2)(i) and (v), (e)(3)(i),
and (e)(5) thereunder.17
It is therefore ordered pursuant to
Section 19(b)(2) of the Act 18 that the
proposed rule change (SR–ICC–2021–
007) be, and hereby is, approved.19
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.20
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–10498 Filed 5–18–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–91887; File No. SR–Phlx–
2021–30]
Self-Regulatory Organizations; Nasdaq
PHLX LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Options 6,
Section 7
May 13, 2021.
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 6,
2021, Nasdaq PHLX LLC (‘‘Phlx’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II,
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
khammond on DSKJM1Z7X2PROD with NOTICES
15 17
CFR 240.17Ad–22(e)(5).
16 15 U.S.C. 78q–1(b)(3)(F).
17 17 CFR 240.17Ad–22(e)(2)(i) and (v), (e)(3)(i),
and (e)(5).
18 15 U.S.C. 78s(b)(2).
19 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).
20 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
VerDate Sep<11>2014
16:43 May 18, 2021
Jkt 253001
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Options 6, Section 7 to permit in-kind
transfers of positions off of the Exchange
in connection with unit investment
trusts (‘‘UITs’’).
The text of the proposed rule change
is available on the Exchange’s website at
https://listingcenter.nasdaq.com/
rulebook/phlx/rules, at the principal
office of the Exchange, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
Options 6, Section 7, which permits offExchange, in-kind transfers of options
positions in connection with exchangetraded funds (‘‘ETFs’’) organized as
open-ended management investments
companies under the Investment
Company Act of 1940 (the ‘‘1940 Act’’),
to also permit in-kind transfers of
options positions in connection with
entities registered as UITs under the
1940 Act. This is a competitive filing
that is substantially similar to rules in
place on Cboe Exchange, Inc. (‘‘Cboe’’)
and its affiliates.3
3 See Cboe Rule 6.9 (the ‘‘Cboe Rule’’); see also
Securities Exchange Act Release No. 88786 (April
30, 2020), 85 FR 26998 (May 6, 2020) (SR–CBOE–
2020–042). See also Cboe C2 Exchange (‘‘C2’’) Rule
6.63; Securities Exchange Act Release No. 89056
(June 12, 2020), 85 FR 36888 (June 18, 2020) (SR–
C2–2020–006). See also Cboe BZX Exchange
(‘‘BZX’’) Rule 20.12; Securities Exchange Act
Release No. 89313 (July 14, 2020), 85 FR 43907
(July 20, 2020) (SR–CboeBZX–2020–054). See also
Cboe EDGX Exchange (‘‘EDGX’’) Rule 20.12;
Securities Exchange Act Release No. 89312 (July 14,
2020), 85 FR 43887 (July 20, 2020) (SR–CboeEDGX–
2020–031).
PO 00000
Frm 00076
Fmt 4703
Sfmt 4703
Today, the Exchange allows members
and member organizations to transfer
their options positions off of the
Exchange in limited, specified
circumstances.4 For instance, Options 6,
Section 7 permits positions in options
listed on the Exchange to be transferred
off the Exchange by a member or
member organization in connection
with transactions to purchase or redeem
creation units of ETF shares between an
authorized participant 5 and the issuer
of such ETF shares.6 Such transfers
pursuant to Section 7 occur between
two different parties, off the Exchange,
and are considered position transfers
from an account with one clearing firm
to the account of another clearing firm.7
Each of these transfers occurs at the
price used to calculate the net asset
value (‘‘NAV’’) of such ETF shares. The
ability to effect in-kind transfers is a key
component of the operational structure
of an ETF and Options 6, Section 7
allows options-based ETFs to be more
tax-efficient investment vehicles, to the
benefit of their shareholders, and
potentially resulting in transaction cost
savings, which may be passed along to
investors.
The Exchange now proposes to
expand Options 6, Section 7 to mirror
the Cboe Rule, which would permit inkind transfers in connection with the
creation or redemption of units issued
by a UIT, another type of investment
company registered under the 1940 Act.
Although UITs operate differently than
ETFs in certain respects, as described
below, the anticipated potential benefits
to UIT investors (i.e., greater tax
efficiencies and transaction cost
savings) from the proposed changes
would be similar as discussed below.
Furthermore, allowing the Exchange to
permit such in-kind transfers would
4 See Options 6, Section 5(a) (Transfer of
Positions), Section 6 (Off-Exchange RWA
Transfers), and Section 7 (In-Kind Exchange of
Options Positions and ETF Shares).
5 An ‘‘authorized participant’’ is an entity that has
a written agreement with the issuer of ETF shares
or one of its service providers, which allows the
authorized participant to place orders for the
purchase and redemption of creation units (i.e.,
specified numbers of ETF shares. See Options 6,
Section 7(a).
6 An ‘‘issuer of ETF shares’’ is an entity registered
with the Commission as an open-ended
management investment company under the
Investment Company Act of 1940. See Options 6,
Section 7(b).
7 These back-office transfers of options positions
are in accordance with the rules of The Options
Clearing Corporation (‘‘OCC’’), as the transferred
positions are held in an account of an OCC member.
Accordingly, all transfers pursuant to proposed
Options 6, Section 7 would be required to comply
with OCC rules. See Options 1, Section 1(b)(10) and
Options 6, Section 8 (which, taken together,
effectively requires all members and member
organizations that are OCC members to comply with
OCC’s rules).
E:\FR\FM\19MYN1.SGM
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]]>Agencies
[Federal Register Volume 86, Number 95 (Wednesday, May 19, 2021)]
[Notices]
[Pages 27136-27138]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-10498]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-91894; File No. SR-ICC-2021-007]
Self-Regulatory Organizations; ICE Clear Credit LLC; Order
Approving Proposed Rule Change Relating to the ICC's Treasury
Operations Policies and Procedures
May 13, 2021.
I. Introduction
On March 29, 2021, 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 (``Act''),\1\
and Rule 19b-4 thereunder,\2\ a proposed rule change to revise the ICC
Treasury Operations Policies and Procedures (the ``Treasury Policy'').
The proposed rule change was published for comment in the Federal
Register on April 13, 2021.\3\ The Commission did not receive comments
on the proposed rule change. For the reasons discussed below, the
Commission is approving the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Self-Regulatory Organizations; ICE Clear Credit LLC; Notice
of Filing of Proposed Rule Change Relating to the ICC's Treasury
Operations Policies and Procedures, Exchange Act Release No. 91489
(April 7, 2021), 86 FR 19311 (April 13, 2021) (SR-ICC-2021-007)
(``Notice'').
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
ICC is proposing amendments to its Treasury Policy to make certain
clarifications and updates with respect to governance arrangements and
collateral asset haircuts, as well as minor clean-up changes. The
proposed amendments are summarized below.\4\
---------------------------------------------------------------------------
\4\ The following description of the proposed rule change is
substantially excerpted from the Notice.
---------------------------------------------------------------------------
ICC proposes to amend the ``Revision History'' section of the
Treasury Policy. The proposed changes would remove an incorrect
statement that the document's revision history is limited to the last
three years. The proposed changes would also memorialize ICC's review
and approval process of the Treasury Policy document, which consists of
review by the ICC Risk Committee and review and approval by the ICC
Board of Managers (the ``Board'') at least annually. Additionally, ICC
would update the revision history table to include the most recent
changes to the document.
ICC also proposes updates and clarification changes to the
``Collateral Assets Risk Management Framework'' appendix to the
Treasury Policy (``Appendix 6''). Under the Treasury Policy, ICC
accounts for the risk associated with fluctuations in the value of
collateral assets by discounting, or applying ``haircuts'' to, such
assets based on the risk measures and risk factors set forth in
Appendix 6. The ICC Risk Department (the ``Risk Department'')
calculates such haircuts for various collateral assets as described in
Appendix 6 on an ongoing basis. ICC proposes to change Appendix 6 to
update the measure of daily changes for collateral assets such as
sovereign debt. Specifically, the proposed changes would amend and
remove certain language that differentiates between yield rates greater
than and less than or equal to one basis point in respect of sovereign
debt collateral haircuts. ICC represents that such amendments do not
represent a change to the methodology and would provide a more
generalized and consistent collateral risk management framework for
sovereign debt.\5\ ICC proposes additional clarifications, including
with respect to time series used for determining sovereign debt
collateral haircuts and a formula regarding a risk-factor specific
haircut. ICC also proposes a grammatical update to change a reference
to ``haircuts'' from plural to singular.
---------------------------------------------------------------------------
\5\ See Notice, 86 FR at 19311.
---------------------------------------------------------------------------
ICC further proposes additional detail on the process of reviewing
and updating collateral asset haircuts. Appendix 6 currently states
that such haircuts are reviewed monthly. ICC proposes to clarify that
the Risk Department will establish haircuts for the respective
collateral asset types within measured intervals, and review them at
least monthly to determine the need for updates. ICC also proposes to
specify that the Risk Department may use discretion to update
collateral asset haircuts during periods of extreme market stress, and
specifically during periods when collateral assets appreciate in
response to central banks' policy implementations, as a temporary means
to reduce procyclical impacts.
III. 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. For the reasons given below, the Commission finds that
the proposed rule change is consistent with Section 17A(b)(3)(F) of the
Act \6\ and Rules 17Ad-22(e)(2)(i) and (v), (e)(3)(i), and (e)(5)
thereunder.\7\
---------------------------------------------------------------------------
\6\ 15 U.S.C. 78q-1(b)(3)(F).
\7\ 17 CFR 240.17Ad-22(e)(2)(i) and (v), (e)(3)(i), and (e)(5).
---------------------------------------------------------------------------
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 and to
assure the safeguarding of securities and funds which are in the
custody or control of ICC or for which it is responsible.\8\
---------------------------------------------------------------------------
\8\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
As described above, the proposed rule change would update and
clarify the revision history of the Treasury Policy document and
memorialize the governance arrangements for its review and approval.
The Commission believes that these proposed changes should help ICC
maintain a complete and transparent history of changes to the Treasury
Policy and ensure that the Treasury Policy is reviewed and approved at
least annually to support ICC's ongoing treasury functions, including
collateral asset risk
[[Page 27137]]
management. The Commission believes these aspects of the proposed rule
change should facilitate ICC's ability to maintain CDS clearing
services that are supported by, and consistent with, clear and
transparent governance arrangements that comply with internal Treasury
policies and procedures, which should, in turn, help ICC continue to
promote the prompt and accurate settlement of CDS transactions.
ICC would also update and clarify its collateral assets risk
management framework in Appendix 6 of the Treasury Policy by changing
certain risk measures for calculating collateral asset haircuts.
Specifically, as described above, the proposed rule change would update
the measure of daily changes for collateral assets such as sovereign
debt, including with respect to time series used for sovereign debt
collateral haircuts and a formula regarding a risk-factor specific
haircut. ICC would also change a reference to ``haircuts'' from plural
to singular. Further, ICC also proposes additional detail in Appendix 6
on the process and frequency of reviewing and updating collateral asset
haircuts. ICC proposes to clarify that the Risk Department will
establish haircuts for the respective collateral asset types within
measured intervals, and review them at least monthly to determine the
need for updates. ICC also proposes to specify that the Risk Department
may use discretion to update collateral asset haircuts during periods
of extreme market stress to reduce procyclicality.
Taken together, the proposed changes to Appendix 6 should enhance
the accuracy of ICC's collateral asset haircuts and help ICC to ensure
that, even in stressed market conditions, it will continue to collect
sufficient collateral from its clearing participants and that such
collateral could be liquidated in a timely manner to meet its financial
obligations as a central counterparty while also limiting the
likelihood of procyclical impacts from haircuts as issuer
creditworthiness deteriorates and haircuts increase. Moreover, these
proposed changes should enhance ICC's ability to manage the credit,
liquidity, and market risks it faces from collateral posted by its
participants. Accordingly, the Commission believes that ICC's proposed
changes to Appendix 6 should help ICC to continue providing prompt and
accurate settlement of CDS transactions and to enhance ICC's ability to
safeguard securities and funds which are in its custody or control or
for which it is responsible.
For these reasons, the Commission finds that the proposed rule
change is 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(e)(2)(i) and (v)
Rules 17Ad-22(e)(2)(i) and (v) require that ICC establish,
implement, maintain, and enforce written policies and procedures
reasonably designed to provide for governance arrangements that are
clear and transparent and specify clear and direct lines of
responsibility.\10\
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\10\ 17 CFR 240.17Ad-22(e)(2)(i) and (v).
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As noted above, the proposed rule change would enhance the
governance arrangements for reviewing and approving the Treasury Policy
document generally, including clear governance arrangements for
reviewing and updating haircuts under the collateral asset risk
management framework in Appendix 6. Specifically, the proposed rule
change provides that the Treasury Policy document is subject to review
by the Risk Committee and review and approval by the Board at least
annually. Further, the proposed rule change would clarify and update
the current statement in Appendix 6 that collateral asset haircuts are
reviewed monthly, by specifying that the Risk Committee will establish
haircuts for the respective collateral asset types within measured
intervals, and review them at least monthly to determine the need for
updates. The proposed rule change would also clarify that the Risk
Committee may exercise discretion to review and update haircut values
more frequently, if it deems necessary, and may make incremental,
temporary adjustments to existing haircuts in response to specific
market conditions. The Commission therefore believes that these aspects
of the proposed rule change will maintain ICC's Treasury operations
policies and procedures in a manner reasonably designed to provide for
governance arrangements that are clear and transparent and specify
clear and direct lines of responsibility.
For these reasons, the Commission finds that the proposed rule
change is consistent with Rules 17Ad-22(e)(2)(i) and (v).\11\
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\11\ 17 CFR 240.17Ad-22(e)(2)(i) and (v).
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C. Consistency With Rule 17Ad-22(e)(3)(i)
Rule 17Ad-22(e)(3)(i) requires, among other things, that ICC
establish, implement, maintain, and enforce written policies and
procedures reasonably designed to, as applicable, maintain a sound risk
management framework that identifies, measures, monitors, and manages
the range of risks that it faces.\12\
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\12\ 17 CFR 240.17Ad-22(e)(3)(i).
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As described above, ICC's proposed changes to its collateral assets
risk framework in Appendix 6 would refine and update certain risk
measures and risk factors for determining collateral asset haircuts
that can be accepted from an ICC clearing participant. The proposed
changes would also require the Risk Department to review and update
haircut values at least monthly, or more frequently as it deems
necessary, and to incrementally update such haircuts during periods of
extreme market stress. The Commission believes that these updated
collateral asset risk management procedures should allow ICC to
continue to mitigate collateral price and liquidation risk through
setting acceptable haircuts and providing governance guidelines for
monitoring haircut values and managing any deviations or related
issues, thereby continuing to maintain a sound risk management
framework in this regard.
For these reasons, the Commission finds that the proposed rule
change is consistent with Rule 17Ad-22(e)(3)(i).\13\
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\13\ 17 CFR 240.17Ad-22(e)(3)(i).
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D. Consistency With Rule 17Ad-22(e)(5)
Rule 17Ad-22(e)(5) requires that ICC establish, implement, maintain
and enforce written policies and procedures reasonably designed to, as
applicable, limit the assets it accepts as collateral to those with low
credit, liquidity, and market risks, and set and enforce appropriately
conservative haircuts and concentration limits if the covered clearing
agency requires collateral to manage its or its participants' credit
exposure; and require a review of the sufficiency of its collateral
haircuts and concentration limits to be performed not less than
annually.\14\
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\14\ 17 CFR 240.17Ad-22(e)(5).
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The Commission believes that the proposed changes in Appendix 6
regarding the factors and other considerations with respect to
acceptable collateral asset haircuts should continue to maintain ICC's
ability to limit the assets it accepts as collateral to those with low
credit, liquidity, and market risks, and to set and enforce
appropriately conservative haircuts for sovereign debt and other
acceptable collateral assets. Further, the proposed updates to the
governance arrangements for the risk management framework of collateral
assets haircuts in Appendix 6 would ensure that the Risk Department
establishes haircuts for the respective collateral asset types
[[Page 27138]]
within measured intervals, and continues to review haircuts at least
monthly, subject to regular reviews and more frequent valuation
updates, if needed.
For these reasons, the Commission finds that the proposed rule
change is consistent with Rule 17Ad-22(e)(5).\15\
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\15\ 17 CFR 240.17Ad-22(e)(5).
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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 \16\ and Rules 17Ad-22(e)(2)(i) and (v), (e)(3)(i), and (e)(5)
thereunder.\17\
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\16\ 15 U.S.C. 78q-1(b)(3)(F).
\17\ 17 CFR 240.17Ad-22(e)(2)(i) and (v), (e)(3)(i), and (e)(5).
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It is therefore ordered pursuant to Section 19(b)(2) of the Act
\18\ that the proposed rule change (SR-ICC-2021-007) be, and hereby is,
approved.\19\
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\18\ 15 U.S.C. 78s(b)(2).
\19\ 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.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-10498 Filed 5-18-21; 8:45 am]
BILLING CODE 8011-01-P
