Self-Regulatory Organizations; ICE Clear Credit LLC; Order Approving Proposed Rule Change Relating to the ICC Risk Management Model Description, 27927-27929 [2021-10840]
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Federal Register / Vol. 86, No. 98 / Monday, May 24, 2021 / Notices
intervals available for quoting and
trading on Phlx for all Phlx Participants.
While the current listing rules permit
Phlx to list a number of weekly strikes
on its market, in an effort to encourage
Market Makers to deploy capital more
efficiently, as well as improve displayed
market quality, Phlx’s Strike Interval
Proposal seeks to reduce the number of
weekly options that would be listed on
its market in later weeks, without
reducing the number of series or classes
of options available for trading on Phlx.
As Phlx’s Strike Interval Proposal seeks
to reduce the number of weekly options
that would be listed on its market in
later weeks, Market Makers would be
required to quote in fewer weekly
strikes as a result of the Strike Interval
Proposal.
The Exchange’s Strike Interval
Proposal, which is intended to decrease
the overall number of strikes listed on
Phlx, does not impose an undue burden
on intra-market competition as all
Participants may only transact options
in the strike intervals listed for trading
on Phlx. While limiting the intervals of
strikes listed on Phlx is the goal of this
Strike Interval Proposal, the goal
continues to balance the needs of
market participants by continuing to
offer a number of strikes to meet a
market participant’s investment
objective.
The Exchange’s Strike Interval
Proposal does not impose an undue
burden on inter-market competition as
this Strike Interval Proposal does not
impact the listings available at another
self-regulatory organization. In fact,
Phlx is proposing to list a smaller
amount of weekly equity options in an
effort to curtail the increasing number of
strikes that are required to be quoted by
market makers in the options industry.
Other options markets may choose to
replicate the Exchange’s Strike Interval
Proposal and, thereby, further decrease
the overall number of strikes within the
options industry.
khammond on DSKJM1Z7X2PROD with NOTICES
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed
rule change pursuant to Section
19(b)(3)(A)(iii) 36 of the Act and Rule
19b–4(f)(6) thereunder.37 Because the
36 15
37 17
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6).
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foregoing proposed rule change does
not: (i) Significantly affect the
protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A)(iii) of the Act and
subparagraph (f)(6) of Rule 19b–4
thereunder.38
At any time within 60 days of the
filing of the 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
to determine whether the proposed rule
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–
Phlx–2021–26 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–Phlx–2021–26. 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
38 In addition, Rule 19b–4(f)(6)(iii) requires the
Exchange to give the Commission written notice of
its intent to file the proposed rule change at least
five business days prior to the date of filing of the
proposed rule change, or such shorter time as
designated by the Commission. The Exchange has
satisfied this requirement.
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27927
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,
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–Phlx–2021–26, and should
be submitted on or before June 14, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.39
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–10846 Filed 5–21–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–91918; File No. SR–ICC–
2021–008]
Self-Regulatory Organizations; ICE
Clear Credit LLC; Order Approving
Proposed Rule Change Relating to the
ICC Risk Management Model
Description
May 18, 2021.
I. Introduction
On March 31, 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 (the ‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
amend the ICC Risk Management Model
Description (the ‘‘Model Description’’).
The proposed rule change was
published for comment in the Federal
Register on April 13, 2021.3 The
39 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 Risk Management Model
1 15
E:\FR\FM\24MYN1.SGM
Continued
24MYN1
27928
Federal Register / Vol. 86, No. 98 / Monday, May 24, 2021 / Notices
Commission did not receive comments
regarding the proposed rule change. For
the reasons discussed below, the
Commission is approving the proposed
rule change.
II. Description of the Proposed Rule
Change
The purpose of the proposed rule
change is to amend the Model
Description. The changes would (i)
memorialize the review and approval
process of the Model Description; (ii)
enhance the liquidity charge
methodology; and (iii) make other minor
clarifications.4
A. Review and Approval Process
First, the proposed rule change would
amend the ‘‘Initial Margin
Methodology’’ section of the Model
Description to memorialize the review
and approval process for the Model
Description. As would be stated in the
amended Model Description, this
process would consist of review by the
ICC Risk Committee and review and
approval by the ICC Board of Managers
at least annually.
khammond on DSKJM1Z7X2PROD with NOTICES
B. Enhanced Liquidity Charge
Methodology
Second, the proposed rule change
would make an enhancement related to
the index liquidity charge (‘‘LC’’)
methodology. Specifically, the proposed
rule change would revise the ‘‘Liquidity
Charge for Index Risk Factors’’
subsection (Subsection II.2) to amend a
formula for the index series LC.
Currently, to arrive at the index series
LC, ICC takes into account the estimated
LCs for the instruments that belong to
the same index series and the sign of the
notional amount of the instrument.
Under the proposed rule change, ICC
would establish the index series LC as
the more conservative liquidity
requirement associated with the sum of
the bought and sold protection position
LCs for the instruments that belong to
the same index series. ICC represents
that this change would unify the index
LC with the single name and credit
default index swaption (‘‘Index
Option’’) LC methodologies.5
C. Additional Clarifications
Finally, the proposed rule change
would make additional clarifications in
the Model Description. In the ‘‘Liquidity
Charge for Index Options’’ subsection
Description, Exchange Act Release No. 91493 (April
7, 2021), 86 FR 19316 (April 13, 2021) (‘‘Notice’’).
4 This description is substantially excerpted from
the Notice, 86 FR at 19316. Capitalized terms not
otherwise defined herein have the meanings
assigned to them in the Model Description.
5 Notice, 86 FR at 19317.
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17:32 May 21, 2021
Jkt 253001
(Subsection II.2.1), the proposed rule
change would specify that with respect
to long Index Option instruments, the
LC combined with the integrated spread
response requirement will not exceed
the end-of-day option instrument price.
ICC represents that this amendment
would reflect the maximum loss
condition, given that the maximum loss
would be the end-of-day option
instrument price.6
In the ‘‘Anti-Procyclicality Measures’’
subsection (Subsection VII.5.3), the
proposed rule change would make
clarifications regarding the scenarios
associated with extreme price decreases
and extreme price increases.
Specifically, the proposed rule change
would clarify that the extreme price
decrease and increase scenarios for
Index Options incorporate hypothetical
forward price decreases and increases,
respectively.
Finally, in respect of the maximum
loss condition, the proposed rule change
would update formulas related to the
final portfolio initial margin in the
‘‘Portfolio Loss Boundary Condition’’
section (Section IX) to reference the
portfolio level integrated spread
response.
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.7 After
careful review, the Commission finds
that the proposed rule change is
consistent with the requirements of the
Act and the rules and regulations
thereunder applicable to ICC. In
particular, the Commission finds that
the proposed rule change is consistent
with Section 17A(b)(3)(F) of the Act,8
Rules 17Ad–22(e)(2)(i) and (v),9 Rule
17Ad–22(e)(4)(ii),10 and Rule 17Ad–
22(e)(6)(i) thereunder.11
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
6 Notice,
86 FR at 19317.
U.S.C. 78s(b)(2)(C).
8 15 U.S.C. 78q–1(b)(3)(F).
9 17 CFR 240.17Ad–22(e)(2)(i) and (v).
10 17 CFR 240.17Ad–22(e)(4)(ii).
11 17 CFR 240.17Ad–22(e)(6)(i).
7 15
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Frm 00104
Fmt 4703
Sfmt 4703
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.12
As discussed above, the proposed rule
change would make various
improvements to the Model Description.
Specifically, the Commission believes
memorializing the annual review and
approval process for the Model
Description should help to ensure that
the Model Description is maintained
and improved, as needed, following the
annual review. Moreover, unifying the
index LC with the single name and
Index Option LC methodologies, by
establishing the index series LC as the
more conservative liquidity
requirement, should help to simplify the
methodology and ensure a consistent
application of the LC among all of the
products that ICC clears. Specifying
that, with respect to long Index Option
instruments, the LC combined with the
integrated spread response requirement
will not exceed the end-of-day option
instrument price, to reflect the
maximum loss condition, should clarify
the limit of this requirement given that
the maximum loss would be the end-ofday option instrument price. Similarly,
specifying that the extreme price
decrease and increase scenarios for
Index Options incorporate hypothetical
forward price decreases and increases
and updating formulas related to the
final portfolio initial margin to reference
the portfolio level integrated spread
response, should clarify the applications
of these requirements, helping to ensure
the consistent application of ICC’s risk
methodology.
Because ICC uses the Model
Description to derive initial margin and
guaranty fund requirements for its
Clearing Participants, the Commission
believes the proposed rule change, by
improving the Model Description,
should improve ICC’s ability to derive
such requirements. The Commission
further believes the proposed rule
change should improve ICC’s ability to
manage the risks associated with
clearing transactions through
application of its initial margin and
guaranty fund requirements, as set forth
in the Model Description. Moreover, the
Commission believes the risks
associated with clearing transactions, if
not properly managed through the
collection of initial margin and guaranty
fund, could cause ICC to suffer losses
which could inhibit its ability to clear
and settle transactions and assure the
safeguarding of securities and funds.
Accordingly, the Commission believes
12 15
E:\FR\FM\24MYN1.SGM
U.S.C. 78q–1(b)(3)(F).
24MYN1
Federal Register / Vol. 86, No. 98 / Monday, May 24, 2021 / Notices
that by improving the Model
Description and, therefore, ICC’s ability
to manage the risks associated with
clearing transactions, the proposed rule
change should 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 or for which
it is responsible, consistent with the
Section 17A(b)(3)(F) of the Act.13
B. Consistency With Rules 17Ad–
22(e)(2)(i) and (v)
Rule 17Ad–22(e)(2)(i) requires that
ICC establish, implement, maintain and
enforce written policies and procedures
reasonably designed to provide for
governance arrangements that are clear
and transparent.14 Rule 17Ad–
22(e)(2)(v) requires that ICC establish,
implement, maintain and enforce
written policies and procedures
reasonably designed to provide for
governance arrangements that specify
clear and direct lines of responsibility.15
As discussed above, the proposed rule
change would memorialize the process
for approval of the Model Description
(i.e., review by the ICC Risk Committee
and review and approval by the ICC
Board at least annually). The
Commission believes that this change
should establish a governance
arrangement for review and approval of
the Model Description that is clear and
transparent and that imposes a direct
line of responsibility on the ICC Risk
Committee and ICC Board.
For this reason, the Commission finds
that the proposed rule change is
consistent with Rules 17Ad–22(e)(2)(i)
and (v).16
khammond on DSKJM1Z7X2PROD with NOTICES
C. Consistency With Rule 17Ad–
22(e)(4)(ii)
Rule 17Ad–22(e)(4)(ii) requires that
ICC establish, implement, maintain and
enforce written policies and procedures
reasonably designed to effectively
identify, measure, monitor, and manage
its credit exposures to participants and
those arising from its payment, clearing,
and settlement processes, including by
maintaining additional financial
resources at the minimum to enable it
to cover a wide range of foreseeable
stress scenarios that include, but are not
limited to, the default of the two
participant families that would
potentially cause the largest aggregate
credit exposure for ICC in extreme but
plausible market conditions (‘‘Cover 2
U.S.C. 78q–1(b)(3)(F).
CFR 240.17Ad–22(e)(2)(i).
15 17 CFR 240.17Ad–22(e)(2)(v).
16 17 CFR 240.17Ad–22(e)(2)(i) and (v).
Requirement’’).17 As discussed above,
the Commission believes the proposed
rule change should improve the Model
Description by: (i) Memorializing the
annual review and approval process,
thereby helping to ensure that the
Model Description is maintained and
improved; (ii) simplifying the
methodology and ensuring a consistent
application of the LC among all of the
products that ICC clears; and (iii)
clarifying the integrated spread response
requirement, the extreme price decrease
and increase scenarios, and the final
portfolio initial margin, helping to
ensure the transparent and consistent
application of ICC’s risk methodology.
ICC uses the Model Description to
derive its guaranty fund requirements
and thereby maintain financial
resources to meet its Cover 2
Requirement. The Commission therefore
believes the proposed rule change, in
improving the Model Description,
should improve ICC’s ability to satisfy
its Cover 2 Requirement.
For these reasons, the Commission
finds that the proposed rule change is
consistent with Rules 17Ad–
22(e)(4)(ii).18
D. Consistency With Rule 17Ad–
22(e)(6)(i)
Rule 17Ad–22(e)(6)(i) requires that
ICC establish, implement, maintain and
enforce written policies and procedures
reasonably designed to cover its credit
exposures to its participants by
establishing a risk-based margin system
that, at a minimum, considers, and
produces margin levels commensurate
with, the risks and particular attributes
of each relevant product, portfolio, and
market.19 As discussed above, the
Commission believes the proposed rule
change should improve the Model
Description by: (i) Memorializing the
annual review and approval process,
thereby helping to ensure that the
Model Description is maintained and
improved; (ii) simplifying the
methodology and ensuring a consistent
application of the LC among all of the
products that ICC clears; and (iii)
clarifying the integrated spread response
requirement, the extreme price decrease
and increase scenarios, and the final
portfolio initial margin, helping to
ensure the transparent and consistent
application of ICC’s risk methodology.
ICC uses the Model Description to
derive its margin requirements
appropriately tailored to the risks
presented by the products that ICC
clears. The Commission therefore
13 15
14 17
VerDate Sep<11>2014
17:32 May 21, 2021
Jkt 253001
17 17
CFR 240.17Ad–22(e)(4)(ii).
CFR 240.17Ad–22(e)(4)(ii).
19 17 CFR 240.17Ad–22(e)(6)(i).
18 17
PO 00000
Frm 00105
Fmt 4703
Sfmt 4703
27929
believes the proposed rule change, in
improving the Model Description,
should improve ICC’s ability to
consider, and produce margin levels
commensurate with, the risks and
particular attributes of each relevant
product, portfolio, and market. For these
reasons, the Commission finds that the
proposed rule change is consistent with
Rule 17Ad–22(e)(6)(i).20
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,21 Rules
17Ad–22(e)(2)(i) and (v) under the
Act,22 Rule 17Ad–22(e)(4)(ii) under the
Act,23 and Rule 17Ad–22(e)(6)(i) under
the Act.24
It is therefore ordered pursuant to
Section 19(b)(2) of the Act 25 that the
proposed rule change (SR–ICC–2021–
008) be, and hereby is, approved.26
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.27
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–10840 Filed 5–21–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–91931; File No. SR–
NASDAQ–2021–032]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend
NOM Rules at Options 4, Section 5,
‘‘Series of Options Contracts Open for
Trading’’ To Limit Short Term Options
Series Intervals Between Strikes
May 18, 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 5,
2021, The Nasdaq Stock Market LLC
(‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the
20 17
CFR 240.17Ad–22(e)(6)(i).
U.S.C. 78q–1(b)(3)(F).
22 17 CFR 240.17Ad–22(e)(2)(i) and (v).
23 17 CFR 240.17Ad–22(e)(4)(ii).
24 17 CFR 240.17Ad–22(e)(6)(i).
25 15 U.S.C. 78s(b)(2).
26 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).
27 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
21 15
E:\FR\FM\24MYN1.SGM
24MYN1
]]>Agencies
[Federal Register Volume 86, Number 98 (Monday, May 24, 2021)]
[Notices]
[Pages 27927-27929]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-10840]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-91918; File No. SR-ICC-2021-008]
Self-Regulatory Organizations; ICE Clear Credit LLC; Order
Approving Proposed Rule Change Relating to the ICC Risk Management
Model Description
May 18, 2021.
I. Introduction
On March 31, 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 (the ``Act'')
\1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to amend the
ICC Risk Management Model Description (the ``Model Description''). The
proposed rule change was published for comment in the Federal Register
on April 13, 2021.\3\ The
[[Page 27928]]
Commission did not receive comments regarding the proposed rule change.
For the reasons discussed below, the Commission is approving the
proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Self-Regulatory Organizations; ICE Clear Credit LLC; Notice
of Filing of Proposed Rule Change Relating to the ICC Risk
Management Model Description, Exchange Act Release No. 91493 (April
7, 2021), 86 FR 19316 (April 13, 2021) (``Notice'').
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
The purpose of the proposed rule change is to amend the Model
Description. The changes would (i) memorialize the review and approval
process of the Model Description; (ii) enhance the liquidity charge
methodology; and (iii) make other minor clarifications.\4\
---------------------------------------------------------------------------
\4\ This description is substantially excerpted from the Notice,
86 FR at 19316. Capitalized terms not otherwise defined herein have
the meanings assigned to them in the Model Description.
---------------------------------------------------------------------------
A. Review and Approval Process
First, the proposed rule change would amend the ``Initial Margin
Methodology'' section of the Model Description to memorialize the
review and approval process for the Model Description. As would be
stated in the amended Model Description, this process would consist of
review by the ICC Risk Committee and review and approval by the ICC
Board of Managers at least annually.
B. Enhanced Liquidity Charge Methodology
Second, the proposed rule change would make an enhancement related
to the index liquidity charge (``LC'') methodology. Specifically, the
proposed rule change would revise the ``Liquidity Charge for Index Risk
Factors'' subsection (Subsection II.2) to amend a formula for the index
series LC. Currently, to arrive at the index series LC, ICC takes into
account the estimated LCs for the instruments that belong to the same
index series and the sign of the notional amount of the instrument.
Under the proposed rule change, ICC would establish the index series LC
as the more conservative liquidity requirement associated with the sum
of the bought and sold protection position LCs for the instruments that
belong to the same index series. ICC represents that this change would
unify the index LC with the single name and credit default index
swaption (``Index Option'') LC methodologies.\5\
---------------------------------------------------------------------------
\5\ Notice, 86 FR at 19317.
---------------------------------------------------------------------------
C. Additional Clarifications
Finally, the proposed rule change would make additional
clarifications in the Model Description. In the ``Liquidity Charge for
Index Options'' subsection (Subsection II.2.1), the proposed rule
change would specify that with respect to long Index Option
instruments, the LC combined with the integrated spread response
requirement will not exceed the end-of-day option instrument price. ICC
represents that this amendment would reflect the maximum loss
condition, given that the maximum loss would be the end-of-day option
instrument price.\6\
---------------------------------------------------------------------------
\6\ Notice, 86 FR at 19317.
---------------------------------------------------------------------------
In the ``Anti-Procyclicality Measures'' subsection (Subsection
VII.5.3), the proposed rule change would make clarifications regarding
the scenarios associated with extreme price decreases and extreme price
increases. Specifically, the proposed rule change would clarify that
the extreme price decrease and increase scenarios for Index Options
incorporate hypothetical forward price decreases and increases,
respectively.
Finally, in respect of the maximum loss condition, the proposed
rule change would update formulas related to the final portfolio
initial margin in the ``Portfolio Loss Boundary Condition'' section
(Section IX) to reference the portfolio level integrated spread
response.
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.\7\ After careful review, the Commission finds that the
proposed rule change is consistent with the requirements of the Act and
the rules and regulations thereunder applicable to ICC. In particular,
the Commission finds that the proposed rule change is consistent with
Section 17A(b)(3)(F) of the Act,\8\ Rules 17Ad-22(e)(2)(i) and (v),\9\
Rule 17Ad-22(e)(4)(ii),\10\ and Rule 17Ad-22(e)(6)(i) thereunder.\11\
---------------------------------------------------------------------------
\7\ 15 U.S.C. 78s(b)(2)(C).
\8\ 15 U.S.C. 78q-1(b)(3)(F).
\9\ 17 CFR 240.17Ad-22(e)(2)(i) and (v).
\10\ 17 CFR 240.17Ad-22(e)(4)(ii).
\11\ 17 CFR 240.17Ad-22(e)(6)(i).
---------------------------------------------------------------------------
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.\12\
---------------------------------------------------------------------------
\12\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
As discussed above, the proposed rule change would make various
improvements to the Model Description. Specifically, the Commission
believes memorializing the annual review and approval process for the
Model Description should help to ensure that the Model Description is
maintained and improved, as needed, following the annual review.
Moreover, unifying the index LC with the single name and Index Option
LC methodologies, by establishing the index series LC as the more
conservative liquidity requirement, should help to simplify the
methodology and ensure a consistent application of the LC among all of
the products that ICC clears. Specifying that, with respect to long
Index Option instruments, the LC combined with the integrated spread
response requirement will not exceed the end-of-day option instrument
price, to reflect the maximum loss condition, should clarify the limit
of this requirement given that the maximum loss would be the end-of-day
option instrument price. Similarly, specifying that the extreme price
decrease and increase scenarios for Index Options incorporate
hypothetical forward price decreases and increases and updating
formulas related to the final portfolio initial margin to reference the
portfolio level integrated spread response, should clarify the
applications of these requirements, helping to ensure the consistent
application of ICC's risk methodology.
Because ICC uses the Model Description to derive initial margin and
guaranty fund requirements for its Clearing Participants, the
Commission believes the proposed rule change, by improving the Model
Description, should improve ICC's ability to derive such requirements.
The Commission further believes the proposed rule change should improve
ICC's ability to manage the risks associated with clearing transactions
through application of its initial margin and guaranty fund
requirements, as set forth in the Model Description. Moreover, the
Commission believes the risks associated with clearing transactions, if
not properly managed through the collection of initial margin and
guaranty fund, could cause ICC to suffer losses which could inhibit its
ability to clear and settle transactions and assure the safeguarding of
securities and funds. Accordingly, the Commission believes
[[Page 27929]]
that by improving the Model Description and, therefore, ICC's ability
to manage the risks associated with clearing transactions, the proposed
rule change should 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 or for which it is
responsible, consistent with the Section 17A(b)(3)(F) of the Act.\13\
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\13\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rules 17Ad-22(e)(2)(i) and (v)
Rule 17Ad-22(e)(2)(i) requires that ICC establish, implement,
maintain and enforce written policies and procedures reasonably
designed to provide for governance arrangements that are clear and
transparent.\14\ Rule 17Ad-22(e)(2)(v) requires that ICC establish,
implement, maintain and enforce written policies and procedures
reasonably designed to provide for governance arrangements that specify
clear and direct lines of responsibility.\15\ As discussed above, the
proposed rule change would memorialize the process for approval of the
Model Description (i.e., review by the ICC Risk Committee and review
and approval by the ICC Board at least annually). The Commission
believes that this change should establish a governance arrangement for
review and approval of the Model Description that is clear and
transparent and that imposes a direct line of responsibility on the ICC
Risk Committee and ICC Board.
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\14\ 17 CFR 240.17Ad-22(e)(2)(i).
\15\ 17 CFR 240.17Ad-22(e)(2)(v).
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For this reason, the Commission finds that the proposed rule change
is consistent with Rules 17Ad-22(e)(2)(i) and (v).\16\
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\16\ 17 CFR 240.17Ad-22(e)(2)(i) and (v).
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C. Consistency With Rule 17Ad-22(e)(4)(ii)
Rule 17Ad-22(e)(4)(ii) requires that ICC establish, implement,
maintain and enforce written policies and procedures reasonably
designed to effectively identify, measure, monitor, and manage its
credit exposures to participants and those arising from its payment,
clearing, and settlement processes, including by maintaining additional
financial resources at the minimum to enable it to cover a wide range
of foreseeable stress scenarios that include, but are not limited to,
the default of the two participant families that would potentially
cause the largest aggregate credit exposure for ICC in extreme but
plausible market conditions (``Cover 2 Requirement'').\17\ As discussed
above, the Commission believes the proposed rule change should improve
the Model Description by: (i) Memorializing the annual review and
approval process, thereby helping to ensure that the Model Description
is maintained and improved; (ii) simplifying the methodology and
ensuring a consistent application of the LC among all of the products
that ICC clears; and (iii) clarifying the integrated spread response
requirement, the extreme price decrease and increase scenarios, and the
final portfolio initial margin, helping to ensure the transparent and
consistent application of ICC's risk methodology. ICC uses the Model
Description to derive its guaranty fund requirements and thereby
maintain financial resources to meet its Cover 2 Requirement. The
Commission therefore believes the proposed rule change, in improving
the Model Description, should improve ICC's ability to satisfy its
Cover 2 Requirement.
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\17\ 17 CFR 240.17Ad-22(e)(4)(ii).
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For these reasons, the Commission finds that the proposed rule
change is consistent with Rules 17Ad-22(e)(4)(ii).\18\
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\18\ 17 CFR 240.17Ad-22(e)(4)(ii).
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D. Consistency With Rule 17Ad-22(e)(6)(i)
Rule 17Ad-22(e)(6)(i) requires that ICC establish, implement,
maintain and enforce written policies and procedures reasonably
designed to cover its credit exposures to its participants by
establishing a risk-based margin system that, at a minimum, considers,
and produces margin levels commensurate with, the risks and particular
attributes of each relevant product, portfolio, and market.\19\ As
discussed above, the Commission believes the proposed rule change
should improve the Model Description by: (i) Memorializing the annual
review and approval process, thereby helping to ensure that the Model
Description is maintained and improved; (ii) simplifying the
methodology and ensuring a consistent application of the LC among all
of the products that ICC clears; and (iii) clarifying the integrated
spread response requirement, the extreme price decrease and increase
scenarios, and the final portfolio initial margin, helping to ensure
the transparent and consistent application of ICC's risk methodology.
ICC uses the Model Description to derive its margin requirements
appropriately tailored to the risks presented by the products that ICC
clears. The Commission therefore believes the proposed rule change, in
improving the Model Description, should improve ICC's ability to
consider, and produce margin levels commensurate with, the risks and
particular attributes of each relevant product, portfolio, and market.
For these reasons, the Commission finds that the proposed rule change
is consistent with Rule 17Ad-22(e)(6)(i).\20\
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\19\ 17 CFR 240.17Ad-22(e)(6)(i).
\20\ 17 CFR 240.17Ad-22(e)(6)(i).
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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,\21\ Rules 17Ad-22(e)(2)(i) and (v) under the Act,\22\ Rule 17Ad-
22(e)(4)(ii) under the Act,\23\ and Rule 17Ad-22(e)(6)(i) under the
Act.\24\
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\21\ 15 U.S.C. 78q-1(b)(3)(F).
\22\ 17 CFR 240.17Ad-22(e)(2)(i) and (v).
\23\ 17 CFR 240.17Ad-22(e)(4)(ii).
\24\ 17 CFR 240.17Ad-22(e)(6)(i).
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It is therefore ordered pursuant to Section 19(b)(2) of the Act
\25\ that the proposed rule change (SR-ICC-2021-008) be, and hereby is,
approved.\26\
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\25\ 15 U.S.C. 78s(b)(2).
\26\ 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.\27\
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\27\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-10840 Filed 5-21-21; 8:45 am]
BILLING CODE 8011-01-P
