Self-Regulatory Organizations; ICE Clear Credit LLC; Order Approving Proposed Rule Change Relating to the ICC Risk Management Model Description, 27927-27929 [2021-10840]

Download as PDF 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). VerDate Sep<11>2014 17:32 May 21, 2021 Jkt 253001 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. PO 00000 Frm 00103 Fmt 4703 Sfmt 4703 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. VerDate Sep<11>2014 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 PO 00000 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]


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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).
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A. Consistency With Section 17A(b)(3)(F) of the Act

    Section 17A(b)(3)(F) of the Act requires, among other things, that 
the rules of ICC be designed to promote the prompt and accurate 
clearance and settlement of securities transactions and, to the extent 
applicable, derivative agreements, contracts, and transactions, as well 
as to assure the safeguarding of securities and funds which are in the 
custody or control of ICC or for which it is responsible.\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\
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \14\ 17 CFR 240.17Ad-22(e)(2)(i).
    \15\ 17 CFR 240.17Ad-22(e)(2)(v).
---------------------------------------------------------------------------

    For this reason, the Commission finds that the proposed rule change 
is consistent with Rules 17Ad-22(e)(2)(i) and (v).\16\
---------------------------------------------------------------------------

    \16\ 17 CFR 240.17Ad-22(e)(2)(i) and (v).
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \17\ 17 CFR 240.17Ad-22(e)(4)(ii).
---------------------------------------------------------------------------

    For these reasons, the Commission finds that the proposed rule 
change is consistent with Rules 17Ad-22(e)(4)(ii).\18\
---------------------------------------------------------------------------

    \18\ 17 CFR 240.17Ad-22(e)(4)(ii).
---------------------------------------------------------------------------

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
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