Self-Regulatory Organizations; ICE Clear Credit LLC; Order Approving Proposed Rule Change Relating to the ICC End-of-Day Price Discovery Policies and Procedures, 32994-32997 [2021-13102]
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Federal Register / Vol. 86, No. 118 / Wednesday, June 23, 2021 / Notices
‘‘qualified client.’’ 3 The rule allows an
adviser to charge performance fees if the
client has at least a certain dollar
amount in assets under management
(currently, $1,000,000) with the adviser
immediately after entering into the
advisory contract (‘‘assets-undermanagement test’’) or if the adviser
reasonably believes, immediately prior
to entering into the contract, that the
client has a net worth of more than a
certain dollar amount (currently,
$2,100,000) (‘‘net worth test’’).4
The Dodd-Frank Wall Street Reform
and Consumer Protection Act (‘‘DoddFrank Act’’) 5 amended section 205(e) of
the Advisers Act to provide that, by July
21, 2011 and every five years thereafter,
the Commission shall, by order, adjust
for the effects of inflation the dollar
amount thresholds included in rules
issued under section 205(e), rounded to
the nearest multiple of $100,000.6 The
Commission issued an order to revise
the dollar amount thresholds of the
assets-under-management and net worth
tests (to $1,000,000 and $2,000,000,
respectively, as discussed above) on July
12, 2011.7 Rule 205–3 codifies the
threshold amounts revised by the 2011
Order and states that the Commission
will issue an order on or about May 1,
2016, and approximately every five
years thereafter, adjusting for inflation
the dollar amount thresholds of the
rule’s assets-under-management and net
worth tests based on the Personal
Consumption Expenditures Chain-Type
Price Index (‘‘PCE Index,’’ published by
the United States Department of
Commerce).8 On June 14, 2016, the
Commission issued an order adjusting
for inflation, as appropriate, the dollar
amount thresholds of the assets-undermanagement test and the net worth test
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3 The
exemption applies to the entrance into,
performance, renewal, and extension of advisory
contracts. See rule 205–3(a).
4 See rule 205–3(d)(1)(i)–(ii); see also Order
Approving Adjustment for Inflation of the Dollar
Amount Tests in Rule 205–3 under the Investment
Advisers Act of 1940, Advisers Act Release No.
4421 (June 14, 2016) [81 FR 39985 (June 20, 2016)]
(‘‘2016 Order’’). Rule 205–3 includes other
definitions of ‘‘qualified client’’ that do not
reference specific dollar amount tests. See, e.g., rule
205–3(d)(1)(ii)(B) and rule 205–3(d)(1)(iii).
5 Public Law 111–203, 124 Stat. 1376 (2010).
6 See section 418 of the Dodd-Frank Act
(requiring the Commission to issue an order every
five years revising dollar amount tests in a rule that
exempts a person or transaction from section
205(a)(1) of the Advisers Act if the dollar amount
test was a factor in the Commission’s determination
that the persons do not need the protections of that
section).
7 See Order Approving Adjustment for Inflation of
the Dollar Amount Tests in Rule 205–3 under the
Investment Advisers Act of 1940, Advisers Act
Release No. 3236 (July 12, 2011) [76 FR 41838 (July
15, 2011)] (‘‘2011 Order’’). The 2011 Order was
effective as of September 19, 2011. Id.
8 See rule 205–3(e).
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(to $1,000,000 and $2,100,000,
respectively).9
II. Adjustment of Dollar Amount
Thresholds
On May 10, 2021, the Commission
published a notice of intent to issue an
order that would adjust for inflation the
dollar amount thresholds of the assetsunder-management test and the net
worth test.10 The Commission stated
that, based on calculations that take into
account the effects of inflation by
reference to historic and current levels
of the PCE Index, the dollar amount of
the assets-under-management test
would increase from $1,000,000 to
$1,100,000, and the dollar amount of the
net worth test would increase from
$2,100,000 to $2,200,000.11 These dollar
amounts—which are rounded to the
nearest multiple of $100,000 as required
by section 205(e) of the Advisers Act—
would reflect inflation from 2016 to the
end of 2020.
The Commission’s notice established
a deadline of June 4, 2021 for
submission of requests for a hearing. No
requests for a hearing have been
received by the Commission.
III. Effective Date of the Order
This Order is effective as of August
16, 2021. To the extent that contractual
relationships are entered into prior to
the Order’s effective date, the dollar
amount test adjustments in the Order
would not generally apply retroactively
to such contractual relationships,
subject to the transition rules
incorporated in rule 205–3.12
9 See 2016 Order, supra footnote 4. The 2016
Order was effective as of August 15, 2016. Id. As
a result of the 2016 Order, the dollar amount
threshold of the net worth test was increased to
$2,100,000, but the dollar amount threshold of the
assets-under-management test remained at
$1,000,000. Id.
10 See Performance-Based Investment Advisory
Fees, Advisers Act Release No. 5733 (May 10, 2021)
[86 FR 26685 (May 17, 2021)]. Because the amount
of the Commission’s inflation adjustment
calculations are larger than the rounding amount
specified under rule 205–3, the dollar amount of
both tests would be adjusted as a result of the
Commission’s inflation adjustment calculation
effected pursuant to the rule.
11 See id. at section II.A.
12 See rule 205–3(c)(1) (‘‘If a registered investment
adviser entered into a contract and satisfied the
conditions of this [section] that were in effect when
the contract was entered into, the adviser will be
considered to satisfy the conditions of this [section];
Provided, however, that if a natural person or
company who was not a party to the contract
becomes a party (including an equity owner of a
private investment company advised by the
adviser), the conditions of this [section] in effect at
that time will apply with regard to that person or
company.’’); see also Investment Adviser
Performance Compensation, Advisers Act Release
No. 3198 (May 10, 2011) [76 FR 27959 (May 13,
2011)], at section II.B.3. The 2011 Order and 2016
Order each applied to contractual relationships
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IV. Conclusion
Accordingly, pursuant to section
205(e) of the Advisers Act and section
418 of the Dodd-Frank Act,
It is hereby ordered that, for purposes
of rule 205–3(d)(1)(i) under the Advisers
Act [17 CFR 275.205–3(d)(1)], a
qualified client means a natural person
who, or a company that, immediately
after entering into the contract has at
least $1,100,000 under the management
of the investment adviser; and
It is further ordered that, for purposes
of rule 205–3(d)(1)(ii)(A) under the
Advisers Act [17 CFR 275.205–
3(d)(1)(ii)(A)], a qualified client means a
natural person who, or a company that,
the investment adviser entering into the
contract (and any person acting on his
behalf) reasonably believes,
immediately prior to entering into the
contract, has a net worth (together, in
the case of a natural person, with assets
held jointly with a spouse) of more than
$2,200,000.
By the Commission.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–13192 Filed 6–22–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–92197; File No. SR–ICC–
2021–013]
Self-Regulatory Organizations; ICE
Clear Credit LLC; Order Approving
Proposed Rule Change Relating to the
ICC End-of-Day Price Discovery
Policies and Procedures
June 16, 2021.
I. Introduction
On April 23, 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
revise and update ICC’s End-of-Day
Price Discovery Policies and Procedures
(the ‘‘Pricing Policy’’). The Pricing
Policy formalizes ICC’s end-of-day
(‘‘EOD’’) price discovery process that
provides prices for cleared credit default
entered into on or after the effective date and did
not apply retroactively to contractual relationships
previously in existence. See Investment Adviser
Performance Compensation, Advisers Act Release
No. 3372 (Feb. 15, 2012) [77 FR 10358 (Feb. 22,
2012)], at section I, n.16; 2016 Order, supra footnote
4, at section III.
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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Federal Register / Vol. 86, No. 118 / Wednesday, June 23, 2021 / Notices
swap (‘‘CDS’’) contracts based on
submissions from ICC’s Clearing
Participants.3 The proposed rule change
was published for comment in the
Federal Register on May 6, 2021.4 The
Commission did not receive comments
regarding the proposed rule change. For
the reasons discussed below, the
Commission is approving the proposed
rule change.
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II. Description of the Proposed Rule
Change
ICC proposes updates related to firm
trade obligations and certain
clarifications under the Pricing Policy.5
As part of ICC’s current EOD price
discovery process, ICC Clearing
Participants (‘‘CPs’’) are required to
submit daily EOD prices for cleared CDS
instruments related to their open
positions at ICC in accordance with the
Pricing Policy. To encourage CPs to
provide the best possible EOD
submissions, ICC selects a subset of the
potential trades generated and
designates them as firm trades, which
ICC then enters CPs into as cleared
transactions. ICC selects specific dates
on which it can require CPs to execute
firm trades (‘‘firm trade days’’). For each
firm trade day, ICC specifies the
instruments that may become firm-trade
eligible, subject to certain specified
criteria. As described in more detail
below, ICC proposes additional criteria
in the Pricing Policy for EOD firm trades
with the express purpose of maintaining
the robustness of the established price
discovery process and ensuring that onmarket firm trades (i.e., firm trades
resulting from price submissions close
to EOD levels that reflect market
expectations and thus do not provide
any value-additive market information)
do not incentivize CPs to correct their
outlying submissions (i.e., off-market
price submissions outside the proposed
EOD range).6 By subjecting potential
trades to its proposed new criteria for
designating firm trades, ICC would
avoid creating a high number of firm
trades around its EOD levels that may
unnecessarily introduce operational
risks and inefficiencies into ICC’s EOD
price discovery process.
Specifically, ICC proposes to amend
Section 2.4.1 of the Pricing Policy
(Selecting Firm-Trade Days and Firm3 Capitalized terms used but not defined herein
have the meanings specified in the Pricing Policy.
4 Self-Regulatory Organizations; ICE Clear Credit
LLC; Notice of Filing of Proposed Rule Change
Relating to the ICC End-of-Day Price Discovery
Policies and Procedures, Exchange Act Release No.
91733 (April 30, 2021); 86 FR 24425 (May 6, 2021)
(SR–ICC–2021–013) (‘‘Notice’’).
5 The description herein is substantially
excerpted from the Notice.
6 Notice, 86 FR at 24426.
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Trade Eligible Instruments) by adding a
new subsection (d) (Trade Price
Deviation Constraint) to Section 2.4.1.
As proposed, new Section 2.4.1.d of the
Pricing Policy would incorporate
additional criteria that must be met for
ICC to generate firm trades, which ICC
refers to as the trade price deviation
constraint (the ‘‘constraint’’). In addition
to new subsection (d), the proposed rule
change would add references to the
constraint throughout the existing
subsections of Section 2.4.1, specifically
in subsection (a) with respect to firm
trade days for index instruments,
subsection (b) with respect to firm trade
days for single name instruments, and
subsection (c) with respect to firm trade
days for index option instruments. The
proposed rule change would describe
the constraint in subsection (d) of
Section 2.4.1 as follows. Under the
proposed constraint, ICC would avoid
creating a high number of trades around
its EOD levels by not designating
potential trades as firm trades if the
magnitude of the hypothetical profit/
loss is smaller in magnitude than the
absolute value of the difference between
the EOD level and either the bid price
or offer price. To achieve the stated
purpose of the constraint, ICC would
only designate a potential trade as a firm
trade if the trade level fell outside the
EOD level plus/minus one half the EOD
bid-offer width (‘‘BOW’’) for the given
instrument. Such constraint would not
apply when the potential firm trade is
formed by crossing two outlying
submission trades.
With respect to credit default index
swaptions (‘‘Index Options’’), ICC
proposes additional language in
amended subsection 2.4.1.c (Index
Option Firm Trade Days) concerning the
designation of a potential trade as a firm
trade by subjecting strips of puts and/or
calls to the CP open interest and ICC
open interest requirements. The Pricing
Policy currently incorporates similar
open interest requirements for indices
and single names. Under the proposed
CP open interest requirement in
amended subsection 2.4.1.c, for ICC to
designate a potential trade as a firm
trade, both parties must have a cleared
open interest, as of the designated times,
in one or more Index Option instrument
sharing the same underlying index
instrument, expiration date, strike
convention, exercise style and
transaction type. Under the proposed
ICC open interest requirement, ICC
would only designate a potential trade
in a given Index Option instrument as
a firm trade if ICC has a cleared open
interest in that instrument.
In addition, ICC proposes several
clarifications to the Pricing Policy. In
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32995
Section 2.2.2 (Non-Submission
Assessments), ICC proposes to
abbreviate the term ‘‘ICC Board of
Managers’’ to ‘‘Board.’’ In Section 2.6
(CP’s Use of Third-Party Providers), ICC
proposes revisions to clarify the
circumstances under which a CP may
participate in the EOD price discovery
process on behalf of another CP. Section
2.6 currently provides that, subject to
the prior consent of ICC, a CP may
designate another CP to participate in
the EOD price discovery process on its
behalf. Amended Section 2.6 would
remove ICC’s prior consent and specify
that a CP ‘‘may allow an affiliated CP
(CP B) to participate in the EOD price
discovery process on its behalf.’’ In
Section 3 (Governance), ICC proposes to
memorialize its existing practice by
adding a new sentence stating that the
Pricing Policy document is subject to
review by the Risk Committee and
review and approval by the Board at
least annually.
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 For the
reasons given below, the Commission
finds that the proposed rule change is
consistent with Section 17A(b)(3)(F) of
the Act and Rules 17Ad–22(e)(2)(i) and
(v) 8 and 17Ad–22(e)(6)(iv) thereunder.9
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.10
As noted above, the proposed rule
change would amend Section 2.4.1 of
the Pricing Policy by adding new
subsection (d) to incorporate a new
trade price deviation constraint as
additional criteria that must be met for
the generation of firm trades for each
type of cleared CDS instrument at ICC
and to amend the existing subsections of
7 15
U.S.C. 78s(b)(2)(C).
CFR 240.17Ad–22(e)(2)(i) and (v).
9 17 CFR 240.17Ad–22(e)(6)(iv).
10 15 U.S.C. 78q–1(b)(3)(F).
8 17
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32996
Federal Register / Vol. 86, No. 118 / Wednesday, June 23, 2021 / Notices
Section 2.4.1 to include references to
the constraint where appropriate;
namely, index instruments or indices in
subsection (a), single name instruments
in subsection (b), and Index Options in
subsection (c). The Commission believes
that by amending its Pricing Policy to
include the proposed constraint in
subsection (d) as described above, ICC
would enhance its ability to maintain
the accuracy, integrity, and effectiveness
of the EOD price discovery process by
not designating potential trades as firm
trades if the magnitude of the
hypothetical profit/loss is smaller in
magnitude than the absolute value of
the difference between the EOD level
and either the bid price or offer price.
This in turn could incentivize CPs to
make EOD price submissions that help
ICC maintain the robustness of its price
discovery process and help ensure that
on-market firm trades do not incentivize
CPs to correct their outlying
submissions. By subjecting potential
trades to the proposed constraint, ICC
would promote the prompt and accurate
clearance and settlement of CDS
contracts by avoiding the creation of an
unnecessarily high number of firm
trades around its EOD levels that could
increase operational risks and
inefficiencies in ICC’s EOD price
discovery process.
The Commission also believes that the
proposed amendments to subsection
2.4.1.c (Index Option Firm Trade Days),
as described above, would ensure that
the firm trade obligations for Index
Options are subject to similar CP open
interest and ICC open interest
requirements as those that currently
apply to indices and single names.
These aspects of the proposed rule
change should further enhance the
consistency and integrity of ICC’s EOD
price discovery process across all three
types of CDS instruments that ICC
clears. Consequently, the Commission
believes that all of the proposed changes
to Section 2.4.1 should promote the
prompt and accurate clearance and
settlement of CDS transactions by ICC.
As noted above, ICC proposes other
revisions to clarify that a CP may allow
an affiliated CP to participate in the
EOD price discovery process on its
behalf without ICC’s prior consent, to
memorialize that the Pricing Policy is
subject to review by the Risk Committee
and review and approval by the Board
at least annually, and to include the
shorthand reference to the ‘‘Board’’
instead of the longer reference to the
ICC Board of Managers in the Pricing
Policy document. The Commission
finds that these proposed drafting
clarifications and improvements would
enhance the clarity, transparency, and
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readability of the Pricing Policy for ICC
management, employees, and CPs that,
in turn, should help them understand
their respective authorities, rights, and
obligations regarding ICC’s EOD price
discovery process and its role in the
clearance and settlement of CDS
transactions.
The Commission believes that the
proposed changes, taken as a whole,
should enhance ICC’s ability to manage
the overall EOD price discovery process
and the risks of clearing CDS
instruments, including the calculation
and collection of margin requirements
that will account for each type of
specific instrument as part of its overall
risk-based margin system and risk
management processes which rely, in
part, on the EOD prices submitted by
ICC’s CPs.11 Moreover, the Commission
believes these risks, if mismanaged,
could threaten ICC’s ability to operate
and therefore its ability to clear and
settle transactions and safeguard funds.
As a result, the Commission believes
that these proposed changes should
promote ICC’s ability to assure the
safeguarding of securities and funds
which are in the custody or control of
ICC or for which it is responsible.
Therefore, the Commission believes
that the proposed rule change is
consistent with Section 17A(b)(3)(F) of
the Act.12
B. Consistency With Rule 17Ad–
22(e)(2)(i) and (v) Under the Act
Rules 17Ad–22(e)(2)(i) and (v) 13
require each covered clearing agency to
establish, implement, maintain and
enforce written policies and procedures
reasonably designed to, among other
things, provide for governance
arrangements that are clear and
transparent and specify clear and direct
lines of responsibility, respectively. As
noted above, the proposed amendments
to Section 3 (Governance) would
memorialize that the Pricing Policy is
subject to review by the Risk Committee
and review and approval by ICC’s Board
of Managers at least annually. The
Commission believes this aspect of the
proposed rule change would improve
11 See SEC Release No. 34–82960 (Mar. 28, 2018),
83 FR 14300, 14302 (Apr. 3, 2018) (SR–ICC–2018–
002) (finding improvements to ICC’s end-of-day
pricing process would improve ‘‘ICC’s risk
management processes related to the end-of-day
pricing process, including the calculation and
collection of certain margin requirements’’ and
would ‘‘promote the prompt and accurate clearance
and settlement of the products cleared by ICC, and
. . . enhance ICC’s ability to assure the
safeguarding of securities and funds which are in
the custody or control of ICC or for which it is
responsible’’).
12 15 U.S.C. 78q–1(b)(3)(F).
13 17 CFR 240.17Ad–22(e)(2)(i) and (v).
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the clarity and transparency of the
Pricing Policy document and its
governance processes by specifying
relevant roles and lines of responsibility
within ICC. The Commission believes
that the proposed rule change is
therefore consistent with Rules 17Ad–
22(e)(2)(i) and (v).14
C. Consistency With Rule 17Ad–
22(e)(6)(iv) Under the Act
Rule 17Ad–22(e)(6)(iv) 15 requires
each covered clearing agency to
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, uses reliable
sources of timely price data and uses
procedures and sound valuation models
for addressing circumstances in which
pricing data are not readily available or
reliable. The Commission believes the
proposed changes to Section 2.4.1 to
incorporate the proposed constraint in
the firm trade provisions governing each
type of cleared CDS instrument should
help ICC manage the quality and
quantity of EOD price submissions from
CPs by only designating a potential
trade as a firm trade if the trade level
falls outside the proposed EOD range for
the given CDS instrument. This, in turn,
should help ICC establish and maintain
accurate margin requirements that will
account for the risks posed by each type
of CDS instrument as part of its overall
risk-based margin system and risk
management processes.
Further, the proposed changes to
subsection 2.4.1.c that would designate
a potential trade as a firm trade by
subjecting strips of puts and/or calls to
both the CP open interest and ICC open
interest requirements would help ensure
that the firm trade obligations for Index
Options are subject to similar open
interest requirements as those that
currently apply to indices and single
names. The Commission believes these
proposed changes should help ICC
maintain the integrity and effectiveness
of its EOD price discovery process for
the provision of reliable prices for Index
Options, which could, in turn, be used
to further enhance ICC’s ability to
establish and maintain risk-based
margin requirements for such
instruments which rely, in part, on the
EOD prices provided by CPs. The
Commission believes that the proposed
rule change is therefore consistent with
Rule 17Ad–22(e)(6)(iv).16
14 17
CFR 240.17Ad–22(e)(2)(i) and (v).
CFR 240.17Ad–22(e)(6)(iv).
16 17 CFR 240.17Ad–22(e)(6)(iv).
15 17
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Federal Register / Vol. 86, No. 118 / Wednesday, June 23, 2021 / Notices
The Exchange originally filed the
proposed pricing change on June 1,
2021 (SR–ISE–2021–12). On June 8,
2021, the Exchange withdrew that filing
and submitted this filing.
The text of the proposed rule change
is available on the Exchange’s website at
https://listingcenter.nasdaq.com/
rulebook/ise/rules, at the principal
office of the Exchange, and at the
Commission’s Public Reference Room.
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 and
Rules 17Ad–22(e)(2)(i) and (v) and
17Ad–22(e)(6)(iv) thereunder.17
It is therefore ordered pursuant to
Section 19(b)(2) of the Act 18 that the
proposed rule change (SR–ICC–2021–
013), 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. 2021–13102 Filed 6–22–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–92190; File No. SR–ISE–
2021–13]
Self-Regulatory Organizations; Nasdaq
ISE, LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend ISE’s Pricing
Schedule at Options 7, Section 3,
‘‘Regular Order Fees and Rebates’’ and
Section 4, ‘‘Complex Order Fees and
Rebates’’
June 16, 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 June 8,
2021, Nasdaq ISE, LLC (‘‘ISE’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III, below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit 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
ISE’s Pricing Schedule at Options 7,
Section 3, ‘‘Regular Order Fees and
Rebates’’ and Section 4, ‘‘Complex
Order Fees and Rebates.’’
jbell on DSKJLSW7X2PROD with NOTICES
17 17
CFR 240.17Ad–22(e)(6)(iv).
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.
18 15
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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
ISE’s Pricing Schedule at Options 7,
Section 3, ‘‘Regular Order Fees and
Rebates’’ and Section 4, ‘‘Complex
Order Fees and Rebates.’’ Each change
is described below.
Options 7, Section 3 Regular Order Fees
and Rebates
Today, the Exchange assesses a Maker
Fee of $0.18 per contract in Select
Symbols 3 for Market Maker,4 NonNasdaq ISE Market Maker (FarMM),5
3 ‘‘Select Symbols’’ are options overlying all
symbols listed on the Nasdaq ISE that are in the
Penny Interval Program. See Options 7, Section 1.
4 This fee applies to Market Maker orders sent to
the Exchange by Electronic Access Members.
Market Makers that qualify for Market Maker Plus
will not pay this fee if they meet the applicable tier
thresholds set forth in Options 7, Section 3. Market
Makers will instead be assessed fees or rebates
based on the applicable tier for which they qualify.
See notes 5 and 8 within Options 7, Section 3.
Market Maker Plus for Select Symbols is not being
amended. The term ‘‘Market Makers’’ refers to
‘‘Competitive Market Makers’’ and ‘‘Primary Market
Makers’’ collectively. See Options 1, Section
1(a)(21).
5 A ‘‘Non-Nasdaq ISE Market Maker’’ is a market
maker as defined in Section 3(a)(38) of the
Securities Exchange Act of 1934, as amended,
registered in the same options class on another
options exchange. See Options 7, Section 1.
PO 00000
Frm 00116
Fmt 4703
Sfmt 4703
32997
Firm Proprietary 6/Broker-Dealer,7 and
Professional Customer 8 orders. Priority
Customer 9 orders are not assessed a
Select Symbol Maker Fee.
Further, today, pursuant to Options 7,
Section 3, note 10, a Market Maker is
not charged a fee or paid a rebate when
trading against non-Priority Customer
Complex Orders 10 that leg into the
regular 11 order book. Also, today,
pursuant to Options 7, Section 3, note
11, a Market Maker, FarMM, Firm
Proprietary/Broker Dealer, and
Professional Customer are assessed a
$0.25 per contract fee, instead of the
applicable fee or rebate, when trading
against Priority Customer Complex
Orders that leg into the regular order
book. Today, Market Makers that qualify
for Market Maker Plus in Select
Symbols pay a $0.15 per contract fee in
the symbols for which they qualify for
Market Maker Plus when trading against
Priority Customer Complex Orders of
less than 50 contracts in Select Symbols
that leg into the regular order book.
Further, Market Makers that qualify for
Market Maker Plus in Select Symbols do
not pay any fee nor receive any rebate
in the symbols for which they qualify
for Market Maker Plus when trading
against Priority Customer Complex
Orders of 50 contracts or more in Select
Symbols that leg into the regular order
book.
The Exchange proposes to remove
rule text from Options 7, Section 3, note
11, which provides that Market Makers
that qualify for Market Maker Plus in
Select Symbols will pay a $0.15 per
contract fee in symbols for which they
6 A ‘‘Firm Proprietary’’ order is an order
submitted by a member for its own proprietary
account. See Options 7, Section 1.
7 A ‘‘Broker-Dealer’’ order is an order submitted
by a member for a broker-dealer account that is not
its own proprietary account. See Options 7, Section
1.
8 A ‘‘Professional Customer’’ is a person or entity
that is not a broker/dealer and is not a Priority
Customer. See Options 7, Section 1.
9 A ‘‘Priority Customer’’ is a person or entity that
is not a broker/dealer in securities, and does not
place more than 390 orders in listed options per day
on average during a calendar month for its own
beneficial account(s), as defined in ISE Options 1,
Section 1(a)(37). Unless otherwise noted, when
used in the Pricing Schedule the term ‘‘Priority
Customer’’ includes ‘‘Retail.’’ A ‘‘Retail’’ order is a
Priority Customer order that originates from a
natural person, provided that no change is made to
the terms of the order with respect to price or side
of market and the order does not originate from a
trading algorithm or any other computerized
methodology. See Options 7, Section 1.
10 A ‘‘Complex Order’’ is any order involving the
simultaneous purchase and/or sale of two or more
different options series in the same underlying
security, as provided in Nasdaq ISE Options 3,
Section 14, as well as Stock-Option Orders. See
Options 7, Section 1.
11 A ‘‘Regular Order’’ is an order that consists of
only a single option series and is not submitted
with a stock leg. See Options 7, Section 1.
E:\FR\FM\23JNN1.SGM
23JNN1
]]>Agencies
[Federal Register Volume 86, Number 118 (Wednesday, June 23, 2021)]
[Notices]
[Pages 32994-32997]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-13102]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92197; File No. SR-ICC-2021-013]
Self-Regulatory Organizations; ICE Clear Credit LLC; Order
Approving Proposed Rule Change Relating to the ICC End-of-Day Price
Discovery Policies and Procedures
June 16, 2021.
I. Introduction
On April 23, 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
revise and update ICC's End-of-Day Price Discovery Policies and
Procedures (the ``Pricing Policy''). The Pricing Policy formalizes
ICC's end-of-day (``EOD'') price discovery process that provides prices
for cleared credit default
[[Page 32995]]
swap (``CDS'') contracts based on submissions from ICC's Clearing
Participants.\3\ The proposed rule change was published for comment in
the Federal Register on May 6, 2021.\4\ The Commission did not receive
comments regarding the proposed rule change. For the reasons discussed
below, the Commission is approving the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Capitalized terms used but not defined herein have the
meanings specified in the Pricing Policy.
\4\ Self-Regulatory Organizations; ICE Clear Credit LLC; Notice
of Filing of Proposed Rule Change Relating to the ICC End-of-Day
Price Discovery Policies and Procedures, Exchange Act Release No.
91733 (April 30, 2021); 86 FR 24425 (May 6, 2021) (SR-ICC-2021-013)
(``Notice'').
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II. Description of the Proposed Rule Change
ICC proposes updates related to firm trade obligations and certain
clarifications under the Pricing Policy.\5\ As part of ICC's current
EOD price discovery process, ICC Clearing Participants (``CPs'') are
required to submit daily EOD prices for cleared CDS instruments related
to their open positions at ICC in accordance with the Pricing Policy.
To encourage CPs to provide the best possible EOD submissions, ICC
selects a subset of the potential trades generated and designates them
as firm trades, which ICC then enters CPs into as cleared transactions.
ICC selects specific dates on which it can require CPs to execute firm
trades (``firm trade days''). For each firm trade day, ICC specifies
the instruments that may become firm-trade eligible, subject to certain
specified criteria. As described in more detail below, ICC proposes
additional criteria in the Pricing Policy for EOD firm trades with the
express purpose of maintaining the robustness of the established price
discovery process and ensuring that on-market firm trades (i.e., firm
trades resulting from price submissions close to EOD levels that
reflect market expectations and thus do not provide any value-additive
market information) do not incentivize CPs to correct their outlying
submissions (i.e., off-market price submissions outside the proposed
EOD range).\6\ By subjecting potential trades to its proposed new
criteria for designating firm trades, ICC would avoid creating a high
number of firm trades around its EOD levels that may unnecessarily
introduce operational risks and inefficiencies into ICC's EOD price
discovery process.
---------------------------------------------------------------------------
\5\ The description herein is substantially excerpted from the
Notice.
\6\ Notice, 86 FR at 24426.
---------------------------------------------------------------------------
Specifically, ICC proposes to amend Section 2.4.1 of the Pricing
Policy (Selecting Firm-Trade Days and Firm-Trade Eligible Instruments)
by adding a new subsection (d) (Trade Price Deviation Constraint) to
Section 2.4.1. As proposed, new Section 2.4.1.d of the Pricing Policy
would incorporate additional criteria that must be met for ICC to
generate firm trades, which ICC refers to as the trade price deviation
constraint (the ``constraint''). In addition to new subsection (d), the
proposed rule change would add references to the constraint throughout
the existing subsections of Section 2.4.1, specifically in subsection
(a) with respect to firm trade days for index instruments, subsection
(b) with respect to firm trade days for single name instruments, and
subsection (c) with respect to firm trade days for index option
instruments. The proposed rule change would describe the constraint in
subsection (d) of Section 2.4.1 as follows. Under the proposed
constraint, ICC would avoid creating a high number of trades around its
EOD levels by not designating potential trades as firm trades if the
magnitude of the hypothetical profit/loss is smaller in magnitude than
the absolute value of the difference between the EOD level and either
the bid price or offer price. To achieve the stated purpose of the
constraint, ICC would only designate a potential trade as a firm trade
if the trade level fell outside the EOD level plus/minus one half the
EOD bid-offer width (``BOW'') for the given instrument. Such constraint
would not apply when the potential firm trade is formed by crossing two
outlying submission trades.
With respect to credit default index swaptions (``Index Options''),
ICC proposes additional language in amended subsection 2.4.1.c (Index
Option Firm Trade Days) concerning the designation of a potential trade
as a firm trade by subjecting strips of puts and/or calls to the CP
open interest and ICC open interest requirements. The Pricing Policy
currently incorporates similar open interest requirements for indices
and single names. Under the proposed CP open interest requirement in
amended subsection 2.4.1.c, for ICC to designate a potential trade as a
firm trade, both parties must have a cleared open interest, as of the
designated times, in one or more Index Option instrument sharing the
same underlying index instrument, expiration date, strike convention,
exercise style and transaction type. Under the proposed ICC open
interest requirement, ICC would only designate a potential trade in a
given Index Option instrument as a firm trade if ICC has a cleared open
interest in that instrument.
In addition, ICC proposes several clarifications to the Pricing
Policy. In Section 2.2.2 (Non-Submission Assessments), ICC proposes to
abbreviate the term ``ICC Board of Managers'' to ``Board.'' In Section
2.6 (CP's Use of Third-Party Providers), ICC proposes revisions to
clarify the circumstances under which a CP may participate in the EOD
price discovery process on behalf of another CP. Section 2.6 currently
provides that, subject to the prior consent of ICC, a CP may designate
another CP to participate in the EOD price discovery process on its
behalf. Amended Section 2.6 would remove ICC's prior consent and
specify that a CP ``may allow an affiliated CP (CP B) to participate in
the EOD price discovery process on its behalf.'' In Section 3
(Governance), ICC proposes to memorialize its existing practice by
adding a new sentence stating that the Pricing Policy document is
subject to review by the Risk Committee and review and approval by the
Board at least annually.
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\ For the reasons given below, the Commission finds that
the proposed rule change is consistent with Section 17A(b)(3)(F) of the
Act and Rules 17Ad-22(e)(2)(i) and (v) \8\ and 17Ad-22(e)(6)(iv)
thereunder.\9\
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\7\ 15 U.S.C. 78s(b)(2)(C).
\8\ 17 CFR 240.17Ad-22(e)(2)(i) and (v).
\9\ 17 CFR 240.17Ad-22(e)(6)(iv).
---------------------------------------------------------------------------
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.\10\
---------------------------------------------------------------------------
\10\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
As noted above, the proposed rule change would amend Section 2.4.1
of the Pricing Policy by adding new subsection (d) to incorporate a new
trade price deviation constraint as additional criteria that must be
met for the generation of firm trades for each type of cleared CDS
instrument at ICC and to amend the existing subsections of
[[Page 32996]]
Section 2.4.1 to include references to the constraint where
appropriate; namely, index instruments or indices in subsection (a),
single name instruments in subsection (b), and Index Options in
subsection (c). The Commission believes that by amending its Pricing
Policy to include the proposed constraint in subsection (d) as
described above, ICC would enhance its ability to maintain the
accuracy, integrity, and effectiveness of the EOD price discovery
process by not designating potential trades as firm trades if the
magnitude of the hypothetical profit/loss is smaller in magnitude than
the absolute value of the difference between the EOD level and either
the bid price or offer price. This in turn could incentivize CPs to
make EOD price submissions that help ICC maintain the robustness of its
price discovery process and help ensure that on-market firm trades do
not incentivize CPs to correct their outlying submissions. By
subjecting potential trades to the proposed constraint, ICC would
promote the prompt and accurate clearance and settlement of CDS
contracts by avoiding the creation of an unnecessarily high number of
firm trades around its EOD levels that could increase operational risks
and inefficiencies in ICC's EOD price discovery process.
The Commission also believes that the proposed amendments to
subsection 2.4.1.c (Index Option Firm Trade Days), as described above,
would ensure that the firm trade obligations for Index Options are
subject to similar CP open interest and ICC open interest requirements
as those that currently apply to indices and single names. These
aspects of the proposed rule change should further enhance the
consistency and integrity of ICC's EOD price discovery process across
all three types of CDS instruments that ICC clears. Consequently, the
Commission believes that all of the proposed changes to Section 2.4.1
should promote the prompt and accurate clearance and settlement of CDS
transactions by ICC.
As noted above, ICC proposes other revisions to clarify that a CP
may allow an affiliated CP to participate in the EOD price discovery
process on its behalf without ICC's prior consent, to memorialize that
the Pricing Policy is subject to review by the Risk Committee and
review and approval by the Board at least annually, and to include the
shorthand reference to the ``Board'' instead of the longer reference to
the ICC Board of Managers in the Pricing Policy document. The
Commission finds that these proposed drafting clarifications and
improvements would enhance the clarity, transparency, and readability
of the Pricing Policy for ICC management, employees, and CPs that, in
turn, should help them understand their respective authorities, rights,
and obligations regarding ICC's EOD price discovery process and its
role in the clearance and settlement of CDS transactions.
The Commission believes that the proposed changes, taken as a
whole, should enhance ICC's ability to manage the overall EOD price
discovery process and the risks of clearing CDS instruments, including
the calculation and collection of margin requirements that will account
for each type of specific instrument as part of its overall risk-based
margin system and risk management processes which rely, in part, on the
EOD prices submitted by ICC's CPs.\11\ Moreover, the Commission
believes these risks, if mismanaged, could threaten ICC's ability to
operate and therefore its ability to clear and settle transactions and
safeguard funds. As a result, the Commission believes that these
proposed changes should promote ICC's ability to assure the
safeguarding of securities and funds which are in the custody or
control of ICC or for which it is responsible.
---------------------------------------------------------------------------
\11\ See SEC Release No. 34-82960 (Mar. 28, 2018), 83 FR 14300,
14302 (Apr. 3, 2018) (SR-ICC-2018-002) (finding improvements to
ICC's end-of-day pricing process would improve ``ICC's risk
management processes related to the end-of-day pricing process,
including the calculation and collection of certain margin
requirements'' and would ``promote the prompt and accurate clearance
and settlement of the products cleared by ICC, and . . . enhance
ICC's ability to assure the safeguarding of securities and funds
which are in the custody or control of ICC or for which it is
responsible'').
---------------------------------------------------------------------------
Therefore, the Commission believes that the proposed rule change is
consistent with Section 17A(b)(3)(F) of the Act.\12\
---------------------------------------------------------------------------
\12\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
B. Consistency With Rule 17Ad-22(e)(2)(i) and (v) Under the Act
Rules 17Ad-22(e)(2)(i) and (v) \13\ require each covered clearing
agency to establish, implement, maintain and enforce written policies
and procedures reasonably designed to, among other things, provide for
governance arrangements that are clear and transparent and specify
clear and direct lines of responsibility, respectively. As noted above,
the proposed amendments to Section 3 (Governance) would memorialize
that the Pricing Policy is subject to review by the Risk Committee and
review and approval by ICC's Board of Managers at least annually. The
Commission believes this aspect of the proposed rule change would
improve the clarity and transparency of the Pricing Policy document and
its governance processes by specifying relevant roles and lines of
responsibility within ICC. The Commission believes that the proposed
rule change is therefore consistent with Rules 17Ad-22(e)(2)(i) and
(v).\14\
---------------------------------------------------------------------------
\13\ 17 CFR 240.17Ad-22(e)(2)(i) and (v).
\14\ 17 CFR 240.17Ad-22(e)(2)(i) and (v).
---------------------------------------------------------------------------
C. Consistency With Rule 17Ad-22(e)(6)(iv) Under the Act
Rule 17Ad-22(e)(6)(iv) \15\ requires each covered clearing agency
to 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, uses reliable sources of timely price data and uses procedures
and sound valuation models for addressing circumstances in which
pricing data are not readily available or reliable. The Commission
believes the proposed changes to Section 2.4.1 to incorporate the
proposed constraint in the firm trade provisions governing each type of
cleared CDS instrument should help ICC manage the quality and quantity
of EOD price submissions from CPs by only designating a potential trade
as a firm trade if the trade level falls outside the proposed EOD range
for the given CDS instrument. This, in turn, should help ICC establish
and maintain accurate margin requirements that will account for the
risks posed by each type of CDS instrument as part of its overall risk-
based margin system and risk management processes.
---------------------------------------------------------------------------
\15\ 17 CFR 240.17Ad-22(e)(6)(iv).
---------------------------------------------------------------------------
Further, the proposed changes to subsection 2.4.1.c that would
designate a potential trade as a firm trade by subjecting strips of
puts and/or calls to both the CP open interest and ICC open interest
requirements would help ensure that the firm trade obligations for
Index Options are subject to similar open interest requirements as
those that currently apply to indices and single names. The Commission
believes these proposed changes should help ICC maintain the integrity
and effectiveness of its EOD price discovery process for the provision
of reliable prices for Index Options, which could, in turn, be used to
further enhance ICC's ability to establish and maintain risk-based
margin requirements for such instruments which rely, in part, on the
EOD prices provided by CPs. The Commission believes that the proposed
rule change is therefore consistent with Rule 17Ad-22(e)(6)(iv).\16\
---------------------------------------------------------------------------
\16\ 17 CFR 240.17Ad-22(e)(6)(iv).
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[[Page 32997]]
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 and Rules 17Ad-22(e)(2)(i) and (v) and 17Ad-22(e)(6)(iv)
thereunder.\17\
---------------------------------------------------------------------------
\17\ 17 CFR 240.17Ad-22(e)(6)(iv).
---------------------------------------------------------------------------
It is therefore ordered pursuant to Section 19(b)(2) of the Act
\18\ that the proposed rule change (SR-ICC-2021-013), be, and hereby
is, approved.\19\
---------------------------------------------------------------------------
\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\
---------------------------------------------------------------------------
\20\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-13102 Filed 6-22-21; 8:45 am]
BILLING CODE 8011-01-P
