Self-Regulatory Organizations; ICE Clear Credit LLC; Order Approving Proposed Rule Change Relating to the ICC Clearing Rules and ICC Exercise Procedures, 4069-4072 [2022-01463]

Download as PDF Federal Register / Vol. 87, No. 17 / Wednesday, January 26, 2022 / Notices those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of LCH SA and on LCH SA’s website at: https://www.lch.com/ resources/rulebooks/proposed-rulechanges. 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–LCH SA–2022–001 and should be submitted on or before February 16, 2022. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.15 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2022–01461 Filed 1–25–22; 8:45 am] BILLING CODE 8011–01–P For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.6 J. Matthew DeLesDernier, Assistant Secretary. SECURITIES AND EXCHANGE COMMISSION [Release No. 34–94008; File No. SR– CboeEDGX–2021–049] [FR Doc. 2022–01469 Filed 1–25–22; 8:45 am] Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Designation of a Longer Period for Commission Action on a Proposed Rule Change To Introduce a New Data Product To Be Known as the Short Volume Report, Modify the Name of Rule 13.8 to ‘‘Data Products’’, and Add a Preamble to Rule 13.8 khammond on DSKJM1Z7X2PROD with NOTICES January 20, 2022. On November 17, 2021, Cboe EDGX Exchange, Inc. (‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to adopt Exchange Rule 13.8(h) to introduce a new data product to be known as the Short Volume Report, modify the name of Rule 13.8 to ‘‘Data Products’’, and add a preamble to Rule 13.8. The proposed rule change was 15 17 CFR 200.30–3(a)(12). U.S.C.78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Sep<11>2014 17:34 Jan 25, 2022 Jkt 256001 published in the Federal Register on December 7, 2021.3 Section 19(b)(2) of the Act 4 provides that within 45 days of the publication of notice of the filing of a proposed rule change, or within such longer period up to 90 days as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding, or as to which the self-regulatory organization consents, the Commission will either approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether the proposed rule change should be disapproved. The 45th day after publication of the notice for this proposed rule change is January 21, 2022. The Commission is extending this 45-day time period. The Commission finds it appropriate to designate a longer period within which to take action on the proposed rule change so that it has sufficient time to consider the proposed rule change. Accordingly, the Commission, pursuant to Section 19(b)(2) of the Act,5 designates March 7, 2022 as the date by which the Commission shall either approve or disapprove, or institute proceedings to determine whether to disapprove, the proposed rule change (File No. SR–CboeEDGX–2021–049). BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–94014; File No. SR–ICC– 2021–023] Self-Regulatory Organizations; ICE Clear Credit LLC; Order Approving Proposed Rule Change Relating to the ICC Clearing Rules and ICC Exercise Procedures January 20, 2021. I. Introduction On November 19, 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–4,2 a proposed rule change to revise Rule 26R–319 of the ICC Clearing Rules (‘‘Rules’’) and the ICC Exercise Procedures (‘‘Exercise Procedures’’) 3 in connection with the clearing of credit default index options (‘‘Index Swaptions’’). The proposed rule change was published for comment in the Federal Register on December 7, 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. II. Description of the Proposed Rule Change A. Background Pursuant to an Index Swaption, one party (the ‘‘Swaption Buyer’’) has the right (but not the obligation) to cause the other party (the ‘‘Swaption Seller’’) to enter into an index credit default swap transaction at a pre-determined strike price on a specified expiration date on specified terms. In the case of Index Swaptions cleared by ICC, the underlying index credit default swap is limited to certain CDX and iTraxx index credit default swaps that are accepted for clearing by ICC, and which would be automatically cleared by ICC upon exercise of the Index Swaption by the Swaption Buyer in accordance with its terms. B. Revisions to Rule 26R–319 ICC Rule 26R–319 describes what happens upon the exercise of an Index Swaption. ICC Rule 26R–319 consists of three parts: 26R–319(a), 26R–319(b), and 26R–319(c). 26R–319(a) applies when a Swaption Buyer effectively exercises an Index Swaption and the underlying index is not subject to a restructuring due to a credit event, while (b) and (c) apply when an Index Swaption is effectively exercised and the underlying index is subject to a restructuring due to a credit event. Under 26R–319(a), upon the effective exercise of an Index Swaption, a contract in the form of the underlying index comes into effect between the Swaption Buyer and ICC and an exactly 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 Capitalized terms used but not defined herein have the meanings specified in the Rules and Exercise Procedures. 4 Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of Filing of Proposed Rule Change Relating to the ICC Clearing Rules and ICC Exercise Procedures; Exchange Act Release No. 34–93690 (Dec. 1, 2021); 86 FR 69308 (Dec. 7, 2021) (SR–ICC– 2021–023) (‘‘Notice’’). 2 17 3 See Securities Exchange Act Release No. 93696 (December 1, 2021), 86 FR 69306. Comments received on the proposal are available on the Commission’s website at: https://www.sec.gov/ comments/sr-cboeedgx-2021-049/ srcboeedgx2021049.htm. 4 15 U.S.C. 78s(b)(2). 5 Id. 6 17 CFR 200.30–3(a)(31). PO 00000 Frm 00106 Fmt 4703 Sfmt 4703 4069 E:\FR\FM\26JAN1.SGM 26JAN1 khammond on DSKJM1Z7X2PROD with NOTICES 4070 Federal Register / Vol. 87, No. 17 / Wednesday, January 26, 2022 / Notices offsetting contract comes into effect between ICC and the Swaption Seller. The proposed rule change would not amend 26R–319(a). 26R–319(b) describes what happens when an Index Swaption is effectively exercised and one or more Event Determination Dates have occurred with respect to the underlying index on or prior to the Expiration Date. In that case, in addition to the new contracts that come into effect under 26R–319(a), certain additional settlements may be required, as further described in 26R– 319(b). The proposed rule change would make two amendments to 26R–319(b). The proposed rule change would add a parenthetical to clarify that 26R–319(b) does not apply to an Event Determination Date in respect of an M(M)R Restructuring Credit Event because 26R–319(c) would apply in that case, as described below. The proposed rule change would further modify subpart (i) of 26R–319(b) by adding a note that the settlement contemplated by that subsection would be subject to any modification with respect to fixed rate payments or accrual rebates as specified by ICC by Circular. 26R–319(c) describes what happens when an Index Swaption is effectively exercised and one or more M(M)R Restructuring Credit Events have occurred with respect to the underlying index on or prior to the Expiration Date. 26R–319(c) is only applicable to iTraxx Index Swaptions. Under 26R–319(c) as currently written, upon settlement the Swaption Buyer would receive a reversioned underlying index plus a single name CDS contract. The proposed rule change would amend 26R–319(c) so that, in certain circumstances, the Swaption Buyer would receive a re-versioned underlying index plus a single name CDS contract and a cash payment. Settlement under 26R–319(c) as amended therefore could result in the re-versioned underlying index and a blend of single name position and cash. This settlement would be similar to what occurs when a buyer and seller settle an index swaption bilaterally. Thus, the proposed amendments would make settlement of a cleared Index Swaption at ICC similar to the settlement that occurs in the bilateral market, outside of the clearinghouse.5 26R–319(c) as currently written has an introductory sentence and four subparts. The proposed rule change first would revise the introductory sentence of 26R–319(c) to incorporate text currently found in subparts (ii) and (iii) 5 Notice, 86 FR at 69309. VerDate Sep<11>2014 17:34 Jan 25, 2022 Jkt 256001 of 26R–319(c). Specifically, the proposed rule change would incorporate from subpart (ii) language referring to the effective exercise of the Index Swaption and rights and obligations under 26–319(b). The proposed rule change also would incorporate from subpart (iii) language regarding the Relevant Index Swaption Untranched Terms Supplement. Subpart (i) of 26R–319(c) as currently written is intentionally omitted. The proposed rule change would not revise subpart (i). Under subpart (ii) as currently written, if an Index Swaption is effectively exercised, then in addition to the rights and obligations under 26R– 319(b), a Contract constituting an Underlying New Trade for purposes of the Relevant Index Swaption Untranched Terms Supplement comes into effect between the exercising Swaption Buyer and ICC and an exactly offsetting Contract constituting an Underlying New Trade comes into effect between ICC and the assigned Swaption Seller. As mentioned above, the proposed rule change would move to the introductory clause of 26R–319(c) language currently found in subpart (ii), and therefore, the proposed rule change would delete this language from subpart (ii). The proposed rule change also would add a statement to subpart (ii) that it would be subject to a new subpart (v), as applicable (discussed below). Subpart (iii) as currently written applies to two situations. First, it applies when the Expiration Date occurs prior to the commencement of the CEN Triggering Period (as defined in the Restructuring Procedures) for Open Positions in single-name Contracts referencing the relevant Reference Entity. Second, it applies when the Expiration Date occurs on or following the commencement of the CEN Triggering Period for Open Positions in single-name Contracts referencing the relevant Reference Entity. The proposed rule change would split current subpart (iii) into a revised subpart (iii) and a new subpart (iv). Like the current subpart (iii), revised subpart (iii) would apply when the Expiration Date occurs prior to the commencement of the CEN Triggering Period (as defined in the Restructuring Procedures) for Open Positions in single-name Contracts referencing the relevant Reference Entity. Under subpart (iii) as revised, the Underlying New Trade described in subpart (ii) would be subject to the provisions of the CDS Restructuring Rules (and may become a Triggered Restructuring CDS Transaction thereunder) in the same manner as other Open Positions in PO 00000 Frm 00107 Fmt 4703 Sfmt 4703 single-name Contracts referencing the relevant Reference Entity. This would be the same as currently found in subpart (iii). Moreover, the proposed rule change would delete from subpart (iii) language regarding the Relevant Index Swaption Untranched Terms Supplement, which would be moved to the introductory sentence of 26R–319(c), as described above. The proposed rule change also would add a reference to the Existing Restructuring (a termed defined in the introductory sentence of 26R–319(c)) and a reference to subpart (ii) of 26R–319(c). New subpart (iv) generally would apply to the second situation described in current subpart (iii)—when the Expiration Date occurs on or following the commencement of the CEN Triggering Period. The proposed rule change would specify further that subpart (iv) only applies when the Expiration Date occurs on or following the commencement of the CEN Triggering Period and prior to the Auction Settlement Date. Under new subpart (iv), with respect to the Underlying New Trade described in subpart (ii), neither party would be permitted to deliver an MP Notice in respect of the Existing Restructuring for such Underlying New Trade, such Underlying New Trade could not become a Triggered Restructuring CDS Transaction with respect to the Existing Restructuring, and no Event Determination Date or settlement would occur in respect of the Existing Restructuring for purposes of the Underlying New Trade. This language generally would be the same as currently found in subpart (iii). New subpart (v) would apply in the situation not covered by subpart (iii) or subpart (iv)—if the Expiration Date occurs on or following the Auction Settlement Date. In that situation, ICC would: (a) determine the extent to which positions in relevant single-name CDS contracts of the relevant tenor referencing the Reference Entity subject to the Existing Restructuring are settled based on CDS auctions for particular maturity categories and (b) determine, if applicable, a cash settlement amount payable from one party to the other with respect to the corresponding portion of the notional amount of the Index Swaption applicable to such Reference Entity, with such settlement to be based on the applicable final settlement prices under such auctions. Moreover, with respect to the remaining portion of such notional amount, an Underlying New Trade would come into effect, provided that neither party would be permitted to deliver an MP Notice in respect of the Existing Restructuring for such E:\FR\FM\26JAN1.SGM 26JAN1 Federal Register / Vol. 87, No. 17 / Wednesday, January 26, 2022 / Notices khammond on DSKJM1Z7X2PROD with NOTICES Underlying New Trade, such Underlying New Trade could not become a Triggered Restructuring CDS Transaction with respect to the Existing Restructuring, and no Event Determination Date or settlement would occur in respect of the Existing Restructuring for purposes of the Underlying New Trade, as set forth in further detail in the ICC Exercise Procedures or other applicable ICC Procedures. Thus, this new subpart (v) would set out the framework for the blend of deliverables described above and would be applicable if the expiration date occurs on or following the Auction Settlement Date. C. Revisions to the Exercise Procedures The Exercise Procedures supplement the provisions of Subchapter 26R of the Rules with respect to Index Swaptions. The proposed rule change would amend the Exercise Procedures in connection with amended 26R–319 discussed above, as well as to incorporate a new defined term, ‘‘Minimum Intrinsic Value’’. With respect to amended 26R–319, the proposed rule change would add a new paragraph 3 (Restructuring Settlement) to the Exercise Procedures. New paragraph 3 would apply in connection with 26R–319(c)(v), discussed above. Under new paragraph 3.1, however, ICC could modify or supplement these provisions pursuant to an ICC Circular. New paragraph 3.3 (Settlement with respect to Existing Restructuring under Exercised Index Swaption) would describe how ICC would determine the amount of the cash settlement and the notional amount of the Underlying New Trade contemplated under new 26R– 319(c)(v). ICC would determine these amounts using the Triggered Portion and Untriggered Portion of the aggregate notional amount of Relevant CDS Transaction. New paragraph 3.2 (Determination of Settled Portions) would describe how ICC would determine such Triggered Portion and Untriggered Portion. With respect to the new defined term Minimum Intrinsic Value, the proposed rule change would define it as a minimum intrinsic value below which an Index Swaption position would not be identified as ‘‘in the money’’ for paragraph 2.2(e)(ii) or 2.8. ICC could establish a Minimum Intrinsic Value and/or permit an exercising party to specify a Minimum Intrinsic Value for its Index Swaptions for a relevant preexercise notification period or exercise period. The proposed rule change would incorporate this new term into the VerDate Sep<11>2014 17:34 Jan 25, 2022 Jkt 256001 existing fallback provisions described in paragraphs 2.2(e)(ii) and 2.8 of the Exercise Procedures. Specifically, ICC would take into account any applicable Minimum Intrinsic Value as part of its procedures for submitting preliminary exercise notices on behalf of the Exercising Party during the pre-exercise notification period (during which preliminary exercise notices can be submitted, modified, and/or withdrawn) in paragraph 2.2(e)(ii). ICC also would take into account any applicable Minimum Intrinsic Value in determining whether an Index Swaption is ‘‘in the money’’ for automatic exercise during an Exercise System Failure in paragraph 2.8. 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.6 For the reasons discussed below, the Commission finds that the proposed rule change is consistent with Section 17A(b)(3)(F) of the Act 7 and Rule 17Ad–22(e)(1).8 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.9 As discussed above, the proposed rule change would revise Rule 26R–319 and the Exercise Procedures to allow for a settlement consisting of the re-versioned underlying index and a blend of single name position and cash, similar to settlement in the bilateral market outside of the clearinghouse. The Commission believes that increasing consistency between cleared and noncleared transactions should in general encourage market participants to clear transactions in Index Swaptions. The Commission therefore believes these changes would promote the prompt and accurate clearance and settlement of such transactions. Similarly, the Commission believes that amending the Exercise Procedures 6 15 U.S.C. 78s(b)(2)(C). U.S.C. 78q–1(b)(3)(F). 8 17 CFR 240.17Ad–22(e)(1). 9 15 U.S.C. 78q–1(b)(3)(F). to incorporate the new defined term Minimum Intrinsic Value should encourage market participants to clear transactions in Index Swaptions. As discussed above, Minimum Intrinsic Value would be a value below which an Index Swaption position would not be identified as ‘‘in the money,’’ and therefore would not be exercised by ICC under paragraphs 2.2(e)(ii) and 2.8 of the Exercise Procedures. The Commission therefore believes that incorporating this new defined term could help establish a threshold below which ICC would not exercise Index Swaptions, thereby allowing Clearing Participants to better understand and anticipate when ICC would exercise their Index Swaption positions. The Commission believes that this change should in general encourage market participants to clear transactions in Index Swaptions, thereby promoting the prompt and accurate clearance and settlement of such transactions. Moreover, the Commission believes that both sets of changes would establish clear and predictable procedures for settlement and exercise of Index Swaptions by ICC, thereby promoting ICC’s prompt and accurate clearance and settlement of such transactions. Specifically, the Commission believes the amendments to Rule 26R–319 and the Exercise Procedures would establish clear and effective procedures for ICC to use in effecting settlement with a re-versioned underlying index and a blend of single name position and cash. Similarly, the Commission believes that incorporating a Minimum Intrinsic Value below which ICC would not exercise Index Swaptions positions, in the circumstances contemplated by paragraphs 2.2(e)(ii) and 2.8 of the Exercise Procedures, would make ICC’s exercise of Index Swaptions in such situations more predictable and reliable. Therefore, the Commission finds that the proposed rule change is consistent with Section 17A(b)(3)(F) of the Act.10 B. Consistency With Rule 17Ad–22(e)(1) Under the Act Rule 17Ad–22(e)(1) requires that ICC establish, implement, maintain, and enforce written policies and procedures reasonably designed to provide for a well-founded, clear, transparent, and enforceable legal basis for each aspect of its activities in all relevant jurisdictions.11 As discussed above, the Commission believes that the amendments to Rule 26R–319 and the Exercise Procedures would establish 7 15 PO 00000 Frm 00108 Fmt 4703 Sfmt 4703 4071 10 15 11 17 E:\FR\FM\26JAN1.SGM U.S.C. 78q–1(b)(3)(F). CFR 240.17Ad–22(e)(1). 26JAN1 4072 Federal Register / Vol. 87, No. 17 / Wednesday, January 26, 2022 / Notices clear and effective procedures for ICC to use in effecting settlement with a reversioned underlying index and a blend of single name position and cash, and therefore would provide a clear and transparent basis for ICC’s settlement of Index Swaptions. Moreover, the Commission believes that incorporating Minimum Intrinsic Value into paragraphs 2.2(e)(ii) and 2.8 of the Exercise Procedures would make ICC’s exercise of Index Swaptions in such circumstances more predictable and reliable, and therefore well-founded and clear. Therefore, the Commission finds that the proposed rule change is consistent with Rule 17Ad-22(e)(1).12 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 13 and Rule 17Ad–22(e)(1).14 It is therefore ordered pursuant to Section 19(b)(2) of the Act 15 that the proposed rule change (SR–ICC–2021– 023), be, and hereby is, approved.16 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.17 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2022–01463 Filed 1–25–22; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34 94007; File No. SR– CboeEDGA–2021–025] Self-Regulatory Organizations; Cboe EDGA Exchange, Inc.; Notice of Designation of a Longer Period for Commission Action on a Proposed Rule Change To Introduce a New Data Product To Be Known as the Short Volume Report, Modify the Name of Rule 13.8 to ‘‘Data Products’’, and Add a Preamble to Rule 13.8 to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to adopt Exchange Rule 13.8(h) to introduce a new data product to be known as the Short Volume Report, modify the name of Rule 13.8 to ‘‘Data Products’’, and add a preamble to Rule 13.8. The proposed rule change was published in the Federal Register on December 7, 2021.3 Section 19(b)(2) of the Act 4 provides that within 45 days of the publication of notice of the filing of a proposed rule change, or within such longer period up to 90 days as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding, or as to which the self-regulatory organization consents, the Commission will either approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether the proposed rule change should be disapproved. The 45th day after publication of the notice for this proposed rule change is January 21, 2022. The Commission is extending this 45-day time period. The Commission finds it appropriate to designate a longer period within which to take action on the proposed rule change so that it has sufficient time to consider the proposed rule change. Accordingly, the Commission, pursuant to Section 19(b)(2) of the Act,5 designates March 7, 2022 as the date by which the Commission shall either approve or disapprove, or institute proceedings to determine whether to disapprove, the proposed rule change (File No. SR–CboeEDGA–2021–025). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.6 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2022–01462 Filed 1–25–22; 8:45 am] BILLING CODE 8011–01–P January 20, 2022. khammond on DSKJM1Z7X2PROD with NOTICES On November 17, 2021, Cboe EDGA Exchange, Inc. (‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant 12 17 CFR 240.17Ad–22(e)(1). U.S.C. 78q–1(b)(3)(F). 14 17 CFR 240.17Ad–22(e)(1). 15 15 U.S.C. 78s(b)(2). 16 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). 17 17 CFR 200.30–3(a)(12). 13 15 VerDate Sep<11>2014 17:34 Jan 25, 2022 Jkt 256001 1 15 U.S.C.78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 93694 (December 1, 2021), 86 FR 69299. Comments received on the proposal are available on the Commission’s website at: https://www.sec.gov/ comments/sr-cboeedga-2021-025/ srcboeedga2021025.htm. 4 15 U.S.C. 78s(b)(2). 5 Id. 6 17 CFR 200.30–3(a)(31). 2 17 PO 00000 Frm 00109 Fmt 4703 Sfmt 4703 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–94018; File No. SR–FINRA– 2022–001] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Extend the Effectiveness of Temporary Supplementary Material .17 (Temporary Relief To Allow Remote Inspections for Calendar Years 2020 and 2021, and Through June 30 of Calendar Year 2022) Under FINRA Rule 3110 (Supervision) January 20, 2022. 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 January 10, 2022, the Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) 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 FINRA. FINRA has designated the proposed rule change as constituting a ‘‘non-controversial’’ rule change under paragraph (f)(6) of Rule 19b–4 under the Act,3 which renders the proposal effective upon receipt of this filing by the Commission. 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 FINRA is proposing to extend temporary Supplementary Material .17 (Temporary Relief to Allow Remote Inspections for Calendar Years 2020 and 2021, and Through June 30 of Calendar Year 2022) under FINRA Rule 3110 (Supervision) to include calendar year 2022 inspection obligations through December 31, 2022 within the scope of the supplementary material.4 The proposed additional six-month extension of Rule 3110.17 is necessary to address the operational challenges resulting from the COVID–19 pandemic that many member firms continue to face in planning for and timely conducting, during the second half of calendar year 2022, the on-site 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 17 CFR 240.19b–4(f)(6). 4 The proposed rule text changes to Rule 3110.17 are applied to the version that becomes operative on January 1, 2022 and automatically sunsets on June 30, 2022. 2 17 E:\FR\FM\26JAN1.SGM 26JAN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 87, Number 17 (Wednesday, January 26, 2022)]
[Notices]
[Pages 4069-4072]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-01463]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94014; File No. SR-ICC-2021-023]


Self-Regulatory Organizations; ICE Clear Credit LLC; Order 
Approving Proposed Rule Change Relating to the ICC Clearing Rules and 
ICC Exercise Procedures

January 20, 2021.

I. Introduction

    On November 19, 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,\2\ a proposed rule change to revise Rule 
26R-319 of the ICC Clearing Rules (``Rules'') and the ICC Exercise 
Procedures (``Exercise Procedures'') \3\ in connection with the 
clearing of credit default index options (``Index Swaptions''). The 
proposed rule change was published for comment in the Federal Register 
on December 7, 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 Rules and Exercise Procedures.
    \4\ Self-Regulatory Organizations; ICE Clear Credit LLC; Notice 
of Filing of Proposed Rule Change Relating to the ICC Clearing Rules 
and ICC Exercise Procedures; Exchange Act Release No. 34-93690 (Dec. 
1, 2021); 86 FR 69308 (Dec. 7, 2021) (SR-ICC-2021-023) (``Notice'').
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II. Description of the Proposed Rule Change

A. Background

    Pursuant to an Index Swaption, one party (the ``Swaption Buyer'') 
has the right (but not the obligation) to cause the other party (the 
``Swaption Seller'') to enter into an index credit default swap 
transaction at a pre-determined strike price on a specified expiration 
date on specified terms. In the case of Index Swaptions cleared by ICC, 
the underlying index credit default swap is limited to certain CDX and 
iTraxx index credit default swaps that are accepted for clearing by 
ICC, and which would be automatically cleared by ICC upon exercise of 
the Index Swaption by the Swaption Buyer in accordance with its terms.

B. Revisions to Rule 26R-319

    ICC Rule 26R-319 describes what happens upon the exercise of an 
Index Swaption. ICC Rule 26R-319 consists of three parts: 26R-319(a), 
26R-319(b), and 26R-319(c). 26R-319(a) applies when a Swaption Buyer 
effectively exercises an Index Swaption and the underlying index is not 
subject to a restructuring due to a credit event, while (b) and (c) 
apply when an Index Swaption is effectively exercised and the 
underlying index is subject to a restructuring due to a credit event.
    Under 26R-319(a), upon the effective exercise of an Index Swaption, 
a contract in the form of the underlying index comes into effect 
between the Swaption Buyer and ICC and an exactly

[[Page 4070]]

offsetting contract comes into effect between ICC and the Swaption 
Seller. The proposed rule change would not amend 26R-319(a).
    26R-319(b) describes what happens when an Index Swaption is 
effectively exercised and one or more Event Determination Dates have 
occurred with respect to the underlying index on or prior to the 
Expiration Date. In that case, in addition to the new contracts that 
come into effect under 26R-319(a), certain additional settlements may 
be required, as further described in 26R-319(b).
    The proposed rule change would make two amendments to 26R-319(b). 
The proposed rule change would add a parenthetical to clarify that 26R-
319(b) does not apply to an Event Determination Date in respect of an 
M(M)R Restructuring Credit Event because 26R-319(c) would apply in that 
case, as described below. The proposed rule change would further modify 
subpart (i) of 26R-319(b) by adding a note that the settlement 
contemplated by that subsection would be subject to any modification 
with respect to fixed rate payments or accrual rebates as specified by 
ICC by Circular.
    26R-319(c) describes what happens when an Index Swaption is 
effectively exercised and one or more M(M)R Restructuring Credit Events 
have occurred with respect to the underlying index on or prior to the 
Expiration Date. 26R-319(c) is only applicable to iTraxx Index 
Swaptions. Under 26R-319(c) as currently written, upon settlement the 
Swaption Buyer would receive a re-versioned underlying index plus a 
single name CDS contract.
    The proposed rule change would amend 26R-319(c) so that, in certain 
circumstances, the Swaption Buyer would receive a re-versioned 
underlying index plus a single name CDS contract and a cash payment. 
Settlement under 26R-319(c) as amended therefore could result in the 
re-versioned underlying index and a blend of single name position and 
cash. This settlement would be similar to what occurs when a buyer and 
seller settle an index swaption bilaterally. Thus, the proposed 
amendments would make settlement of a cleared Index Swaption at ICC 
similar to the settlement that occurs in the bilateral market, outside 
of the clearinghouse.\5\
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    \5\ Notice, 86 FR at 69309.
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    26R-319(c) as currently written has an introductory sentence and 
four subparts. The proposed rule change first would revise the 
introductory sentence of 26R-319(c) to incorporate text currently found 
in subparts (ii) and (iii) of 26R-319(c). Specifically, the proposed 
rule change would incorporate from subpart (ii) language referring to 
the effective exercise of the Index Swaption and rights and obligations 
under 26-319(b). The proposed rule change also would incorporate from 
subpart (iii) language regarding the Relevant Index Swaption Untranched 
Terms Supplement.
    Subpart (i) of 26R-319(c) as currently written is intentionally 
omitted. The proposed rule change would not revise subpart (i).
    Under subpart (ii) as currently written, if an Index Swaption is 
effectively exercised, then in addition to the rights and obligations 
under 26R-319(b), a Contract constituting an Underlying New Trade for 
purposes of the Relevant Index Swaption Untranched Terms Supplement 
comes into effect between the exercising Swaption Buyer and ICC and an 
exactly offsetting Contract constituting an Underlying New Trade comes 
into effect between ICC and the assigned Swaption Seller. As mentioned 
above, the proposed rule change would move to the introductory clause 
of 26R-319(c) language currently found in subpart (ii), and therefore, 
the proposed rule change would delete this language from subpart (ii). 
The proposed rule change also would add a statement to subpart (ii) 
that it would be subject to a new subpart (v), as applicable (discussed 
below).
    Subpart (iii) as currently written applies to two situations. 
First, it applies when the Expiration Date occurs prior to the 
commencement of the CEN Triggering Period (as defined in the 
Restructuring Procedures) for Open Positions in single-name Contracts 
referencing the relevant Reference Entity. Second, it applies when the 
Expiration Date occurs on or following the commencement of the CEN 
Triggering Period for Open Positions in single-name Contracts 
referencing the relevant Reference Entity. The proposed rule change 
would split current subpart (iii) into a revised subpart (iii) and a 
new subpart (iv).
    Like the current subpart (iii), revised subpart (iii) would apply 
when the Expiration Date occurs prior to the commencement of the CEN 
Triggering Period (as defined in the Restructuring Procedures) for Open 
Positions in single-name Contracts referencing the relevant Reference 
Entity. Under subpart (iii) as revised, the Underlying New Trade 
described in subpart (ii) would be subject to the provisions of the CDS 
Restructuring Rules (and may become a Triggered Restructuring CDS 
Transaction thereunder) in the same manner as other Open Positions in 
single-name Contracts referencing the relevant Reference Entity. This 
would be the same as currently found in subpart (iii). Moreover, the 
proposed rule change would delete from subpart (iii) language regarding 
the Relevant Index Swaption Untranched Terms Supplement, which would be 
moved to the introductory sentence of 26R-319(c), as described above. 
The proposed rule change also would add a reference to the Existing 
Restructuring (a termed defined in the introductory sentence of 26R-
319(c)) and a reference to subpart (ii) of 26R-319(c).
    New subpart (iv) generally would apply to the second situation 
described in current subpart (iii)--when the Expiration Date occurs on 
or following the commencement of the CEN Triggering Period. The 
proposed rule change would specify further that subpart (iv) only 
applies when the Expiration Date occurs on or following the 
commencement of the CEN Triggering Period and prior to the Auction 
Settlement Date. Under new subpart (iv), with respect to the Underlying 
New Trade described in subpart (ii), neither party would be permitted 
to deliver an MP Notice in respect of the Existing Restructuring for 
such Underlying New Trade, such Underlying New Trade could not become a 
Triggered Restructuring CDS Transaction with respect to the Existing 
Restructuring, and no Event Determination Date or settlement would 
occur in respect of the Existing Restructuring for purposes of the 
Underlying New Trade. This language generally would be the same as 
currently found in subpart (iii).
    New subpart (v) would apply in the situation not covered by subpart 
(iii) or subpart (iv)--if the Expiration Date occurs on or following 
the Auction Settlement Date. In that situation, ICC would: (a) 
determine the extent to which positions in relevant single-name CDS 
contracts of the relevant tenor referencing the Reference Entity 
subject to the Existing Restructuring are settled based on CDS auctions 
for particular maturity categories and (b) determine, if applicable, a 
cash settlement amount payable from one party to the other with respect 
to the corresponding portion of the notional amount of the Index 
Swaption applicable to such Reference Entity, with such settlement to 
be based on the applicable final settlement prices under such auctions. 
Moreover, with respect to the remaining portion of such notional 
amount, an Underlying New Trade would come into effect, provided that 
neither party would be permitted to deliver an MP Notice in respect of 
the Existing Restructuring for such

[[Page 4071]]

Underlying New Trade, such Underlying New Trade could not become a 
Triggered Restructuring CDS Transaction with respect to the Existing 
Restructuring, and no Event Determination Date or settlement would 
occur in respect of the Existing Restructuring for purposes of the 
Underlying New Trade, as set forth in further detail in the ICC 
Exercise Procedures or other applicable ICC Procedures. Thus, this new 
subpart (v) would set out the framework for the blend of deliverables 
described above and would be applicable if the expiration date occurs 
on or following the Auction Settlement Date.

C. Revisions to the Exercise Procedures

    The Exercise Procedures supplement the provisions of Subchapter 26R 
of the Rules with respect to Index Swaptions. The proposed rule change 
would amend the Exercise Procedures in connection with amended 26R-319 
discussed above, as well as to incorporate a new defined term, 
``Minimum Intrinsic Value''.
    With respect to amended 26R-319, the proposed rule change would add 
a new paragraph 3 (Restructuring Settlement) to the Exercise 
Procedures. New paragraph 3 would apply in connection with 26R-
319(c)(v), discussed above. Under new paragraph 3.1, however, ICC could 
modify or supplement these provisions pursuant to an ICC Circular.
    New paragraph 3.3 (Settlement with respect to Existing 
Restructuring under Exercised Index Swaption) would describe how ICC 
would determine the amount of the cash settlement and the notional 
amount of the Underlying New Trade contemplated under new 26R-
319(c)(v). ICC would determine these amounts using the Triggered 
Portion and Untriggered Portion of the aggregate notional amount of 
Relevant CDS Transaction. New paragraph 3.2 (Determination of Settled 
Portions) would describe how ICC would determine such Triggered Portion 
and Untriggered Portion.
    With respect to the new defined term Minimum Intrinsic Value, the 
proposed rule change would define it as a minimum intrinsic value below 
which an Index Swaption position would not be identified as ``in the 
money'' for paragraph 2.2(e)(ii) or 2.8. ICC could establish a Minimum 
Intrinsic Value and/or permit an exercising party to specify a Minimum 
Intrinsic Value for its Index Swaptions for a relevant pre-exercise 
notification period or exercise period.
    The proposed rule change would incorporate this new term into the 
existing fallback provisions described in paragraphs 2.2(e)(ii) and 2.8 
of the Exercise Procedures. Specifically, ICC would take into account 
any applicable Minimum Intrinsic Value as part of its procedures for 
submitting preliminary exercise notices on behalf of the Exercising 
Party during the pre-exercise notification period (during which 
preliminary exercise notices can be submitted, modified, and/or 
withdrawn) in paragraph 2.2(e)(ii). ICC also would take into account 
any applicable Minimum Intrinsic Value in determining whether an Index 
Swaption is ``in the money'' for automatic exercise during an Exercise 
System Failure in paragraph 2.8.

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.\6\ For the reasons discussed below, the Commission finds 
that the proposed rule change is consistent with Section 17A(b)(3)(F) 
of the Act \7\ and Rule 17Ad-22(e)(1).\8\
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    \6\ 15 U.S.C. 78s(b)(2)(C).
    \7\ 15 U.S.C. 78q-1(b)(3)(F).
    \8\ 17 CFR 240.17Ad-22(e)(1).
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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.\9\
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    \9\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    As discussed above, the proposed rule change would revise Rule 26R-
319 and the Exercise Procedures to allow for a settlement consisting of 
the re-versioned underlying index and a blend of single name position 
and cash, similar to settlement in the bilateral market outside of the 
clearinghouse. The Commission believes that increasing consistency 
between cleared and non-cleared transactions should in general 
encourage market participants to clear transactions in Index Swaptions. 
The Commission therefore believes these changes would promote the 
prompt and accurate clearance and settlement of such transactions.
    Similarly, the Commission believes that amending the Exercise 
Procedures to incorporate the new defined term Minimum Intrinsic Value 
should encourage market participants to clear transactions in Index 
Swaptions. As discussed above, Minimum Intrinsic Value would be a value 
below which an Index Swaption position would not be identified as ``in 
the money,'' and therefore would not be exercised by ICC under 
paragraphs 2.2(e)(ii) and 2.8 of the Exercise Procedures. The 
Commission therefore believes that incorporating this new defined term 
could help establish a threshold below which ICC would not exercise 
Index Swaptions, thereby allowing Clearing Participants to better 
understand and anticipate when ICC would exercise their Index Swaption 
positions. The Commission believes that this change should in general 
encourage market participants to clear transactions in Index Swaptions, 
thereby promoting the prompt and accurate clearance and settlement of 
such transactions.
    Moreover, the Commission believes that both sets of changes would 
establish clear and predictable procedures for settlement and exercise 
of Index Swaptions by ICC, thereby promoting ICC's prompt and accurate 
clearance and settlement of such transactions. Specifically, the 
Commission believes the amendments to Rule 26R-319 and the Exercise 
Procedures would establish clear and effective procedures for ICC to 
use in effecting settlement with a re-versioned underlying index and a 
blend of single name position and cash. Similarly, the Commission 
believes that incorporating a Minimum Intrinsic Value below which ICC 
would not exercise Index Swaptions positions, in the circumstances 
contemplated by paragraphs 2.2(e)(ii) and 2.8 of the Exercise 
Procedures, would make ICC's exercise of Index Swaptions in such 
situations more predictable and reliable.
    Therefore, the Commission finds that the proposed rule change is 
consistent with Section 17A(b)(3)(F) of the Act.\10\
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    \10\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

B. Consistency With Rule 17Ad-22(e)(1) Under the Act

    Rule 17Ad-22(e)(1) requires that ICC establish, implement, 
maintain, and enforce written policies and procedures reasonably 
designed to provide for a well-founded, clear, transparent, and 
enforceable legal basis for each aspect of its activities in all 
relevant jurisdictions.\11\ As discussed above, the Commission believes 
that the amendments to Rule 26R-319 and the Exercise Procedures would 
establish

[[Page 4072]]

clear and effective procedures for ICC to use in effecting settlement 
with a re-versioned underlying index and a blend of single name 
position and cash, and therefore would provide a clear and transparent 
basis for ICC's settlement of Index Swaptions. Moreover, the Commission 
believes that incorporating Minimum Intrinsic Value into paragraphs 
2.2(e)(ii) and 2.8 of the Exercise Procedures would make ICC's exercise 
of Index Swaptions in such circumstances more predictable and reliable, 
and therefore well-founded and clear.
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    \11\ 17 CFR 240.17Ad-22(e)(1).
---------------------------------------------------------------------------

    Therefore, the Commission finds that the proposed rule change is 
consistent with Rule 17Ad-22(e)(1).\12\
---------------------------------------------------------------------------

    \12\ 17 CFR 240.17Ad-22(e)(1).
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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 \13\ and Rule 17Ad-22(e)(1).\14\
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    \13\ 15 U.S.C. 78q-1(b)(3)(F).
    \14\ 17 CFR 240.17Ad-22(e)(1).
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    It is therefore ordered pursuant to Section 19(b)(2) of the Act 
\15\ that the proposed rule change (SR-ICC-2021-023), be, and hereby 
is, approved.\16\
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    \15\ 15 U.S.C. 78s(b)(2).
    \16\ 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.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-01463 Filed 1-25-22; 8:45 am]
BILLING CODE 8011-01-P

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