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]
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Federal Register / Vol. 87, No. 17 / Wednesday, January 26, 2022 / Notices
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You should submit only information
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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
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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).
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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.
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17:34 Jan 25, 2022
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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
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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
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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
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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
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10 15
11 17
E:\FR\FM\26JAN1.SGM
U.S.C. 78q–1(b)(3)(F).
CFR 240.17Ad–22(e)(1).
26JAN1
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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
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17:34 Jan 25, 2022
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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
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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
[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.
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\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).
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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).
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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).
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Therefore, the Commission finds that the proposed rule change is
consistent with Rule 17Ad-22(e)(1).\12\
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\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
