Self-Regulatory Organizations; ICE Clear Credit LLC; Order Approving Proposed Rule Change Relating to the Clearing Rules, 55045-55048 [2022-19348]
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Federal Register / Vol. 87, No. 173 / Thursday, September 8, 2022 / Notices
(a) The equipment will be examined
at least weekly by a qualified person
according to 30 CFR 75.512–2.
Examination results will be recorded
weekly and may be expunged after 1
year.
(b) The petitioner will comply with 30
CFR 75.320.
(c) A qualified person under 30 CFR
75.151 will monitor for methane as is
required by the standard in the affected
area of the mine.
(d) When not in operation, batteries
for the PAPR will be charged on the
surface or underground in intake air and
in return air outby the last open
crosscut.
(e) The following battery charging
products will be used: PAF–0066, PAF–
1100.
(f) Qualified miners will receive
training regarding how to safely use,
care for, and inspect the PAPR, and on
the Decision and Order before using
equipment in the relevant part of the
mine.
(g) A record of the training will be
kept and available upon request.
The petitioner asserts that the
alternative method proposed will at all
times guarantee no less than the same
measure of protection afforded the
miners under the mandatory standard.
are available at www.prc.gov, Docket
Nos. MC2022–102, CP2022–106.
SECURITIES AND EXCHANGE
COMMISSION
Ruth Stevenson,
Chief Counsel, Ethics and Legal Compliance.
[Release No. 34–95654; File No. SR–ICC–
2022–012]
[FR Doc. 2022–19439 Filed 9–7–22; 8:45 am]
Self-Regulatory Organizations; ICE
Clear Credit LLC; Order Approving
Proposed Rule Change Relating to the
Clearing Rules
BILLING CODE 7710–12–P
September 1, 2022.
OFFICE OF SCIENCE AND
TECHNOLOGY POLICY
Request for Information; Identifying
Critical Needs To Inform a Federal
Decadal Strategic Plan for the
Interagency Council for Advancing
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Office of Science and
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AGENCY:
Notice of request for
information (RFI); correction.
ACTION:
Song-ae Aromie Noe,
Director, Office of Standards, Regulations,
and Variances.
The Office of Science and
Technology Policy (OSTP) and the
National Oceanic and Atmospheric
Administration (NOAA), on behalf of
the Interagency Council for Advancing
Meteorological Services (ICAMS),
published a document on August 19,
2022, concerning request for
information. The document contained
an incorrect email address for
comments.
[FR Doc. 2022–19363 Filed 9–7–22; 8:45 am]
FOR FURTHER INFORMATION CONTACT:
BILLING CODE 4520–43–P
Scott Weaver, 202–456–4444.
SUMMARY:
SUPPLEMENTARY INFORMATION:
POSTAL SERVICE
Correction
Product Change—Priority Mail
Negotiated Service Agreement
In the Federal Register on August 19,
2022, in FR Doc. 2022–17894, on page
51180, in the second column, correct
the FOR FURTHER INFORMATION CONTACT
section to correct the email address,
which should read as follows:
Postal ServiceTM.
Notice.
AGENCY:
ACTION:
The Postal Service gives
notice of filing a request with the Postal
Regulatory Commission to add a
domestic shipping services contract to
the list of Negotiated Service
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DATES: Date of required notice:
September 8, 2022.
FOR FURTHER INFORMATION CONTACT:
Sean Robinson, 202–268–8405.
SUPPLEMENTARY INFORMATION: The
United States Postal Service® hereby
gives notice that, pursuant to 39 U.S.C.
3642 and 3632(b)(3), on August 30,
2022, it filed with the Postal Regulatory
Commission a USPS Request to Add
Priority Mail Contract 759 to
Competitive Product List. Documents
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SUMMARY:
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For
additional information, please direct
questions to Scott Weaver at
icams.portal@noaa.gov or 202–456–
4444.
FOR FURTHER INFORMATION CONTACT:
Dated: August 29, 2022.
Stacy Murphy,
Operations Manager.
[FR Doc. 2022–18959 Filed 9–7–22; 8:45 am]
I. Introduction
On July 19, 2022, ICE Clear Credit
LLC (‘‘ICE Clear Credit’’ or ‘‘ICC’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (the ‘‘Act’’),1 and
Rule 19b–4 thereunder,2 a proposed rule
change to amend its Rules to permit it
to take advantage of certain settlement
finality protections under applicable
United Kingdom (‘‘UK’’) and European
Union (‘‘EU’’) law. The proposed rule
change was published for comment in
the Federal Register on July 29, 2022.3
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
The EU Settlement Finality Directive 4
introduced various insolvency-related
protections in relation to ‘‘designated
systems’’ used by EU participants to
transfer financial instruments and
payments, and participation in those
systems. The Settlement Finality
Directive aims to ensure that as a matter
of EU member state laws, transfer orders
which enter into such systems are
finally settled, regardless of whether the
sending participant has gone into an
insolvency process. Transfer orders for
this purpose include instructions to
make cash payments (including margin
payments) and instructions to transfer
securities (including as margin or in
physical settlement of a cleared
transaction, if applicable). Under the
Settlement Finality Directive, transfer
orders and related netting arrangements
are enforceable, even in the event of
insolvency proceedings against a
participant, provided that the transfer
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1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 Self-Regulatory Organizations; ICE Clear Credit
LLC; Notice of Filing of Proposed Rule Change
Relating to the Clearing Rules; Exchange Act
Release No. 95357 (July 25, 2022); 87 FR 45840
(July 29, 2022) (File No. SR–ICC–2022–012)
(‘‘Notice’’).
4 EU Directive 98/26/EC.
2 17
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order was entered into the system before
the opening of the insolvency
proceeding. Further, under the
Settlement Finality Directive, the right
of the operator of a designated system to
realize and apply collateral security
provided by a participant would not be
affected by insolvency proceedings
against the participant.
‘‘Designated systems’’ are defined as
formal arrangements, governed by the
law of an EU member state, between
three or more participants with common
rules and standard arrangements for
clearing or execution of transfer orders
between participants, and have been
designated as a system and notified to
the European Securities and Markets
Authority (‘‘ESMA’’). Although the
Settlement Finality Directive itself does
not establish an equivalent regime for
systems operated under the laws of a
non-EU member state (‘‘third-country
systems’’), such as United States (‘‘US’’)
clearing houses, Recital 7 of the
Settlement Finality Directive provides
that member states may choose to apply
the provisions of the Settlement Finality
Directive to their domestic institutions
that participate directly in third country
systems, and to collateral security
provided in connection with
participation in such systems. As a
result, in some EU member states it is
possible for a third country system such
as ICC to receive national designation or
be otherwise protected as a designated
system for the purposes of that member
state’s national law.
The UK has implemented similar
settlement finality regulations that
continue to apply following the
withdrawal of the UK from the EU, and
which are also potentially applicable to
UK institutions that participate in third
country systems (such as a US clearing
house).5
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B. Proposed Rule Change
The purpose of the proposed rule
changes is to modify certain of ICC’s
Rules to introduce explicit provisions
relating to the settlement finality of
transfer orders in order to permit ICC to
take advantage of certain protections for
default rights and remedies under
applicable Settlement Finality Laws.6
The proposed amendments are expected
to be principally relevant in the case of
an insolvency of an ICC Clearing
5 Financial Markets and Insolvency (Settlement
Finality) Regulations 1999. As used herein, the EU
Settlement Finality Directive, national
implementing legislation and the UK Settlement
Finality Regulations are collectively referred to as
‘‘Settlement Finality Laws.’’
6 The description that follows is substantially
excerpted from the Notice. Capitalized terms not
otherwise defined herein have the meanings
assigned to them in ICC’s Rules, as applicable.
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Participant domiciled in the UK or an
EU member state. The proposed
amendments would rely on certain
protections in such Settlement Finality
Laws and regulations that provide
additional support (on top of existing
protections in applicable law) for the
enforceability of the ICC’s default rights
and remedies under the Rules without
interference in such an insolvency.
Specifically, the amendments would
address which ‘‘transfer orders’’ arise in
ICC’s system, when they become
irrevocable, who is bound by them, and
when they terminate. ICC believes that
the amendments would facilitate
obtaining the relevant protections of the
Settlement Finality Laws, which would
principally be relevant in the case of an
insolvency of a Participant domiciled in
an EU member state or in the UK. The
amendments would not otherwise affect
ICC’s rights and obligations under the
Rules, including default rights and
remedies, and would not be expected to
be relevant to an insolvency proceeding
involving a Participant organized in the
US or otherwise outside of the EU or the
UK.
In the Rules, ICE Clear Credit would
adopt a new Chapter 10 addressing
Settlement Finality Laws. Rule 1000
would add a number of related
definitions, including definitions for
relevant legislation and regulations,
such as ‘‘EMIR,’’ ‘‘Financial Collateral
Directive,’’ ‘‘Financial Collateral
Regulations,’’ ‘‘FSMA,’’ ‘‘Settlement
Finality Directive,’’ ‘‘Settlement Finality
Regulations,’’ and ‘‘UK EMIR.’’ The rule
would also adopt key definitions
relating to the settlement finality
provisions, including ‘‘ICE Systems’’
(referencing ICE Clear Credit’s trade
registration, clearing processing and
finance systems), ‘‘SFD System’’
(referencing the third country system
operated by ICE Clear Credit for
purposes of the Settlement Finality
Laws), ‘‘Payment Transfer Order,’’
‘‘Securities Transfer Order’’ and
‘‘Transfer Order’’ (representing the types
of transfer orders used in the ICE system
and covered by the Settlement Finality
Laws), ‘‘SFD Participant’’ (referencing
ICE Clear Credit itself, its Participants
organized in the European Economic
Area (‘‘EEA’’) or in the UK, among
certain other relevant persons), ‘‘SFD
Custodian’’ (referencing a custodian
located in the EEA or the UK used by
ICE Clear Credit or a Participant for the
holding or transfer of Non-Cash
Collateral), ‘‘SFD Financial Institution’’
(referencing a financial institution
located in the EEA or UK used by ICE
Clear Credit or a Participant for purpose
of the deposit or transfer of cash), ‘‘SFD
Security’’ (referencing a security as
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defined in the Settlement Finality
Laws), ‘‘Indirect Participant’’
(referencing Non-Participant Parties that
fall within the definition of indirect
participant under the Settlement
Finality Laws), and ‘‘Non-Cash
Collateral’’ (referencing Margin or
Collateral in the form of a security).
New Rule 1001 would set out general
principles relevant to implementation of
the EU and UK settlement finality
arrangements. Subsection (a) would
provide that ICC is the operator of a
third country system for purposes of
relevant Settlement Finality Laws, and
that Chapter 10 of the Rules would
apply to ICE Clear Credit and SFD
Participants to the extent that the
Settlement Finality Laws are applicable
to such persons. Subsection (b) would
require SFD Participants to comply with
actions taken by ICC pursuant to
Chapter 10 and the relevant Settlement
Finality Laws, and to acknowledge that
the Settlement Finality Laws modify
certain otherwise applicable provisions
of insolvency laws. Subsection (c)
would provide that each SFD
Participant is on notice of the provisions
of Chapter 10, and by virtue of
participating in the SFD System, is
deemed to agree to the application of
Chapter 10 (including in the event of
any conflict with any other agreement or
obligation). Subsection (d) would
provide an additional acknowledgment
that Margin and Collateral transferred to
ICC under the Rules fall within certain
protections for collateral arrangements
under the Settlement Finality Laws.
New Rule 1002 would address the
timing and circumstances in which
various types of Transfer Orders would
arise for purposes of the ICC SFD
System, specifically Payment Transfer
Orders and Securities Transfer Orders in
various circumstances, including for
transfer of positions (‘‘Position Transfer
Orders’’), transfer of non-cash collateral
(‘‘Collateral Transfer Orders’’),
submission of new trades for clearing
(‘‘New Transaction Clearing Orders’’),
backloading trades for clearing
(‘‘Backloaded Transaction Clearing
Orders, and together with New
Transaction Clearing Orders,
‘‘Transaction Clearing Orders’’), and
physical settlement under cleared CDS
contracts (‘‘CDS Physical Settlement
Orders’’). The rule would also specify
the subject matter of each type of
Transfer Order (e.g., a payment in
respect of a Payment Transfer Order)
and the parties in respect of which each
type of Transfer Order would apply and
have effect (e.g., in the case of a
Payment Transfer Order, the affected
Participant (if it is an SFD Participant),
ICE Clear Credit, and any affected SFD
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Financial Institution). Rule 1002 would
also address the possibility of multiple
Transfer Orders existing in respect of
the same obligation (which may exist,
but would not result in the duplication
of any obligation), and the fact that
netting or close out of Contracts would
not affect the status of Transfer Orders.
The rule also states, consistent with the
general approach of the Rules, that
where a Transfer Order applies to an
Indirect Participant, it would not affect
the liability of any SFD Participant
pursuant to the same Transfer Order.
Rule 1003 would specify the time at
which each type of Transfer Order
(specifically, Payment Transfer Orders,
Position Transfer Orders, Collateral
Transfer Orders, Transaction Clearing
Orders, and CDS Physical Settlement
Orders) becomes irrevocable for
purposes of the relevant Settlement
Finality Laws. Payment Transfer Orders
would become irrevocable at the earlier
of the time payment is received or at the
time the relevant financial institution
used by ICC for this purpose sends a
SWIFT or other confirmation that
payment has been made. Collateral
Transfer Orders similarly would become
irrevocable at the earlier of the time the
transfer is received or a related
securities transfer order in a relevant
securities transfer system becomes
irrevocable. Position Transfer Orders
would become irrevocable at the time
the position transfer is recorded in the
ICC systems, and Transaction Clearing
Orders would become irrevocable at the
applicable Novation Time under the
Rules. CDS Physical Settlement Orders
would become irrevocable at the earliest
of (1) the time the Matched Delivery
Buyer has irrevocably instructed its
custodian to transfer the relevant
securities to the Matched Delivery
Seller, (2) the time the relevant
instrument is delivered or assigned, or
(3) the time notice is otherwise given
under the Rules that the Matched
Delivery Pair have settled the relevant
Matched Delivery Contracts. Under the
Rule, as from the time when the
Transfer Order becomes irrevocable, it
could not be revoked or purported to be
revoked by any SFD Participant or ICE
Clear Credit and would be binding on
all SFD Participants.
Rule 1004 would address variations or
cancellations of Transfers Orders prior
to the time they become irrevocable, in
specified circumstances. These
circumstances include, for any Transfer
Order, cases where the order is affected
by manifest or proven error or an error
agreed to by all affected SFD
Participants. Additional grounds for
variation or cancellation apply for
particular types of Transfer Order. In the
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case of a Payment Transfer Order or
Collateral Transfer Order, these would
include where the underlying Contract
is void or avoided under the Rules or
applicable law, or amended as a result
of ICC exercising its discretion under
the Rules. Transaction Clearing Orders
may be subject to variation or
cancellation where the underlying trade
is not eligible for clearing or otherwise
not accepted for clearing, and
Backloaded Transaction Clearing Orders
may be subject to variation or
cancellation if an error or omission is
noted to ICC prior to the Novation Time.
Similarly, variation or cancellation of a
CDS Physical Settlement Order may be
made if a NOPS Amendment Notice is
validly delivered under the Rules or ICE
Clear Credit Procedures. Under Rule
1004, in these circumstances, ICC would
be permitted to make appropriate
modifications to the relevant Transfer
Order, or in the alternative to cancel the
relevant Transfer Order. Rule 1004 also
would not preclude ICC from taking
steps to give rise to a new Transfer
Order with opposite effect to an existing
Transfer Order or part thereof. Rule
1004 also would provide for notice of
any modification or cancellation of a
Transfer Order to affected SFD
Participants.
Rule 1005 would specify the
circumstances under which Transfer
Orders are deemed satisfied.
Specifically, Payment Transfer Orders
are satisfied upon all required payments
being received in immediately available
funds or full satisfaction of the
underlying obligation is otherwise made
and recorded in ICC’s systems, free of
any encumbrances. Position Transfer
Orders would be deemed satisfied upon
becoming irrevocable (at which time the
relevant positions have been transferred
under the Rules). Collateral Transfer
Orders would be deemed satisfied upon
ICC or the Participant, as applicable,
receiving the Non-Cash Collateral in its
account or upon the definitive record of
the assets transferred by the Participant
being updated to reflect the successful
transfer of the relevant collateral.
Transaction Clearing Orders would be
deemed satisfied at the time the relevant
cleared contracts arise under the Rules.
A CDS Physical Settlement Order would
be deemed satisfied at the time ICC
updates its records to reflect that
physical delivery of the relevant
security has been completed or the
delivery obligations of the parties are
otherwise discharged or settled.
Rule 1006 would set out certain
acknowledgements of ICC, Participants,
and Non-Participant Parties with respect
to matters relating to Margin or
Collateral to the extent they fall to be
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55047
determined under the laws of an EEA
member state or the UK. The
amendments would clarify that such
arrangements are subject to the EU
Financial Collateral Directive or UK
Financial Collateral Regulations, as
applicable, and would provide that
Participants and Non-Participant Parties
would not dispute that characterization.
The amendments would further provide
that arrangements for the provision of
cash Margin and Collateral constitute
‘‘title transfer financial collateral
arrangements’’ and arrangements for the
provision of Pledged Items constitute
‘‘security financial collateral
arrangements,’’ in each case for
purposes of the EU Financial Collateral
Directive or UK Financial Collateral
Arrangements, that all such Margin and
Collateral constitute ‘‘financial
collateral’’ for purposes of such laws,
and that ICC has possession or control
of such Margin and Collateral for
purposes of such laws. The amendments
would also state that for purposes of UK
law, the security arrangements under
the Rules constitute a ‘‘market charge’’
for purposes of the Companies Act 1989,
which provides certain protections for
the enforceability of such arrangements
in the event of the insolvency of a
clearing participant.
ICC also proposes to make certain
amendments to Rule 611, which
currently addresses the treatment of
certain Rules under various insolvency
laws and other protections for the
enforceability of default remedies in the
event of the insolvency of a clearing
participant. The amendments would
add a new subsection (f), which would
provide that specified Rules providing
for default rights and remedies would
constitute default rules, procedures and
similar arrangements as defined for
purposes of relevant EU and UK law,
including EMIR, UK EMIR, and the
Settlement Finality Laws.
III. Discussion and Commission
Findings
Section 19(b)(2)(C) of the Act directs
the Commission to approve a proposed
rule change of a self-regulatory
organization if it finds that such
proposed rule change is consistent with
the requirements of the Act and the
rules and regulations thereunder
applicable to such organization.7 For the
reasons discussed below, the
Commission finds that the proposed
rule change is consistent with Section
7 15
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U.S.C. 78s(b)(2)(C).
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B. Consistency With Rule 17Ad–22(e)(1)
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17A(b)(3)(F) of the Act 8 and Rule
17Ad–22(e)(1) thereunder.9
A. Consistency With Section
17A(b)(3)(F) of the Act
Section 17A(b)(3)(F) of the Act
requires, among other things, that the
rules of a clearing agency be designed to
promote the prompt and accurate
clearance and settlement of securities
transactions and, to the extent
applicable, derivative agreements,
contracts, and transactions.10
As noted above, the proposed rule
changes would introduce provisions
that support the operation of the
settlement finality provisions of EU and
UK law. These provisions ensure that
transfer orders by a Clearing Participant
that is domiciled in an EU member state
or in the UK will be cleared even if that
Clearing Participant enters into
insolvency proceedings after the transfer
order was entered into the system. As
noted in more detail above, the
proposed rule change would accomplish
this by adopting key definitions relating
to the Settlement Finality Laws, set out
general principles relevant to
implementation of the EU and UK
settlement finality arrangements (such
as participant acknowledgement of the
applicability of the settlement finality
rules to margin and collateral), specify
timing that each transfer order becomes
irrevocable for purposes of the relevant
Settlement Finality Laws, circumstances
under which transfer orders are deemed
satisfied, and specify that Rules
providing for default rights and
remedies would constitute default rules,
procedures and similar arrangements as
defined for purposes of relevant EU and
UK law, including EMIR, UK EMIR, and
the Settlement Finality Laws.
The Commission believes that these
proposed rule changes, while not
changing any of the existing default
rights or remedies of ICC but rather by
adopting explicit provisions relating to
settlement finality of transfer orders of
Clearing Participants in insolvency, will
help support the payment and transfer
of margin and collateral and thus the
prompt and accurate clearance and
settlement of securities transactions by
ensuring that its rules facilitate explicit
reference and participant awareness and
acknowledgement of the applicability of
EU and UK Settlement Finality Laws.
For these reasons, the Commission
believes that the proposed rule change
is consistent with Section 17A(b)(3)(F)
of the Act.11
8 15
U.S.C. 78q–1(b)(3)(F).
CFR 240.17Ad–22(e)(1).
10 15 U.S.C. 78q–1(b)(3)(F).
11 15 U.S.C. 78q–1(b)(3)(F).
9 17
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Rule 17Ad–22(e)(1) requires that each
covered clearing agency establish,
implement, maintain and enforce
written policies and procedures
reasonably designed, as applicable, to
provide for a well-founded, clear,
transparent and enforceable legal basis
for each aspect of its activities in all
relevant jurisdictions.12
As noted above, ICC proposes to rely
on provisions of the Settlement Finality
Laws regulations that provide additional
support for the enforceability of the
ICC’s default rights and remedies. For
example, under the Settlement Finality
Directive, transfer orders and related
netting arrangements are enforceable,
even in the event of insolvency
proceedings against a participant. The
Commission believes that by proposing
to align key definitions and rules to the
Settlement Finality Laws as noted above
and by requiring relevant Clearing
Participants to comply with and
acknowledge the settlement finality
provisions, the proposed rule changes
would provide a well-founded and clear
legal basis for ICC to enforce its clearing
rules during an insolvency of a Clearing
Participant domiciled in the EU or the
UK.
For these reasons, the Commission
believes that the proposed rule changes
are consistent with Rule 17Ad–
22(e)(1).13
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 14 and
Rule 17Ad–22(e)(1) hereunder.15
It is therefore ordered pursuant to
Section 19(b)(2) of the Act 16 that the
proposed rule change (SR–ICC–2022–
012), be, and hereby is, approved.17
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.18
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022–19348 Filed 9–7–22; 8:45 am]
BILLING CODE 8011–01–P
12 17
CFR 240.17Ad–22(e)(1).
CFR 240.17Ad–22(e)(1).
14 15 U.S.C. 78q–1(b)(3)(F).
15 17 CFR 240.17Ad–22(e)(1).
16 15 U.S.C. 78s(b)(2).
17 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).
18 17 CFR 200.30–3(a)(12).
13 17
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–95670; File No. SR–OCC–
2022–803]
Self-Regulatory Organizations; The
Options Clearing Corporation; Notice
of No Objection to Advance Notice
Related to an Expansion of The
Options Clearing Corporation’s NonBank Liquidity Facility Program as Part
of Its Overall Liquidity Plan
September 2, 2022.
I. Introduction
On July 7, 2022, the Options Clearing
Corporation (‘‘OCC’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) advance notice SR–
OCC–2022–803 (‘‘Advance Notice’’)
pursuant to Section 806(e)(1) of Title
VIII of the Dodd-Frank Wall Street
Reform and Consumer Protection Act,
entitled Payment, Clearing and
Settlement Supervision Act of 2010
(‘‘Clearing Supervision Act’’) 1 and Rule
19b–4(n)(1)(i) 2 under the Securities
Exchange Act of 1934 (‘‘Exchange
Act’’) 3 in connection with a proposed
change to its operations to expand
capacity under OCC’s program for
accessing additional committed sources
of liquidity that do not increase the
concentration of OCC’s counterparty
exposure (‘‘Non-Bank Liquidity
Facility’’) as part of OCC’s overall
liquidity plan.4 The Advance Notice
was published for public comment in
the Federal Register on July 26, 2022.5
The Commission has received
comments regarding the changes
proposed in the Advance Notice.6 The
Commission is hereby providing notice
of no objection to the Advance Notice.
II. Background 7
As the sole clearing agency for
standardized U.S. securities options
listed on national securities exchanges
registered with the Commission (‘‘listed
options’’), OCC is obligated to make
certain payments. In the event of a
Clearing Member default, OCC would be
obligated to make payments, on time,
1 12
U.S.C. 5465(e)(1).
CFR 240.19b–4(n)(1)(i).
3 15 U.S.C. 78a et seq.
4 See Notice of Filing, infra note 5, at 87 FR
44477.
5 See Exchange Act Release No. 95327 (Jul. 20,
2022), 87 FR 44477 (Jul. 26, 2022) (File No. SR–
OCC–2022–803) (‘‘Notice of Filing’’).
6 Comments on the Advance Notice are available
at https://www.sec.gov/comments/sr-occ-2022-803/
srocc2022803.htm.
7 Capitalized terms used but not defined herein
have the meanings specified in OCC’s Rules and ByLaws, available at https://www.theocc.com/about/
publications/bylaws.jsp.
2 17
E:\FR\FM\08SEN1.SGM
08SEN1
]]>Agencies
[Federal Register Volume 87, Number 173 (Thursday, September 8, 2022)]
[Notices]
[Pages 55045-55048]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-19348]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95654; File No. SR-ICC-2022-012]
Self-Regulatory Organizations; ICE Clear Credit LLC; Order
Approving Proposed Rule Change Relating to the Clearing Rules
September 1, 2022.
I. Introduction
On July 19, 2022, ICE Clear Credit LLC (``ICE Clear Credit'' or
``ICC'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to amend its Rules to permit it to take advantage
of certain settlement finality protections under applicable United
Kingdom (``UK'') and European Union (``EU'') law. The proposed rule
change was published for comment in the Federal Register on July 29,
2022.\3\ 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\ Self-Regulatory Organizations; ICE Clear Credit LLC; Notice
of Filing of Proposed Rule Change Relating to the Clearing Rules;
Exchange Act Release No. 95357 (July 25, 2022); 87 FR 45840 (July
29, 2022) (File No. SR-ICC-2022-012) (``Notice'').
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II. Description of the Proposed Rule Change
A. Background
The EU Settlement Finality Directive \4\ introduced various
insolvency-related protections in relation to ``designated systems''
used by EU participants to transfer financial instruments and payments,
and participation in those systems. The Settlement Finality Directive
aims to ensure that as a matter of EU member state laws, transfer
orders which enter into such systems are finally settled, regardless of
whether the sending participant has gone into an insolvency process.
Transfer orders for this purpose include instructions to make cash
payments (including margin payments) and instructions to transfer
securities (including as margin or in physical settlement of a cleared
transaction, if applicable). Under the Settlement Finality Directive,
transfer orders and related netting arrangements are enforceable, even
in the event of insolvency proceedings against a participant, provided
that the transfer
[[Page 55046]]
order was entered into the system before the opening of the insolvency
proceeding. Further, under the Settlement Finality Directive, the right
of the operator of a designated system to realize and apply collateral
security provided by a participant would not be affected by insolvency
proceedings against the participant.
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\4\ EU Directive 98/26/EC.
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``Designated systems'' are defined as formal arrangements, governed
by the law of an EU member state, between three or more participants
with common rules and standard arrangements for clearing or execution
of transfer orders between participants, and have been designated as a
system and notified to the European Securities and Markets Authority
(``ESMA''). Although the Settlement Finality Directive itself does not
establish an equivalent regime for systems operated under the laws of a
non-EU member state (``third-country systems''), such as United States
(``US'') clearing houses, Recital 7 of the Settlement Finality
Directive provides that member states may choose to apply the
provisions of the Settlement Finality Directive to their domestic
institutions that participate directly in third country systems, and to
collateral security provided in connection with participation in such
systems. As a result, in some EU member states it is possible for a
third country system such as ICC to receive national designation or be
otherwise protected as a designated system for the purposes of that
member state's national law.
The UK has implemented similar settlement finality regulations that
continue to apply following the withdrawal of the UK from the EU, and
which are also potentially applicable to UK institutions that
participate in third country systems (such as a US clearing house).\5\
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\5\ Financial Markets and Insolvency (Settlement Finality)
Regulations 1999. As used herein, the EU Settlement Finality
Directive, national implementing legislation and the UK Settlement
Finality Regulations are collectively referred to as ``Settlement
Finality Laws.''
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B. Proposed Rule Change
The purpose of the proposed rule changes is to modify certain of
ICC's Rules to introduce explicit provisions relating to the settlement
finality of transfer orders in order to permit ICC to take advantage of
certain protections for default rights and remedies under applicable
Settlement Finality Laws.\6\ The proposed amendments are expected to be
principally relevant in the case of an insolvency of an ICC Clearing
Participant domiciled in the UK or an EU member state. The proposed
amendments would rely on certain protections in such Settlement
Finality Laws and regulations that provide additional support (on top
of existing protections in applicable law) for the enforceability of
the ICC's default rights and remedies under the Rules without
interference in such an insolvency.
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\6\ The description that follows is substantially excerpted from
the Notice. Capitalized terms not otherwise defined herein have the
meanings assigned to them in ICC's Rules, as applicable.
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Specifically, the amendments would address which ``transfer
orders'' arise in ICC's system, when they become irrevocable, who is
bound by them, and when they terminate. ICC believes that the
amendments would facilitate obtaining the relevant protections of the
Settlement Finality Laws, which would principally be relevant in the
case of an insolvency of a Participant domiciled in an EU member state
or in the UK. The amendments would not otherwise affect ICC's rights
and obligations under the Rules, including default rights and remedies,
and would not be expected to be relevant to an insolvency proceeding
involving a Participant organized in the US or otherwise outside of the
EU or the UK.
In the Rules, ICE Clear Credit would adopt a new Chapter 10
addressing Settlement Finality Laws. Rule 1000 would add a number of
related definitions, including definitions for relevant legislation and
regulations, such as ``EMIR,'' ``Financial Collateral Directive,''
``Financial Collateral Regulations,'' ``FSMA,'' ``Settlement Finality
Directive,'' ``Settlement Finality Regulations,'' and ``UK EMIR.'' The
rule would also adopt key definitions relating to the settlement
finality provisions, including ``ICE Systems'' (referencing ICE Clear
Credit's trade registration, clearing processing and finance systems),
``SFD System'' (referencing the third country system operated by ICE
Clear Credit for purposes of the Settlement Finality Laws), ``Payment
Transfer Order,'' ``Securities Transfer Order'' and ``Transfer Order''
(representing the types of transfer orders used in the ICE system and
covered by the Settlement Finality Laws), ``SFD Participant''
(referencing ICE Clear Credit itself, its Participants organized in the
European Economic Area (``EEA'') or in the UK, among certain other
relevant persons), ``SFD Custodian'' (referencing a custodian located
in the EEA or the UK used by ICE Clear Credit or a Participant for the
holding or transfer of Non-Cash Collateral), ``SFD Financial
Institution'' (referencing a financial institution located in the EEA
or UK used by ICE Clear Credit or a Participant for purpose of the
deposit or transfer of cash), ``SFD Security'' (referencing a security
as defined in the Settlement Finality Laws), ``Indirect Participant''
(referencing Non-Participant Parties that fall within the definition of
indirect participant under the Settlement Finality Laws), and ``Non-
Cash Collateral'' (referencing Margin or Collateral in the form of a
security).
New Rule 1001 would set out general principles relevant to
implementation of the EU and UK settlement finality arrangements.
Subsection (a) would provide that ICC is the operator of a third
country system for purposes of relevant Settlement Finality Laws, and
that Chapter 10 of the Rules would apply to ICE Clear Credit and SFD
Participants to the extent that the Settlement Finality Laws are
applicable to such persons. Subsection (b) would require SFD
Participants to comply with actions taken by ICC pursuant to Chapter 10
and the relevant Settlement Finality Laws, and to acknowledge that the
Settlement Finality Laws modify certain otherwise applicable provisions
of insolvency laws. Subsection (c) would provide that each SFD
Participant is on notice of the provisions of Chapter 10, and by virtue
of participating in the SFD System, is deemed to agree to the
application of Chapter 10 (including in the event of any conflict with
any other agreement or obligation). Subsection (d) would provide an
additional acknowledgment that Margin and Collateral transferred to ICC
under the Rules fall within certain protections for collateral
arrangements under the Settlement Finality Laws.
New Rule 1002 would address the timing and circumstances in which
various types of Transfer Orders would arise for purposes of the ICC
SFD System, specifically Payment Transfer Orders and Securities
Transfer Orders in various circumstances, including for transfer of
positions (``Position Transfer Orders''), transfer of non-cash
collateral (``Collateral Transfer Orders''), submission of new trades
for clearing (``New Transaction Clearing Orders''), backloading trades
for clearing (``Backloaded Transaction Clearing Orders, and together
with New Transaction Clearing Orders, ``Transaction Clearing Orders''),
and physical settlement under cleared CDS contracts (``CDS Physical
Settlement Orders''). The rule would also specify the subject matter of
each type of Transfer Order (e.g., a payment in respect of a Payment
Transfer Order) and the parties in respect of which each type of
Transfer Order would apply and have effect (e.g., in the case of a
Payment Transfer Order, the affected Participant (if it is an SFD
Participant), ICE Clear Credit, and any affected SFD
[[Page 55047]]
Financial Institution). Rule 1002 would also address the possibility of
multiple Transfer Orders existing in respect of the same obligation
(which may exist, but would not result in the duplication of any
obligation), and the fact that netting or close out of Contracts would
not affect the status of Transfer Orders. The rule also states,
consistent with the general approach of the Rules, that where a
Transfer Order applies to an Indirect Participant, it would not affect
the liability of any SFD Participant pursuant to the same Transfer
Order.
Rule 1003 would specify the time at which each type of Transfer
Order (specifically, Payment Transfer Orders, Position Transfer Orders,
Collateral Transfer Orders, Transaction Clearing Orders, and CDS
Physical Settlement Orders) becomes irrevocable for purposes of the
relevant Settlement Finality Laws. Payment Transfer Orders would become
irrevocable at the earlier of the time payment is received or at the
time the relevant financial institution used by ICC for this purpose
sends a SWIFT or other confirmation that payment has been made.
Collateral Transfer Orders similarly would become irrevocable at the
earlier of the time the transfer is received or a related securities
transfer order in a relevant securities transfer system becomes
irrevocable. Position Transfer Orders would become irrevocable at the
time the position transfer is recorded in the ICC systems, and
Transaction Clearing Orders would become irrevocable at the applicable
Novation Time under the Rules. CDS Physical Settlement Orders would
become irrevocable at the earliest of (1) the time the Matched Delivery
Buyer has irrevocably instructed its custodian to transfer the relevant
securities to the Matched Delivery Seller, (2) the time the relevant
instrument is delivered or assigned, or (3) the time notice is
otherwise given under the Rules that the Matched Delivery Pair have
settled the relevant Matched Delivery Contracts. Under the Rule, as
from the time when the Transfer Order becomes irrevocable, it could not
be revoked or purported to be revoked by any SFD Participant or ICE
Clear Credit and would be binding on all SFD Participants.
Rule 1004 would address variations or cancellations of Transfers
Orders prior to the time they become irrevocable, in specified
circumstances. These circumstances include, for any Transfer Order,
cases where the order is affected by manifest or proven error or an
error agreed to by all affected SFD Participants. Additional grounds
for variation or cancellation apply for particular types of Transfer
Order. In the case of a Payment Transfer Order or Collateral Transfer
Order, these would include where the underlying Contract is void or
avoided under the Rules or applicable law, or amended as a result of
ICC exercising its discretion under the Rules. Transaction Clearing
Orders may be subject to variation or cancellation where the underlying
trade is not eligible for clearing or otherwise not accepted for
clearing, and Backloaded Transaction Clearing Orders may be subject to
variation or cancellation if an error or omission is noted to ICC prior
to the Novation Time. Similarly, variation or cancellation of a CDS
Physical Settlement Order may be made if a NOPS Amendment Notice is
validly delivered under the Rules or ICE Clear Credit Procedures. Under
Rule 1004, in these circumstances, ICC would be permitted to make
appropriate modifications to the relevant Transfer Order, or in the
alternative to cancel the relevant Transfer Order. Rule 1004 also would
not preclude ICC from taking steps to give rise to a new Transfer Order
with opposite effect to an existing Transfer Order or part thereof.
Rule 1004 also would provide for notice of any modification or
cancellation of a Transfer Order to affected SFD Participants.
Rule 1005 would specify the circumstances under which Transfer
Orders are deemed satisfied. Specifically, Payment Transfer Orders are
satisfied upon all required payments being received in immediately
available funds or full satisfaction of the underlying obligation is
otherwise made and recorded in ICC's systems, free of any encumbrances.
Position Transfer Orders would be deemed satisfied upon becoming
irrevocable (at which time the relevant positions have been transferred
under the Rules). Collateral Transfer Orders would be deemed satisfied
upon ICC or the Participant, as applicable, receiving the Non-Cash
Collateral in its account or upon the definitive record of the assets
transferred by the Participant being updated to reflect the successful
transfer of the relevant collateral. Transaction Clearing Orders would
be deemed satisfied at the time the relevant cleared contracts arise
under the Rules. A CDS Physical Settlement Order would be deemed
satisfied at the time ICC updates its records to reflect that physical
delivery of the relevant security has been completed or the delivery
obligations of the parties are otherwise discharged or settled.
Rule 1006 would set out certain acknowledgements of ICC,
Participants, and Non-Participant Parties with respect to matters
relating to Margin or Collateral to the extent they fall to be
determined under the laws of an EEA member state or the UK. The
amendments would clarify that such arrangements are subject to the EU
Financial Collateral Directive or UK Financial Collateral Regulations,
as applicable, and would provide that Participants and Non-Participant
Parties would not dispute that characterization. The amendments would
further provide that arrangements for the provision of cash Margin and
Collateral constitute ``title transfer financial collateral
arrangements'' and arrangements for the provision of Pledged Items
constitute ``security financial collateral arrangements,'' in each case
for purposes of the EU Financial Collateral Directive or UK Financial
Collateral Arrangements, that all such Margin and Collateral constitute
``financial collateral'' for purposes of such laws, and that ICC has
possession or control of such Margin and Collateral for purposes of
such laws. The amendments would also state that for purposes of UK law,
the security arrangements under the Rules constitute a ``market
charge'' for purposes of the Companies Act 1989, which provides certain
protections for the enforceability of such arrangements in the event of
the insolvency of a clearing participant.
ICC also proposes to make certain amendments to Rule 611, which
currently addresses the treatment of certain Rules under various
insolvency laws and other protections for the enforceability of default
remedies in the event of the insolvency of a clearing participant. The
amendments would add a new subsection (f), which would provide that
specified Rules providing for default rights and remedies would
constitute default rules, procedures and similar arrangements as
defined for purposes of relevant EU and UK law, including EMIR, UK
EMIR, and the Settlement Finality Laws.
III. Discussion and Commission Findings
Section 19(b)(2)(C) of the Act directs the Commission to approve a
proposed rule change of a self-regulatory organization if it finds that
such proposed rule change is consistent with the requirements of the
Act and the rules and regulations thereunder applicable to such
organization.\7\ For the reasons discussed below, the Commission finds
that the proposed rule change is consistent with Section
[[Page 55048]]
17A(b)(3)(F) of the Act \8\ and Rule 17Ad-22(e)(1) thereunder.\9\
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\7\ 15 U.S.C. 78s(b)(2)(C).
\8\ 15 U.S.C. 78q-1(b)(3)(F).
\9\ 17 CFR 240.17Ad-22(e)(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 a clearing agency be designed to promote the prompt and
accurate clearance and settlement of securities transactions and, to
the extent applicable, derivative agreements, contracts, and
transactions.\10\
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\10\ 15 U.S.C. 78q-1(b)(3)(F).
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As noted above, the proposed rule changes would introduce
provisions that support the operation of the settlement finality
provisions of EU and UK law. These provisions ensure that transfer
orders by a Clearing Participant that is domiciled in an EU member
state or in the UK will be cleared even if that Clearing Participant
enters into insolvency proceedings after the transfer order was entered
into the system. As noted in more detail above, the proposed rule
change would accomplish this by adopting key definitions relating to
the Settlement Finality Laws, set out general principles relevant to
implementation of the EU and UK settlement finality arrangements (such
as participant acknowledgement of the applicability of the settlement
finality rules to margin and collateral), specify timing that each
transfer order becomes irrevocable for purposes of the relevant
Settlement Finality Laws, circumstances under which transfer orders are
deemed satisfied, and specify that Rules providing for default rights
and remedies would constitute default rules, procedures and similar
arrangements as defined for purposes of relevant EU and UK law,
including EMIR, UK EMIR, and the Settlement Finality Laws.
The Commission believes that these proposed rule changes, while not
changing any of the existing default rights or remedies of ICC but
rather by adopting explicit provisions relating to settlement finality
of transfer orders of Clearing Participants in insolvency, will help
support the payment and transfer of margin and collateral and thus the
prompt and accurate clearance and settlement of securities transactions
by ensuring that its rules facilitate explicit reference and
participant awareness and acknowledgement of the applicability of EU
and UK Settlement Finality Laws.
For these reasons, the Commission believes that the proposed rule
change is consistent with Section 17A(b)(3)(F) of the Act.\11\
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\11\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rule 17Ad-22(e)(1)
Rule 17Ad-22(e)(1) requires that each covered clearing agency
establish, implement, maintain and enforce written policies and
procedures reasonably designed, as applicable, to provide for a well-
founded, clear, transparent and enforceable legal basis for each aspect
of its activities in all relevant jurisdictions.\12\
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\12\ 17 CFR 240.17Ad-22(e)(1).
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As noted above, ICC proposes to rely on provisions of the
Settlement Finality Laws regulations that provide additional support
for the enforceability of the ICC's default rights and remedies. For
example, under the Settlement Finality Directive, transfer orders and
related netting arrangements are enforceable, even in the event of
insolvency proceedings against a participant. The Commission believes
that by proposing to align key definitions and rules to the Settlement
Finality Laws as noted above and by requiring relevant Clearing
Participants to comply with and acknowledge the settlement finality
provisions, the proposed rule changes would provide a well-founded and
clear legal basis for ICC to enforce its clearing rules during an
insolvency of a Clearing Participant domiciled in the EU or the UK.
For these reasons, the Commission believes that the proposed rule
changes are consistent with Rule 17Ad-22(e)(1).\13\
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\13\ 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 \14\ and Rule 17Ad-22(e)(1) hereunder.\15\
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\14\ 15 U.S.C. 78q-1(b)(3)(F).
\15\ 17 CFR 240.17Ad-22(e)(1).
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It is therefore ordered pursuant to Section 19(b)(2) of the Act
\16\ that the proposed rule change (SR-ICC-2022-012), be, and hereby
is, approved.\17\
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\16\ 15 U.S.C. 78s(b)(2).
\17\ 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.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-19348 Filed 9-7-22; 8:45 am]
BILLING CODE 8011-01-P
