Self-Regulatory Organizations; ICE Clear Credit LLC; Order Approving Proposed Rule Change Relating to ICC's Treasury Operations Policies and Procedures, 68211-68214 [2023-21796]
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Federal Register / Vol. 88, No. 190 / Tuesday, October 3, 2023 / Notices
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of the
Exchange. Do not include personal
identifiable information in submissions;
you should submit only information
that you wish to make available
publicly. We may redact in part or
withhold entirely from publication
submitted material that is obscene or
subject to copyright protection. All
submissions should refer to file number
SR–NYSEARCA–2023–58 and should be
submitted on or before October 24,
2023.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.91
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–21789 Filed 10–2–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–98559; File No. SR–OCC–
2023–003]
Securities Exchange Act of 1934
(‘‘Exchange Act’’) 1 and Rule 19b–4 2
thereunder to amend certain provisions
in OCC’s Rules relating to each Clearing
Member’s obligation to address a
’’Security Incident’’ (i.e., the occurrence
of a cyber-related disruption or
intrusion) of that Clearing Member.3
The proposed rule change was
published for public comment in the
Federal Register on April 5, 2023.4 The
Commission has received comments
regarding the proposed rule change.5
On May 18, 2023, pursuant to Section
19(b)(2) of the Exchange Act,6 the
Commission designated a longer period
within which to approve, disapprove, or
institute proceedings to determine
whether to approve or disapprove the
proposed rule change.7 On May 24,
2023, OCC filed Partial Amendment No.
1 to the proposed rule change.8 On July
3, 2023, the Commission instituted
proceedings, pursuant to Section
19(b)(2)(B) of the Exchange Act,9 to
determine whether to approve or
disapprove the Proposed Rule Change,
as modified by Partial Amendment No.
1 (hereinafter defined as ‘‘Proposed Rule
Change’’).10
Section 19(b)(2) of the Exchange
Act 11 provides that proceedings to
determine whether to approve or
disapprove a proposed rule change must
be concluded within 180 days of the
date of publication of notice of filing of
the proposed rule change. The time for
conclusion of the proceedings may be
extended for up to 60 days if the
Commission determines that a longer
period is appropriate and publishes the
reasons for such determination.12 The
180th day after publication of the Notice
in the Federal Register is October 2,
2023.
The Commission is extending the
period for Commission action on the
Proposed Rule Change. The Commission
1 15
ddrumheller on DSK120RN23PROD with NOTICES1
Self-Regulatory Organizations;
Options Clearing Corporation; Notice
of Designation of Longer Period for
Commission Action on Proceedings To
Determine Whether To Approve or
Disapprove a Proposed Rule Change,
as Modified by Partial Amendment No.
1, Concerning Clearing Member
Cybersecurity Obligations
September 27, 2023.
On March 21, 2023, the Options
Clearing Corporation (‘‘OCC’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change SR–OCC–2023–
003 pursuant to Section 19(b) of the
91 17
CFR 200.30–3(a)(12).
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Notice of Filing infra note 4, at 88 FR at
20195.
4 Securities Exchange Act Release No. 97225
(Mar. 30, 2023), 88 FR 20195 (Apr. 5, 2023) (File
No. SR–OCC–2023–003) (‘‘Notice of Filing’’).
5 Comments on the proposed rule change are
available at https://www.sec.gov/comments/sr-occ2023-003/srocc2023003.htm.
6 15 U.S.C. 78s(b)(2).
7 Securities Exchange Act Release No. 97525 (May
18, 2023), 88 FR 33655 (May 24, 2023) (File No. SR–
OCC–2023–003).
8 Securities Exchange Act Release No. 97602 (May
26, 2023), 88 FR 36351 (Jun. 2, 2023) (File No. SR–
OCC–2023–003) (‘‘Partial Amendment No. 1’’).
9 15 U.S.C. 78s(b)(2)(B).
10 Securities Exchange Act Release No. 97832
(July 3, 2023), 88 FR 43640 (July 10, 2023) (File No.
SR–OCC–2023–003).
11 15 U.S.C. 78s(b)(2).
12 15 U.S.C 78s(b)(2)(B)(ii)(II).
2 17
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finds that it is appropriate to designate
a longer period within which to take
action on the Proposed Rule Change so
that the Commission has sufficient time
to consider the issues raised by the
Proposed Rule Change and to take
action on the Proposed Rule Change.
Accordingly, pursuant to Section
19(b)(2)(B)(ii)(II) of the Exchange Act,13
the Commission designates December 1,
2023, as the date by which the
Commission should either approve or
disapprove the Proposed Rule Change
SR–OCC–2023–003.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.14
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–21784 Filed 10–2–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–98572; File No. SR–ICC–
2023–013]
Self-Regulatory Organizations; ICE
Clear Credit LLC; Order Approving
Proposed Rule Change Relating to
ICC’s Treasury Operations Policies
and Procedures
September 27, 2023.
I. Introduction
On August 15, 2023, 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 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
revise the ICC Treasury Operations
Policies and Procedures (‘‘Treasury
Policy’’). The proposed rule change was
published for comment in the Federal
Register on August 28, 2023.3 The
Commission has not received any
comments on the proposed rule change.
For the reasons discussed below, the
Commission is approving the proposed
rule change.
II. Description of the Proposed Rule
Change
ICC is registered with the Commission
as a clearing agency for the purpose of
13 Id.
14 17
CFR 200.30–3(a)(57).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Securities Exchange Act Release No. 98200
(Aug. 22, 2023), 88 FR 58628 (Aug. 28, 2023) (File
No. SR–ICC–2023–013) (‘‘Notice’’).
1 15
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Federal Register / Vol. 88, No. 190 / Tuesday, October 3, 2023 / Notices
clearing CDS contracts.4 ICC requires
that its Clearing Participants post
margin to collateralize their credit
exposure to ICC, based on the size and
risk of their cleared positions. On a
daily basis, ICC determines margin
requirements (i) for a Clearing
Participant’s own cleared positions
(referred to as ‘‘house’’ positions) and
(ii) for the cleared positions of its
clients. ICC also requires that Clearing
Participants contribute to its Guaranty
Fund.
ICC’s Treasury Department is
responsible for daily cash and collateral
management of margin and Guaranty
Fund assets, including Client-Related
Initial Margin assets.5 The Treasury
Policy contains policies and procedures
that aid the ICC Treasury Department in
carrying out these responsibilities.6
Aside from non-substantive,
typographical changes (for example, the
addition of quotation marks around the
word ‘‘haircuts’’), ICC proposes to make
two categories of changes to the
Treasury Policy. First, ICC proposes
clarifications and changes to the way it
values the collateral that Clearing
Participants provide to ICC to cover
their margin and Guaranty Fund
requirements. Second, ICC proposes
adding a new section to its Treasury
Policy addressing circumstances under
which it would use a foreign exchange
facility to convert one currency to
another.
1. ICC’s Collateral Valuation
In valuing collateral, ICC’s currently
effective Treasury Policy aims to
accurately and effectively price assets
posted as collateral and haircut those
assets for their native market risks 7 and
related cross-currency risks.8 The
proposed rule change would not change
these overall aims, but ICC notes that it
would clarify and simplify some
already-existing procedures which
achieve these aims.9 It would also
change the haircut process for Great
British Pounds posted as Client-Related
Initial Margin to cover a Eurodenominated product requirement.
ddrumheller on DSK120RN23PROD with NOTICES1
Current Valuation Process
ICC’s valuation process depends on
the type of collateral. Currently, ICC
4 Capitalized terms not otherwise defined herein
have the meanings assigned to them in ICC’s
Clearing Rules or the Treasury Policy, as applicable.
5 Notice, 88 FR at 58628.
6 Id.
7 ICC defines native market risk as the risk of a
decrease in value of the asset posted as collateral.
Id.
8 ICC defines cross-currency risk as the risk of the
change in value of one currency as compared to the
value of another currency. Id.
9 Notice, 88 FR at 58628.
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accepts US Treasuries, US Dollars
(‘‘USD’’), Euros, and for client-related
margin only, Great British Pounds
(‘‘GBP’’). Moreover, ICC currently clears
products denominated in USD and in
Euros.
With respect to US Treasuries
covering a USD-denominated product
requirement, the currently effective
Treasury Policy provides that ICC
calculates the cover value as follows:
accrued interest plus mid-price
multiplied by principal less applicable
haircut established by the ICC Risk
Department.10 For US Treasuries or
USD covering a Euro-denominated
product requirement, ICC haircuts the
USD value at the currency haircut for
Euros (after first converting the US
Treasuries to USD).
With respect to Euro covering a Eurodenominated product requirement,
there is no haircut. With respect to Euro
covering a USD-denominated product
requirement, ICC first converts the Euro
to the USD value and then haircuts the
USD value at the Euro currency haircut
established by the ICC Risk Department.
With respect to GBP covering a USDdenominated product requirement, ICC
first converts the GBP to the USD value
and then haircuts the USD value at the
GBP currency haircut established by the
ICC Risk Department. With respect to
GBP covering a Euro-denominated
product requirement, ICC first converts
the GBP to the USD value and then
haircuts the USD value at the GBP
currency haircut established by the ICC
Risk Department. ICC then converts the
Euro-denominated product requirement
to the USD value, and ICC then grosses
up the resulting USD requirement by the
Euro currency haircut.
Amended Valuation Process
The proposed rule change would
delete much of the currency-specific
language and replace it with general
principles that would apply to any
currency ICC accepts. In doing so, the
proposed rule change would not alter
the substance of the current process,
except with respect to the valuation of
GBP in certain circumstances, as
discussed below.
The proposed rule change would
delete the language described above
related to collateral posted in the
currency of the obligation, and replace
10 ICC’s Risk Department calculates haircuts on an
on-going basis. ICE Clear Credit LLC Treasury
Operations Policies and Procedures. ICC describes
the qualitative manner in which it derives its
collateral haircuts in its Collateral Risk
Management Framework. Securities Exchange Act
Release No. 96557 (Dec. 21, 2022), 87 FR 79922
(Dec. 28, 2022) (File No. SR–ICC–2022–013)
(‘‘Order’’).
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it with general language stating that
posted cash collateral used to cover a
specific currency obligation in the
currency of the posted collateral is not
subject to a haircut. Language related to
collateral posted in a currency other
than the currency of the obligation
would also be deleted. In its place, the
proposed rule change would add
language stating that posted cash
collateral used to cover a specific
currency obligation is first converted to
its value expressed in the currency of
the obligation, and further haircut to
capture the potential foreign exchange
risk between the posted cash collateral
and the currency of the obligation.
With respect to U.S. Treasuries, the
proposed rule change would maintain
the current language regarding cover
value. As under the current Treasury
Policy, ICC would determine the cover
value as accrued interest plus mid-price
multiplied by principal, less applicable
haircut. Finally, the proposed rule
change would specify that the cover
value of U.S. Treasuries used to cover a
specific non-USD currency obligation is
computed by foreign exchange
haircutting the corresponding USDequivalent cover value, where the
applicable foreign exchange haircut
captures the potential foreign exchange
risk between the USD cash and the
currency of the obligation.
For U.S. Treasuries, USD, and Euros,
this proposed change is consistent with
currently effective policies. However,
the proposed rule change would alter
ICC’s process for GBP. With respect to
GBP used to cover a Euro-denominated
product requirement, the proposed rule
change would delete a provision
requiring ICC to convert the GBP cash
value to its USD value, haircut the USD
value, convert the Euro-denominated
product requirement to its USD value,
and gross up the resulting USD
requirement by the Euro currency
haircut. Deleting the currently effective
haircut process related to GBP used to
cover a Euro-denominated product
requirement and replacing it with the
proposed changes makes the process
more efficient by eliminating what
amounts to a double haircut.11
2. ICC’s Use of a Foreign Exchange
Facility
ICC also proposes adding a new
section to its Treasury Policy titled
‘‘Non-Committed FX Facility.’’ This
section addresses circumstances under
which ICC would use a foreign
exchange facility to convert one
currency to another. The proposed
11 Notice, 88 FR at 58628; see, infra, note 20 and
related text.
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section begins by noting that ICC has
access to foreign exchange facilities
with various commercial counterparties.
The facilities are uncommitted, which
means that they do not require ICC’s
counterparties to provide requested
currencies, but ICC still may use them
to convert one currency to another for
same day settlement.
The proposed section also describes
circumstances under which ICC would
need to convert Client-Related Initial
Margin, posted by Clearing Participants
in GBP, into another currency. ICC may
need to convert Client-Related Initial
Margin posted in GBP in the context of
a default of the client that provided the
GBP as margin. None of the contracts
that ICC clears settles in GBP. Therefore,
to the extent that margin is posted in
GBP, it would need to be converted to
the currency of an obligation before it is
used to satisfy that obligation.
ICC proposes to state in the Policy
that the circumstances where it would
need to convert GBP to another currency
are very narrow. The added section
provides two reasons to support ICC’s
position. First, as mentioned above, ICC
does not currently clear any contracts
that are settled in GBP; thus, GBP is not
required for daily settlement. Second,
use of Client-Related Initial Margin in
the context of a Clearing Participant
default is very limited.12 The proposed
section closes by noting that if ICC
needs to convert GBP collateral to either
USD or Euro in the context of a Clearing
Participant default, ICC would use one
of its non-committed foreign exchange
arrangements to do so.
ddrumheller on DSK120RN23PROD with NOTICES1
III. Discussion and Commission
Findings
Section 19(b)(2)(C) of the Act requires
the Commission to approve a proposed
rule change of a self-regulatory
organization if it finds that the proposed
rule change is consistent with the
requirements of the Act and the rules
and regulations thereunder applicable to
the organization.13 For the reasons given
below, the Commission finds that the
proposed rule change is consistent with
Section 17A(b)(3)(F) of the Act 14 and
Rule 17Ad–22(e)(5).15
A. Consistency With Section
17A(b)(3)(F) of the Act
Under Section 17A(b)(3)(F) of the Act,
ICC’s rules, among other things, must be
‘‘designed to promote the prompt and
accurate clearance and settlement of
12 For example, ICC would use a client’s ClientRelated Initial Margin only where that particular
client has defaulted.
13 15 U.S.C. 78s(b)(2)(C).
14 15 U.S.C. 78q–1(b)(3)(F).
15 17 CFR 240Ad–22(e)(5).
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securities transactions and, to the extent
applicable, derivative agreements,
contracts, and transactions, to assure the
safeguarding of securities and funds
which are in the custody or control of
the clearing agency or for which it is
responsible . . . and, in general, to
protect investors and the public interest
. . . .’’ 16 Based on its review of the
record, and for the reasons discussed
below, the Commission believes that
ICC’s proposed rule change is consistent
with Section 17A(b)(3)(F) because it
helps ensure ICC can monitor its
collateral and enhances ICC’s ability to
deal with a potential default.
ICC’s proposed changes to its
collateral valuation process do not
change any fundamental aspects of the
process, but instead serve to simplify
and make more efficient the description
of the process; thus, ICC’s proposed
changes help to ensure that the
collateral valuation process is clearer
and more transparent to members. As
noted above, ICC’s currently effective
Treasury Policy aims to accurately and
effectively price assets posted as
collateral and haircut those assets for
their native market risks and related
cross-currency risks.17 ICC’s proposed
changes align with these aims related to
collateral valuation. A number of ICC’s
proposed changes—for example, ICC’s
non-material edits to policies governing
the valuation process for U.S. Treasuries
posted as collateral—merely clarify and
simplify pre-existing procedures related
to collateral valuation. ICC’s proposal to
add text requiring that posted cash used
to cover a specific currency obligation is
first converted to its value expressed in
the currency of the obligation and then
haircut to capture the potential foreign
exchange risk supports its stated aim to
accurately price assets and haircut them
for their cross-currency risks. The
changes help to make the process
clearer and more transparent, which
would in turn facilitate the accurate
valuation of ICC’s financial resources
and ensure that ICC is able to determine
whether it needs to bolster resources
available to it in order to clear and settle
trades.
ICC’s proposed addition of the NonCommitted FX Facility section to its
Treasury Policy enhances ICC’s ability
to deal with a potential default. ICC
proposes to add a Non-Committed FX
Facility section to its Treasury Policy
that notes that ICC has access to noncommitted foreign exchange facilities
with various commercial counterparties
that may be used to convert currency,
including GBP, to another currency for
16 15
U.S.C. 78q–1(b)(3)(F).
88 FR at 58628.
17 Notice,
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68213
same day settlement. Adding the NonCommitted FX Facility section of the
Treasury Policy ensures that members
have knowledge of ICC’s access to noncommitted foreign exchange facilities
and notice of the potential for specific
scenarios, such as the possibility that
ICC would be unable to exchange
currency using ICC’s non-committed
foreign exchange facilities to satisfy
certain obligations. Such notice should
make it easier for ICC and its Clearing
Participants to manage these scenarios
should they ever arise during a potential
default. Therefore, the addition of the
Committed FX Facility section promotes
the prompt and accurate clearance and
settlement of securities transactions and
assures the safeguarding of securities
and funds which are in the custody or
control of the clearing agency or for
which it is responsible.
The Commission believes, therefore,
that the proposed rule change is
consistent with the requirements of
Section 17A(b)(3)(F) of the Act.18
B. Consistency With Rule 17Ad–22(e)(5)
Rule 17Ad–22(e)(5) requires ICC to
‘‘establish, implement, maintain, and
enforce written policies and procedures
reasonably designed to . . . limit the
assets it accepts as collateral to those
with low credit, liquidity, and market
risks, and set and enforce appropriately
conservative haircuts and concentration
limits . . . .’’ 19 Based on its review of
the record, and for the reasons
discussed below, the Commission
believes that ICC’s proposed rule change
is consistent with Rule 17Ad–22(e)(5)
because the change to its haircut process
for GBP used to cover a Eurodenominated product requirement is
appropriately conservative.
ICC proposes to alter its currently
effective haircut process for GBP used to
cover a Euro-denominated product
requirement. The currently effective
haircut process requires that ICC
convert the GBP cash value to its USD
value and haircut the USD value at the
GBP currency haircut. It also requires
that the Euro-denominated product
requirement be converted to its USD
value. The USD value of the Eurodenominated product requirement is
then grossed up by the EUR currency
haircut.20 ICC proposes to eliminate this
18 15
U.S.C. 78q–1(b)(3)(F).
CFR 240.17Ad–22(e)(2).
20 The USD value of the Euro-denominated
product requirement is grossed up by the EUR
currency haircut because ICC’s treasury system
automatically would haircut the Euro value in the
process of converting it to the USD value. Securities
Exchange Act Release No. 97489 (May 11, 2023), 88
FR 31571, 31573 (May 17, 2023) (File No. SR–ICC–
2023–003).
19 17
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process, which is in effect is a double
haircut requirement, and replace it with
an approach in which the posted GBP
is converted directly to the currency of
the obligation and then haircut once.
ICC’s proposed process would still
align with its collateral valuation
process, which requires that assets
posted as collateral are haircut for their
native market risks and cross-currency
risk. The proposed process would still
apply a haircut that addresses crosscurrency risk, but would eliminate an
extraneous haircut that, according to
ICC, is a byproduct of its previous
clearing system business logic.21 As
such, the Commission believes that the
proposed change is consistent with Rule
17Ad–22(e)(5) because it remains
appropriately conservative.
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, Section 17A(b)(3)(F) of the
Act 22 and Rule 17Ad–22(e)(5)
thereunder.23
It is therefore ordered pursuant to
Section 19(b)(2) of the Act that the
proposed rule change (SR–ICC–2023–
013) be, and hereby is, approved.24
[FR Doc. 2023–21796 Filed 10–2–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–98563; File No. SR–
NASDAQ–2023–035]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing of a Proposed Rule Change To
List and Trade Shares of the Hashdex
Nasdaq Ethereum ETF Under Nasdaq
Rule 5711(i)
September 27, 2023.
ddrumheller on DSK120RN23PROD with NOTICES1
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
88 FR at 58628 n.5.
U.S.C. 78q–1(b)(3)(F).
23 17 CFR 240.17Ad–22(e)(5).
24 In approving the proposed rule change, the
Commission considered the proposal’s impacts on
efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
25 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
22 15
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I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to list and
trade the shares of the Hashdex Nasdaq
Ethereum ETF under Nasdaq Rule
5711(i) (‘‘Trust Units’’). The units of the
Trust are referred to herein as the
‘‘Shares.’’
The text of the proposed rule change
is available on the Exchange’s website at
https://listingcenter.nasdaq.com/
rulebook/nasdaq/rules, at the principal
office of the Exchange, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
For the Commission by the Division of
Trading and Markets, pursuant to delegated
authority.25
Sherry R. Haywood,
Assistant Secretary.
21 Notice,
September 20, 2023, The Nasdaq Stock
Market LLC (‘‘Nasdaq’’ or ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
the proposed rule change as described
in Items I and II below, which Items
have been prepared by the Exchange.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to list and
trade Shares of the Hashdex Nasdaq
Ethereum ETF (the ‘‘Fund’’) under
Nasdaq Rule 5711(i),3 which governs
the listing and trading of Trust Units on
the Exchange.
The Fund is a series of Tidal
Commodities Trust I (the ‘‘Trust’’), a
Delaware statutory trust.4 The Fund is
3 The Commission approved Nasdaq Rule 5711 in
Securities Exchange Act Release No. 66648 (March
23, 2012), 77 FR 19428 (March 30, 2012) (SR–
NASDAQ–2012–013).
4 On September 8, 2023, the Trust confidentially
filed a draft registration statement under the
Securities Act (the ‘‘Registration Statement’’). The
Jumpstart Our Business Startups Act (the ‘‘JOBS
Act’’), enacted on April 5, 2012, added Section 6(e)
to the Securities Act. Secction 6(e) of the Securities
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managed and controlled by Toroso
Investments LLC (‘‘Sponsor’’). The
Sponsor is registered as a commodity
pool operator (‘‘CPO’’) with the
Commodity Futures Trading
Commission (‘‘CFTC’’) and is a member
of the National Futures Association
(‘‘NFA’’).
The Fund’s Investment Objective and
Strategy
According to the Registration
Statement, the Chicago Mercantile
Exchange, Inc. (‘‘CME’’) currently offers
two Ether futures contracts (‘‘Ether
Futures Contracts’’), one contract
representing 50 ether (‘‘ETH Contracts’’)
and another contract representing 0.10
ether (‘‘MET Contracts’’).5 Each ETH
Contract and MET Contract settles daily
to the ETH Contract volume-weighted
average price (‘‘VWAP’’) of all trades
that occur between 2:59 p.m. and 3:00
p.m., Central Time, the settlement
period, rounded to the nearest tradable
tick. ETH Contracts and MET Contracts
each expire on the last Friday of the
contract month, and the final settlement
value for each contract is based on the
CME CF Ether Dollar Reference Rate
(‘‘ETHUSD_RR’’).6
ETH Contracts and MET Contracts
each trade six consecutive monthly
contracts plus two additional December
contract months (if the 6 consecutive
months include December, only one
additional December contract month is
listed). Because ETH Contracts and MET
Contracts are exchange-listed, they
allow investors to gain exposure to ether
Act provides that an ‘‘emerging growth company’’
may confidentially submit to the Commission a
draft registration statement for confidential, nonpublic review by the Commission staff prior to
public filing, provided that the initial confidential
submission and all amendments thereto shall be
publicly filed not later than 21 days before the date
on which the issuer conducts a road show, as such
term is defined in Securities Act Rule 433(h)(4). An
emerging growth company is defined in Section
2(a)(19) of the Securities Act as an issuer with less
than $1,000,000,000 total annual gross revenues
during its most recently completed fiscal year. The
Trust meets the definition of an emerging growth
company and consequently submitted its
Registration Statement to the Commission on a
confidential basis. The description of the operation
of the Trust and the Fund herein is based, in part,
on the Registration Statement.
5 ETH Contracts began trading on the CME Globex
(‘‘Globex’’) trading platform on February 8, 2021
under the ticker symbol ‘‘ETH’’ and are cash-settled
in U.S. dollars. MET Contracts began trading on the
Globex trading platform on December 6, 2021 under
the ticket symbol ‘‘MET’’ and are also cash-settled
in U.S. dollars.
6 The ETHUSD_RR is a daily reference rate of the
U.S. dollar price of one ether calculated daily as of
4:00 p.m. London time. It is calculated by the CME
based on the ether trading activity on CMEspecified consituent spot ether exchanges during a
calculation window between 3:00 p.m. and 4:00
p.m. London time. The CME launched the
ETHUSD_RR in May 2018.
E:\FR\FM\03OCN1.SGM
03OCN1
]]>Agencies
[Federal Register Volume 88, Number 190 (Tuesday, October 3, 2023)]
[Notices]
[Pages 68211-68214]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-21796]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98572; File No. SR-ICC-2023-013]
Self-Regulatory Organizations; ICE Clear Credit LLC; Order
Approving Proposed Rule Change Relating to ICC's Treasury Operations
Policies and Procedures
September 27, 2023.
I. Introduction
On August 15, 2023, 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 (``Act'') \1\
and Rule 19b-4 thereunder,\2\ a proposed rule change to revise the ICC
Treasury Operations Policies and Procedures (``Treasury Policy''). The
proposed rule change was published for comment in the Federal Register
on August 28, 2023.\3\ The Commission has not received any comments on
the proposed rule change. For the reasons discussed below, the
Commission is approving the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 98200 (Aug. 22, 2023),
88 FR 58628 (Aug. 28, 2023) (File No. SR-ICC-2023-013) (``Notice'').
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
ICC is registered with the Commission as a clearing agency for the
purpose of
[[Page 68212]]
clearing CDS contracts.\4\ ICC requires that its Clearing Participants
post margin to collateralize their credit exposure to ICC, based on the
size and risk of their cleared positions. On a daily basis, ICC
determines margin requirements (i) for a Clearing Participant's own
cleared positions (referred to as ``house'' positions) and (ii) for the
cleared positions of its clients. ICC also requires that Clearing
Participants contribute to its Guaranty Fund.
---------------------------------------------------------------------------
\4\ Capitalized terms not otherwise defined herein have the
meanings assigned to them in ICC's Clearing Rules or the Treasury
Policy, as applicable.
---------------------------------------------------------------------------
ICC's Treasury Department is responsible for daily cash and
collateral management of margin and Guaranty Fund assets, including
Client-Related Initial Margin assets.\5\ The Treasury Policy contains
policies and procedures that aid the ICC Treasury Department in
carrying out these responsibilities.\6\
---------------------------------------------------------------------------
\5\ Notice, 88 FR at 58628.
\6\ Id.
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Aside from non-substantive, typographical changes (for example, the
addition of quotation marks around the word ``haircuts''), ICC proposes
to make two categories of changes to the Treasury Policy. First, ICC
proposes clarifications and changes to the way it values the collateral
that Clearing Participants provide to ICC to cover their margin and
Guaranty Fund requirements. Second, ICC proposes adding a new section
to its Treasury Policy addressing circumstances under which it would
use a foreign exchange facility to convert one currency to another.
1. ICC's Collateral Valuation
In valuing collateral, ICC's currently effective Treasury Policy
aims to accurately and effectively price assets posted as collateral
and haircut those assets for their native market risks \7\ and related
cross-currency risks.\8\ The proposed rule change would not change
these overall aims, but ICC notes that it would clarify and simplify
some already-existing procedures which achieve these aims.\9\ It would
also change the haircut process for Great British Pounds posted as
Client-Related Initial Margin to cover a Euro-denominated product
requirement.
---------------------------------------------------------------------------
\7\ ICC defines native market risk as the risk of a decrease in
value of the asset posted as collateral. Id.
\8\ ICC defines cross-currency risk as the risk of the change in
value of one currency as compared to the value of another currency.
Id.
\9\ Notice, 88 FR at 58628.
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Current Valuation Process
ICC's valuation process depends on the type of collateral.
Currently, ICC accepts US Treasuries, US Dollars (``USD''), Euros, and
for client-related margin only, Great British Pounds (``GBP'').
Moreover, ICC currently clears products denominated in USD and in
Euros.
With respect to US Treasuries covering a USD-denominated product
requirement, the currently effective Treasury Policy provides that ICC
calculates the cover value as follows: accrued interest plus mid-price
multiplied by principal less applicable haircut established by the ICC
Risk Department.\10\ For US Treasuries or USD covering a Euro-
denominated product requirement, ICC haircuts the USD value at the
currency haircut for Euros (after first converting the US Treasuries to
USD).
---------------------------------------------------------------------------
\10\ ICC's Risk Department calculates haircuts on an on-going
basis. ICE Clear Credit LLC Treasury Operations Policies and
Procedures. ICC describes the qualitative manner in which it derives
its collateral haircuts in its Collateral Risk Management Framework.
Securities Exchange Act Release No. 96557 (Dec. 21, 2022), 87 FR
79922 (Dec. 28, 2022) (File No. SR-ICC-2022-013) (``Order'').
---------------------------------------------------------------------------
With respect to Euro covering a Euro-denominated product
requirement, there is no haircut. With respect to Euro covering a USD-
denominated product requirement, ICC first converts the Euro to the USD
value and then haircuts the USD value at the Euro currency haircut
established by the ICC Risk Department.
With respect to GBP covering a USD-denominated product requirement,
ICC first converts the GBP to the USD value and then haircuts the USD
value at the GBP currency haircut established by the ICC Risk
Department. With respect to GBP covering a Euro-denominated product
requirement, ICC first converts the GBP to the USD value and then
haircuts the USD value at the GBP currency haircut established by the
ICC Risk Department. ICC then converts the Euro-denominated product
requirement to the USD value, and ICC then grosses up the resulting USD
requirement by the Euro currency haircut.
Amended Valuation Process
The proposed rule change would delete much of the currency-specific
language and replace it with general principles that would apply to any
currency ICC accepts. In doing so, the proposed rule change would not
alter the substance of the current process, except with respect to the
valuation of GBP in certain circumstances, as discussed below.
The proposed rule change would delete the language described above
related to collateral posted in the currency of the obligation, and
replace it with general language stating that posted cash collateral
used to cover a specific currency obligation in the currency of the
posted collateral is not subject to a haircut. Language related to
collateral posted in a currency other than the currency of the
obligation would also be deleted. In its place, the proposed rule
change would add language stating that posted cash collateral used to
cover a specific currency obligation is first converted to its value
expressed in the currency of the obligation, and further haircut to
capture the potential foreign exchange risk between the posted cash
collateral and the currency of the obligation.
With respect to U.S. Treasuries, the proposed rule change would
maintain the current language regarding cover value. As under the
current Treasury Policy, ICC would determine the cover value as accrued
interest plus mid-price multiplied by principal, less applicable
haircut. Finally, the proposed rule change would specify that the cover
value of U.S. Treasuries used to cover a specific non-USD currency
obligation is computed by foreign exchange haircutting the
corresponding USD-equivalent cover value, where the applicable foreign
exchange haircut captures the potential foreign exchange risk between
the USD cash and the currency of the obligation.
For U.S. Treasuries, USD, and Euros, this proposed change is
consistent with currently effective policies. However, the proposed
rule change would alter ICC's process for GBP. With respect to GBP used
to cover a Euro-denominated product requirement, the proposed rule
change would delete a provision requiring ICC to convert the GBP cash
value to its USD value, haircut the USD value, convert the Euro-
denominated product requirement to its USD value, and gross up the
resulting USD requirement by the Euro currency haircut. Deleting the
currently effective haircut process related to GBP used to cover a
Euro-denominated product requirement and replacing it with the proposed
changes makes the process more efficient by eliminating what amounts to
a double haircut.\11\
---------------------------------------------------------------------------
\11\ Notice, 88 FR at 58628; see, infra, note 20 and related
text.
---------------------------------------------------------------------------
2. ICC's Use of a Foreign Exchange Facility
ICC also proposes adding a new section to its Treasury Policy
titled ``Non-Committed FX Facility.'' This section addresses
circumstances under which ICC would use a foreign exchange facility to
convert one currency to another. The proposed
[[Page 68213]]
section begins by noting that ICC has access to foreign exchange
facilities with various commercial counterparties. The facilities are
uncommitted, which means that they do not require ICC's counterparties
to provide requested currencies, but ICC still may use them to convert
one currency to another for same day settlement.
The proposed section also describes circumstances under which ICC
would need to convert Client-Related Initial Margin, posted by Clearing
Participants in GBP, into another currency. ICC may need to convert
Client-Related Initial Margin posted in GBP in the context of a default
of the client that provided the GBP as margin. None of the contracts
that ICC clears settles in GBP. Therefore, to the extent that margin is
posted in GBP, it would need to be converted to the currency of an
obligation before it is used to satisfy that obligation.
ICC proposes to state in the Policy that the circumstances where it
would need to convert GBP to another currency are very narrow. The
added section provides two reasons to support ICC's position. First, as
mentioned above, ICC does not currently clear any contracts that are
settled in GBP; thus, GBP is not required for daily settlement. Second,
use of Client-Related Initial Margin in the context of a Clearing
Participant default is very limited.\12\ The proposed section closes by
noting that if ICC needs to convert GBP collateral to either USD or
Euro in the context of a Clearing Participant default, ICC would use
one of its non-committed foreign exchange arrangements to do so.
---------------------------------------------------------------------------
\12\ For example, ICC would use a client's Client-Related
Initial Margin only where that particular client has defaulted.
---------------------------------------------------------------------------
III. Discussion and Commission Findings
Section 19(b)(2)(C) of the Act requires the Commission to approve a
proposed rule change of a self-regulatory organization if it finds that
the proposed rule change is consistent with the requirements of the Act
and the rules and regulations thereunder applicable to the
organization.\13\ For the reasons given below, the Commission finds
that the proposed rule change is consistent with Section 17A(b)(3)(F)
of the Act \14\ and Rule 17Ad-22(e)(5).\15\
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\13\ 15 U.S.C. 78s(b)(2)(C).
\14\ 15 U.S.C. 78q-1(b)(3)(F).
\15\ 17 CFR 240Ad-22(e)(5).
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A. Consistency With Section 17A(b)(3)(F) of the Act
Under Section 17A(b)(3)(F) of the Act, ICC's rules, among other
things, must be ``designed to promote the prompt and accurate clearance
and settlement of securities transactions and, to the extent
applicable, derivative agreements, contracts, and transactions, to
assure the safeguarding of securities and funds which are in the
custody or control of the clearing agency or for which it is
responsible . . . and, in general, to protect investors and the public
interest . . . .'' \16\ Based on its review of the record, and for the
reasons discussed below, the Commission believes that ICC's proposed
rule change is consistent with Section 17A(b)(3)(F) because it helps
ensure ICC can monitor its collateral and enhances ICC's ability to
deal with a potential default.
---------------------------------------------------------------------------
\16\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
ICC's proposed changes to its collateral valuation process do not
change any fundamental aspects of the process, but instead serve to
simplify and make more efficient the description of the process; thus,
ICC's proposed changes help to ensure that the collateral valuation
process is clearer and more transparent to members. As noted above,
ICC's currently effective Treasury Policy aims to accurately and
effectively price assets posted as collateral and haircut those assets
for their native market risks and related cross-currency risks.\17\
ICC's proposed changes align with these aims related to collateral
valuation. A number of ICC's proposed changes--for example, ICC's non-
material edits to policies governing the valuation process for U.S.
Treasuries posted as collateral--merely clarify and simplify pre-
existing procedures related to collateral valuation. ICC's proposal to
add text requiring that posted cash used to cover a specific currency
obligation is first converted to its value expressed in the currency of
the obligation and then haircut to capture the potential foreign
exchange risk supports its stated aim to accurately price assets and
haircut them for their cross-currency risks. The changes help to make
the process clearer and more transparent, which would in turn
facilitate the accurate valuation of ICC's financial resources and
ensure that ICC is able to determine whether it needs to bolster
resources available to it in order to clear and settle trades.
---------------------------------------------------------------------------
\17\ Notice, 88 FR at 58628.
---------------------------------------------------------------------------
ICC's proposed addition of the Non-Committed FX Facility section to
its Treasury Policy enhances ICC's ability to deal with a potential
default. ICC proposes to add a Non-Committed FX Facility section to its
Treasury Policy that notes that ICC has access to non-committed foreign
exchange facilities with various commercial counterparties that may be
used to convert currency, including GBP, to another currency for same
day settlement. Adding the Non-Committed FX Facility section of the
Treasury Policy ensures that members have knowledge of ICC's access to
non-committed foreign exchange facilities and notice of the potential
for specific scenarios, such as the possibility that ICC would be
unable to exchange currency using ICC's non-committed foreign exchange
facilities to satisfy certain obligations. Such notice should make it
easier for ICC and its Clearing Participants to manage these scenarios
should they ever arise during a potential default. Therefore, the
addition of the Committed FX Facility section promotes the prompt and
accurate clearance and settlement of securities transactions and
assures the safeguarding of securities and funds which are in the
custody or control of the clearing agency or for which it is
responsible.
The Commission believes, therefore, that the proposed rule change
is consistent with the requirements of Section 17A(b)(3)(F) of the
Act.\18\
---------------------------------------------------------------------------
\18\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
B. Consistency With Rule 17Ad-22(e)(5)
Rule 17Ad-22(e)(5) requires ICC to ``establish, implement,
maintain, and enforce written policies and procedures reasonably
designed to . . . limit the assets it accepts as collateral to those
with low credit, liquidity, and market risks, and set and enforce
appropriately conservative haircuts and concentration limits . . . .''
\19\ Based on its review of the record, and for the reasons discussed
below, the Commission believes that ICC's proposed rule change is
consistent with Rule 17Ad-22(e)(5) because the change to its haircut
process for GBP used to cover a Euro-denominated product requirement is
appropriately conservative.
---------------------------------------------------------------------------
\19\ 17 CFR 240.17Ad-22(e)(2).
---------------------------------------------------------------------------
ICC proposes to alter its currently effective haircut process for
GBP used to cover a Euro-denominated product requirement. The currently
effective haircut process requires that ICC convert the GBP cash value
to its USD value and haircut the USD value at the GBP currency haircut.
It also requires that the Euro-denominated product requirement be
converted to its USD value. The USD value of the Euro-denominated
product requirement is then grossed up by the EUR currency haircut.\20\
ICC proposes to eliminate this
[[Page 68214]]
process, which is in effect is a double haircut requirement, and
replace it with an approach in which the posted GBP is converted
directly to the currency of the obligation and then haircut once.
---------------------------------------------------------------------------
\20\ The USD value of the Euro-denominated product requirement
is grossed up by the EUR currency haircut because ICC's treasury
system automatically would haircut the Euro value in the process of
converting it to the USD value. Securities Exchange Act Release No.
97489 (May 11, 2023), 88 FR 31571, 31573 (May 17, 2023) (File No.
SR-ICC-2023-003).
---------------------------------------------------------------------------
ICC's proposed process would still align with its collateral
valuation process, which requires that assets posted as collateral are
haircut for their native market risks and cross-currency risk. The
proposed process would still apply a haircut that addresses cross-
currency risk, but would eliminate an extraneous haircut that,
according to ICC, is a byproduct of its previous clearing system
business logic.\21\ As such, the Commission believes that the proposed
change is consistent with Rule 17Ad-22(e)(5) because it remains
appropriately conservative.
---------------------------------------------------------------------------
\21\ Notice, 88 FR at 58628 n.5.
---------------------------------------------------------------------------
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, Section 17A(b)(3)(F) of the Act \22\ and Rule 17Ad-
22(e)(5) thereunder.\23\
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\22\ 15 U.S.C. 78q-1(b)(3)(F).
\23\ 17 CFR 240.17Ad-22(e)(5).
---------------------------------------------------------------------------
It is therefore ordered pursuant to Section 19(b)(2) of the Act
that the proposed rule change (SR-ICC-2023-013) be, and hereby is,
approved.\24\
---------------------------------------------------------------------------
\24\ In approving the proposed rule change, the Commission
considered the proposal's impacts 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.\25\
---------------------------------------------------------------------------
\25\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-21796 Filed 10-2-23; 8:45 am]
BILLING CODE 8011-01-P
