Self-Regulatory Organizations; ICE Clear Credit LLC; Order Approving Proposed Rule Change Relating to the ICC Back-Testing Framework, 80285-80287 [2024-22563]
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Federal Register / Vol. 89, No. 191 / Wednesday, October 2, 2024 / Notices
domestic shipping services contract to
the list of Negotiated Service
Agreements in the Mail Classification
Schedule’s Competitive Products List.
Date of required notice: October
2, 2024.
DATES:
FOR FURTHER INFORMATION CONTACT:
Sean C. Robinson, 202–268–8405.
The
United States Postal Service® hereby
gives notice that, pursuant to 39 U.S.C.
3642 and 3632(b)(3), on September 23,
2024, it filed with the Postal Regulatory
Commission a USPS Request to Add
Priority Mail Express, Priority Mail &
USPS Ground Advantage® Contract 379
to Competitive Product List. Documents
are available at www.prc.gov, Docket
Nos. MC2024–735, K2024–28.
SUPPLEMENTARY INFORMATION:
Sean C. Robinson,
Attorney, Corporate and Postal Business Law.
[FR Doc. 2024–22676 Filed 10–1–24; 8:45 am]
BILLING CODE 7710–12–P
POSTAL SERVICE
Product Change—Priority Mail
Express, Priority Mail, and USPS
Ground Advantage® Negotiated
Service Agreement
AGENCY:
ACTION:
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34-34–101196; File No. SR–
ICC–2024–008]
Self-Regulatory Organizations; ICE
Clear Credit LLC; Order Approving
Proposed Rule Change Relating to the
ICC Back-Testing Framework
September 26, 2024.
I. Introduction
On July 30, 2024, ICE Clear Credit
LLC (‘‘ICC’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(2) of the Securities Exchange Act
of 1934 (the ‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
amend its Back-Testing Framework
(‘‘BTF’’).3 The proposed rule change
was published for comment in the
Federal Register on August 23, 2024.4
The Commission did not receive
comments regarding the proposed rule
change. For the reasons discussed
below, the Commission is approving the
proposed rule change.
II. Description of the Proposed Rule
Change
A. Background
Postal ServiceTM.
Notice.
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
Agreements in the Mail Classification
Schedule’s Competitive Products List.
SUMMARY:
Date of required notice: October
2, 2024.
DATES:
FOR FURTHER INFORMATION CONTACT:
Sean C. Robinson, 202–268–8405.
The
United States Postal Service® hereby
gives notice that, pursuant to 39 U.S.C.
3642 and 3632(b)(3), on September 24,
2024, it filed with the Postal Regulatory
Commission a USPS Request to Add
Priority Mail Express, Priority Mail &
USPS Ground Advantage® Contract 384
to Competitive Product List. Documents
are available at www.prc.gov, Docket
Nos. MC2024–740, K2024–33.
ICC is registered with the Commission
as a clearing agency for the purpose of
clearing Credit Default Swap (‘‘CDS’’)
contracts.5 In addition to clearing CDS
contracts, ICC also clears options to
purchase index CDS contracts, which
are also known as ‘‘Index Swaptions.’’
As noted above, the proposed rule
change would amend ICC’s BTF. The
BTF describes how ICC conducts backtesting and how ICC remediates poor
back-testing results. The proposed rule
change would amend ICC’s BTF to (1)
better describe how ICC treats its backtesting Index Swaption positions that
expire in-the-money and within the
margin period of risk (‘‘MPOR’’),6 and
lotter on DSK11XQN23PROD with NOTICES1
SUPPLEMENTARY INFORMATION:
Sean C. Robinson,
Attorney, Corporate and Postal Business Law.
[FR Doc. 2024–22682 Filed 10–1–24; 8:45 am]
BILLING CODE 7710–12–P
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1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 ICC’s Back-Testing Framework summarizes its
formal statistical approach to determining whether
its Value-at-Risk (VaR) model can reliably forecast
risk.
4 Securities Exchange Act Release No. 100679
(Aug. 8, 2024), 89 FR 66154 (Aug. 14, 2024) (File
No. SR–ICC–2024–008) (‘‘Notice of Filing’’).
5 Capitalized terms not otherwise defined herein
have the meanings assigned to them in ICC’s BTF
or Clearing Rules, as applicable.
6 ‘‘Margin-period-of-risk or ‘MPOR’ is a maturity
factor that is applied to reflect the length of
exposure period over which the defaulted portfolio
is exposed to changes in value.’’ Securities
Exchange Act Release No. 100008 (Apr. 22, 2024),
89 FR 32496 (Apr. 26, 2024) (File No. SR–ICC–
2024–003) (‘‘Notice of Filing’’).
2 17
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80285
(2) make other updates and
clarifications.
B. Index Swaption Positions
ICC’s proposed rule change would
revise Subsection 2.4 (‘‘Detailed DailyPortfolio Back-Testing Results’’) of the
BTF to (1) add a description of ICC’s
treatment of expiring in-the-money and
within-the-MPOR Index Swaption
positions, and (2) add an illustrative
example in the form of a new Table 5.
1. Subsection 2.4: Description of
Expiring In-the-Money Index Swaption
Positions
The proposed rule change would
revise Subsection 2.4 to explain how
ICC treats its back-testing Index
Swaption positions that expire in-themoney and within the MPOR. ICC
proposes that when a particular
portfolio contains Index Swaption
positions that expire within the MPOR,
ICC would replace the Mark-to-Market
(‘‘MTM’’) values of the expired option
positions with the corresponding
Intrinsic Values (‘‘IV’’). In doing so, ICC
would use the end-of-day (‘‘EOD’’)
prices as of the given day that ICC is
back-testing.
In carrying out this process, ICC
would use the following assumptions,
as noted in the revised Subsection 2.4: 7
i. The IV is positive for a bought option
position and negative for a sold option
position that is in-the-money.
ii. The option position with positive IV
results in an option exercise on the
expiration date and reflects the positive value
to the option holder buying/selling the
underling index position at the fixed strike
price and selling/buying the underlying
index position at the EOD-price for a profit.
iii. The sold option position, with negative
IV, results in the assignment of an underlying
index position to the seller of the option on
the expiration date.
iv. The assigned underlying index position
could be bought or sold protection depending
on the type of sold option instrument.
v. The unrealized P/L for the exercised/
assigned option positions are computed
against the underlying MTM value for all
days after the CDS index option’s expiration
date.
2. Addition of Table 5 to Subsection 2.4
The proposed rule change also would
add to Subsection 2.4 a new Table 5,
entitled ‘‘Minimum 5-Day P/L Detail for
Expiring Options Positions.’’ Table 5
would provide an illustrative example
of the back-testing computation
described in the BTF and the unrealized
profit/loss (‘‘P/L’’) for an in-the-money
Index Swaption position that expires
within the MPOR.
7 Currently, the BTF assigns a standardized P/L
value of $0.00 to such positions.
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Federal Register / Vol. 89, No. 191 / Wednesday, October 2, 2024 / Notices
C. Other Additions and Revisions to
Table 3, Table 4, and Section 6
In addition to the changes related to
Index Swaption positions, the proposed
rule change also would make updates
and clarifications to other sections of
the BTF. The proposed rule change
would change references from ‘‘P&L’’ in
Table 3 and Table 4 to ‘‘P/L’’ to
consistently refer to ‘‘profit or loss’’
throughout the BTF. Moreover, the
proposed rule change would update
Section 6, ‘‘Revision History,’’ to reflect
the revisions proposed herein. Finally,
the proposed rule change would add a
new footnote 1 in Subsection 1.1. This
footnote would explain that the term
‘‘Net Asset Value’’ is also referred to and
is equivalent to ‘‘Mark-to-Market,’’ as
used in the BTF.
III. Discussion and Commission
Findings
lotter on DSK11XQN23PROD with NOTICES1
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.8 Under
the Commission’s Rules of Practice, the
‘‘burden to demonstrate that a proposed
rule change is consistent with the
Exchange Act and the rules and
regulations issued thereunder . . . is on
the self-regulatory organization
[(‘‘SRO’’)] that proposed the rule
change.’’ 9
The description of a proposed rule
change, its purpose and operation, its
effect, and a legal analysis of its
consistency with applicable
requirements, must all be sufficiently
detailed and specific to support an
affirmative Commission finding,10 and
any failure of an SRO to provide this
information may result in the
Commission not having a sufficient
basis to make an affirmative finding that
a proposed rule change is consistent
with the Exchange Act and the
applicable rules and regulations.11
Moreover, ‘‘unquestioning reliance’’ on
an SRO’s representations in a proposed
rule change is not sufficient to justify
Commission approval of a proposed rule
change.12
After carefully considering the
proposed rule change, the Commission
8 15
U.S.C. 78s(b)(2)(C).
700(b)(3), Commission Rules of Practice, 17
CFR 201.700(b)(3).
10 Id.
11 Id.
12 Susquehanna Int’l Group, LLP v. Securities and
Exchange Commission, 866 F.3d 442, 447 (D.C. Cir.
2017) (‘‘Susquehanna’’).
9 Rule
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finds that the proposed rule change is
consistent with the requirements of the
Exchange Act and the rules and
regulations thereunder applicable to
ICC. For the reasons given below, the
Commission finds that the proposed
rule change is consistent with Section
17A(b)(3)(F) of the Act 13 and Rule
17Ad–22(e)(6)(vi)(A).14
clear and settle transactions, the
Commission finds the proposed rule
change would promote the prompt and
accurate clearance and settlement of
securities and derivative transactions.
Therefore, the Commission finds that
the proposed rule change is consistent
with Section 17A(b)(3)(F) of the Act.16
A. Consistency With Section
17A(b)(3)(F) of the Act
Section 17A(b)(3)(F) of the Act
requires, among other things, that the
rules of ICC be designed, to promote the
prompt and accurate clearance and
settlement of securities transactions.15
As noted above, the proposed rule
change primarily would add to the BTF
description of how ICC back-tests Index
Swaptions positions that expire in-themoney within the MPOR. The proposed
rule change also would ensure the
consistent use of the term ‘‘P/L’’ and
explain the equivalence of the terms
‘‘Net Asset Value’’ and ‘‘Mark-toMarket.’’
The enhanced description of ICC’s
approach to back-testing Index
Swaptions positions that expire in-themoney within the MPOR would
strengthen ICC’s back-testing by making
the results a more accurate
representation of potential P/L for such
positions. Under the BTF as revised, ICC
would calculate P/L for such positions,
using the assumptions and process
described above, rather than just
assuming zero value for all as per the
current practice.
Consistent use of the term ‘‘P/L’’ and
establishing the equivalence of the
terms ‘‘Net Asset Value’’ and ‘‘Mark-toMarket’’ would also strengthen ICC’s
back-testing. The changes would help
ensure the consistent and clear
operation of the BTF by eliminating any
potential confusion among the use of
these terms. This should, in turn, help
support the accuracy and reliability of
ICC’s back-testing.
Thus, the proposed rule change
would help ensure that ICC continues to
reliably forecast risk and that its backtesting accurately verifies that the
number of actual, observed losses is
consistent with the number of projected
losses. Because ICC uses back-testing to
forecast and manage the risk associated
with clearing Index Swaption
transactions, these improvements to the
BTF should help ICC avoid losses that
could result from the mismanagement of
such risk. Because such losses could
disrupt ICC’s ability to operate and thus
B. Consistency With Rule 17Ad–
22(e)(6)(vi)(A) of the Act
13 15
U.S.C. 78q–1(b)(3)(F).
CFR 240.17Ad–22(e)(6)(vi)(A).
15 15 U.S.C. 78q–1(b)(3)(F).
14 17
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Rule 17Ad–22(e)(6)(vi)(A) requires
ICC to establish, implement, maintain,
and enforce written policies and
procedures reasonably designed to cover
its credit exposures to its participants by
establishing a risk-based margin system
that, at a minimum is monitored by
management on an ongoing basis and is
regularly reviewed, tested, and verified
by conducting backtests of its margin
model at least once each day using
standard predetermined parameters and
assumptions.17
The proposed changes described
above will enhance ICC’s risk-based
margin system by enhancing ICC’s
ability to calculate P/L more precisely
for back-testing by factoring in accurate
P/L values of ITM Index Swaption
positions. This enhancement, along
with the other changes detailed herein,
will ensure that the predetermined
parameters and assumptions (here, the
BTF) that ICC management relies upon
to regularly review, test, and verify its
margin requirements are more accurate
than the previous iteration of ICC’s riskbased margin system.
Therefore, the Commission finds that
the proposed rule change is consistent
with Rule 17Ad–22(e)(6)(vi)(A).18
IV. Conclusion
Based on the foregoing, the
Commission finds that the proposed
rule change is consistent with the
requirements of the Act and with the
requirements of Section 17A(b)(3)(F) of
the Act 19 and Rule 17Ad–
22(e)(6)(vi)(A).20
It is therefore ordered pursuant to
Section 19(b)(2) of the Act 21 that the
proposed rule change (SR–ICC–2024–
008), be, and hereby is, approved.22
16 15
U.S.C. 78q–1(b)(3)(F).
CFR 240.17Ad–22(e)(6)(vi)(A).
18 17 CFR 240.17Ad–22(e)(6)(vi)(A).
19 15 U.S.C. 78q–1(b)(3)(F).
20 17 CFR 240.17Ad–22(e)(6)(vi)(A).
21 15 U.S.C. 78s(b)(2).
22 In approving the proposed rule change, the
Commission considered the proposal’s impact on
efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
17 17
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Federal Register / Vol. 89, No. 191 / Wednesday, October 2, 2024 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.23
Vanessa A. Countryman,
Secretary.
[FR Doc. 2024–22563 Filed 10–1–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–101195; File No. SR–BX–
2024–036]
Self-Regulatory Organizations; Nasdaq
BX, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Initiate Fees for the
Distribution of BX Trade Outline
September 26, 2024.
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
September 13, 2024, Nasdaq BX, Inc.
(‘‘BX’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I, II,
and III, below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to initiate fees
for the distribution of BX Trade Outline.
The text of the proposed rule change
is available on the Exchange’s website at
https://listingcenter.nasdaq.com/
rulebook/bx/rules, at the principal office
of the Exchange, and at the
Commission’s Public Reference Room.
lotter on DSK11XQN23PROD with NOTICES1
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
23 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
change is to initiate fees for the
distribution of BX Trade Outline.
Distributor fees will be $750 per month
for the End of Day product, and $1,500
per month for the Intra-Day product.3
Historical data will be available
through ad hoc requests for information
for $500 per month of End of Day
information, and $750 per month for
historical information. Current
Distributors 4 will also be able to
purchase the most recent 36 months of
historical data 5 at the discounted price
of $6,000 for End of Day information,
and $9,000 for Intra-Day information.
Historical information will be available
starting in December 2014.
BX Options Trade Outline
BX Options Trade Outline will
provide aggregate quantity and volume
information for trades on the Exchange
for all series 6 during a trading session.7
Information is provided in the following
categories: (i) total exchange volume for
Intra-Day information and total
exchange and industry volume for End
of Day information for each reported
series; (ii) open interest for the series;
(iii) aggregate quantity of trades and
aggregate trade volume effected to open
a position,8 characterized by origin type
3 This proposal was initially filed on September
3, 2024, as SR–BX–2024–034. On September 13,
2024, SR–BX–2024–034 was withdrawn and
replaced with the instant filing to clarify the time
period for availability of historical information.
4 A ‘‘Current Distributor’’ is any firm that
purchases either the End of Day Product for the
current month, or the Intra-Day Product for the
current month in the same month that the 36
months of historical End of Day or Intra-Day data
is ordered.
5 The most recent 36 months is measured based
on the date of purchase of the 36 months of data
by a Current Distributor.
6 Every options series trades as a distinct symbol;
the terms ‘‘series’’ and ‘‘symbol’’ are therefore
synonyms.
7 See Securities Exchange Act Release No. 100792
(August 21, 2024), 89 FR 68676 (August 27, 2024)
(SR–BX–2024–028).
8 This would include the aggregate number of
‘‘opening purchase transactions,’’ defined as a BX
Options Transaction that creates or increases a long
position in an options contract, see Options 1,
Section 1(a)(35), and the aggregate number of
‘‘opening writing transactions,’’ defined as a BX
Options Transaction that creates or increases a short
position in an options contract. See Options 1,
Section 1(a)(36).
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80287
(Customers,9 Broker-Dealers,10 BX
Options Market Makers,11 Firms,12 and
Professionals 13); and (iv) aggregate
quantity of trades and aggregate trade
volume effected to close a position,14
characterized by origin type (Customers,
Broker-Dealers, BX Options Market
Makers, Firms, and Professionals).15
Information will be provided on an
End of Day, Intra-Day, and historical
basis.
End of Day Information
The BX Trade Outline End of Day file
will provide opening buy, closing buy,
opening sell and closing sell
information, including option first trade
price, option high trade price, option
low trade price, and option last trade
price.
The End of Day file will be updated
during an overnight process with
additional fields 16 and will be available
the following morning, providing
aggregate data for the entire trading
session.
Intra-Day Information
Intra-Day information will be released
in scheduled ‘‘snapshots’’ available
9 The term ‘‘Customer’’ applies to any transaction
that is identified by a Participant for clearing in the
Customer range at The Options Clearing
Corporation (‘‘OCC’’) which is not for the account
of broker or dealer or for the account of a
‘‘Professional’’ (as that term is defined in Options
1, Section 1(a)(48)). See Options 7, Section 1(a).
10 The term ‘‘Broker-Dealer’’ applies to any
transaction which is not subject to any of the other
transaction fees applicable within a particular
category. See Options 7, Section 1(a).
11 The term ‘‘BX Options Market Maker’’ is a
Participant that has registered as a Market Maker on
BX Options pursuant to Options 2, Section 1, and
must also remain in good standing pursuant to
Options 2, Section 9. In order to receive Market
Maker pricing in all securities, the Participant must
be registered as a BX Options Market Maker in at
least one security. See Options 7, Section 1(a).
12 The term ‘‘Firm’’ applies to any transaction that
is identified by a Participant for clearing in the Firm
range at OCC. See Options 7, Section 1(a).
13 The term ‘‘Professional’’ means any person or
entity that (i) is not a broker or dealer in securities,
and (ii) places more than 390 orders in listed
options per day on average during a calendar month
for its own beneficial account(s) pursuant to
Options 1, Section 1(a)(48). All Professional orders
shall be appropriately marked by Participants. See
Options 7, Section 1(a).
14 This would include the aggregate number of
‘‘closing purchase transactions’’ in the affected
series, defined as a BX Options Transaction that
reduces or eliminates a short position in an options
contract, see Options 1, Section 1(a)(19), and the
aggregate number of ‘‘closing writing transactions,’’
defined as a BX Options Transaction that reduces
or eliminates a long position in an options contract.
See Options 1, Section 1(a)(20).
15 These are the same types of information
available on PHOTO, and the other trade outline
products offered by Nasdaq exchanges.
16 The additional fields are: First Trade Price,
High Trade Price, Low Trade Price, Last Trade
Price, Underlying Close, Moneyness, Total
Exchange volume, Total Industry Volume for the
Series, and Open Interest.
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]]>Agencies
[Federal Register Volume 89, Number 191 (Wednesday, October 2, 2024)]
[Notices]
[Pages 80285-80287]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-22563]
=======================================================================
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34-101196; File No. SR-ICC-2024-008]
Self-Regulatory Organizations; ICE Clear Credit LLC; Order
Approving Proposed Rule Change Relating to the ICC Back-Testing
Framework
September 26, 2024.
I. Introduction
On July 30, 2024, ICE Clear Credit LLC (``ICC'') filed with the
Securities and Exchange Commission (``Commission''), pursuant to
Section 19(b)(2) of the Securities Exchange Act of 1934 (the ``Act'')
\1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to amend its
Back-Testing Framework (``BTF'').\3\ The proposed rule change was
published for comment in the Federal Register on August 23, 2024.\4\
The Commission did not receive comments regarding the proposed rule
change. For the reasons discussed below, the Commission is approving
the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ ICC's Back-Testing Framework summarizes its formal
statistical approach to determining whether its Value-at-Risk (VaR)
model can reliably forecast risk.
\4\ Securities Exchange Act Release No. 100679 (Aug. 8, 2024),
89 FR 66154 (Aug. 14, 2024) (File No. SR-ICC-2024-008) (``Notice of
Filing'').
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
A. Background
ICC is registered with the Commission as a clearing agency for the
purpose of clearing Credit Default Swap (``CDS'') contracts.\5\ In
addition to clearing CDS contracts, ICC also clears options to purchase
index CDS contracts, which are also known as ``Index Swaptions.''
---------------------------------------------------------------------------
\5\ Capitalized terms not otherwise defined herein have the
meanings assigned to them in ICC's BTF or Clearing Rules, as
applicable.
---------------------------------------------------------------------------
As noted above, the proposed rule change would amend ICC's BTF. The
BTF describes how ICC conducts back-testing and how ICC remediates poor
back-testing results. The proposed rule change would amend ICC's BTF to
(1) better describe how ICC treats its back-testing Index Swaption
positions that expire in-the-money and within the margin period of risk
(``MPOR''),\6\ and (2) make other updates and clarifications.
---------------------------------------------------------------------------
\6\ ``Margin-period-of-risk or `MPOR' is a maturity factor that
is applied to reflect the length of exposure period over which the
defaulted portfolio is exposed to changes in value.'' Securities
Exchange Act Release No. 100008 (Apr. 22, 2024), 89 FR 32496 (Apr.
26, 2024) (File No. SR-ICC-2024-003) (``Notice of Filing'').
---------------------------------------------------------------------------
B. Index Swaption Positions
ICC's proposed rule change would revise Subsection 2.4 (``Detailed
Daily-Portfolio Back-Testing Results'') of the BTF to (1) add a
description of ICC's treatment of expiring in-the-money and within-the-
MPOR Index Swaption positions, and (2) add an illustrative example in
the form of a new Table 5.
1. Subsection 2.4: Description of Expiring In-the-Money Index Swaption
Positions
The proposed rule change would revise Subsection 2.4 to explain how
ICC treats its back-testing Index Swaption positions that expire in-
the-money and within the MPOR. ICC proposes that when a particular
portfolio contains Index Swaption positions that expire within the
MPOR, ICC would replace the Mark-to-Market (``MTM'') values of the
expired option positions with the corresponding Intrinsic Values
(``IV''). In doing so, ICC would use the end-of-day (``EOD'') prices as
of the given day that ICC is back-testing.
In carrying out this process, ICC would use the following
assumptions, as noted in the revised Subsection 2.4: \7\
---------------------------------------------------------------------------
\7\ Currently, the BTF assigns a standardized P/L value of $0.00
to such positions.
i. The IV is positive for a bought option position and negative
for a sold option position that is in-the-money.
ii. The option position with positive IV results in an option
exercise on the expiration date and reflects the positive value to
the option holder buying/selling the underling index position at the
fixed strike price and selling/buying the underlying index position
at the EOD-price for a profit.
iii. The sold option position, with negative IV, results in the
assignment of an underlying index position to the seller of the
option on the expiration date.
iv. The assigned underlying index position could be bought or
sold protection depending on the type of sold option instrument.
v. The unrealized P/L for the exercised/assigned option
positions are computed against the underlying MTM value for all days
after the CDS index option's expiration date.
2. Addition of Table 5 to Subsection 2.4
The proposed rule change also would add to Subsection 2.4 a new
Table 5, entitled ``Minimum 5-Day P/L Detail for Expiring Options
Positions.'' Table 5 would provide an illustrative example of the back-
testing computation described in the BTF and the unrealized profit/loss
(``P/L'') for an in-the-money Index Swaption position that expires
within the MPOR.
[[Page 80286]]
C. Other Additions and Revisions to Table 3, Table 4, and Section 6
In addition to the changes related to Index Swaption positions, the
proposed rule change also would make updates and clarifications to
other sections of the BTF. The proposed rule change would change
references from ``P&L'' in Table 3 and Table 4 to ``P/L'' to
consistently refer to ``profit or loss'' throughout the BTF. Moreover,
the proposed rule change would update Section 6, ``Revision History,''
to reflect the revisions proposed herein. Finally, the proposed rule
change would add a new footnote 1 in Subsection 1.1. This footnote
would explain that the term ``Net Asset Value'' is also referred to and
is equivalent to ``Mark-to-Market,'' as used in the BTF.
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.\8\ Under the Commission's Rules of Practice, the ``burden
to demonstrate that a proposed rule change is consistent with the
Exchange Act and the rules and regulations issued thereunder . . . is
on the self-regulatory organization [(``SRO'')] that proposed the rule
change.'' \9\
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\8\ 15 U.S.C. 78s(b)(2)(C).
\9\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR
201.700(b)(3).
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The description of a proposed rule change, its purpose and
operation, its effect, and a legal analysis of its consistency with
applicable requirements, must all be sufficiently detailed and specific
to support an affirmative Commission finding,\10\ and any failure of an
SRO to provide this information may result in the Commission not having
a sufficient basis to make an affirmative finding that a proposed rule
change is consistent with the Exchange Act and the applicable rules and
regulations.\11\ Moreover, ``unquestioning reliance'' on an SRO's
representations in a proposed rule change is not sufficient to justify
Commission approval of a proposed rule change.\12\
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\10\ Id.
\11\ Id.
\12\ Susquehanna Int'l Group, LLP v. Securities and Exchange
Commission, 866 F.3d 442, 447 (D.C. Cir. 2017) (``Susquehanna'').
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After carefully considering the proposed rule change, the
Commission finds that the proposed rule change is consistent with the
requirements of the Exchange Act and the rules and regulations
thereunder applicable to ICC. For the reasons given below, the
Commission finds that the proposed rule change is consistent with
Section 17A(b)(3)(F) of the Act \13\ and Rule 17Ad-22(e)(6)(vi)(A).\14\
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\13\ 15 U.S.C. 78q-1(b)(3)(F).
\14\ 17 CFR 240.17Ad-22(e)(6)(vi)(A).
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A. Consistency With Section 17A(b)(3)(F) of the Act
Section 17A(b)(3)(F) of the Act requires, among other things, that
the rules of ICC be designed, to promote the prompt and accurate
clearance and settlement of securities transactions.\15\
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\15\ 15 U.S.C. 78q-1(b)(3)(F).
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As noted above, the proposed rule change primarily would add to the
BTF description of how ICC back-tests Index Swaptions positions that
expire in-the-money within the MPOR. The proposed rule change also
would ensure the consistent use of the term ``P/L'' and explain the
equivalence of the terms ``Net Asset Value'' and ``Mark-to-Market.''
The enhanced description of ICC's approach to back-testing Index
Swaptions positions that expire in-the-money within the MPOR would
strengthen ICC's back-testing by making the results a more accurate
representation of potential P/L for such positions. Under the BTF as
revised, ICC would calculate P/L for such positions, using the
assumptions and process described above, rather than just assuming zero
value for all as per the current practice.
Consistent use of the term ``P/L'' and establishing the equivalence
of the terms ``Net Asset Value'' and ``Mark-to-Market'' would also
strengthen ICC's back-testing. The changes would help ensure the
consistent and clear operation of the BTF by eliminating any potential
confusion among the use of these terms. This should, in turn, help
support the accuracy and reliability of ICC's back-testing.
Thus, the proposed rule change would help ensure that ICC continues
to reliably forecast risk and that its back-testing accurately verifies
that the number of actual, observed losses is consistent with the
number of projected losses. Because ICC uses back-testing to forecast
and manage the risk associated with clearing Index Swaption
transactions, these improvements to the BTF should help ICC avoid
losses that could result from the mismanagement of such risk. Because
such losses could disrupt ICC's ability to operate and thus clear and
settle transactions, the Commission finds the proposed rule change
would promote the prompt and accurate clearance and settlement of
securities and derivative transactions.
Therefore, the Commission finds that the proposed rule change is
consistent with Section 17A(b)(3)(F) of the Act.\16\
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\16\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rule 17Ad-22(e)(6)(vi)(A) of the Act
Rule 17Ad-22(e)(6)(vi)(A) requires ICC to establish, implement,
maintain, and enforce written policies and procedures reasonably
designed to cover its credit exposures to its participants by
establishing a risk-based margin system that, at a minimum is monitored
by management on an ongoing basis and is regularly reviewed, tested,
and verified by conducting backtests of its margin model at least once
each day using standard predetermined parameters and assumptions.\17\
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\17\ 17 CFR 240.17Ad-22(e)(6)(vi)(A).
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The proposed changes described above will enhance ICC's risk-based
margin system by enhancing ICC's ability to calculate P/L more
precisely for back-testing by factoring in accurate P/L values of ITM
Index Swaption positions. This enhancement, along with the other
changes detailed herein, will ensure that the predetermined parameters
and assumptions (here, the BTF) that ICC management relies upon to
regularly review, test, and verify its margin requirements are more
accurate than the previous iteration of ICC's risk-based margin system.
Therefore, the Commission finds that the proposed rule change is
consistent with Rule 17Ad-22(e)(6)(vi)(A).\18\
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\18\ 17 CFR 240.17Ad-22(e)(6)(vi)(A).
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IV. Conclusion
Based on the foregoing, the Commission finds that the proposed rule
change is consistent with the requirements of the Act and with the
requirements of Section 17A(b)(3)(F) of the Act \19\ and Rule 17Ad-
22(e)(6)(vi)(A).\20\
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\19\ 15 U.S.C. 78q-1(b)(3)(F).
\20\ 17 CFR 240.17Ad-22(e)(6)(vi)(A).
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It is therefore ordered pursuant to Section 19(b)(2) of the Act
\21\ that the proposed rule change (SR-ICC-2024-008), be, and hereby
is, approved.\22\
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\21\ 15 U.S.C. 78s(b)(2).
\22\ 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).
[[Page 80287]]
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For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
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\23\ 17 CFR 200.30-3(a)(12).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-22563 Filed 10-1-24; 8:45 am]
BILLING CODE 8011-01-P
