[Federal Register Volume 79, Number 119 (Friday, June 20, 2014)]
[Notices]
[Pages 35399-35400]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-14420]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72397; File No. SR-ICC-2014-05]
Self-Regulatory Organizations; ICE Clear Credit LLC; Order
Approving Proposed Rule Change To Update ICC's Policy Regarding
Valuation of Maturing U.S. Treasury Securities and Update ICC's
Collateral Asset Haircut Methodology
June 16, 2014.
I. Introduction
On April 22, 2014, ICE Clear Credit LLC (``ICC'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change SR-ICC-2014-05 pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder.\2\ The
proposed rule change was published for comment in the Federal Register
on May 8, 2014.\3\ The Commission received no comment letters regarding
the proposed change. For the reasons discussed below, the Commission is
granting approval of the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 34-72083 (May 2, 2014),
79 FR 26490 (May 8, 2014) (SR-ICC-2014-05).
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II. Description
ICC is proposing to update (1) its policy regarding valuation of
maturing U.S. Treasury securities, and (2) its collateral asset haircut
methodology. Under the proposed change, ICC will reduce the collateral
valuation of maturing securities to $0 two business days prior to
maturity. Clearing Participants will receive notice the week prior to
any collateral maturity dates and will be encouraged to replace
maturing securities with other acceptable collateral. If collateral
matures while on deposit with ICC, proceeds will be credited to the
margin or guaranty fund account, as appropriate, when received by ICC
on the maturity day.
ICC has stated that it and other IntercontinentalExchange, Inc.
clearing houses have applied this methodology when nearing the U.S.
debt ceiling, so that this proposed rule change will provide consistent
collateral valuation certainty at all times, as well as consistent
implementation of this policy across other IntercontinentalExchange,
Inc. clearing houses. ICC has also stated that revaluing the maturing
securities two business days prior to maturity will allow for
collection of additional margin or guaranty fund, if required, prior to
maturity. ICC's Treasury Operations Policies and Procedures will be
updated to reflect this change, and ICC plans to notify Clearing
Participants of the change via circular, upon approval by the
Commission.
Furthermore, in order to provide consistency in the calculation of
collateral asset haircuts among the IntercontinentalExchange, Inc.
clearing houses, ICC is updating its Risk Management Framework pursuant
to the proposed change. Currently at ICC, haircuts for relevant assets
(e.g. U.S. Treasury securities and currencies) are calculated using a
five-day liquidation period and a 99% confidence interval expected
shortfall calculation. Under the proposed rule change, the
IntercontinentalExchange, Inc. clearing houses will calculate haircuts
for relevant assets using the greater (which may be rounded to the
nearest 1%) of: (i) The haircut determined using a five-day liquidation
period and a 99% confidence interval expected shortfall calculation
(currently used at ICC), and (ii) the haircut determined using a two
day holding period and 99.9% confidence interval Value-at-Risk
calculation. ICC has stated that because the haircut currently used by
ICC, that is, the haircut determined by using the five-day liquidation
period and a 99% confidence interval expected shortfall calculation, is
usually greater than the haircut determined using the two day holding
period and a 99.9% confidence interval Value-at-Risk calculation, the
haircut currently used at ICC will continue to be the driver of
haircuts and thus, this proposed rule change will have little practical
impact on ICC's current haircut values. Furthermore, ICC has stated
that as applied to currencies, should ICC choose to use one haircut for
a given foreign exchange pair (e.g. USD v. Euro, Euro v. USD), ICC will
apply the more conservative haircut. ICC has also stated that the
changes to the methodology for calculation of collateral asset haircuts
do not require any operational changes.
III. Discussion and Commission Findings
Section 19(b)(2)(C) of the Act \4\ directs the Commission to
approve a proposed rule change of a self-regulatory organization if the
Commission finds that such proposed rule change is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to such self-regulatory organization. Section 17A(b)(3)(F)
of the Act \5\ requires, among other things, that the rules of a
clearing agency are 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.
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\4\ 15 U.S.C. 78s(b)(2)(C).
\5\ 15 U.S.C. 78q-1(b)(3)(F).
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The Commission finds that the proposed rule change is consistent
with the requirements of Section 17A of the Act.\6\ The proposed change
to ICC's valuation of maturing securities will ensure ICC maintains
adequate liquidity and the proposed change to ICC's haircut methodology
will provide appropriate collateral valuation in a manner consistent or
more conservative than existing policy. The proposed changes,
therefore, are each consistent
[[Page 35400]]
with the requirements of Section 17A(b)(3)(F) of the Act \7\ of
promoting the prompt and accurate clearance and settlement of
securities transactions and, to the extent applicable, derivatives
agreements, contracts, and transactions, and helping to protect
investors and the public interest.
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\6\ 15 U.S.C. 78q-1.
\7\ 15 U.S.C. 78q-1(b)(3)(F).
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IV. Conclusion
On the basis of the foregoing, the Commission finds that the
proposal is consistent with the requirements of the Act and in
particular with the requirements of Section 17A of the Act \8\ and the
rules and regulations thereunder.
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\8\ 15 U.S.C. 78q-1.
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\9\ that the proposed rule change (File No. SR-ICC-2014-05) be, and
hereby is, approved.\10\
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\9\ 15 U.S.C. 78s(b)(2).
\10\ 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.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-14420 Filed 6-19-14; 8:45 am]
BILLING CODE 8011-01-P