[Federal Register Volume 79, Number 171 (Thursday, September 4, 2014)]
[Notices]
[Pages 52789-52790]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-21001]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72944; File No. SR-ICC-2014-08]
Self-Regulatory Organizations; ICE Clear Credit LLC; Order
Approving Proposed Rule Change Related to ICC's Authority to Use
Guaranty Fund and House Initial Margin as an Internal Liquidity
Resource
August 28, 2014.
I. Introduction
On June 24, 2014, ICE Clear Credit LLC (``ICC'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change SR-ICC-2014-08 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 July 14, 2014.\3\ The Commission did not receive comments on the
proposed rule change. For the reasons described below, the Commission
is approving the proposed rule change.
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\1\ 15 U.S.C. 78(s)(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 34-72556 (July 8, 2014),
79 FR 40796 (July 14, 2014) (SR-ICC-2014-08).
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II. Description of the Proposed Rule Change
ICC has stated that the principal purpose of the proposed rule
change is to formalize ICC's Liquidity Risk Management Framework,
including its comprehensive liquidity monitoring program, and, through
proposed changes to two sections of ICC's Rulebook, to clarify ICC's
authority to use, and to provide details as to how ICC would use,
Guaranty Fund and House Initial Margin as an internal liquidity
resource.
ICC's proposed Liquidity Risk Management Framework includes a
discussion of all resources available to ICC and the order in which ICC
would use available liquidity resources, if necessary, when managing
one or more Clearing Participant defaults. The liquidity waterfall
classifies available liquidity resources on any given day into four
levels. Level One includes the House Initial Margin and Guaranty Fund
cash deposits of the defaulting Clearing Participant. Level Two
includes Guaranty Fund cash deposits of: (i) ICC; and (ii) non-
defaulting Clearing Participants. Level Three includes House Initial
Margin cash deposits of the non-defaulting Clearing Participants. Level
Four includes ICC's committed credit facility to access additional
cash, and contemplates the establishment of other committed facilities
to convert U.S. Treasuries to USD cash.
In addition, the Liquidity Risk Management Framework describes: (i)
The methodology used by ICC to estimate its minimum day-of-default
available liquidity resources based on its liquidity risk management
model; (ii) historical analysis based on back testing considerations;
and (iii) forward-looking analysis based on stress testing. The
Liquidity Risk Management Framework also provides for governance
concerning ICC's liquidity testing, amending the liquidity program and
the procedure for additional risk measures to be taken, as necessary,
based upon testing results.
Proposed new Rule 402(j) addresses ICC's use of any Clearing
Participant's House Initial Margin as a liquidity resource in
connection with a Clearing Participant's default. ICC states that under
this rule, ICC may use a Clearing Participant's cash, securities or
other property constituting Initial Margin for its House account to
support liquidity arrangements relating to ICC's payment obligations.
Such liquidity arrangements would include borrowing, repurchase
transactions, exchange of Initial Margin for other assets or similar
transactions, under which equivalent value is provided for such Initial
Margin and such equivalent value will be held as Initial Margin and
used or applied by ICC solely for the purposes for which Initial Margin
in the House Account may be used. ICC states that any use of House
Initial Margin may be used in a manner consistent with ICC's liquidity
policies and applicable law. Additionally, ICC states that in
connection with a Clearing Participant's default, ICC will be able to
exchange cash that is House Initial Margin for the equivalent value of
securities or cash of a different currency.
Proposed new Rule 802(f)(iv) addresses ICC's authority to pledge
assets in the Guaranty Fund to secure loans made to the clearing house,
including for purposes of default management, or to transfer such
assets to counterparties under repurchase transactions or similar
transactions. ICC states that the proceeds of such
[[Page 52790]]
borrowings or repurchase transactions may be used in accordance with
ICC's authority to use Guaranty Fund assets under ICC's current rules.
Additionally, ICC states that, in connection with a Clearing
Participant's default, ICC will be able to exchange cash in the
Guaranty Fund for the equivalent value of securities or cash of a
different currency.
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\ and the rules and
regulations thereunder applicable to ICC. The proposed Liquidity Risk
Management Framework would formalize ICC's liquidity management
program, including the description of ICC's liquidity resources, the
order of use of such resources, and the methodology for testing the
sufficiency of these resources. In addition, proposed Rules 402(j) and
802(f)(iv) would permit ICC to use, and provide details as to how ICC
would use, margin and Guaranty Fund assets to support ICC's liquidity
obligations. The Commission believes the proposed rule change is
reasonably designed to allow ICC to manage its liquidity needs in the
event of one or more Clearing Participant defaults and, therefore,
promotes the prompt and accurate clearance and settlement of securities
transactions and, to the extent applicable, derivative agreements,
contracts, and 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, consistent with Section 17A(b)(3)(F) of
the Act.\7\
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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 (SR-ICC-2014-08) 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, competitionand
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. 2014-21001 Filed 9-3-14; 8:45 am]
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