[Federal Register Volume 88, Number 190 (Tuesday, October 3, 2023)]
[Notices]
[Pages 68211-68214]
[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.
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    \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'').
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II. Description of the Proposed Rule Change

    ICC is registered with the Commission as a clearing agency for the
purpose of

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.
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    \4\ Capitalized terms not otherwise defined herein have the
meanings assigned to them in ICC's Clearing Rules or the Treasury
Policy, as applicable.
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    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\
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    \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.
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    \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).
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    \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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    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\
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    \11\ Notice, 88 FR at 58628; see, infra, note 20 and related
text.
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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

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.
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    \12\ For example, ICC would use a client's Client-Related
Initial Margin only where that particular client has defaulted.
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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.
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    \16\ 15 U.S.C. 78q-1(b)(3)(F).
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    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.
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    \17\ Notice, 88 FR at 58628.
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    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\
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    \18\ 15 U.S.C. 78q-1(b)(3)(F).
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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.
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    \19\ 17 CFR 240.17Ad-22(e)(2).
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    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

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.
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    \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).
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    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.
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    \21\ Notice, 88 FR at 58628 n.5.
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IV. Conclusion

    On the basis of the foregoing, the Commission finds that the
proposed rule change is consistent with the requirements of the Act,
and in particular, 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).
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    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\
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    \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\
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    \25\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-21796 Filed 10-2-23; 8:45 am]
BILLING CODE 8011-01-P


From:
"Jones, DonnaLee"<EMAIL_ADDRESS>Sent:
Thu, 06 Oct 2022 16:13:23
To:
"Tunno; Brett J"<EMAIL_ADDRESS>Cc:
Dzurinko, Mike G<EMAIL_ADDRESS>Hardin, Christopher W<EMAIL_ADDRESS>Mcginn, Kevin<EMAIL_ADDRESS>Shappley, Ned<EMAIL_ADDRESS>Raymond, Gabrielle<EMAIL_ADDRESS>Coke ICR2<EMAIL_ADDRESS>Subject:
RE: Cooling Tower Inlet Testing Question
Hi. Kevin and Ned, our measurement experts, say that both the sampling locations are fine.

Best of luck with the testing and thank you for your efforts.

Regards,
Donna Lee Jones, Ph.D.
Senior Technical Advisor, Metals Sector
U. S. Environmental Protection Agency
Office of Air Quality Planning and Standards
Sector Policies and Programs Division / Metals & Inorganic Chemicals Group (D243-02)
Research Triangle Park, NC  27711
Tele:<PHONE_NUMBER>
--------------------------------------------------------------------------------
Fax<PHONE_NUMBER>
"Reasonableness never fails to be appreciated."  - anon.

Pronouns - She/Her/Hers
Salutation - Dr./Ms.

From: Tunno, Brett J<EMAIL_ADDRESS>Sent: Thursday, October 6, 2022 1:43 PM
To: Jones, DonnaLee<EMAIL_ADDRESS>Cc: Dzurinko, Mike G<EMAIL_ADDRESS>Hardin, Christopher W<EMAIL_ADDRESS>Subject: Cooling Tower Inlet Testing Question

Good afternoon Dr. Jones,

We are preparing for the cooling tower inlet test the week of October 24th.  Per Appendix P Section <IP_ADDRESS>, samples should be drawn from either the vertical section near the base of the riser pipe (from the inside of the elbow to the riser) or the top of a horizontal section prior to the riser pipe at a location where the pipe will be completely full.  At Clairton, the by-products water-cooling tower piping system has a main header that splits into two, approximately equal flow, pipes that feed the east and the west sides of the water-cooling tower.  There is no accessible location for the main water-cooling tower header and no existing ports prior to the bases of the east or west risers.  There are existing access ports on the horizontal sections prior to the risers where the pipe will be completely full.  However, only one of these ports, the west side, has access to the top of the pipe conforming with Section <IP_ADDRESS>.  The east side's access port is approximately 90 degrees from top or parallel to the ground.

U. S. Steel will move forward with testing both the east and west sides of the water cooling with the existing access port locations.  Flows can be determined for both locations and are expected to be approximately the same for both the east and west sides.  Please let us know if the EPA prefers testing as proposed or to test only the access port that meets the Method where the results could be applied to the other side.

Thanks,

Brett Tunno, DrPH, CPH
Environmental Affairs
United States Steel Corporation
Office:<PHONE_NUMBER>
Cell:<PHONE_NUMBER>
Email<EMAIL_ADDRESS>