[Federal Register Volume 86, Number 92 (Friday, May 14, 2021)]
[Notices]
[Pages 26561-26567]
[FR Doc No: 2021-10173]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91806; File No. SR-ICC-2021-005]

Self-Regulatory Organizations; ICE Clear Credit LLC; Order
Approving Proposed Rule Change Relating to the ICC Recovery Plan and
the ICC Wind-Down Plan

May 10, 2021.

I. Introduction

    On March 23, 2021, ICE Clear Credit LCC (``ICC'') filed with the
Securities and Exchange Commission (``Commission''), pursuant to
Section 19(b)(1) of the Securities and Exchange Act of 1934 (the
``Act''),\1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to
update and formalize the ICC Recovery Plan and the ICC Wind-Down Plan
(collectively, the ``Plans''). The proposed rule change was published
for comment in the Federal Register on April 5, 2021.\3\ The Commission
did not receive comments regarding 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\ Self-Regulatory Organizations; ICE Clear Credit LLC; Notice
of Filing of Proposed Rule Change Relating to the ICC Recovery Plan
and the ICC Wind-Down Plan, Exchange Act Release No. 91439 (March
30, 2021); 86 FR 17649 (April 5, 2021) (SR-ICC-2021-005)
(``Notice'').
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II. Description of the Proposed Rule Change

A. Background

    As a ``covered clearing agency,'' ICC is required to, among other
things, ``establish, implement, maintain and enforce written policies
and procedures reasonably designed to . . . maintain a sound risk
management framework for comprehensively managing legal, credit,
liquidity, operational, general business, investment, custody, and
other risks that arise in or are borne by the covered clearing agency,
which . . . includes plans for the recovery and orderly wind-down of
the covered clearing agency necessitated by credit losses, liquidity
shortfalls, losses from general business risk, or any other losses.''
\4\ The Commission has previously clarified that it believes that such
recovery and wind-down plans are ``rules'' within the meaning of
Exchange Act Section 19(b) and Rule 19b-4 because such plans would
constitute changes to a stated policy, practice or interpretation of a
covered clearing agency.\5\ The Plans have been in place at ICC for a
number of years. However, ICC has now filed them with the Commission
for the first time since becoming a ``covered clearing agency'' under
the definition in Rule 17Ad-22(a)(5).\6\
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    \4\ 17 CFR 240.17Ad-22(e)(3)(ii).
    \5\ Standards for Covered Clearing Agencies, Exchange Act
Release No. 78961 (Sep. 28, 2016), 81 FR 70786, 70809 (Oct. 13,
2016).
    \6\ ICC became a ``covered clearing agency'' following a change
in the definition of the term in Rule 17Ad-22(a)(5). The previous
definition of ``covered clearing agency'' in Rule 17Ad-22(a)(5)
stated that ``covered clearing agency'' means a designated clearing
agency or a clearing agency involved in activities with a more
complex risk profile for which the Commodity Futures Trading
Commission is not the Supervisory Agency as defined in Section
803(8) of the Payment, Clearing and Settlement Supervision Act of
2010 (12 U.S.C. 5461 et seq.). Under this definition, ICC was not a
covered clearing agency. Under the revised definition, ``covered
clearing agency'' means a registered clearing agency that provides
the services of a central counterparty or central securities
depository. Under the revised definition, ICC is a covered clearing
agency. See Definition of ``Covered Clearing Agency'', Exchange Act
Release No. 88616 (April 9, 2020), 85 FR 28853, 28854-55 (May 14,
2020).
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B. Recovery Plan

    The Recovery Plan describes the actions ICC takes to (i) restore
ICC to a stable and sustainable condition in the event that it comes
under severe stress and (ii) maintain effective arrangements for
ensuring that losses that threaten ICC's viability as a going concern
are allocated. The Recovery Plan consists of 14 sections, which are
detailed below.
    First, Section 1 of the Recovery Plan introduces and summarizes key
aspects of ICC's plan for recovery and explain its purpose. Section 1
explains that the Recovery Plan relies on ICC's existing Rules and
policies and procedures and describes recovery tools available to ICC.
    Section 2 of the Recovery Plan provides an overview of ICC and the
regulation to which it is subject, including key information regarding
ICC's ownership structure, regulatory registrations, and designations.
Section 2 explains that ICC's sole critical operation is providing CDS
clearing services.
    Section 3 of the Recovery Plan discusses the applicable regulatory
requirements and obligations, including regulatory guidance ICC
considered in writing the plan.
    Section 4 provides an overview of the key elements in any recovery
of ICC. First, Section 4 discusses the legal entities that are material
to ICC for the Recovery Plan. The Recovery Plan defines a material
legal entity (``MLE'') as a legal entity that is significant to the
activities of ICC's critical operation and/or to the delivery of a
critical service.\7\ Section 4 explains the metrics and information
that ICC considered to identify the MLEs. Moreover, Section 4 explains
that there are two MLEs for the Recovery Plan: ICC itself and ICC's
ultimate parent company, Intercontinental Exchange, Inc. (``ICE'').
With respect to ICC, Section 4 also explains (i) the requirements for
ICC's Clearing Participants (``CPs''), such as operational capacity,
financial responsibility, and capital; (ii) the governance arrangements
and committees that have a direct and indirect role in default
management and recovery, including the roles and responsibilities of
the Board, Risk Committee, CDS Default Committee, and Advisory
Committee, among others; (iii) ICC's key performance metrics in respect
of the services that it provides; and (iv) ICC's management of
collateral, including the forms of collateral that ICC accepts to
satisfy initial margin (``IM'') and guaranty fund (``GF'') requirements
and the monitoring of collateral counterparties.
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    \7\ For purposes of the Recovery Plan, critical services are
services and operations, such as information technology support and
operations, human resources, and facilities, which are necessary to
continue the ICC's critical operation (CDS central clearing
services).
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    As further explained in Section 4, the CDS Default Committee is
responsible for assisting ICC during the execution of certain default
management and recovery procedures and convenes upon the declaration of
default. The Default Committee is comprised of up to three
representatives from eligible CPs. For a CP to be eligible to serve on
the Default Committee, the Board or its designee, after consultation
with the ICC Risk Committee, needs to approve the CP for participation.
The Recovery Plan lists the CPs currently eligible for participation on
the Default Committee. Each member of the Default Committee is deemed
seconded to ICC and takes actions in the best of interest of ICC.
    Section 5 analyzes the critical services that are necessary to
continue daily operations of CDS clearing services. Section 5
categorizes the critical services by those that are provided to ICC by
ICE and those that are provided to ICC by external third parties.
    Section 6 details the interconnections and interdependencies
between ICC and other entities, including operational and financial
interconnections. Section 6 explains the interconnection between ICE
and ICC, including through services provided to ICC by ICE, such as
accounting, human resources, audit, and facilities. Section 6 also
details the IT systems and applications critical to

ICC's clearing operations, including those provided by ICE, those
provided by external third parties, and those that ICC provides to
itself, through in-house systems. Section 6 also explains how ICC uses
financial entities and monitors financial entities that have multiple
roles and relationships with ICC (such as a CP that also provides
financial services to ICC). Finally, Section 6 analyzes ICC's
contractual arrangements in the context of continuing services under
those contracts during recovery.
    Section 7 of the proposed Recovery Plan describes the potential
stress scenarios that may prevent ICC from meeting obligations and
providing services, as well as the recovery tools available to ICC to
address such scenarios. Section 7 of the Recovery Plan categorizes
stress scenarios as: (i) Uncovered credit losses and/or liquidity
shortfalls triggered by a CP or multiple CPs defaulting (``CP default
stress scenario''), and (ii) stress triggered by general business
risks, operational risks, or other risks that may threaten ICC's
viability as a going concern, other than a CP default (``non-CP default
stress scenario''). Section 7 also discusses the monitoring mechanisms
for both categories of scenarios, such as daily monitoring of GF and
collateral requirements and daily review of back-testing and stress-
testing results, as well as the process for notifying regulators of the
initiation of the Recovery Plan. Finally, Appendix D further analyzes
each scenario, including the triggering events and the specific steps
ICC takes when the scenario occurs or appears likely to occur.
    Section 8 of the proposed Recovery Plan describes the circumstances
in which ICC initiates the Recovery Plan and the tools that are
available to ICC to achieve recovery. Specifically, under both the CP
default stress scenario and the non-CP default stress scenario, Section
8 defines the point at which ICC activates the Recovery Plan and the
point at which ICC begins recovery. Section 8 then describes the
recovery tools available to ICC. Appendix E further analyzes and
summarizes these recovery tools, including whether the particular tool
is mandatory under ICC's rules or voluntary and the specific governance
steps that required to implement each tool. For a CP default stress
scenario, these recovery tools include:
     Auctions to close out a defaulter's portfolio ((ICC Rule
20-605(d)(v) and (f)(ii));
     An insurance policy covering specified losses resulting
from a CP default (ICC Rule 802);
     CPs' obligation to replenish their GF contribution to the
required level in the event of any use of the GF contributions of non-
defaulting CPs (ICC Rule 803(a)) and to make assessment contributions
to the GF following a CP default and the consumption of the pre-funded
GF (ICC Rule 803(b)), subject to a cap;
     Partial tear-up of remaining positions (ICC Rules 20-
605(f)(iii) and 809) where ICC terminates positions of non-defaulting
CPs that exactly offset those in the defaulter's remaining portfolio;
and
     Reduced gains distributions (``RGD'') (ICC Rule 808) for
up to five consecutive business days, allowing ICC to reduce payment of
variation, or mark-to-market, gains that would otherwise be owed to
CPs, as ICC attempts a secondary auction or conducts a partial tear-up.
    Section 8 also discusses the tools that are available to ICC to
address a situation where ICC experiences liquidity shortfalls
triggered by a default of one or more CPs and has insufficient liquid
resources in the proper currency to meet payments obligations. These
tools include entering into transactions to exchange certain sovereign
debt securities for cash or to exchange U.S. dollar cash for Euro cash
under one of ICC's committed repurchase or committed foreign exchange
agreements, respectively.
    Finally, Section 8 discusses the tools available to ICC in the
event that ICC experiences severe stress triggered by a non-CP default
stress scenario, including the application of resources from ICC and
contributions from CPs to address certain investment and custodial
losses. ICC Rule 811 provides a mechanism for allocating investment
losses and custodial losses as between ICC and CPs, with ICC being
responsible for a first loss position up to the amount of defined
resources and with CPs being responsible for the remaining loss, in
proportion to and capped at their margin and GF contributions.
Additional tools to address non-CP default stress scenarios include
insurance coverage, seeking additional capital through the ICE group,
renegotiating certain agreements, and reducing personnel and other
expenses.
    Section 9 of the Recovery Plan describes the governance
arrangements that provide oversight and direction in respect of the
Recovery Plan, including design, implementation, testing, review, and
ongoing maintenance. Specifically, overall responsibility for the
Recovery Plan rests with the ICC Board. The ICC Board is responsible
for reviewing and approving the Recovery Plan. The ICC Board has, in
turn, delegated to the ICC President responsibility for implementing
the Recovery Plan, as well as considering and developing any needed
amendments or modifications to the Recovery Plan over time, and the ICC
President is accountable to the ICC Board with respect to such matters.
Accordingly, ICC management prepared the Recovery Plan under the
direction of the ICC President.
    Section 9 also describes how ICC considers feedback from CPs and
customers in developing the Recovery Plan, including through detailed
consultation with CPs as to overall design and implementation.
Moreover, Section 9 describes how ICC considers the interests of CPs
and customers on an ongoing basis, including through the ICC Risk
Committee and CP representation on the ICC Board.
    Finally, Section 9 describes the process for reviewing and
approving the Recovery Plan, including changes to the Recovery Plan and
testing. ICC Management, the ICC Risk Committee, and the ICC Board are
responsible for reviewing and approving the Recovery Plan. Annually,
the ICC General Counsel coordinates with ICC management to review and
update the Recovery Plan. Moreover, ICC's General Counsel coordinates
with ICC management to revise the Recovery Plan promptly when warranted
by material changes to ICC's Rules, policies, procedures, or other
circumstances. The ICC Risk Committee reviews the annual update and
ongoing material amendments to the Recovery Plan and make a
recommendation to the ICC Board with respect to Board approval. The ICC
Board considers the Risk Committee's recommendation and is ultimately
responsible for approval of revisions to the Recovery Plan. ICC
notifies its regulatory authorities of changes to the Recovery Plan.
Section 9 notes that ICC tests the Recovery Plan at least annually, as
part of its annual default management drills, and ICC management
provides the results of such testing, as well as any changes it
recommends due to such testing, to the ICC Board and Risk Committee.
    Section 10 of the Recovery Plan analyzes the financial resources
that ICC maintains for recovery in compliance with relevant
regulations, including the procedures it follows in case of any
shortfall. This section also discusses the timing for implementing
ICC's recovery tools and ICC's projected estimated recovery and wind-
down costs. Specifically, Section 10 provides that ICC maintains
capital in accordance

with SEC Rule 17Ad-22(e)(15) \8\ as well as CFTC requirements and, on a
voluntary basis, calculates what its regulatory capital requirement
would be if ICC was subject to EU-based clearing house regulatory
capital requirements. ICC maintains regulatory capital in an amount at
least equal to the highest of these three requirements (Commission,
CFTC, and EU). Section 10 provides that currently the EU regulatory
capital requirement results in the highest capital requirement and
therefore ICC maintains regulatory capital in accordance with this
requirement, which results in ICC maintaining regulatory capital in an
amount materially more than the amounts required by SEC Rule 17Ad-
22(e)(15) \9\ or CFTC requirements. Section 10 then describes how ICC
maintains this regulatory capital as liquid assets funded by equity and
how ICC could raise additional capital from its parent company in the
event of any shortfall in its regulatory capital. Finally, Section 10
describes the estimated costs and time period for implementing the
Recovery Plan and how ICC estimates these figures, and demonstrates how
ICC's regulatory capital exceeds these costs.
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    \8\ 17 CFR 240.17Ad-22(e)(15).
    \9\ 17 CFR 240.17Ad-22(e)(15).
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    The remaining sections provide additional relevant information for
the Recovery Plan. Section 11 provides financial information relevant
to ICC and ICE. Section 12 sets forth key systems used by ICC to
generate reports to monitor and support clearing operations. Section 13
consists of the appendices to the Recovery Plan, including a glossary,
diagrams and charts of clearing processes and financial service
providers, and analyses related to different stress scenarios and
recovery tools. Section 14 is an index of exhibits to the Recovery
Plan.

C. Wind-Down Plan

    The Wind-Down Plan establishes how ICC could be wound-down in an
orderly manner. ICC only invokes the Wind-Down Plan where recovery
actions in the proposed Recovery Plan fail to preserve ICC's viability
as a going concern (and therefore recovery is not possible) and
resolution is not triggered. ICC could also use the Wind-Down Plan
where ICC makes a business decision to exit all clearing activities.
The proposed Wind-Down Plan is divided into 12 sections, which are
detailed below.
    Similar to the proposed Recovery Plan, the Wind-Down Plan provides
necessary background and context regarding ICC for wind-down planning.
Section 1 of the Wind-Down Plan introduces the plan, summarizes key
aspects of the Wind-Down Plan, and explains the plan's purpose. Section
2 provides an overview of ICC and the regulation to which it is
subject, including key information regarding ICC's ownership structure
and regulatory registrations and designations. Section 3 describes the
regulatory requirements and obligations applicable to ICC, including
regulatory guidance that ICC considered in writing the plan.
    Section 4 of the Wind-Down Plan describes ICC's CPs and the
governance arrangements that are relevant to wind-down, including the
roles and responsibilities of the Board and Risk Committee. If ICC's
recovery efforts fail, the ICC Board determines whether to implement
the Wind-Down Plan and determines which options to use to achieve an
orderly wind-down, taking into consideration the interests of CPs,
through both the recommendations of the Risk Committee and the
participation of CPs on the Board itself. ICC also regularly takes into
account feedback of customers of CPs, both through its Advisory
Committee and through direct communications with representatives of
customers. Finally, Section 4 describes the ICC committees involved in
the wind-down process, with the Risk Committee the principal committee
involved in the wind-down process.
    Next, Section 5 of the Wind-Down Plan describes the potential
stress scenarios that could prevent ICC from meeting obligations and
providing services, resulting in wind-down. Similar to the Recovery
Plan, Section 5 categorizes the stress scenarios as: (i) CP default
stress scenarios, and (ii) severe stress triggered by general business
risks, operational risks, or other risks that may threaten ICC's
viability as a going concern, other than a CP default (``non-CP default
severe stress scenarios''). Appendix D further analyzes each scenario,
including, among other things, the events triggering wind-down under
each scenario. These triggering events fall into two broad categories:
(i) A critical reduction in market participation, and (ii) a critical
reduction in ICC's financial resources below regulatory capital
requirements. With respect to a business decision to wind-down, the
triggering event is the Board's decision to exit the business.
    Section 6 examines ICC's options for wind-down, how ICC executes
those options, and the potential obstacles to an orderly wind-down. ICC
has three options for wind-down: (i) A transfer of CDS clearing
activities from ICC to an alternative clearinghouse; (ii) the sale of
ICC to another entity; or (iii) the termination of open positions.
Although Section 6 presents the three options as alternatives, it also
notes that the options could be used in combination with each other.
Section 6 also notes that while the selection of the wind-down option
depends on the circumstances, ICC prefers a transfer or sale and
considers termination only if a transfer or sale cannot be achieved.
Moreover, ICC could use any these options in the event ICC makes a
business decision to exit all clearing activities.
    To execute these options, the ICC Board first makes a decision to
wind-down, and as noted above, that is only in the event that recovery
fails to preserve ICC's viability as a going concern and resolution is
not triggered. Section 6 notes that before the Board makes a wind-down
decision, ICC first consults with, among others, market participants,
potential alternative clearing houses, and regulators. Moreover, once
the ICC Board makes the decision to wind-down, ICC informs both the
CFTC and the Commission.
    After the ICC Board agrees in principle to a wind-down, ICC staff
undertakes an analysis under the direction of the Board and may consult
with CPs, market participants, alternative clearing houses, swap
execution platforms, and regulators with respect to the options and
approaches to wind-down, to gain their input and relevant information
for consideration by the ICC Board. The ICC Board ultimately decides
which of the options to use. Section 6 notes that, to the extent
possible, ICC's primary determinant of feasibility for wind-down
options is the ability to continue providing centralized clearing of
CDS with as little disruption as possible. If continuation is not
feasible, the primary determinant is the ability to discontinue CDS
clearing services in an orderly manner with minimum negative impact to
the marketplace and stakeholders.
    Section 6 sets forth the plans that ICC uses for executing each
wind-down option, including the approach, timeline, potential
impediments, and other considerations. The Board considers and approves
the execution plan prior to implementation. Where the Board makes a
business decision to wind-down, ICC executes wind-down using one or
more of the wind-down options listed above, with an execution plan
based on those provided in the Wind-Down Plan.
    Finally, Section 6 discusses the potential obstacles to executing
an orderly wind-down. These obstacles

include, among others: Staff retention; the ability to continue to
receive key services from affiliates or third party vendors; risk of
litigation; and finding an appropriate buyer.
    Section 7 describes the interconnections and interdependencies
between ICC and other entities. Similar to the Recovery Plan, Section 7
analyzes the legal entities that are material to ICC for the Wind-Down
Plan, the critical services provided to ICC by ICE or external third
parties, and ICC's operational and financial interconnections. This
analysis identifies ICE as ICC's sole MLE for the purpose of wind-down
and explains the interconnection between ICE and ICC, including through
services provided to ICC by ICE, such as accounting, human resources,
audit, and facilities.
    Again, similar to the Recovery Plan, Section 7 also (i) details the
critical services that are necessary to continue daily operations of
CDS clearing services; (ii) categorizes the critical services by those
that are provided to ICC by ICE and those that are provided to ICC by
external third parties; (iii) describes the IT systems and applications
critical to ICC's clearing operations; and (iv) explains how ICC uses
financial service providers and how ICC monitors entities that have
multiple roles and relationships with ICC (such as a CP that also
provides financial services to ICC).
    Section 8 of the Wind-Down Plan analyzes ICC's contractual
arrangements in the context of continuing services during wind-down.
    Section 9 of the Wind-Down Plan analyzes the financial resources
maintained by ICC to support wind-down in compliance with relevant
regulations, including the procedures to follow in case of any
shortfall. This section also discusses the timing for executing the
wind-down options and ICC's projected estimated recovery and wind-down
costs. As with the Recovery Plan, this section of the Wind-Down Plan
notes that ICC maintains capital in accordance with SEC Rule 17Ad-
22(e)(15) \10\ as well as CFTC requirements and, on a voluntary basis,
calculates what its regulatory capital requirement would be if ICC was
subject to EU-based clearing house regulatory capital requirements. ICC
maintains regulatory capital in an amount at least equal to the highest
of these three requirements (Commission, CFTC, and EU). Section 9
provides that currently the EU regulatory capital requirement results
in the highest capital requirement and therefore ICC maintains
regulatory capital in accordance with this requirement, which results
in ICC maintaining regulatory capital in an amount materially more than
the amounts required by SEC Rule 17Ad-22(e)(15) \11\ or CFTC
requirements. Section 9 then describes how ICC maintains this
regulatory capital as liquid assets funded by equity and how ICC could
raise additional capital from its parent company in the event of any
shortfall in its regulatory capital. Section 9 describes the estimated
costs and time period for implementing the Wind-Down Plan and how ICC
estimates these figures, and demonstrates how ICC's regulatory capital
exceeds these costs.
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    \10\ 17 CFR 240.17Ad-22(e)(15).
    \11\ 17 CFR 240.17Ad-22(e)(15).
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    Section 10 of the Wind-Down Plan describes the governance
arrangements that provide oversight and direction in respect of the
Wind-Down Plan, including design, implementation, testing, review, and
on-going maintenance. Specifically, overall responsibility for the
Wind-Down Plan rests with the ICC Board. The ICC Board reviews and
approves the Wind-Down Plan. As explained in Section 10, the ICC Board
has delegated to the ICC President responsibility for implementing the
Wind-Down Plan, as well as considering and developing any needed
amendments or modifications to the Wind-Down Plan over time, and the
ICC President is accountable to the ICC Board with respect to such
matters. Accordingly, ICC management prepared the Wind-Down Plan under
the direction of the ICC President.
    Section 10 also notes that in developing and approving the Wind-
Down Plan, ICC management and the ICC Board consider the legitimate
interests of CPs, customers of CPs, and other relevant stakeholders,
and that ICC considers the legitimate interests of such stakeholders in
the execution and implementation of the Wind-Down Plan.
    Section 10 describes the process for reviewing and approving the
Wind-Down Plan, including changes to the Wind-Down Plan and testing.
ICC Management, the ICC Risk Committee, and the ICC Board review and
approve the Wind-Down Plan. Annually, the ICC General Counsel
coordinates with ICC management to review and update the Wind-Down
Plan. Moreover, ICC's General Counsel coordinates with ICC management
to revise the Wind-Down Plan promptly when warranted by material
changes to ICC's Rules, policies, procedures, or other circumstances.
The ICC Risk Committee reviews the annual update and ongoing material
amendments to the Wind-Down Plan and makes a recommendation to the ICC
Board with respect to Board approval. The ICC Board considers the Risk
Committee's recommendation and is ultimately responsible for approval
of revisions to the Wind-Down Plan. ICC notifies its regulatory
authorities of changes to the Wind-Down Plan. Section 10 notes that ICC
tests the Recovery Plan at least annually, as part of its annual
default management drills, and ICC management provides the results of
such testing, as well as any changes it recommends due to such testing,
to the ICC Board and Risk Committee.
    Finally, Section 10 describes the governance for implementation of
the Wind-Down Plan. As discussed elsewhere in the Wind-Down Plan, the
ICC Board decides whether to wind-down and selects the option to use to
achieve an orderly wind-down. ICC informs both the Commission and the
CFTC of the decision to wind-down. The ICC President is responsible for
implementing and overseeing the execution of the wind-down option
chosen by the ICC Board.
    The remaining sections provide additional relevant information for
the Wind-Down Plan. Section 11 contains appendices, including a
glossary, diagrams and charts of both clearing processes and financial
service providers, and analyses related to different stress scenarios.
Lastly, Section 12 is an index of exhibits to the Wind-Down Plan.

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.\12\ After careful review, the Commission finds that the
proposed rule change is consistent with the requirements of the Act and
the rules and regulations thereunder applicable to ICC. In particular,
the Commission finds that the proposed rule change is consistent with
Section 17A(b)(3)(F) of the Act; \13\ Rules 17Ad-22(e)(2)(i), (iii),
and (v); \14\ Rule 17Ad-22(e)(3)(ii); \15\ and Rules 17Ad-22(e)(15)(i)
and (ii).\16\
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    \12\ 15 U.S.C. 78s(b)(2)(C).
    \13\ 15 U.S.C. 78q-1(b)(3)(F).
    \14\ 17 CFR 240.17Ad-22(e)(2)(i), (iii), and (v).
    \15\ 17 CFR 240.17Ad-22(e)(3)(ii).
    \16\ 17 CFR 240.17Ad-22(e)(15)(i) and (ii).

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A. Consistency With Section 17A(b)(3)(F) of the Act

    Section 17A(b)(3)(F) requires, among other things, that the rules
of ICC be designed to promote the prompt and accurate clearance and
settlement of securities transactions and, to the extent applicable,
derivative agreements, contracts, and transactions, as well as to
assure the safeguarding of securities and funds which are in the
custody or control of ICC or for which it is responsible.\17\
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    \17\ 15 U.S.C. 78q-1(b)(3)(F).
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    As discussed in greater detail below, the Commission believes that
the Recovery Plan, generally, is designed to help ICC promote the
prompt and accurate clearance and settlement of securities transactions
and assure the safeguarding of securities and funds which are in the
custody or control of ICC or for which it is responsible, by providing
a roadmap for actions it may employ to monitor and manage its risks,
and, as needed, to stabilize its financial condition in the event those
risks materialize. Specifically, as described above, the Recovery Plan
establishes triggers for the potential application of the recovery
tools described in the Recovery Plan. The Commission believes that
establishing such triggers alongside a list of available recovery tools
helps ICC more promptly determine when and how it may need to manage a
significant stress event, and, as needed, stabilize its financial
condition.
    Moreover, as described above, the Recovery Plan specifies the steps
that ICC takes in recovery and the governance framework applicable to
taking such steps. It analyzes the anticipated impact of the recovery
tools, the incentives created by such tools, and the risks associated
with using such tools. It also explains how the tools are transparent,
measurable, manageable, and controllable. The Commission believes that
by identifying the steps ICC takes and the tools it uses to bring about
recovery in the face of losses, the Recovery Plan increases the
likelihood that recovery is orderly, efficient, and successful. By
increasing the likelihood of an orderly, efficient, and successful
recovery, the Commission believes that the Recovery Plan enhances ICC's
ability to maintain the continuity of its CDS clearing service during,
through, and following periods of extreme stress giving rise to the
need for recovery, thereby promoting the prompt and accurate settlement
of CDS transactions. The Commission also believes that the Recovery
Plan helps assure the safeguarding of securities or funds in the
custody or control of ICC by reducing the likelihood of a disorderly or
unsuccessful recovery that could disrupt access to such securities or
funds.
    Further, the Commission believes that the Wind-Down Plan,
generally, is designed to help ICC to promote the prompt and accurate
clearance and settlement of securities transactions and to assure the
safeguarding of securities and funds which are in the custody or
control of ICC or for which it is responsible by providing a roadmap to
wind-down designed to ensure the availability of ICC's services to the
marketplace, while reducing disruption to the operations of CPs and
financial markets. For example, as described above, the Wind-Down Plan
provides for the wind-down of ICC's operations as well as addressing
transfer of membership and critical services in the case that recovery
tools fail to return ICC to financial viability. Moreover, under the
Wind-Down Plan, the ICC Board seeks a wind-down option that allows the
continuance of centralized clearing of CDS with as little disruption as
possible. Further to that end, the Wind-Down Plan notes that while the
selection of the wind-down option depends on the circumstances, ICC
prefers a transfer or sale and considers termination only if a transfer
or sale cannot be achieved. By establishing the Wind-Down Plan to
enable continuity in ICC's critical services and membership in an
orderly manner while winding down its services, the Commission believes
that the proposed rule change promotes the prompt and accurate
clearance and settlement of securities transactions and assures the
safeguarding of securities and funds in the custody or control of ICC
or for which it is responsible.
    Therefore, the Commission finds that the proposed rule change
should promote the prompt and accurate clearance and settlement of
securities transactions and assure the safeguarding of securities and
funds in ICC's custody or control or for which it is responsible,
consistent with 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 Rules 17Ad-22(e)(2)(i), (iii), and (v)

    Rules 17Ad-22(e)(2)(i), (iii), and (v) require that ICC establish,
implement, maintain and enforce written policies and procedures
reasonably designed to provide for governance arrangements that are
clear and transparent; that support the public interest requirements in
17A of the Act \19\ applicable to clearing agencies, and the objectives
of owners and participants; and that specify clear and direct lines of
responsibility.\20\
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    \19\ 15 U.S.C. 78q-1.
    \20\ 17 CFR 240.17Ad-22(e)(2)(i), (iii), and (v).
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    As described above, the Plans are designed to identify clear lines
of responsibility concerning the recovery and wind-down of ICC
including (i) the ongoing development of the Plans; (ii) the ongoing
maintenance and testing of the Plans; (iii) reviews and approvals of
the Plans and updates to the Plans; and (iv) the functioning and
implementation of the Plans. As described above, the ICC General
Counsel coordinates with ICC management to review and update the Plans
annually, or more frequently when warranted by material changes to
ICC's Rules, policies, procedures, or other circumstances. The ICC Risk
Committee reviews the annual update and ongoing material amendments to
the Plans and makes a recommendation to the ICC Board with respect to
Board approval. The ICC Board considers the Risk Committee's
recommendation and is responsible for approving revisions to the Plans.
Moreover, the Plans describe the governance for implementation of
recovery and wind-down, including the parties responsible for execution
of recovery tools and wind-down options. The Plans also explain how ICC
receives input from relevant stakeholders, including CPs through the
ICC Risk Committee and CP representation on the ICC Board, and
customers of CPs through ICC's Advisory Committee and direct
communications with customer representatives.
    In considering the above, the Commission believes that the Plans
help contribute to establishing, implementing, maintaining, and
enforcing written policies and procedures reasonably designed to
provide for governance arrangements that are clear and transparent by
specifying lines of control and responsibility. The Commission also
believes that the Plans help contribute to establishing, implementing,
maintaining, and enforcing written policies and procedures reasonably
designed to provide for governance arrangements that support the public
interest requirements in Section 17A of the Act \21\ applicable to
clearing agencies, and the objectives of owners and participants,
because they specify the process ICC takes to receive input from
various ICC stakeholders. In addition, the Commission believes that the
Plans help contribute to

establishing, implementing, maintaining, and enforcing written policies
and procedures reasonably designed to provide for governance
arrangements that specify clear and direct lines of responsibility
because they identify who is responsible for the ongoing development,
maintenance, reviews, approval, functioning, and implementation of the
Plans.
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    \21\ 15 U.S.C. 78q-1.
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    Therefore, the Commission finds that the proposed rule change is
consistent with Rules 17Ad-22(e)(2)(i), (iii), and (v).\22\
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    \22\ 17 CFR 240.17Ad-22(e)(2)(i), (iii), and (v).
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C. Consistency With Rule 17Ad-22(e)(3)(ii)

    Rule 17Ad-22(e)(3)(ii) requires that ICC establish, implement,
maintain, and enforce written policies and procedures reasonably
designed to maintain a sound risk management framework for
comprehensively managing legal, credit, liquidity, operational, general
business, investment, custody, and other risks that arise in or are
borne by ICC, which includes plans for the recovery and orderly wind-
down of ICC necessitated by credit losses, liquidity shortfalls, losses
from general business risk, or any other losses.\23\
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    \23\ 17 CFR 240.17Ad-22(e)(3)(ii).
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    As described above, the Recovery Plan provides a plan for ICC's
recovery necessitated by credit losses, liquidity shortfalls, losses
from general business risk, or any other losses by defining the
recovery tools that ICC may use to address stress scenarios that could
eventually prevent ICC from being able to provide its critical services
as a going concern. For example, the Recovery Plan describes (i) the
potential stress scenarios that may prevent ICC from being able to meet
obligations and provide services; (ii) the mechanisms ICC uses to
monitor for the occurrence of such scenarios; and (iii) the tools ICC
uses to recover from those stress scenarios, including when and how ICC
uses those tools. Moreover, the Recovery Plan discusses the tools that
are available to ICC to address a situation where ICC experiences
liquidity shortfalls triggered by a default of one or more CPs and has
insufficient liquid resources in the proper currency to meet payments
obligations. Therefore, the Commission believes the Recovery Plan helps
ICC establish, implement, maintain, and enforce written policies and
procedures reasonably designed to maintain a sound risk management
framework for comprehensively managing legal, credit, liquidity,
operational, general business, investment, custody, and other risks
that arise in or are borne by ICC, which includes a plan for the
recovery of ICC necessitated by credit losses, liquidity shortfalls,
losses from general business risk, or any other losses.
    As discussed above, the Wind-Down Plan provides a plan for orderly
wind-down of ICC in the event the actions described in the Recovery
Plan fail to preserve ICC's viability as a going concern and resolution
is not triggered. Once triggered, the Wind-Down Plan is designed to
maintain continued access to ICC's critical services and minimize
market impacts while ICC seeks to ultimately wind-down its services.
Moreover, the Wind-Down Plan provides options for wind-down and
describes plans for executing those options, as well as the
responsibilities of various groups at ICC. The ICC Board seeks a wind-
down option that allows the continuance of centralized clearing of CDS
with as little disruption as possible and gives preference to a
transfer or sale, to minimize the disruption to the marketplace and
ICC's CDS clearing service. Therefore, the Commission believes that the
Wind-Down Plan helps ICC establish, implement, maintain, and enforce
written policies and procedures reasonably designed to maintain a sound
risk management framework for comprehensively managing legal, credit,
liquidity, operational, general business, investment, custody, and
other risks that arise in or are borne by ICC, which includes a plan
for the orderly wind-down of ICC necessitated by credit losses,
liquidity shortfalls, losses from general business risk, or any other
losses.
    For these reasons, the Commission finds that the proposed rule
change is consistent with Rule 17Ad-22(e)(3)(ii).\24\
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    \24\ 17 CFR 240.17Ad-22(e)(3)(ii).
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D. Consistency With Rules 17Ad-22(e)(15)(i) and (ii)

    Rules 17Ad-22(e)(15)(i) and (ii) \25\ require that ICC establish,
implement, maintain, and enforce written policies and procedures
reasonably designed to identify, monitor, and manage ICC's general
business risk and hold sufficient liquid net assets funded by equity to
cover potential general business losses so that ICC can continue
operations and services as a going concern if those losses materialize,
including by (i) determining the amount of liquid net assets funded by
equity based upon its general business risk profile and the length of
time required to achieve a recovery or orderly wind-down, as
appropriate, of its critical operations and services if such action is
taken and (ii) holding liquid net assets funded by equity equal to the
greater of either (x) six months of ICC's current operating expenses,
or (y) the amount determined by the board of directors to be sufficient
to ensure a recovery or orderly wind-down of critical operations and
services of ICC, as contemplated by the plans established under Rule
17Ad-22(e)(3)(ii).\26\
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    \25\ 17 CFR 240.17Ad-22(e)(15)(i) and (ii).
    \26\ 17 CFR 240.17Ad-22(e)(3)(ii).
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    As discussed above, both of the Plans describe how ICC maintains
capital in accordance with SEC Rule 17Ad-22(e)(15).\27\ ICC does so by
maintaining regulatory capital as if it was subject to EU-based
clearing house regulatory capital requirements, which results in ICC
maintaining an amount of capital exceeding what is required by Rule
17Ad-22(e)(15).\28\ Moreover, the Plans describe how ICC ensures that
it maintains this amount, including through monthly calculations of
ICC's net assets and its regulatory capital requirements. The Plans
also describe how ICC maintains this regulatory capital as liquid
assets funded by equity and how ICC could raise additional capital from
its parent company in the event of any shortfall in its regulatory
capital. Finally, the Plans describes the estimated costs and time
period for implementing recovery and wind-down and how ICC estimates
these figures, and demonstrate how ICC's regulatory capital exceeds
these costs.
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    \27\ 17 CFR 240.17Ad-22(e)(15).
    \28\ 17 CFR 240.17Ad-22(e)(15).
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    Therefore, the Commission finds that the proposed rule change is
consistent with Rules 17Ad-22(e)(15)(i) and (ii).\29\
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    \29\ 17 CFR 240.17Ad-22(e)(15)(i) and (ii).
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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, with the requirements of Section 17A(b)(3)(F) of the
Act,\30\ Rules 17Ad-22(e)(2)(i), (iii), and (v),\31\ Rule 17Ad-
22(e)(3)(ii),\32\ and Rules 17Ad-22(e)(15)(i) and (ii).\33\
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    \30\ 15 U.S.C. 78q-1(b)(3)(F).
    \31\ 17 CFR 240.17Ad-22(e)(2)(i), (iii), and (v).
    \32\ 17 CFR 240.17Ad-22(e)(3)(ii).
    \33\ 17 CFR 240.17Ad-22(e)(15)(i) and (ii).
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    It is therefore ordered pursuant to Section 19(b)(2) of the Act
\34\ that the proposed rule change (SR-ICC-2021-005) be, and hereby is,
approved.\35\
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    \34\ 15 U.S.C. 78s(b)(2).
    \35\ 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).

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    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\36\
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    \36\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-10173 Filed 5-13-21; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 87, Number 202 (Thursday, October 20, 2022)]
[Proposed Rules]
[Pages 63743-63744]
[FR Doc No: 2022-22224]

=======================================================================
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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 52

[EPA-R02-OAR-2022-0785, FRL-10210-01-R2]

Approval and Promulgation of Implementation Plans; New Jersey;
Motor Vehicle Enhanced Inspection and Maintenance Program; Diesel
Opacity Cutpoints

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

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SUMMARY: The Environmental Protection Agency (EPA) is proposing to
approve a revision to the State Implementation Plan (SIP) submitted by
the New Jersey Department of Environmental Protection (NJDEP) in 2009
for New Jersey's motor vehicle inspection and maintenance (I/M)
program. A final rule for this proposal would complete EPA's action on
this submitted SIP revision and maintain consistency between the State
adopted rules and the federally approved New Jersey SIP.

DATES: Written comments must be received on or before November 21,
2022.

ADDRESSES: Submit your comments, identified by Docket ID Number EPA-
R02-OAR-2022-0785 at https://www.regulations.gov. Although listed in
the index, some information is not publicly available, e.g.,
Confidential Business Information (CBI) or other information whose
disclosure is restricted by statute. Certain other material, such as
copyrighted material, is not placed on the internet and will be
publicly available only in hard copy form. Publicly available docket
materials are available electronically through https://www.regulations.gov. Follow the online instructions for submitting
comments. Once submitted, comments cannot be edited or removed from
Regulations.gov. The EPA may publish any comment received to its public
docket. Do not submit electronically any information you consider to be
Confidential Business Information (CBI) or other information whose
disclosure is restricted by statute. Multimedia submissions (audio,
video, etc.) must be accompanied by a written comment. The written
comment is considered the official comment and should include
discussion of all points you wish to make. The EPA will generally not
consider comments or comment contents located outside of the primary
submission (i.e., on the web, cloud, or other file sharing system). For
additional submission methods, the full EPA public comment policy,
information about CBI or multimedia submissions, and general guidance
on making effective comments, please visit https://www2.epa.gov/dockets/commenting-epa-dockets.

FOR FURTHER INFORMATION CONTACT: Reema Loutan, Technology,
Transportation, and Radiation Branch, Environmental Protection Agency,
290 Broadway, 25th Floor, New York, New York 10007-1866, (212) 637-
3760, or by email at [email protected].

SUPPLEMENTARY INFORMATION:

I. What action is the EPA proposing?
II. What is the purpose of the submitted rules?
III. What are the EPA's conclusions?
IV. Statutory and Executive Order Reviews

I. What action is the EPA proposing?

    The EPA is proposing to approve a revision to the New Jersey State
Implementation Plan (SIP), submitted by New Jersey on July 20, 2009,
pertaining to New Jersey's motor vehicle inspection and maintenance (I/
M) program. This July 20, 2009 SIP revision submittal consisted of
rules and rule amendments to the New Jersey Department of Environmental
Protection's rules at N.J.A.C. Title 7, Chapter 27, Subchapter 14,
titled ``Control and Prohibition of Air Pollution from Diesel-Powered
Motor Vehicles (Diesel-Powered Motor Vehicle Inspection and Maintenance
Program),'' at sections 14.2, 14.4 and 14.6, and related amendments to
the ``Sampling and Analytical Procedures'' at N.J.A.C. Title 7, Chapter
27B, Subchapter 4, titled ``Air Test Method 4: Testing Procedures for
Diesel-Powered Motor Vehicles,'' at section 4.5. Section 7:27B-4.5,
which provided for an alternative smoke opacity test standard for model
year 1973 and older diesel-powered motor vehicles, has since been
rescinded. New Jersey adopted these amendments to encourage increased
diesel engine maintenance and repairs, thereby reducing the amount of
particulate matter (PM) and other pollutants emitted from diesel
engines. Rules approved into the SIP must be enforceable (see CAA
section 110(a)(2)), must not interfere with applicable CAA requirements
including attainment of the national ambient air quality standards
(NAAQS) or reasonable further progress toward attaining the NAAQS (see
CAA section 110(l)), and must not modify certain SIP control
requirements in nonattainment areas without ensuring equivalent or
greater emissions reductions (see CAA section 193). When submitted in
2009, EPA deferred acting on this SIP revision. However, since the 2009
SIP submittal, New Jersey has made several amendments to its I/M
program to improve program performance, and a subsequent SIP revision
for the diesel opacity program was approved by EPA and supersedes the
July 20, 2009, SIP revision submittal. See 83 FR 21174 (May 9, 2018).
    Consistent with EPA's 2018 approval of the State's current opacity
cutpoint regulations, the rules in the 2009 SIP submission meet CAA
requirements and are consistent with relevant guidance regarding SIP
revisions and the enforceability of state rules. The standards set
forth in the rules listed above are more stringent than the opacity
standards set forth in the EPA's guidance to states.\1\ Further, while
EPA's 1999 guidance establishes recommendations for states to uniformly
establish opacity standards, states have authority under CAA section
209(d) to establish their own in-use standards for motor vehicles.
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    \1\ See ``Guidance to States on In-Use Smoke Test Procedure for
Highway Heavy-Duty Diesel Vehicles,'' EPA OAR, April 3, 1997, and
``Guidance to States on Smoke Opacity Cutpoints to be used with the
SAE J1667 In-Use Smoke Test Procedure,'' EPA OAR, February 25, 1999.
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II. What is the purpose of the submitted rules?

    Emissions of PM, including PM equal to or less than 2.5 microns in
diameter (PM2.5) and PM equal to or less than 10 microns in
diameter (PM10), contribute to harmful impacts to human
health and the environment, including premature mortality, aggravation
of respiratory and cardiovascular disease, decreased lung function,
visibility impairment, and damage to vegetation and ecosystems. Section
110(a) of the CAA requires states to submit regulations for controlling
PM emissions. On July 20, 2009, New Jersey submitted to EPA a revision
to its SIP pertaining to revisions to the New Jersey I/M program. The
2009 submittal consisted of rules and rule amendments to the New Jersey
Department of

Environmental Protection's rules regarding diesel opacity cutpoints,
visible smoke standard for diesel-powered trucks and buses, and
exemptions for emergency vehicles. A subsequently approved SIP
revision, submitted to the EPA on September 16, 2016, implemented
changes to New Jersey's I/M program that include procedures for diesel
exhaust after-treatment checks, repealed the rolling acceleration smoke
opacity test and the power brake smoke opacity test, and retained only
the snap acceleration smoke opacity test.
    In addition to the rule changes, NJDEP identified emission
reduction credits associated with the program in the July 20, 2009, SIP
revision. The EPA is not proposing to approve any emission reduction
SIP credit under this rule, for this purpose, at this time, but the
State may resubmit a SIP revision to recognize the SIP credit if and
when fully developed, available, complete, and quantifiable. There are
research efforts supporting the development of emissions quantification
methods for heavy-duty inspection and maintenance programs.

III. What are the EPA's Conclusions?

    The EPA's review of the materials submitted indicates that New
Jersey has revised its I/M program in accordance with the requirements
of the CAA and 40 CFR part 51. The EPA is proposing to approve the
rules and rule amendments to the New Jersey Department of Environmental
Protection's rules proposed in the July 20, 2009, SIP revision for
N.J.A.C. 7:27-14 and 7:27B-4, with the acknowledgement that this
program is superseded by the current New Jersey diesel program that was
approved by the EPA on May 9, 2018 (83 FR 21174). The CAA gives states
the discretion in program planning to implement programs of the state's
choosing as long as necessary emission reductions are met.

IV. Statutory and Executive Order Reviews

    Under the CAA, the Administrator is required to approve a SIP
submission that complies with the provisions of the CAA and applicable
Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in
reviewing SIP submissions, the EPA's role is to approve state choices,
provided that they meet the criteria of the CAA. Accordingly, this
action merely approves state law as meeting Federal requirements and
does not impose additional requirements beyond those imposed by state
law. For that reason, this proposed action:
     Is not a ``significant regulatory action'' subject to
review by the Office of Management and Budget under Executive Orders
12866 (58 FR 51735, October 4, 1993) and 13563 (76 FR 3821, January 21,
2011);
     Does not impose an information collection burden under the
provisions of the Paperwork Reduction Act (44 U.S.C. 3501 et seq.);
     Is certified as not having a significant economic impact
on a substantial number of small entities under the Regulatory
Flexibility Act (5 U.S.C. 601 et seq.);
     Does not contain any unfunded mandate or significantly or
uniquely affect small governments, as described in the Unfunded
Mandates Reform Act of 1995 (Pub. L. 104-4);
     Does not have federalism implications as specified in
Executive Order 13132 (64 FR 43255, August 10, 1999);
     Is not an economically significant regulatory action based
on health or safety risks subject to Executive Order 13045 (62 FR
19885, April 23, 1997);
     Is not a significant regulatory action subject to
Executive Order 13211 (66 FR 28355, May 22, 2001);
     Is not subject to requirements of section 12(d) of the
National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272
note) because this action does not involve technical standards; and
     Does not provide EPA with the discretionary authority to
address, as appropriate, disproportionate human health or environmental
effects, using practicable and legally permissible methods, under
Executive Order 12898 (59 FR 7629, February 16, 1994).
    In addition, this proposed rule, addressing New Jersey opacity
standards for diesel-powered motor vehicles is not approved to apply on
any Indian reservation land or in any other area where EPA or an Indian
tribe has demonstrated that a tribe has jurisdiction. In those areas of
Indian country, the rule does not have tribal implications and will not
impose substantial direct costs on tribal governments or preempt tribal
law as specified by Executive Order 13175 (65 FR 67249, November 9,
2000).

List of Subjects in 40 CFR Part 52

    Environmental protection, Air pollution control, Incorporation by
reference, Intergovernmental relations, Particulate matter, Reporting
and recordkeeping requirements.

    Authority:  42 U.S.C. 7401 et seq.

Lisa Garcia,
Regional Administrator, Region 2.
[FR Doc. 2022-22224 Filed 10-19-22; 8:45 am]
BILLING CODE 6560-50-P