[Federal Register Volume 84, Number 203 (Monday, October 21, 2019)]
[Notices]
[Pages 56270-56276]
[FR Doc No: 2019-22841]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87297; File No. SR-ICC-2019-007]

Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of
Filing of Partial Amendment No. 1 and Order Granting Accelerated
Approval of Proposed Rule Change, as Modified by Partial Amendment No.
1, Relating to the ICC Rules, ICC End-of-Day Price Discovery Policies
and Procedures, and ICC Risk Management Framework

October 15, 2019.

I. Introduction

    On June 28, 2019, 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 (the
``Act''),\1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to
make certain changes to ICC's Clearing Rules (the ``Rules'') \3\ and
related procedures to provide for the clearing of credit default index
swaptions (``Index Swaptions''). The proposed rule change was published
for comment in the Federal Register on July 17, 2019.\4\ On August 28,
2019, the Commission extended the period to take action on the proposed
rule change until October 15, 2019.\5\ The Commission has not received
any comments on the proposed rule change. On September 5, 2019, ICC
filed Partial Amendment No. 1 to the proposed rule change.\6\ The
Commission is publishing this notice to solicit comments on Partial
Amendment No. 1 from interested persons and is approving the proposed
rule change, as modified by Partial Amendment No. 1 (hereinafter,
``proposed rule change'') on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Capitalized terms used but not defined herein have the
meanings specified in the Rules.
    \4\ Self-Regulatory Organizations; ICE Clear Credit LLC;
Proposed Rule Change, Security-Based Swap Submission, or Advance
Notice Relating to the ICC Rules, ICC End-of-Day Price Discovery
Policies and Procedures, and ICC Risk Management Framework; Exchange
Act Release No. 86358 (July 11, 2019); 84 FR 34220 (July 17, 2019)
(``Notice'').
    \5\ Self-Regulatory Organizations; ICE Clear Credit LLC; Notice
of Designation of Longer Period for Commission Action on Proposed
Rule Change Relating to the ICC Rules, ICC End-of-Day Price
Discovery Policies and Procedures, and ICC Risk Management
Framework; Exchange Act Release No. 86799 (Aug. 28, 2019); 84 FR
46588 (Sept. 4, 2019)
    \6\ In Partial Amendment No. 1 to the proposed rule change, ICC
provided additional details and analyses surrounding the proposed
rule change in the form of a confidential Exhibit 3. Partial
Amendment No. 1 did not make any changes to the substance of the
filing or the text of the proposed rule change.
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II. Description of the Proposed Rule Change

A. Background

    The proposed rule change would amend ICC's Rules, End-of-Day Price
Discovery Policies and Procedures (the ``EOD Policy'') and Risk
Management Framework (the ``Risk Framework'') to provide for the
clearing by ICC of Index Swaptions.\7\
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    \7\ As explained in the Notice, prior to the commencement of
clearing of Index Swaptions, ICC intends to adopt certain other
policies and procedures in addition to this proposed rule change.
ICC does not intend to commence clearing of Index Swaptions until
any such policies and procedures, as well as the current proposed
rule change, have been approved by the Commission or otherwise
become effective. See Notice, 84 FR at 34220.
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    An Index Swaption is a contract whereby one party (the ``Swaption
Buyer'') has the right (but not the obligation) to cause the other
party (the ``Swaption Seller'') to enter into an index credit default
swap transaction at a pre-determined strike price on a specified
expiration date on specified terms.\8\ In the case of Index Swaptions
that would be cleared by ICC, the underlying index credit default swap
would be limited to certain CDX and iTraxx Europe index credit default
swaps that are accepted for clearing by ICC, and which would be
automatically cleared by ICC upon exercise of the Index Swaption by the
Swaption Buyer in accordance with its terms.
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    \8\ The description that follows is excerpted from the Notice,
84 FR 34220.
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B. Amendments to ICC's Rules

    The proposed rule change would adopt a new Subchapter 26R of ICC's
Rules, which would set out the contract terms and specifications for
cleared Index Swaptions.
    Rule 26R-102 would set out key definitions used for Index
Swaptions, which would be generally similar to those used in the
subchapters for other index Contracts cleared by ICC. Key defined terms
would include ``Eligible Untranched Swaption Index'', which would
specify the applicable series and version of a CDX or iTraxx index or
sub-index underlying an Index Swaption. As with other index CDS, ICC
would maintain a List of Eligible Untranched Swaption Indices, which
would contain the Eligible Untranched Swaption Indices as well as the
eligible expiration dates and strike prices, as well as other relevant
terms, for Index Swaptions that would be accepted for clearing by ICC.
Rule 26R-102 would also define the ``Relevant Index Swaption Untranched
Terms Supplement,'' (referred to herein as the ``Swaption Terms
Supplement''). The Swaption Terms Supplement, published by the
International Swaps and Derivatives Association, Inc. (``ISDA''), would
provide the standard contractual terms for index swaptions of the
relevant type. These terms would be incorporated by reference into the
contract terms in the Rules for a cleared Index Swaption.
    Rule 26R-102 also would define the ``Underlying Contract,'' which
would be the index CDS Contract into which the Index Swaption may be
exercised, and the ``Underlying New Trade,'' which would be a new
single name CDS trade that would arise upon exercise of an Index
Swaption where a relevant Restructuring Credit Event, if applicable,
has occurred with respect to a reference entity in the relevant index.
    New Rule 26R-103 would clarify the application of certain aspects
of the Rules to Index Swaptions. Specifically, it would specify that
Index Swaptions would be CDS Contracts for purposes of Chapters 20
(regarding default management), 20A (regarding transfers of positions),
21 (regarding determination of credit events), and 26E (regarding
restructuring credit events). Chapter 22, regarding physical settlement
of CDS, would not apply to Index Swaptions. Although Index Swaptions
would be physically settled, in the sense that the Index Swaption,

upon exercise, would result in the parties entering into an index CDS
position, the physical settlement terms for CDS Contracts in Chapter 22
of the Rules would not apply to settlement of the Index Swaption
itself. Instead, new Rule 26R-317(c) would, as discussed below, specify
the physical settlement terms for Index Swaptions. Finally, Rule 26R-
103 would specify that once an Index Swaption has been exercised, the
resulting Underlying Contract and Underlying New Trade, if any, would
themselves be treated as CDS Contracts for all purposes of the Rules.
    New Rule 26R-309 would require CDS Participants to use reasonable
efforts not to submit for clearing an Index Swaption at a time when the
Underlying Contract could not be submitted for clearing under the Rules
or at a time when the CDS Participant would be under an obligation to
use reasonable efforts not to submit a trade in such Underlying
Contract. New Rule 26R-309 would be necessary because the Rules related
to CDS Contracts cleared by ICC impose limitations on submission of
trades for clearing at certain times.\9\ Thus, ICC would not accept for
clearing an Index Swaption at a time when it could not accept the
Underlying Contract for clearing. As with other CDS Contracts under the
Rules, a CDS Participant would also be required to notify ICC if it has
submitted an Index Swaption that was not a Conforming Trade under the
Rules, meaning a trade that was not submitted in accordance with, and
did not meet the requirements established by, the Rules and the ICE
Clear Credit Procedures.\10\
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    \9\ See, e.g., ICC Rule 26A-309.
    \10\ See ICC Rule 309(g).
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    Rule 26R-315 would establish certain of ICC's basic contractual
terms for Index Swaptions. The Rule would provide that each Index
Swaption is governed by the applicable Swaption Terms Supplement,
subject to the relevant provisions of Subchapter 26R of the Rules. In
the case of any inconsistency between the Swaption Terms Supplement and
the Rules, the Rules would govern. This approach would be consistent
with the treatment of other cleared index CDS Contracts under the
Rules, which rely on and incorporate their own market-standard terms
supplements.
    New Rule 26R-316 would address ICC's process in the event that ISDA
publishes a new Swaption Terms Supplement that would apply to an Index
Swaption that is already being cleared by ICC. Consistent with ICC's
practice for other index CDS Contracts,\11\ the ICC Board or its
designee would determine whether Index Swaptions referencing the
existing standard terms supplement would be fungible with Index
Swaptions referencing the new standard terms supplement, and if so, ICC
would, in effect make the new Swaption Terms Supplement applicable to
existing Index Swaptions by updating relevant existing Index Swaptions
to reference the new Swaption Terms Supplement.
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    \11\ See ICC Rule 26A-316(b) (CDX North America); ICC Rule 26C-
316(b) (CDX Emerging Markets); ICC Rule 26F-316(b) (iTraxx Europe);
ICC Rule 26J-316(b) (iTraxx Asia/Pacific).
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    New Rule 26R-317 would specify other key terms for Index Swaptions.
Subsection (a) would, with respect to an Index Swaption referencing a
CDX.NA index, modify the Relevant Index Swaption Standard Terms
Supplement and the 2014 ISDA Credit Derivatives Definitions
incorporated into the Supplement. These modifications would reflect
changes ICC would make to accommodate the clearing of the Index
Swaption transactions, including to incorporate ICC's procedures for
determination of a Credit Event and for application of physical
settlement. These modifications would be consistent with similar
modifications that ICC uses for the CDX.NA index itself.\12\ Subsection
(b) of new Rule 26R-317 would make similar modifications with respect
to an Index Swaption referencing an iTraxx Europe index.\13\ Rule 26R-
317(c) would state explicitly that Index Swaptions would be physically
settled in accordance with Subchapter 26R.
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    \12\ See ICC Rule 26A-317(b).
    \13\ See ICC Rule 26F-317.
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    New Rule 26-317(d) would set out certain terms and elections under
the Swaption Terms Supplement that would apply to all Index Swaptions
of a particular type and underlying index. Significantly, ICC would
only accept Index Swaptions that are European style, such that the
option may only be exercised on the expiration date. New Rule 26-317(d)
would also define ICC as the Calculation Agent, except as provided in
the CDS Committee Rules in Chapter 21. This would mean that upon
settlement ICE Clear Credit, as calculation agent, would determine the
applicable settlement payment or payments (as determined under the
Swaption Terms Supplement, and based on the strike adjustment amount
and accrued amount thereunder) which shall be owed by the Swaption
Buyer or the Swaption Seller under any exercised Index Swaption, in
respect of such exercise. Finally, Rule 26-317(d) would also make
inapplicable certain provisions under the Swaption Terms Supplement
that would not apply to Index Swaptions.
    New Rule 26-317(e) would set out the terms for an Index Swaption
that must be included in the submission of an Index Swaption
transaction for clearing. Specifically, the submission must identify
the underlying index, trade date, expiration date, Swaption Buyer,
Swaption Seller, strike price and swaption premium. The submission must
also specify whether the Index Swaption is a ``payer'' or ``call''
option, in which case the Swaption Buyer, upon exercise, would be the
fixed rate payer under the Underlying Contract, or a ``receiver'' or
``put'' option, in which case the Swaption Seller, upon exercise, would
be the fixed rate payer under the Underlying Contract. The submission
must also specify the scheduled termination date of the Underlying
Contract and original notional amount of the Underlying Contract.
    New Rule 26R-318 would provide procedures for exercise and
assignment of Index Swaptions. The rule would provide that an Open
Position in an Index Swaption may be exercised on its expiration date
by the relevant Participant (or, in the case of a client position, the
relevant Non-Participant Party) that is the Swaption Buyer delivering
an exercise notice to ICC. New Rule 26R-318(d) would further provide
that upon receipt of the exercise notice, ICC would assign the exercise
notices to Open Positions of Participants that are Swaption Sellers
(across both the house and customer origin accounts) in accordance with
the Exercise Procedures.\14\ Under new Rule 26R-318(e), such an
assignment would constitute exercise of the relevant Open Position in
such Index Swaption between ICE Clear Credit, as Swaption Buyer and
such Swaption Seller. Moreover, the exercise of both the Open Position
between the Swaption Buyer and ICE Clear Credit and the offsetting Open
Position between ICE Clear Credit and the Swaption Seller would be
deemed effective simultaneously at the time of such assignment, as
recorded in the books and records of ICE Clear Credit. New Rule 26R-
318(g) would specify that, for the avoidance of doubt, the assignment
of an exercise notice does not create a direct relationship between the
exercising Swaption Buyer and the assigned Swaption Seller.

Rather, both such parties would continue to face ICC as clearing
organization. Finally, new Rule 26R-318(f) would specify that Index
Swaptions that are not validly exercised on the expiration date would
expire without further obligation of any party.
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    \14\ As discussed in the Notice, ICC intends to adopt a set of
Exercise Procedures that will provide further detail as to the
manner in which Index Swaptions may be exercised by Swaption Buyers
and in which notices of exercise will be assigned to Swaption
Sellers. See Notice, 84 FR at 34221, n.5.
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    New Rule 26R-319 would provide procedures for settlement of an
exercised Index Swaption. New Rule 26R-319(a) would provide that upon
exercise, a cleared Contract in the form of the Underlying Contract
would automatically come into effect as between the exercising Swaption
Buyer and ICC and an offsetting cleared Contract would automatically
come into effect as between ICC and the assigned Swaption Seller. ICC,
as a Calculation Agent, would determine the settlement payment or
payments owed by the Swaption Buyer or the Swaption Seller in
connection with the exercise. Such payments would represent a strike
adjustment amount based on the strike price of the Index Swaption and
an accrual amount reflecting the accrued fixed payment for the
Underlying Contract through expiration. The Swaption Buyer or the
Swaption Seller, as applicable, would make such payments in accordance
with the terms of the relevant Index Swaption (based on the Swaption
Terms Supplement).
    Consistent with the terms of the Index Swaption, new Rule 26R-
319(b) would require additional settlements if one or more Credit
Events has occurred with respect to the underlying index at or prior to
the expiration date of the Index Swaption. In general, such settlements
would be designed so that the party in the position of the protection
buyer under the Index Swaption would receive settlement for all such
Credit Events as if it had held the Underlying Contract at the time of
the Credit Event. These settlement amounts may include auction cash
settlement amounts, fixed rate payments, and accruals with respect to
such credit events. The proposed rule would also provide for an
additional accrual amount, owed by the party that is in the position of
fixed rate payer or floating rate payer, as applicable, to ensure
consistency in economic result where the swaption expiration occurs
after the relevant auction date for a Credit Event as compared to cases
where expiration occurs before the auction date. New Rule 26R-319(b)
would also address cases where the relevant Underlying Contract is
itself subject to physical settlement under Chapter 22 of the Rules. In
that case, the rule would provide for matching of Swaption Buyers and
Swaption Sellers for that purpose.
    New Rule 26R-319(c) would apply in the case of a relevant M(M)R
Restructuring Credit Event and would provide for delivery of MP Notices
(both Restructuring Credit Event Notices and Notices to Exercise
Movement Option) by Swaption Buyer and Swaption Sellers prior to
expiration of the Index Swaption. Such notices would have effect with
respect to the Underlying New Trade established if the Index Swaption
is exercised. New Rule 26R-319(c) would also address settlement with
respect to the Underlying New Trade.
    Rule 26R-502 would clarify that ICC may take the following actions
with respect to Index Swaptions without consulting the Risk Committee:
(i) Adding new eligible Strike Prices; (ii) adding new Expiration Dates
for Index Swaptions; (iii) adding new series and tenors for the indices
which are Underlying Contracts for Index Swaptions; and (iv) adding new
eligible Scheduled Termination Dates for Underlying Contracts. In ICC's
view, these actions are business-as-usual actions necessary to maintain
existing cleared contracts and do not pose a material risk change to
ICC. As such, consultation with ICC's Risk Committee would not be
necessary for these changes.
    Finally, Consistent with similar provisions for other product
subchapters,\15\ new Rule 26R-616 would provide that actions by the
Board or its designee to give effect to certain determinations of the
Credit Derivatives Determinations Committee or Regional CDS Committee,
such as succession events and the like, would not constitute a Contract
Modification for purposes of the Rules. Thus, new Rule 26R-616 would
allow ICC's Board or its designee to give effect to determinations of
the Credit Derivatives Determinations Committee or Regional CDS
Committee, as those determinations affect the Underlying Contracts for
Index Swaptions, without complying with ICC Rule 616. ICC Rule 616
requires that ICC provide Participants notice ahead of certain Contract
Modifications. In ICC's view, these changes would not constitute
Contract Modifications, as defined in ICC's Rules, because they are
changes built into the terms of the contracts that are expected, and
traded on, by market participants.
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    \15\ See ICC Rule 26B-616; 26D-616; 26G-616; 26H-616; 26I-616;
26L-616; 26M-616; 26N-616; 26O-616; 26P-616; and 26Q-616.
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C. EOD Policy Amendments

    The proposed rule change would also amend ICC's EOD Policy to
incorporate Index Swaptions. The EOD Policy sets out ICC's EOD price
discovery process used to determine the daily settlement prices for all
cleared Contracts, based on submissions made by Participants. The
proposed amendments to the EOD Policy would specify the characteristics
that define a unique Index Swaption instrument for purposes of price
submissions by Participants, including exercise style, underlying
index, option type (put or call), expiration date, strike price and
convention (price or spread), and transaction type (reflecting the
Swaption Terms Supplement).
    The amendments to the EOD Policy would establish a methodology for
determining EOD bid-offer widths (``BOWs'') for clearing-eligible Index
Swaptions, which are used for establishing EOD settlement prices. Under
the methodology, ICC would determine a systematic EOD BOW for each
Index Swaption. The final BOW for an Index Swaption would be determined
as the greater of the systematic BOW and a dynamic BOW determined on
the range of a series of unique price submissions made by Participants
for the particular Index Swaption (excluding certain of the largest and
smallest elements), in a manner similar to that which ICC currently
uses for calculating dynamic BOWs for single name CDS instruments.
    The amendments to the EOD Policy also would set out price
submission requirements for Participants. Under the amendments, if a
Participant has a gross notional position for any Index Swaption in any
strip \16\ of puts or calls, the Participant must provide submissions
for all clearing-eligible instruments in that strip of puts or calls
and the corresponding strip of calls or puts. In addition, if an
insufficient number of Participants are required to submit under this
standard, ICC may require all Participants to provide relevant
submissions. Finally, the amendments would establish the times that
Participants are required to submit prices related to Index Swaptions
and specify the required format of submissions.
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    \16\ The amendments would define a ``strip'' as the group of
Index Swaptions on a given ``surface'' with the same expiration date
(but with different strike prices). The amendments would define a
``surface'' as the group of Index Swaptions from a given put/call
surface pair with the same option type. The amendments would define
a ``put/call surface pair,'' as the group of Index Swaptions with
the same combination of underlying index, strike convention and
transaction type, but differ with respect to option type, expiration
date and strike price.
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    The amendments would apply ICC's firm trade requirements to Index
Swaptions. Under ICC's firm trade requirements, Participants are
required

to enter into a subset of trades generated by ICC's cross-and lock
algorithm. As with other cleared products, the amendments would
establish be a notional limit for firm trades for Participants in
affiliate groups. The amendments would set out procedures for
determining the relevant firm trade days for Index Swaptions and the
strips of puts and calls that are firm-trade eligible. Finally, the
amendments would amend the governance provisions of the EOD Policy to
make the ICC Risk Management Department responsible for performing
certain functions regarding firm trades and Index Swaptions, like
selecting days for firm trades in Index Swaptions.
    The amendments would also address distribution of Index Swaption
prices, both to Participants and publicly. As with indices and CDS, the
amendments would require that ICC publish a subset of EOD prices for
Index Swaptions on its website.
    The amendments would make certain other clarifications to the EOD
Policy. The amendments would incorporate Index Swaptions into the table
in the appendix setting out the timing for various aspects of the price
submission process. The amendments would also add a reference to ICE
Data Services' Credit Market Analysis services as a potential source of
alternative pricing data to use if ICC determines that the EOD price
discovery process has failed to determine reliable EOD prices. The
amendments would also make clarifications to the existing process for
index and single name CDS Contracts to distinguish it from the
additional submission process for Index Swaptions. Finally, the
amendments would also update defined terms and make typographical
corrections.

D. Risk Framework Amendments

    The proposed rule change would amend the Risk Framework to
incorporate the clearing of Index Swaptions. The amendments would
define Index Swaptions and identify key terms of Index Swaptions,
consistent with the Rules and EOD Policy. The amendments would, for
risk management purposes, define an Index Swaption instrument as a
specific combination of underlying index, expiration date, strike
price, option type, exercise type, currency and transaction type. The
amendments would apply the ICC initial margin model to Index Swaptions
and would specifically address how each component of the model would
apply to Index Swaptions. For example, the amendments would apply the
integrated spread response component of the margin model to Index
Swaptions, based on implied forward looking Index Swaption prices.
Moreover, the amendments would specify that because Index Swaptions
would not be eligible for index-single name decomposition benefits for
purposes of determining the integrated spread response, they would not
be subject to basis risk requirements based on decomposed index
positions. The amendments would explain that certain price-based
scenarios and jump to default requirements in the margin model would,
in the case of Index Swaptions, be applied to delta equivalent notional
amounts of the underlying index swap position. Similarly, the
amendments would also apply concentration charges to Index Swaption
positions, based on delta equivalent notional amounts of the underlying
index.
    The amendments to the Risk Framework would also remove certain
outdated references and clarify certain risk management data and
systems used in the margin models. For example, the amendments would
delete a reference to ICC relying on its outsourcing relationship with
its affiliate, the Clearing Corporation, for the technology systems and
infrastructure to automate processing, reporting, and data gathering
because ICC now maintains such systems in-house. The amendments would
also update Appendix 2 to the Risk Framework to incorporate Index
Swaptions. Appendix 2 contains a list of risk-related questions and
document requests that ICC uses when evaluating an applicant for
membership as a Clearing Participant.

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.\17\ For the reasons given below, the Commission finds
that the proposed rule change is consistent with Section 17A(b)(3)(F)
of the Act \18\ and Rules 17Ad-22(b)(2), 17Ad-22(d)(2), 17Ad-22(d)(4),
and 17Ad-22(d)(8) thereunder.\19\
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    \17\ 15 U.S.C. 78s(b)(2)(C).
    \18\ 15 U.S.C. 78q-1(b)(3)(F).
    \19\ 17 CFR 240.17Ad-22(b)(2), (d)(2), (d)(4), and (d)(8).
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A. Consistency With Section 17A(b)(3)(F) of the Act

    Section 17A(b)(3)(F) of the Act requires, among other things, that
the rules of ICC be designed to promote the prompt and accurate
clearance and settlement of securities transactions 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, and, in
general, to protect investors and the public interest.\20\
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    \20\ 15 U.S.C. 78q-1(b)(3)(F).
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    As described in detail above, the proposed rule change would adopt
a new Subchapter 26R to the Rules, which would identify, define, and
set forth the key contract terms governing, and specifications for,
cleared Index Swaptions. By doing so, Subchapter 26R would allow ICC to
create the basic contractual structure of Index Swaptions, without
which ICC could not clear Index Swaptions. In addition, Subchapter 26R
would support ICC's clearance and settlement of Index Swaptions and the
Underlying Contracts by identifying and defining the rights and
obligations of CDS Participants with respect to submitting Index
Swaptions for clearing, and setting forth the requirements for
exercising, assigning, settling, and modifying Index Swaptions,
including after the occurrence of certain credit events. For example,
Subchapter 26R would define the terms for an Index Swaption that must
be included in the submission of an Index Swaption transaction for
clearing; require CDS Participants to use reasonable efforts not to
submit for clearing an Index Swaption at a time when the Underlying
Contract could not be submitted for clearing; provide basic procedures
for the exercise, assignment, settlement, and modification of Index
Swaptions; and provide procedures to use for settlement in case of the
occurrence of certain credit events. Finally, the Commission believes
that the proposed new Subchapter 26R, in providing procedures to
address the publication of a new Swaption Terms Supplement; allowing
ICC to take certain business-as-usual actions with respect to Index
Swaptions without consulting the Risk Committee; and providing that
actions to give effect to certain determinations of the Credit
Derivatives Determinations Committee or Regional CDS Committee would
not constitute a Contract Modification for purposes of the Rules, would
give ICC flexibility to modify Index Swaptions as

necessary in response to routine changes to the Underlying Contract and
thus continue clearing and settling Index Swaptions despite changes to
the Underlying Contracts. Thus, the Commission believes that the
proposed rule change, in general, would allow ICC to clear and settle
Index Swaptions and the Underlying Contracts, which, in turn, would
promote the prompt and accurate clearance and settlement of Index
Swaptions.
    Moreover, as discussed above, the proposed rule change would apply
ICC's EOD Policy to Index Swaptions and specify how ICC generates EOD
prices for Index Swaptions. Specifically, the proposed rule change
would establish a methodology for determining EOD BOWs for Index
Swaptions and apply the existing price submission requirements under
the current EOD Policy to Index Swaptions, including a price submission
window and ICC's firm trade requirements. Similarly, the proposed rule
change would apply ICC's existing margin model to Index Swaptions and
specify the manner in which key aspects of the model would function
with respect to Index Swaptions. Because ICC uses EOD prices and its
margin model to generate margin requirements for cleared transactions,
and because the proposed rule change would allow ICC to generate margin
requirements for cleared Index Swaptions, the Commission believes that
the proposed rule change would allow ICC to manage the risks associated
with clearing Index Swaptions. The Commission believes that these
risks, if not properly managed, could cause ICC to realize losses on
the clearance of Index Swaptions and thereby disrupt ICC's ability to
promptly and accurately clear securities transactions. Accordingly, the
Commission therefore believes that the proposed rule change, in
applying the EOD Policy and ICC's margin model to Index Swaptions,
would promote the prompt and accurate clearance and settlement of
securities transactions. Similarly, given that mismanagement of the
risks associated with clearing Index Swaptions could cause ICC to
realize losses on such transactions and threaten ICC's ability to
operate, thereby threatening access to securities and funds in ICC's
control, the Commission believes that the proposed rule change would
help assure the safeguarding of securities and funds which are in the
custody or control of the ICC or for which it is responsible. Finally,
for both of these reasons, the Commission believes the proposed rule
change would, in general, protect investors and the public interest.
    Therefore, the Commission finds that the proposed rule change would
promote the prompt and accurate clearance and settlement of securities
transactions, assure the safeguarding of securities and funds in ICC's
custody and control, and, in general, protect investors and the public
interest, consistent with the Section 17A(b)(3)(F) of the Act.\21\
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    \21\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rules 17Ad-22(b)(2)

    Rule 17Ad-22(b)(2) requires that ICC establish, implement, maintain
and enforce written policies and procedures reasonably designed to use
margin requirements to limit its credit exposures to participants under
normal market conditions and use risk-based models and parameters to
set margin requirements and review such margin requirements and the
related risk-based models and parameters at least monthly.\22\
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    \22\ 17 CFR 240.17Ad-22(b)(2).
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    As discussed above, the proposed rule change would apply ICC's
existing EOD Policy to Index Swaptions and specify the manner in which
ICC would generate EOD prices for Index Swaptions, including
establishing a methodology for determining EOD BOWs for Index Swaptions
and applying the price submission requirements to Index Swaptions.
Similarly, the proposed rule change would apply ICC's margin model to
Index Swaptions and describe the manner in which components of the
model would work with respect to Index Swaptions. Both of these changes
would allow ICC to generate margin requirements for Participants that
clear Index Swaptions, which would help to ensure that ICC uses margin
requirements to limit its credit exposures to Participants that clear
Index Swaptions under normal market conditions and help to ensure that
ICC uses risk-based models and parameters to set margin requirements
associated with Index Swaptions. The Commission therefore finds that
the proposed rule change is consistent with Rule 17Ad-22(b)(2).\23\
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    \23\ 15 U.S.C. 17Ad-22(b)(2).
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    The Commission further believes that the other changes the proposed
rule change would make to the EOD Policy and the Risk Framework would
help improve the operation of both. Specifically, in adding a reference
to ICE Data Services' Credit Market Analysis services as a potential
source of alternative pricing data to use if ICC determines that the
EOD price discovery process has failed to determine reliable EOD
prices, the Commission believes the proposed rule change would help to
ensure that ICC has a backup source of data to use for EOD prices.
Moreover, in making clarifications to the existing process for index
and single name CDS Contracts to distinguish it from the additional
submission process for Index Swaptions, the Commission believes the
proposed rule change would help to avoid potential confusion between
the two different processes. Similarly, in updating defined terms and
references and making typographical corrections, the Commission
believes the proposed rule change would help to ensure that the EOD
Policy operates as intended, with the correct references. Likewise, by
updating references to risk management data and systems in the Risk
Framework, the proposed rule change would help to ensure that the Risk
Framework references the correct and existing ICC risk management
systems. Thus, the Commission believes these changes would help to
improve the operation and use of both the EOD Policy and the Risk
Framework in the clearance of Index Swaptions. Because, as discussed
above, the Commission finds that the application of both of these
policies to Index Swaptions is consistent Rule 17Ad-22(b)(2),\24\ the
Commission therefore finds that these changes are also consistent with
that Rule.
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    \24\ 15 U.S.C. 17Ad-22(b)(2).
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    Therefore, for the above reasons the Commission finds that the
proposed rule change is consistent with Rule 17Ad-22(b)(2).\25\
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    \25\ 15 U.S.C. 17Ad-22(b)(2).
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C. Consistency With Rule 17Ad-22(d)(2)

    Rule 17Ad-22(d)(2) requires that ICC establish, implement, maintain
and enforce written policies and procedures reasonably designed to
require participants to have sufficient financial resources and robust
operational capacity to meet obligations arising from participation in
the clearing agency; have procedures in place to monitor that
participation requirements are met on an ongoing basis; have
participation requirements that are objective and publicly disclosed;
and permit fair and open access.\26\ The Commission believes that the
proposed rule change would establish participation requirements for
Participants that clear Index Swaptions by applying price submission
and firm trade requirements to Index Swaptions as part of the EOD
pricing process, including incorporating Index Swaptions into the table
in the

appendix setting out the timing for various aspects of the price
submission process. Similarly, the Commission believes that the
proposed rule change would establish requirements for Participants that
clear Index Swaptions by adding Index Swaptions to Appendix 2 to the
Risk Framework, which ICC uses to evaluate an applicant for membership
as a Clearing Participant. Moreover, the Commission believes that both
of these requirements would be objective and publicly disclosed, as
they would be applicable to all Participants and publicly described in
this proposed rule change. Similarly, the Commission believes that in
requiring that ICC publish a subset of EOD prices for Index Swaptions
on its website, the proposed rule change would permit fair and open
access by providing non-Participants and firms looking to become
Participants at ICC access to the pricing information for Index
Swaptions.
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    \26\ 15 U.S.C. 17Ad-22(d)(2).
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    Therefore, for the above reasons the Commission finds that the
proposed rule change is consistent with Rule 17Ad-22(d)(2).\27\
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    \27\ 15 U.S.C. 17Ad-22(d)(2).
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D. Consistency With Rule 17Ad-22(d)(4)

    Rule 17Ad-22(d)(4) requires that ICC establish, implement, maintain
and enforce written policies and procedures reasonably designed to,
among other things, identify sources of operational risk and minimize
them through the development of appropriate systems, controls, and
procedures.\28\ The Commission believes that the proposed rule change,
in establishing procedures for the exercise and settlement of Index
Swaptions, would identify possible operational risks in clearing Index
Swaptions and minimize those risks through appropriate controls.
Specifically, as discussed above, new Rule 26R-319 would provide that,
upon exercise, a cleared Contract in the form of the Underlying
Contract would automatically come into effect as between the exercising
Swaption Buyer and ICC and an offsetting cleared Contract would
automatically come into effect as between ICC and the assigned Swaption
Seller. The Commission believes that this aspect of the proposed rule
change would reduce the operational risks associated with clearing
Index Swaptions by providing for the automatic settlement into an
offsetting cleared Contract upon exercise, rather than requiring some
further manual step or procedure by ICC or the Participants. Similarly,
the Commission believes that, in specifying that Index Swaptions that
are not validly exercised on the expiration date would expire without
further obligation of any party, the proposed rule change would
eliminate the potential operational risks associated with Participants
attempting late exercises of Index Swaptions. Finally, in providing
procedures for the exercise and assignment of Index Swaptions, the
Commission believes the proposed rule change would reduce the potential
operational risks associated with exercise and assignment by setting
out in advance a method that a Swaption Buyer must use to exercise its
Index Swaption and a method that ICC must use to assign the Swaption
Buyer's position to a corresponding Swaption Seller.
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    \28\ 17 CFR 240.17Ad-22(d)(4).
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    Therefore, for the above reason the Commission finds that the
proposed rule change is consistent with Rule 17Ad-22(d)(4).\29\
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    \29\ 15 U.S.C. 17Ad-22(d)(4).
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E. Consistency With Rule 17Ad-22(d)(8)

    Rule 17Ad-22(d)(8) requires that ICC establish, implement, maintain
and enforce written policies and procedures reasonably designed to have
governance arrangements that are clear and transparent to fulfill the
public interest requirements in Section 17A of the Act applicable to
clearing agencies, to support the objectives of owners and
participants, and to promote the effectiveness of ICC's risk management
procedures.\30\ The Commission believes that the proposed rule change,
in amending the governance provisions of the EOD Policy to make the ICC
Risk Management Department responsible for performing certain functions
related to the firm trade requirements for Index Swaptions, would
establish clear and transparent governance arrangements for Index
Swaptions. The Commission also believes that, in providing that actions
by the Board or its designee to give effect to certain determinations
of the Credit Derivatives Determinations Committee or Regional CDS
Committee would not constitute a Contract Modification for purposes of
the Rules, the proposed rule change would establish clear and
transparent arrangements for the Board or its designee to take such
actions.
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    \30\ 15 U.S.C. 17Ad-22(d)(8).
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    Therefore, for the above reason the Commission finds that the
proposed rule change is consistent with Rule 17Ad-22(d)(8).\31\
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    \31\ 15 U.S.C. 17Ad-22(d)(8).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change, as modified by Partial Amendment No. 1, is consistent with the
Act. Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File Number SR-ICC-2019-007 on the subject line.

Paper Comments

    Send paper comments in triplicate to Secretary, Securities and
Exchange Commission, 100 F Street NE, Washington, DC 20549.

All submissions should refer to File Number SR-ICC-2019-007. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of such filings will also be available for inspection
and copying at the principal office of ICE Clear Credit and on ICE
Clear Credit's website at https://www.theice.com/clear-credit/regulation. All comments received will be posted without change.
Persons submitting comments are cautioned that we do not redact or edit
personal identifying information from comment submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-ICC-2019-007 and should be
submitted on or before November 12, 2019.

V. Accelerated Approval of the Proposed Rule Change, as Modified by
Partial Amendment No. 1

    The Commission finds good cause, pursuant to Section 19(b)(2) of
the

Act,\32\ to approve the proposed rule change prior to the 30th day
after the date of publication of Partial Amendment No. 1 in the Federal
Register. As discussed above, Partial Amendment No. 1 provides
additional details and analyses surrounding ICC's proposed changes to
implement clearing of Index Swaptions. By providing the additional
information, Partial Amendment No. 1 provides for a more clear and
comprehensive understanding of the estimated impact of the proposed
rule change, which helps to improve the Commission's review of the
proposed rule change for consistency with the Act.
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    \32\ 15 U.S.C. 78s(b)(2).
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    For similar reasons as discussed above, the Commission finds that
Partial Amendment No. 1 is designed to promote the prompt and accurate
clearance and settlement of securities transactions, help assure the
safeguarding of securities and funds which are in the custody or
control of ICC, and, in general, to protect investors and the public
interest, consistent with Section 17A(b)(3)(F) of the Act.\33\
Accordingly, the Commission finds good cause for approving the proposed
rule change, as modified by Partial Amendment No. 1, on an accelerated
basis, pursuant to Section 19(b)(2) of the Exchange Act.\34\
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    \33\ 15 U.S.C. 78q-1(b)(3)(F).
    \34\ 15 U.S.C. 78s(b)(2).
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VI. 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 \35\ and Rules 17Ad-22(b)(2), 17Ad-22(d)(2), 17Ad-22(d)(4), and
17Ad-22(d)(8) thereunder.\36\
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    \35\ 15 U.S.C. 78q-1(b)(3)(F).
    \36\ 17 CFR 240.17Ad-22(b)(2), (d)(2), (d)(4), and (d)(8).
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    It is therefore ordered pursuant to Section 19(b)(2) of the Act
\37\ that the proposed rule change, as modified by Partial Amendment
No. 1 (SR-ICC-2019-007), be, and hereby is, approved on an accelerated
basis.\38\
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    \37\ 15 U.S.C. 78s(b)(2).
    \38\ 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).
    \39\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\39\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-22841 Filed 10-18-19; 8:45 am]
 BILLING CODE 8011-01-P


[Federal Register Volume 88, Number 165 (Monday, August 28, 2023)]
[Notices]
[Page 58634]
[FR Doc No: 2023-18424]

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DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

[Docket No.: FAA-2023-1240; Summary Notice No. 2023-31]

Petition for Exemption; Summary of Petition Received; Gregory D.
Kruse

AGENCY: Federal Aviation Administration (FAA), Department of
Transportation (DOT).

ACTION: Notice.

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SUMMARY: This notice contains a summary of a petition seeking relief
from specified requirements of Federal Aviation Regulations. The
purpose of this notice is to improve the public's awareness of, and
participation in, the FAA's exemption process. Neither publication of
this notice nor the inclusion nor omission of information in the
summary is intended to affect the legal status of the petition or its
final disposition.

DATES: Comments on this petition must identify the petition docket
number and must be received on or before September 18, 2023.

ADDRESSES: Send comments identified by docket number FAA-2023-1240
using any of the following methods:
     Federal eRulemaking Portal: Go to http://www.regulations.gov and follow the online instructions for sending your
comments electronically.
     Mail: Send comments to Docket Operations, M-30; U.S.
Department of Transportation, 1200 New Jersey Avenue SE, Room W12-140,
West Building Ground Floor, Washington, DC 20590-0001.
     Hand Delivery or Courier: Take comments to Docket
Operations in Room W12-140 of the West Building Ground Floor at 1200
New Jersey Avenue SE, Washington, DC 20590-0001, between 9 a.m. and 5
p.m., Monday through Friday, except Federal holidays.
     Fax: Fax comments to Docket Operations at<PHONE_NUMBER>.
    Privacy: In accordance with 5 U.S.C. 553(c), DOT solicits comments
from the public to better inform its rulemaking process. DOT posts
these comments, without edit, including any personal information the
commenter provides, to http://www.regulations.gov, as described in the
system of records notice (DOT/ALL-14 FDMS), which can be reviewed at
http://www.dot.gov/privacy.
    Docket: Background documents or comments received may be read at
http://www.regulations.gov at any time. Follow the online instructions
for accessing the docket or go to the Docket Operations in Room W12-140
of the West Building Ground Floor at 1200 New Jersey Avenue SE,
Washington, DC 20590-0001, between 9 a.m. and 5 p.m., Monday through
Friday, except Federal holidays.

FOR FURTHER INFORMATION CONTACT: Andrew Thai at<PHONE_NUMBER>, Office
of Rulemaking, Federal Aviation Administration, 800 Independence Avenue
SW, Washington, DC 20591.
    This notice is published pursuant to 14 CFR 11.85.

    Issued in Washington, DC.
Angela O. Anderson,
Director, Regulatory Support Division, Office of Rulemaking.

Petition for Exemption

    Docket No.: FAA-2023-1240.
    Petitioner: Gregory D. Kruse.
    Section(s) of 14 CFR Affected: Sec.  65.71(a)(2).
    Description of Relief Sought: The petitioner seeks relief from the
basic eligibility 14 CFR 65.71(a)(2) that requires a person to be able
to read the English language to be eligible for a mechanic certificate
and associated ratings. As the petitioner is blind, he intends to
utilize various technologies and applications in order to read.

[FR Doc. 2023-18424 Filed 8-25-23; 8:45 am]
BILLING CODE 4910-13-P