83 FR 41118 - Self-Regulatory Organizations; ICE Clear Credit LLC; Order Approving Proposed Rule Change Relating To Amending the ICC Clearing Rules Regarding Mark-to-Market Margin
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 83, Issue 160 (August 17, 2018)
Federal Register Volume 83, Issue 160 (August 17, 2018)
| Page Range | 41118-41121 | |
| FR Document | 2018-17741 |
[Federal Register Volume 83, Number 160 (Friday, August 17, 2018)] [Notices] [Pages 41118-41121] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2018-17741] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-83832; File No. SR-ICC-2018-006] Self-Regulatory Organizations; ICE Clear Credit LLC; Order Approving Proposed Rule Change Relating To Amending the ICC Clearing Rules Regarding Mark-to-Market Margin August 13, 2018. I. Introduction On June 13, 2018, ICE Clear Credit LLC (``ICC'') filed with the Securities and Exchange Commission (``Commission''), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to amend the ICC Clearing Rules (the ``ICC Rules'') \3\ to more clearly characterize Mark-to-Market Margin payments as settled-to-market rather than collateralized-to-market. The proposed rule change was published in the Federal Register on June 29, 2018.\4\ The Commission has not received any comments on the proposed rule change. For the reasons discussed below, the Commission is approving the proposed rule change. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. \3\ Available at https://www.theice.com/publicdocs/clear_credit/ICE_Clear_Credit_Rules.pdf. Capitalized terms used herein but not otherwise defined have the meaning set forth in the ICC Rules. \4\ Securities Exchange Act Release No. 34-83513 (June 25, 2018), 83 FR 30802 (June 29, 2018) (SR-ICC-2018-006) (``Notice''). --------------------------------------------------------------------------- II. Description of the Proposed Rule Change The proposed rule change would revise Chapters 4, 8, and 20 of the ICC Rules to more clearly characterize Mark-to-Market Margin payments as settlement payments (``settled-to-market'') rather than collateral (``collateralized-to-market'').\5\ The proposed rule change would not change the manner in which Mark-to-Market Margin is calculated, or other current ICC operational practices.\6\ Rather, the proposed rule change would revise terminology to further clarify the legal characterization that payments of Mark-to-Market Margin represent settlement rather than collateral payments.\7\ ICC states that these clarifying changes are the result of ICC's analysis of the legal characterization of Mark-to-Market Margin payments, at the request of its Clearing Participants (``CPs'').\8\ --------------------------------------------------------------------------- \5\ Under the settled-to-market model, the transfer of Mark-to- Market Margin constitutes a settlement of the contract's outstanding exposure, with the receiving party taking outright title to the Mark-to-Market Margin and the transferring party retaining no rights to such margin. Under the collateralized-to-market model, the transfer of Mark-to-Market Margin constitutes a pledge of collateral, such that the transferring party has a right to reclaim the collateral and the receiving party has an obligation to return the collateral. For further explanation of the settled-to-market model and collateralized-to-market model, see Notice, 83 FR at 30803. \6\ Notice, 83 FR at 30803. \7\ Id. \8\ Id. --------------------------------------------------------------------------- The proposed rule change would revise Rule 401 to reference Mark- to-Market Margin Balance, a new term that is defined in Rule 404 to mean the aggregate amount of Mark-to-Market Margin paid or received.\9\ The new definition would be used in several calculations to describe specifics pertaining to the Mark-to-Market Margin calculation.\10\ For example, the proposed rule change would amend Rule 401(a), which governs House Margin, to state that ICC calculates a net amount of Mark-to-Market Margin by subtracting a CP's Mark-to-Market Margin Balance from a CP's Mark-to-Market Margin Requirement.\11\ The proposed rule change would make corresponding changes to reference [[Page 41119]] Mark-to-Market Margin Balance in Rule 401(b)(ii), which covers Client- Related Mark-to-Market Margin.\12\ --------------------------------------------------------------------------- \9\ Id. \10\ Id. \11\ Notice, 83 FR at 30803. \12\ Id. --------------------------------------------------------------------------- As stated above, the proposed rule change would not modify the current calculation of Mark-to-Market Margin, or other operational practices, but, instead, would replace certain specifics relating to ICC's Mark-to-Market Margin calculation with the new defined term Mark- to-Market Margin Balance.\13\ In addition, the proposed rule change would not change the manner in which Initial Margin is calculated, posted and held.\14\ --------------------------------------------------------------------------- \13\ Id. \14\ Id. --------------------------------------------------------------------------- Further, the proposed rule change would revise Rule 401(g) to specify that amounts ICC currently pays to CPs as interest on any Mark- to-Market Margin would no longer be considered interest but instead would be treated as a new payment obligation between ICC and CPs and referred to as the ``price alignment amount.'' \15\ A price alignment amount would be economically equivalent to the ``interest'' that ICC pays or charges a CP for any net Mark-to-Market Margin transferred between the parties under current Rule 401(g).\16\ Because the term interest may be more typically associated with collateral, however, the proposed rule change would refer to such an amount as price alignment to avoid confusion over the proper characterization of Mark-to-Market Margin as settlement payments.\17\ ICC states that such change would not affect ICC's operations because ICC would continue to pay or charge a CP an amount, which would serve the same purpose and would be calculated identically, for any net Mark-to-Market Margin transferred between the parties.\18\ --------------------------------------------------------------------------- \15\ Id. \16\ Id. \17\ Notice, 83 FR at 30803. \18\ Id. --------------------------------------------------------------------------- The proposed rule change would also clarify in proposed revisions to Rule 401(g) that the rate ICC may pay or charge a CP for a price alignment amount on any Mark-to-Market Margin or interest on any Initial Margin in the form of cash may be negative. This proposed revision is intended by ICC to more clearly address the effect negative market rate environments could have on how such amounts might be paid or charged by ICC to CPs.\19\ --------------------------------------------------------------------------- \19\ Id. --------------------------------------------------------------------------- The proposed rule change would add and clarify references to amounts that ICC will continue to treat as collateral to avoid confusion over the proper characterization of Mark-to-Market Margin under the ICC Rules. Specifically, the proposed rule change would update Rule 401(h) to provide that CPs may substitute, in accordance with the ICC Procedures and applicable law, Eligible Margin only for an amount of Initial Margin.\20\ CPs would no longer be able to substitute Eligible Margin for Mark-to-Market Margin because under the proposed rule change, ICC would take outright title to the Mark-to-Market Margin and CPs would retain no substitution or other rights to such Mark-to- Market Margin. The proposed changes to Rule 402, which governs ICC's rights with respect to the use of margin, would exclude Mark-to-Market Margin from subsections (a) and (b), would remove details relating to Mark-to-Market Margin from subsection (b), and would specify subsection (c)'s applicability to Initial Margin. Because ICC's rights with respect to Mark-to-Market Margin would now be set out in Rule 402(e), it would no longer be necessary to refer to Mark-to-Market Margin in Rule 402(a) and (b). To avoid uncertainty, the proposed rule change would clarify that the requirements set forth in Rule 406(c) regarding collateral for Client-Related Positions apply to Initial Margin.\21\ --------------------------------------------------------------------------- \20\ Id. \21\ Id. --------------------------------------------------------------------------- The proposed rule change would similarly add and clarify references to amounts that ICC would treat as settled to avoid confusion over the proper characterization of Mark-to-Market Margin under the ICC Rules. The proposed rule change would add language to Rule 402(e) to describe ICC's rights with respect to Mark-to-Market Margin and more clearly state that Mark-to-Market Margin payments constitute a settlement. The proposed rule change would also update Rule 401(l) to refer to settlement finality in relation to Mark-to-Market Margin.\22\ Further, the proposed rule change would add new subsection (c) to Rule 404 to define Mark-to-Market Margin Balance as a sum equal to the Mark-to- Market Margin value transferred by the CP to ICC minus the Mark-to- Market Margin value transferred by ICC to the CP.\23\ --------------------------------------------------------------------------- \22\ Id. \23\ Id. --------------------------------------------------------------------------- Finally, the proposed rule change would make clarifications and conforming changes to Chapters 8 and 20 of the ICC Rules. The proposed rule change would revise Rule 801(a)(i), which describes how ICC calculates a CP's Required Contribution to the General Guaranty Fund, to refer to the transfer of Mark-to-Market Margin.\24\ This change would characterize Mark-to-Market Margin as settled, rather than collateral, by referring to the amount of Mark-to-Market Margin transferred to ICC in respect of a defaulting CP's positions. The proposed rule change would not change ICC's calculation of a CP's Required Contribution, which would continue to take into account the expected loss to ICC associated with a CP's default after the application of Initial Margin and Mark-to-Market Margin.\25\ --------------------------------------------------------------------------- \24\ Notice, 83 FR at 30803. \25\ Id. --------------------------------------------------------------------------- The proposed rule change would also replace, in the defined term MTM in Rule 808, the phrase ``amount of MTM held by any Participant or ICE Clear Credit'' with a conforming reference to the new defined term Mark-to-Market Margin Balance.\26\ This proposed change would not alter the operation of Rule 808, which describes how and when ICC would implement Reduced Gains Distributions. --------------------------------------------------------------------------- \26\ Id. --------------------------------------------------------------------------- The proposed rule change would replace terminology in Rule 810(e) that is commonly used in conjunction with collateral by changing the words ``posted'' to ``transferred'' and removing the phrase ``and be offset against''. This change would avoid confusion over the proper characterization of Mark-to-Market Margin as settlement payments.\27\ This proposed change would not alter the operation of Rule 810, which describes ICC's termination of clearing operations. --------------------------------------------------------------------------- \27\ Id. --------------------------------------------------------------------------- Finally, the proposed rule change would clarify in Rule 20- 605(c)(i)(B), which specifies the resources to be used to cover losses with respect to Client-Related Positions, that ICC would use the defaulting CP's Client-Related Mark-to-Market Margin, to the extent not previously applied to pay Mark-to-Market Margin to other CPs.\28\ Because Mark-to-Market Margin would be settled with ICC, ICC would obtain outright title to the Mark-to-Market Margin and would be able to use the Mark-to-Market Margin for purposes other than collateralizing a CP's position, in accordance with ICC's Rules and applicable regulatory requirements. The proposed rule change would make this point clear and therefore clarify that Mark-to-Market Margin payments constitute settlement rather than collateral. --------------------------------------------------------------------------- \28\ Notice, 83 FR at 30803. --------------------------------------------------------------------------- [[Page 41120]] 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.\29\ For the reasons given below, the Commission finds that the proposal is consistent with Section 17A(b)(3)(F) of the Act \30\ and Rules 17Ad-22(b)(2) and 17Ad-22(d)(1) thereunder.\31\ --------------------------------------------------------------------------- \29\ 15 U.S.C. 78s(b)(2)(C). \30\ 15 U.S.C. 78q-1(b)(3)(F). \31\ 17 CFR 240.17Ad-22(b)(2), (d)(1). --------------------------------------------------------------------------- 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.\32\ --------------------------------------------------------------------------- \32\ 15 U.S.C. 78q-1(b)(3)(F). --------------------------------------------------------------------------- As described above, the proposed rule change would revise Chapters 4, 8, and 20 of the ICC Rules to more clearly characterize Mark-to- Market Margin payments as settlement payments rather than collateral. To facilitate this characterization, the proposed rule change would introduce a new definition, Mark-to-Market Margin Balance, and a new concept, price alignment amount. Moreover, the proposed rule change would update the terminology used in certain rules, and the application of certain rules to Mark-to-Market Margin, in light of the characterization of Mark-to-Market Margin payments as settlement payments rather than collateral. The proposed rule change would not change the manner in which Mark-to-Market Margin is calculated, or other current ICC operational practices. The Commission believes that by clarifying the treatment of Mark- to-Market Margin payments, the proposed rule change would help ensure that Mark-to-Market margin is treated as settled payments rather than collateral, consistent with ICC's intention. In doing so, the Commission further believes the proposed rule change would clarify that ICC has all rights and outright title to such Mark-to-Market Margin. The Commission believes the proposed rule change would clarify ICC's interest in and rights to Mark-to-Market Margin, thereby supporting ICC's ability to use Mark-to-Market Margin to cover credit and market losses. The Commission further believes that in this regard the proposed rule change would remove potential confusion regarding the treatment of Mark-to-Market Margin, thereby helping to improve the operation and effectiveness of ICC's margin system. Given that an effective margin system is necessary to manage ICC's credit exposures to its CPs and the risks associated with clearing security based swap-related portfolios, the Commission believes that the proposed rule change would help improve ICC's ability to avoid the losses that could result from the mismanagement of credit exposures and the risks associated with clearing security based swap-related portfolios. Because such losses could disrupt ICC's ability to promptly and accurately clear security based swap transactions, the Commission believes that the proposed rule change, by improving the operation and effectiveness of ICC's margin system, would thereby help promote the prompt and accurate clearance and settlement of securities transactions. Similarly, given that mismanagement of ICC's credit exposures to its CPs and the risks associated with clearing security based swap- related portfolios could cause ICC to realize losses on such portfolios 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 Framework 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.\33\ --------------------------------------------------------------------------- \33\ 15 U.S.C. 78q-1(b)(3)(F). --------------------------------------------------------------------------- B. Consistency With Rule 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.\34\ --------------------------------------------------------------------------- \34\ 17 CFR 240.17Ad-22(b)(2). --------------------------------------------------------------------------- As described above, the proposed rule change would revise Chapters 4, 8, and 20 of the ICC Rules to more clearly characterize Mark-to- Market Margin payments as settlement payments rather than collateral. Specifically, the Proposed Rule Change would revise Rule 401 to reference Mark-to-Market Margin Balance, a new term that is defined in Rule 404 to mean the aggregate amount of Mark-to-Market Margin paid or received. The new definition would be used in Rule 401(a), regarding House Margin, which would be revised to state that ICC calculates a net amount of Mark-to-Market Margin by subtracting a CP's Mark-to-Market Margin Balance from a CP's Mark-to-Market Margin Requirement. Moreover, under the proposed revised Rule 401(g), ICC would pay or charge a CP price alignment, which would be economically equivalent to interest, on any Mark-to-Market Margin and interest on any cash Initial Margin at a rate that may be negative. The proposed rule change would not modify the current calculation of Mark-to-Market Margin, or other operational practices, but, instead, would replace certain specifics relating to ICC's Mark-to-Market Margin calculation with the new defined term Mark- to-Market Margin Balance. The Commission believes that by clarifying the treatment of Mark- to-Market Margin payments, the proposed rule change would help ensure that Mark-to-Market margin is treated as settled payments rather than collateral. The Commission believes that in this regard the proposed rule change would help ensure that the margin system is operating consistently for all CPs and in a manner that is consistent with ICC's view on the treatment of Mark-to-Market Margin by confirming that all Mark-to-Market Margin would be treated as settlement payments. In doing so, the Commission further believes the proposed rule change would clarify that ICC has all rights and outright title to such Mark-to- Market Margin. The Commission believes the proposed rule change would thereby clarify ICC's interest in and rights to Mark-to-Market Margin, thereby supporting ICC's ability to use Mark-to-Market to cover credit and market losses. The Commission therefore believes the proposed rule change would help ICC maintain and [[Page 41121]] enforce written policies and procedures reasonably designed to use margin requirements to limit its credit exposures to participants under normal market conditions. Moreover, as noted above, the proposed rule change resulted from a request by CPs for ICC to confirm it treats Mark-to-Market Margin as settlement payments. CPs therefore may hesitate to post Mark-to-Market Margin if ICC does not consistently treat such margin as settlement payments. Thus, the Commission believes the proposed rule change would help ICC enforce written policies and procedures reasonably designed to use margin requirements to limit its credit exposures to participants under normal market conditions. Therefore, for the above reasons the Commission finds that the proposed rule change is consistent with Rule 17Ad-22(b)(2).\35\ --------------------------------------------------------------------------- \35\ 17 CFR 240.17Ad-22(b)(2). --------------------------------------------------------------------------- C. Consistency With Rule 17Ad-22(d)(1) Rule 17Ad-22(d)(1) requires that ICC establish, implement, maintain and enforce written policies and procedures reasonably designed to provide for a well-founded, transparent, and enforceable legal framework for each aspect of its activities in all relevant jurisdictions.\36\ --------------------------------------------------------------------------- \36\ 17 CFR 240.17Ad-22(d)(1). --------------------------------------------------------------------------- As discussed above, the proposed rule change would revise Chapters 4, 8, and 20 of the ICC Rules to more clearly characterize Mark-to- Market Margin payments as settlement payments rather than collateral. The proposed rule change would also revise terminology to further clarify the legal characterization that payments of Mark-to-Market Margin represent settlement rather than collateral payments. These clarifying changes are the result of ICC's analysis of the legal characterization of Mark-to-Market Margin payments, at the request of its CPs. Thus, ICC intends to treat Mark-to-Market Margin payments as settled rather than collateral, and the Commission believes that the proposed rule change's clarifications and additions would help ensure that ICC's margin system operates consistently with this intention. The Commission further believes that the proposed rule change would help ensure that the margin system is operating consistently for all CPs by confirming that all Mark-to-Market Margin would be treated as settlement payments. In ensuring the consistent treatment of Mark-to- Market Margin, the Commission believes that the proposed rule change would help ensure that the policies and procedures underlying ICC's margin system provide a well-founded, transparent, and enforceable legal framework. Therefore, for the above reasons the Commission finds that the proposed rule change is consistent with Rule 17Ad-22(d)(1).\37\ --------------------------------------------------------------------------- \37\ 17 CFR 240.17Ad-22(d)(1). --------------------------------------------------------------------------- IV. Conclusion On the basis of the foregoing, the Commission finds that the proposal is consistent with the requirements of the Act, and in particular, with the requirements of Section 17A(b)(3)(F) of the Act \38\ and Rules 17Ad-22(b)(2) and 17Ad-22(d)(1) thereunder.\39\ --------------------------------------------------------------------------- \38\ 15 U.S.C. 78q-1(b)(3)(F). \39\ 17 CFR 240.17Ad-22(b)(2), (d)(1). --------------------------------------------------------------------------- It is therefore ordered pursuant to Section 19(b)(2) of the Act \40\ that the proposed rule change (SR-ICC-2018-006) be, and hereby is, approved.\41\ --------------------------------------------------------------------------- \40\ 15 U.S.C. 78s(b)(2). \41\ In approving the proposed rule change, the Commission considered the proposal's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\42\ --------------------------------------------------------------------------- \42\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Robert W. Errett, Deputy Secretary. [FR Doc. 2018-17741 Filed 8-16-18; 8:45 am] BILLING CODE 8011-01-P
![41118 Federal Register / Vol. 83, No. 160 / Friday, August 17, 2018 / Notices
III. Discussion and Commission’s a manner consistent with the MWCB Federal Register on June 29, 2018.4 The
Findings rules should contribute to the fairness Commission has not received any
After careful review, the Commission and orderliness of the market for the comments on the proposed rule change.
finds that the proposed rule change, as benefit of all market participants. The For the reasons discussed below, the
modified by Amendment No. 1, is Commission therefore believes that the Commission is approving the proposed
consistent with the requirements of the proposal, as modified by Amendment rule change.
Act and the rules and regulations No. 1, is designed to remove
II. Description of the Proposed Rule
thereunder applicable to a national impediments to, and perfect the
Change
securities exchange.14 In particular, the mechanism of, a free and open market
Commission finds that the proposed and a national market system, and to The proposed rule change would
rule change, as modified by Amendment protect investors and the public interest. revise Chapters 4, 8, and 20 of the ICC
No. 1, is consistent with Section 6(b)(5) Accordingly, for the reasons Rules to more clearly characterize Mark-
of the Act,15 which requires, among discussed above, the Commission to-Market Margin payments as
other things, that the rules of a national believes that the Exchange’s proposal, as settlement payments (‘‘settled-to-
securities exchange be designed to modified by Amendment No. 1, is market’’) rather than collateral
prevent fraudulent and manipulative consistent with the Act. (‘‘collateralized-to-market’’).5 The
acts and practices, to promote just and proposed rule change would not change
IV. Conclusion the manner in which Mark-to-Market
equitable principles of trade, to foster
cooperation and coordination with It is therefore ordered, pursuant to Margin is calculated, or other current
persons engaged in regulating Section 19(b)(2) of the Act,17 that the ICC operational practices.6 Rather, the
transactions in securities, to remove proposed rule change (SR–NYSE–2018– proposed rule change would revise
impediments to and perfect the 31), as modified by Amendment No.1, terminology to further clarify the legal
mechanism of a free and open market be, and hereby is, approved. characterization that payments of Mark-
and a national market system and, in For the Commission, by the Division of to-Market Margin represent settlement
general, to protect investors and the Trading and Markets, pursuant to delegated rather than collateral payments.7 ICC
public interest, and that the rules not be authority.18 states that these clarifying changes are
designed to permit unfair Robert W. Errett, the result of ICC’s analysis of the legal
discrimination between customers, Deputy Secretary. characterization of Mark-to-Market
issuers, brokers, or dealers. The Margin payments, at the request of its
[FR Doc. 2018–17743 Filed 8–16–18; 8:45 am]
Commission also finds that the Clearing Participants (‘‘CPs’’).8
BILLING CODE 8011–01–P
proposed rule change, as modified by The proposed rule change would
Amendment No. 1, is consistent with revise Rule 401 to reference Mark-to-
Section 6(b)(8) of the Act,16 which Market Margin Balance, a new term that
SECURITIES AND EXCHANGE
requires that the rules of an exchange is defined in Rule 404 to mean the
COMMISSION
not impose any burden on competition aggregate amount of Mark-to-Market
that is not necessary or appropriate in [Release No. 34–83832; File No. SR–ICC– Margin paid or received.9 The new
furtherance of the purposes of the Act. 2018–006] definition would be used in several
As indicated above, the Commission has calculations to describe specifics
received no comment letters addressing Self-Regulatory Organizations; ICE pertaining to the Mark-to-Market Margin
the proposed rule change. Clear Credit LLC; Order Approving calculation.10 For example, the
The Commission believes that Proposed Rule Change Relating To proposed rule change would amend
amending NYSE Rule 49 to require Amending the ICC Clearing Rules Rule 401(a), which governs House
certain member organizations to Regarding Mark-to-Market Margin Margin, to state that ICC calculates a net
participate in scheduled MWCB testing amount of Mark-to-Market Margin by
August 13, 2018. subtracting a CP’s Mark-to-Market
would enable the Exchange,
participating member organizations, and I. Introduction Margin Balance from a CP’s Mark-to-
others to assess the readiness of Market Margin Requirement.11 The
On June 13, 2018, ICE Clear Credit proposed rule change would make
participating member organizations to LLC (‘‘ICC’’) filed with the Securities
respond in the event of unanticipated corresponding changes to reference
and Exchange Commission
market volatility. Member organizations (‘‘Commission’’), pursuant to Section 4 Securities Exchange Act Release No. 34–83513
required to participate in MWCB testing 19(b)(1) of the Securities Exchange Act (June 25, 2018), 83 FR 30802 (June 29, 2018) (SR–
pursuant to the proposal would be of 1934 (‘‘Act’’),1 and Rule 19b–4 ICC–2018–006) (‘‘Notice’’).
designated as such using the same thereunder,2 a proposed rule change to 5 Under the settled-to-market model, the transfer
standards used by the Exchange in amend the ICC Clearing Rules (the ‘‘ICC of Mark-to-Market Margin constitutes a settlement
determining which member of the contract’s outstanding exposure, with the
Rules’’) 3 to more clearly characterize receiving party taking outright title to the Mark-to-
organizations are subject to mandatory Mark-to-Market Margin payments as Market Margin and the transferring party retaining
Regulation SCI testing. Because these settled-to-market rather than no rights to such margin. Under the collateralized-
member organizations have been collateralized-to-market. The proposed to-market model, the transfer of Mark-to-Market
designated by the Exchange as essential Margin constitutes a pledge of collateral, such that
rule change was published in the the transferring party has a right to reclaim the
to the maintenance of a fair and orderly collateral and the receiving party has an obligation
market, their demonstrated ability to 17 15 U.S.C. 78s(b)(2). to return the collateral. For further explanation of
amozie on DSK3GDR082PROD with NOTICES1
halt and subsequently re-open trading in 18 17 CFR 200.30–3(a)(12). the settled-to-market model and collateralized-to-
1 15 U.S.C. 78s(b)(1). market model, see Notice, 83 FR at 30803.
6 Notice, 83 FR at 30803.
14 In approving this proposed rule change, the 2 17 CFR 240.19b–4.
7 Id.
Commission has considered the proposed rule’s 3 Available at https://www.theice.com/
8 Id.
impact on efficiency, competition, and capital publicdocs/clear_credit/ICE_Clear_Credit_
formation. See 15 U.S.C. 78c(f). Rules.pdf. Capitalized terms used herein but not
9 Id.
15 15 U.S.C. 78f(b)(5). 10 Id.
otherwise defined have the meaning set forth in the
16 15 U.S.C. 78f(b)(8). ICC Rules. 11 Notice, 83 FR at 30803.
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![Federal Register / Vol. 83, No. 160 / Friday, August 17, 2018 / Notices 41121
enforce written policies and procedures ensure that the policies and procedures I. Self-Regulatory Organization’s
reasonably designed to use margin underlying ICC’s margin system provide Statement of the Terms of Substance of
requirements to limit its credit a well-founded, transparent, and the Proposed Rule Change
exposures to participants under normal enforceable legal framework.
market conditions. The Exchange proposes to amend the
Therefore, for the above reasons the Exchange’s transaction fees at Rule
Moreover, as noted above, the Commission finds that the proposed
proposed rule change resulted from a 7018(a), as described further below.
rule change is consistent with Rule
request by CPs for ICC to confirm it While these amendments are effective
17Ad–22(d)(1).37
treats Mark-to-Market Margin as upon filing, the Exchange has
settlement payments. CPs therefore may IV. Conclusion designated the proposed amendments to
hesitate to post Mark-to-Market Margin be operative on August 1, 2018.
On the basis of the foregoing, the
if ICC does not consistently treat such Commission finds that the proposal is The text of the proposed rule change
margin as settlement payments. Thus, consistent with the requirements of the is available on the Exchange’s website at
the Commission believes the proposed Act, and in particular, with the http://nasdaqbx.cchwallstreet.com/, at
rule change would help ICC enforce requirements of Section 17A(b)(3)(F) of the principal office of the Exchange, and
written policies and procedures the Act 38 and Rules 17Ad–22(b)(2) and at the Commission’s Public Reference
reasonably designed to use margin 17Ad–22(d)(1) thereunder.39 Room.
requirements to limit its credit
It is therefore ordered pursuant to II. Self-Regulatory Organization’s
exposures to participants under normal
Section 19(b)(2) of the Act 40 that the Statement of the Purpose of, and
market conditions.
proposed rule change (SR–ICC–2018– Statutory Basis for, the Proposed Rule
Therefore, for the above reasons the
006) be, and hereby is, approved.41 Change
Commission finds that the proposed
rule change is consistent with Rule For the Commission, by the Division of In its filing with the Commission, the
17Ad–22(b)(2).35 Trading and Markets, pursuant to delegated Exchange included statements
authority.42 concerning the purpose of and basis for
C. Consistency With Rule 17Ad–22(d)(1) Robert W. Errett, the proposed rule change and discussed
Rule 17Ad–22(d)(1) requires that ICC Deputy Secretary. any comments it received on the
establish, implement, maintain and [FR Doc. 2018–17741 Filed 8–16–18; 8:45 am] proposed rule change. The text of these
enforce written policies and procedures BILLING CODE 8011–01–P statements may be examined at the
reasonably designed to provide for a places specified in Item IV below. The
well-founded, transparent, and Exchange has prepared summaries, set
enforceable legal framework for each SECURITIES AND EXCHANGE forth in sections A, B, and C below, of
aspect of its activities in all relevant COMMISSION the most significant aspects of such
jurisdictions.36 statements.
As discussed above, the proposed rule [Release No. 34–83833; File No. SR–BX–
change would revise Chapters 4, 8, and A. Self-Regulatory Organization’s
2018–037]
20 of the ICC Rules to more clearly Statement of the Purpose of, and
characterize Mark-to-Market Margin Self-Regulatory Organizations; Nasdaq Statutory Basis for, the Proposed Rule
payments as settlement payments rather BX, Inc.; Notice of Filing and Change
than collateral. The proposed rule Immediate Effectiveness of Proposed 1. Purpose
change would also revise terminology to Rule Change To Amend Section
further clarify the legal characterization 7018(a) of the Exchange’s Rules The purpose of the proposed rule
that payments of Mark-to-Market Margin change is to amend the Exchange’s
represent settlement rather than August 13, 2018. transaction fees at Rule 7018 to (i) adjust
collateral payments. These clarifying Pursuant to Section 19(b)(1) of the the volume threshold for a credit
changes are the result of ICC’s analysis Securities Exchange Act of 1934 associated with orders that access
of the legal characterization of Mark-to- (‘‘Act’’),1 and Rule 19b–4 thereunder,2 liquidity that are entered by members
Market Margin payments, at the request notice is hereby given that on July 31, that access liquidity equal to or in
of its CPs. 2018, Nasdaq BX, Inc. (‘‘BX’’ or excess of a certain percentage of their
Thus, ICC intends to treat Mark-to- ‘‘Exchange’’) filed with the Securities [sic] total Consolidated Volume 3 for a
Market Margin payments as settled and Exchange Commission (‘‘SEC’’ or month; and (ii) adding two credit tiers
rather than collateral, and the ‘‘Commission’’) the proposed rule for orders entered by members that,
Commission believes that the proposed change as described in Items I, II, and during a given month, have a total
rule change’s clarifications and III, below, which Items have been volume (accessing and providing
additions would help ensure that ICC’s prepared by the Exchange. The liquidity) equal to or exceeding 0.50%
margin system operates consistently Commission is publishing this notice to of total Consolidated Volume, at least
with this intention. The Commission solicit comments on the proposed rule 20% more volume during that month (as
further believes that the proposed rule change from interested persons. a percentage of Consolidated Volume)
change would help ensure that the than the member’s total volume in July
margin system is operating consistently 37 17 CFR 240.17Ad–22(d)(1). 2018, and where at least 30% of that
for all CPs by confirming that all Mark- 38 15 U.S.C. 78q–1(b)(3)(F). 20% increase in volume arises from
to-Market Margin would be treated as 39 17 CFR 240.17Ad–22(b)(2), (d)(1). adding liquidity.
amozie on DSK3GDR082PROD with NOTICES1
40 15 U.S.C. 78s(b)(2).
settlement payments. In ensuring the
41 In approving the proposed rule change, the
consistent treatment of Mark-to-Market 3 Pursuant to Rule 7018(a), the term
Commission considered the proposal’s impact on ‘‘Consolidated Volume’’ means the total
Margin, the Commission believes that efficiency, competition, and capital formation. 15 consolidated volume reported to all consolidated
the proposed rule change would help U.S.C. 78c(f). transaction reporting plans by all exchanges and
42 17 CFR 200.30–3(a)(12).
trade reporting facilities during a month in equity
35 17 CFR 240.17Ad–22(b)(2). 1 15 U.S.C. 78s(b)(1).
securities, excluding executed orders with a size of
36 17 CFR 240.17Ad–22(d)(1). 2 17 CFR 240.19b–4. less than one round lot.
VerDate Sep<11>2014 17:17 Aug 16, 2018 Jkt 244001 PO 00000 Frm 00080 Fmt 4703 Sfmt 4703 E:\FR\FM\17AUN1.SGM 17AUN1](https://thefederalregister.org/doc/83_FR_41278/page/4.svg)
Document Created: 2018-08-17 03:24:23
Document Modified: 2018-08-17 03:24:23
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| FR Citation | 83 FR 41118 |
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