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Federal Register / Vol. 86, No. 19 / Monday, February 1, 2021 / Notices
will allow market participants an increased ability to manage risk and ensure the safeguarding of margin assets pursuant to clearing house rules. ICC
believes that acceptance of the new EM
Contract, on the terms and conditions set out in the Rules, is consistent with the prompt and accurate clearance and settlement of securities transactions and derivative agreements, contracts and transactions cleared by ICC, the safeguarding of securities and funds in the custody or control of ICC or for which it is responsible, and the protection of investors and the public interest, within the meaning of Section 17Ab3F of the Act.4
Clearing of the additional EM
Contract will also satisfy the relevant requirements of Rule 17Ad22,5 as set forth in the following discussion.
Rule 17Ad22e6i 6 requires each covered clearing agency to establish, implement, maintain, and enforce written policies and procedures reasonably designed to cover its credit exposures to its participants by establishing a risk-based margin system that, at a minimum, considers, and produces margin levels commensurate with, the risks and particular attributes of each relevant product, portfolio, and market. In terms of financial resources, ICC will apply its existing margin methodology to the new EM Contract, which is similar to the EM Contracts currently cleared by ICC. ICC believes that this model will provide sufficient margin requirements to cover its credit exposure to its clearing members from clearing such contract, consistent with the requirements of Rule 17Ad 22e6i.7
Rule 17Ad22e4ii 8 requires each covered clearing agency to establish, implement, maintain, and enforce written policies and procedures reasonably designed to effectively identify, measure, monitor, and manage its credit exposures to participants and those arising from its payment, clearing, and settlement processes, including by maintaining additional financial resources at the minimum to enable it to cover a wide range of foreseeable stress scenarios that include, but are not limited to, the default of the two participant families that would potentially cause the largest aggregate credit exposure for the covered clearing agency in extreme but plausible market conditions. ICC believes its Guaranty Fund, under its existing methodology,
will, together with the required initial margin, provide sufficient financial resources to support the clearing of the additional EM Contract, consistent with the requirements of Rule 17Ad 22e4ii.9
Rule 17Ad22e17 10 requires, in relevant part, each covered clearing agency to establish, implement, maintain, and enforce written policies and procedures reasonably designed to manage its operational risks by i identifying the plausible sources of operational risk, both internal and external, and mitigating their impact through the use of appropriate systems, policies, procedures, and controls; and ii ensuring that systems have a high degree of security, resiliency, operational reliability, and adequate, scalable capacity. ICC believes that its existing operational and managerial resources will be sufficient for clearing of the additional EM Contract, consistent with the requirements of Rule 17Ad22e17,11 as the new contract is substantially the same from an operational perspective as existing contracts.
Rule 17Ad22e8, 9 and 10 12
requires each covered clearing agency to establish, implement, maintain, and enforce written policies and procedures reasonably designed to define the point at which settlement is final to be no later than the end of the day on which payment or obligation is due and, where necessary or appropriate, intraday or in real time; conduct its money settlements in central bank money, where available and determined to be practical by the Board, and minimize and manage credit and liquidity risk arising from conducting its money settlements in commercial bank money if central bank money is not used; and establish and maintain transparent written standards that state its obligations with respect to the delivery of physical instruments, and establish and maintain operational practices that identify, monitor, and manage the risks associated with such physical deliveries. ICC will use its existing rules, settlement procedures and account structures for the new EM
Contract, which is similar to the EM
Contracts currently cleared by ICC, consistent with the requirements of Rule 17Ad22e8, 9 and 10 13 as to the finality and accuracy of its daily settlement process and addressing the
4 Id.

9 Id.

5 17

10 17

CFR 240.17Ad22.
6 17 CFR 240.17Ad22e6i.
7 Id.
8 17 CFR 240.17Ad22e4ii.

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16:57 Jan 29, 2021

CFR 240.17Ad22e17i and ii.

11 Id.
12 17

PO 00000

B Clearing Agencys Statement on Burden on Competition The additional EM Contract will be available to all ICC participants for clearing. The clearing of the additional EM Contract by ICC does not preclude the offering of the additional EM
Contract for clearing by other market participants. Accordingly, ICC does not believe that clearance of the additional EM Contract will impose any burden on competition not necessary or 14 17

CFR 240.17Ad22e2i and v.

15 Id.

CFR 240.17Ad22e8, 9 and 10.

13 Id.

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risks associated with physical deliveries.
Rule 17Ad22e2i and v 14
requires each covered clearing agency to establish, implement, maintain, and enforce written policies and procedures reasonably designed to provide for governance arrangements that are clear and transparent and specify clear and direct lines of responsibility. ICC
determined to accept the additional EM
Contract for clearing in accordance with its governance process, which included review of the contract and related risk management considerations by the ICC
Risk Committee and approval by its Board. These governance arrangements continue to be clear and transparent, such that information relating to the assignment of responsibilities and the requisite involvement of the ICC Board and committees is clearly detailed in the ICC Rules and policies and procedures, consistent with the requirements of Rule 17Ad22e2i and v.15
Rule 17Ad22e13 16 requires each covered clearing agency to establish, implement, maintain, and enforce written policies and procedures reasonably designed to ensure it has the authority and operational capacity to take timely action to contain losses and liquidity demands and continue to meet its obligations by, at a minimum, requiring its participants and, when practicable, other stakeholders to participate in the testing and review of its default procedures, including any close-out procedures, at least annually and following material changes thereto.
ICC will apply its existing default management policies and procedures for the additional EM Contract. ICC believes that these procedures allow for it to take timely action to contain losses and liquidity demands and to continue meeting its obligations in the event of clearing member insolvencies or defaults in respect of the additional single name, in accordance with Rule 17Ad22e13.17

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16 17

CFR 240.17Ad22e13.

17 Id.

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