Notice2021-16227
Self-Regulatory Organizations; ICE Clear Europe Limited; Order Approving Proposed Rule Change Relating to the ICE Clear Europe Articles of Association
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Published
July 30, 2021
Issuing agencies
Securities and Exchange Commission
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<title>Federal Register, Volume 86 Issue 144 (Friday, July 30, 2021)</title>
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[Federal Register Volume 86, Number 144 (Friday, July 30, 2021)]
[Notices]
[Pages 41125-41128]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-16227]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92492; File No. SR-ICEEU-2021-013]
Self-Regulatory Organizations; ICE Clear Europe Limited; Order
Approving Proposed Rule Change Relating to the ICE Clear Europe
Articles of Association
July 26, 2021.
I. Introduction
On May 25, 2021, ICE Clear Europe Limited (``ICE Clear Europe'')
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,\2\ a proposed rule change to amend
its Articles of Association (the ``Articles''). The proposed rule
change was published for comment in the Federal Register on June 11,
2021.\3\ The Commission did not receive comments regarding the proposed
rule change. For the reasons discussed below, the Commission is
approving the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Self-Regulatory Organizations; ICE Clear Europe Limited;
Notice of Filing of Proposed Rule Change Relating to the ICE Clear
Europe Articles of Association, Exchange Act Release No. 92120 (June
7, 2021); 86 FR 31348 (June 11, 2021) (SR-ICEEU-2021-013)
(``Notice'').
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II. Description of the Proposed Rule Change
As discussed further below, the proposed rule change would amend
the Articles to: (i) Update definitions related to the ICE Clear Europe
Board of Directors (the ``Board'') and references to Board committees;
(ii) modify the composition and structure of the Board and Board
committees; (iii) revise the provisions regarding Super-Quorum Matters;
(iv) add an article regarding presence at a Board meeting and amend an
article related to expenses for directors; and (v) adopt gender-neutral
language and make non-substantive typographical edits throughout the
Articles.\4\
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\4\ The description that follows is excerpted from the Notice,
86 FR at 31348. Capitalized terms not otherwise defined herein have
the meanings assigned to them in the ICE Clear Europe Clearing Rules
or the Articles, as applicable.
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A. Definitions Related to the Board and Board Committees
Beginning in the defined terms found in Article 3, the proposed
rule change would change the name of the Risk Committee to Product Risk
Committee and update references to this committee throughout the
Articles accordingly. This change would reflect the correct current
name and function of this committee (and distinguish the Product Risk
Committee from other existing risk committees). Further, the proposed
rule change would delete from the definition of Product Risk Committee
the statement that it is composed of the directors, to reflect that the
committee is comprised of directors as well as representatives of
Clearing Members.
The proposed rule change would next delete definitions of, and
references to, Board committees other than the Product Risk Committee.
The proposed rule change would delete from article 3 \5\ the
definitions of Audit Committee, Board Risk Committee, Compensation
Committee, and Nomination Committee. In addition, the proposed rule
change would also amend the defined term Committees. Currently that
term is defined to mean certain committees of the Board (Audit
Committee, Board Risk Committee, etc.). The proposed rule change would
revise this definition to mean any committee constituted by the Board
under the Articles. Although ICE Clear Europe is not proposing to
change its current committee structure at this time, it does not
believe the committees need to be defined in the Articles. Given that
the Board is authorized to create, modify, or dissolve committees as it
determines to be appropriate, the amendments would facilitate future
changes to the committee structure by the Board without need to amend
the Articles.\6\ The proposed rule change would retain the definition
of, and references to, the Product Risk Committee, however, because
that Committee plays a specific role relating to the CDS Director, as
discussed below.\7\
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\5\ References herein to the numbering of particular articles
will be to the articles as amended.
\6\ Notice, 86 FR at 31348.
\7\ Notice, 86 FR at 31348.
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B. Composition and Structure of the Board and Board Committees
The proposed rule change also would make certain revisions to the
composition of the Board and Board committees. Currently, the Articles
provide that the number of directors shall be not less than six and not
more
[[Page 41126]]
than twelve, with at least two and not more than four Independent
Directors. The proposed rule change would not alter the size of Board;
it would retain the not less than six and not more than twelve
numerical requirement. The proposed rule change would provide, however,
that at least one third of directors should be Independent Directors,
replacing the current requirement of at least two and not more than
four. Under a minimum Board size of six, this would result in two
Independent Directors, and under a maximum Board size of twelve, this
would result in four Independent Directors. Thus, this proposed change
would in effect keep the number of independent directors the same,
while providing flexibility and clarifying the language.
Relatedly, the proposed rule change would update the definition of
Independent Director. Independent Director is currently defined as a
person who is independent of the Company and of the Clearing House and
who is appointed as a non-executive director of the Company. The
proposed rule change would modify this definition to mean a person who
meets the independence criteria for a director, as defined under
relevant applicable legislation and who is appointed as a non-executive
director.\8\
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\8\ Specifically, ICE Clear Europe represented such legislation
would include the definition of ``independent member'' pursuant to
Article 2(28) of the European Market Infrastructure Regulation
(EMIR), Regulation (EU) No 648/2012 of the European Parliament and
of the Council of 4 July 2012 on OTC derivatives, central
counterparties and trade repositories as incorporated into UK law
under the European Union (Withdrawal) Act 2018 (UK EMIR). Notice, 86
FR at 31349, n.4.
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Similarly, the proposed rule change would clarify the definition of
CDS Director. A CDS Director is defined as a person, reasonably
acceptable to the Board and approved by the Bank of England, with
appropriate experience of credit derivatives and the credit default
swaps marketplace, and further experience including, but not limited
to, corporate governance, management oversight, and financial markets,
who is appointed by the Board as a non-executive director of the
Company and who has been nominated by the Product Risk Committee with
responsibility for CDS. The proposed rule change would retain this
definition but would add a sentence to clarify that the CDS Director
may also meet the criteria required of an Independent Director but, for
the avoidance of doubt, would continue to be classified only as a CDS
Director. Thus, even if the CDS Director meets the criteria required of
an Independent Director, they will be classified only as a CDS Director
and not as an Independent Director.
The proposed rule change would also modify the Board composition
requirement with respect to CDS Directors. Currently, the Articles
require that two CDS Directors be appointed to serve on the Board. The
proposed rule change would modify this provision to require only that
one CDS Director serve on the Board. The proposed rule change also
would amend the provisions relating to the appointment and retirement
of CDS Directors to reflect this change. ICE Clear Europe represented
that the proposed reduction to the required number of CDS Directors
follows the retirement of one of the previous CDS Directors and that it
was unnecessary to have two CDS Directors because Clearing Members
would continue to be represented through the remaining CDS Director and
the CDS Product Risk Committee.\9\
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\9\ Notice, 86 FR at 31349.
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C. Super-Quorum Matters
Super-Quorum Matters are certain matters before the Board that are
subject to additional requirements regarding the presence of a CDS
Director at the meeting where those matters are considered. Article 3
currently defines Super-Quorum Matters as matters regarding those
aspects of the Rules that relate to: CDS Clearing Members; CDS
contracts; the structure, size, or application of the CDS guaranty
fund; the methodology for calculating a CDS Clearing Member's CDS
guaranty fund contribution or the components thereof; permitted cover
for CDS guaranty fund contributions; powers of assessment in respect of
CDS Clearing Members; the time period for, or means by which, CDS
margin is returned to a CDS Clearing Member; the methodology for
determining the rate of return on the CDS guaranty fund; the use, re-
hypothecation or investment of the CDS guaranty fund; the terms of
reference for the CDS Risk Committee; and, the subject and content of
the Board Resolution relating to those matters. The proposed rule
change would retain this definition, with some additional
clarifications. Specifically, the proposed rule change would clarify
that the definition includes those aspects of the Rules that relate to
``criteria for CDS Clearing Membership'' instead of just ``CDS Clearing
Members.'' Because seemingly any aspect of the Rules could relate to
CDS Clearing Members, including those aspects of the rules that are
already specifically covered in the definition of Super-Quorum Matters,
this specific change would narrow and clarify this aspect of the
definition. Moreover, clarifying that the definition covers those
aspects of the Rules that relate to criteria for CDS Clearing
Membership would ensure that those provisions of the Rules are also
covered by the definition. Finally, the remaining portions of the
definition of the Super-Quorum Matters would continue to broadly cover
other aspects of the Rule that could relate to CDS Clearing Members,
including any aspects of the rules relating to CDS contracts.
In addition, the proposed rule change would update a reference to
the terms of reference for the CDS Risk Committee to the terms of
reference for the Product Risk Committee, in furtherance of the change
discussed above. The proposed rule change would also resolve a drafting
ambiguity by removing ``the subject and content of the Board
Resolution'' as a Super-Quorum Matter as, by current practice, not all
Board resolutions are Super-Quorum Matters.
The proposed rule change next would amend the Articles to clarify
the operation of the super-quorum requirement for Super-Quorum Matters,
and to reflect the requirement to have one CDS Director present. The
Articles currently require that, in relation to Super-Quorum Matters, a
super-quorum is needed for the transaction of business, which means a
majority of the directors serving on the Board at that time including
at least one CDS Director. The proposed rule change would modify this
provision to make the term ``Super-Quorum'' a defined term, meaning a
majority of the directors serving on the Board at that time and, for as
long as a CDS Director has been nominated by the Product Risk Committee
with responsibility for CDS and appointed by the Board, the Super-
Quorum must include a CDS Director who must be present at the meeting.
Because under the Articles as revised there will only be one CDS
Director, the proposed rule change would add this language to clarify
that where a CDS Director has retired or resigned and a new CDS
Director has not yet been nominated by the Product Risk Committee and
appointed by the Board, the Board could still act on a Super-Quorum
Matter. Thus, as in the current Articles, under the proposed rule
change a Super-Quorum would include a CDS Director.
The proposed rule change would further clarify that while the CDS
Director must be present at a meeting requiring a Super-Quorum, the CDS
Director need not vote in favor of the resolution. The Articles do not
currently require that the CDS Director vote in favor of the Board
resolution relating to
[[Page 41127]]
the Super-Quorum Matter, so this provision would clarify this point.
Moreover, the Articles currently provide that in relation to Super-
Quorum Matters that need to be resolved in an emergency the quorum
necessary shall be the number equal to a majority of the directors
serving on the Board at that time. Thus, under the current Articles,
the Board could resolve a Super-Quorum Matter at an emergency meeting
without a CDS Director present. The proposed rule change would retain
this provision, but would clarify that the ICE Clear Europe President
or their delegate would deem whether there is an emergency. The
proposed rule change would also add language to would clarify that, for
the avoidance of doubt, the presence of a CDS Director is not necessary
at the emergency meeting, as under the current Articles.
Finally, the Articles currently provide that where no CDS Directors
are present at a meeting requiring a Super-Quorum, consideration of the
business relating to relevant Super-Quorum Matters shall be adjourned
to a re-convened meeting to be called subject to a minimum of two
Business Days' notice to the Board, at which transaction of business in
relation to the relevant Super-Quorum Matters shall not require a
Super-Quorum and may be transacted by a quorum equal to a majority of
the directors serving on the Board at that time. The proposed rule
change would retain this provision but would clarify that at the
subsequent meeting, a CDS Director need not be present.
D. Presence and Directors' Expenses
The proposed rule change, through a new article, would provide that
a member shall be deemed present at a general meeting if participating
by telephone or other electronic means and all participating members
can hear each other. Relatedly, the proposed rule change would amend
the Articles to state explicitly that for a quorum to be met for non-
Super-Quorum Matters, the required majority of directors must be
present at the meeting (under the new definition).
The proposed rule change also would amend the Articles regarding
directors' expenses. The Articles provide that directors may, subject
to the approval of the Board, be paid all travelling, hotel and other
expenses properly incurred by them in connection with their attendance
at meetings of directors or committees of directors or general meetings
or separate meetings of the Company or otherwise in connection with the
discharge of their duties. The proposed rule change would modify this
provision by adding the word ``reasonable'' immediately before
``travelling,'' thus in effect requiring the expenses to be reasonable.
The proposed rule change also would remove the requirement that the
expenses be subject to Board approval. ICE Clear Europe represented
that, instead, the ICE Clear Europe President would approve such
expenses.\10\
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\10\ Notice, 86 FR at 31349.
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E. Gender Neutral Language and Typographical Errors
Throughout the Articles, the proposed rule change would amend
various provisions to use gender-neutral language. The proposed rule
change also would correct certain non-substantive typographical errors
and update numbering due to the changes discussed above.
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.\11\ For the reasons discussed below, the Commission finds
that the proposed rule change is consistent with Section 17A(b)(3)(C)
of the Act,\12\ Section 17A(b)(3)(F) of the Act,\13\ and Rule 17Ad-
22(e)(2)(i).\14\
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\11\ 15 U.S.C. 78s(b)(2)(C).
\12\ 15 U.S.C. 78q-1(b)(3)(C).
\13\ 15 U.S.C. 78q-1(b)(3)(F).
\14\ 17 CFR 240.17Ad-22(e)(2)(i).
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A. Consistency With Section 17A(b)(3)(C) of the Act
Section 17A(b)(3)(C) of the Act requires, among other things, that
the rules of ICE Clear Europe assure a fair representation of its
shareholders (or members) and participants in the selection of its
directors and administration of its affairs.\15\ The Commission
believes that the proposed rule change, in general, would be consistent
with assuring a fair representation of ICE Clear Europe's shareholders,
members, and participants in the selection of its directors and
administration of its affairs. Although, as discussed in Part II.B
above, one aspect of the proposed rule change would reduce the minimum
representation of CDS Directors on the Board of Directors from two to
one, the proposed rule change would not reduce any of the authority or
responsibility of the remaining CDS Director. Currently under the
Articles the presence of at least one CDS Director is required at Board
meetings relating to Super-Quorum Matters, and no provision explicitly
requires that a CDS Director vote in favor of Board resolutions
relating to Super-Quorum Matters. Similarly under the proposed rule
change, the presence of the CDS Director is required at Board meetings
relating to Super-Quorum Matters, but the CDS Director need not vote in
favor of a Board resolution relating to a Super-Quorum Matter for the
resolution to pass. Moreover, the current provisions relating to the
conduct of emergency meetings and re-convened meetings relating to
Super-Quorum matters without a CDS Director present are largely the
same under the Articles as proposed to be amended, with some additional
clarifications. Finally, the Commission notes ICE Clear Europe's
representation that Clearing Members would continue to be represented
through the CDS Product Risk Committee, which, other than the Chair, is
composed entirely of representatives of Clearing Members.\16\
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\15\ 15 U.S.C. 78q-1(b)(3)(C).
\16\ Notice, 86 FR at 31349.
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Taking these factors together, the Commission finds that the
proposed rule change is consistent with 17A(b)(3)(C) of the Act.\17\
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\17\ 15 U.S.C. 78q-1(b)(3)(C).
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B. 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 ICE Clear Europe 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 ICE Clear Europe or for
which it is responsible.\18\ As discussed in more detail below, the
Commission generally believes that the changes discussed above should
facilitate the efficient operation of the clearing house and a clear
and transparent governance structure, which would promote the prompt
and accurate clearance and settlement of transactions and assure the
safeguarding of securities and funds. Therefore, the Commission
believes that the proposed rule change is consistent with Section
17A(b)(3)(F) of the Act.\19\
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\18\ 15 U.S.C. 78q-1(b)(3)(F).
\19\ 15 U.S.C. 78q-1(b)(3)(F).
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The Commission believes the changes discussed in Part II.A above
would ensure that the Articles are consistent with the current
operations of ICE Clear Europe by correcting the name of the
[[Page 41128]]
Risk Committee to the Product Risk Committee and amending the
definition of that committee to reflect its current composition.
Moreover, revising the defined term ``Committees'' and removing
references to other Board committees would make the Articles more
flexible by allowing for the addition, modification, or elimination of
Board committees without the need to amend the Articles. The Commission
believes that these changes should improve ICE Clear Europe's ability
to adapt its Board to evolving circumstances and unforeseen areas of
priority.
Similarly, the Commission believes that the changes discussed in
Part II.B above would clarify the Articles with respect to the
composition of the Board. Specifically, changing the minimum number of
Independent Directors to one third of the Board, from at least two but
not more than four, would in effect result in the same number of
Independent Directors as currently, given that the size of the Board
could still range from six to twelve directors. This change would
clarify and simplify the language of this requirement, however.
Similarly, the Commission believes that revising the definition of an
Independent Director to refer to independence criteria as defined under
applicable legislation would allow this definition to change in
response to changes to relevant legislation, thus furthering the
clarity and flexibility of this definition. The Commission also
believes that clarifying the definition of CDS Director, by adding
language that a CDS Director can also meet the criteria for an
Independent Director, will clarify the Articles by absolving a
potential ambiguity of director classification. Finally, the Commission
believes that changing the required Board representation of CDS
Directors from two to one and revising other provisions to reflect this
change would clarify the number of CDS Directors on the Board without
substantially reducing the representation of Clearing Members.
The Commission also believes that amending the Articles pertaining
to Super-Quorum Matters as discussed in Part II.C above would clarify
the requirements applicable to Super-Quorum Matters. Specifically, the
Commission believes clarifying the definition of Super-Quorum Matters
would make it easier to determine what matters fall within the category
of Super-Quorum Matters. Similarly, the Commission believes that by
making the term ``Super-Quorum'' a defined term and including, as in
the current Articles, a requirement that a CDS Director be present at a
meeting to achieve a Super-Quorum, the proposed rule change would
clarify these provisions. Finally, the Commission believes the other
changes discussed in Part II.C above would clarify points currently
implied in the Articles: That a CDS Director need not vote in favor of
a resolution during a Super-Quorum Matter; that the President or their
delegate would determine the existence of an emergency as needed for an
emergency meeting; and that a CDS Director need not be present at an
emergency or reconvened Board meeting involving a Super-Quorum Matter.
Similarly, the Commission believes that the changes to the Articles
concerning the acceptable criteria constituting presence at a Board
meeting, as discussed in Part II.D above, would clarify when a director
is present at a Board meeting, especially when participating by
telephone. Revising the provision regarding directors' expenses
discussed in Part II.D above should would clarify this provision given
that the ICE Clear Europe President, and not the Board, approves such
expenses. Finally, the Commission believes that the changes to the
Articles to reflect gender-neutral language, correct typographical
errors, and renumber the Articles in accord with the above changes to
the Articles would clarify the Articles and eliminate drafting
mistakes.
The Commission believes that by clarifying and revising the
Articles, the proposed rule change would reduce the possibility for
error in interpreting and applying the Articles, thus improving the
operation of ICE Clear Europe's governance in general and the Board in
particular. The Commission further believes that improved governance
and Board oversight may facilitate the efficient and effective
operations of ICE Clear Europe, including its clearance and settlement
of transactions and safeguarding of securities and funds. Therefore,
the Commission finds that the proposed rule change should promote the
prompt and accurate clearance and settlement of securities transactions
and assure the safeguarding of securities and funds in ICE Clear
Europe's custody and control, consistent with the Section 17A(b)(3)(F)
of the Act.\20\
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\20\ 15 U.S.C. 78q-1(b)(3)(F).
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C. Consistency With Rule 17Ad-22(e)(2)(i)
Rule 17Ad-22(e)(2)(i) requires that ICE Clear Europe establish,
implement, maintain, and enforce written policies and procedures
reasonably designed to provide for governance arrangements that are
clear and transparent.\21\ As discussed above, the Commission believes
that the proposed rule change would clarify the Articles and the
operation of the Board pursuant to the Articles. For example, by
establishing when a director is present at a Board meeting, including
when participating by telephone, the Commission believes the proposed
rule change would clarify when a director is present and counted for
purposes of establishing a quorum or Super-Quorum. Moreover, a number
of changes discussed in Part II.C above would clarify points currently
implied in the Articles: That the CDS Director need not vote in favor
of the Board resolution relating to the Super-Quorum Matter; that the
President would determine the existence of an emergency as needed for
an emergency meeting; and that a CDS Director need not be present at an
emergency or reconvened Board meeting. Thus, the Commission finds that
the proposed rule change is consistent with Rule 17Ad-22(e)(2)(i).\22\
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\21\ 17 CFR 240.17Ad-22(e)(2)(i).
\22\ 17 CFR 240.17Ad-22(e)(2)(i).
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IV. Conclusion
On the basis of the foregoing, the Commission finds that the
proposed rule change is consistent with the requirements of the Act,
and in particular, with the requirements of Section 17A(b)(3)(C) of the
Act,\23\ 17A(b)(3)(F) of the Act,\24\ and Rule 17Ad-22(e)(2)(i).\25\
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\23\ 15 U.S.C. 78q-1(b)(3)(C).
\24\ 15 U.S.C. 78q-1(b)(3)(F).
\25\ 17 CFR 240.17Ad-22(e)(2)(i).
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It is therefore ordered pursuant to Section 19(b)(2) of the Act
\26\ that the proposed rule change (SR-ICEEU-2021-013), be, and hereby
is, approved.\27\
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\26\ 15 U.S.C. 78s(b)(2).
\27\ 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.\28\
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\28\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-16227 Filed 7-29-21; 8:45 am]
BILLING CODE 8011-01-P
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This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.