Notice2021-17671
Self-Regulatory Organizations; ICE Clear Europe Limited; Notice of Filing of Proposed Rule Change, as Modified by Partial Amendment No. 1, Relating to the ICE Clear Europe Clearing Membership Policy and Clearing Membership Procedures
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Published
August 18, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 157 (Wednesday, August 18, 2021)</title>
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[Federal Register Volume 86, Number 157 (Wednesday, August 18, 2021)]
[Notices]
[Pages 46290-46292]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-17671]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92652; File No. SR-ICEEU-2021-014]
Self-Regulatory Organizations; ICE Clear Europe Limited; Notice
of Filing of Proposed Rule Change, as Modified by Partial Amendment No.
1, Relating to the ICE Clear Europe Clearing Membership Policy and
Clearing Membership Procedures
August 12, 2021.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on August 2, 2021, ICE Clear Europe Limited (``ICE Clear Europe'' or
the ``Clearing House'') filed with the Securities and Exchange
Commission (``Commission'') the proposed rule changes described in
Items I, II and III below, which Items have been prepared primarily by
ICE Clear Europe. On August 11, 2021, ICE Clear Europe filed Partial
Amendment No. 1 to the proposed rule change.\3\ The Commission is
publishing this notice to solicit comments on the proposed rule change,
as modified by Partial Amendment No. 1 (hereafter referred to as the
``proposed rule change''), from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Partial Amendment No. 1 amended the filing to delete from
the filed Exhibit 5B, Clearing Membership Procedures, certain
statements in sections 2.4.1 and 2.4.2 of such Procedures concerning
the termination of clearing membership by a Clearing Member.
Specifically, ICE Clear Europe proposes to remove the statements
that it will define a minimum notice period and may publish a
Circular confirming that a Termination Notice has been issued,
because the appropriate minimum notice period and requirements for
publishing a Circular are set forth in existing Clearing Rule 209,
which is not proposed to be amended.
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
ICE Clear Europe proposes to adopt a new Clearing Membership Policy
(the ``Policy'') and new Clearing Membership Procedures (the
``Procedures'', and collectively with the Policy, the ``Documents'').
The revisions would not involve any changes to the ICE Clear Europe
Clearing Rules.\4\
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\4\ Capitalized terms used but not defined herein have the
meanings specified in the ICE Clear Europe Clearing Rules (the
``Rules'').
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
In its filing with the Commission, ICE Clear Europe included
statements concerning the purpose of and basis for the proposed rule
change and discussed any comments it received on the proposed rule
change. The text of these statements may be examined at the places
specified in Item IV below. ICE Clear Europe has prepared summaries,
set forth in sections (A), (B), and (C) below, of the most significant
aspects of such statements.
(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
(a) Purpose
ICE Clear Europe is proposing to adopt the new Policy and
Procedures to consolidate and summarize its existing clearing
membership criteria and to document certain existing processes and
procedures concerning the membership application process.
Clearing Membership Policy
ICE Clear Europe is proposing to adopt the new Policy which would
describe its clearing membership criteria (which are set forth in full
detail in the Rules). The Policy would not change existing membership
criteria. The Policy would also address related processes for assessing
applicants for membership, variations of permissions and termination of
membership.
The Policy would describe clearing membership criteria, starting
with a description of the objectives, which accounts for membership
risk and ensures that such risks are properly managed and that
admission criteria is non-discriminatory, transparent and objective to
ensure fair and open access, as well as consistent with relevant
regulatory requirements. The Policy would describe how these objectives
are met through setting and monitoring appropriate membership criteria,
establishing a due diligence process and requiring notifications
regarding changes to Clearing Member business. The core clearing
membership criteria, including holding sufficient capital, being a
party to a Clearing Membership Agreement and others, would be
summarized in the Policy (with the full criteria set out in Rule 201
and the CDS Procedures).
The Policy would provide that ICE Clear Europe has established
processes for clearing membership application, permission variations
and clearing membership termination which are set out in further detail
in the Procedures. The Policy would also address monitoring in respect
of membership criteria, including periodic in-depth counterparty
reviews, periodic review of financial positions and use of its
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counterparty rating system, maintenance of a watch list, requiring an
annual member return, and other operational monitoring.
The Policy would also provide arrangements for breach management,
ongoing reviews and exception handling. This section is consistent with
other ICE Clear Europe policies and governance processes. In
particular, it would provide that (i) the document owner would be
responsible for ensuring that documents remain up-to-date and are
reviewed in accordance with the Clearing House's governance processes,
(ii) the document owner would report material breaches or unapproved
deviations from the Framework to their Head of Department, the Chief
Risk Officer and the Head of Compliance (or their delegates) who would
determine if further escalation would be made to relevant senior
executives, the Board and/or competent authorities, and (iii)
exceptions to the Policy would be approved in accordance with the
Clearing House's governance process for the approval of changes to such
document.
Procedures
The Procedures would describe in further detail the processes for
reviewing applications for clearing membership, variations of
membership permissions, on-going monitoring and membership termination.
The objective would be to establish a due diligence process to ensure
applicants meet ICE Clear Europe membership criteria and, once members,
provide notifications of any changes to their business that could
impact their ability to meet the criteria.
The Procedures would describe the Clearing Member application
process, the consideration by relevant ICE Clear Europe departments,
the process for approval or rejection of applications by the Executive
Risk Committee under authority delegated by the Board and the right to
appeal to the Board, additional membership conditions or criteria that
the Clearing House may, at its discretion, require prior to approval
and additional information requests that ICE Clear Europe may make
during the application process. The Procedures would also describe the
process for a Clearing Member to obtain membership to a different
membership class and the procedure through which a Clearing Member may
resign or be terminated by the Clearing House (both of which would be
in accordance with Rule 209).
The Procedures would detail the core membership requirements, which
would include minimum capital requirements as well as a description of
additional financial requirements ICE Clear Europe may impose and of
certain aspects of the calculation of member capital, including the use
of subordinated debt and controller guarantees where approved by ICE
Clear Europe and the disallowance of certain assets from the
calculation. The Procedures also reference Guaranty Fund contributions
for CDS and F&O clearing services, including replenishments in the
event of application of the funds; the margin-to-capital ratio
requirement; (iv) default management capabilities; and (v) EOD price
submissions (for CDS Clearing Members only) as required by the CDS EOD
Price Discovery Policy.
The Procedures would further provide for a description of ongoing
monitoring which would include: (i) Periodic review of the financial
position and compliance with the relevant membership requirements of
each Clearing Member; (ii) quarterly review of Clearing Member capital
situation and monthly review of FCM/BD Clearing Members; (iii) the
quarterly counterparty rating system report, which aggregates risk
factors covering credit, market price, liquidity and operational risk
for each Clearing Member; (iv) the watch list highlighting Clearing
Members with special risk situations; (v) annual member returns
pursuant to which Clearing Members must provide certain information to
ICE Clear Europe; (vi) daily monitoring of Clearing Member performance
in relation to fulfilment of obligations to cover cash payments, margin
collateral and Guaranty Fund contributions as well as delivery
obligations.
The Procedures would also set out the same governance requirements
as those described above with respect to the Policy.
(b) Statutory Basis
ICE Clear Europe believes that the proposed amendments are
consistent with the requirements of Section 17A of the Act \5\ and the
regulations thereunder applicable to it. In particular, Section
17A(b)(3)(F) of the Act \6\ requires, among other things, that the
rules of a clearing agency be designed to promote the prompt and
accurate clearance and settlement of securities transactions and, to
the extent applicable, derivative agreements, contracts, and
transactions, the safeguarding of securities and funds in the custody
or control of the clearing agency or for which it is responsible, and
the protection of investors and the public interest. The proposed
Documents are intended generally to more clearly document and
consolidate the Clearing House's criteria for admitting and monitoring
Clearing Members. In ICE Clear Europe's view the new documentation
would facilitate implementation of the Clearing House's existing
membership criteria as well as ongoing risk management with respect to
Clearing Members by the Clearing House through monitoring of their
particular situations. These amendments would therefore promote overall
Clearing House risk management and facilitate the prompt and accurate
clearing of cleared contracts and protect investors and the public
interest in the sound operations of the Clearing House, consistent with
the requirements of Section 17A(b)(3)(F).\7\ Further, the amendments
will not affect the safeguarding of securities and funds in the custody
or control of the Clearing House or for which it is responsible, within
the meaning of Section 17A(b)(3)(F).
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\5\ 15 U.S.C. 78q-1.
\6\ 15 U.S.C. 78q-1(b)(3)(F).
\7\ 15 U.S.C. 78q-1(b)(3)(F).
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The proposed amendments to the Documents are further consistent
with the risk management requirements of Rule 17Ad-22(e)(3)(i) \8\ as
they relate to clearing membership. As noted above, the amendments
would formalize and consolidate membership application and monitoring
processes to ensure that Clearing Members meet admission criteria upon
initial membership and continue to meet such criteria throughout their
membership. The amendments will facilitate the Clearing House's ability
to manage the potential risks posed by such Clearing Members.
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\8\ 17 CFR 240.17Ad-22(e)(3)(i)-(ii). The rule states that
``[e]ach covered clearing agency shall establish, implement,
maintain and enforce written policies and procedures reasonably
designed to, as applicable: [m]aintain a sound risk management
framework for comprehensively managing legal, credit, liquidity,
operational, general business, investment, custody, and other risks
that arise in or are borne by the covered clearing agency, which:
(i) Includes risk management policies, procedures, and systems
designed to identify, measure, monitor, and manage the range of
risks that arise in or are borne by the covered clearing agency,
that are subject to review on a specified periodic basis and
approved by the board of directors annually;''
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Rule 17Ad-22(b)(7) \9\ requires clearing agencies to provide the
ability to obtain
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membership to persons that maintain net capital equal to or greater
than $50 million, providing such persons can comply with other
reasonable membership standards and that any net capital requirements
be scalable so that they are proportional to the risks posed by the
member's activities to the clearing agency. The Procedures do not
change ICE Clear Europe's existing membership and minimum capital
standards in this regard, but more clearly document those requirements
and the process for monitoring compliance. The amendments are thus
consistent with Rule 17Ad-22(b)(7).\10\
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\9\ 17 CFR 240.17 Ad-22(b)(7). The rule states that ``[a]
registered clearing agency that performs central counterparty
services shall establish, implement, maintain and enforce written
policies and procedures reasonably designed to:
. . .
(7) Provide a person that maintains net capital equal to or
greater than $50 million with the ability to obtain membership at
the clearing agency, provided that such persons are able to comply
with other reasonable membership standards, with any net capital
requirements being scalable so that they are proportional to the
risks posed by the participant's activities to the clearing agency;
provided, however, that the clearing agency may provide for a higher
net capital requirement as a condition for membership at the
clearing agency if the clearing agency demonstrates to the
Commission that such a requirement is necessary to mitigate risks
that could not otherwise be effectively managed by other measures
and the Commission approves the higher net capital requirement as
part of a rule filing or clearing agency registration application.''
\10\ 17 CFR 240.17 Ad-22(b)(7).
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Rule 17Ad-22(e)(2)(i) and (v) \11\ requires clearing agencies to
establish reasonably designed policies and procedures to provide for
governance arrangements that are clear and transparent and specify
clear and direct lines of responsibility. The proposed Documents
clearly define the roles and responsibilities of the document owner,
the Head of Department, the senior members of the Risk Oversight
Department and the senior members of the Compliance Department,
consistent with governance arrangement for other ICE Clear Europe
policies and procedures. ICE Clear Europe believes that the amendments
to the Documents are therefore consistent with the requirements of Rule
17Ad-22(e)(2)(i) and (v).\12\
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\11\ 17 CFR 240.17 Ad-22(e)(2). The rule states that ``[e]ach
covered clearing agency shall establish, implement, maintain and
enforce written policies and procedures reasonably designed to, as
applicable:
(2) Provide for governance arrangements that:
(i) Are clear and transparent . . .
(v) Specify clear and direct lines of responsibility . . .''
\12\ 17 CFR 240.17 Ad-22(e)(2).
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(B) Clearing Agency's Statement on Burden on Competition
ICE Clear Europe does not believe the proposed Documents would have
any impact, or impose any burden, on competition not necessary or
appropriate in furtherance of the purposes of the Act. The Documents
are not changing existing membership criteria and would apply uniformly
to all Clearing Members. As a result, ICE Clear Europe does not believe
the amendments would affect the cost of clearing for Clearing Members
or other market participants, the market for cleared services generally
or access to clearing by Clearing Members or other market participants,
or otherwise affect competition among Clearing Members or market
participants in a manner not necessary or appropriate in furtherance of
the purposes of the Act.
(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants or Others
Written comments relating to the proposed Documents have not been
solicited or received by ICE Clear Europe. ICE Clear Europe will notify
the Commission of any written comments received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>) or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#483a3d242d652b2725252d263c3b083b2d2b662f273e"><span class="__cf_email__" data-cfemail="84f6f1e8e1a9e7ebe9e9e1eaf0f7c4f7e1e7aae3ebf2">[email protected]</span></a>. Please include
File Number SR-ICEEU-2021-014 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-ICEEU-2021-014. 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 (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
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 Europe and on ICE
Clear Europe's website at <a href="https://www.theice.com/clear-europe/regulation">https://www.theice.com/clear-europe/regulation</a>. 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-ICEEU-2021-014 and should be
submitted on or before September 8, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-17671 Filed 8-17-21; 8:45 am]
BILLING CODE 8011-01-P
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