Notice2021-18941
Self-Regulatory Organizations; ICE Clear Europe Limited; Order Granting Approval of Proposed Rule Change, as Modified by Partial Amendment No. 1, Relating to the Clearing Rules, Clearing Procedures, Finance Procedures, Delivery Procedures, CDS Procedures, Membership Procedures, Complaint Resolution Procedures, and General Contract Terms
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
September 2, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 86 Issue 168 (Thursday, September 2, 2021)</title>
</head>
<body><pre>
[Federal Register Volume 86, Number 168 (Thursday, September 2, 2021)]
[Notices]
[Pages 49367-49384]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-18941]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92786; File No. SR-ICEEU-2021-010]
Self-Regulatory Organizations; ICE Clear Europe Limited; Order
Granting Approval of Proposed Rule Change, as Modified by Partial
Amendment No. 1, Relating to the Clearing Rules, Clearing Procedures,
Finance Procedures, Delivery Procedures, CDS Procedures, Membership
Procedures, Complaint Resolution Procedures, and General Contract Terms
August 27, 2021.
I. Introduction
On May 13, 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
[[Page 49368]]
Exchange Act of 1934 (the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to amend its Clearing Rules (the ``Rules''),\3\
Clearing Procedures, Finance Procedures, Delivery Procedures, CDS
Procedures, Membership Procedures, Complaint Resolution Procedures, and
General Contract Terms (collectively, the ``Amended Documents'') to
make various updates and enhancements. The proposed rule change was
published for comment in the Federal Register on June 2, 2021.\4\ The
Commission did not receive comments regarding the proposed rule change.
On June 16, 2021, ICE Clear Europe filed Partial Amendment No. 1 to the
proposed rule change.\5\ Partial Amendment No. 1 to the proposed rule
change was published for comment in the Federal Register on July 21,
2021.\6\ The Commission did not receive comments regarding Partial
Amendment No. 1 to the proposed rule change. For the reasons discussed
below, the Commission is approving the proposed rule change, as
modified by Partial Amendment No. 1 (hereinafter the ``proposed rule
change'').
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Capitalized terms used but not defined herein have the
meanings specified in the Rules.
\4\ Self-Regulatory Organizations; ICE Clear Europe Limited;
Notice of Filing of Proposed Rule Change Relating to the Clearing
Rules, Clearing Procedures, Finance Procedures, Delivery Procedures,
CDS Procedures, Membership Procedures, Complaint Resolution
Procedures and General Contract Terms, Exchange Act Release No.
92020 (May 26, 2021), 86 FR 29612 (June 2, 2021) (SR-ICEEU-2021-010)
(``Notice'').
\5\ ICE Clear Europe filed Partial Amendment No. 1 to update
Exhibit 5D, the Delivery Procedures, to correct a formatting error
that resulted in the omission of several proposed definitions to
update references to ICE Clear Europe systems.
\6\ Self-Regulatory Organizations; ICE Clear Europe Limited;
Notice of Partial Amendment No. 1 and Designation of Longer Period
for Commission Action on Proposed Rule Change Relating to the
Clearing Rules, Clearing Procedures, Finance Procedures, Delivery
Procedures, CDS Procedures, Membership Procedures, Complaint
Resolution Procedures, and General Contract Terms, Exchange Act
Release No. 92418 (July 15, 2021), 86 FR 38521 (July 21, 2021) (SR-
ICEEU-2021-010).
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
ICE Clear Europe proposes specific changes to the Amended Documents
that would generally make various drafting improvements,
clarifications, and updates, in each case as described below.\7\ These
changes are organized below according to each Amended Document.
---------------------------------------------------------------------------
\7\ The following description of the proposed rule change is
substantially excerpted from the Notice.
---------------------------------------------------------------------------
A. The Rules
i. Removal of ``Default Portability Preference'' in the Rules
ICE Clear Europe proposes to remove the process by which Non-FCM/BD
Clearing Members may deliver a ``Default Portability Preference,'' with
advance, pre-default, porting information to ICE Clear Europe.
Currently, the Default Portability Preference allows a Customer or
Specified Principal (i.e., a principal-client for an Individually
Segregated Sponsored Account) to specify, in advance of a default, one
of more preferred Transferee Clearing Members to receive its Customer-
CM Transactions under ICE Clear Europe's Default Portability Rules. ICE
Clear Europe represents that it developed this process and preference
mechanism as part of its default planning processes prior to post-
financial crisis legislation coming into effect, such as the European
Market Infrastructure Regulation (``EMIR'').\8\ Given that EMIR
requires post-default porting notices to be served as a pre-condition
to porting, ICE Clear Europe proposes to replace its current pre-
default portability preference structure with a post-default
portability preference structure using ``Porting Notices,'' as
discussed below.
---------------------------------------------------------------------------
\8\ Notice, 86 FR 29612.
---------------------------------------------------------------------------
To implement this change, ICE Clear Europe proposes to delete the
existing definitions of ``Default Portability Preference'' and ``Non-
Transfer Positions'' in Rule 101 (Definitions), and to add a new
definition of ``Porting Notice'' in Rule 101, which would cross-
reference the existing definition of the term in the relevant Standard
Terms of the Rules. The existing definition of ``Porting Notice'' would
not change, and is generally defined in the Standard Terms as a post-
default notification to ICE Clear Europe from a Customer or Sponsored
Principal of a porting preference to a designated Transferee Clearing
Member.
In Rule 904 (Transfer of Contracts and Margin on a Clearing Member
Event of Default), the proposed rule change would amend Rules 904(g)
and 904(j) to remove the existing references to Default Portability
Preference and replace them with references to Porting Notices. In
addition, the proposed rule change also would amend Rule 904(g) to
provide that a Transferee Clearing Member's consent can only be
evidenced in a Porting Notice that is countersigned by such Clearing
Member or otherwise agreed in writing. ICE Clear Europe represents that
this change would clarify that simply being named by a customer as a
potential Transferee Clearing Member is not sufficient to evidence a
Clearing Member's consent to being named a Transferee Clearing Member
by the Clearing Member's customer.\9\ ICE Clear Europe proposes
additional changes in Rules 904(m), 904(p), 904(u) and 904(w) to
reflect the proposed deletion of Default Portability Preference.
---------------------------------------------------------------------------
\9\ Notice, 86 FR 29613.
---------------------------------------------------------------------------
In Rule 907(d), the proposed rule change would delete existing
references to Default Portability Preference and Non-Transfer
Positions, and would instead provide that in connection with porting,
ICE Clear Europe will be entitled to rely on any information provided
to it by a Defaulter prior to declaration of default in respect of
Contracts, Customer-CM Transactions, Margin, and the Accounts in which
Contracts and Margin were recorded or which relate to particular
Customers or particular groups of Customers. ICE Clear Europe
represents that this proposed change would allow it to continue to be
able to act efficiently in default scenarios, and rely on more of the
relevant information available to it in relation to the Defaulter.\10\
The proposed rule change to Rule 907(b) would also clarify that ICE
Clear Europe has no obligation to inquire of any person as to any
Porting Notice.
---------------------------------------------------------------------------
\10\ Notice, 86 FR 29613.
---------------------------------------------------------------------------
The proposed rule change would also remove references to Default
Portability Preferences and include reference to Porting Notices in the
CDS Standard Terms (paragraph 6), F&O Standard Terms (paragraph 6) and
FX Standard Terms (paragraph 6) annexed to the Rules.
ii. Amendments to the Definitions Relating to Energy Transactions
The proposed rule change would amend certain definitions relating
to Energy transactions to simplify and make such terms consistent with
previous amendments to definitions for other F&O Products.\11\
Specifically, in Rule 101, the proposed rule change would shorten the
existing definition of the term ``Energy'' to refer to the term
``Market'' rather than naming all specific ICE markets. The proposed
rule change would also introduce new definitions of the terms ``Energy
Matched Transaction'' (referencing an energy transaction conducted on a
Market) and ``Energy Transaction'' (covering an Energy Matched
Transaction or an
[[Page 49369]]
Energy Block Transaction meeting specified criteria).
---------------------------------------------------------------------------
\11\ See Exchange Act Release No. 34-87275 (File No. SR-ICEEU-
2019-020) (Oct. 10, 2019), 84 FR 55649 (Oct. 17, 2019) (changes to
definitions using the term Market).
---------------------------------------------------------------------------
iii. EFRP (Exchange for Related Positions) Definition Amendments
ICE Clear Europe proposes several changes to the Rules to address
more clearly exchange for related position transactions, referred to as
EFRPs, under applicable Market rules, including to revise defined terms
and clarify that such transactions are available on exchanges for
products other than soft commodities.
In Rule 101, the proposed rule change would add a new ``EFRP''
definition using a similar drafting structure to that for EFP (exchange
for physicals) and EFS (exchange for swaps) transactions by including
the phrase ``or any similar transaction under any Market Rules.'' Also,
the proposed rule change would clarify the current definition of
``EFS'' in Rule 101 to refer only to exchange for swaps or similar
transactions under Market Rules and to remove an existing reference to
exchange for related positions, which would instead be covered by the
proposed EFRP definition. In the ``Financials & Softs Block
Transaction'' definition, the proposed rule change would broaden the
reference to ``Soft Commodity EFRPs'' to include all EFRPs under all
Market Rules, as Soft Commodity EFRPs are specific to ICE Futures
Europe. Accordingly, the proposed rule change would delete the ``Soft
Commodity EFRP'' definition which is not otherwise used.
iv. Amendments to Product Termination Rules
The proposed rule change would amend Rule 105(a) to shorten the
termination period (generally from four months to one month) for a
service withdrawal for a product in circumstances in which there is no
open interest in the relevant Set. ICE Clear Europe represents that a
longer termination period is unnecessary in such circumstances, since
no action is required by Clearing Members to close out their
positions.\12\ The proposed amendments to Rule 105(a) would also
clarify that where a product termination occurs following actions of
the relevant exchange (e.g., a de-listing), the notice period required
under the exchange's rules would instead apply and the exchange would
be responsible for providing such notice.
---------------------------------------------------------------------------
\12\ Notice, 86 FR 29613.
---------------------------------------------------------------------------
v. Amendments to the Termination Rules for Clearing Members
ICE Clear Europe proposes amendments to Rule 209(d) to facilitate
membership terminations in the context of a corporate group
reorganization where a new Clearing Member that is an Affiliate will be
receiving the terminating Clearing Member's Open Contract Positions. In
such context, the proposed amendment would establish an exception to
the requirement for terminating Clearing Members to immediately pay to
ICE Clear Europe, upon service of a Termination Notice, Assessment
Contributions equal to three times the required relevant guaranty fund
contribution. ICE Clear Europe represents that such an exception is
warranted since all positions would be received by an affiliated
Clearing Member in good standing that would remain liable with respect
to any obligations arising from or related to the holding of such
positions under the Rules (including as to future Assessment
Contributions).\13\
---------------------------------------------------------------------------
\13\ Notice, 86 FR 29613.
---------------------------------------------------------------------------
The proposed rule change would further amend Rule 209(d) to clarify
that references in the Clearing Rules to Assessment Contributions being
called or to Guaranty Fund Contributions being replenished or applied,
where the Clearing Member has provided Permitted Cover to ICE Clear
Europe (whether under Rule 209(d) or prior to the Clearing Member
serving its termination notice or the Termination Date), would be
interpreted as a reference to that Permitted Cover being applied. The
proposed rule change would also clarify that the Permitted Cover which
has been provided by the Clearing Member prior to the serving of a
termination notice or a Termination Date could, as is currently
intended, also be included as part of, for example, any applications of
Guaranty Fund by ICE Clear Europe under Part 9 or Part 11.
The proposed amendments to Rule 209(d) would further clarify for
the avoidance of doubt that the following obligations would apply to a
terminating Clearing Member until Open Contract Positions have been
closed, the Termination Date has passed, and all Guaranty Fund
Contributions have been returned under Rule 1102(g): Application of
Guaranty Fund Contributions, application of Assessment Contributions
(to the extent paid under Rule 209(d) or otherwise prior to the
Termination Date), position limits under Part 6, disciplinary actions
under Part 10, and the declaration and consequences of an Event of
Default under Part 9 of the Rules.
ICE Clear Europe represents that the foregoing proposed amendments
to Rule 209(d) reflect its experience with both default planning and
recent Clearing Member terminations involving group
reorganizations.\14\
---------------------------------------------------------------------------
\14\ Notice, 86 FR 29614.
---------------------------------------------------------------------------
vi. Amendments to Notice Provisions
ICE Clear Europe represents that the proposed changes regarding the
delivery of notices under the Rules have been informed by default
simulation planning and, in particular, the requirements around default
notices under Rule 901, but are not limited to that context.\15\
Specifically, the proposed rule change would amend Rules 113(a) and
113(a)(i) to delete the current references to telephone as a valid mode
of service of notices (since ICE Clear Europe represents that this is
not supported operationally) and to replace such references with
email.\16\ Accordingly, under the proposed rule change, the email
address last notified to ICE Clear Europe by a Clearing Member would
become an option for service of notices. The proposed addition of new
Rule 113(a)(ii) would clarify that ICE Clear Europe may also validly
deliver notices to a process agent nominated by the Clearing Member to
act as its agent. Rule 113(e) currently refers to such agents for
service of process, and would be expanded under the proposed rule
change to explicitly refer to service of other contractual notices and
communications. The proposed amendments to Rule 113(a) would further
clarify that delivery in accordance with this section would be deemed
made to the Clearing Member or Sponsored Principal, as well as to an
agent appointed by the Clearing Member or Sponsored Principal.
---------------------------------------------------------------------------
\15\ Notice, 86 FR 29614.
\16\ Notice, 86 FR 29614.
---------------------------------------------------------------------------
The proposed rule change would also amend Rules 113(c) and 113(d)
to clarify the precise time when effective service is deemed to be made
for communications by fax, email, and courier, and that effective
service and delivery can be achieved outside of opening hours on a
business day, consistent with current operational practices.
Similarly, the proposed rule change would amend Rule 1901(n) to
clarify that process agents for Sponsored Principals will act as agents
for service of process of any notice, order, or other communication
under the Rules and the Sponsored Principal Agreement.
[[Page 49370]]
ICE Clear Europe proposes to amend Part E of the summary table at
paragraph 4.2 of the Membership Procedures to provide that the
termination of a Clearing Membership Agreement or membership as a
Clearing Member would become effective no less than 30 Business Days
after the date of the Termination Notice Time or pursuant to Rule
917(c) instead of the current notice period of no less than three
months' advance notice if termination is not for cause and otherwise as
specified in and allowed pursuant to the Rules. This change would make
the summary table consistent with current Rule 209. Finally, throughout
the summary table at paragraph 4.2 of the Membership Procedures, the
proposed rule change would update the email address to which Clearing
Members should send certain notifications.
vii. Clarifying Clearing Membership Criteria and Clearing Member
Obligations
The proposed rule change would amend Rule 201(a)(ix) to reference
existing Rule 201(b), under which ICE Clear Europe may require that
potential Clearing Members enter into additional annexes or agreements
to the Clearing Membership Agreement in order to be, and remain,
eligible for Clearing Membership. ICE Clear Europe represents that it
had to develop certain annexes to cater for local law issues arising in
certain EU member states as part of Clearing Members' post-Brexit group
legal structuring.\17\ By specifically referencing Rule 201(b), the
proposed amendments to Rule 201(a)(ix) would clarify the basis in the
Rules for ICE Clear Europe to require such additional documentation to
be executed, where necessary.
---------------------------------------------------------------------------
\17\ Notice, 86 FR 29614.
---------------------------------------------------------------------------
The proposed rule change would also amend Rule 202(a)(xxii), which
currently requires Clearing Members to have competent persons
accessible to ICE Clear Europe during opening hours and for two hours
immediately after the business day. Under the proposed amendment,
Clearing Members would be required to have competent persons accessible
to ICE Clear Europe for two hours prior to the start of the business
day as well. ICE Clear Europe represents that this change is consistent
with current operational practice and necessary to ensure that staff
are available to process and deal with questions relating to morning
margin calls.\18\
---------------------------------------------------------------------------
\18\ Notice, 86 FR 29614.
---------------------------------------------------------------------------
ICE Clear Europe proposes to add a new Rule 301(o) that would allow
it to request information on account balances of nominated accounts of
the Clearing Member at financial institutions when needed, including
for the purpose of calling on available cash where the Clearing Member
has failed to meet a payment obligation or determining whether the
Clearing Member is, or is likely to be, in default. ICE Clear Europe
represents that this change would address issues that have arisen in
practice where payment banks have refused to provide such information
to ICE Clear Europe.\19\
---------------------------------------------------------------------------
\19\ Notice, 86 FR 29614.
---------------------------------------------------------------------------
viii. Greater Flexibility in Financial Reporting by Clearing Members
The proposed rule change would amend Rule 205(a)(ii) to give ICE
Clear Europe greater flexibility to accept different kinds of financial
statements (for example, semi-annual accounts) from Clearing Members as
part of their financial reporting obligations, in circumstances where
that Clearing Member does not produce a quarterly financial statement
for its regulators. This amendment would also result in a conforming
change to Part A of the summary table at paragraph 4.2 of the
Membership Procedures. ICE Clear Europe represents that these proposed
amendments would formalize current operational practice for those
Clearing Members who do not prepare regulatory quarterly
financials.\20\
---------------------------------------------------------------------------
\20\ Notice, 86 FR 29614.
---------------------------------------------------------------------------
ix. Clarifying CDS Contract Formation
The proposed rule change would amend Rule 401(o) to clarify that,
where a CDS Contract of a Non-FCM/BD Clearing Member for a customer
account arises pursuant to Rule 401, a Customer-CM CDS Transaction
arises between the Customer and the Non-FCM/BD Clearing Member at the
same time as the Contract. The current rule does not specify the timing
of the Customer-CM CDS Transaction. The proposed amendment would
reflect the equivalent rule for a Customer-CM F&O Transaction in Rule
401(n).
x. Clarifying How Open Contract Positions Are Aggregated and Netted
The proposed rule change would amend Rules 406(b) and (c) to
address contractual netting for F&O contracts by aligning the
provisions for F&O Contracts more closely with the corresponding rule
provisions on contractual netting for CDS contracts in Rule 406(d), et
seq. In particular, the proposed changes would expressly address
aggregation of open contract positions of an F&O Clearing Member in
addition to netting of such positions, and would clarify that the
process for aggregation or netting takes place via contractual
novation.
xi. Clarifying How the Clearing House May Amend Contract Terms
The proposed rule change would amend Rule 409(a) so that ICE Clear
Europe can evidence its consent to amendments, waivers, and variations
of the Contract Terms by a Circular. ICE Clear Europe represents that a
Circular has been the usual way of issuing such amendments, waivers,
and variations, and the proposed change would conform the Rules to
operational practice.\21\
---------------------------------------------------------------------------
\21\ Notice, 86 FR 29615.
---------------------------------------------------------------------------
xii. Pledged Collateral Not for Settlement Payments
The proposed rule change would amend Rule 1603(c) to clarify that
only ``original'' or ``initial'' types of Margin payments shall be
provided in the form of Pledged Collateral, and that such collateral
excludes Variation Margin, Mark-to-Market Margin, and FX Mark-to-Market
Margin, which is provided to or by ICE Clear Europe by outright
transfer of cash as a settlement payment. ICE Clear Europe represents
that this proposed change is intended to be consistent with amendments
previously made to the Rules to clarify that such variation and mark-
to-market margin are settlement payments rather than collateral, and
was inadvertently omitted from such prior amendments.\22\
---------------------------------------------------------------------------
\22\ See Notice, 86 FR 29615. See also Exchange Act Release No.
34-88665 (File No. SR-ICEEU-2020-003) (Apr. 16, 2020), 85 FR 22892
(Apr. 23, 2020).
---------------------------------------------------------------------------
xiii. Hedging Following an Event of Default
The proposed rule change would amend Rule 903(c) to clarify that
ICE Clear Europe's right to authorize hedging transactions in a Default
scenario would include transactions on a Market, any other Exchange, or
over the counter. The proposed amendments would also provide that such
transactions taking place on an exchange which is not a Market, or
where requested or directed otherwise by ICE Clear Europe, need not
themselves be cleared.
xiv. Affiliate Cross-Defaults
The proposed rule change would amend Rule 901(a)(iv) to clarify
that the declaration of an Event of Default in respect of one Clearing
Member is a circumstance in which ICE Clear Europe can declare an Event
of Default in respect of another Clearing Member that
[[Page 49371]]
is a Group Company, i.e., a parent or a subsidiary entity of such
Clearing Member. ICE Clear Europe represents that this proposed
clarification addresses questions raised in default planning
exercises.\23\
---------------------------------------------------------------------------
\23\ Notice, 86 FR 29615.
---------------------------------------------------------------------------
xv. ``Eligible Contract Participant'' Status
The proposed rule change would amend Rule 201(a)(xx) to provide
that the requirement for a Clearing Member to be an ``eligible contract
participant'' \24\ only applies if it is to be a CDS Clearing member or
an FX Clearing member. The amendment reflects that such status is
required under applicable U.S. law for persons that trade swaps and
security-based swaps (such as CDS), but not for futures.\25\ Similarly,
the proposed rule change would amend Section 10 of the F&O Standard
Terms to remove a requirement that an F&O Clearing Member and Customer
be an eligible contract participant. The proposed rule change would
also amend Rule 1901(b)(xv) and Rule 1901(d)(ix) to provide that the
requirement for a Sponsored Principal to be an eligible contract
participant only applies in relation to CDS Contracts and FX Contracts.
---------------------------------------------------------------------------
\24\ Commodity Exchange Act Section 1a(18), 7 U.S.C. 1a(18).
\25\ See Section 6(l) of the Act, 15 U.S.C. 78f(l); Commodity
Exchange Act Section 2(e), 7 U.S.C. 2(e).
---------------------------------------------------------------------------
xvi. Corrected Names of Internal Risk Committees
The proposed rule change would amend Rule 916(d) to change the term
``Risk Committee'' to ``relevant product risk committee.'' ICE Clear
Europe represents that this change reflects that there are different
product risk committees addressing topics specific to F&O and CDS.\26\
---------------------------------------------------------------------------
\26\ Notice, 86 FR 29615.
---------------------------------------------------------------------------
xvii. Clarifications Relating to Negative EDSP
The proposed rule change would amend the definition of ``Exchange
Delivery Settlement Price'' or ``EDSP'' in Rule 101 (Definitions) to
clarify, for the avoidance of doubt, that the EDSP can be a positive or
negative number, or zero. The proposed rule change would amend Rule
703(b) (Delivery) by adding new language to clarify the process for
payment obligations if the EDSP is a negative number. In such event,
amended Rule 703(b) would provide that the roles of the Buyer and
Seller as set forth in the Rules, Delivery Procedures, Contract Terms,
and Market Rules shall be reversed solely in respect of the payment
obligation related to that EDSP.
xviii. Prospectus Directive
The proposed rule change would amend Rule 1501 (Definitions) in
Part 15 (Credit Default Swaps) of the Rules to change the definition of
``Prospectus Directive'' to ``Prospectus Regulation,'' because the EU
Prospectus Directive has been repealed and replaced with the Prospectus
Regulation. The proposed rule change would also make conforming changes
to the following definitions: ``Offer to the Public,'' by replacing the
obsolete term ``Prospectus Directive'' with ``Prospectus Regulation'';
``Relevant Member State,'' by using a new defined term ``Relevant
State'' that would remove the current reference to the Prospectus
Directive and add the phrase ``or the United Kingdom''; and
``Securities,'' by replacing the current references to the Prospectus
Directive with a reference to the Prospectus Regulation. Similarly, the
proposed rule change would delete the definition of ``2010 PD Amending
Directive'' (and references thereto) as this directive is also no
longer in force. Additional conforming changes would be made in Rule
1503 to remove obsolete legislative references to the Prospectus
Directive.
xix. Updates for Changes to Applicable Anti-Money Laundering Law
The proposed rule change would amend Rule 101 (Definitions) by
updating the definition of the term ``Money Laundering Directive'' to
reflect the implementation of the fifth EU Anti-Money Laundering
Directive. The proposed rule change would also add a new definition of
``Money Laundering Regulations'' to reference the applicable UK
regulations corresponding to that Directive, including after its exit
from the European Union.
In Rule 201(a)(xxix) (Clearing Membership Criteria) and Rule
1901(d)(xi) (Attaining status of a Sponsored Principal), the proposed
rule change would remove the existing references to ``simplified due
diligence.'' ICE Clear Europe represents that this change reflects the
repeal and restatement of the U.K.'s former Money Laundering
Regulations 2007 pursuant to the Money Laundering, Terrorist Financing
and Transfer of Funds (Information on the Payer) Regulations 2017,
which removed simplified due diligence as the default option for a
defined list of entities and replaced it with discretionary risk-based
levels of due diligence.\27\
---------------------------------------------------------------------------
\27\ Notice, 86 FR 29617.
---------------------------------------------------------------------------
The proposed rule change also would amend Rule 201(a)(xxxi) to add
anti-money laundering laws to the existing list of applicable laws that
are required to be acceptable to ICE Clear Europe in the respective
jurisdictions of Clearing Members. The proposed rule change would add a
new Rule 201(a)(xxxiii) to require Clearing Members to have adequate
policies, procedures, systems, and controls relating to Applicable
Laws, including relating to anti-money laundering and the prevention of
financial crime. The proposed rule change would make similar amendments
to Rules 202(a)(xii) and 1901(m) to update references to relevant laws,
clarify that the Clearing Member is required to make certain
representations and warranties to ICE Clear Europe with respect to the
matters in those subsections, require the Clearing Member to have the
necessary authority from customers and others to disclose the necessary
information about beneficial owners in order to comply with
requirements under Applicable Laws, and to retain copies of documents
required to be retained under anti-money laundering laws.
Similarly, the proposed rule change would amend Rule 1607
(Additional FCM/BD Requirements for Customer Transactions) by adding a
new clause (g) to require FCM/BD Customers to obtain the authority from
``beneficial owners'' to disclose information necessary for anti-money
laundering due diligence to the Clearing Member and ICE Clear Europe.
The proposed rule change would add similar new requirements to the CDS
Standard Terms in clause 3(q), F&O Standard Terms in clause 3(r), and
FX Standard Terms in clause 3(q).
xx. Introduction of a Summary Disciplinary Process and Other
Disciplinary Process Updates
The proposed rule change would amend the Rules to introduce new
Rule 1008, which would provide ICE Clear Europe with the authority to
issue a summary fine to a Clearing Member under certain conditions, and
to make certain minor drafting improvements to the disciplinary process
provisions of the Rules. ICE Clear Europe represents that the new
authority to issue a summary fine would be consistent with the
authority to issue summary fines provided under the rules of other ICE
exchanges for which ICE Clear Europe provides clearing services. ICE
Clear Europe further represents that it intends to introduce a more
streamlined
[[Page 49372]]
sanctioning process for clear-cut and minor rules violations, rather
than subjecting such violations to the formal and more cumbersome
proceedings of a disciplinary committee.\28\ To implement such changes,
ICE Clear Europe proposes a number of specific changes as described
below.
---------------------------------------------------------------------------
\28\ Notice, 86 FR 29618.
---------------------------------------------------------------------------
In Rule 101 (Definitions), the proposed rule change would amend the
definition of ``Appeal Panel'' to include a reference to the new
Summary Disciplinary Process, and would add a new definition of
``Summary Disciplinary Process.'' In Rule 102 (Interpretation), the
proposed rule change would amend Rule 102(j) to refer to new Rule 1008
in the context of disciplinary proceedings under the Rules. The
proposed rule change would amend Rule 102(p) to add language that any
Disciplinary Panel, Summary Disciplinary Committee, or Appeal Panel
appointed pursuant to Part 10 of the Rules (Disciplinary Proceedings)
would be able to exercise discretion in the same way as ICE Clear
Europe under Rule 102(p). In Rule 1005(c), the proposed rule change
would make a related amendment to delete the word ``exclusive'' before
the word ``discretion'' with respect to the Appeal Panel given the
proposed changes to Rule 102(p).
ICE Clear Europe proposes other amendments in the Rules to
implement the new Summary Disciplinary Process. Specifically, the
proposed rule change would amend Rule 1002(i) (Investigations) to
replace existing language with a new reference to the proposed Summary
Disciplinary Process under Rule 1008. Current Rule 1002(i) provides
that ICE Clear Europe may order that a Clearing Member pay a fine which
ICE Clear Europe decides in its discretion is commensurate with a
breach of the Rules, which fine is appealable directly to the Appeal
Panel. As revised, Rule 1002(i) would provide that ICE Clear Europe may
impose sanctions pursuant to the Summary Disciplinary Process under
Rule 1008. The proposed rule change would amend Rule 1003(b)
(Disciplinary Proceedings) to add a new sentence that ICE Clear Europe
must also establish a Disciplinary Panel where so required by an Appeal
Panel pursuant to Rule 1005(a)(iii)(Appeals) or Rule 1008(h) (Summary
Disciplinary Process). Proposed new Rule 1005(g) would be added to
state that Rule 1005 applies as the appeal process concerning an
imposed sanction pursuant to the Summary Disciplinary Process under
Rule 1008.
The proposed rule change would add new Rule 1008 (Summary
Disciplinary Process) to set out the summary disciplinary process that
ICE Clear Europe may adopt against a Clearing Member, which process
would clarify the situations in which the new process may apply, the
sanctioning power of the Summary Disciplinary Process, and the process
by which ICE Clear Europe would conduct the Summary Disciplinary
Process. Specifically, ICE Clear Europe may apply the proposed Summary
Disciplinary Process in relation to: The late filing or submission of
any document, notice or information; the late making of any payment;
any failure to record a Contract in the correct Account; the late
making or taking of any delivery; any breach of Rule 202(a)(xix)
(participation in default management simulations, new technology
testing and other exercises); any breach of Rule 503(g) (the submission
of end-of-day prices relating to Sets of CDS Contracts required of
Clearing Members to aid in the establishment of Mark-to-Market Prices);
any breach of a position limit under Part 6 of the Rules; any breach of
any provision of the Rules or Procedures that ICE Clear Europe
considers to be of a factual nature where ICE Clear Europe holds
sufficient evidence of such facts; any breach of any provision of the
Rules or Procedures that ICE Clear Europe considers to be minor in
nature; or any breach of the Rules or Procedures which ICE Clear Europe
considers would be appropriately addressed by the Summary Disciplinary
Process.
Proposed Rule 1008 would limit sanctions to the following: Issuance
of a private warning or reprimand naming the Clearing Member or a
Clearing Member Customer, client or Representative; a fine of up to
[pound]50,000; or any combination of the foregoing. Proposed Rule 1008
would also specify the process of imposing any sanction, including the
notice process by ICE Clear Europe, the opportunity for a Clearing
Member to appeal, the grounds for appeal and the actions the appeal
panel may take (i.e., to affirm, vary or revoke a sanction). Proposed
Rule 1008 also would allow ICE Clear Europe to provide further guidance
by way of Circular in relation to the operation of, or procedures for,
the Summary Disciplinary Process.
xxi. Other Updates
The proposed rule change would make a number of other drafting
enhancements, clarifications, and improvements throughout the Rules,
primarily in the definitions.
In Rule 101 (Definitions), the proposed rule change would add a new
definition of ``Acceptance Time,'' which is defined to mean: ``(i) in
relation to a CDS Contract, the `Acceptance Time' (as defined in the
CDS Procedures); or (ii) in relation to an FX Contract, the `FX
Acceptance Time' (as defined in the FX Procedures).'' The proposed
definition would ensure definitional consistency with respect to
specifying the applicable time for the acceptance of such Contracts for
clearing by ICE Clear Europe, and clarify the meaning of certain
undefined references to such term in the Rules, e.g., in Rule 1204
(Variations to or Cancellation of Transfer Orders) and in paragraph 10
(Reliance on CDS Trade Particulars and submissions to Deriv/SERV) of
the Standard Terms exhibits annexed to the Rules. In the definition of
``Applicable Law,'' the proposed rule change would add ``direction'' to
the list of included types of Applicable Law, and also would add a
reference to the ``FSMA,'' which is an existing defined term that means
the UK's Financial Services and Markets Act 2000 that ICE Clear Europe
unintentionally omitted from the existing ``Applicable Law''
definition. In the ``Clearing Organisation'' definition, the proposed
rule change would add a reference to ``securities clearing agency'' to
ensure that the defined term includes securities clearing agencies
regulated by the Commission. In the definition of ``Defaulter,'' the
proposed rule change would clarify that the defined term refers to a
person in respect of whom an Event of Default has occurred, rather than
a person in respect of whom a Default Notice has been issued. The
proposed rule change would add a new definition of ``FINRA,'' to mean
the U.S. Financial Industry Regulatory Authority, Inc., or any
successor thereto, as the term FINRA is currently used in the existing
definition of ``Regulatory Authority'' without clear definition. In the
definition of ``Regulatory Authority,'' the proposed rule change would
add a reference to the ``National Futures Association.'' The proposed
rule change would amend the definition of ``Original Margin'' to
clarify that buyer's security, seller's security and delivery Margin
would all be included within the scope of the term. The proposed rule
change would amend the definition of ``Rule Change'' expressly to
include changes to Contract Terms, and would revise the existing cross-
reference to Rule 109 (Alteration of Rules, Procedures, Guidance and
Circulars) to reflect that it is not the sole provision governing the
process for Rule Changes. In the definition of
[[Page 49373]]
``Segregated Customer,'' the proposed rule change would make
typographical corrections. The proposed rule change also would amend
the definitions of ``Transferee'' and ``Transferor'' to clarify that
the subject of a transfer or delivery is a Deliverable, as such term is
currently defined in the Rules.
The proposed rule change would amend Rule 201(a)(v) (Clearing
Membership Criteria) to change an erroneous singular phrase ``Contract
is'' to the plural ``Contracts are.'' The proposed rule change would
amend Rules 304(a)(ii)(A), 304(a)(ii)(B), and 1901(e) regarding
Sponsored Principals to correctly reference the term ``Nominated Bank
Account'' in place of the current term ``Nominated Account.''
The proposed rule change would amend Rule 401(g) (Formation of
Contracts) to reflect that under existing practice and as stated and
assumed elsewhere in the Rules (e.g., Rule 906, Clearing Procedures),
Clearing Members can have multiple Proprietary Position Accounts. The
proposed rule change would amend Rule 406(a) (Open Contract Positions)
to remove an erroneous reference to the legacy term ``Clearing
Processing System'' and replace it with the correct defined term ``ICE
System.''
The proposed rule change would amend Rule 904(b) (Transfer of
Contracts and Margin on a Clearing Member Default) to change an
incorrect term ``Market-to-Market Value'' to the correct defined term
``Mark-to-Market Price.'' Similarly, the proposed rule change would
amend Rule 905(g) (Termination and close out of Contracts on a Clearing
Member Event of Default) to delete a reference to ``Market-to-Market
Value'' as well as the unused term Reference Price. In Rule 905(b)(ix),
the proposed rule change would make a grammatical change to reflect
that there may be multiple Defaulters rather than just one. The
proposed rule change would amend Rule 908(i) (Application of Assets
upon an Event of Default) to correct existing typographical errors and
an incorrect cross-reference. The proposed rule change would amend
clause (ii) of Rule 908(i) to reflect that the applicable modifications
would be set out in the Default Auction Procedures as opposed to a
Circular. In the definition of ``MTM/VM'' in Rule 913(a)(xxxi), the
proposed rule change would amend the existing language to reflect that
MTM/VM is transferred to, rather than held as a deposit by, the
Clearing House. The proposed rule change would delete the definition of
``Product Termination Amount'' in Rule 913(a)(xxxviii) as this term is
already defined in existing Rule 916. The proposed rule change would
amend Rule 913(a)(lviii) to clarify, for the avoidance of doubt, that
amounts payable in respect of transfers are included in the definition
of ``Transfer Cost.'' The proposed rule change would amend Rule 915(e)
(Partial Tear-Up) to correctly reference all categories of mark-to-
market or variation margin for all product categories. The proposed
rule change would amend Rule 916(i) to clarify that Guaranty Fund and
Assessment contributions due pursuant to Rule 916(i) are subject to the
provisions of Rule 917 (Cooling-off period and Clearing Member
termination rights), including the limitations thereon during a
Cooling-off Period. The proposed rule change would amend Rule 918(d) to
refer to any Event of Default rather than multiple Events of Default.
The proposed rule change would also incorporate references to Rules 916
(Contract Termination following Certain Conditions or Under-priced
Auction) and 918 (Termination of membership) into Rule 1102(g)
(Clearing Members' Contributions) to reflect that these Rules could
apply in certain cases to determine the return of Guaranty Fund
Contributions.
The proposed rule change would delete Rule 1901(d)(vi), because the
referenced Council Directive has been repealed. As a result, the
proposed rule change would renumber subsequent provisions and update
cross-references in other provisions.
The proposed rule change would correct a typographical error in the
title of Part 23, Rules for Market Transactions. The proposed rule
change would make other typographical and drafting corrections in
various provisions of the Rules, including 102(q), 202(a)(xxi),
203(a)(xx) and 504(c)(vi).
The proposed rule change would amend Part 3(b) of the F&O Standard
Terms to more clearly state that Customer-CM F&O Transactions would
arise in accordance with Part 4 of the Rules. This change would align
with the drafting used in the other Standard Terms.
The proposed rule change would amend Rule 1607(d)(iii), CDS
Standard Terms 7(iii), F&O Standard Terms 7(iii) and FX Standard Terms
7(iii) to refer to ``Personal Data'' rather than ``Personal Data of its
Data Subjects.'' This change would eliminate unnecessary language.
B. Clearing Procedures
The proposed rule change would amend paragraph 1.1(a) of the
Clearing Procedures to remove existing references to the PTMS/ACT
systems, because they are legacy systems that ICE Clear Europe
represents that it no longer uses.\29\ ICE Clear Europe proposes to
replace them with a reference to ICE FEC, which is a new defined term
in the Delivery Procedures that means ``the single user interface used
by the Clearing House offering functions to view and manage trades,
transfers, allocations and claims.'' The proposed rule change would
amend paragraphs 1.1(f) and 3.1(c) of the Clearing Procedures to remove
the definitions of MFT and ECS, respectively, as these terms would now
be defined in the Delivery Procedures.
---------------------------------------------------------------------------
\29\ Notice, 86 FR 29617.
---------------------------------------------------------------------------
C. Finance Procedures
The proposed rule change would amend the Finance Procedures in Part
4 (Assured Payment System: Accounts), paragraphs 4.1(a)(i) and (iv) and
4.4(a)(i) and (iv), concerning the account requirements for members to
reflect that ICE Clear Europe clears both EUR and USD denominated CDS
contracts; accordingly, all CDS Clearing Members are required to have
both EUR and USD accounts and would no longer be required to have a GBP
account.
The proposed rule change would amend paragraph 6.1(i)(ix) of the
Finance Procedures to clarify that the additional margin requirement
that applies where payment of variation or mark-to-market margin is
made in a currency other than the contractual currency would apply on a
Currency Holiday. ICE Clear Europe represents that this reflects
current practice.\30\
---------------------------------------------------------------------------
\30\ Notice, 86 FR 29617.
---------------------------------------------------------------------------
The proposed rule change would also update and correct the
committee references in the Finance Procedures. Specifically, ICE Clear
Europe proposes to change the references in paragraph 14(2) and 14(3)
from the CDS Risk Committee and FX Risk Committee to ``CDS Product Risk
Committee'' and ``FX Product Risk Committee,'' respectively. The
proposed rule change would also make similar changes throughout the CDS
Procedures where ``CDS Risk Committee'' is currently used.
The proposed rule change would make amendments to paragraphs 3.10,
3.11, 3.21 and 4.5 in the Finance Procedures to remove clarify that the
terms MFT and ECS would now be defined in the Delivery Procedures.
The proposed rule change would amend paragraph 15.4(b) of the
Finance Procedures by deleting an outdated reference to the Continuing
CDS Rule Provisions, which are no longer in effect.
[[Page 49374]]
D. Delivery Procedures
i. Anti-Money Laundering
The proposed rule change would add new paragraph 1.1(d) to the
Delivery Procedures to obligate Clearing Members to conduct appropriate
anti-money laundering due diligence for any transferors and transferees
and provide relevant documentation to ICE Clear Europe and/or the
Clearing Member. The proposed amendments to paragraphs 5.4 and 5.5 of
the Delivery Procedures would add language to clarify that transferors
and transferees that are customers would be bound by the F&O Standard
Terms, including with respect to delivery of information, and also to
clarify that transferors and transferees are not customers of ICE Clear
Europe for purposes of relevant anti-money laundering laws and other
Applicable Law.
ii. Updates to ICE Clear Europe Systems
The proposed rule change would add new definitions in the Delivery
Procedures to ``ECS,'' ``MFT,'' ``ICE FEC,'' and ``MPFE'' to ensure
there are consistent references to ICE Clear Europe systems in the
various Amended Documents. The proposed rule change would define the
term ``ECS'' to mean ``the extensible clearing system that provides
functionality for position maintenance (including close-outs), options
exercise and delivery, in addition to cash and collateral management
for the Clearing House (or any successor system).'' The proposed rule
change would define the term ``MFT'' to mean ``the managed file
transfer system through which the Clearing House provides access to all
clearing reports and data files.'' The proposed rule change would
define the term ``ICE FEC'' to mean ``the single user interface used by
the Clearing House, offering functions to view and manage trades,
transfers, allocations and claims.'' The proposed rule change also
would define the term ``MPFE'' to mean ``the futures expiry report
generated by the Clearing House.''
Similarly, the proposed rule change would remove existing
references to the legacy ICE System Crystal throughout the Delivery
Procedures and replace them with new references to ECS, MFT, and ICE
FEC, which are the systems that ICE Clear Europe now uses. Similarly,
the proposed rule change would delete Delivery Documentation Summaries
and form references throughout the Delivery Procedures where ECS has
replaced the manual submission of forms to ICE Clear Europe.
Specifically, these changes would be made in Part B (ICE Gasoil
Futures), Part D (ICE Futures UK Natural Gas Contracts), Part F (ICE
Endex TTF Natural Gas Contracts), Part G (ICE Endex Gaspool Natural Gas
Contracts), Part H (ICE Endex NCG Natural Gas), Part I (ICE Endex ZTP
Natural Gas Contracts), Part N (ICE Deliverable US Emissions
Contracts), Part Q (Financials & Softs White Sugar Contracts), Part U
(Financials & Softs Gilt Contract) and Part Z (Equity Futures/Options).
iii. Other Updates
ICE Clear Europe proposes changes to the Delivery Procedures to
update various operational practices and to make other updates and
drafting improvements.
The proposed rule change would add a new paragraph 7 to the
Delivery Procedures to reference the alternative delivery procedure for
Emission Contracts as set out in paragraph 7 of Part A of the Delivery
Procedures (ICE Endex Deliverable EU Emissions Contracts). Subsequent
paragraphs would be renumbered and conforming amendments to cross-
references would be made.
The proposed rule change would amend Part A (ICE Endex Deliverable
EU Emissions Contracts) of the Delivery Procedures to change existing
references to ``Account,'' which is no longer a defined term in the
Delivery Procedures, to the defined term ``Registry Account.'' The
proposed rule change would amend the defined term ``Contract Date.''
Under the current definition, ``Contract Date'' means, for an ICE Endex
EUA, an individual Business Day on which (a) trading commences, (b)
trading ceases, and (c) the Delivery Period commences for those trades
executed on that Business Day. The proposed rule change would delete
clause (c) of the current definition because ICE Clear Europe found it
was redundant in light of clauses (a) and (b). ICE Clear Europe
represents that the term ``Contract Date'' is only used in connection
with daily contracts, and in that context, only one daily contract is
available at a time, and so the date on which trading commences and
trading ceases sufficiently defines the Contract Date. The proposed
rule change also would delete Section 9.3 (ICE EUA and EUAA Auction
Contracts), because Part A no longer references auction contracts.
The proposed rule change would also amend paragraph 7 (Emissions
Alternative Delivery Procedure (``EADP'')) in Part A following the
entry into an EADP Agreement (i.e., an agreement to adopt an EADP) by a
Clearing Member and ICE Clear Europe. In such event, paragraph 7.3
currently provides that the existing Contract would be liquidated on
the basis of the Exchange Delivery Settlement Price. Under paragraph
7.3 as revised, the existing Contract would no longer be liquidated,
but instead would be dealt with in the manner specified in the EADP. If
the existing Contract were to be liquidated under the EADP, this would
be done on the basis of the Exchange Delivery Settlement Price.
Delivery under the EADP Agreement would be subject to the requirements
set out in the entirety of paragraph 7 instead of just paragraph 7.3.
The proposed rule change also would amend paragraph 7.5 with respect to
the timing and process for addressing a Failed Delivery. Current
paragraph 7.5 provides that in the event that the Clearing Member and
ICE Clear Europe are unable to enter into an EADP Agreement or effect
delivery under EADP by the close of business on the Business Day
following the day of the Failed Delivery, ICE Clear Europe will refer
the matter to ICE Endex and Invoice Back affected Contracts and may
itself, begin disciplinary proceedings, levy a fine, call additional
Margin or declare an Event of Default. The proposed amendments to
paragraph 7.5 would provide that the Clearing Member and ICE Clear
Europe would have a reasonable period of time after the Failed Delivery
to enter into an EADP Agreement or effect delivery under the EADP,
rather than by the close of business on the Business Day following the
day of the Failed Delivery, before ICE Clear Europe may refer the
matter to the relevant exchange. The proposed amendments to paragraph
7.5 also would provide that ICE Clear Europe will consider in its
discretion what other reasonable next steps it should take, if any. As
an example, ICE Clear Europe may decide to take one of the currently
listed actions, but would not be limited by such list and would not be
required to Invoice Back affected Contracts.
The proposed rule change would delete Part M (ICE Endex German
Power Futures), because these contracts have been delisted from the
relevant exchange. The proposed rule change also would delete outdated
references to ICE OTC Contracts in Part N (ICE Deliverable US Emissions
Contracts (Bilateral Delivery)), as revised.
In Part U (Financials & Softs Gilt Contracts), the proposed rule
change would add a new paragraph 2 (Failed Settlement and Non-Delivery
of Stock) to establish a procedure to address the Seller's non-delivery
of securities under a Financials & Softs Gilt Contract, including the
actions ICE Clear Europe may take to promote settlement in
[[Page 49375]]
accordance with the contract terms and the requirements of the CREST
central securities depository, as well as the express allocation of the
costs of such steps to the Clearing Member who failed to make delivery.
New paragraph 2.1 in amended Part U would address ICE Clear Europe's
procedure to address the Seller's partial delivery of available Gilts
and the resulting partial settlement between the Buying Clearing Member
and the Selling Clearing Member. ICE Clear Europe represents that these
proposed provisions are intended to reflect existing practices and to
provide consistency with the corresponding provisions of the Delivery
Procedures for other contracts, including Part Z (Equity Futures/
Options).
In Part Z, the proposed rule change would make various updates to
reference the correct settlement facilities and relevant settlement
details and settlement procedures for Equity Futures/Options Contracts.
Specifically, the proposed rule change would amend paragraph 1.4
(Deliverable Equities) to clarify the treatment of corporate events
relating to underlying securities by reference to the relevant Exchange
corporate action policy and the relevant contract terms. The proposed
rule change also would amend the provisions in paragraph 2.3
(Partialling) and paragraph 3 (Failed Settlements and Non-Delivery of
Stock) to clarify the processes for dealing with partial deliveries and
failed deliveries, including the steps that ICE Clear Europe may take
to facilitate delivery, the rights and responsibilities of the buying
clearing member with respect to onward deliveries under other
contracts, and the allocation of costs to clearing members. The
proposed rule change would amend paragraph 2.4 (Daylight Indicator) to
clarify that ICE Clear Europe may in its discretion decide to accept,
or not to accept, any request for daylight settlement. In paragraph 3.1
(Buying In Summary Timetable), the proposed rule change would make
various drafting clarifications and improvements.
In Part FF (ICE Futures New York Harbour Ultra Low Sulphur Diesel
Futures, ICE Futures Europe New York Harbour Ultra Low Sulphur Heating
Oil Futures), the proposed rule change would amend the first table with
respect to the receipt of documents by ICE Clear Europe by removing the
statement that in the event of non-availability of any of the listed
delivery documents, Seller may substitute a letter of indemnity in
favor of the Buyer.
Finally, the proposed rule change would make various drafting
clarifications, typographical corrections, and updates to defined terms
and cross-references throughout the Delivery Procedures.
E. CDS Procedures
i. List of Eligible Single Name Reference Entities
The proposed rule change would amend paragraph 11.4 of the CDS
Procedures (Modifications to List of Eligible Single Name Reference
Entities). Paragraph 11.4 gives ICE Clear Europe the ability to make
certain modifications to its list of Eligible Single Name Reference
Entities, subject to consultation with the CDS Product Risk Committee.
Currently, upon making any such modifications, ICE Clear Europe must
give notice by Circular. The proposed rule change would amend this
provision such that upon making any changes, ICE Clear Europe would be
required to update certain relevant information relating to CDS
Contracts on its website, rather than giving notice by Circular of such
actions. ICE Clear Europe represents that it discusses changes to the
list of eligible reference entities prior to implementation with the
Trading Advisory Group, which has weekly meetings to which trader
representatives of CDS Clearing Members are invited. Members of the
Trading Advisory Group are also notified by email of changes to
reference obligations. In addition, ICE Clear Europe represents that
its Operations Working Group discusses changes to clearing reference
obligations prior to implementation, and the Operations Working Group
has weekly meetings to which operational personnel of CDS Clearing
Members are invited. Once agreed, ICE Clear Europe would reflect the
changes on the cleared product website on the date they are made
eligible or modified, in accordance with amended paragraph 11.4. Given
these procedures, ICE Clear Europe believes that CDS Clearing Members
will have sufficient information about changes in reference obligations
and that the current requirement of a circular is unnecessary.
ii. Allow Clearing Members To Nominate Affiliates
ICE Clear Europe proposes to amend paragraph 4.4(f) of the CDS
Procedures by adding a new sentence to specify that a CDS Clearing
Member could designate an Affiliate that is also a CDS Clearing Member
to accept CDS Contracts in lieu of the designating Clearing Member for
CDS Contracts arising as a result of the existing CDS end-of-day
pricing process pursuant to Rule 401(a)(xi). Similarly, the proposed
rule change would amend paragraph 11.5 of the CDS Procedures (Self-
referencing CDS) to allow a CDS Clearing Member to designate an
Affiliate to accept transactions arising out of the existing auction
process to be used in the case of self-referencing CDS transactions.
ICE Clear Europe represents that this change reflects existing practice
for CDS Clearing Members, as documented in certain arrangements between
ICE Clear Europe and certain CDS Clearing Members allowing this to take
place, but was unintentionally omitted from the CDS Procedures.\31\
---------------------------------------------------------------------------
\31\ Notice, 86 FR 29616.
---------------------------------------------------------------------------
iii. CDS Clearing Member Sign-Off of Weekly Cycles
The proposed rule change would amend Section 3 of the CDS
Procedures regarding margin. Specifically, ICE Clear Europe proposes to
add a new paragraph 3.5 to the CDS Procedures to require CDS Clearing
Members to provide sign-off via email on weekly cycles by a specified
time and day. This change would document existing operational
processes.\32\
---------------------------------------------------------------------------
\32\ Notice, 86 FR 29616.
---------------------------------------------------------------------------
F. Membership Procedures
i. Deadlines for Financial Statements
The proposed rule change would amend the summary table at paragraph
4.2 of the Membership Procedures to extend the deadline for submitting
financial statements from 30 to 45 days after the relevant period so
that the deadline aligns with other regulatory reporting deadlines,
such as the UK's Financial Conduct Authority (FCA) deadlines.
ii. Adjustments to Clearing Member Capital Requirements
The proposed rule change would make a number of changes to the
Membership Procedures to implement the Basel III standard for Clearing
Member capital. First, the proposed rule change would amend paragraph
3.3. Paragraph 3.3 provides a definition of the term ``Capital'' with
respect to a Non-FCM/BD Clearing Member. This definition currently
provides that capital, as a general matter, includes fully-paid
ordinary and preference share capital, retained reserves and, for some
purposes and subject to limits, subordinated debt that is perpetual or
repayable on 5 years or more notice. The proposed rule change would
amend this definition to instead provide that capital, as a general
matter, includes fully-paid ordinary and preference share capital,
retained reserves and, for some purposes and subject to limits,
[[Page 49376]]
subordinated debt that is perpetual or repayable with more than one
year outstanding.
The proposed rule change would amend paragraph 3.5(a) of the
Membership Procedures to lower, from the current 50% to the proposed
25%, the portion of a Clearing Member's Capital requirement that may be
covered by subordinated loans before ICE Clear Europe would require a
written undertaking from the Clearing Member to not repay subordinated
loans without its consent. ICE Clear Europe represents that this
proposed change would align the Clearing Member capital requirement
more closely with Basel III requirements, under which subordinated debt
may be used, to an upper limit of 25%.\33\
---------------------------------------------------------------------------
\33\ Notice, 86 FR 29616-29617.
---------------------------------------------------------------------------
The proposed rule change also would amend paragraph 3.5 of the
Membership Procedures to remove irrevocable letters of credit as a
potential method that Clearing Members or Sponsored Principals may use
to satisfy capital requirements, and to add a new paragraph 3.5(c) to
give ICE Clear Europe authority to, at its discretion, require a
Clearing Member to post additional cash or collateral in addition to
the normal margin requirements. ICE Clear Europe represents that these
proposed changes in capital requirements would promote greater
consistency with its existing operational implementation of capital
requirements for Clearing Members.\34\
---------------------------------------------------------------------------
\34\ Notice, 86 FR 29616-29617.
---------------------------------------------------------------------------
G. Complaint Resolution Procedures
ICE Clear Europe proposes to make various clarifications and
changes throughout the Complaint Resolution Procedures, including to
address typographical errors and promote consistency with its Rules.
Specifically, the proposed rule change would amend paragraph 1.1 to
reframe the Complaint Resolution Procedures based on ICE Clear Europe's
obligations as a CCP under EMIR.\35\ Throughout the procedures, the
proposed rule change would replace references to the term ``Complaints
Resolution Procedure'' with the plural term ``Complaint Resolution
Procedures'' to correct a typographical error and for consistency with
the term used in Rule 101.
---------------------------------------------------------------------------
\35\ As a result of ICE Clear Europe Circular C20/163, this
reference to EMIR is to be interpreted as including a reference to
EMIR as applicable in the United Kingdom under the European Union
(Withdrawal) Act 2018. See Exchange Act Release No. 34-90746 (File
No. SR-ICEEU-2020-016) (Dec. 21, 2020), 85 FR 85704 (Dec. 29, 2020).
---------------------------------------------------------------------------
The proposed rule change would amend paragraph 1.1 to use the
defined term ``Person'' (which is defined in Rule 101) rather than
``person,'' with conforming changes throughout the Complaint Resolution
Procedures. The proposed rule change also would amend paragraphs 1.1
and 1.2 to provide for an independent ``Commissioner,'' who is
responsible for the investigation of complaints generally, and for the
appointment of an ``Investigator'' to investigate a particular
complaint. In paragraph 1.3, ICE Clear Europe proposes minor drafting
updates to improve clarity.
The amended Complaint Resolution Procedures would refer where
appropriate to ``Eligible Complaint'' instead of the undefined term
``complaint'' to clarify that only Eligible Complaints (and not other
complaints) would be within the scope of the procedures. As a result,
the proposed rule change would replace the defined term ``Complaint''
by the undefined term ``complaint'' to allow a distinction between
complaints generally speaking and those that qualify as ``Eligible
Complaints.''
In paragraph 2.1, the proposed rule change would amend the
definition of ``Eligible Complaints'' by broadening it to include
complaints against any Directors, officers, employees or committees (or
committee members) of ICE Clear Europe, which ICE Clear Europe believes
is the proper scope for the Complaint Resolution Procedures. The
amendments would also clarify that Eligible Complaints may relate to
the manner in which ICE Clear Europe has failed to perform applicable
regulatory functions. In paragraph 2.2, ICE Clear Europe proposes minor
drafting amendments to correct typographical errors and use of defined
terms.
The proposed rule change would make drafting improvements in
paragraph 3.6 to include ``investigation of the'' before ``Eligible
Complaint,'' and in paragraph 4.1 to clarify that acknowledgment of the
complaint by ICE Clear Europe must be made promptly, and in any case
within 5 Business Days of receipt.
ICE Clear Europe proposes to add new paragraph 4.2, which would
allow ICE Clear Europe to refer complaints to another recognized body
or authorized person if such entity is entirely or partly responsible
for handling the subject matter of the complaint, such as an exchange
for which ICE Clear Europe clears. To establish the process for ICE
Clear Europe to refer such a complaint, the proposed rule change would
also add new paragraph 4.3. Such amendments are intended to clarify
existing procedures, and avoid a situation where ICE Clear Europe would
be forced to address a duplicative complaint or a complaint better
handled by another entity. In paragraph 4.4, the proposed rule change
would correct minor typographical errors.
The proposed amendments to paragraph 4.5 would clarify that the
Investigator must be an individual who has no personal interest or
involvement in the matter of the Eligible Complaint, and would also
make typographical corrections and similar drafting improvements.
In paragraph 4.7, the proposed rule change would clarify that the
Investigator would not be required to disclose any information about
the Complainant's identity when drafting its report of the Eligible
Complaint, and also would correct minor typographical errors and update
cross-references.
In paragraph 4.8 as revised, the proposed rule change would include
delivery disputes and appeals in the list of potential ongoing matters
that could warrant delay in the consideration of an Eligible Complaint.
Amended paragraph 4.12 would include a similar change and correct
certain typographical errors.
In paragraph 4.11 as revised, the proposed rule change would
clarify that where ICE Clear Europe objects to the referral of a
complaint to the Commissioner under specified circumstances (such that
ICE Clear Europe can conclude its own investigation), it must submit to
the Commissioner the reasons for that determination. The proposed rule
change would also update several cross-references in paragraph 4.11.
In paragraph 4.12 as revised, the proposed rule change would expand
the list of ongoing matters that would justify delay in the
Commissioner's consideration of an Eligible Complaint to be consistent
with the list in paragraph 4.8, and also reference other processes
under Part 10 of the Rules. The proposed rule change would also amend
paragraph 4.14 to make non-substantive drafting improvements.
In paragraph 5 as revised, the proposed rule change would clarify
that the Investigator recommends, rather than takes, remedial action.
The proposed rule change would amend paragraph 6.3 to add ``appeal
process'' to the list of dispute resolution procedures that a
Complainant cannot use if it requires the referral of any Eligible
Complaint to the Commissioner pursuant to the Complaint Resolution
Procedures. The proposed rule change would also delete the reference to
``mediation'' in paragraph 5 as it is no longer necessary in light of
the other listed types of dispute resolution.
[[Page 49377]]
The proposed rule change would amend paragraph 7.2 to clarify that
the Commissioner does not have to continue investigating a complaint if
the complaint is not an Eligible Complaint. In addition, the proposed
rule change would amend paragraph 7.3 to clarify that the Commissioner
would only be required to produce a final response where the complaint
is an Eligible Complaint.
The proposed rule change would amend paragraph 7.6 to ensure that
the Commissioner has access to all relevant personnel (including
directors, officers and other persons to whom functions have been
outsourced) that may be needed for the purposes of the Eligible
Complaint. In addition, the proposed rule change would amend paragraph
7.8 to obligate ICE Clear Europe to inform the Complainant of an
alternative Commissioner, when one is appointed, within five Business
Days of the date of appointment.
The proposed rule change would also amend paragraph 8.1 to state
explicitly that ICE Clear Europe is required to consider the
Commissioner's report and recommendations, in addition to informing the
Commissioner of any proposed steps it would take in response to the
report and recommendations. In addition, the proposed rule change would
also make other non-substantive drafting clarifications in paragraph
8.1, and correct typographical errors in paragraphs 8.2 and 8.3.
Lastly, the proposed rule change would amend paragraph 11 to include
the Investigator as a person subject to the confidentiality obligations
with respect to the complaint, and make certain drafting
clarifications.
H. General Contract Terms
Similar to certain of the changes to Rules described above, the
proposed rule change would amend the introduction to the General
Contract Terms by removing references to named ICE markets and, in
their place, would use the more generic term ``relevant Market.'' The
proposed rule change would also add the standard term ``Amendments'' to
the General Contract Terms to clarify that the terms of any Contract
may be amended in the same way as ICE Clear Europe may amend the Rules
in accordance with Rule 109 (Alteration of Rules, Procedures, Guidance
and Circulars).
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.\36\ For the reasons given below, the Commission finds
that the proposed rule change is consistent with Sections 17A(b)(3)(F),
17A(b)(3)(G), and 17A(b)(3)(H) of the Act,\37\ and Rules 17Ad-22(e)(1),
17Ad-22(e)(2)(i), 17Ad-22(e)(6)(ii), 17Ad-22(e)(10), 17Ad-22(e)(13),
17Ad-22(e)(14), 17Ad-22(e)(17)(i), and 17Ad-22(e)(18).\38\
---------------------------------------------------------------------------
\36\ 15 U.S.C. 78s(b)(2)(C).
\37\ 15 U.S.C. 78q-1(b)(3)(F), 15 U.S.C. 78q-1(b)(3)(G), and 15
U.S.C. 78q-1(b)(3)(H).
\38\ 17 CFR 240.17Ad-22(e)(1), 17Ad-22(e)(2)(i), 17Ad-
22(e)(6)(ii), 17Ad-22(e)(10), 17Ad-22(e)(13), 17Ad-22(e)(14), 17Ad-
22(e)(17)(i), and 17Ad-22(e)(18).
---------------------------------------------------------------------------
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 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.\39\
---------------------------------------------------------------------------
\39\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
As discussed above, the proposed rule change would make a number of
clarifications and drafting improvements to the Amended Documents, to
ensure that the Amended Documents are clear, consistent, and provide an
enforceable legal basis for ICE Clear Europe's activities. In the
Commission's view, a lack of clarity and consistency in ICE Clear
Europe's Rules and Procedures could hinder ICE Clear Europe's ability
to promptly and accurately clear and settle transactions and safeguard
securities and funds, by possibly leading to disputes over the terms of
transactions. Likewise the Commission believes a lack of enforceable
legal basis could undermine the legitimacy and finality of ICE Clear
Europe's actions in clearing and settling transactions. Thus, the
Commission believes the proposed rule change, in general, should help
ensure that ICE Clear Europe is able to promptly and accurately clear
and settle transactions and safeguard securities and funds which are in
its custody or control or for which it is responsible.
In particular, the Commission believes all of the proposed changes
to the Rules, as discussed in Part II.A above, would help ensure that
ICE Clear Europe is able to promptly and accurately clear and settle
transactions and safeguard securities and funds which are in its
custody or control or for which it is responsible. For example, the
Commission believes the changes to Rule 904 (Transfer of Contracts and
Margin on a Clearing Member Event of Default), Rule 907 (Administrative
matters concerning an Event of Default), and to relevant definitions in
Rule 101 would enhance ICE Clear Europe's default planning and post-
default porting processes by providing an EMIR-compliant post-default
porting preference structure using Porting Notices that require written
consent by the designated Transferee Clearing Member. The Commission
further believes that this aspect of the proposed rule change would
help facilitate the porting of Customer positions and collateral and
the settlement of the transactions resulting from such transfers, which
in turn would help to ensure that ICE Clear Europe is able to promptly
and accurately clear and settle transactions in the event of a Clearing
Member's default and safeguard securities and funds which are in its
custody or control or for which it is responsible. Similarly, the
Commission believes the changes to Rule 901(a)(iv) to clarify that the
declaration of an Event of Default in respect of one Clearing Member is
a circumstance in which ICE Clear Europe can declare an Event of
Default in respect of another Clearing Member that is a parent or a
subsidiary of such Clearing Member would better enable ICE Clear Credit
to invoke such default declaration powers and thereby prevent or reduce
losses that could result from affiliate cross-defaults. The Commission
further believes that losses from a default could interfere with ICE
Clear Europe's ability to clear and settle transactions and safeguard
securities and funds. Therefore, the Commission believes that these
aspects of the proposed rule change, in facilitating ICE Clear Europe's
ability to respond to defaults and thereby prevent or reduce losses,
would help to ensure that ICE Clear Europe is able to promptly and
accurately clear and settle transactions and safeguard securities and
funds which are in its custody or control or for which it is
responsible. Moreover, the Commission believes the changes to add new
Rule 301(o), which would allow ICE Clear Europe to request information
when needed on account balances of nominated accounts of the Clearing
Member at financial institutions, including for the purpose of calling
on available cash where the Clearing
[[Page 49378]]
Member has failed to meet a payment obligation or determining whether
the Clearing Member is, or is likely to be, in default, would help to
ensure that ICE Clear Europe's Clearing Members are able to perform
their obligations that enable ICE Clear Europe to clear and settle
transactions, such as transferring margin and contributing to the
Guaranty Fund. Finally, the Commission believes the changes to add a
new summary disciplinary process in proposed Rule 1008 to improve and
streamline ICE Clear Europe's process for disciplining Clearing Members
for specified violations of the Rules and Procedures, such as the late
making of a payment or the late making or taking of a delivery, would
help to ensure that Clearing Members meet their membership obligations
to ICE Clear Europe and thereby help to ensure that ICE Clear Europe is
able to clear and settle transactions.
For these reasons, the Commission believes all of the changes to
the Rules discussed in Part II.A above would help to ensure that ICE
Clear Europe is able to promptly and accurately clear and settle
transactions and safeguard securities and funds which are in the
custody or control of ICE Clear Europe or for which it is responsible.
Moreover, the Commission believes the changes to the Clearing
Procedures discussed in Part II.B above would increase the clarity of
the Clearing Procedures by removing references to systems no longer
used by ICE Clear Europe. Similarly, the Commission believes that
removing the definitions of MFT and ECS, and instead referring to those
terms as defined in the Delivery Procedures, would help to ensure that
the Clearing Procedures use the correct definitions of those terms, as
defined in the Delivery Procedures. The Commission believes that these
changes would help to ensure the Clearing Procedures are up-to-date and
use correct terms and references, thus decreasing the possibility for
error in using and applying the Clearing Procedures, and therefore
facilitating the prompt and accurate clearance and settlement of
transactions using the Clearing Procedures.
The Commission similarly believes the changes to the Finance
Procedures discussed in Part II.C above would help to ensure the
Finance Procedures are up-to-date and use correct terms and references.
As with the Clearing Procedures, the proposed rule change would remove
the definitions of MFT and ECS, and instead refer to those terms as
defined in the Delivery Procedures, thus helping to ensure that the
Finance Procedures use the correct definitions. Moreover, the
Commission believes that removing a reference to the Continuing CDS
Rule Provisions, which are no longer in effect, and updating and
correcting references to certain ICE Clear Europe committees throughout
the Finance Procedures would help to ensure that the Finance Procedures
reflect the current documentation and committees in effect at ICE Clear
Europe. Finally, the Commission believes that amending the account
requirements for members to reflect that ICE Clear Europe clears both
EUR and USD denominated CDS contracts, clarifying the effect of
negative rates on payments of interest and price alignment amounts, and
clarifying that the additional margin requirement would apply on a
Currency Holiday would help to ensure that the Finance Procedures are
consistent with ICE Clear Europe's operational practices. The
Commission believes that these changes would help to ensure the Finance
Procedures are up-to-date, clear, and use correct terms and references,
thus decreasing the possibility for error in using and applying the
Finance Procedures, and therefore facilitating the prompt and accurate
clearance and settlement of transactions using the Finance Procedures.
The Commission further believes the changes to the Delivery
Procedures discussed in Part II.D above would clarify and update the
Delivery Procedures. Specifically, the Commission believes that
clarifying the application of current applicable law regarding anti-
money laundering and the obligation of Clearing Members to conduct
anti-money laundering due diligence would help to ensure the
application of relevant and current anti-money laundering obligations
to ICE Clear Europe and Clearing Members. Similarly, the Commission
believes that adding definitions for current ICE Clear Europe
technology systems used in the Delivery Procedures (ECS, MFT, ICE FEC,
and MPFE), updating references to those technology systems, and
removing references to systems no longer in use, like Crystal, would
help reduce the possibility for error in using and applying the
Delivery Procedures by ensuring they reference the correct and current
ICE Clear Europe internal systems. The Commission further believes that
amending Part A of the Delivery Procedures to add a reference to the
alternative delivery procedure for Emission Contracts, update
references to certain defined terms, and revise the process for the
Emissions Alternative Delivery Procedure and a Failed Delivery, would
help to ensure the correct application and operation of the delivery
provisions with respect to EU Emissions Contracts. Moreover, the
Commission believes that deleting Part M and related references to
those contracts delisted from the relevant exchange, establishing a
procedure to address the Seller's non-delivery of securities under a
Financials & Softs Gilt Contract in Part U, correcting references to
the settlement facilities and relevant settlement details and
settlement procedures for Equity Futures/Options Contracts in Part Z,
and updating the table in Part FF regarding the receipt of documents by
ICE Clear Europe, would help to ensure the Delivery Procedures reflect
the contracts currently cleared by the relevant exchanges and would
help to establish effective operational processes for the contracts
found in Parts U, Z, and FF. Finally, the Commission believes that
making drafting clarifications and typographical corrections throughout
the Delivery Procedures would help to reduce the possibility for error
in applying the Delivery Procedures. Thus, the Commission believes all
of the changes to the Delivery Procedures discussed in Part II.D would
clarify and update the Delivery Procedures, thereby facilitating the
prompt and accurate clearance and settlement of transactions using the
Delivery Procedures.
Similarly, the Commission believes that the proposed changes to the
CDS Procedures discussed in Part II.E above would, in general, 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 or control. Specifically, the Commission
believes that the changes to the CDS Procedures would enhance the
flexibility of ICE Clear Europe's operations, benefitting both ICE
Clear Europe and Clearing Members. For example, the Commission believes
that adding a new paragraph 3.5 to require CDS Clearing Members to
provide sign-off via email on weekly cycles by the time specified by
ICE Clear Europe would provide a flexible and efficient means for sign-
off, via email. Similarly, the Commission believes that allowing a
Clearing Member to designate an Affiliate that is also a CDS Clearing
Member to accept CDS Contracts in lieu of it for CDS Contracts arising
as a result of the existing CDS end-of-day pricing process and to
accept transactions arising out of the existing auction process to be
used in the case of self-referencing CDS transactions would give
Clearing Members flexibility in determining who is best positioned to
[[Page 49379]]
accept transactions in those situations. Moreover, the Commission
believes that allowing ICE Clear Europe to provide notice of certain
modifications to its list of Eligible Single Name Reference Entities
via its website rather than by Circular would provide ICE Clear Europe
operational efficiency and flexibility in making these changes.
Finally, the Commission believes that correcting references throughout
the CDS Procedures to the CDS Product Risk Committee and FX Product
Risk Committee would help to decrease the possibility for error in
applying the CDS Procedures by ensuring usage of the current and
correct committee names. The Commission therefore believes that these
changes would generally improve the flexibility and efficiency of ICE
Clear Europe's operations and the application of the CDS Procedures,
thus promoting ICE Clear Europe's ability to promptly and accurately
clear and settle securities transactions and assure the safeguarding of
securities and funds in ICE Clear Europe's possession or control.
The Commission further believes that the changes to the Membership
Procedures discussed in Part II.F above would, in general, 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 or control. Specifically, the Commission believes that
updating the definition of Capital; lowering to 25% the portion of a
Clearing Member's Capital requirement that may be covered by
subordinated loans; removing irrevocable letters of credit as a
potential method that Clearing Members or Sponsored Principals may use
to satisfy capital requirements; and giving ICE Clear Europe authority
to, at its discretion, require a Clearing Member to post additional
cash or collateral in addition to the normal margin requirements would
help to align ICE Clear Europe's standards for Clearing Member capital
with the Basel III standard. The Commission believes this in turn would
help to assure consistent and reasonable capital standards for Clearing
Members, thereby contributing to the overall financial resiliency of
ICE Clear Europe and its ability to promptly and accurately clear and
settle transactions and assure the safeguarding of securities and funds
in its custody or control.
Moreover, the Commission believes that amending the summary table
at paragraph 4.2 to change the deadline for submitting financial
statements from 30 to 45 days and to allow ICE Clear Europe to accept
different kinds of financial statements from Clearing Members as part
of their financial reporting obligations, in circumstances where they
do not produce quarterly financial statements, consistent with the
proposed change to Rule 205(a)(ii), would provide additional
operational flexibility to ICE Clear Europe and Clearing Members. The
Commission also believes that amending the summary table at paragraph
4.2 to be consistent with Rule 209 and updating the email address to
which Clearing Members should send certain notifications would help to
decrease the possibility for error in submitting such notifications.
The Commission therefore believes that these changes would generally
improve the flexibility of ICE Clear Europe's operations and the
application of the Membership Procedures, thus promoting ICE Clear
Europe's ability to promptly and accurately clear and settle securities
transactions and assure the safeguarding of securities and funds in its
custody or control.
As noted above in Part II.G, the proposed rule change would make
various changes to the Complaint Resolution Procedures to correct
typographical errors and promote consistent use of terminology such as
replacing the term ``Complaints Resolution Procedure'' with ``Complaint
Resolution Procedures,'' and using defined terms such as ``Person,''
``Commissioner,'' and ``Eligible Complaint.'' The Commission believes
these changes would help to strengthen ICE Clear Europe's Complaint
Resolution Procedures by making them easier to reference, which in turn
supports ICE Clear Europe's ability to carry out the prompt clearance
and settlement of transactions while addressing this aspect of its
operations. The Commission similarly believes that the other proposed
changes to the Complaint Resolution Procedures described in Part II.G
above, such as the referral of complaints to another recognized body
and details regarding the handling of Eligible Complaints, support the
efficient handling of complaints and thus would help to support its
clearance and settlement functions.
Finally, as described in Part II.H above, the proposed rule change
would amend the introduction to the General Contract Terms to remove
references to named ICE markets and instead use the more generic term
``relevant Market.'' The proposed rule change would also add the
standard term ``Amendments'' to the General Contract Terms to clarify
that the terms of any Contract may be amended in the same way as ICE
Clear Europe may amend the Rules in accordance with Rule 109
(Alteration of Rules, Procedures, Guidance and Circulars). The
Commission believes that these changes to the General Contract Terms
will generally help clarify and simplify the Rules and Procedures, and
make it easier for ICE Clear Europe to keep such documents up to date
notwithstanding potential future changes in the Markets cleared and
similar events, as well as to enhance the usefulness of the Procedures
with appropriate cross-references. Further, the Commission believes
that these proposed changes will in turn help make ICE Clear Europe's
documents more effective and consistent with current operational
practices and processes, thereby supporting ICE Clear Europe's ability
to promptly and accurately clear and settle securities transactions.
Therefore, for these reasons, the Commission finds that the
proposed rule change would 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.\40\
---------------------------------------------------------------------------
\40\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
B. Consistency With Section 17A(b)(3)(G) of the Act
Section 17A(b)(3)(G) of the Act requires, among other things, that
ICE Clear Europe's rules provide that Clearing Members shall be
appropriately disciplined for violation of any provision of ICE Clear
Europe's rules by fine or other fitting sanction.\41\
---------------------------------------------------------------------------
\41\ 15 U.S.C. 78q-1(b)(3)(G).
---------------------------------------------------------------------------
As discussed above, the proposed rule change would add a new
summary disciplinary process in proposed Rule 1008 to improve and
streamline ICE Clear Europe's process for disciplining Clearing Members
for specified violations of the Rules and Procedures, including those
that ICE Clear Europe considers to be minor in nature. ICE Clear Europe
would be limited to the following sanctions it could impose against
Clearing Members for such violations under proposed Rule 1008: The
issuance of a private warning or reprimand naming the Clearing Member
or a Clearing Member Customer, client or Representative; a fine of up
to [pound]50,000; or any combination of the foregoing. The Commission
believes that such limited sanctions under the proposed summary
disciplinary process would be appropriate forms of discipline against
Clearing Members who commit the applicable types of violations under
new Rule 1008.
[[Page 49380]]
For these reasons, the Commission finds the proposed rule change is
consistent with Section 17A(b)(3)(G) of the Act.\42\
---------------------------------------------------------------------------
\42\ 15 U.S.C. 78q-1(b)(3)(G).
---------------------------------------------------------------------------
C. Consistency With Section 17A(b)(3)(H) of the Act
Section 17A(b)(3)(H) of the Act \43\ requires, among other things,
that ICE Clear Europe's rules, in general, provide a fair procedure
with respect to the disciplining of participants. As discussed above,
the proposed rule change would add a new summary disciplinary process
under proposed Rule 1008 for sanctioning Clearing Members that breach
certain Rules or Procedures, including by specifying the process by
which ICE Clear Europe may impose any of the specified sanctions, the
opportunity for a Clearing Member to appeal, the grounds for appeal,
and the actions the appeal panel may take (i.e., to affirm, vary, or
revoke a sanction). The Commission believes these aspects of the
proposed rule change would provide a fair procedure for disciplining
Clearing Members.
---------------------------------------------------------------------------
\43\ 15 U.S.C. 78q-1(b)(3)(H).
---------------------------------------------------------------------------
For these reasons, the Commission finds the proposed rule change is
consistent with Section 17A(b)(3)(H) of the Act.\44\
---------------------------------------------------------------------------
\44\ 15 U.S.C. 78q-1(b)(3)(H).
---------------------------------------------------------------------------
D. Consistency With Rule 17Ad-22(e)(1)
Rule 17Ad-22(e)(1) requires that ICE Clear Europe establish,
implement, maintain and enforce written policies and procedures
reasonably designed to provide for a well-founded, clear, transparent,
and enforceable legal basis for each aspect of its activities in all
relevant jurisdictions.\45\ As discussed above, the proposed amendments
to the General Contract Terms would clarify, simplify, and harmonize
various aspects of the Rules and Procedures, to be consistent with
current operations, remove outdated references, address changes in
Markets served, and similar matters. The Commission believes that these
proposed changes will enhance the clarity of the legal framework
provided by the Rules and Procedures under which ICE Clear Europe
operates, and are therefore consistent with Rule 17Ad-22(e)(1).\46\
---------------------------------------------------------------------------
\45\ 17 CFR 240.17Ad-22(e)(1).
\46\ 17 CFR 240.17Ad-22(e)(1).
---------------------------------------------------------------------------
As noted above, the proposed rule change would reframe the
Complaint Resolution Procedures as based on ICE Clear Europe's
obligations as a CCP under EMIR; clarify that only certain kinds of
complaints, ``Eligible Complaints,'' would be part of the complaint
resolution process; broaden the definition of ``Eligible Complaints''
to include complaints against any directors, officers, employees or
committees; clarify procedural delays and timing in the process; and
add the ability to refer complaints to other responsible entities. The
Commission believes that these proposed changes express a well-founded,
clear, transparent, and enforceable legal basis for how ICE Clear
Europe manages complaints and is therefore consistent with Rule 17Ad-
22(e)(1).\47\
---------------------------------------------------------------------------
\47\ 17 CFR 240.17Ad-22(e)(1).
---------------------------------------------------------------------------
As discussed above, the proposed rule change would update various
definitions and other provisions in the Rules and Procedures to reflect
current laws and regulations in the EU and UK governing anti-money
laundering requirements and the requisite levels of due diligence.
Proposed new Rule 201(xxxiii) would require Clearing Members to have
adequate policies, procedures, systems, and controls relating to
Applicable Laws, including anti-money laundering laws. The proposed
rule change would amend Rule 1607 (Additional FCM/BD Requirements for
Customer Transactions) to require FCM/BD Customers to obtain the
authority from beneficial owners to disclose information necessary for
anti-money laundering due diligence to the Clearing Member and ICE
Clear Europe, and add similar new requirements to the Standard Terms
exhibits to the Rules. Similarly, the proposed amendments to the
Delivery Procedures would obligate Clearing Members to conduct
appropriate anti-money laundering due diligence for any transferors and
transferees and provide relevant documentation to ICE Clear Europe and/
or the Clearing Member. The Commission believes that these proposed
changes would help to establish and maintain a well-founded legal basis
for the Rules and Procedures governing ICE Clear Europe's operations
under applicable anti-money laundering laws, and are therefore
consistent with Rule 17Ad-22(e)(1).\48\
---------------------------------------------------------------------------
\48\ 17 CFR 240.17Ad-22(e)(1).
---------------------------------------------------------------------------
As discussed above, the proposed rule change would amend Rule 201
to clarify the legal basis in the Rules for ICE Clear Europe to require
Clearing Members to execute additional documentation in the form of
annexes or agreements to the Clearing Membership Agreement in order to
be, and remain, eligible for Clearing Membership. As ICE Clear Europe
would impose such documentation requirements where necessary to comply
with, or address post-Brexit local law group structuring issues in
certain EU member states, the Commission believes these proposed
amendments provide a well-founded legal basis for ICE Clear Europe to
impose such additional documentation requirements, and are therefore
consistent with Rule 17Ad-22(e)(1).\49\
---------------------------------------------------------------------------
\49\ 17 CFR 240.17Ad-22(e)(1).
---------------------------------------------------------------------------
As discussed above, the proposed rule change would amend Rule 201
(Clearing Membership Criteria), Rule 1901 (Attaining status as a
Sponsored Principal), and Section 10 of the F&O Standard Terms to
remove the requirement for Clearing Members, Customers, and Sponsored
Principals to be an ``eligible contract participant'' if they are
engaging solely in F&O Contracts. As eligible contract participant
status is required under applicable U.S. law to trade swaps and
security-based swaps, such as CDS, but is not required to trade
futures, the Commission believes these proposed amendments provide a
well-founded legal basis for ICE Clear Europe to remove such status
requirement, and are therefore consistent with Rule 17Ad-22(e)(1).\50\
---------------------------------------------------------------------------
\50\ 17 CFR 240.17Ad-22(e)(1).
---------------------------------------------------------------------------
As discussed above, the proposed rule change would amend paragraph
3.5(a) of the Membership Procedures to lower the threshold, from 50% to
25%, at which ICE Clear Europe would require a written undertaking from
the Clearing Member to not repay subordinated loans without its
consent. As this proposed change would align the Clearing Member
capital requirement more closely with Basel III requirements applicable
to Clearing Members, the Commission believes these proposed amendments
provide a well-founded legal basis for ICE Clear Europe to lower such
threshold, and are therefore consistent with Rule 17Ad-22(e)(1).\51\
---------------------------------------------------------------------------
\51\ 17 CFR 240.17Ad-22(e)(1).
---------------------------------------------------------------------------
As discussed above, the proposed rule change would make a number of
clarifications and drafting improvements to the Amended Documents to
explicitly and correctly reference current law; eliminate discrepancies
and inconsistencies; comply with applicable legal requirements; use
consistent terminology; update cross-references and numbering; and
correct drafting errors. The Commission believes that these changes,
taken as a whole, would help to ensure that the Amended Documents
provide for a well-founded, clear, transparent, and enforceable legal
basis for each aspect of ICE Clear Europe's activities in all relevant
jurisdictions.
[[Page 49381]]
For these reasons, the Commission finds that the proposed rule
change is consistent with Rule 17Ad-22(e)(1).\52\
---------------------------------------------------------------------------
\52\ 17 CFR 240.17Ad-22(e)(1).
---------------------------------------------------------------------------
E. 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.\53\ As noted above, the proposed changes to the
Complaint Resolution Procedures would clarify the roles of those
investigating complaints, state explicitly that ICE Clear Europe must
consider the investigative complaint report and recommendations, and
inform the complaining party. The Commission believes that these
proposed changes therefore provide for governance arrangements related
to the complaint resolution process that are clear and transparent and
are consistent with Rule 17Ad-22(e)(2)(i).\54\
---------------------------------------------------------------------------
\53\ 17 CFR 240.17Ad-22(e)(2)(i).
\54\ 17 CFR 240.17Ad-22(e)(2)(i).
---------------------------------------------------------------------------
As discussed above, the proposed rule change would also amend and
update committee references in Rule 916(d) to change the term ``Risk
Committee'' to ``relevant product risk committee'' to clarify that
there are different product risk committees addressing topics specific
to F&O and CDS. The proposed rule change would make similar updates to
the CDS Risk Committee and FX Risk Committee references in the Finance
Procedures by changing them to ``CDS Product Risk Committee'' and ``FX
Product Risk Committee,'' respectively, and also throughout the CDS
Procedures where ``CDS Risk Committee'' is currently used. The
Commission believes that these changes would help to ensure that ICE
Clear Europe's governance arrangements are clear and transparent by
clearly identifying the various product risk committees involved in
governance at ICE Clear Europe.
For these reasons, the Commission finds the proposed rule change is
consistent with Rule 17Ad-22(e)(2)(i).\55\
---------------------------------------------------------------------------
\55\ 17 CFR 240.17Ad-22(e)(2)(i).
---------------------------------------------------------------------------
F. Consistency With Rule 17Ad-22(e)(6)(ii)
Rule 17Ad-22(e)(6)(ii) requires that ICE Clear Europe establish,
implement, maintain, and enforce written policies and procedures
reasonably designed to cover its credit exposures to its Clearing
Members by establishing a risk-based margin system that, at a minimum,
among other matters, marks participant positions to market and collects
margin, including variation margin or equivalent charges if relevant,
at least daily and includes the authority and operational capacity to
make intraday margin calls in defined circumstances.\56\ As discussed
above, Rule 1603(c) would be amended to clarify that only ``original''
or ``initial'' types of Margin payments would be provided in the form
of Pledged Collateral, and that such collateral excludes Variation
Margin, Mark-to-Market Margin and FX Mark-to-Market Margin, which are
provided to or by ICE Clear Europe by outright transfer of cash as a
settlement payment. This proposed change is intended to be consistent
with ICE Clear Europe's previous amendments to the Rules to clarify
that such variation and mark-to-market margin are settlement payments
rather than collateral. Because, as discussed above, ICE Clear Europe
inadvertently omitted this proposed amendment from its prior
amendments, the Commission believes these changes would facilitate ICE
Clear Europe's consistent treatment and collection of variation and
mark-to-market margin from Clearing Members.
---------------------------------------------------------------------------
\56\ 17 CFR 240.17Ad-22(e)(6)(ii).
---------------------------------------------------------------------------
For this reason, the Commission finds the proposed rule change is
consistent with Rule 17Ad-22(e)(6)(ii).\57\
---------------------------------------------------------------------------
\57\ 17 CFR 240.17Ad-22(e)(6)(ii).
---------------------------------------------------------------------------
G. Consistency With Rule 17Ad-22(e)(10)
Rule 17Ad-22(e)(10) requires that ICE Clear Europe establish,
implement, maintain, and enforce written policies and procedures
reasonably designed to 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.\58\ As discussed above, the proposed rule change
would amend the definition of ``Exchange Delivery Settlement Price'' or
``EDSP'' in Rule 101 (Definitions) to clarify, for the avoidance of
doubt that the EDSP can be a positive or negative number, or zero. The
proposed rule change would amend Rule 703(b) (Delivery) to clarify the
process for payment of the EDSP in a physical settlement if the EDSP is
a negative number. The Commission believes that these proposed changes
would increase the clarity and transparency of the physical settlement
process, which in turn would help ICE Clear Europe avoid the risk of
settlement discrepancies associated with the delivery of physical
instruments.
---------------------------------------------------------------------------
\58\ 17 CFR 240.17Ad-22(e)(10).
---------------------------------------------------------------------------
As discussed above, the proposed rule change would amend the
Delivery Procedures to update various operational practices and to make
other updates and drafting improvements. Specifically, proposed new
paragraph 7 would make explicit reference to the alternative delivery
procedure for Emission Contracts in the event of a failed delivery, as
set out in paragraph 7 (Emissions Alternative Delivery Procedure
(``EADP'')) of Part A of the Delivery Procedures (ICE Endex Deliverable
EU Emissions Contracts). Amended paragraph 7.3 of Part A would update
the manner of settlement of an existing Contract following the entry
into an EADP Agreement by a Clearing Member and ICE Clear Europe, so
that it would no longer be limited to liquidation on the basis of the
Exchange Delivery Settlement Price, but rather, dealt with in the
manner specified in the EADP. In addition, amended paragraph 7.5 would
provide for a longer time period after a failed delivery for the
Clearing Member and ICE Clear Europe to enter into an EADP Agreement or
effect delivery under the EADP before ICE Clear Europe may refer the
matter to the relevant exchange or take other reasonable next steps in
its discretion. The Commission believes these changes would establish
and update transparent written procedures for failed deliveries of
Emissions Contracts, and provide greater flexibility for ICE Clear
Europe to manage the risks associated with such failed deliveries.
With respect to Financials & Softs Gilt Contracts, the proposed
rule change would amend Part U of the Delivery Procedures to add a new
paragraph 2 (Failed Settlement and Non-Delivery of Stock) to establish
a procedure to address the Seller's non-delivery of securities under a
Financials & Softs Gilt Contract, including the actions ICE Clear
Europe may take to promote settlement in accordance with the contract
terms and the requirements of the CREST central securities depository,
as well as the express allocation of the costs of such steps to the
Clearing Member who failed to make delivery. Proposed new paragraph 2.1
in amended Part U would establish ICE Clear Europe's procedure to
address the Seller's partial delivery of available Gilts and the
resulting partial settlement between the Buying Clearing Member and the
Selling Clearing Member. The Commission believes these changes in Part
U would establish transparent written standards and procedures for
handling failed deliveries and partial deliveries of Financials and
Softs Gilt
[[Page 49382]]
Contracts and for managing their associated risks.
The proposed rule change also would amend Part Z of the Delivery
Procedures to make various updates to reference the correct settlement
facilities and relevant settlement details and settlement procedures
for Equity Futures/Options Contracts. Amended paragraph 2.3
(Partialling) and paragraph 3 (Failed Settlements and Non-Delivery of
Stock) would clarify the processes for dealing with partial deliveries
and failed deliveries, including the steps that ICE Clear Europe may
take to facilitate delivery, the rights and responsibilities of the
buying clearing member with respect to onward deliveries under other
contracts, and the allocation of costs to clearing members. Similar to
the changes in Part U, the Commission believes these changes in Part Z
would establish transparent written standards and procedures for
handling partial deliveries and failed deliveries of Equity Futures/
Options Contracts and for managing their associated risks.
Throughout the Delivery Procedures, the proposed rule change would
also update and clarify operational processes and ICE Clear Europe
systems, delivery documentation summaries, timetables, and other
relevant provisions. The Commission believes these changes would help
ICE Clear Europe establish and maintain transparent and up-to-date
operational practices to help manage the risks associated with physical
deliveries and settlement.
For these reasons, the Commission finds the proposed rule change is
consistent with Rule 17Ad-22(e)(10).\59\
---------------------------------------------------------------------------
\59\ 17 CFR 240.17Ad-22(e)(10).
---------------------------------------------------------------------------
H. Consistency With Rule 17Ad-22(e)(13)
Rule 17Ad-22(e)(13) requires that ICE Clear Europe 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
Clearing Members 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.\60\ As discussed above, the proposed rule
change would amend ICE Clear Europe's default planning process by
removing the current pre-default porting preference structure, and
replacing it with a post-default porting preference structure using
Porting Notices (which refers to a post-default notification of a
porting preference) that require written consent by the designated
Transferee Clearing Member. The proposed rule change also would amend
Rule 907(b) to clarify that ICE Clear Europe has no obligation to
inquire of any person as to any Porting Notice. In the interest of
further enhancing efficiencies in default scenarios, the proposed rule
change would amend Rule 907(d) to authorize ICE Clear Europe's ability
to rely on relevant information concerning Contracts, Customer-CM
Transactions, Margin, and customer accounts that a defaulting Clearing
Member provided to ICE Clear Europe prior to declaration of default.
The Commission believes that these aspects of the proposed rule change
would help ICE Clear Europe continue to take timely action to contain
losses and liquidity demands in the case of a Clearing Member default.
---------------------------------------------------------------------------
\60\ 17 CFR 240.17Ad-22(e)(13).
---------------------------------------------------------------------------
As discussed above, the proposed rule change would amend Rule
903(c) to clarify that ICE Clear Europe's right to authorize hedging
transactions in a default scenario would include transactions on a
Market, any other Exchange, or over the counter, and that hedging
transactions need not be cleared if transacted on an exchange which is
not a Market, or as requested or directed otherwise by ICE Clear
Europe. The Commission believes such changes would enhance ICE Clear
Europe's authority to use hedging to help contain losses and liquidity
demands following an Event of Default.
As discussed above, the proposed rule change would amend Rule 901
(Events of Default affecting Clearing Members or Sponsored Principals)
to clarify that the declaration of a Clearing Member's Event of Default
would authorize ICE Clear Europe to declare an Event of Default in
respect of another Clearing Member that is a Group Company, i.e., a
parent or subsidiary of such defaulting Clearing Member. The Commission
believes that this change would enhance ICE Clear Europe's authority to
declare cross-defaults of affiliated Clearing Members to help contain
losses and liquidity demands in a default scenario.
Finally, as discussed above, the proposed rule change would make a
number of drafting improvements to Rule 904(b) (Transfer of Contracts
and Margin on a Clearing Member Default), Rule 905(g) (Termination and
close out of Contracts on a Clearing Member Event of Default), and Rule
908(i) (Application of Assets upon an Event of Default), that would
enhance the clarity of ICE Clear Europe's default management procedures
and support ICE Clear Europe's operational capacity to take timely
action to contain losses and liquidity demands.
For these reasons, the Commission finds the proposed rule change is
consistent with Rule 17Ad-22(e)(13).\61\
---------------------------------------------------------------------------
\61\ 17 CFR 240.17Ad-22(e)(13).
---------------------------------------------------------------------------
I. Consistency With Rule 17Ad-22(e)(14)
Rule 17Ad-22(e)(14) requires that ICE Clear Europe establish,
implement, maintain, and enforce written policies and procedures
reasonably designed to enable the segregation and portability of
positions of a Clearing Member's customers and the collateral provided
to ICE Clear Europe with respect to those positions and effectively
protect such positions and related collateral from the default or
insolvency of that Clearing Member.\62\ As discussed above, the
proposed rule change would remove the current Default Portability
Preference process by which Non-FCM/BD Clearing Members may deliver
porting information to ICE Clear Europe in advance of a Clearing Member
default, which was rarely used in practice, and replace such process
with a post-default portability preference notification process using
Porting Notices to designate a customer's preferred Transferee Clearing
Member. This change is consistent with the EMIR requirement for post-
default notices to be served as a pre-condition to porting. The
proposed rule change would make conforming amendments to Rules 904 and
907 to reflect this change and would clarify the process for providing
post-default Porting Notices. In particular, amended Rule 904(g) would
require that the Transferee Clearing Member must consent in writing to
the customer's designation of such Transferee Clearing Member in a
Porting Notice. The Commission believes these aspects of the proposed
rule change would clarify and facilitate the process of post-default
porting that is consistent with EMIR, and effectively protects customer
positions and collateral in the event of a Clearing Member default.
---------------------------------------------------------------------------
\62\ 17 CFR 240.17Ad-22(e)(14).
---------------------------------------------------------------------------
As discussed above, the proposed rule change would amend Rule
209(d) to facilitate membership terminations in the context of a
corporate group reorganization where a new Clearing Member that is an
Affiliate will be receiving the terminating Clearing Member's Open
Contract Positions, which include Customer Account Positions. The
Commission believes these amendments would help to enable the
portability of a customer's contracts in the specific context of a
Clearing Member termination.
[[Page 49383]]
For these reasons, the Commission finds the proposed rule change is
consistent with Rule 17Ad-22(e)(14).\63\
---------------------------------------------------------------------------
\63\ 17 CFR 240.17Ad-22(e)(14).
---------------------------------------------------------------------------
J. Consistency With Rule 17Ad-22(e)(17)(i)
Rule 17Ad-22(e)(17)(i) requires that ICE Clear Europe establish,
implement, maintain, and enforce written policies and procedures
reasonably designed to manage its operational risks by 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.\64\ As discussed above, the
proposed rule change would amend the provisions for delivery of notices
in various Rules as part of ICE Clear Europe's default simulation
planning. The proposed amendments would generally replace telephone
with email delivery, and clarify the delivery to nominated process
agents, as well as the timing for effective service and delivery of
notices. The Commission believes these changes would help to improve
the efficiencies in the delivery of notices, which in turn would help
ICE Clear Europe manage the related operational risks associated with
the delivery and receipt of notices in case of a Clearing Member
default or termination, among other operational scenarios.
---------------------------------------------------------------------------
\64\ 17 CFR 240.17Ad-22(e)(17)(i).
---------------------------------------------------------------------------
The Commission believes that the proposed amendment to Rule 202
(Obligations of Clearing Members) to require Clearing Members to have
competent staff representatives accessible to ICE Clear Europe for two
hours before the start of the business day would help ICE Clear Europe
ensure that its operational policies are consistent with its
operational practices for appropriately managing the risks associated
with Clearing Members meeting time-sensitive morning margin calls.
The Commission believes that the proposed addition of new Rule
301(o), which would allow ICE Clear Europe to request information when
needed on account balances of nominated accounts of the Clearing Member
at financial institutions, including for the purpose of calling on
available cash where the Clearing Member has failed to meet a payment
obligation or determining whether the Clearing Member is, or is likely
to be, in default, would help ICE Clear Europe reduce operational risks
that have arisen in practice when payment banks have refused to provide
such information to ICE Clear Europe.
The Commission believes that the proposed new definitions of ICE
Clear Europe's operational systems in the Delivery Procedures and
updated references to such systems throughout the Amended Documents
would help ICE Clear Europe manage operational risks by upgrading
legacy systems and ensuring that all internal and external stakeholders
are aware of the new systems and their basic operational purposes and
functionalities.
As discussed above, the proposed rule change would make various
amendments to certain Rules to ensure clear and consistent operational
practices for Contracts. Amended Rule 401(o) would clarify that a
Customer-CM CDS Transaction arises at the same time as the Contract for
consistency with the equivalent rule for a Customer-CM F&O Transaction.
Amended Rule 406 would clarify how open contract positions in F&O
Contracts are netted and aggregated. Amended Rule 409 would clarify
that ICE Clear Europe may evidence its consent to amendments, waivers,
and variations of Contract Terms by issuing a Circular. The Commission
believes these changes would help ICE Clear Europe reduce operational
risks by formalizing appropriate and consistent operational practices
related to the Contracts it clears.
Finally, the Commission believes the proposed amendments to Rule
105(a) to shorten the termination period for ICE Clear Europe's service
withdrawal as a clearing house for any product where there is no open
interest in the relevant Set, and to clarify that the relevant
exchange's notice period and notification responsibility would apply to
a product termination that follows actions by the exchange, such as a
de-listing, would help ICE Clear Europe manage and mitigate both
internal and external sources of operational risks associated with
product terminations.
For these reasons, the Commission finds the proposed rule change is
consistent with Rule 17Ad-22(e)(17)(i).\65\
---------------------------------------------------------------------------
\65\ 17 CFR 240.17Ad-22(e)(17)(i).
---------------------------------------------------------------------------
K. Consistency With Rule 17Ad-22(e)(18)
Rule 17Ad-22(e)(18) requires that ICE Clear Europe establish,
implement, maintain, and enforce written policies and procedures
reasonably designed to establish objective, risk-based, and publicly
disclosed criteria for participation, which permit fair and open access
by direct and, where relevant, indirect participants and other
financial market utilities, require participants to have sufficient
financial resources and robust operational capacity to meet obligations
arising from participation, and monitor compliance with such
participation requirements on an ongoing basis.\66\
---------------------------------------------------------------------------
\66\ 17 CFR 240.17Ad-22(e)(18).
---------------------------------------------------------------------------
The Commission believes that the changes to the Membership
Procedures discussed above would establish objective, risk-based, and
publicly disclosed criteria for participation, by updating the
definition of Clearing Member Capital and related requirements
applicable to Clearing Members to align with the Basel III standard.
Similarly, the Commission believes that changing the deadline for
submitting financial statements from 30 to 45 days; allowing ICE Clear
Europe to accept different kinds of financial statements from Clearing
Members as part of their financial reporting obligations; and providing
that termination of a Clearing Membership Agreement or membership as a
Clearing Member would become effective no less than 30 Business Days
after the date of the Termination Notice Time or pursuant to Rule
917(c), would establish objective, risk-based, and publicly disclosed
criteria for participation, by setting forth clear deadlines and
standards applicable to Clearing Members. Finally, the Commission
believes that adding a new paragraph 3.5 to the CDS Procedures to
require Clearing Members to provide sign-off via email on weekly cycles
by the time specified by ICE Clear Europe would establish an objective,
risk-based, and publicly disclosed requirement upon Clearing Members.
Therefore, the Commission finds these aspects of the proposed rule
change are consistent with Rule 17Ad-22(e)(18).\67\
---------------------------------------------------------------------------
\67\ 17 CFR 240.17Ad-22(e)(18).
---------------------------------------------------------------------------
Finally, the Commission believes that the proposed amendment to
Rule 202 (Obligations of Clearing Members) to require Clearing Members
to have competent staff representatives accessible to ICE Clear Europe
for two hours before the start of the business day would help ICE Clear
Europe ensure that its participants have sufficient financial resources
and operational capacity to meet their morning margin call obligations.
For these reasons, the Commission finds the proposed rule change is
consistent with Rule 17Ad-22(e)(18).\68\
---------------------------------------------------------------------------
\68\ 17 CFR 240.17Ad-22(e)(18).
---------------------------------------------------------------------------
IV. Conclusion
On the basis of the foregoing, the Commission finds that the
proposed rule change, as modified by Partial
[[Page 49384]]
Amendment No. 1, is consistent with the requirements of the Act, and in
particular, with the requirements of Sections 17A(b)(3)(F),
17A(b)(3)(G), and 17A(b)(3)(H) of the Act, and Rules 17Ad-22(e)(1),
(e)(2)(i), 17Ad-22(e)(6)(ii), 17Ad-22(e)(10), 17Ad-22(e)(13), 17Ad-
22(e)(14), 17Ad-22(e)(17)(i), and (e)(18).\69\
---------------------------------------------------------------------------
\69\ 15 U.S.C. 78q-1(b)(3)(F); 15 U.S.C. 78q-1(b)(3)(G); 15
U.S.C. 78q-1(b)(3)(H); 17 CFR 240.17Ad-22(e)(1), (e)(2)(i),
(e)(6)(ii), (e)(10), (e)(13), (e)(14), (e)(17)(i), and (e)(18).
---------------------------------------------------------------------------
It is therefore ordered pursuant to Section 19(b)(2) of the Act
\70\ that the proposed rule change, as modified by Partial Amendment
No. 1 (SR-ICEEU-2021-010), be, and hereby is, approved.\71\
---------------------------------------------------------------------------
\70\ 15 U.S.C. 78s(b)(2).
\71\ 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).
\72\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\72\
Vanessa A. Countryman,
Secretary.
[FR Doc. 2021-18941 Filed 9-1-21; 8:45 am]
BILLING CODE 8011-01-P
</pre></body>
</html>Indexed from Federal Register on September 2, 2021.
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.