Notice2021-25479
Self-Regulatory Organizations; ICE Clear Europe Limited; Order Approving Proposed Rule Change Relating to Amendments to the ICE Clear Europe Collateral and Haircut Procedures
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Published
November 23, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 223 (Tuesday, November 23, 2021)</title>
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[Federal Register Volume 86, Number 223 (Tuesday, November 23, 2021)]
[Notices]
[Pages 66607-66609]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-25479]
[[Page 66607]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93603; File No. SR-ICEEU-2021-018]
Self-Regulatory Organizations; ICE Clear Europe Limited; Order
Approving Proposed Rule Change Relating to Amendments to the ICE Clear
Europe Collateral and Haircut Procedures
November 17, 2021.
I. Introduction
On September 20, 2021, ICE Clear Europe Limited (``ICE Clear
Europe'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to make certain changes to its existing Collateral
and Haircut Procedures (the ``Collateral Procedures''). The proposed
rule change was published for comment in the Federal Register on
October 7, 2021.\3\ The Commission did not receive comments on the
proposed rule change. For the reasons discussed below, the Commission
is approving the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Self-Regulatory Organizations; ICE Clear Europe Limited;
Notice of Filing of Proposed Rule Change Relating to Amendments to
the ICE Clear Europe Collateral and Haircut Procedures, Exchange Act
Release No. 93236 (Oct. 1, 2021), 86 FR 55879 (Oct. 7, 2021) (SR-
ICEEU-2021-018) (``Notice'').
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II. Description of the Proposed Rule Change
ICE Clear Europe is proposing to revise the Collateral Procedures
to (i) state explicitly its formula for calculating the value of its
published list of acceptable collateral (``Permitted Cover'') provided
by Clearing Members (``Members'') for covering their margin and
guaranty fund requirements and (ii) update its processes for monitoring
data related to collateral valuations, and specify the roles and
responsibilities of its various internal teams in performing such
monitoring processes.\4\ The proposed revisions are described in more
detail below.\5\
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\4\ Capitalized terms used not defined herein have the meanings
specified in the Collateral Procedures or the ICE Clear Europe
Clearing Rules (the ``Rules''), as applicable.
\5\ The following description of the proposed rule change is
substantially excerpted from the Notice.
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To ensure that the collateral ICE Clear Europe holds is highly
liquid with low credit and market risk, ICE Clear Europe only accepts
assets that meet the criteria set forth in the Collateral Procedures,
which ICE Clear Europe refers to as Permitted Cover. To facilitate
Permitted Cover valuations, ICE Clear Europe is proposing an explicit
formula to calculate the Permitted Cover value in new Section 2.2 of
the Collateral Procedures. As proposed, cover value is equal to Nominal
* Price/100 * (1-Haircut) \6\ + Nominal * Accrued, where price is clean
(i.e., without accrued interest) and accrued is expressed in %.
Proposed Section 2.2 also would state that as a matter of standard
practice at ICE Clear Europe, Treasuries are given no cover value two
business days prior to maturity and a cash call would be issued if a
Member's account is in deficit. Additionally, proposed Section 2.2
would state that accrued interest will lose value one day prior to the
coupon pay date. ICE Clear Europe represents that these changes reflect
its existing practice for the valuation of Permitted Cover and are
intended to document such practice more clearly.\7\
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\6\ The term ``Haircut'' refers to the risk-based haircut or
reduction percentage that ICE Clear Europe sets and applies to the
value of certain collateral.
\7\ See Notice at 55879.
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The proposed rule change also would update ICE Clear Europe's
processes for monitoring data related to collateral pricing and would
describe the roles of various teams tasked with such monitoring.
Specifically, the proposed changes to Section 5.1 (Data Monitoring)
would add a new sentence stating that the System Operations team checks
end of day collateral pricing. The proposed changes to Section 5.1
would then state that the Credit team has controls to monitor end of
day market data that the ECS System Operations team uses to value
collateral against thresholds to ensure that the data is not ``stale,''
and also would remove intraday market data from the scope of such
monitoring. Currently, Section 5.1 does not specify the
responsibilities of any internal teams, stating that ICE Clear Europe
monitors end of day and intraday market data it uses to value
collateral thresholds to ensure that the data is not ``stale.''
Additionally, the proposed changes would add a new sentence at the end
of Section 5.1 which states that the Treasury team reconciles and
confirms the daily bilateral collateral positions (nominal amounts).
Finally, the proposed rule change would update the scope of the
Collateral Procedures in Section 1.2 to include intraday and end of day
valuation of collateral, which is consistent with ICE Clear Europe's
existing practice. Currently, Section 1.2 excludes intraday and end of
day valuation of collateral and any associated margin processes from
the scope of the Collateral Procedures.
III. 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. For the reasons given below, the Commission finds that
the proposed rule change is consistent with Section 17A(b)(3)(F) of the
Act \8\ and Rules 17Ad-22(e)(2)(i) and (v), and (e)(5) thereunder.\9\
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\8\ 15 U.S.C. 78q-1(b)(3)(F).
\9\ 17 CFR 240.17Ad-22(e)(2)(i) and (v), and (e)(5).
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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, and 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.\10\
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\10\ 15 U.S.C. 78q-1(b)(3)(F).
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As described above, the proposed rule change would revise the
Collateral Procedures to state explicitly ICE Clear Europe's formula
for calculating the value of Permitted Cover and to update ICE Clear
Europe's processes for monitoring data related to collateral
valuations, which would also specify the roles and responsibilities of
its various internal teams in performing such monitoring processes. For
the specific reasons discussed below, the Commission believes that, in
general, the proposed rule change would facilitate the sound operation
of ICE Clear Europe's margin framework and overall risk management and
financial stability of ICE Clear Europe, and thereby promote ICE Clear
Europe's prompt and accurate clearance and settlement of cleared
contracts, and help assure the safeguarding of securities and funds
which are in ICE Clear Europe's custody or control or for which ICE
Clear Europe is responsible.
First, the Commission believes that proposed new Section 2.2, in
clearly documenting ICE Clear Europe's formula for calculating the
value of Permitted Cover; its standard practice of giving no cover
value two business days prior to maturity of Treasuries and
[[Page 66608]]
issuing a cash call if a Member's account is in deficit; and also its
standard practice for accrued interest to lose value one day prior to
the coupon pay date, would help ensure that Members and internal
personnel at ICE Clear Europe make accurate and consistent cover value
calculations that adequately cover Members' margin and guaranty fund
requirements. These aspects of the proposed rule change would, in turn,
enhance ICE Clear Europe's ability to reduce the risk of loss
mutualization among its Members when closing out a defaulting Member's
portfolio and liquidating collateral under potentially stressed market
conditions, thereby safeguarding the financial resources of non-
defaulting Members.
Second, the Commission believes that the proposed changes to
Section 5.1 (Data Monitoring), in documenting that the System
Operations team checks end of day collateral pricing; that the Credit
team has controls to monitor end of day market data that the ECS System
Operations team uses to value collateral against thresholds to ensure
that the data is not ``stale,'' and thus more timely and accurate; that
monitoring of intraday market data is removed from the scope of such
monitoring, and that the Treasury team reconciles and confirms the
daily bilateral collateral positions (or nominal amounts), would, taken
together, enhance the accuracy, clarity, and transparency of ICE Clear
Europe's collateral valuation data monitoring procedures and help
internal teams focus procedurally on their monitoring responsibilities.
For example, the proposed removal of monitoring intraday market data
would help focus the ECS System Operations team on monitoring end of
day pricing, but not intraday pricing. The Commission believes that
these aspects of the proposed rule change would support the ongoing
accuracy of Permitted Cover valuations that inform and facilitate the
adequacy of ICE Clear Europe's calculations of its Members' margin and
guaranty fund requirements and, in turn, would further enhance ICE
Clear Europe's ability to mitigate the risk of loss mutualization in
the event of a Member's default, thereby safeguarding the financial
resources of non-defaulting Members.
Third, the Commission believes that the proposed changes in Section
1.2 to include intraday and end of day valuation of collateral would
ensure that the Collateral Procedures clearly document ICE Clear
Europe's existing collateral valuation practice and also clarify that
such practice is conducted under the Collateral Procedures. Clarifying
the scope of the Collateral Procedures document would enhance its
completeness and comprehensiveness, and help ICE Clear Europe's
personnel efficiently implement the associated operational activities,
thereby contributing to the prompt and accurate clearance and
settlement of cleared contracts.
The Commission also notes that it has previously found the
Collateral Procedures consistent with the Act \11\ and because there
are no proposed material changes, believes that the Collateral
Procedures continue to be consistent with the Act.
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\11\ Self-Regulatory Organizations; ICE Clear Europe Limited;
Order Approving Proposed Rule Change Relating to the ICE Clear
Europe Collateral and Haircut Policy and Collateral and Haircut
Procedures, Exchange Act Release No. 88136 (Feb. 6, 2020), 85 FR
8075 (Feb. 12, 2020) (SR-ICEEU-2019-019).
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Therefore, for the reasons discussed above, 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 or
control, consistent with the Section 17A(b)(3)(F) of the Act.\12\
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\12\ 15 U.S.C. 78q-(b)(3)(F).
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B. Consistency With Rules 17Ad-22(e)(2)(i) and (v) Under the Act
Rules 17Ad-22(e)(2)(i) and (v) require 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 and specify clear and direct lines of
responsibility, respectively.\13\
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\13\ 17 CFR 240.17Ad-22(e)(2)(i) and (v).
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With respect to Rule 17Ad-22(e)(2)(i), the Commission believes that
the proposed changes in Section 1.2, by including intraday and end of
day valuation of collateral within the scope of the Collateral
Procedures, would clearly and transparently document that such
collateral valuation activities are conducted under the Collateral
Procedures and thus subject to the governance process currently set
forth in the Collateral Procedures document.
With respect to Rule 17Ad-22(e)(2)(v), the Commission believes that
the proposed changes to Section 5.1 (Data Monitoring), in documenting
that the System Operations team checks end of day collateral pricing,
that the Credit team has controls to monitor end of day market data
that the ECS System Operations team uses to value collateral against
thresholds to ensure that the data is not ``stale,'' and that the
Treasury team reconciles and confirms the daily bilateral collateral
positions (or nominal amounts), would specify clear and direct roles
and responsibilities of the internal teams involved in ICE Clear
Europe's data monitoring processes.
The Commission therefore believes the proposed changes in Section
1.2 provide for governance arrangements that are clear and transparent,
and the proposed changes to Section 5.1 specify clear and direct lines
of responsibility.
For these reasons, the Commission finds that the proposed rule
change is consistent with Rules 17Ad-22(e)(2)(i) and (v).\14\
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\14\ 17 CFR 240.17Ad-22(e)(2)(i) and (v).
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C. Consistency With Rule 17Ad-22(e)(5) Under the Act
Rule 17Ad-22(e)(5) requires that ICE Clear Europe establish,
implement, maintain, and enforce written policies and procedures
reasonably designed to, as applicable, limit the assets it accepts as
collateral to those with low credit, liquidity, and market risks, and
set and enforce appropriately conservative haircuts and concentration
limits if the covered clearing agency requires collateral to manage its
or its participants' credit exposure; and require a review of the
sufficiency of its collateral haircuts and concentration limits to be
performed not less than annually.\15\
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\15\ 17 CFR 240.17Ad-22(e)(5).
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The Commission believes that the proposed rule change, by
documenting ICE Clear Europe's formula for calculating the value of
Permitted Cover and related standard practices for valuing Treasuries
and accrued interest, and also by documenting that the ECS System
Operations team uses end of day market data to value collateral against
thresholds to ensure that the data is not stale, would enhance the
accuracy of ICE Clear Europe's collateral valuation practices and help
ensure that ICE Clear Europe continues to manage prudently its and its
Members' credit exposure by adequately covering Members' margin and
guaranty fund requirements.
For these reasons, the Commission finds that the proposed rule
change is consistent with Rule 17Ad-22(e)(5).\16\
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\16\ 17 CFR 240.17Ad-22(e)(5).
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IV. Conclusion
On the basis of the foregoing, the Commission finds that the
proposed rule change is consistent with the requirements of the Act,
and in particular, with the requirements of Section 17A(b)(3)(F) of the
Act \17\ and
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Rules 17Ad-22(e)(2)(i) and (v), and (e)(5) thereunder.\18\
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\17\ 15 U.S.C. 78q-1(b)(3)(F).
\18\ 17 CFR 240.17Ad-22(e)(2)(i) and (v), and (e)(5).
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It is therefore ordered pursuant to Section 19(b)(2) of the Act
\19\ that the proposed rule change (SR-ICEEU-2021-018) be, and hereby
is, approved.\20\
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\19\ 15 U.S.C. 78s(b)(2).
\20\ In approving the proposed rule change, the Commission
considered the proposal's impact on efficiency, competition, and
capital formation. 15 U.S.C. 78c(f).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
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\21\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-25479 Filed 11-22-21; 8:45 am]
BILLING CODE 8011-01-P
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