Notice2023-00774
Self-Regulatory Organizations; ICE Clear Europe Limited; Notice of Filing of Proposed Rule Change Relating to the Capital Replenishment Plan
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Published
January 17, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 10 (Tuesday, January 17, 2023)</title>
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[Federal Register Volume 88, Number 10 (Tuesday, January 17, 2023)]
[Notices]
[Pages 2668-2671]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-00774]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96634; File No. SR-ICEEU-2022-027]
Self-Regulatory Organizations; ICE Clear Europe Limited; Notice
of Filing of Proposed Rule Change Relating to the Capital Replenishment
Plan
January 11, 2023.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on December 29, 2022, ICE Clear Europe Limited (``ICE Clear Europe'' or
the ``Clearing House'') filed with the Securities and Exchange
Commission (``Commission'') the proposed rule changes described in
Items I, II and III below, which Items have been prepared primarily by
ICE Clear Europe. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
ICE Clear Europe Limited (``ICE Clear Europe'' or the ``Clearing
House'') proposes to adopt a new Capital Replenishment Plan to document
certain tools, procedures and arrangements to replenish its financial
resources in the event of Clearing Member default and in the event of
losses not caused by Clearing Member default.\3\
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\3\ Capitalized terms used but not defined herein have the
meanings specified in the Capital Replenishment Plan or, if not
defined therein, the ICE Clear Europe Clearing Rules.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
In its filing with the Commission, ICE Clear Europe included
statements concerning the purpose of and basis for the proposed rule
change and discussed any comments it received on the proposed rule
change. The text of these statements may be examined at the places
specified in Item IV below. ICE Clear Europe has prepared summaries,
set forth in sections (A), (B), and (C) below, of the most significant
aspects of such statements.
(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
(a) Purpose
ICE Clear Europe is proposing to adopt a new Capital Replenishment
Plan (the ``Plan'') to document certain tools, procedures and
arrangements that the Clearing House may use to replenish its capital,
when necessary. The Plan \4\ would address replenishment of both ICE
Clear Europe's own resources contribution to its guaranty funds and
capital required under applicable law, including the capital
requirement under EMIR as incorporated into UK law following the Brexit
transition (the ``EMIR capital requirement'').\5\ The Plan would
recognize that a need to replenish capital may arise because of a
Clearing Member default, the occurrence of sudden extraordinary one-off
losses, net losses resulting from custody or investment risks, or from
recurring losses which may arise from general business risks.\6\
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\4\ The Plan would consolidate and replace a pre-existing
capital requirement framework and related practices.
\5\ Commission Delegated Regulation (EU) No. 152/2013 of 19
December 2012 supplementing Regulation (EU) No. 648/2012 of the
European Parliament and of the Council with regard to regulatory
technical standards on capital requirements for central
counterparties, as on-shored into UK law following the end of the
Brexit transition period.
\6\ The Plan would also serve as a recovery tool and would be
part of ICE Clear Europe's overall Recovery Plan.
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The Plan would set out the overall purposes of the Plan and the
Clearing House's overall approach to capital management and maintaining
capital resources. The Plan is intended, among other purposes, to set
out for senior management, the audit committee and the Board actions
they may consider to replenish capital and to identify stakeholders and
their respective responsibilities with respect to ICE Clear Europe's
continued compliance with relevant laws and regulations
[[Page 2669]]
covering regulatory capital. This Plan takes into account both the
minimum legal capital requirements, including under the EMIR capital
requirement, as well as a higher target capital requirement (which
includes a voluntary capital contribution as well as a notification
buffer). The replenishment tools and actions under the Plan have been
developed so as to prioritize replenishing the legal capital
requirement first. Replenishment of additional capital to the target
amount can be addressed once the legal requirement has been restored,
(or at the same time at the discretion of the Board, resources
permitting).
The Plan outlines the general steps the Clearing House would expect
to take to replenish capital, including (1) first assessing and using
available accumulated financial resources, (2) then looking to use
reasonably calculated forecasts as to future profits, (3) if those
resources are insufficient to restore capital to the legal requirement,
by seeking resources from its parent company in the ICE group, and (4)
thereafter, with the approval of its parent and subject to the rights
of existing shareholders, by seeking additional capital from third
parties. ICE Clear Europe may also bypass the first two steps outlined
above and immediately request capital from its parent company.
The Plan also states that overall accountability for the plan lies
with the Finance Director, President, and the Board. The Plan would be
subject to annual review, and capital replenishment would be included
in the annual default management test schedule. The Plan would identify
specific internal control and governance responsibilities for the
Finance Director, President, the Board and Board Risk Committee
relating to monitoring capital compliance and replenishment. The
Finance Director would be responsible for monitoring ICE Clear Europe's
compliance with the applicable regulatory capital requirements,
reporting capital adequacy internally and to regulators, escalating
matters relating to capital adequacy to the President where
appropriate, and contributing to the development of plans to increase
and/or replenish Eligible Capital as required for ICE Clear Europe to
continue to meet its regulatory capital requirements. The President
would be responsible for ensuring ICE Clear Europe meets its capital
adequacy obligations under relevant laws and regulations. The Board
Risk Committee would be responsible for reviewing and recommending to
the Board the principles underlying the capital planning process, as
well as the Plan, itself, and the Board itself would be responsible for
approving the principles and the Plan. The Board would also be
responsible for holding the President accountable for demonstrating
adherence to ICE Clear Europe's capital policies and for reviewing and
approving any capital transactions.
The Plan would also address the determination of the target capital
amount in excess of the legal minimum capital requirement. ICE Clear
Europe seeks to maintain excess capital above the threshold at which
notification would be required to the Bank of England (which is
generally 10% above the required capital level). In addition, ICE Clear
Europe endeavors to maintain additional capital, on a voluntary basis,
approximately equal to an additional 10% of the required capital level
plus the 10% buffer referenced above.
The Plan would also provide further detail as to the use of the
capital replenishment tools referenced above in different default loss
and non-default loss scenarios and related actions to be taken for each
tool, including as to the key individuals and departments involved and
approvals required, the estimated timing for various actions, relevant
documentation requirements, the procedure for determination of the
relevant amount of additional resources to be sought or applied from
the relevant sources, and the process for consultation with Clearing
Members and regulators, among other matters. Annexes to the Plan also
set out relevant templates for documentation.
(b) Statutory Basis
ICE Clear Europe believes that the proposed adoption of the Capital
Replenishment Plan is consistent with the requirements of section 17A
of the Act \7\ and the regulations thereunder applicable to it. In
particular, section 17A(b)(3)(F) of the Act \8\ requires, among other
things, that the rules of a clearing agency be designed to promote the
prompt and accurate clearance and settlement of securities transactions
and, to the extent applicable, derivative agreements, contracts, and
transactions, the safeguarding of securities and funds in the custody
or control of the clearing agency or for which it is responsible, and
the protection of investors and the public interest. The Capital
Replenishment Plan is intended to document procedures for replenishing
capital, for both the own resources contribution to the guaranty funds
and the EMIR capital requirements for the Clearing House. As a part of
the broader Recovery Plan, the proposed Capital Replenishment Plan will
facilitate the continued operation of the Clearing House following a
significant loss from one or more Clearing Member defaults or a non-
default loss (including investment or custodial losses and losses from
general business risk) by replenishing needed financial resources. The
Plan would address replenishment to both the minimum legal capital
requirement and the higher target level intended to provide additional
resources as an operating buffer. The amendments thus are consistent
with the continued prompt and accurate clearance and settlement of
securities transactions and derivatives transactions and the
safeguarding of securities and funds in the custody or control of the
Clearing House or for which it is responsible, following a significant
default or non-default loss. The amendments thus also enhance the
protection of investors and the public interest in the continued sound
operation of the Clearing House, consistent with the requirements of
section 17A(b)(3)(F) of the Act.\9\
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\7\ 15 U.S.C. 78q-1.
\8\ 15 U.S.C. 78q-1(b)(3)(F).
\9\ 15 U.S.C. 78q-1(b)(3)(F).
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The Capital Replenishment Plan is also consistent with relevant
provisions of Rule 17Ad-22. Rule 17Ad-22(e)(3)(ii) \10\ provides that
the ``covered clearing agency shall establish, implement, maintain and
enforce written policies and procedures reasonable designed to, as
applicable [. . .] maintain a sound risk management framework for
comprehensively managing legal, credit, liquidity, operational, general
business, investment, custody and other risks that arise in or are
borne by the covered clearing agency, which . . . includes plans for
the recovery or orderly wind-down of the covered clearing agency
necessitated by credit losses, liquidity shortfalls, losses from
general business risk, or any other losses.'' As discussed above, the
Plan serves as a part of the broader Recovery Plan and is intended to
document tools, arrangements and procedures for replenishing capital
when needed as a result of default losses or non-default losses,
including losses from general business risk. The Plan further sets out
the roles and functions of the Board, ICE Clear Europe management and
other internal personnel and committees in taking such steps to
replenish financial resources. In ICE Clear Europe's view, the
implementation of the Capital Replenishment Plan is therefore
[[Page 2670]]
consistent with the requirements of Rule 17Ad-22(e)(3)(ii).\11\
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\10\ 17 CFR 240.17Ad-22(e)(3)(ii).
\11\ 17 CFR 240.17Ad-22(e)(3)(ii).
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Rule 17Ad-22(e)(2) \12\ provides that the ``covered clearing agency
shall establish, implement, maintain and enforce written policies and
procedures reasonable designed to, as applicable [. . .] provide for
governance arrangements'' that ``are clear and transparent'' \13\ and
``specify clear and direct lines of responsibility''.\14\ The Plan
identifies responsibilities of key ICE Clear Europe personnel, the
Board and other stakeholders with respect to ongoing compliance with
capital requirements and for capital replenishment when necessary. The
Plan also provides for annual review by ICE Clear Europe's President,
Finance Director, and Board to ensure that it remains up-to-date and is
reviewed in accordance with the Clearing House's internal governance
processes. In ICE Clear Europe's view, the documents are therefore
consistent with the requirements of Rule 17Ad-22(e)(2).\15\
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\12\ 17 CFR 240.17Ad-22(e)(2).
\13\ 17 CFR 240.17Ad-22(e)(2)(i).
\14\ 17 CFR 240.17Ad-22(e)(2)(v).
\15\ 17 CFR 240.17Ad-22(e)(2).
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In addition, the Plan is consistent with the requirements of Rule
17Ad-22(e)(15),\16\ which states that a clearing agency shall
``identify, monitor, and manage, the covered clearing agency's general
business risk and hold sufficient liquid net assets funded by equity to
cover potential general business losses . . .'' by ``[m]aintaining a
viable plan, approved by the board of directors and updated at least
annually, for raising additional equity should its equity fall close to
or below the amount required under paragraph (e)(15)(ii) of this
section.'' \17\ As stated above, the Plan has been approved by the ICE
Clear Europe Board of Directors, would be reviewed and updated
annually, and would outline the tools available to restore additional
capital if needed. Specifically, the Plan serves as a part of the
broader Recovery Plan and is intended to document tools, arrangements
and procedures for replenishing capital when needed, including as a
result of losses from general business risk. The capital restoration
levels detailed in the Plan are based on the Clearing House's legal
capital requirements and its own target capital level. These are
designed to exceed the amount required under Rule 17Ad-
22(e)(15)(ii).\18\ As a result, it is ICE Clear Europe's view that the
Plan is consistent with Rule 17Ad-22(e)(15).\19\
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\16\ 17 CFR 240.17Ad-22(e)(15).
\17\ 17 CFR 240.17Ad-22(e)(15)(iii).
\18\ 17 CFR 240.17Ad-22(e)(15)(ii).
\19\ 17 CFR 240.17Ad-22(e)(15).
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(B) Clearing Agency's Statement on Burden on Competition
ICE Clear Europe does not believe the proposed amendments would
have any impact, or impose any burden, on competition not necessary or
appropriate in furtherance of the purposes of the Act. The proposed
Capital Replenishment Plan is intended to facilitate replenishment of
capital when necessary as a result of a clearing member default, the
occurrence of sudden extraordinary one-off losses, any net losses
incurred resulting from custody or investment risks, or from recurring
losses which may arise from general business risks. The Plan will not
affect the rights or obligations of Clearing Members, and is designed
to facilitate continued operation of the Clearing House following a
loss. ICE Clear Europe does not believe that the proposal would
adversely affect the ability of Clearing Members or other market
participants generally to access clearing services. Further, ICE Clear
Europe believes that the Plan would not otherwise affect competition
among Clearing Members, adversely affect the market for clearing
services, or limit market participants' choices for obtaining clearing
services. Accordingly, ICE Clear Europe does not believe that the
amendments would impose any impact or burden on competition that is not
appropriate in furtherance of the purpose of the Act.
(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Written comments relating to the proposed amendment has not been
solicited or received by ICE Clear Europe. ICE Clear Europe will notify
the Commission of any comments received with respect to the proposed
rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>) or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#e694938a83cb85898b8b83889295a6958385c8818990"><span class="__cf_email__" data-cfemail="0775726b622a64686a6a626973744774626429606871">[email protected]</span></a>. Please include
File Number SR-ICEEU-2022-027 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-ICEEU-2022-027. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of such filings will also be available for inspection
and copying at the principal office of ICE Clear Europe and on ICE
Clear Europe's website at <a href="https://www.theice.com/clear-europe/regulation">https://www.theice.com/clear-europe/regulation</a>.
All comments received will be posted without change. Persons
submitting comments are cautioned that we do not redact or edit
personal identifying information from comment submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-ICEEU-2022-027
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and should be submitted on or before February 7, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-00774 Filed 1-13-23; 8:45 am]
BILLING CODE 8011-01-P
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