Notice2023-04682
Self-Regulatory Organizations; ICE Clear Europe Limited; Order Approving Proposed Rule Change Relating to the Capital Replenishment Plan
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
March 8, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 88 Issue 45 (Wednesday, March 8, 2023)</title>
</head>
<body><pre>
[Federal Register Volume 88, Number 45 (Wednesday, March 8, 2023)]
[Notices]
[Pages 14412-14414]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-04682]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97018; File No. SR-ICEEU-2022-027]
Self-Regulatory Organizations; ICE Clear Europe Limited; Order
Approving Proposed Rule Change Relating to the Capital Replenishment
Plan
March 2, 2023.
I. Introduction
On December 29, 2022, ICE Clear Europe Limited (``ICEEU'') filed
with the Securities and Exchange Commission (``Commission''), pursuant
to Section 19(b)(2) of the Securities Exchange Act of 1934 (the
``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to
adopt a capital replenishment plan. The proposed rule change was
published for comment in the Federal Register on January 17, 2023.\3\
The Commission did not receive comments regarding the proposed rule
change. For the reasons discussed below, the Commission is approving
the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Self-Regulatory Organizations; ICE Clear Europe Limited;
Notice of Filing of Proposed Rule Change Relating to the Capital
Replenishment Plan; Exchange Act Release No. 96634 (Jan. 11, 2023),
88 FR 2668 (Jan. 17, 2023) (File No. SR-ICEEU-2022-027)
(``Notice'').
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
A. Background
ICE Clear Europe is registered with the Commission as a clearing
agency for the purpose of clearing security-based swaps. In its role as
a clearing agency for security-based swaps, ICE Clear Europe maintains
certain financial resources as capital. A number of different laws and
regulations require ICEEU to maintain capital, as doing so promotes ICE
Clear Europe's resiliency and helps it withstand periods of market
stress. In the proposed rule change, ICEEU would adopt a new Capital
Replenishment Plan (``CRP'') \4\ to explain how ICEEU would replenish
its capital following a loss. The proposed adoption of the CRP is
designed to address ICEEU's need to replenish capital 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.\5\ The
CRP would consist of five sections, and would include two appendices
and two annexes. Each of these sections is described below. ICEEU would
review the CRP annually and would include capital replenishment within
its annual default management test schedule.
---------------------------------------------------------------------------
\4\ Capitalized terms not otherwise defined herein have the
meanings assigned to them in the CRF or ICEEU's rulebook, as
applicable.
\5\ See Notice, 88 FR 2668.
---------------------------------------------------------------------------
B. Section 1--Introduction and Background
Section 1 of the CRP introduces the plan, describes the purpose of
the plan, and explains ICEEU's approach in developing the plan. As
mentioned above, the overall purpose of the plan is to replenish
capital following a loss. The proposed CRP: (i) describes actions that
ICEEU could take to replenish its capital, for both its own resources
contribution to the guaranty fund and for its capital requirement under
EMIR; (ii) explains ICEEU's approach to capital management and
maintaining capital; and (iii) identifies associated stakeholders and
responsibilities.
Section 1 outlines the steps ICEEU would expect to take to
replenish capital, including (i) first assessing and using available
accumulated financial resources, (ii) then looking to use reasonably
calculated forecasts as to future profits, (iii) if those resources are
insufficient to restore capital to the legal requirement, by seeking
resources from its parent company in the ICE group, and (iv)
thereafter, with the approval of its parent and subject to the rights
of existing shareholders, by seeking additional capital from third
parties. ICEEU may also bypass the first two steps outlined above and
immediately request capital from its parent company.
Finally, Section 1 of the CRP assigns the overall accountability
for the CRP to the ICEEU President, the ICEEU Finance Director, and the
ICEEU Board.
C. Section 2--Responsibilities
While Section 1 of the CRP assigns overall accountability to the
President, Finance Director, and Board, Section 2 provides further
details on that accountability. Specifically, under Section 2, ICEEU's
Finance Director is responsible for monitoring ICEEU's compliance with
the applicable regulatory capital requirements, reporting capital
adequacy internally and to regulators, escalating matters relating to
capital adequacy to ICEEU's President where appropriate, and
contributing to the development of plans to increase and/or replenish
Eligible Capital as required for ICEEU to continue to meet its
regulatory capital requirements. ICEEU's Finance Director also prepares
forward-looking calculations of capital adequacy and dividend
recommendations.
ICEEU's President is responsible for ensuring ICEEU meets its
capital adequacy obligations under relevant laws and regulations.
ICEEU's President is also responsible for developing and executing any
plans to increase and/or replenish capital as required in order for
ICEEU to continue to meet its regulatory capital requirements, where
necessary.
The Board Risk Committee is 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 is
also responsible for holding the President accountable for
demonstrating adherence to ICEEU capital policies and
[[Page 14413]]
for reviewing and approving any capital transactions. The Board is also
responsible for reviewing and recommending the principles that underpin
the capital planning process and reviewing and approving any capital
transactions.
D. Section 3--Target Capital Amount
Section 3 of the CRP explains how ICEEU determines its target
capital amount in excess of the legal minimum capital requirement.
ICEEU is required to maintain capital under a number of different laws
and regulations, including regulations issued by the Bank of England
and the Commission. ICEEU considers its capital, as calculated in
accordance with Article 1(1) of EMIR Capital RTS, to be its Base
Capital Requirement.\6\
---------------------------------------------------------------------------
\6\ 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.
---------------------------------------------------------------------------
Section 3 of CRP explains that ICEEU seeks to maintain capital
above the threshold at which ICEEU would be required to notify the Bank
of England (which is generally 10% above the required capital level).
In addition, ICEEU also 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.
E. Section 4--Capital Replenishment Tools
Section 4 of the CRP provides further detail regarding 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.
F. Section 5, Appendices, and Annexes
Section 5 of the CRP provides a version history. Appendix A
provides additional detail on replenishment actions, including the
timings for the actions and the personnel that are involved. Appendix B
is a glossary of defined terms found in the CRP. Annex 1 consists of
template corporate resolutions for ICEEU to use in carrying out certain
replenishment actions, while Annex 2 consists of template corporate
resolutions for ICEEU's parent company to use in authorizing ICE Clear
Europe's replenishment actions.
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.\7\ For the reasons discussed 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)(v), (3)(ii), and (e)(15)
thereunder.\9\
---------------------------------------------------------------------------
\7\ 15 U.S.C. 78s(b)(2)(C).
\8\ 15 U.S.C. 78q-1(b)(3)(F).
\9\ 17 CFR 240.17Ad-22(e)(2)(v), (e)(3)(ii), and (e)(15).
---------------------------------------------------------------------------
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 ICEEU be designed to promote the prompt and accurate
clearance and settlement of securities transactions.\10\ Based on its
review of the record, and for the reasons discussed below, the
Commission believes the proposed rule change is consistent with the
promotion of the prompt and accurate clearance and settlement of
securities transactions at ICEEU because it would adopt the CRP, which
establishes ICEEU's procedures for replenishing capital.
---------------------------------------------------------------------------
\10\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
The proposed rule is intended to document procedures for
replenishing capital. The proposed CRP would facilitate the continued
operation of ICEEU 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 proposed rule 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 proposed CRP would therefore help enable ICEEU to
continue operations, including clearing and settling transactions,
following a significant loss that affects ICEEU's capital. The proposed
rule change is therefore consistent with the continued prompt and
accurate clearance and settlement of securities transactions,
consistent with the requirements of Section 17A(b)(3)(F) of the
Act.\11\
---------------------------------------------------------------------------
\11\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
B. Consistency With Rule 17Ad-22(e)(2)(v) Under the Exchange Act
Rule 17Ad-22(e)(2)(v) \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 ``specify clear and direct
lines of responsibility.'' \13\
---------------------------------------------------------------------------
\12\ 17 CFR 240.17 Ad-22(e)(2).
\13\ 17 CFR 240.17 Ad-22(e)(2)(v).
---------------------------------------------------------------------------
The Commission believes the proposed rule change is consistent with
17Ad-22(e)(2)(v). The CRP identifies responsibilities of key ICEEU
personnel, including the Board, the President, and other stakeholders
with respect to ongoing compliance with capital requirements and for
capital replenishment when necessary. The proposed CRP also provides
for annual review by ICEEU'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.
C. Consistency With Rule 17Ad-22(e)(3)(ii) Under the Exchange Act
Rule 17Ad-22(e)(3)(ii) \14\ 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.'' \15\
---------------------------------------------------------------------------
\14\ 17 CFR 240.17Ad-22(e)(3)(ii).
\15\ 17 CFR 240.17Ad-22(e)(3)(ii).
---------------------------------------------------------------------------
The Commission believes that the proposed rule is consistent with
Rule 17Ad-22(e)(3)(ii). The proposed CRP serves as a recovery tool and
part of ICEEU's broader Recovery Plan because it documents tools,
arrangements and procedures for replenishing capital resulting from
default losses or non-default losses, including losses from general
business risk. The proposed CRP further sets out the roles and
functions of the Board, ICEEU management and other internal personnel
and committees
[[Page 14414]]
in taking such steps to replenish financial resources.
D. Consistency With Rule 17Ad-22(e)(15) Under the Exchange Act
Rule 17Ad-22(e)(15) \16\ 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\
---------------------------------------------------------------------------
\16\ 17 CFR 240.17Ad-22(e)(15).
\17\ 17 CFR 240.17 Ad-22(e)(15)(iii).
---------------------------------------------------------------------------
The Commission believes the proposed rule is consistent with Rule
17Ad-22(e)(15). The proposed rule has been approved by the ICEEU Board
of Directors, would be reviewed and updated annually, and would outline
the tools available to restore additional capital if needed.
Specifically, the proposed rule serves as a part of a 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
proposed rule are based on ICEEU'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\
---------------------------------------------------------------------------
\18\ 17 CFR 240.17 Ad-22(e)(15)(ii).
---------------------------------------------------------------------------
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 \19\ and Rules 17Ad-22(e)(2)(v), (e)(3)(ii), and (e)(15)
thereunder.\20\
---------------------------------------------------------------------------
\19\ 15 U.S.C. 78q-1(b)(3)(F).
\20\ 17 CFR 240.17Ad-22(e)(2)(v), (e)(3)(ii), and (e)(15).
---------------------------------------------------------------------------
It is therefore ordered pursuant to Section 19(b)(2) of the Act
\21\ that the proposed rule change (SR-ICEEU-2022-027), be, and hereby
is, approved.\22\
---------------------------------------------------------------------------
\21\ 15 U.S.C. 78s(b)(2).
\22\ 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.\23\
---------------------------------------------------------------------------
\23\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-04682 Filed 3-7-23; 8:45 am]
BILLING CODE 8011-01-P
</pre></body>
</html>Indexed from Federal Register on March 8, 2023.
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.