Notice2023-11111
Self-Regulatory Organizations; ICE Clear Europe Limited; Order Approving Proposed Rule Change Relating to Amendments of the Investment Management Procedures
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Published
May 25, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 101 (Thursday, May 25, 2023)</title>
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[Federal Register Volume 88, Number 101 (Thursday, May 25, 2023)]
[Notices]
[Pages 33949-33950]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-11111]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97528; File No. SR-ICEEU-2023-009]
Self-Regulatory Organizations; ICE Clear Europe Limited; Order
Approving Proposed Rule Change Relating to Amendments of the Investment
Management Procedures
May 19, 2023.
I. Introduction
On March 23, 2023, 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
amend its Investment Management Procedures (the ``Investment Management
Procedures'' or the ``Procedures''). The Proposed Rule Change was
published for comment in the Federal Register on April 5, 2023.\3\ The
Commission has not received any 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\ Securities Exchange Act Release No. 97224 (Mar. 30, 2023),
88 FR 20200 (April 5, 2023) (File No. SR-ICEEU-2023-009)
(``Notice'').
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II. Description of the Proposed Rule Change
ICE Clear Europe is registered with the Commission as a clearing
agency for the purpose of clearing security-based swaps.\4\ In its role
as a clearing agency for clearing security-based swaps, ICE Clear
Europe holds and invests assets for a number of reasons. For example,
ICE Clear Europe's Clearing Members transfer to ICE Clear Europe cash
and other assets to satisfy their margin and guaranty fund
requirements.\5\ ICE Clear Europe also contributes money to the
guaranty fund, and maintains regulatory capital (money that ICE Clear
Europe sets aside in order to comply with regulatory requirements to
which it is subject).\6\ ICE Clear Europe invests cash received from
Clearing Members, its own contributions to the guaranty fund, and its
regulatory capital with the goal of obtaining a reasonable rate of
return while also maintaining sufficient liquidity for its payment
obligations and safeguarding the principal of cash. The Investment
Management Procedures set out how ICE Clear Europe will make these
investments. They provide the permitted investments and related
concentration limits for ICE Clear Europe when investing or securing
(i) cash received from Clearing Members, (ii) ICE Clear Europe's
contributions to the guaranty fund, and (iii) ICE Clear Europe's own
regulatory capital.
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\4\ Capitalized terms not otherwise defined herein have the
meanings assigned to them in the Procedures or the ICE Clear Europe
Clearing Rules.
\5\ ICE Clear Europe's Clearing Rules note that initial margin
means ``the Permitted Cover required to be provided or actually
provided . . . to the Clearing House as collateral for the
obligations of a Clearing Member or Sponsored Principal in respect
of CDS Contracts . . . .'' ICE Clear Europe Clearing Rules Rule 101.
Guaranty fund contributions serve to secure the obligations of a
Clearing Member to ICE Clear Europe and may be used to cover losses
sustained by ICE Clear Europe in the event of a default of the
Clearing Member. ICE Clear Europe Clearing Rules Rule 1103.
\6\ ICE Clear Europe is subject to regulatory capital
requirements under its supervision by the Commission, the Bank of
England, the Commodity Futures Trading Commission, and as a third-
country central counterparty recognized by the European Securities
and Markets Authority. For a further discussion of these
requirements, see Self-Regulatory Organizations; ICE Clear Europe
Limited; Order Approving Proposed Rule Change Relating to the
Capital Replenishment Plan, Exchange Act Release No. 97018 (Mar. 2,
2023), 88 FR 14412 (Mar. 8, 2023) (SR-ICEEU-2022-027).
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The proposed rule change relates to the third category, investments
of ICE Clear Europe's own regulatory capital. Currently, the Procedures
contain a Table of Authorised Investments and Concentration Limits for
ICEU's Regulatory Capital (the ``Table''). The Table provides, among
other things, the instruments in which ICE Clear Europe may invest its
regulatory capital and the maximum maturity that those investments may
have.
The proposed rule change edits the maximum maturity of certain
investments in sovereign and government agency bonds listed in the
Table. Currently, the Table allows ICE Clear Europe to purchase US
Sovereign Bonds, UK Sovereign Bonds, EU Sovereign Bonds, US Government
Agency Bonds, UK Government Agency Bonds, and EU Government Agency
Bonds (collectively, the ``permitted investments''), each with a
ninety-day maximum maturity. The proposed rule change sets the maximum
maturity of these permitted investments at thirteen months.
This change--extending the maximum maturity from ninety days to
thirteen months--would align the maximum maturity for ICE Clear
Europe's investment of its regulatory capital with the maximum maturity
ICE Clear Europe currently applies to its investment of cash provided
by Clearing Members and ICE Clear Europe's own contribution to the
guaranty fund.\7\ Thus, the proposed change would establish a single,
consistent maximum maturity for ICE Clear Europe's investment in
sovereign and government agency bonds, regardless of whether the source
of the cash being invested is from Clearing Members, ICE Clear Europe's
contributions to the guaranty fund, or its regulatory capital.
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\7\ Currently, the Procedures permit ICE Clear Europe to invest
Clearing Member cash and ICE Clear Europe's skin-in-the-game in the
purchase of permitted investments with a maximum maturity of
thirteen months. Notice, 88 FR at 20200.
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There are two primary reasons for the proposed change. First, it
would eliminate what ICE Clear Europe views as an unnecessary
limitation on the maximum maturities of permitted investments.\8\
Although ICE Clear Europe's regulatory capital serves a different
purpose from its Clearing Member cash and skin-in-the-game default
resources, ICE Clear Europe believes that the same principles of
capital preservation and maintaining high levels of liquidity are
appropriate with respect to all the cash it manages, regardless of
whether the cash is regulatory capital, collateral provided by Clearing
Members, or ICE Clear Europe's own contributions to the guaranty fund.
As such, ICE Clear Europe determined that it is not necessary for the
maximum maturity for investments of its regulatory capital to be more
restrictive than for its other investments of cash.\9\
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\8\ Notice, 88 FR at 20201.
\9\ Id.
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Second, the proposed change would provide ICE Clear Europe with the
flexibility to invest its regulatory capital in longer-term sovereign
and government bonds than the Procedures currently permit. Although the
additional maturity is only ten months, the additional flexibility may
allow ICE Clear Europe to plan for longer investments and avoid having
to invest or reinvest in shorter duration instruments during potential
periods of market volatility.\10\
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\10\ Id. at 20200.
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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.\11\ For the reasons discussed below, the Commission finds
that the proposed rule change is consistent with section
[[Page 33950]]
17A(b)(3)(F) of the Act,\12\ and Rule 17Ad-22(e)(16).\13\
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\11\ 15 U.S.C. 78s(b)(2)(C).
\12\ 15 U.S.C. 78q-1(b)(3)(F).
\13\ 17 CFR 240.17Ad-22(e)(16).
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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 assure the safeguarding of
securities and funds which are in the custody or control of the
clearing agency or for which it is responsible.\14\ The proposed rule
change is consistent with section 17A(b)(3)(F) \15\ because it improves
ICE Clear Europe's ability to manage its investments without subjecting
its investments to significantly greater risk.
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\14\ 15 U.S.C. 78q-1(b)(3)(F).
\15\ 15 U.S.C. 78q-1(b)(3)(F).
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The Commission believes that the changes to the Procedures
discussed above help to improve ICE Clear Europe's management of its
investments. As noted above, ICE Clear Europe's Procedures prohibit it
from investing its regulatory capital in permitted investments that
have a maturity greater than ninety days. At times, this limitation
could subject ICE Clear Europe's regulatory capital to reinvestment
risk \16\ and volatility risk.\17\ Under the proposed rule change, ICE
Clear Europe can more effectively utilize investment strategies that
would allow it to mitigate some of this reinvestment and volatility
risk by purchasing longer term instruments when appropriate. Such
flexibility could be important in light of current and expected market
conditions, including to assist ICE Clear Europe in avoiding having to
invest or reinvest in shorter duration instruments during potential
periods of market volatility.
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\16\ Reinvestment risk is the risk that an investor will be
unable to reinvest assets received from an investment at a rate
comparable to their current rate of return.
\17\ Volatility risk in this context, i.e., sovereign and
government agency bonds, refers to the risk that a bond's price will
fluctuate due to changing interest rates.
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For the above reasons, the proposed rule change is consistent with
Section 17A(b)(3)(F) of the Act.\18\
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\18\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rule 17Ad-22(e)(16) Under the Act
Rule 17Ad-22(e)(16) requires that ICE Clear Europe establish,
implement, maintain, and enforce, written policies and procedures
reasonably designed to safeguard its own and its participants' assets,
minimize the risk of loss and delay in access to these assets, and
invest such assets in instruments with minimal credit, market, and
liquidity risks.\19\ The Commission previously found that applying the
Procedures to ICE Clear Europe's regulatory capital helps ICE Clear
Europe to safeguard its own and its Clearing Members' assets and helps
ICE Clear Europe to invest such assets in instruments with minimal
credit, market, and liquidity risks.\20\ As discussed above, the
Procedures would continue to apply to ICE Clear Europe's regulatory
capital, with the only change being that ICE Clear Europe could invest
its regulatory capital in instruments with a maturity of up to thirteen
months, rather than ninety days.
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\19\ 17 CFR 240.17Ad-22(e)(16).
\20\ Self-Regulatory Organizations; ICE Clear Europe Limited;
Notice of Filing of Partial Amendment No. 1 and Order Granting
Accelerated Approval of Proposed Rule Change, as Modified by Partial
Amendment No. 1, Relating to the ICE Clear Europe Investment
Management Procedures and Treasury and Banking Services Policy,
Securities Exchange Act Release No. 89211 (July 1, 2020), 85 FR
41082, 41086 (July 8, 2020) (File No. SR-ICEEU-2020-002).
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Even with this change, the Commission continues to believe that ICE
Clear Europe would safeguard its regulatory capital and invest it in
instruments with minimal credit, market, and liquidity risks. The
Commission believes this to be the case because investing in
instruments with a maturity of up to thirteen months, rather than
ninety days, could allow ICE Clear Europe to avoid having to invest or
reinvest in shorter duration instruments during potential periods of
market volatility. Moreover, the maximum maturity for regulatory
capital would be the same as what the Commission previously approved
for investments of cash from Clearing Members and ICE Clear Europe's
skin in the game.\21\
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\21\ Id.; Self-Regulatory Organizations; ICE Clear Europe
Limited; Notice of Filing of Partial Amendment No. 2 and Order
Granting Accelerated Approval of Proposed Rule Change, as Modified
by Partial Amendment No. 1 and Partial Amendment No. 2, To Revise
the ICE Clear Europe Treasury and Banking Services Policy, Liquidity
Management Procedures, Investment Management Procedures and
Unsecured Credit Limits Procedures, Securities Exchange Act Release
No. 86891 (Sept. 6, 2019), 84 FR 48191 (Sept. 12, 2019) (File No.
SR-ICEEU-2019-012).
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For the above reasons, the proposed rule change is consistent with
Rule 17Ad-22(e)(16) under the Act.\22\
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\22\ 17 CFR 240.17Ad-22(e)(16).
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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, Section 17A(b)(3)(F) of the Act \23\ and Rule 17Ad-
22(e)(16) thereunder.\24\
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\23\ 15 U.S.C. 78q-1(b)(3)(F).
\24\ 17 CFR 240.17Ad-22(e)(16).
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It is therefore ordered pursuant to section 19(b)(2) of the Act
that the Proposed Rule Change (SR-ICEEU-2023-009) be, and hereby is,
approved.\25\
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\25\ In approving the Proposed Rule Change, the Commission
considered the proposal's impacts on efficiency, competition, and
capital formation. 15 U.S.C. 78c(f).
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For the Commission by the Division of Trading and Markets, pursuant
to delegated authority.\26\
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\26\ 17 CFR 200.30-3(a)(12).
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-11111 Filed 5-24-23; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on May 25, 2023.
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