Self-Regulatory Organizations; ICE Clear Europe Limited; Notice of Filing of Proposed Rule Change Relating to Amendments the Collateral and Haircut Procedures

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Published

June 26, 2023

Issuing agencies

Securities and Exchange Commission

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<title>Federal Register, Volume 88 Issue 121 (Monday, June 26, 2023)</title>
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[Federal Register Volume 88, Number 121 (Monday, June 26, 2023)]
[Notices]
[Pages 41439-41441]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-13452]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97766; File No. SR-ICEEU-2023-013]

Self-Regulatory Organizations; ICE Clear Europe Limited; Notice
of Filing of Proposed Rule Change Relating to Amendments the Collateral
and Haircut Procedures

June 20, 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 June 9, 2023, 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 primarily prepared 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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[[Page 41440]]

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 modify its Collateral and Haircut Procedures (the
``Collateral and Haircut Procedures'' or ``Procedures'') \3\ to modify
the type of gold that may be accepted as collateral.
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\3\ Capitalized terms used but not defined herein have the
meanings specified in the ICE Clear Europe Clearing Rules and the
Collateral and Haircut Procedures.
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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 revise Appendix A to the
Collateral and Haircut Procedures to modify the eligibility criteria
for accepting gold as collateral. As revised, to be eligible, gold
would have to be held on an ``allocated'' basis \4\ by the relevant
custodian in the name of the Clearing House. Specifically, the change
would provide that for the purposes of margin, gold transferred by a
Clearing Member would first be held in an unallocated account and in
the name of the Clearing House. Such gold would only be recognized as
Permitted Cover or eligible collateral when it is transferred from the
unallocated accounts to an allocated account of the custodian held in
the name of the Clearing House and thereupon deemed allocated pure gold
bullion of recognized good delivery.
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\4\ Allocated gold held by a custodian is specifically
identified for a particular owner. Unallocated gold represents a
claim against the relevant custodian for an amount of metal held in
bulk.
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The amendments would remove existing provisions that would permit
unallocated gold to serve as Permitted Cover or eligible collateral.
The amendment is intended to clarify that only allocated (as opposed to
unallocated) pure gold bullion is capable of being accepted as
Permitted Cover or eligible collateral, and thereby better align ICE
Clear Europe's rules with applicable requirements under the European
Market Infrastructure Regulation (EMIR) which stipulate that gold as
collateral must be held in allocated form (only).\5\ While ICE Clear
Europe's current rules technically permit the acceptance of gold as
collateral, ICE Clear Europe has not in practice accepted gold as
collateral, as the level of potential interest on the part of Clearing
Members has to date been insufficient to justify the completion on ICE
Clear Europe's part of certain operational testing processes that would
be required to support the full implementation of the process for
accepting gold as Permitted Cover or eligible collateral. As a result,
ICE Clear Europe does not believe the amendment would require any
Clearing Members to change their current margin postings.
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\5\ Commission Delegated Regulation (EU) No. 153/2013 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 requirements for central counterparties,
Annex I, Section 3 (the ``EMIR RTS'').
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(b) Statutory Basis
ICE Clear Europe believes that the proposed amendments to the
Collateral and Haircut Procedures are consistent with the requirements
of Section 17A of the Securities Exchange Act of 1934 (the ``Act'') \6\
and the regulations thereunder applicable to it. In particular, Section
17A(b)(3)(F) of the Act \7\ 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.
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\6\ 15 U.S.C. 78q-1.
\7\ 15 U.S.C. 78q-1(b)(3)(F).
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The proposed changes to the Procedures are designed to limit gold
that may be accepted as margin to allocated gold, rather than
permitting unallocated gold. As noted above, the level of potential
interest on the part of Clearing Members in being able to post gold
(whether in allocated or unallocated form) as margin has to date been
insufficient to justify the completion on ICE Clear Europe's part of
certain operational testing processes that would be required to support
the full implementation of the process for accepting gold as Permitted
Cover or eligible collateral, and ICE Clear Europe therefore does not
believe the amendment will result in a change in current activity of
Clearing Members. The amendment is intended to ensure that the
Collateral and Haircut Procedures are better aligned with the
applicable requirements under the EMIR RTS that gold accepted as margin
be in allocated rather than unallocated form. As such, the amendments
would clarify the operation of the Clearing House's margin framework in
accordance with applicable law, and thereby promote the stability of
the Clearing House and the prompt and accurate clearance and settlement
of cleared contracts. Removing the option of unallocated gold will also
not adversely affect the safeguarding of property in the custody or
control of the Clearing House or for which it is responsible. The
amendments are for these reasons also generally consistent with the
protection of investors and the public interest in the safe operation
of the Clearing House. Accordingly, the amendments satisfy the
requirements of Section 17A(b)(3)(F).\8\
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\8\ 15 U.S.C. 78q-1(b)(3)(F).
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The amendments to the Collateral and Haircut Procedures are also
consistent with relevant provisions of Rule 17Ad-22. Rule 17Ad-22(e)(5)
requires the clearing agency to ``establish, implement, maintain and
enforce written policies and procedures reasonably designed to, as
applicable . . . [l]imit 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 [it]
requires collateral to manage its or its participants' credit exposure.
. . .'' \9\ The amendments would require that any gold posted as margin
be in allocated form, rather than unallocated form. Limiting margin to
allocated gold (which is generally viewed as being subject to reduced
risks from custodian failure) is consistent with the requirement to
limit collateral to that with low credit, liquidity, and market risks,
and accordingly the amendments would not increase the risk of the
Clearing House from such collateral. The amendments would not otherwise
change the Clearing House's current application of haircuts or
concentration limits for Permitted Cover. As such, the amendments are
consistent with the requirements of Rule 17Ad-22(e)(5).\10\
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\9\ 17 CFR 240.17Ad-22(e)(5).
\10\ 17 CFR 240.17Ad-22(e)(5).
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Rule 17Ad-22(e)(1) requires the clearing agency to ``establish,
implement, maintain and enforce written policies and procedures

[[Page 41441]]

reasonably designed to, as applicable . . . provide for a well-founded,
clear, transparent and enforceable legal basis for each aspect of its
activities in all relevant jurisdictions.'' \11\ As noted above, the
amendments are intended to better align the Collateral and Haircut
Procedures with the requirements of the EMIR RTS, which limits gold
accepted as margin to gold held in allocated form. As such, the
amendments will support the Clearing House's compliance with applicable
law in all relevant jurisdictions, and therefore are consistent with
the requirements of Rule 17Ad-22(e)(1).\12\
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\11\ 17 CFR 240.17Ad-22(e)(1).
\12\ 17 CFR 240.17Ad-22(e)(1).
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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 amendments
are being adopted to require that any gold posted as margin be held in
allocated form, consistent with applicable law. As noted above, the
level of potential interest on the part of Clearing Members in being
able to post gold (whether in allocated or unallocated form) as margin
has to date been insufficient to justify the completion of ICE Clear
Europe's part of certain operational testing processes that would be
required to support the full implementation of the process for
accepting gold as Permitted Cover or eligible collateral. As a result,
ICE Clear Europe does not believe the amendments will affect current
margin practices or affect the current costs of posting margin for
Clearing Members. To the extent that Clearing Members in the future may
seek to post gold as margin, and to incur additional costs to do so
from the requirement that such margin be in allocated form, ICE Clear
Europe believes that such costs would be appropriate in light of the
requirements of the EMIR RTS. ICE Clear Europe does not believe the
amendments would otherwise affect the ability to market participants to
access clearing, or the market for clearing services generally.
Therefore, ICE Clear Europe does not believe the proposed rule change
imposes any burden on competition that is inappropriate in furtherance
of the purposes of the Act.

Written comments relating to the proposed amendment have not been
solicited or received by ICE Clear Europe. ICE Clear Europe will notify
the Commission of any written 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="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>) or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#90e2e5fcf5bdf3fffdfdf5fee4e3d0e3f5f3bef7ffe6"><span class="__cf_email__" data-cfemail="9eecebf2fbb3fdf1f3f3fbf0eaeddeedfbfdb0f9f1e8">[email&#160;protected]</span></a>. Please include
file number SR-ICEEU-2023-013 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-2023-013. 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="https://www.sec.gov/rules/sro.shtml">https://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
a.m. and 3 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>.
Do not include personal identifiable information in submissions;
you should submit only information that you wish to make available
publicly. We may redact in part or withhold entirely from publication
submitted material that is obscene or subject to copyright protection.
All submissions should refer to file number SR-ICEEU-2023-013 and
should be submitted on or before July 17, 2023.
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\13\ 17 CFR 200.30-3(a)(12).

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2023-13452 Filed 6-23-23; 8:45 am]
BILLING CODE 8011-01-P

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