Self-Regulatory Organizations; ICE Clear Europe Limited; Notice of Filing of Proposed Rule Change Relating to Amendments to Recovery 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

July 26, 2023

Issuing agencies

Securities and Exchange Commission

Full Text

<html>
<head>
<title>Federal Register, Volume 88 Issue 142 (Wednesday, July 26, 2023)</title>
</head>
<body><pre>
[Federal Register Volume 88, Number 142 (Wednesday, July 26, 2023)]
[Notices]
[Pages 48273-48276]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-15758]

[[Page 48273]]

=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97955; File No. SR-ICEEU-2023-020]

Self-Regulatory Organizations; ICE Clear Europe Limited; Notice
of Filing of Proposed Rule Change Relating to Amendments to Recovery
Plan

July 20, 2023
Pursuant to Section 19(b)(1) of the Securities Exchange Act of
1934,\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on
July 10, 2023, ICE Clear Europe Limited filed with the Securities and
Exchange Commission (``Commission'') the proposed rule change 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.
---------------------------------------------------------------------------

\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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 amend its Recovery Plan (``Plan'') \3\ to update
certain aspects of recovery planning and operations and testing
procedures and make certain other clarifications.
---------------------------------------------------------------------------

\3\ Capitalized terms used but not defined herein have the
meanings specified in the Recovery Plan or, if not defined therein,
the ICE Clear Europe Clearing Rules.
---------------------------------------------------------------------------

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 amend its Recovery Plan to make
various enhancements, updates and clarifications. In the discussion of
the scale of coverage of the Clearing House's recovery options, the
amendments would revise the description of the Significant Coverage
from Powers of Assessment (``PoA'') to remove references to the
specific expected coverage of defaults by PoA for the F&O and CDS
clearing service. ICE Clear Europe is not proposing to change through
these amendments the amount of the relevant guaranty funds and related
PoA under the Rules and related policies, but does not believe it is
necessary to specify expected coverage in this way in the Recovery
Plan. As revised, the discussion of coverage from PoA would reflect
that losses from defaults of the largest clearing members under extreme
but plausible stress scenarios can be immediately covered through PoA,
as resources can be collected from non-defaulting Clearing Members
intraday and in cash under the existing Rules and Procedures. The
amendments would also state that the assessment of the PoA's capacity
to offset losses can be performed by reverse stress testing.
In the discussion of the Clearing House's ability to fully cover
default losses using partial tear-ups, a statement that default losses
can be fully covered would be removed as unnecessary and repetitive. In
terms of the discussion of the Clearing House's ability to fully cover
investment losses, the amendments would remove a reference to the
specific amount to be covered by Clearing House contributions (as such
amount is set under the Rules and is subject to change from time to
time under the Rules). Certain non-substantive drafting clarifications
would also be made in this section.
The amendments would also update the discussion of certain
decision-making requirements. In circumstances where the Board cannot
be convened in advance of making a material decision under the Plan,
the amendments would clarify that the Board would be convened
afterwards as soon as reasonably possible and updated on the steps
taken. Additionally, the amendments would clarify that although
exercising recovery options would not need the approval of Clearing
Members, exchanges or other external stakeholders, ICE Clear Europe
would seek to communicate its plans and intentions to such stakeholders
where possible, and as soon as reasonably practicable.
The procedures for testing of the Plan would be revised to provide
that testing would be conducted at least annually (rather than only
annually). The amendments would further specify that given the number
of recovery options available, one default and one non-default scenario
would be tested each year, and all the recovery options would be tested
over a three year cycle. The testing schedule (and changes to it) would
be approved by, and the results of testing would be reported to, ICEU's
Executive Risk Committee. The proposed changes would also more fully
describe the testing strategy, which includes both physical elements
(such as processing of operational aspects of the Plan in a non-
production environment and governance aspects such as Board engagement)
and simulated tabletop exercises. Testing of default-related recovery
scenarios may also be included in default fire drills, including
coordination with other relevant clearing agencies. Additionally, the
Recovery Plan test would add to the list of issues examined as part of
testing whether all services continue to be provided, including those
to affiliates, and what governance pathways would be used. The
amendment would clarify that any changes resulting from the review of
the Plan after each test would be addressed as part of the defined
governance process included in the Plan.
The proposed amendments would make certain clarifications relating
to the critical services provided by the Clearing House. Certain
updates and corrections are made to the products currently cleared,
including to reference option contracts generally instead of only
options on futures and to reference the IFAD exchange for which
clearing services are provided in the F&O product category. The
amendments also would add an explanatory footnote to distinguish
critical services from certain similar concepts use in the Clearing
House's other policies and frameworks. In the discussion of impacts of
recovery options of market participants, a clarification would be added
that capital and liquidity impacts on market participants would be
taken into account as far as reasonably possible (to reflect certain
practical limitations on the Clearing House's ability to address such
matters).
The service providers supporting the critical services would now
include repo counterparties in addition to investment agents, to
reflect the Clearing House's use of repurchase transactions with such
counterparties. The amendments would also add to the list of such
service providers default brokers, which may be used to execute market
transaction in order to hedge a defaulter's book and/or liquidate non-
cash collateral. Amendments would also reflect that inter-affiliate
arrangements may be documented under intercompany service agreements
rather than outsourcing agreements.

[[Page 48274]]

The amendments would make certain enhancements to the discussion of
how the Clearing House mitigates dependencies on service providers. In
the context of situations where ICE Clear Europe relies on the
existence of multiple, substitutable providers, the amendments would
reflect that ICE Clear Europe regularly tests its assumptions that this
is an effective strategy, as part of its operational resilience
framework. Similarly, where the Clearing House relies on resilience and
redundancy with respect to a provider, it would regularly test these
assumptions under the operational resilience framework. In terms of
contractual protections under arrangements with service providers, the
amendments would state that the Clearing House ensures contracts do not
permit service providers to unduly alter or terminate the contracts (as
opposed to the more limited analysis under the current Plan of whether
alteration or termination would be permitted if ICE Clear Europe were
under financial stress). The updates would also provide for periodic
ongoing analyses of these contracts in the context of the Plan. The
amendments would remove a specific determination that investment
agents, APS banks, central banks and data providers are excluded from
being dependencies on the basis of substitutability; under the revised
Plan such service providers may be subject to the mitigation
arrangements discussed, as appropriate.
The proposed changes would remove certain statements that the
Clearing House does not have a dependency on physical delivery agents,
other ICE exchange or ICE Clearing Houses. Although there are
applicable mitigants in many cases, such relationships may nonetheless
be regarded as dependencies. The amendments would add a provision that
ICE Clear Europe for certain markets regularly tests its ability to
perform the functions of delivery agents under certain disruption
scenarios. The amendments would also clarify certain other testing
practices, including as part of the operational resilience framework,
applicable to relationships with ICE Exchanges and ICE Technology and
Operations Group. For dependencies on other ICE clearing houses, the
revised Plan would note that the relevant processes that ICE Clear
Europe could use in the event of a failure by the other clearing house
are generally already performed by ICE Clear Europe.
In the discussion of technology infrastructure, clarifying
references to CDS and F&O are added to the descriptions of the various
systems to reflect the specific systems currently used for those
businesses. Additionally, the proposed rules would update the list of
certain ways in which risks are mitigated to address periodic testing,
operational resilience, the role of ICE Clear Europe as a participant
in defining requirements in the development of new capabilities, notice
periods under service agreements (not merely outsourcing arrangements),
and other nonsubstantive changes. The revised Plan would also address
certain services that ICE Clear Europe provides to other ICE
affiliates, noting that ICE Clear Europe assumes that such services
will continue to be provided during the execution of the Plan. ICE
Clear Europe believes that in the event of a Plan execution, there will
be relevant resources in place that will allow those services to
continue, particularly for those that are operational in nature or
almost fully automated. Those not fully automated would have backup
arrangements that are periodically tested.
For recovery scenarios and triggers, the amendments would clarify
the trigger for the non-default losses scenario involving the Clearing
House's base capital by defining a breach based on referring to
insufficient EMIR eligible capital. The amendments would clarify that
each stress scenario listed in the appendix would be mapped to key
risks contained in the Clearing House's risk appetite statements, to
ensure that each key risk is covered.
The amendments would reference the Clearing House's existing
operational resilience framework, which encompasses (and supersedes
previous) business continuity and disaster recovery plans and includes
incident management processes. Various references throughout the Plan
to business continuity, disaster recovery or similar matters have been
replaced by references to the operational resilience framework and
related incident management processes.
Additional explanatory language with regards to early warnings for
default and non-default loss scenarios to make consistent with the
Rules. Throughout the Plan, the language has changed to reflect the
name update of the Capital Replenishment Plan to be consistent.
The amendments would also remove from the explanations of the
Plan's design and development certain duplicative information about
coverage of various types of losses that is addressed in other parts of
the Plan. Additionally, the Clearing House would clarify certain
references to the Crisis Communications and Management Plan (which
would be renamed the Communications Plan). Members of each
communications group would be updated to reference relevant personnel,
including adding the President to most communication groups and
adjusting certain other referenced personnel to reflect current
Clearing House operations. In addition, the Plan would address a
contingency in a recovery situation where the President is not
available. Similarly, the references to the Major Incident Response
Plan would be updated to reflect that the plan has been renamed the
Crisis Management Plan. Regarding the scenario steps in a default and
non-default loss, the proposed changes will also make certain minor
changes to timing and notification processes.
The proposed changes would add a new Document Governance and
Exception Handling section that is consistent with other Clearing House
policies. This section would describe the responsibilities for the
document owners in accordance with ICEU's governance processes, as well
as breach management, exception handling, and document governance.
The description of the ICE Clear Europe committee structure in
Appendix A would be removed. ICE Clear Europe believes the structure is
fully defined in other documentation and does not need to be included
in the Plan.
In addition, amendments throughout the Plan would make other minor
non-substantive drafting and conforming changes and typographical
corrections.
(b) Statutory Basis
ICE Clear Europe believes that the proposed amendments to the Plan
are consistent with the requirements of Section 17A of the Securities
Exchange Act of 1934 \4\ (``Act'') and the regulations thereunder
applicable to it. In particular, Section 17A(b)(3)(F) of the Act \5\
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 proposed changes to the Plan are intended to make various
updates, enhancements and clarifications to the Plan, including with
regard to the critical service providers and other dependencies of the
Clearing

[[Page 48275]]

House, as well as mitigants for such dependencies. The amendments would
also enhance procedures around testing of the Plan and related default
and non-default scenarios that could lead to the need to implement the
Plan. Other amendments are intended to conform to changes in other ICE
Clear Europe policies and procedures. The amendments would also clarify
certain aspects of the recovery scenarios and procedures as well as
potentially triggering or warning events for losses. Overall, the
amendments would help the Clearing House facilitate an orderly recovery
of its clearing businesses in the event of a severe financial stress or
loss. As a result, in ICE Clear Europe's view, the amendments would be
consistent with the prompt and accurate clearance and settlement of the
contracts, the safeguarding of funds or securities in the custody or
control of the clearing agency or for which it is responsible, and the
protection of investors and the public interest, consistent with the
requirements of Section 17A(b)(3)(F) of the Act.\6\
---------------------------------------------------------------------------

\4\ 15 U.S.C. 78q-1.
\5\ 15 U.S.C. 78q-1(b)(3)(F).
\6\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

Rule 17Ad-22(e)(2) provides that ``[e]ach covered clearing agency
shall establish, implement, maintain and enforce written policies and
procedures reasonably designed to, as applicable [. . .] provide for
governance arrangements that are clear and transparent'' \7\ and
``[s]pecify clear and direct lines of responsibility.'' \8\ The
amendments to the Plan would enhance various aspects of the governance
surrounding the implementation, testing and modification of the Plan.
Amendments would more clearly state the procedures for communications
with relevant groups of stakeholders in connection with the Plan, and
take into account the Clearing House's broader Communications Plan and
Crisis Management Plan. They would also clarify certain aspects of the
role of the President and key personnel. In addition, the amendments
would address document governance, breach management and exception
handling, in a manner generally consistent with other ICE Clear Europe
policies. In ICE Clear Europe's view, the amendments are therefore
consistent with the requirements of Rule 17Ad-22(e)(2).\9\
---------------------------------------------------------------------------

\7\ 17 CFR 240.17 Ad-22(e)(2)(i).
\8\ 17 CFR 240.17 Ad-22(e)(2)(v).
\9\ 17 CFR 240.17Ad-22(e)(2).
---------------------------------------------------------------------------

The proposed amendments are also consistent with Rule 17Ad-
22(e)(3)(ii), which provides that ``[e]ach covered clearing agency
shall establish, implement, maintain and enforce written policies and
procedures reasonably 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 and orderly wind-
down of the covered clearing agency necessitated by credit losses,
liquidity shortfalls, losses from general business risk, or any other
losses . . . .'' \10\ As discussed above, the amendments to the Plan
would update and clarify various aspects of the Recovery Plan,
including to enhance the assessment of critical services and
dependencies in the context of a recovery situation. The amendments
would also clarify various aspects of the triggers for potential
implementation of recovery and recovery options to be used under the
Plan. The amendments would also clarify testing procedures. The
amendments are thus intended to enhance the effectiveness of the Plan
as a means of preparing for the potential of losses, whether from
Clearing Member default or failure or for various other causes, that
could otherwise threaten the continued operation of the Clearing House.
As such, in ICE Clear Europe's view, the amendments are consistent with
the requirements of Rule 17Ad-22(e)(3)(ii).\11\
---------------------------------------------------------------------------

\10\ 17 CFR 270.17Ad-22(e)(3)(ii).
\11\ 17 CFR 240.17Ad-22(e)(3)(ii).
---------------------------------------------------------------------------

(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
amendments are being adopted to update and clarify the Plan, all of
which relate to the Clearing House's processes for the recovery of the
Clearing House in the unlikely occurrence of significant loss events
that may negatively harm the Clearing House. The amendments do not
involve a change in the Clearing House's Rules or Procedures and will
not affect the rights or obligations of Clearing Members, but instead
address the means in which the Clearing House may use the tools set
forth in its Rules and Procedures in a recovery scenario. ICE Clear
Europe does not believe the amendments would affect in the ordinary
course of business the costs of clearing, the ability of 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 amendments 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#4230372e276f212d2f2f272c3631023127216c252d34"><span class="__cf_email__" data-cfemail="86f4f3eae3abe5e9ebebe3e8f2f5c6f5e3e5a8e1e9f0">[email&#160;protected]</span></a>. Please include
file number SR-ICEEU-2023-020 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-2023-020. 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

[[Page 48276]]

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-2023-020 and
should be submitted on or before August 16, 2023.

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\12\
---------------------------------------------------------------------------

\12\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-15758 Filed 7-25-23; 8:45 am]
BILLING CODE 8011-01-P

</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>

View on FederalRegister.gov →Plain-text source

Indexed from Federal Register on July 26, 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.