Self-Regulatory Organizations; ICE Clear Europe Limited; Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 1, Relating to Amendments to the Wind Down Framework and Plan

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Published

August 30, 2023

Issuing agencies

Securities and Exchange Commission

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<title>Federal Register, Volume 88 Issue 167 (Wednesday, August 30, 2023)</title>
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[Federal Register Volume 88, Number 167 (Wednesday, August 30, 2023)]
[Notices]
[Pages 60001-60005]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-18676]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98217; File No. SR-ICEEU-2023-011]

Self-Regulatory Organizations; ICE Clear Europe Limited; Notice
of Filing of Proposed Rule Change, as Modified by Amendment No. 1,
Relating to Amendments to the Wind Down Framework and Plan

August 24, 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 August 11, 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. On August 22, 2023, ICE Clear Europe filed Amendment
No. 1 to the proposed rule change to make certain changes to the
Exhibit 5.\3\ The Commission is publishing this notice to solicit
comments on the proposed rule change, as modified by Amendment No. 1
(hereafter ``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.
\3\ Amendment No. 1 updates the Exhibit 5 to correct the
presentation of three of the proposed changes to the Wind Down
Framework and Plan that were filed with the Commission on August 11,
2023. The proposed rule change includes an Exhibit 4. Exhibit 4
shows the change that Amendment No. 1 makes to the Exhibit 5.
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change

ICE Clear Europe proposes to amend its Wind Down Framework and Plan
(to be renamed the ``Wind Down Plan'') (the ``Plan'') \4\ to address
the operation of a wind-down planning committee, update certain
procedures and make certain other clarifications relating to the
potential winding down for the Clearing House.
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\4\ Capitalized terms used but not defined herein have the
meanings specified in the Wind Down Framework and 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 amend its Wind Down Framework and
Plan to make certain updates and enhancements. The proposed changes
would rename the plan as the ``Wind Down Plan'' and make conforming
changes throughout. The amendments would remove the Overview section
and the Context section as those sections contain background
information that is not necessary to the Plan as well as certain
unnecessary references to regulatory requirements and particular
regulators in certain jurisdictions. A new executive summary section
would restate the purposes and objectives of the Plan as setting out
relevant information, steps to take and options available with respect
to winding down the business and compliance with all relevant
regulatory obligations with

[[Page 60002]]

respect to wind-down. The amendment would remove as unnecessary a non-
exclusive description of certain circumstances that might necessitate
wind-down and a statement of the benefits of the successful operation
of the Clearing House's Recovery Plan. A reference to certain specific
approval requirements under EMIR that are no longer applicable to ICE
Clear Europe has been removed, and reference to other EMIR requirements
would be clarified to refer to such legislation as on-shored in the
United Kingdom under applicable legislation following the withdrawal of
the United Kingdom from the European Union.
The summary of the Plan would be revised to provide that in
considering exiting of contractual obligations in the case of wind-
down, the Clearing House would also consider other services that it may
be providing (including intra-group services). The discussion of the
structure of the Plan would remove as unnecessary a statement that the
Plan reflects feedback that was received from certain regulators. A
reference to consultation with other relevant stakeholders before
making final decisions in connection with execution of the Plan would
be revised to state that such consultation is likely rather than
necessary in all cases, to reflect that different forms and extents of
consultation with particular stakeholders may be appropriate for
different circumstances and proposed actions. The proposed amendments
would move into the summary a section relating to the execution of the
plan, which discusses the establishment and responsibilities of the
Wind Down Planning Committee. The amendments would describe the
potential membership of the committee, which would be considered to
include a chair by a non-executive director and senior officers and
other advisors as appropriate.
In the discussion of planning options, certain non-substantive
clarifications would be made as to the choice between transfer of
clearing to another CCP or termination of clearing. References to
``Continuing CDS Rule Provisions'' applying, including in lieu of Rule
105(c) of the Clearing Rules, in the context of CDS product category
termination would be removed as such provisions have been previously
deleted from the Rules. The discussion of analysis, consultation and
planning would update the composition of the Planning Committee (as
discussed above) and clarify that the impact of plans on stakeholders
other than members should be considered. The amendments would also
clarify that in considering alternative CCPs, the committee would
consider such matters as jurisdictional complications, materially
differing membership requirements and the factoring of relevant
regulatory processes into the proposed timelines. The amendments would
remove a consideration as to whether members would accept a particular
contract not being available for clearing at the time of transfer, as
the Clearing House believes transfer would likely not be feasible in
that scenario. Similarly, for the termination option, the amendments
would add a reference to consideration of whether regulators would
likely accept the termination and the timeline for the related
regulatory process.
The amendments would also state that the Clearing House would
assess the impact of services received and provided and describe
certain of the factors that are relevant, including timing and cost.
The amendments would also state an assumption that ICE Clear Europe can
continue to call and receive margin and otherwise operate during the
wind-down period. However, the amended Plan would acknowledge that in
the event of an unplanned disruption from a Clearing Member default, or
in the event of a material nondefault event or loss, revised timelines
and other actions may be required.
The amendments would make a number of clarifications to the
discussion of execution plans in the context of the transfer of F&O
clearing. Changes to the list of assumptions and activities of the
Execution Plans as well as timelines for transfer would note
jurisdictional considerations and the fact that ICE Clear Europe
currently clears a diverse profile of products (which may necessitate
transfer of different products to different alternative CCPs). In this
regard, the amendments would remove an assumption that there would be a
maximum of two recipient clearing house for situations. In the
situation where the transferee clearing house does not clear a relevant
contract, and development of such clearing is not possible within an
acceptable timeframe, the amendments would remove a statement
suggesting that transfer would be delayed until clearing is available.
ICE Clear Europe does not believe such a delay would be feasible, and
accordingly the relevant positions in that contract would be
terminated. References to the novation agreement to be used in a
transfer would be amended to address transfer of related collateral in
addition to positions. Similarly, the amended Plan would, in the
scenario of a transfer to another clearing house, address the testing
of collateral migration (in addition to position migration) and provide
for the transfer of all relevant collateral (not only margin) to the
recipient clearing house, in addition to the clearing members
positions. Additional changes would update references to Clearing House
position management and other systems such as FEC and ECS (or
successors to such systems). The anticipated timeline for the transfer
of F&O markets clearing to recipient clearing houses would be revised
to be approximately six months (instead of no more than six months), in
recognition of the difficulty of predicting a maximum timeline. In
addition, the Clearing House has acknowledged that the timeline may be
affected because the diverse product groups currently cleared, may need
to involve more than one recipient clearing house in a transfer.
Amendments would make other minor non-substantive changes.
In the context of termination, the amendments would clarify certain
arrangements around notice to Clearing Members, consistent with the
Rules. The amendments would contemplate a Withdrawal Date to be
designated by the Clearing House pursuant to the Rules, rather than
assuming a period of 5 months, to allow for more flexibility for the
timeframe to reflect the particular circumstances of the termination.
(In ICE Clear Europe's view, the time period will not necessarily be
exactly five months, and that time period would better be described as
an approximation.) The proposed amendments would also adopt a revised
maturity profile for different product groups based on expiration date.
The maturity profile may be materially different between product
groups; thus it is appropriate for the Plan to consider the profile
based on the relevant group. The amendments would revise percentage of
the total open contracts expected to wind down naturally via an
expiration date within three months from 35% to 30% based on the
revised maturity profile. The changes would also clarify that new
trades would be accepted until the Withdrawal Date, with the
expectation that they serve to reduce risk and reduce open interest.
The amendments would provide additional clarifications about the
process of terminating an open position at a Withdrawal Date, in
accordance with the Rules. The amendments will also clarify the process
by which clearing members can close out open positions themselves prior
to the Withdrawal Date, as well as clarify that

[[Page 60003]]

all related margin (and not merely initial margin) would be returned at
contract termination, consistent with the Rules and Procedures. With
respect to the timeline for termination, the amendments would clarify
that the anticipated timeline is approximately (rather than exactly)
five months, reflecting the fact that the actual timeline may depend on
the particular positions of Clearing Members at the time. As discussed
above, the amendments would note that a differing maturity profile for
contracts may require a different approach or timeline by product group
(even though the termination process is common across all maturities
and product groups). Conforming and clarifying changes would be made to
the lists of assumptions and activities and the timeline in this
section.
Similar clarifications would be made to sections of the Plan
relating to transfer and/or termination of the CDS clearing business.
These would include references to consideration of jurisdictional
issues, recognition that in the case of transfer an alternative CCP may
have different membership requirements, recognition of the regulatory
and new product approval processes that may apply, clarification that
termination through re-bilateralisation may (rather than will) occur if
an alternative CCP is not available in an acceptable timeframe,
clarification that in certain transfer scenarios backloading of
terminated contracts once a new CCP is ready could (rather than would)
be done, and clarification that all relevant collateral (and not just
margin) will be transferred to recipient clearing house, among others.
The amendments would also revise the expected timeline for a transfer
to be approximately 6 months, rather than no more than six months, in
recognition of the difficulty of predicting a maximum timeline. The
amendments would note that the timeline is likely to be affected by
whether the open positions can be transferred to a single clearing
house, or whether a transfer to multiple clearing houses would be
required. In several places, the timeline for termination, wind-down or
re-bilateralisation of CDS clearing would similarly be described as
approximately five months rather than exactly five months. In the
discussion of continuation of CDS clearing services until the time of
termination, a clarification would be made that such clearing would
continue on the basis of reducing open interest (as opposed to reducing
volume).
In the discussion of terminating service arrangements, the notice
timeline would be revised to be approximately (rather than exactly) 6
months and also to state that appropriate notice would be given for
termination of employee contracts. The amendments would note that the
list of relevant services and contracts is a summary, and that the
Clearing House maintains a more complete inventory of this service
arrangements that should be referenced in wind-down planning. As
amended, the Plan would also note that IT services and licenses are
largely provided by other ICE Clear Europe affiliates and that IT
services provided by third parties generally are not expected to have a
material impact to wind-down planning. The changes to the summary table
would consolidate the treatment of several clearing services agreements
with different affiliated ICE markets into a single category for
consistency. The amendments would also clarify that exit provisions
regarding the use of buildings and building facilities provided by
affiliates are not part of intra-group agreements, but would rather be
managed by the relevant boards and management of the entities involved.
Other changes would include the addition of the Clearing and Settlement
Services Agreement with Intercontinental Exchange Holdings, the
replacement of Dutch National Bank with European Central Bank to
reflect the use of the latter as a concentration bank, the change in
reference to the ``relevant ICE Exchanges,'' and the change in the
Clearing and Settlement Services Agreements notice time period from 12
months to 24 months. Certain non-substantive drafting clarifications
would also be made.
ICE Clear Europe has also proposed to update the description of the
Clearing House's current liquidity profile in order to be consistent
with (and explicitly reference) the Clearing House's current Liquidity
and Investment Management Policy. (Relevant sections of the Liquidity
and Investment Policy define the objective and key strategy for the
investment of Cash. As per the policy, ICE Clear Europe aims to only
invest in cash or highly liquid financial instruments with minimal
market and credit risk and which are capable of being liquidated
quickly and with minimal losses). Among other changes, the amendments
would clarify that collateral held as cash from Clearing Members should
be immediately accessible or available at short notice, with the vast
majority of funds being invested in high-quality short-term instruments
in accordance. (Specific references to a maximum maturity and weighted
average life would be removed). Outright purchases should be limited to
high quality and liquid government debt that can be liquidated on short
notice in the secondary market. Amendments would also address
availability of non-cash assets for liquidity needs, consistent with
liquidity policies, and reference the Clearing House's liquidity stress
testing.
Consistent with the changes discussed above, the overall
conclusions for the Plan would be revised to reflect that the
lengthiest time anticipated for wind-down would be approximately
(rather than exactly) six months. Additionally, the proposed amendments
would note that this estimate could be affected by various external
factors, including the potential need to transfer positions to multiple
clearing venues given the Clearing House's product scope, which could
be more complicated (and take more time) than a transfer to a single
venue. The impact of regulatory approvals and processes could also
affect the timeline.
The discussion of governance and oversight in the Plan would be
replaced with a new Document Governance and Exception Handling section
that is consistent with other Clearing House policies recently adopted
or modified.\5\ 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.
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\5\ See, e.g., The Counterparty Credit Risk Policy and
Procedures as described in Exchange Act Release No. 34-97169, SR
ICEEU-2023-004 (March 20, 2023) 88 FR 17886 (March 24, 2023); the
Investment Management Procedures as described in Exchange Act
Release No. 34-97528, SR ICEEU-2023-009 (May 19, 2023) 88 FR 33949
(May 25, 2023; the Futures and Options Default Management Policy as
described in Exchange Act Release No. 34-97383, SR ICEEU-2023-012
(Apr. 26, 2023) 88 FR 27539 (May 2, 2023).
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The proposed changes also make a number of non-substantive changes
to the Plan throughout such as formatting and typographical and similar
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 \6\ (``Act'') 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

[[Page 60004]]

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 update and
clarify the Plan, including to address more clearly the operation of
the planning committee. The amendments would also update expected
procedures relating to transfer or termination of the F&O and CDS
clearing businesses, respectively, in order to provide appropriate
flexibility and better take into account certain characteristics of the
products cleared. The amendments will help the Clearing House
facilitate an orderly transition or shut-down of a clearing business in
the event it is unable to continue operations. 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.\8\
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\6\ 15 U.S.C. 78q-1.
\7\ 15 U.S.C. 78q-1(b)(3)(F).
\8\ 15 U.S.C. 78q-1(b)(3)(F).
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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'' \9\ and
``[s]pecify clear and direct lines of responsibility.'' \10\ The
amendments to the Plan would more clearly state the responsibilities of
the Clearing House's planning committee, management and the Board in
relation to the Plan. In ICE Clear Europe's view, the amendments are
therefore consistent with the requirements of Rule 17Ad-22(e)(2).\11\
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\9\ 17 CFR 240.17 Ad-22(e)(2)(i).
\10\ 17 CFR 240.17 Ad-22(e)(2)(v).
\11\ 17 CFR 240.17 Ad-22(e)(2).
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The proposed amendments are also consistent with Rule 17Ad-
22(e)(17)(i), which provides that ``[e]ach covered clearing agency
shall establish, implement, maintain and enforce written policies and
procedures reasonably designed to, as applicable [. . .] manage the
covered clearing agency's operational risks by identifying the
plausible sources of operational risk, both internal and external, and
mitigating their impact through the use of appropriate systems,
policies, procedures, and controls.'' \12\ As discussed above, the
amendments update and clarify various aspects of the wind-down Plan to
enhance the planning process and take into account the characteristics
of the cleared products in planning procedures for transfer or
termination. These amendments are intended to help mitigate the impact
to market participants of a potential wind-down. In ICE Clear Europe's
view, the amendments are therefore consistent with the requirements of
Rule 17Ad-22(e)(17)(i).).\13\
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\12\ 17 CFR 240.17 Ad-22(e)(17)(i).
\13\ 17 CFR 240.17 Ad-22(e)(17)(i).
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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
amendments are being adopted to update and clarify the Plan, all of
which relate to the Clearing House's processes for the wind down of the
Clearing House in the unlikely event that the recovery plan does not
succeed in restoring normal operations after significant loss events or
the Clearing House decides for business reasons it no longer wishes to
operate. 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#354740595018565a5858505b4146754650561b525a43"><span class="__cf_email__" data-cfemail="f98b8c959cd49a9694949c978d8ab98a9c9ad79e968f">[email&#160;protected]</span></a>. Please include
file number SR-ICEEU-2023-011 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-2023-011. 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

[[Page 60005]]

publication submitted material that is obscene or subject to copyright
protection. All submissions should refer to File Number SR-ICEEU-2023-
011 and should be submitted on or before September 20, 2023.

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-18676 Filed 8-29-23; 8:45 am]
BILLING CODE 8011-01-P

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