Self-Regulatory Organizations; ICE Clear Europe Limited; Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 1, Relating to Amendments to Its Operational Risk and Resilience Policy

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

September 5, 2023

Issuing agencies

Securities and Exchange Commission

Full Text

<html>
<head>
<title>Federal Register, Volume 88 Issue 170 (Tuesday, September 5, 2023)</title>
</head>
<body><pre>
[Federal Register Volume 88, Number 170 (Tuesday, September 5, 2023)]
[Notices]
[Pages 60727-60730]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-19011]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98237; File No. SR-ICEEU-2023-021]

Self-Regulatory Organizations; ICE Clear Europe Limited; Notice
of Filing of Proposed Rule Change, as Modified by Amendment No. 1,
Relating to Amendments to Its Operational Risk and Resilience Policy

August 29, 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 15, 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 prepared primarily by
ICE Clear Europe. On August 24, 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.
---------------------------------------------------------------------------

\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Amendment No. 1 corrects the presentation of changes in
Exhibit 5 by reflecting the deletion of the prior ``Oversight of the
Policy'' section as part of the updated governance and oversight
provisions.
---------------------------------------------------------------------------

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 Operational Risk and Resilience Policy
(the ``Operational Risk and Resilience Policy'' or ``Policy'').\4\ The
amendments would modify the Policy to enhance scenario analysis and
testing relating to operational risk and resilience, introduce an
element for emerging risks, and update the review process for the
document, among other changes discussed herein.
---------------------------------------------------------------------------

\4\ Capitalized terms used but not defined herein have the
meanings specified in the ICE Clear Europe Clearing Rules and the
Operational Risk and Resilience Policy.
---------------------------------------------------------------------------

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 Operational Risk and
Resilience Policy to incorporate enhanced procedures for analysis and
testing of operational risk and resilience scenarios into the policy,
among other amendments discussed herein. The description of the
Clearing House's overall operational risk and resilience framework
would update a reference to the Outsourcing Policy to reflect its new
name, the Outsourcing and Third Party Risk Management Policy (and
reflect that the updated policy has been approved by the Board and is
pending regulatory approval).
With respect to scenario analysis and testing relating to
operational risk and resilience, the amendments would add that the
Clearing House must maintain an inventory of scenarios for the purposes
of scenario analysis and testing. The amendments would clarify that
testing must include scenarios that take into account both internal and
external dependencies. The amendments would also state that a

[[Page 60728]]

portion of the scenarios should be identified and selected for reverse
stress testing (through a practical test where possible or desk top
exercise). Over a three year cycle all scenarios would have to be
tested at least once by a practical test or a desk top exercise. The
inventory would also be reviewed on at least an annual basis in order
to determine if the scenarios are still fit for purpose and if updates
are required. The annual review of the inventory would be the
responsibility of the First Line with Second Line review and would be
approved by the Executive Risk Committee (ERC). The Executive Risk
Committee would also be responsible for approving any changes to the
list of scenarios outside of the annual review cycle. The detailed
scope of the testing based on the scenarios in the inventory and the
results of testing and assessment against the risk register would be
shared with the Second Line for review. The amendments would also
specify that the scenario analysis and testing results would be
submitted to the ERC or relevant Board sub-committee (instead of the
ERC and Board), which ICE Clear Europe believes is the most appropriate
governance level for review of such matters.
A new section on Control Validation and Assessment would be added,
outlining that upon entry to the risk register or when a material
change is made to a Key Control, Enterprise Risk Management (ERM) will
confirm that validation of Key Controls is carried out. Additionally,
the amendments would state that Validation may be verified directly by
ERM or through ERM's oversight of validations performed by the First
Line. The amendments would also replace references to control testing
with control validation throughout the Policy to be consistent with the
new section.
In the Risk Assessment section, the amendments would address
Emerging Risks. The amendments would specify that there should be an
assessment of the Velocity for Emerging Risks. Velocity would be
defined as an estimate of the time frame within which impact of a risk
may be realized. Velocity would be considered as an additional factor
utilized in prioritizing Emerging Risks, as further detailed in the
Appendix G. Certain other non-substantive drafting clarifications would
be made in this section.
In the Government and Oversight section, the amendments would add
provisions relating to Reviews of the Policy that are consistent with
other Clearing House policies. The amendments would provide that the
document owner identified by the Clearing House would be responsible
for ensuring that the Policy remains up-to-date and reviewed in
accordance with the Clearing House's governance processes. Generally,
review of the Policy would be conducted by the document owner and/or
relevant staff as appropriate, with sign off being provided by the head
of the department and the CRO (or their delegates). The amendments
would detail the key aspects of document reviews, including at minimum,
regulatory compliance, documentation and purpose, implementation, use,
and open items from previous validations or reviews (where
appropriate). The results of the review, including priority of
findings, proposed remediations and target due date to remediate the
findings would be reported to the ERC and in certain cases to the Model
Oversight Committee. The amendments would add the Head of Regulation
and Compliance (or their respective delegates) to the parties to whom
the document owner would report any material breaches or deviations
from the Policy.
The amendments would modify and update the table on Assessment of
Expected Level of Risk (Appendix D). The column labeled Mitigation
would be renamed to Rating. The updated chart would also add examples
for each level of rating.
The amendments would slightly modify and update the table on
Control Effectiveness Ratings (Appendix E). The column labeled
Effectiveness would be renamed to Rating and the column labeled
Guidelines would be renamed to the more specific Control Assessment
Guidelines. Moreover, an additional bullet point would be added to the
guidelines under Unsatisfactory, specifying that this rating would
apply where the control validation and/or assessment and audit programs
result in major findings.
The amendments would update the table on Control Remediation
Recommendation & Timelines (Appendix F). The heading labeled Control
Effectiveness would be renamed to Control Effectiveness Rating and,
likewise the heading labeled Mitigation would be renamed to Level of
Risk Mitigation. In the scenario with a Control Effectiveness Rating of
Needs Improvement and a High Level of Risk Mitigation, the recommended
would be changed from Medium to High.
A new appendix, labeled Appendix G--Velocity Assessment Guidance
would be added to the Policy in connection with the amendments
discussed above relating to Velocity of emerging risks. This section
would include a chart separating the Velocity Rating into categories of
Immediate (<6 months), Short Term (>6 months <18 months), and Medium
Term (>18 months). The chart would also include a description for each
Velocity Rating.
Finally, the amendments would remove the section labeled Control
Testing Scope following the chart on Risk Mitigation (Appendix H), to
conform to the change in the Policy to refer to control validation
rather than control testing.
Various provisions would be renumbered or relabeled throughout the
Policy.
(b) Statutory Basis
ICE Clear Europe believes that the amendments to the Operational
Risk and Resilience Policy are consistent with the requirements of
Section 17A of the Securities Exchange Act of 1934 (the ``Act'') \5\
and the regulations thereunder applicable to it. In particular, Section
17A(b)(3)(F) of the Act \6\ 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.
---------------------------------------------------------------------------

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

The proposed changes to the Policy are designed to strengthen ICE
Clear Europe's policies and procedures to manage operational risk and
enhance resilience. The amendments in particular would enhance scenario
analysis and testing relating to operational risk and resilience,
including through a framework for maintaining an inventory of relevant
scenarios and ongoing review and testing of those scenarios. The
amendments would provide for validation of key controls, and also
introduce velocity as an additional factor when analyzing and
prioritizing Emerging Risks. Various other drafting clarifications and
similar enhancements would be made in the Policy and related
appendices. As proposed to be revised, the Policy will facilitate the
Clearing House's ability to manage operational risk and enhance its
operational resilience. The proposed amendments would thus promote the
stability of the Clearing House and the prompt and accurate clearance
and settlement of cleared contracts and the safeguarding of securities
and funds in ICE Clear Europe's custody or control or for which

[[Page 60729]]

it is responsible. The enhanced risk management is therefore 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).\7\
---------------------------------------------------------------------------

\7\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

The amendments to the Policy are also consistent with relevant
provisions of Rule 17Ad-22.\8\ Rule 17Ad-22(e)(3) provides that
``[e]ach covered clearing agency shall establish, implement, maintain
and enforce written policies and procedures reasonably designed to, as
applicable [. . .] [m]aintain a sound risk management framework for
comprehensively managing . . . operational . . . and other risks that
arise in or are borne by the covered clearing agency''.\9\ As set forth
above, the amendments are intended to enhance the Clearing House's risk
management framework as it relates to operational risks. Among other
changes, the amendments would add an additional factor for assessing
emerging risks and provide for inventory, review and testing of
relevant scenarios used in evaluating operational risk and resilience.
The amendments would thus strengthen the management of operational
risks and risk management more generally. In ICE Clear Europe's view,
the amendments are therefore consistent with the requirements of Rule
17Ad-22(e)(3).\10\
---------------------------------------------------------------------------

\8\ 17 CFR 240.17 Ad-22.
\9\ 17 CFR 240.17 Ad-22(e)(3).
\10\ 17 CFR 240.17 Ad-22(e)(3).
---------------------------------------------------------------------------

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 [. . .] [p]rovide for
governance arrangements that are clear and transparent'' \11\ and
``[s]pecify clear and direct lines of responsibility''.\12\ The
amendments to the Policy would add a more detailed review process for
updating and reviewing the Policy, in a manner generally consistent
with other Clearing House policies and procedures. The amendments would
also clarify the reporting of material breaches or unapproved
deviations. In ICE Clear Europe's view, the amendments are therefore
consistent with the requirements of Rule 17Ad-22(e)(2).\13\
---------------------------------------------------------------------------

\11\ 17 CFR 240.17 Ad-22(e)(2)(i).
\12\ 17 CFR 240.17 Ad-22(e)(2)(v).
\13\ 17 CFR 240.17 Ad-22(e)(2).
---------------------------------------------------------------------------

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 [. . .] [m]anage the
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''.\14\ The amendments to the Policy enhance
scenario analysis and testing relating to operational risk and
resilience, including through inventory and review of relevant
scenarios. The amendments would also expand the factors used in
evaluating emerging risks with the addition of Velocity as a factor,
and provide for validation of key controls. In ICE Clear Europe's view,
the amendments are therefore consistent with the requirements of Rule
17Ad-22(e)(17)(i).\15\
---------------------------------------------------------------------------

\14\ 17 CFR 240.17 Ad-22(e)(17)(i).
\15\ 17 CFR 240.17 Ad-22(e)(17)(i).
---------------------------------------------------------------------------

(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 update and enhance the Clearing House's
Operational Risk and Resilience Policy, which relates to the Clearing
House's internal processes for operational risk management. The
amendments would not change the Rules or Procedures, or the rights or
obligations of Clearing Members or the Clearing House. ICE Clear Europe
does not believe the amendments would affect 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#2d5f584148004e4240404843595e6d5e484e034a425b"><span class="__cf_email__" data-cfemail="ddafa8b1b8f0beb2b0b0b8b3a9ae9daeb8bef3bab2ab">[email&#160;protected]</span></a>. Please include
File Number SR-ICEEU-2023-021 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-2023-021. 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

[[Page 60730]]

copying at the principal office of ICE Clear Europe and on ICE Clear
Europe's website at <a href="https://www.ice.com/clear-europe/regulation">https://www.ice.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-2023-021 and
should be submitted on or before September 26, 2023.
---------------------------------------------------------------------------

\16\ 17 CFR 200.30-3(a)(12).

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-19011 Filed 9-1-23; 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 September 5, 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.