Notice2023-19844
Self-Regulatory Organizations; ICE Clear Europe Limited; Order Approving 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
September 14, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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[Federal Register Volume 88, Number 177 (Thursday, September 14, 2023)]
[Notices]
[Pages 63149-63157]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-19844]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98337; File No. SR-ICEEU-2023-020]
Self-Regulatory Organizations; ICE Clear Europe Limited; Order
Approving Proposed Rule Change Relating to Amendments to Recovery Plan
September 8, 2023.
I. Introduction
On July 10, 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
(the ``Act''),\1\ and Rule 19b-4,\2\ a proposed rule change to amend
its Recovery Plan (the ``Plan''). The proposed rule change was
published for comment in the Federal Register on July 26, 2023.\3\ The
Commission did not receive comments regarding 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\ Self-Regulatory Organizations; ICE Clear Europe Limited;
Notice of Filing of Proposed Rule Change Relating to Amendments to
Recovery Plan, Exchange Act Release No. 97955 (July 20, 2023); 88 FR
48273 (July 26, 2023) (SR-ICEEU-2023-020) (``Notice'').
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II. Description of the Proposed Rule Change
A. Background
ICE Clear Europe is registered with the Commission as a clearing
agency for the purpose of clearing security-based swaps. In its role as
a clearing agency for security-based swaps, ICE Clear Europe maintains
the Plan.\4\ The Plan provides the relevant information, the steps to
take, and the options available to restore ICE Clear Europe to normal
operation and recover in the event of severe financial stress and
losses. The Plan describes, among other things, the following
information: (i) ICE Clear Europe's critical services, service
providers, and interdependencies; (ii) scenarios in which ICE Clear
Europe may need to use the Plan, triggers for invoking the Plan in
those scenarios, and early indicators of those scenarios; (iii) options
for recovering from severe financial stress and losses; and (iv)
decision-making, governance, and communications processes relevant to
ICE Clear Europe's recovery.
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\4\ Capitalized terms not otherwise defined herein have the
meanings assigned to them in the Plan or the ICE Clear Europe
Clearing Rules.
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The proposed rule change would make various updates and amendments
to the Plan. ICE Clear Europe is making these changes to implement the
results of internal and external reviews of the Plan. These changes are
described below according to the section of the Plan in which they
appear.
A. Section 1, Executive Summary
Section 1 summarizes the Plan. Among other things, Section 1 gives
an overview of (i) ICE Clear Europe's options for recovery as well as
(ii) how it governs, tests, and reviews the Plan.
Options for Recovery
ICE Clear Europe's options for recovery include tools that it could
use to recover losses, such as powers of assessment,\5\ reduced gains
distribution,\6\ and partial tear-ups.\7\ Currently, the Plan also
lists as a recovery option ICE Clear Europe's Capital Replenishment
Framework. The proposed rule change would keep the reference to capital
replenishment, but would rename it as the Capital Replenishment Plan,
instead of Framework. ICE Clear Europe is making this particular change
because it changed the name of the Capital Replenishment Framework to
the Capital Replenishment Plan.\8\
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\5\ Following the default of a Clearing Member, and if certain
other conditions are satisfied, ICE Clear Europe Rule 909 allows ICE
Clear Europe to assess Clearing Members for additional amounts as
needed to resolve any shortfall resulting from the default.
\6\ Following the default of a Clearing Member, and if certain
other conditions are satisfied, ICE Clear Europe Rule 914 allows ICE
Clear Europe to reduce variation margin payments, as needed to
retain cash and resolve any shortfall resulting from the default.
\7\ Following the default of a Clearing Member, and if certain
other conditions are satisfied, ICE Clear Europe Rule 915 allows ICE
Clear Europe to terminate open contracts that offset the defaulting
Clearing Member's open contracts.
\8\ 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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Section 1 of the Plan also describes the coverage of ICE Clear
Europe's recovery options. Section 1 explains why ICE Clear Europe
would be able to fully cover default losses, liquidity shortfalls, and
investment losses, should it need to do so. With respect to default
losses in particular, the Plan currently explains that with the use of
partial tear-ups, ICE Clear Europe can eliminate variation margin
obligations by, in effect, cancelling any remaining positions, and
therefore default losses can be fully covered. The proposed rule change
would keep this explanation, but it would delete the statement,
``Therefore default losses can be fully covered.'' ICE Clear Europe is
deleting this statement because it believes the statement is redundant
considering the overall explanation that ICE Clear Europe would be able
to fully cover default losses.\9\
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\9\ Notice, 88 FR at 48273.
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Similar to the description of partial tear-ups, Section 1 of the
Plan also describes the coverage of ICE Clear Europe's powers of
assessment. The Plan currently explains that under powers of assessment
for its Futures and Options clearing service, ICE Clear Europe would
have sufficient capital to cover all Clearing Members defaulting
simultaneously under extreme but plausible market scenarios, meaning
the maximum exposures from all Clearing Members with same directional
positions defaulting simultaneously. Moreover, for its Credit Default
Swap clearing service, the Plan currently describes the scenario in
which ICE Clear Europe would exhaust its
[[Page 63150]]
prefunded resources and powers of assessment.
The proposed rule change would delete this description of ICE Clear
Europe's powers of assessment and replace it with a more concise
explanation. The revised description would state that, under ICE Clear
Europe's powers of assessment, it can immediately recover losses that
exceed the pre-funded resources to cover the default of the largest
Clearing Members under extreme but plausible stress scenarios because
ICE Clear Europe has the authority to collect resources from non-
defaulting Clearing Members intraday and in cash. The revised
description also would explain that ICE Clear Europe can confirm the
capacity of its powers of assessment using reverse stress testing.
Although the proposed rule change would not amend ICE Clear Europe's
powers of assessment, ICE Clear Europe does not believe it is necessary
to specify the expected coverage of assessment powers in the Plan.\10\
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\10\ Notice, 88 FR at 48273.
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Governance, Testing, and Review
As mentioned above, Section 1 also provides an overview of how ICE
Clear Europe governs, tests, and reviews the Plan. With respect to
governance under the existing Plan, ICE Clear Europe's President must
attempt to convene the ICE Clear Europe Board for approval in advance
of making each material decision under the Plan. If the Board cannot be
convened in advance of making the decision, however, it must be
convened afterwards. The proposed rule change would clarify that the
Board must be convened afterwards ``as soon as reasonably possible''
and updated on steps taken.
Section 1 currently explains that in exercising its options under
the Plan, ICE Clear Europe does not need the approval of Clearing
Members or any other external stakeholders. The proposed rule change
would maintain this statement but would add a further caveat to explain
that ICE Clear Europe would seek to communicate its plans and/or
intentions to relevant external stakeholders where possible, and as
soon as reasonably practicable, to ensure appropriate transparency.
Section 1 also explains how ICE Clear Europe conducts testing of
the Plan. Currently, Section 1 states that the Plan is tested annually
through a tabletop exercise. The proposed rule change would amend this
description to provide that the Plan is tested at least annually.
Moreover, the proposed rule change would delete the phrase ``tabletop
exercise'' and replace it with a more detailed description of how ICE
Clear Europe would test the Plan. Specifically, ICE Clear Europe would
test at least one default and one non-default scenario each year, with
all recovery options tested over a three-year cycle. ICE Clear Europe's
Executive Risk Committee would approve the testing schedule and review
the results of the testing. ICE Clear Europe's testing strategy would
use tabletop exercises, including simulated tabletop exercises where
possible.
Moreover, Section 1 currently provides that where appropriate,
elements of the Plan are included in ICE Clear Europe's annual default
fire drills. The proposed rule change would retain this statement but
would add further description of the elements that ICE Clear Europe
could test in the fire drills. Specifically, ICE Clear Europe could
test default-related recovery scenarios, including coordination with
other covered clearing agencies.
Section 1 currently provides that a key focus of the annual test of
the Plan is to work through specific scenarios as they might develop
and to consider, among other things, how ICE Clear Europe would
implement recovery options and which communication pathways it would
use. The proposed rule change would retain this description but would
revise it slightly. Under the proposed rule change, ICE Clear Europe
would consider which communication and governance pathways to use,
instead of just communication pathways. Moreover, the proposed rule
change would add another consideration: whether all services can
continue to be provided, including those provided to affiliates.
Finally, Section 1 currently includes a statement that ICE Clear
Europe will review the Plan after each test. The proposed rule change
would retain this statement but would further add that any proposed
changes would follow the relevant governance schedule for the Plan.
B. Section 2, Critical Services, Service Providers, and
Interdependencies
Section 2 of the Plan describes (i) ICE Clear Europe's Critical
Services; (ii) entities that rely on ICE Clear Europe's Critical
Services; (iii) providers of services to ICE Clear Europe; (iv) how ICE
Clear Europe mitigates its dependencies on these service providers; (v)
ICE Clear Europe's technology infrastructure that supports its Critical
Services; (vi) and interdependencies between ICE Clear Europe and other
entities in the financial markets.
Critical Services
The Plan currently identifies three services as ICE Clear Europe's
Critical Services: (i) futures and options clearing; (ii) credit-
default swap clearing; and (iii) treasury and banking services. The
proposed rule change would not alter this description, but it would add
further explanation of the meaning of the term ``Critical Services.''
Specifically, the proposed rule change would add a footnote to explain
that ``Critical Services'' are defined at the highest level for the
purposes of the Plan and should not be confused with ``Important
Business Services,'' which form part of the Operational Resilience
framework and are defined within the Operational Risk and Resilience
Policy.
Moreover, the proposed rule change would revise a description of
the products that ICE Clear Europe clears. Currently, Section 2
provides that ICE Clear Europe clears certain financial instruments
including CDS instruments, futures contracts, and options on futures
contracts. The proposed rule change would revise the description of the
last category, from options on futures contracts to just options
contracts.
Finally, Section 2 currently contains a table that identifies the
markets and exchanges for each of ICE Clear Europe's Critical Services.
For example, futures and options clearing applies to contracts on soft
commodities and covers exchanges such as ICE Futures Europe and ICE
Futures US. The proposed rule change would update the names of the
exchanges in this table, changing ICE Futures US to ICE Futures US
(Energy Division). The proposed rule change also would add ICE Futures
Abu Dhabi to the list of exchanges.
Entities That Rely on Critical Services
Section 2 describes in further detail how market participants and
exchanges depend on ICE Clear Europe's Critical Services. For example,
if ICE Clear Europe were unable to provide its Critical Services,
market participants would be unable to manage their positions with ICE
Clear Europe. Moreover, the Plan notes that in stressed market
conditions, when Clearing Members themselves may already be under
additional financial stress, actions that ICE Clear Europe takes to
recover from losses may increase the stresses on Clearing Members'
capital and liquidity resources. Given that, the Plan currently states
that capital and liquidity impacts on market participants (including
Clearing Members and their clients) would be taken into account when
assessing which recovery options to use. The proposed rule change would
[[Page 63151]]
maintain this provision but would add a caveat that impacts on market
participants would be taken into account as far as reasonably possible
when assessing which recovery options to use.
Service Providers
Section 2 further describes the entities upon which ICE Clear
Europe relies when providing its Critical Services. ICE Clear Europe
relies on both affiliates and third parties when providing its Critical
Services. For example, ICE Clear Europe relies on third-party banks in
providing its treasury and banking services, and it relies on
affiliates, such as other ICE Clearing Houses and Exchanges, for
settlement prices and intraday margin collection. With respect to
services provided by ICE affiliates, the Plan currently states that
these services are contractually governed by master outsourcing
agreements. The proposed rule change would revise the name of these
agreements to inter-company service agreements.
Section 2 currently contains a table that lists categories of
service providers, identifies the Critical Services they support, and
describes the services that they provide. This table currently
identifies investment agents as supporting treasury and banking
services. The proposed rule change would expand this category to
include both investment agents and repo counterparties. The proposed
rule change also would add another category to the table to cover
default brokers. Default brokers support all three of ICE Clear
Europe's Critical Services. Default brokers do so by hedging the
positions of a defaulting Clearing Member and liquidating the
defaulter's non-cash collateral.
Mitigation
Section 2 next describes how ICE Clear Europe mitigates its
dependencies on these service providers. ICE Clear Europe mitigates its
dependencies with three mechanisms: (i) using multiple service
providers, so it is not overly dependent on one provider alone; (ii)
engaging with service providers who place high levels of importance on
continuity of operations through multiple levels of resilience; and
(iii) ensuring its contracts with providers do not have provisions that
allow the providers to alter or terminate the contracts when ICE Clear
Europe is under financial stress. With respect to the first point, the
proposed rule change would maintain the current provision found in the
Plan but would add further explanation as to how ICE Clear Europe
confirms it is using multiple service providers. ICE Clear Europe would
regularly test its assumptions regarding multiple providers as part of
its operational resilience framework.
On the second point, resilience within providers, the proposed rule
change would add a similar explanation. ICE Clear Europe would conduct
regular testing of its assumptions regarding resilience within services
providers as part of its operational resilience framework.
With respect to the third point, contractual provisions, the
proposed rule change would amend the description of this mechanism.
Currently, the Plan provides that ICE Clear Europe ensures that its
contracts with services providers have appropriate termination periods
and do not include covenants, material adverse change clauses, or other
provisions that would permit service providers to alter or terminate
the contracts if it were under financial stress. The proposed rule
change would revise this slightly to state that ICE Clear Europe
ensures that its contracts do not include covenants, material adverse
change clauses, or other provisions that would permit service providers
to unduly alter or terminate the contracts. Moreover, the Plan
currently provides that ICE Clear Europe has analyzed its contracts in
the context of the Plan and has not found any issues that would impact
the Critical Services in recovery. The proposed rule change would
revise this slightly to state that ICE Clear Europe periodically
analyzes the relevant contracts in the context of the Plan (and any
other relevant factors).
Section 2 also describes ICE Clear Europe's dependencies on
particular service providers. Specifically, the Plan describes ICE
Clear Europe's particular dependencies with respect to custodians,
physical delivery agents, ICE's exchanges, ICE's other clearing houses,
and ICE's technology and operations groups.
In the description of dependencies on custodians, the proposed rule
change would revise a reference to the Business Continuity and Disaster
Recovery plans to be a general reference to ICE Clear Europe's
operational resilience plans.
In the description of ICE Clear Europe's dependencies on physical
delivery agents, the Plan currently provides that if there were a
significant issue with a Physical Delivery Agent that could not be
resolved then ICE Clear Europe could fall back to financial settlement,
and therefore it does not ultimately have a dependency on physical
delivery agents. The proposed rule change would retain the statement
that ICE Clear Europe could fallback to financial settlement but would
delete the statement that ICE Clear Europe does not ultimately have a
dependency on physical delivery agents. Instead, the proposed rule
change would add a statement that ICE Clear Europe for certain markets
at this time, regularly tests its ability to perform the functions
usually performed by those delivery agents itself under certain
disruption scenarios. ICE Clear Europe is making this change to
recognize that despite the mitigation of financial settlement, its
relationship with physical delivery agents could still be considered a
dependency.
With respect to dependencies on ICE's Exchanges, the Plan currently
provides that ICE Clear Europe's dependency on ICE's Exchanges for the
provision of settlement prices is mitigated through its ability under
to generate its own settlement prices if needed, and therefore ICE
Clear Europe does not ultimately have a dependency on ICE's Exchanges.
The proposed rule change would delete the statement that ICE Clear
Europe does not ultimately have a dependency on ICE's Exchanges.
Instead, the proposed rule change would add that ICE Clear Europe's
dependencies are mitigated via the ICE Exchanges' own resilience
testing. Like the dependency on physical delivery agents, ICE Clear
Europe is making this change to recognize that despite the mitigation
of generating its own settlement prices, its relationship with ICE's
Exchanges could still be considered a dependency.
With respect to dependencies on ICE's Clearing Houses, the Plan
currently provides that ICE Clear Europe's dependency on ICE's Clearing
Houses for operational or risk processes is mitigated through ICE Clear
Europe's ability to run the processes itself, if needed, and therefore
ICE Clear Europe does not ultimately have a dependency on ICE's
Clearing Houses. The proposed rule change would delete the statement
that ICE Clear Europe does not ultimately have a dependency on ICE's
Clearing Houses. Instead, the proposed rule change would explain that
the processes in question are generally the processes that ICE Clear
Europe does already perform during business as usual London hours (such
as intraday margin calls), which therefore validates the assumption
that ICE Clear Europe can run the processes itself, if needed.
With respect to dependencies on ICE's technology and operations
groups, the Plan notes that ICE Clear Europe relies on these groups for
certain operational processes and for technology infrastructure.
Moreover, the Plan provides that ICE Clear Europe's
[[Page 63152]]
dependency is mitigated through its ability to run the processes
itself, if needed. The proposed rule change would add language to note
that ICE Clear Europe periodically tests its ability to run the
processes itself as part of its operational resilience framework.
Finally, the Plan identifies certain service providers that ICE
Clear Europe does not depend on. Section currently provides the
following types of service providers are not considered as dependencies
for ICE Clear Europe: Investment Agents, APS Banks, Central Banks, Data
Providers. Section 2 provides that these service providers are not
dependencies because ICE Clear Europe would be able to substitute the
providers as needed. The proposed rule change would delete this
provision. ICE Clear Europe is making this particular change to
recognize that despite being able to substitute these providers, its
relationship with these providers could still be considered a
dependency.\11\
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\11\ Notice, 88 FR at 48274.
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Technology Infrastructure
Section 2 also contains a table that describes ICE Clear Europe's
technology systems that support its Critical Services. The table
identifies and describes each system, identifies which Critical Service
it supports, and the entity that provides the system. The proposed rule
change would maintain this table largely as it is currently written in
the Plan. In certain entries, the proposed rule change would clarify
that a specific system relates to either credit-default swap trades or
futures and options trades.
After the table, Section 2 describes how ICE Clear Europe mitigates
the risks associated with its dependency on these technology systems.
For example, the Plan states that ICE Clear Europe ensures that systems
are run with multiple live redundancies and there are in place
effective business continuity and disaster recovery arrangements. The
proposed rule change would revise the description of these mitigation
techniques. For example, in addition to ensuring that systems are run
with multiple live redundancies, ICE Clear Europe would test these
redundancies periodically. Further, the proposed rule change would,
going forward, refer to business continuity and disaster recovery
arrangements as operational resilience arrangements. Finally, the
proposed rule change would note that, given these technology systems
are provided by ICE Inc. or ICE Clear Credit, ICE Clear Europe is a
direct participant in defining and ensuring operational and regulatory
requirements are met when new capabilities are developed.
Interdependencies
Finally, Section 2 describes the interdependencies between ICE
Clear Europe and other financial market infrastructures. For example,
the Plan states that some of ICE Clear Europe's Clearing Members are
participants in other central counterparties. While ICE Clear Europe
does not provide interoperability with other central counterparties,
default of a Clearing Member at ICE Clear Europe may cause the Clearing
Member to default at another central counterparty, and vice versa. The
proposed rule change would maintain this description but would add
explanation regarding ICE Clear Europe's interdependencies with other
ICE, Inc. affiliates. Specifically, ICE Clear Europe provides certain
intercompany services to certain affiliates within the ICE group and
operates on the assumption that those services will continue to be
provided during execution of the Plan. Because the services in question
are typically operational or almost fully automated, ICE Clear Europe
anticipates having relevant resources available outside of those
required for recovery activities to continue the intercompany services.
For those services that are not automated, and therefore do require ICE
Clear Europe resources even under business-as-usual circumstances, ICE
Clear Europe has, and periodically tests, backup arrangements.
C. Section 3, Recovery Scenarios, Triggers, and Early Warning
Indicators
Section 3 of the Plan describes the scenarios where ICE Clear
Europe is likely to invoke the Plan and triggers for when ICE Clear
Europe would invoke the Plan in those scenarios, as well as early
warning indicators of when those scenarios might occur.
Recovery Scenarios and Triggers
Currently the Plan describes two scenarios that could lead to
recovery (each a ``Recovery Scenario''): (i) losses caused by a
defaulting Clearing Member and (ii) all other non-default losses caused
by investments, operational incidents, or other business activities.
The trigger for the default loss scenario is when ICE Clear Europe's
Guaranty Fund is or is likely to be exhausted and there are still
losses to cover. The trigger for the non-default loss scenario is when
ICE Clear Europe's Base Capital is or is likely to be breached.
The proposed rule change would retain this description but would
add explanation with respect to the trigger for the second scenario.
The Plan would be triggered in the non-default loss scenario when ICE
Clear Europe's Base Capital is or is likely to be breached by holding
insufficient EMIR eligible capital.
Section 3 also explains the distinction between business-as-usual
risk management and recovery under the Plan. Business-as-usual risk
management options, such as the default waterfall, are designed to
incentivize effective risk management and participation from Clearing
Members and ICE Clear Europe, to maximize the likelihood that losses
are managed through business-as-usual processes.
ICE Clear Europe invokes the Plan when it has been unable to cover
its losses using business-as-usual risk management. In an appendix to
the Plan, ICE Clear Europe describes certain scenarios that would
stress its financial and operational resources and analyzes how these
stress scenarios could become Recovery Scenarios (in other words, when
such stress scenarios could lead ICE Clear Europe to invoke the Plan).
The proposed rule change would add a statement to explain that with
respect to these scenarios analyzed in Appendix A, each scenario is
mapped to key risks contained within ICE Clear Europe's risk appetite
statements, ensuring that each key risk type is covered within those
scenarios. Also in this section, the proposed rule change would add a
footnote to clarify that ICE Clear Europe's Guaranty Fund contribution
is otherwise known as ``Skin in the Game.''
Finally, Section 3 explains the distinction between ICE Clear
Europe's management of operational risks and recovery under the Plan.
ICE Clear Europe has established Business Continuity and Disaster
Recovery Plans, which it uses to manage service issues caused by
operational or technology problems. Such an operational or
technological scenario could still trigger the Plan if it causes ICE
Clear Europe to hit the non-default loss trigger. As discussed above,
the Plan is triggered in the non-default loss scenario when ICE Clear
Europe's Base Capital is or is likely to be breached by holding
insufficient EMIR eligible capital.
The proposed rule change would update this description. For
example, it would add references to ICE Clear Europe's operational
resilience framework. The proposed rule change also would add
references to ICE Clear Europe's incident management processes, which
are part of its operational resilience framework.
[[Page 63153]]
Early Warning Indicators
Section 3 also describes certain early warning indicators. These
are qualitative and quantitative metrics that ICE Clear Europe monitors
to determine if it might hit the recovery triggers. These indicators
are categorized according to whether they relate to the default loss or
non-default loss scenarios discussed above.
For the default loss trigger, the early warning indicators are the
default management information which is produced if a counterparty is
potentially going be called into default. For example, ICE Clear Europe
would consider the size of a Clearing Member's positions, its
collateral, and market volatility. The proposed rule change would
revise this description slightly to state that the early warning is
default management information that is produced if a counterparty is
potentially going to fail to meet an obligation and may therefore be
called into default.
For the non-default loss trigger, ICE Clear Europe monitors its
eligible capital against certain target thresholds each day, as an
early warning indicator. The proposed rule change would revise this
description slightly. The revised language would explain that, in that
in order to identify warning indicators for non-default loss scenarios
as early as possible, ICE Clear Europe monitors its eligible capital
against target thresholds and the continued suitability of the target
thresholds each day.
D. Section 4, Recovery Options
Section 4 of the Plan describes and analyzes the tools that ICE
Clear Europe could use to recover from losses. The Plan refers to these
tools as ICE Clear Europe's Recovery Options. ICE Clear Europe's
Recovery Options include, among others, powers of assessment, reduced
gains distribution, and allocation of investment losses.
Section 4 of the Plan currently describes these tools in detail,
and the proposed rule change would make minor updates to this
description. For example, the Plan currently states that ICE Clear
Europe can call any amount of assessments up to the maximums and can
call assessments multiple times. The proposed rule change would
maintain this description but would add a phrase to clarify that if ICE
Clear Europe were to call assessments multiple times, it would do so in
accordance with the Rules. The proposed rule change also would correct
a reference to the Capital Replenishment Framework, changing the name
of that document to the Capital Replenishment Plan. In Section 4, the
proposed rule change also would delete language that references
Appendix A to the Plan. Appendix A to the Plan is a chart showing ICE
Clear Europe's committee structure. As discussed further below, the
proposed rule change would delete this Appendix A. Accordingly, the
proposed rule change would remove a reference to Appendix A that is
currently found in Section 4. Finally, the proposed rule change would
delete a reference stating that ICE Clear Europe is responsible for the
first $90 million of investment losses. This figure is no longer
correct, and the amount is subject to change, so ICE Clear Europe
believes it should not be set out in the Plan.\12\
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\12\ Notice, 88 FR at 48273. ICE Clear Europe recently adopted a
new framework for allocating non-default losses generally and
modified its liability with respect to investment losses. For more
information, see Self-Regulatory Organizations; ICE Clear Europe
Limited; Order Granted Accelerated Approval of Proposed Rule Change,
as Modified by Amendment No. 1 and Amendment No. 2, to the ICE Clear
Europe Clearing Rules Relating to Non-Default Losses, Exchange Act
Release No. 98071 (Aug. 7, 2023); 88 FR 54690 (Aug. 11, 2023) (SR-
ICEEU-2023-010).
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Section 4 of the Plan also describes how ICE Clear Europe's
Recovery Options are comprehensive and effective. For example, Section
4 currently states that using partial tear-ups, ICE Clear Europe can
eliminate any remaining Variation Margin and mark-to-market payment
obligations by cancelling any remaining positions. The proposed rule
change would delete this description from Section 4 because this
language is identical to, and therefore duplicative of, language found
in Section 1.
Finally, Section 4 contains a table that lays out all of ICE Clear
Europe's Recovery Options, the scope of those Recovery Options, and
some decision-making considerations associated with them. In the
portion of the table describing the scope of powers of assessment, the
proposed rule change would delete a statement that powers of assessment
are potentially able to cover all Clearing Members defaulting
simultaneously. As discussed above, ICE Clear Europe is making this
change because it does not think the Plan should specify the expected
coverage of assessment.\13\ Finally, in the portion of the table
discussing capital replenishment, the proposed rule change would add,
as a decision-making consideration, timing and ability of future
profits to replenish capital.
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\13\ Notice, 88 FR at 48273.
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E. Section 5, Decision-Making, Governance, and Communications
Section 5 describes the decision-making, governance, and
communications process related to the Plan. Generally, when taking
actions related to the Plan, ICE Clear Europe's President will attempt
to convene the Board for approval in advance of making each material
decision provided the Board can be convened in a timely manner. If the
Board cannot be convened in advance, then it will be convened
afterwards. The proposed rule change would maintain this provision but
would explain that if the Board cannot be convened in advance, then it
will be convened afterwards as soon as reasonably possible and updated
on steps taken.
Moreover, Section 5 currently states that exercising options under
the Plan does not require the approval of Clearing Members, Exchanges,
or any other external stakeholders. The proposed rule change would
maintain this provision largely as is but would change the word
``exercising'' to ``implementing.'' Similarly, the proposed rule change
would change the word ``exercising'' to ``implementing'' in another
part of Section 5 concerning communication with regulators.
Section 5 also describes how ICE Clear Europe will communicate and
coordinate with external stakeholders when taking actions under the
Plan. Currently, the Plan provides that ICE Clear Europe's overall
communication and coordination objectives in recovery are to (i)
provide Clearing Members, regulators, and the wider market with timely
and accurate information and (ii) ensure effective coordination and
escalation across affiliated ICE exchanges, clearing houses, and other
financial market intermediaries. The Plan further provides that ICE
Clear Europe manages this communication and coordination by using its
Crisis Communication and Management Plan and Major Incident Response
Plan. The proposed rule change would maintain these provisions but
would change the Crisis Communication and Management Plan to the
Communications Plan (or CP) and the Major Incident Response Plan to the
Crisis Management Plan (or CMP). In other parts of Section 5, the
proposed rule change similarly would update the name of each plan to
the Communications Plan/CP and the Crisis Management Plan/CMP,
respectively. Finally, the proposed rule change would add language that
notes that the CP and CMP should be consulted when using the Plan.
Section 5 contains a table that describes certain personnel at ICE
Clear Europe and their responsibilities with respect to communicating
with stakeholders. For example, ICE Clear Europe's Head of Regulation
and
[[Page 63154]]
Compliance and President both serve as a regulatory liaison,
responsible for communicating with, and giving status updates to, ICE
Clear Europe's regulators. The proposed rule change would update the
responsibilities associated with certain personnel at ICE Clear Europe.
For example, ICE Clear Europe's Communications Department, along with
the Board of Directors, is currently responsible for discussion and
approval of decisions. The proposed rule change would replace
Communications Department here with ICE Clear Europe's President. The
proposed rule change also would remove the Communications Department
from the list of ICE Clear Europe departments that are responsible for
operational coordination during recovery. The proposed rule change
would add ICE Clear Europe's President and Head of Corporate
Development to the list of ICE Clear Europe departments that are
responsible for giving status updates to ICE Group. In the list of ICE
Clear Europe departments that are responsible for communicating with
Clearing Members and Customers, the proposed rule change would replace
ICE Clear Europe's Exchange Heads of Sales with its President.
Finally, throughout Section 5, the proposed rule change would
replace references to ``bridge calls'' with references to ``conference
calls.''
F. Section 6, Recovery Playbook
Section 6 of the Plan is a recovery playbook. Section 6 describes
how ICE Clear Europe might use the Plan, including how ICE Clear Europe
might incur losses and the steps it would take in response to those
losses. Section 6 provides this information for both the default loss
and non-default loss Recovery Scenarios.
In this section the proposed rule change would make updates and
amendments like those discussed above. Specifically, the proposed rule
change would update the name of the Capital Replenishment Framework to
the Capital Replenishment Plan or CRP. The proposed rule change also
would update the name of the Crisis Communications and Management Plan
to the Communications Plan/CP and the Major Incident Response Plan to
the Crisis Management Plan/CMP, in accordance with the changes discuss
above.
The proposed rule change also would revise certain responsibilities
of ICE Clear Europe's President. Section 6 describes a number of
responsibilities and actions required of ICE Clear Europe's President
under the Plan. For example, Section 6 notes that the President,
together with the Default Management Committee, must assess whether
default losses are, or are likely to, exhaust ICE Clear Europe's
Guaranty Fund. Similarly, the President must consult with the Board for
their approval of the decision to trigger the Plan, provided they can
be convened on a timely basis. Given these responsibilities assigned to
the President, the proposed rule change would add a general caveat at
the beginning of Section 6 that would apply where the President is
unavailable or incapacitated. In that situation, ICE Clear Europe would
refer to its Delegation of Authority Framework to determine if another
person at ICE Clear Europe could substitute for the President.
The proposed rule change also would clarify when the President
would take certain steps under the Plan. For example, the Plan
currently provides that if the Board cannot be convened on a timely
basis, then the President will decide on whether to trigger the Plan
and will convene the Board afterwards. The proposed rule change would
maintain this requirement but would add a note to the effect that the
President will convene the Board as soon as reasonably possible and
update the Board on steps taken. The proposed rule change would add
this same explanation to the requirement that if the Board cannot be
convened on a timely basis, then the President will decide on which
Recovery Options to use and convene the Board afterwards.
The proposed rule change would make similar amendments to certain
responsibilities of ICE Clear Europe generally, rather than the
President in particular. Section 6 of the Plan currently requires that
ICE Clear Europe inform its regulators as to its intention to trigger
the Plan and the reasons for triggering, provided that the regulators
can be contacted on a timely basis. If its regulators cannot be
contacted on a timely basis, then the President will proceed with
triggering the Plan. The proposed rule change would maintain this
requirement but would add a note that notification to regulators will
take place as soon as reasonably possibly thereafter. The proposed rule
change would add this same explanation to the requirement that ICE
Clear Europe inform its regulators as to its intended use of Recovery
Options. In that case, if ICE Clear Europe cannot contact its
regulators on a timely basis, then the President will proceed with the
chosen Recovery Options, and notification to regulators will take place
as soon as reasonably possibly thereafter.
Finally, the proposed rule change would update the description of
the non-default loss scenario that is currently found in Section 6.
Currently Section 6 describes a non-default loss scenario as
significant financial loss that has occurred, or is about to occur,
that does not involve the default of any Clearing Members. The proposed
rule change would update this description to a significant financial
losses that has occurred, or is about to occur, that is not caused by
the default of any Clearing Members. Moreover, the Plan currently
provides that if a non-default loss event has occurred, then the
President, together with the Executive Risk Committee, will assess
whether there are, or are likely to be losses that breach ICE Clear
Europe's Base Capital, and this assessment will be based on ICE Clear
Europe's Regulatory Capital metrics. The proposed rule change would
update this slightly. Under the proposed rule change, the President,
together with the Executive Risk Committee, will assess whether there
are, or are likely to be losses that breach ICE Clear Europe's Base
Capital by holding insufficient EMIR eligible capital. In addition,
this assessment will be based on relevant management information
generally, rather than ICE Clear Europe's Regulatory Capital metrics
specifically.
G. Section 7
Section 7 of the Plan describes certain key limitations and
assumptions associated with the Plan. In Section 7 the proposed rule
change would make a minor typographical change and would change a
reference to the Capital Replenishment Framework to the Capital
Replenishment Plan, or CRP.
H. New Section 8, Document Governance and Exception Handling
The proposed rule change would add Section 8 to the Plan. Section 8
would be titled Document Governance and Exception Handling. Under this
section, the owner of the Plan would be responsible for ensuring that
the Plan remains up-to-date and is reviewed in accordance with ICE
Clear Europe's governance processes. Such reviews would encompass, at a
minimum, regulatory compliance; documentation and purpose;
implementation; use; and open items from previous validations or
reviews (where appropriate). The results of the review, including any
findings, would be reported to ICE Clear Europe's Executive Risk
Committee along with the priority of findings, proposed remediations
and target due date to remediate the findings.
The document owner also would be responsible for reporting material
breaches or unapproved deviations from
[[Page 63155]]
the Plan to their Head of Department, the Chief Risk Officer, and the
Head of Regulation and Compliance (or, as applicable, their respective
delegates). Those individuals together would determine if further
escalation should be made to relevant senior executives, the Board,
and/or competent authorities.
Finally, under Section 8, exceptions to the Plan would be approved
in accordance with ICE Clear Europe's governance process for the
approval of changes, and changes to the Plan would have to be approved
in in accordance with ICE Clear Europe's governance process. Such
changes only would take effect after completion of all necessary
internal and regulatory approvals.
I. Appendices
The Plan currently has two appendices. Appendix A is a depiction of
ICE Clear Europe's governance structure. The Board of Directors is at
the top, followed by Board-level governance committees, and then
executive-level governance committees. The proposed rule change would
delete Appendix A. ICE Clear Europe believes the committee structure is
fully defined in other documentation and does not need to be included
in the Plan.\14\
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\14\ Notice, 88 FR at 48274.
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Appendix B is a table that describes certain scenarios that could
lead ICE Clear Europe to invoking the Plan. Appendix B describes these
scenarios as ``stress scenarios.'' The table contains entries for
eleven different stress scenarios, with three related to losses
stemming from a Clearing Member's default and eight related to non-
default losses. For each scenario, the table summarizes the
circumstances leading to losses at ICE Clear Europe, analyzes how such
a scenario could trigger the Plan and thus become a Recovery Scenario,
and explains how ICE Clear Europe would use the Plan to respond to the
scenario. The proposed rule change would maintain the substance of this
table while making minor updates to the language. For example, the
proposed rule change would change the title of the first column to
``Scenario Category (Key Risk).'' The proposed rule change also would
change the title of the last column to ``Scenario Analysis'' from just
``Analysis.''
With respect to each of the scenarios, the proposed rule change
would specify which key risk the scenario relates to. For example, the
proposed rule change would specify that each of the default loss
scenarios relates to financial risk, while the non-default loss
scenarios relate to legal, regulatory, operational, information
security, and business risk, respectively. ICE Clear Europe is making
this change to identify each scenario with the key risks contained
within its risk appetite statements, thus ensuring that each key risk
type is covered within those scenarios. This is consistent with the
change to Section 3 described above.
Finally, the proposed rule change would make a minor typographical
correction in one part of the table, by deleting certain duplicative
words.
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.\15\ For the reasons discussed below, the Commission finds
that the proposed rule change is consistent with section 17A(b)(3)(F)
of the Act,\16\ Rule 17Ad-22(e)(2)(i) and (v), and Rule 17Ad-
22(e)(3)(ii) thereunder.\17\
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\15\ 15 U.S.C. 78s(b)(2)(C).
\16\ 15 U.S.C. 78q-1(b)(3)(F).
\17\ 17 CFR 240.17Ad-22(e)(2)(i), (v), and (3)(ii).
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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 promote the prompt and
accurate clearance and settlement of securities transactions and, to
the extent applicable, derivative agreements, contracts, and
transactions.\18\ As discussed above, the proposed rule change would
amend various sections of the Plan, as well as adding a new Section 8
to the Plan. The Commission believes the proposed rule change would
help to improve the governance and communication of actions taken under
the Plan; improve testing of the Plan; ensure that information found in
the Plan is accurate and current; and make the Plan more concise. Based
on its review of the record, and for the reasons discussed below, the
Commission therefore believes the proposed rule change would be
consistent with the promotion of the prompt and accurate clearance and
settlement of securities transactions.
---------------------------------------------------------------------------
\18\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
With respect to the governance and communication of actions taken
under the Plan, among other things, the proposed rule change would
clarify that where the President cannot convene the Board in advance of
making a material decision, the Board will be convened afterwards. The
proposed rule change also would specify that where the Board cannot be
convened on a timely basis prior to deciding which Recovery Options to
use, the President will decide on which Recovery Options to use and
convene the Board afterwards. With respect to communications, the
proposed rule change would, among other things, explain that ICE Clear
Europe would seek to communicate its plans and/or intentions to
relevant external stakeholders where possible, and as soon as
reasonably practicable, to ensure appropriate transparency. The
proposed rule change also would require that ICE Clear Europe notify
its regulators as soon as reasonably possibly after triggering the Plan
and using Recovery Options. The Commission believes that the proposed
rule change therefore would help to ensure that ICE Clear Europe's
Board is fully apprised of actions taken under the Plan and further
that ICE Clear Europe communicates its actions to regulators and other
external stakeholders.
The proposed rule change also would amend ICE Clear Europe's
testing of the plan, as found in Section 1. Under the proposed rule
change, ICE Clear Europe could test default-related recovery scenarios,
including coordination with other covered clearing agencies, as part of
its annual default fire drill. The proposed rule change also would
require that ICE Clear Europe specifically test at least one default
and one non-default scenario each year, with all recovery options
tested over a three-year cycle. Moreover, the proposed rule change
would add, as a key focus for testing, whether all services can
continue to be provided, including those provided to affiliates. The
Commission believes the proposed rule change therefore would improve
testing of the plan and help ensure that ICE Clear Europe tests the
plan in its entirety over a three-year cycle. The Commission further
believes that testing of the plan can reveal potential errors and other
issues, and therefore can help ICE Clear Europe to resolve potential
problems prior to entering a Recovery Scenario or engaging its recovery
options.
The Commission believes that other changes discussed above would
help ensure that information found in the Plan is accurate and current.
Among other things, the proposed rule change would correct
typographical errors, thereby improving the accuracy of the information
found in the Plan. The proposed rule change also would delete internal
references to Appendix A because ICE Clear Europe is deleting that
appendix. The proposed rule
[[Page 63156]]
change would remove references to the amount of ICE Clear Europe's
liability for investment losses, given that ICE Clear Europe recently
changed that amount and the amount is subject to further change. The
proposed rule change would update the name of the Capital Replenishment
Framework to the Capital Replenishment Plan, the Crisis Communication
and Management Plan to the Communications Plan, the Major Incident
Response Plan to the Crisis Management Plan, and references to business
continuity and disaster recovery to operational resilience. The
proposed rule change also would update the description of ICE Clear
Europe's critical service providers, ICE Clear Europe's dependencies on
these providers, and its mitigation of these dependencies. Finally, the
proposed rule change would update the description of Recovery
Scenarios, the early warning indicators of those scenarios, and note
that each scenario is mapped to key risks contained within ICE Clear
Europe's risk appetite statements. The Commission believes that these
proposed changes would help ensuring those utilizing the Plan have
information necessary to carry out recovery. The Commission therefore
believes that the proposed rule change would strengthen the Plan by
ensuring those utilizing it have information necessary to carry out
recovery, which in turn should help ICE Clear Europe to continue
promptly and accurately clearing and settling transactions during
recovery.
The Commission believes that the proposed rule change also would
help make the Plan more concise. For example, the proposed rule change
would delete from Section 4 a description of how ICE Clear Europe's
Recovery Options are comprehensive and effective because this
description duplicates language already found in Section 1. The
proposed rule change similarly would remove discussion of the expected
coverage of partial tear-ups and powers of assessment. The proposed
rule change also would remove Appendix A, given that ICE Clear Europe's
committee structure is defined in other documentation and does not need
to be included in the Plan. The Commission therefore believes that the
proposed rule change, by making the Plan more concise, should improve
the usability and readability of the Plan.
Thus, the Commission believes the proposed rule change would
strengthen the Plan. Improving governance and communication of actions
should help ensure that internal and external stakeholders are fully
apprised of actions ICE Clear Europe takes during recovery, therefore
enabling these stakeholders to assist in carrying out the actions or
otherwise prepare for them. Requiring ICE Clear Europe to test on a
three-year cycle should help reveal any potential deficiencies in the
Plan ahead of when ICE Clear Europe would need to use it. Updating
information should help ensure those utilizing the Plan have current
information necessary to carry out recovery. Finally, making the plan
more concise should make it easier and more efficient to use, by
removing unnecessary or repetitive information. Overall, the Commission
believes that the proposed rule change would strengthen the Plan and
that in doing so, the proposed rule change should help ICE Clear Europe
to continue promptly and accurately clearing and settling transactions
during recovery.
Therefore, the Commission finds that the proposed rule change is
consistent with section 17A(b)(3)(F) of the Act.\19\
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\19\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rule 17Ad-22(e)(2)(i) and (v) Under the Act
Rule 17Ad-22(e)(2)(i) and (v) require that ICE Clear Europe
establish, implement, maintain, and enforce written policies and
procedures reasonably designed to provide governance arrangements that,
among other things, are clear and transparent and specify clear and
direct lines of responsibility.\20\
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\20\ 17 CFR 240.17Ad-22(e)(2)(i) and (v).
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As discussed above, the proposed rule change would add a new
Section 8 regarding document governance. Among other things, Section 8
would make the document owner responsible for ensuring that the Plan
remains up-to-date and is reviewed in accordance with ICE Clear
Europe's governance processes. The document owner also would be
responsible for reporting material breaches or unapproved deviations
from the Plan to their Head of Department, the Chief Risk Officer, and
the Head of Regulation and Compliance (or, as applicable, their
respective delegates). The Commission believes these changes would
establish clear and direct responsibilities for the document owner of
the Plan consistent with Rule 17Ad-22(e)(2)(v).\21\
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\21\ 17 CFR 240.17Ad-22(e)(2)(v).
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The proposed rule change also would add language to clarify what
would happen where the ICE Clear Europe President is unavailable or
incapacitated. In that situation, ICE Clear Europe would refer to its
Delegation of Authority Framework to determine if another person at ICE
Clear Europe could substitute for the President. This is an important
clarification because, as discussed above, the President is responsible
for significant actions under the Plan, such as making material
decisions and triggering the Plan. The Commission believes that
specifying what ICE Clear Europe would do when the President is
incapacitated would therefore help clarify how ICE Clear Europe would
use the Plan in such a situation, consistent with Rule 17Ad-
22(e)(2)(i).\22\
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\22\ 17 CFR 240.17Ad-22(e)(2)(i).
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C. Consistency With Rule 17Ad-22(e)(3)(ii) Under the Act
Rule 17Ad-22(e)(3)(ii) requires that ICE Clear Europe establish,
implement, maintain, and enforce written policies and procedures
reasonably designed to 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 ICE Clear Europe, which includes plans for the recovery and
orderly wind-down of ICE Clear Europe necessitated by credit losses,
liquidity shortfalls, losses from general business risk, or any other
losses.\23\
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\23\ 17 CFR 240.17Ad-22(e)(3)(ii).
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The Commission believes the proposed change rule, as described
above, would strengthen the Plan by adding details regarding the
governance and communication processes associated with the Plan. The
proposed rule change also would establish a three-year cycle for
testing the Plan, update information in the Plan, and otherwise make
the Plan more concise. The Commission believes that the proposed rule
change, in strengthening the Plan, overall would help ICE Clear Europe
to maintain a plan for recovery, consistent with Rule 17Ad-
22(e)(3)(ii).\24\
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\24\ 17 CFR 240.17Ad-22(e)(3)(ii).
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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, with the requirements of section 17A(b)(3)(F) of the
Act,\25\ Rule 17Ad-22(e)(2)(i) and (v), and Rule 17Ad-22(e)(3)(ii).\26\
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\25\ 15 U.S.C. 78q-1(b)(3)(F).
\26\ 17 CFR 240.17Ad-22(e)(2)(i), (v), and (3)(ii).
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It is therefore ordered pursuant to section 19(b)(2) of the Act
\27\ that the
[[Page 63157]]
proposed rule change (SR-ICEEU-2023-020), be, and hereby is,
approved.\28\
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\27\ 15 U.S.C. 78s(b)(2).
\28\ In approving the proposed rule change, the Commission
considered the proposal's impact on efficiency, competition, and
capital formation. 15 U.S.C. 78c(f).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
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\29\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-19844 Filed 9-13-23; 8:45 am]
BILLING CODE 8011-01-P
</pre></body>
</html>Indexed from Federal Register on September 14, 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.