Notice2023-23814
Self-Regulatory Organizations; ICE Clear Europe Limited; Order Approving Proposed Rule Change, as Modified by Amendment No. 1, Relating to Amendments to the Clearing Membership Policy and Clearing Membership Procedures
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Published
October 30, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 208 (Monday, October 30, 2023)</title>
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[Federal Register Volume 88, Number 208 (Monday, October 30, 2023)]
[Notices]
[Pages 74214-74217]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-23814]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98790; File No. SR-ICEEU-2023-022]
Self-Regulatory Organizations; ICE Clear Europe Limited; Order
Approving Proposed Rule Change, as Modified by Amendment No. 1,
Relating to Amendments to the Clearing Membership Policy and Clearing
Membership Procedures
October 24, 2023.
I. Introduction
On August 8, 2023, ICE Clear Europe Limited (``ICEEU'') filed with
the Securities and Exchange Commission (``Commission''), pursuant to
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act''),\1\
and Rule 19b-4 thereunder,\2\ a proposed rule change to modify its
Clearing Membership Policy (``Policy'') and Clearing Membership
Procedures (``Procedures''). On August 22, 2023, ICE Clear Europe filed
Amendment No. 1 to the proposed rule change to make certain changes to
the Exhibits 5A and 5B.\3\ Notice of the proposed rule change, as
modified by Amendment No. 1, was published for comment in the Federal
Register on August 29, 2023.\4\ The Commission has not received any
comments on the proposed rule change, as modified by Amendment No. 1
(hereinafter ``Proposed Rule Change''). For the reasons discussed
below, the Commission is approving the Proposed Rule Change.\5\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Amendment No. 1 amends the Exhibit 5A and Exhibit 5B to
correctly reflect the addition of the Document Handling subsection
to each document's Table of Contents. The proposed rule change
includes an Exhibit 4A and Exhibit 4B. Exhibit 4A shows the change
that Amendment No. 1 makes to Exhibit 5A, and Exhibit 4B does the
same with respect to Exhibit 5B.
\4\ Securities Exchange Act Release No. 98207 (August 23, 2023),
88 FR 59547 (August 29, 2023) (File No. SR-ICEEU-2023-022)
(``Notice'').
\5\ Capitalized terms not otherwise defined herein have the
meanings assigned to them in the Policy or the Procedures or, if not
defined therein, ICE Clear Europe's Clearing Rules.
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II. Description of the Proposed Rule Change
ICEEU 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 clearing security-based swaps, ICEEU provides services to
its Clearing Members. ICEEU's Clearing Members enter into a Clearing
Membership Agreement with ICEEU and are admitted as clearing members of
ICEEU under Part 2 of ICEEU's clearing rules.\6\
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\6\ The Clearing Membership Agreement is an agreement between
ICEEU and a Clearing Member under which the Clearing House agrees to
provide clearing in respect of Contracts to that Clearing Member and
that Clearing Member agrees to be bound by and subject to ICEEU's
Clearing Rules. ICE Clear Europe Clearing Rule 101.
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As a result of its relationship with its Clearing Members, ICEEU
faces a number of risks. For example, ICEEU's Clearing Members may not
meet membership criteria which ultimately could increase the chances of
both a Clearing Member defaulting and ICEEU needing to use mutualized
funds.\7\ ICEEU manages these risks, and relationships with its
Clearing Members, through the Policy and the Procedures. The Policy
describes ICEEU's membership criteria and related processes for
assessing applicants for membership, on-going monitoring of its
Clearing Members, and termination of its Clearing Members. The
Procedures in turn provide additional detail as to how ICE Clear Europe
applies its policies for reviewing applications for clearing
membership, variations of permissions for Clearing Members, ongoing
monitoring of Clearing Members, and termination of clearing
membership.\8\
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\7\ Clearing Membership Policy 2.1.
\8\ Securities Exchange Act Release No. 93178 (Sept. 29, 2021),
86 FR 55045, 55046 (Oct. 5, 2021) (File No. SR-ICEEU-2021-014).
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Through the Proposed Rule Change, ICEEU proposes to make changes to
both the Policy and the Procedures.\9\ These proposed changes correct
an improper reference to model documents; clarify that clearing members
must provide notice of certain situations; update sections on
monitoring membership criteria; update sections on document governance;
update the Procedures' clearing membership application process; and
clarify that ICEEU may take certain steps in its absolute discretion.
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\9\ In addition to the changes described below, ICEEU proposes
various non-substantive changes to the Policy and Procedures.
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1. Correction of Improper Reference to Model Documents in the Policy
The current Policy notes that procedural aspects and relevant
[[Page 74215]]
parameters related to the Policy are set out in the corresponding
procedures and model documents. However, Policy parameters are set
forth in parameter documents, not model documents.\10\ Therefore the
Proposed Rule Change would remove the reference to model documents and
state instead that procedural aspects and relevant parameters related
to the Policy are set out in the corresponding procedures and parameter
documents respectively.
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\10\ Notice, 88 FR at 59548.
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2. Requiring Clearing Members To Provide Certain Notifications in the
Policy and Procedures
In the ``Objective'' section of the current Policy, ICEEU notes
that it achieves the objectives of the Policy by, among other things,
``includ[ing] relevant notifications to ensure that Clearing Members''
promptly notify ICEEU of certain changes that could impact their
ability to meet ICEEU's membership criteria. The ``Objective'' section
of the current Procedures includes similar language. The Proposed Rule
Change would change this language in both the Policy and the Procedures
to specify that ICEEU achieves the objectives of the Policy and
Procedures by, among other things, ``requir[ing]'' that Clearing
Members promptly notify ICEEU of any changes to their business which
may affect their ability to meet ICEEU's membership criteria.\11\
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\11\ Id.
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3. Monitoring of Membership Criteria in the Policy
The current Policy states that in order to monitor Clearing
Members' on-going adherence to the membership criteria, ICEEU carries
out periodic in-depth counterparty reviews; undertakes a quarterly
review of financial position using Audited Annual Accounts and
quarterly financial information; updates its Counterparty Rating System
on a quarterly basis; maintains a Watch List; requires Clearing Members
to complete an Annual Member Return; and monitors operational matters
daily, including, for example, margin calls and end-of-day price
submissions. ICEEU proposes to remove and consolidate much of this
text. The Policy as revised would state that in order to monitor
Clearing Members' on-going adherence to the membership criteria, ICEEU
carries out periodic in-depth counterparty reviews; undertakes ongoing
monitoring, which consists of continuous monitoring and additional
trigger-based reviews, including relating to credit and AML/KYC risk
and to daily operational matters (such as margin calls); and requires
Clearing Members to complete an Annual Member Return.
ICEEU proposes to remove the text discussing quarterly review of
financial position through Audited Annual Accounts and financial
information, updates to its Counter Party Rating System done quarterly,
and the requirement to maintain a Watch List because these subjects
relate to credit issues that are covered in its Counterparty Credit
Risk Policy and Procedures.\12\ Given the deletion of this text, ICEEU
proposes to remove the sentence noting that information on monitoring
is available in the Clearing Membership Procedures and the Counterparty
Credit Risk Policy because ICEEU believes this cross reference to
support now-deleted references would no longer be necessary.\13\
Finally, ICEEU proposes deleting the sentence that provides that ICEEU
monitors a number of specific operational matters daily because it
would be replaced with the text noting that ICEEU undertakes ongoing
monitoring.
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\12\ Id.
\13\ Id.
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4. Document Governance in the Policy and Procedures
The Proposed Rule Change would update the Document Governance and
Exception Handling sections of both the Policy and the Procedures to
make them consistent with similar document governance provisions in
other ICEEU policies.\14\ The updates would specify that the scope of
the document review encompasses, at a minimum, regulatory compliance,
documentation and purpose, implementation, use, and open items from
previous validations or reviews (where appropriate). The Proposed Rule
Change would also add text identifying the document owner or relevant
staff as the individuals responsible for conducting document reviews to
ensure they are updated and reviewed in accordance with the internal
governance processes. The changes would also specify that the head of
the department (or their delegate) and the Chief Risk Officer (or their
delegate) provide approval for document reviews and that, in some
circumstances, the document review findings are reported to the Model
Oversight Committee, but outside of those circumstances, the document
review's results, including any findings, are reported to the Executive
Risk Committee along with the priority of findings, proposed
remediations, and target due date to remediate the findings. The
updates also would provide that it is the document owner's
responsibility to address any findings, complete internal governance,
and, if necessary, obtain regulatory approvals before the subsequent
annual review is due. Finally, the proposed changes would note that
changes to the Policy and Procedures must be approved in accordance
with ICEEU's governance process and will take effect after completion
of all necessary internal and regulatory approvals.
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\14\ Id. For example, ICEEU recently amended its Recovery Plan
and Outsourcing Policy to make changes similar to those now
proposed. See Securities Exchange Act Release No. 98337 (Sept. 8,
2023), 88 FR 63149, 63154-55 (Sept. 14, 2023) (File No. SR-ICEEU-
2023-020) (Recovery Plan); Securities Exchange Act Release No. 98387
(Sept. 14, 2023), 88 FR 64953, 64955 (Sept. 20, 2023) (File No. SR-
ICEEU-2023-018) (Outsourcing Policy).
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5. Clearing Membership Procedures
The Proposed Rule Change would amend the Clearing Membership
Procedures to make certain clarifications and updates. One proposed
change would clarify that applicants must provide sufficient evidence,
details, and information to ICEEU as required by the Rules, as opposed
to sufficient evidence, details, or information.\15\ Another adds text
indicating that the membership team will ensure that all Applicants are
added to the schedule of insured entities by the ICE Group insurer. The
Proposed Rule Change would also delete a provision noting that after
approval of an application by the Executive Risk Committee, the
relevant Product Risk Committees would be notified of a new application
for clearing membership. ICEEU believes that it is unnecessary to
notify the Product Risk Committees because those committees' duties and
functions are not implicated by a new member being admitted.\16\
ICEEU's proposed amendments would also clarify that ICEEU issues a
Circular confirming approval of a Clearing Member once their
application is approved and move a clause indicating that Clearing
Members are required to respond to additional information requests in a
timely manner statement to a standalone sentence. ICEEU believes
stating this requirement in a standalone sentence makes the information
clearer.\17\
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\15\ Notice, 88 FR at 59548.
\16\ Id.
\17\ Id.
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6. ICEEU's Absolute Discretion in the Procedures
Throughout the Procedures, ICEEU proposes to add the phrase ``in
its absolute discretion'' in connection with
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certain actions described in the Procedures. Specifically, ICEEU's
proposed changes note that ICEEU has absolute discretion to take
certain actions with respect to its minimum capital requirements,
standards and characteristics of subordinated loans, the acceptability
of a Controller Guarantee, cash or collateral requirements, and its
guaranty fund. ICEEU also proposes changes making clear that it defines
a maximum period between in-depth counterparty reviews and a threshold
for following up with the Clearing Member regarding negative changes to
its financial condition in its absolute discretion. ICEEU believes that
these amendments do not change its existing authority, but more
explicitly state the scope of its discretion.\18\
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\18\ Id.
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III. Discussion and Commission Findings
Section 19(b)(2)(C) of the Act requires the Commission to approve a
proposed rule change of a self-regulatory organization if it finds that
the proposed rule change is consistent with the requirements of the Act
and the rules and regulations thereunder applicable to the
organization.\19\ For the reasons given below, the Commission finds
that the Proposed Rule Change is consistent with Section 17A(b)(3)(F)
of the Act \20\ and Rules 17Ad-22(e)(2)(i), (e)(2)(v),\21\ and
(e)(18).\22\
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\19\ 15 U.S.C. 78s(b)(2)(C).
\20\ 15 U.S.C. 78q-1(b)(3)(F).
\21\ 17 CFR 240.17Ad-22(e)(2).
\22\ 17 CFR 240.17Ad-22(e)(18).
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A. Consistency With Section 17A(b)(3)(F) of the Act
Under Section 17A(b)(3)(F) of the Act, ICEEU's rules, among other
things, must be ``designed to promote the prompt and accurate clearance
and settlement of securities transactions and, to the extent
applicable, derivative agreements, contracts, and transactions, to
assure the safeguarding of securities and funds which are in the
custody or control of the clearing agency or for which it is
responsible . . . and, in general, to protect investors and the public
interest . . . .'' \23\ Based on its review of the record, and for the
reasons discussed below, the Commission concludes that ICEEU's Proposed
Rule Change is consistent with Section 17A(b)(3)(F) of the Act.
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\23\ 15 U.S.C. 78q-1(b)(3)(F).
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As noted above, ICEEU faces a number of risks as a result of its
relationship with its Clearing Members. These risks include
operational, default, and other risks that could impact or threaten
ICEEU's ability to clear and settle transactions, safeguard securities
and funds which are in its possession or control or for which it is
responsible, or otherwise protect investors and the public interest.
ICEEU manages these risks through, among other things, the Policy and
Procedures. Therefore, improving or enhancing the Policy and Procedures
likewise improves or enhances ICEEU's ability to manage or mitigate the
risks it faces as a result of its relationship with its Clearing
Members.
As discussed above, the Proposed Rule Change would enhance the
Policy and Procedures in a number of ways, including clarifying certain
provisions, highlighting certain important information, removing
incorrect or duplicative information, and ensuring the Policy and
Procedures are consistent with each other and with ICEEU's other
policies and procedures. For example, the Proposed Rule Change would
clarify in both the Policy and Procedures that Clearing Members must
promptly notify ICEEU of any changes to their business which may impact
their ability to meet membership criteria. Additionally, the Proposed
Rule Change would revise the Procedures to clarify that Clearing
Membership applicants must provide sufficient evidence, details, and
information to ICEEU as required by the Rules, that ICEEU will issue a
Circular confirming approval of a Clearing Member once its membership
application is approved, that Clearing Members must respond to
information requests from ICEEU in a timely manner, and that ICEEU has
absolute discretion to take certain steps.\24\ Similarly, the Proposed
Rule Change would update the Policy to note that procedural aspects and
relevant parameters related to the Policy are set out in the
corresponding procedures and parameter documents, rather than model
documents as the current Policy states, and highlight that procedural
aspects related to the Policy are set out in the corresponding
procedures. The Proposed Rule Change also would delete as unnecessary
and duplicative certain information related to its monitoring of
Clearing Members' financial information because that information is
addressed in other ICEEU policies.\25\
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\24\ Notice, 88 FR at 59548.
\25\ Id.
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The Proposed Rule Change will help clarify the Policy and
Procedures and ensure that they are accurate and consistent both with
each other and with ICEEU's other policies and procedures, which will
enhance the ability of ICEEU and its stakeholders to understand the
Policy and Procedures and apply them accurately and consistently.
Ensuring the Policy and Procedures are easily understood and applied
accurately and consistently will, in turn, help ensure that ICEEU
effectively manages and mitigates the operational and other risks
presented by its relationship with Clearing Members, thereby supporting
ICEEU's ability to promote the prompt and accurate clearance and
settlement of securities transactions, assure the safeguarding of
securities and funds which are in ICEEU's custody or control or for
which it is responsible, and protect investors and the public interest.
For these reasons, the Commission finds that the Proposed Rule
Change is consistent with the requirements of Section 17A(b)(3)(F) of
the Act.\26\
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\26\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rule 17Ad-22(e)(2)(i) and (v)
Rules 17Ad-22(e)(2)(i) and (v) require ICEEU to ``establish,
implement, maintain, and enforce written policies and procedures
reasonably designed to . . . provide for governance arrangements that
are clear and transparent . . . and specify clear and direct lines of
responsibility.'' \27\ Based on its review of the record, and for the
reasons discussed below, the Commission finds that the Proposed Rule
Change is consistent with Rule 17Ad-22(e)(2)(i) and (v).
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\27\ 17 CFR 240.17Ad-22(e)(2).
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The Proposed Rule Change clearly defines responsibilities for a
number of ICEEU employees. For instance, in both the Policy and
Procedures, the Proposed Rule Change identifies the document owner and
relevant staff as responsible for conducting document reviews,
remediating findings, completing internal governance, and receiving
regulatory approvals. The Proposed Rule Change also would add text to
the Procedures that makes clear that the Membership team will ensure
that all Applicants are added to the schedule of insured entities by
the ICE Group insurer, and would remove as unnecessary text requiring
notification of the relevant Product Risk Committees of new
applications for clearing membership.\28\ By defining who has or does
not have responsibilities and making this information readily available
in the Policy and Procedures the Proposed Rule Change achieves clarity
and transparency.
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\28\ Notice, 88 FR at 59548.
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The Commission finds, therefore, that the Proposed Rule Change is
consistent
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with the requirements of Rule 17Ad-22(e)(2)(i) and (v).\29\
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\29\ 17 CFR 240.17Ad-22(e)(2).
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C. Consistency With Rule 17Ad-22(e)(18)
Rule 17Ad-22(e)(18) requires ICEEU to ``establish, implement,
maintain, and enforce written policies and procedures reasonably
designed to . . . establish objective, risk-based, and publicly
disclosed criteria for participation, which permit fair and open access
by direct and, where relevant, indirect participants and other
financial market utilities, require participants to have sufficient
financial resources and robust operational capacity to meet obligations
arising from participation in the clearing agency, and monitor
compliance with such participation requirements on an ongoing basis.''
\30\ Based on its review of the record, and for the reasons discussed
below, the Commission finds that the Proposed Rule Change is consistent
with Rule 17Ad-22(e)(18).\31\
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\30\ 17 CFR 240.17Ad-22(e)(18).
\31\ 17 CFR 240.17Ad-22(e)(18).
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The Proposed Rule Change would update the Policy to specify that
ICEEU undertakes ongoing monitoring to monitor Clearing Member's
adherence to membership criteria and that ongoing monitoring consists
of continuous monitoring and additional trigger-based reviews,
including relating to credit and AML/KYC risk and to daily operational
matters (such as margin calls). Because these aspects of the Proposed
Rule Change are reasonably designed to help ensure that ICEU monitors
compliance with its membership criteria on an ongoing basis, the
Commission finds that the Proposed Rule Change is consistent with the
requirements of Rule 17Ad-22(e)(18).\32\
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\32\ 17 CFR 240.17Ad-22(e)(18).
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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, Section 17A(b)(3)(F) of the Act \33\ and Rules 17Ad-
22(e)(2)(i), (e)(2)(v),\34\ and (e)(18) thereunder.\35\
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\33\ 15 U.S.C. 78q-1(b)(3)(F).
\34\ 17 CFR 240.17Ad-22(e)(2).
\35\ 17 CFR 240.17Ad-22(e)(18).
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It is therefore ordered pursuant to Section 19(b)(2) of the Act
that the Proposed Rule Change (SR-ICEEU-2023-022) be, and hereby is,
approved.\36\
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\36\ In approving the Proposed Rule Change, the Commission
considered the proposal's impacts 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.\37\
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\37\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-23814 Filed 10-27-23; 8:45 am]
BILLING CODE 8011-01-P
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