Notice2023-24180
Self-Regulatory Organizations; ICE Clear Europe Limited; Order Approving Proposed Rule Change, as Modified by Amendment No. 1, Relating to Amendments to the Wind Down Framework and 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
November 2, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 88 Issue 211 (Thursday, November 2, 2023)</title>
</head>
<body><pre>
[Federal Register Volume 88, Number 211 (Thursday, November 2, 2023)]
[Notices]
[Pages 75353-75359]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-24180]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98815; File No. SR-ICEEU-2023-011]
Self-Regulatory Organizations; ICE Clear Europe Limited; Order
Approving Proposed Rule Change, as Modified by Amendment No. 1,
Relating to Amendments to the Wind Down Framework and Plan
October 27, 2023.
I. Introduction
On August 11, 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 amend its Wind
Down Framework and Plan (to be renamed the ``Wind Down Plan'') (the
``Plan''). On August 22, 2023, ICE Clear Europe filed Amendment No. 1
to the proposed rule change to make certain changes to the Exhibit
5.\3\ Notice of the proposed rule change, as modified by Amendment No.
1, was published for comment in the Federal Register on August 30,
2023.\4\ On September 26, 2023, the Commission designated a longer
period for Commission action on the proposed rule change until November
28, 2023.\5\
[[Page 75354]]
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.\6\
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Amendment No. 1 updates the Exhibit 5 to correct the
presentation of three of the proposed changes to the Wind Down
Framework and Plan that were filed with the Commission on August 11,
2023. The proposed rule change incudes an Exhibit 4. Exhibit 4 shows
the change that Amendment No. 1 makes to the Exhibit 5.
\4\ Securities Exchange Act Release No. 98217 (August 24, 2023),
88 FR 60001 (August 30, 2023) (File No. SR-ICEEU-2023-011)
(``Notice'').
\5\ Self-Regulatory Organizations; ICE Clear Europe Limited;
Notice of Designation of Longer Period for Commission Action on
Proposed Rule Change, as Modified by Amendment No. 1, Relating to
Amendments to the Wind Down Framework and Plan; Exchange Act Release
No. 98536 (Sept. 26, 2023), 88 FR 67834 (Oct. 2, 2023) (File No. SR-
ICEEU-2023-011).
\6\ Capitalized terms not otherwise defined herein have the
meanings assigned to them in the Plan or, if not defined therein,
ICE Clear Europe's Clearing Rules.
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
ICEEU is a covered clearing agency. Under Rule 17Ad-22(e)(3)(ii),
ICEEU must ``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 the covered clearing agency,
which . . . includes plans for the recovery and orderly wind-down of
the covered clearing agency necessitated by credit losses, liquidity
shortfalls, losses from general business risk, or other losses.'' \7\
The Plan addresses scenarios in which ICEEU determines to wind down in
an orderly fashion. For example, one circumstance that could lead ICEEU
to wind down in an orderly fashion is insolvency because of either
member default or some other reason (e.g., fraud). ICEEU may also
choose to wind down in an orderly fashion when it is not insolvent
(e.g., for business reasons).\8\
---------------------------------------------------------------------------
\7\ 17 CFR 240.17Ad-22(e)(3)(ii).
\8\ Self-Regulatory Organizations; ICE Clear Europe Limited;
Order Approving Proposed Rule Changes Related to the ICE Clear
Europe Recovery and Wind-Down Plans; Exchange Act Release No. 83651
(July 17, 2018), 83 FR 34891, 34893 (July 23, 2018) (File No. SR-
ICEEU-2017-016 and SR-ICEEU-2017-017).
---------------------------------------------------------------------------
Through the Proposed Rule Change, ICEEU proposes to make changes to
the Plan. These proposed changes update the Plan's introduction,
preparations for winding down, planning options, discussion of meeting
liquidity requirements during wind-down, and document governance.\9\
---------------------------------------------------------------------------
\9\ In addition to the proposed changes described below, the
Proposed Rule Change makes grammatical and non-substantive edits
throughout the Plan.
---------------------------------------------------------------------------
1. The Plan's Introduction
The Plan currently has an overview and context section. The
overview section contains background information on ICEEU. For example,
it identifies ICEEU's regulators, parent entities, functions, clearing
strategy, and tools for risk management. Among other things, the
context section discusses certain regulatory requirements imposed on
ICEEU and ICEEU's Recovery Plan. The Proposed Rule Change would delete
the overview section and portions of the context section. Specifically,
the Proposed Rule Change would delete portions of the context section
that discuss regulatory requirements and ICEEU's Recovery Plan, and a
statement that the Plan also reflects feedback received from certain
regulators, because ICEEU no longer considers this level of detail of
background information to be necessary.\10\ It would also delete a
reference to EMIR requirements, because these no longer apply to
ICEEU.\11\
---------------------------------------------------------------------------
\10\ Notice, 88 FR at 60001-02.
\11\ Id. at 60002.
---------------------------------------------------------------------------
The Proposed Rule Change would divide the rest of the remaining
context section into a new four-part executive summary section. The
first part of the executive summary would be titled ``Purpose of the
Plan.'' This section would include portions of the existing context
section describing when the Plan would be required and the time span
for a wind-down. The Proposed Rule Change would add a sentence noting
that the Plan sets out the relevant information, the steps to take, and
the options available with respect to winding down some or all of
ICEEU's business. The Proposed Rule Change would also note that the
Plan seeks to support ICEEU's compliance with all relevant regulatory
obligations with respect to wind-down. Finally, the Proposed Rule
Change would add a footnote to explain that references to EMIR
requirements and other EU legislation refer to legislation on-shored
into United Kingdom legislation following the withdrawal of the United
Kingdom from the European Union.
The second portion of the executive summary would be titled
``Summary of the Plan.'' This section would include portions of the
existing context section describing the things the Plan considers
(e.g., scenarios). The current Plan already notes that it includes
consideration of all existing contractual obligations with, for
example, exchanges, payment banks, custodians, CSDs, repo
counterparties, data providers, IT providers, contractors, buildings,
and staff. The Proposed Rule Change would add that the Plan also
considers other services that ICEEU may be providing, such as intra-
group services.
The third part of the executive summary would be titled ``Structure
of the Plan.'' This section would include portions of the existing
context section describing the Plan's contents, central aspects of the
Plan, and assumptions underlying the Plan. The Proposed Rule Change
would amend the content to state that extensive consultation with
relevant stakeholders will be likely, rather than always occurring,
prior to any final decisions regarding the execution of the Plan. ICEEU
proposes this change to reflect that different forms and extents of
consultation with particular stakeholders may be appropriate for
different circumstances and proposed actions.\12\
---------------------------------------------------------------------------
\12\ Id.
---------------------------------------------------------------------------
The fourth section of the executive summary would be titled
``Execution of the Plan.'' It would not include any portions of the
existing context section. This new section would add to the Plan a
discussion of the establishment, responsibilities, and composition of
the Wind Down Planning Committee. For example, this new section would
note that ICEEU establishes the Wind Down Planning Committee, this
committee reports to the Board, and the committee liaises with all
stakeholders. Further, this committee includes a non-executive director
chair, senior officers, and other advisors as appropriate.\13\
---------------------------------------------------------------------------
\13\ The Proposed Rule Change would make similar changes to the
``Analysis, Consultation, and Planning'' section of the Plan.
Specifically, it would note that the composition of the Planning
Committee shall include relevant members of the senior management of
ICEEU and any other senior ICE representatives as considered
appropriate by ICEU senior management rather than simply noting that
the composition of the Planning Committee would include the senior
management of ICEEU.
---------------------------------------------------------------------------
2. Preparations for Winding Down
ICEEU also proposes changes to the Plan related to its preparations
for winding down. The Proposed Rule Change would add text clarifying
that the Wind Down Planning Committee will try to ensure that the
impact of any plans on relevant stakeholders (in addition to members)
would be as minimal as possible. In considering a potential transfer to
an alternative CCP, the Proposed Rule Change would clarify that the
Wind Down Planning Committee should answer if there are any
jurisdictional complications, materially differing membership
requirements, or regulatory processes that should be factored into the
timeline for wind-down. Additionally, the Proposed Rule Change would
edit the Plan so that it no longer requires the Wind Down Planning
Committee to consider whether the members would accept a particular
contract not being
[[Page 75355]]
available for clearing at the time of transfer. The Proposed Rule
Change would eliminate this consideration because ICEEU believes
transfer would likely not be feasible in a scenario where a particular
contract is not available for clearing at the time of transfer.\14\ In
considering a potential termination, the Proposed Rule Change would add
that the Wind Down Planning Committee should answer whether the
relevant regulators are likely to be accepting of the termination and
whether the relevant regulatory processes have been adequately factored
into the proposed timeline.
---------------------------------------------------------------------------
\14\ Notice, 88 FR at 60002.
---------------------------------------------------------------------------
The Proposed Rule Change would note that as part of planning for
wind-down, ICEEU shall assess the impact of services it receives and
provides. Relevant factors in this assessment include timing and costs.
The Proposed Rule Change would also state that ICEEU's plans assume
that ICEEU continues to call and receive all margin requirements and
operate during the wind-down period. The Proposed Rule Change would
provide a caveat that under certain circumstances, such as an unplanned
disruption from a Clearing Member default or a material non-default
event or loss, revised timelines and other actions may be required.
3. Planning Options
According to the Plan, ICEEU may either transfer certain aspects of
its business (e.g., F&O clearing or CDS clearing) to another
clearinghouse or terminate those aspects of its business. Additionally,
the Plan includes a section dedicated to terminating service
agreements. ICEEU proposes changes to the Plan impacting a potential
transfer of its business, the potential termination of its business,
and how it would go about terminating service agreements in the event
of any type of wind-down.
A. Transfer Option
The current Plan states that if a particular market wishes and is
able to continue trading and settling via a CCP then the wind down plan
is based on the transfer option. The Proposed Rule Change would clarify
that if a particular market wishes and is able to continue trading and
settling via an alternative CCP, then the wind-down plan is based on
the transfer option. The Proposed Rule Change would adjust multiple
aspects of the Plan's discussion of the transfer option. Specifically,
the current Plan describes how ICEEU would implement a transfer, for
both its F&O and CDS businesses. The Plan describes the transfer of
each business in terms of an overall approach to transfer, assumptions
ICEEU makes as part of the transfer, activities that ICEEU will
undertake, the timeline for transfer, and the resources needed for
transfer.
Overall Approach To Transfer
The proposed rule change would update the description of ICEEU's
overall approach to the transfer of its F&O and CDS businesses. With
respect to transfer of the F&O business, the current Plan states that
where an F&O contract is not cleared by the clearing house receiving
the transfer, then ICEEU would terminate the contract and exclude it
from transfer until the recipient clearing house begins clearing the
contract. The Proposed Rule Change would modify this statement to state
instead that ICEEU will just exclude the contract from transfer. ICEEU
proposes this modification because it believes that the delay
accompanying a later transfer would not be feasible.\15\
---------------------------------------------------------------------------
\15\ Id.
---------------------------------------------------------------------------
With respect to ICEEU's approach to transfer of the CDS business,
the current Plan states that for ICEEU CDS contracts that are not
currently cleared on the recipient clearing house's platform, the
necessary capability to clear the contract will be built and tested by
the recipient clearing house in time for transfer and will be included
in the transfer. The Proposed Rule Change would add language to this
provision subjecting this requirement to the clearing house's relevant
new product approval and regulatory processes. The Proposed Rule Change
would further note that if the recipient clearing house cannot build
and test clearing methods in an acceptable timeframe, then ICEEU's
clearing of those CDS contracts may, rather than will, be terminated
through rebilateralisation.\16\
---------------------------------------------------------------------------
\16\ Transactions that ICEEU clears and settles centrally may
also be cleared and settled bilaterally, using only two parties as
opposed to clearing and settling a transaction through a CCP.
Rebilateralisation describes the process of clearing and settling
positions bilaterally that were once cleared and settled centrally.
---------------------------------------------------------------------------
Assumptions
Another aspect of the Plan's discussion of the transfer option that
the Proposed Rule Change addresses are the assumptions underlying a
plan for the transfer of ICEEU's F&O or CDS business. In both the F&O
and CDS contexts, the current Plan assumes that the questions around
viable and willing clearing houses have been answered. The Proposed
Rule Change would clarify in both the F&O and CDS contexts that the
questions around viable and willing clearing houses include
jurisdictional considerations.\17\
---------------------------------------------------------------------------
\17\ Notice, 88 FR at 60002.
---------------------------------------------------------------------------
In the F&O context, the current Plan assumes that ICEEU's clearing
of the F&O market may legally be transferred to one or more clearing
houses. The Proposed Rule Change would add an explanation to this
assumption acknowledging that ICEEU clears a diverse profile of markets
so that it may not be possible to transfer all to a single clearing
house.\18\ Where the current Plan assumes that the questions around
viable and willing clearing houses have been answered, it also includes
a clause stating that there would be a maximum of two viable and
willing clearing houses. The Proposed Rule Change would remove this
clause.
---------------------------------------------------------------------------
\18\ A similar explanation is added to the portion of the Plan
addressing the timeline for transfer of ICEEU's F&O business.
---------------------------------------------------------------------------
In the assumptions for CDS transfers, as well as in other locations
throughout the Plan's discussion of the CDS transfer option, the
Proposed Rule Change would add language recognizing that alternative
CCPs may have different membership requirements from ICEEU. For
example, the current Plan assumes that the receiving clearing house's
rules contain no impediments to the transfer. The Proposed Rule Change
would add to this assumption by noting that the receiving clearing
house's rules (including membership criteria) contain no impediments to
the transfer.
Activities
A third aspect of the Plan's discussion of the transfer option that
the Proposed Rule Change addresses are plan activities with respect to
the transfer of ICEEU's F&O or CDS business. In the discussion of plan
activities for both the transfer of ICEEU's F&O business and its CDS
business, the current Plan calls for the transfer of margin funds to
recipient clearing houses at the end of the weekend. The Proposed Rule
Change would highlight that relevant collateral must be transferred to
a recipient clearing house at the end of the weekend rather than margin
funds.\19\
---------------------------------------------------------------------------
\19\ The Proposed Rule Change makes changes throughout the Plan
that align with this change.
---------------------------------------------------------------------------
In the discussion of plan activities for the transfer of ICEEU's
F&O business, the Proposed Rule Change would update references to
ICEEU's position management and other systems (e.g., FEC and ECS). The
current Plan indicates that novation of member F&O contract positions
from ICEEU to recipient clearing houses would be agreed. The Proposed
Rule Change would add that Novation of related collateral from ICEEU to
recipient
[[Page 75356]]
clearing houses would also be agreed as appropriate. Finally, the
current Plan calls for open position data migration to recipient
clearing houses, excluding any non-transferring contracts, to be built
and tested. The Proposed Rule Change would call for relevant collateral
migration to recipient clearing houses to be built and tested as well.
In the discussion of plan activities for the transfer of ICEEU's
CDS business, the current Plan states that following a gap analysis,
the members and contracts that were missing from the alternative
clearing house's platform would be identified and the timeframe for
adding them agreed. If the timescale for adding any missing contracts
was not acceptable to the market, then they would be terminated,
positions would not be migrated, and once the recipient clearing house
is able to clear them they would be back-loaded. The Proposed Rule
Change would note that if the timescale for adding any missing
contracts was not acceptable to the market, then they would be
terminated, positions would not be migrated, and once the recipient
clearing house is able to clear them they could (rather than would) be
back-loaded.
Timeline
The Proposed Rule Change also would adjust sections on the timeline
for transfer of ICEEU's F&O and CDS businesses. The Proposed Rule
Change would adjust the timeline for transfer of ICEEU's F&O and CDS
businesses from no more than six months to approximately six
months.\20\ Moreover, the Proposed Rule Change would add text to the
sections on the timeline for transfer of ICEEU's F&O and CDS businesses
acknowledging that a transfer may need to involve more than one
recipient clearing house which may affect the timeline for transfer.
---------------------------------------------------------------------------
\20\ The Proposed Rule Change adjusts a graphic in a different
section of the Plan in a manner that aligns with this change.
Likewise, the Proposed Rule Change adjusts the Plan's conclusion to
both align with this timeline and note that the timeline could be
affected by factors such as the need for multiple alternative
clearing venues.
---------------------------------------------------------------------------
Resources
The Proposed Rule Change would make one edit in the context of both
its F&O and CDS business related to the resources needed for transfer.
The current plan notes that risk management will continue with initial
margin (IM) and variation margin (VM) operating unchanged. The Proposed
Rule Change would note that risk management will therefore continue
with initial margin (IM) and variation margin (VM) operating unchanged.
b. Termination Option
The Proposed Rule Change would clarify that a wind-down is based on
the termination option if market conditions are so distressed that
trading cannot continue, or an alternative CCP cannot be found. The
Proposed Rule Change would adjust multiple aspects of the Plan's
discussion of the termination option, including the timeline for
termination, overall approach to termination, activities that ICEEU
will undertake, resources needed for termination, and the rules
applicable to termination.
Timeline
The Proposed Rule Change would contemplate a more fluid timeline
for termination of both the F&O and CDS business. Throughout the Plan,
the Proposed Rule Change would make changes so that the timeline for
termination in the case of the F&O business, or termination, wind-down,
or rebilateralisation in the case of the CDS business, will take
approximately five months, as opposed to exactly five months. Moreover,
the Proposed Rule Change would contemplate that F&O and CDS termination
occur on a designated Withdrawal Date. This added flexibility would
allow ICEEU to account for the particular circumstances of the
termination, such as differing maturity profiles in the context of F&O
termination.\21\
---------------------------------------------------------------------------
\21\ Notice, 88 FR at 60002.
---------------------------------------------------------------------------
Approach
The Proposed Rule Change also addresses the approach to terminating
the F&O business. The Proposed Rule Change would clarify that F&O
members will be notified by circular of ICEEU's intent to terminate the
clearing of contracts. It also would revise the maturity profile for
different product groups based on expiration date, because the maturity
profile may be materially different between product groups.\22\ While
acknowledging that the maturity profile may materially differ between
product groups within the F&O clearing service, ICEEU would note that a
common approach to termination may not be appropriate across all
groups; therefore, the wind-down plan should consider the profile by
relevant group, specifically with respect to the time required for
termination. At the same time, ICEEU would note that the process of
terminating open positions at Withdrawal Date is common across all
maturities and product groups. Moreover, the Proposed Rule Change would
note that the percentage of total open contracts expected to wind down
naturally via expiration within three months is approximately 30
percent as opposed to approximately 35 percent. The Proposed Rule
Change would also add that new trades would be accepted until the
Withdrawal Date, with the expectation that they serve to reduce risk
and therefore reduce open interest. ICEEU would also note that open F&O
positions will be terminated through closing them down via offsetting
transactions at the end-of-day settlement price, which is calculated in
accordance with Clearing House Rules 701 and 802. It also would adjust
the options available to F&O members to close out open positions
themselves leading up to the Withdrawal Date. For example, the Proposed
Rule Change would add that F&O members may use comparable trading
strategies to Exchanges for Swaps to take positions off-market (in
addition to being allowed to use Exchanges for Swaps).\23\ Conforming
changes would also be made to the assumptions underlying an F&O
termination and the activities associated with an F&O termination in
the Proposed Rule Change.
---------------------------------------------------------------------------
\22\ Id.
\23\ Exchanges for Swaps are off-exchange bilaterally-negotiated
transactions involving the simultaneous exchange of an exchange
futures position for a corresponding related OTC swap or other OTC
derivative in the same or related product. ICE Futures U.S. EFRP
FAQs.
---------------------------------------------------------------------------
Activities
The Proposed Rule Change would also amend the activities associated
with termination of ICEEU's F&O business. In the context of activities
associated with ICEEU's F&O business, the Proposed Rule Change would
note that all related margin, rather than only initial margin, is
returned at contract termination.
Resources
The Proposed Rule Change would also amend a section addressing
resources needed for termination in the context of ICEEU's CDS
business. The Proposed Rule Change would note that ICEEU will continue
to provide CDS clearing while reducing open interest, as opposed to
reducing volume, until the time that clearing is terminated.
Rules
In the current Plan, Continuing CDS Rule Provisions specify the
basis for calculating close-out amounts. These provisions also form the
legal basis for any wind down. The Proposed Rule Change would remove
text related to references to Continuing CDS Rule Provisions because
the Continuing CDS
[[Page 75357]]
Rule Provisions have been deleted from the Rules.\24\
---------------------------------------------------------------------------
\24\ Notice, 88 FR at 60002.
---------------------------------------------------------------------------
c. Terminating Service Agreements
The Proposed Rule Change would change portions of the Plan
governing the termination of service contracts. It would change the
length of the notice provided for terminating service contracts from
exactly six months to approximately six months, and note that
appropriate notice should be given with respect to termination of
relevant employee contracts instead of six months' notice.
The Proposed Rule Change would add introductory text to a table
listing relevant services and contracts. The introductory text would
explain that the list is an illustrative summary only, and that a more
complete, separately maintained list of service arrangements is
available for reference as part of any wind-down planning.
Additionally, the introductory text would state that IT services and
licenses are largely provided by ICEEU's parent or affiliates and that
IT services provided by external third parties are not expected to have
a material impact on timelines or costs relating to wind-down plans.
The Proposed Rule Change would also adjust the table listing
relevant services and contracts. It would combine the treatment of a
number of clearing services agreements with different affiliated ICE
markets into a single category to ensure that the treatment is
presented consistently in the Plan. Additionally, the Proposed Rule
Change would also clarify that exit provisions are not included as part
of intra-group agreements regarding property; add a Clearing and
Settlement Services Agreement with Intercontinental Exchange Holdings;
replace Dutch National Bank with European Central Bank in order to
reflect that ICEEU uses European Central Bank as a concentration bank;
change a reference from referring to specific exchanges to referring to
relevant ICE Exchanges; and change the notice time period for Clearing
and Settlement Services Agreements from twelve months to twenty-four
months.
4. Meeting Liquidity Requirements During Wind-Down
The Proposed Rule Change would edit a section of the Plan
discussing how ICEEU will meet its liquidity requirements during wind-
down. The Plan currently states that ``members cash held as cash is
immediate or available in short term.'' The Proposed Rule Change would
make edits clarifying that collateral held as cash from Clearing
Members should be immediately accessible or available at short notice.
Further, the Proposed Rule Change would make edits that note that the
vast majority, instead of approximately 99 percent, of funds should be
invested in high-quality, short-term instruments. Moreover, the
Proposed Rule Change would note that all investments are made in
accordance with ICEEU's Liquidity and Investment Management Policy. The
Proposed Rule Change would remove a specific reference to maximum
maturity and liquidity requirements mentioning the weighted-average
life of investments and reverse repos. It would edit a liquidity
requirement to note that outright purchases are limited to high-quality
and liquid government debt that can be liquidated on short notice in
the secondary market. With respect to non-cash assets, the Proposed
Rule Change would note that these assets are immediately available for
meeting any liquidity requirements arising in a wind-down scenario, and
that the non-cash collateral pool consists of highly liquid assets. The
Proposed Rule Change would also highlight that ICEEU runs liquidity
stress tests every day inclusive of extreme-but-plausible scenarios to
ensure that it can maintain a healthy liquidity position. ICEEU
proposes these changes to make this portion of the Plan consistent with
the Liquidity and Investment Management Policy.\25\
---------------------------------------------------------------------------
\25\ Id. at 60003.
---------------------------------------------------------------------------
5. Document Governance
The Proposed Rule Change would delete the Plan's Governance section
and replace it with a Document Governance and Exception Handling
section that is consistent with recently-adopted ICEEU policies.\26\
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.
---------------------------------------------------------------------------
\26\ 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).
---------------------------------------------------------------------------
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). Those
individuals together would determine if further escalation should be
made to relevant senior executives, the Board, and/or competent
authorities.
Finally, 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 accordance with
ICE Clear Europe's governance process. Such changes only would take
effect after completion of all necessary internal and regulatory
approvals.
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.\27\ For the reasons given below, the Commission finds
that the Proposed Rule Change is consistent with Section 17A(b)(3)(F)
of the Act \28\ and Rules 17Ad-22(e)(2)(i), (e)(2)(v),\29\ and
(e)(3)(ii) thereunder.\30\
---------------------------------------------------------------------------
\27\ 15 U.S.C. 78s(b)(2)(C).
\28\ 15 U.S.C. 78q-1(b)(3)(F).
\29\ 17 CFR 240.17Ad-22(e)(2).
\30\ 17 CFR 240.17Ad-22(e)(18).
---------------------------------------------------------------------------
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 . . . .'' \31\ Based on its review of the record, and for
the reasons discussed below, ICEEU's Proposed Rule Change is consistent
with Section 17A(b)(3)(F).
---------------------------------------------------------------------------
\31\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
The Proposed Rule Change would focus the Plan on the wind-down
process. For example, the Proposed Rule Change would delete unnecessary
portions of the overview and context
[[Page 75358]]
section of the current Plan. It would also create a new Executive
Summary section centered around aspects of the Plan (e.g., the purpose
of the Plan, summary of the Plan, structure of the Plan, and execution
of the Plan) and populate that Executive Summary with remaining
portions of the current Plan's context section with a few
modifications.
The Proposed Rule Change would also add or update details integral
to operating the Plan. For example, the Proposed Rule Change would add
text to clarify that the Wind Down Planning Committee will try to
ensure that the impact of any plans on relevant stakeholders (in
addition to members) would be as minimal as possible; add additional
text identifying the Wind Down Planning Committee's composition and
duties; revise the maturity profile for different product groups based
on expiration date; update numerous timelines within the plan; delete
inapplicable references to statutes or rules; update the meaning of
other references to statutes; edit questions that ICEEU's Wind Down
Planning Committee should consider as it tries to determine whether
ICEEU should terminate or transfer its business; and acknowledge that a
transfer may need to involve more than one recipient clearing house.
Further, ICEEU proposes additions that would consider differences among
stakeholders and products, as well as whether a specific course of
action would be feasible. For example, the Proposed Rule Change would
amend the Plan to state that extensive consultation with relevant
stakeholders will be likely, rather than will always occur, prior to
any final decisions regarding the execution of the Plan, because
different forms and extents of consultation with particular
stakeholders may be appropriate for different circumstances and
proposed actions. The Proposed Rule Change would also edit the Plan so
that it no longer requires the Wind Down Planning Committee to consider
whether the members would accept a particular contract not being
available for clearing at the time of transfer, because ICEEU believes
transfer would likely not be feasible in a scenario where a particular
contract is not available for clearing at the time of transfer.
Finally, the Proposed Rule Change would make a number of changes to
ensure that the Plan is consistent with itself and other ICEEU
policies. For example, the Proposed Rule Change would combine the
treatment of a number of clearing services agreements with different
affiliated ICE markets into a single category on a table and would make
edits to a section of the Plan discussing how ICEEU will meet its
liquidity requirements during a wind-down.
In focusing the Plan and ensuring that it is internally consistent
and consistent with other ICEEU policies, the Proposed Rule Change
would make Plan clearer and easier to apply and thereby improve ICEEU's
ability to facilitate the orderly close out of positions and potential
transfer of positions to other clearing houses. The Proposed Rule
Change would also facilitate the orderly close out of positions and
potential transfer of positions to other clearing houses through adding
and updating details integral to operating the Plan. Facilitation of
the orderly close out of positions and potential transfer of positions
to other clearing houses enhances ICEEU's ability to maintain and
continue the prompt and accurate clearance and settlement of
transactions by assuring that such transactions are closed-out and
transferred to other clearing houses in an orderly and transparent
manner. Further, by adding and updating details integral to operating
the Plan, the Proposed Rule Change would also help assure an efficient
and orderly wind-down. This, in turn, would help assure the
safeguarding of securities or funds in the custody or control of ICE
Clear Europe by reducing the likelihood of an inefficient or disorderly
wind-down, which could disrupt access to such securities or funds.
Therefore, the Proposed Rule Change is consistent with the
requirements of Section 17A(b)(3)(F) of the Act.\32\
---------------------------------------------------------------------------
\32\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
B. Consistency With Rule 17Ad-22(e)(2)(i) and (v)
Rule 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.'' \33\ Based on its review of the record, and for the
reasons discussed below, ICEEU's Proposed Rule Change is consistent
with Rule 17Ad-22(e)(2)(i) and (v).
---------------------------------------------------------------------------
\33\ 17 CFR 240.17Ad-22(e)(2)(i) and (v).
---------------------------------------------------------------------------
As discussed above, the Proposed Rule Change would add a Document
Governance and Exception Handling Section. This section 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). These
changes would establish clear and direct responsibilities for the
document owner of the plan consistent with Rule 17Ad-22(e)(2)(i) and
(v).\34\
---------------------------------------------------------------------------
\34\ 17 CFR 240.17Ad-22(e)(2)(i) and (v).
---------------------------------------------------------------------------
The Proposed Rule Change would also add a section to the Plan's
Introduction titled ``Execution of the Plan.'' As noted above, this
section adds to the Plan a discussion of the establishment,
responsibilities, and composition of the Wind Down Planning Committee.
In doing so, it notes that the Wind Down Planning Committee reports to
the Board and liaises with all stakeholders. This change would also
establish clear and direct responsibilities for the document owner of
the plan consistent with Rule 17Ad-22(e)(2)(i) and (v).\35\
---------------------------------------------------------------------------
\35\ 17 CFR 240.17Ad-22(e)(2)(i) and (v).
---------------------------------------------------------------------------
Therefore, the Proposed Rule Change is consistent with the
requirements of Rules 17Ad-22(e)(2)(i) and (v).\36\
---------------------------------------------------------------------------
\36\ 17 CFR 240.17Ad-22(e)(2)(i) and (v).
---------------------------------------------------------------------------
C. Consistency With Rule 17Ad-22(e)(3)(ii)
Rule 17Ad-22(e)(3)(ii) requires ICEEU to ``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 the covered clearing agency, which . . . includes plans for
the recovery and orderly wind-down of the covered clearing agency
necessitated by credit losses, liquidity shortfalls, losses from
general business risk, or any other losses.'' \37\ Based on its review
of the record, and for the reasons discussed below, ICEEU's Proposed
Rule Change is consistent with Rule 17Ad-22(e)(3)(ii).
---------------------------------------------------------------------------
\37\ 17 CFR 240.17Ad-22(e)(18).
---------------------------------------------------------------------------
The Proposed Rule Change would edit the planning options in the
Plan. In doing so, it would alter the approach to assumptions
underlying, activities related to, and the timeline for the Plan. For
example, the timeline for transfer of one of ICEEU's business lines
would be now approximately six months as opposed to no more than six
months. By making information like this available in the Plan, the
Proposed Rule Change enables ICEEU to prepare in advance for
[[Page 75359]]
and practice the steps needed to effectuate a wind-down. The added
timeline flexibility would enhance ICEEU's ability to use the Plan
effectively to carry-out an orderly wind-down.
Additionally, the Proposed Rule Change would edit a section of the
Plan discussing how ICEEU will meet its liquidity requirements during
wind-down. For example, the Proposed Rule Change would make clear that
collateral held as cash from Clearing Members should be immediately
accessible or available at short notice and that the vast majority,
instead of approximately 99 percent, of funds should be invested in
high-quality, short-term instruments. The Proposed Rule Change would
make these edits to make this portion of the Plan consistent with the
Liquidity and Investment Management Policy.\38\ By making the Plan
consistent with the Liquidity and Investment Management Policy the
Proposed Rule Change decreases the potential for confusion which allows
ICEEU personnel to correctly interpret the liquidity provisions in the
Plan and effectuate a wind-down in a consistent and coordinated
fashion. This increases the likelihood of an orderly wind-down.
Therefore, the Proposed Rule Change is consistent with the requirements
of Rule 17Ad-22(e)(3)(ii).\39\
---------------------------------------------------------------------------
\38\ Notice, 88 FR at 60002.
\39\ 17 CFR 240.17Ad-22(e)(3)(ii).
---------------------------------------------------------------------------
IV. Conclusion
On the basis of the foregoing, the Commission finds that the
proposed rule change, as modified by Amendment No. 1, is consistent
with the requirements of the Act, and in particular, Section
17A(b)(3)(F) of the Act \40\ and Rules 17Ad-22(e)(2)(i), (e)(2)(v),\41\
and (e)(3)(ii) thereunder.\42\
---------------------------------------------------------------------------
\40\ 15 U.S.C. 78q-1(b)(3)(F).
\41\ 17 CFR 240.17Ad-22(e)(2)(i) and (v).
\42\ 17 CFR 240.17Ad-22(e)(3)(ii).
---------------------------------------------------------------------------
It is therefore ordered pursuant to Section 19(b)(2) of the Act
that the proposed rule change, as modified by Amendment No. 1 (SR-
ICEEU-2023-011) be, and hereby is, approved.\43\
---------------------------------------------------------------------------
\43\ 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.\44\
---------------------------------------------------------------------------
\44\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2023-24180 Filed 11-1-23; 8:45 am]
BILLING CODE 8011-01-P
</pre></body>
</html>Indexed from Federal Register on November 2, 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.