
[Federal Register Volume 79, Number 154 (Monday, August 11, 2014)]
[Notices]
[Pages 46894-46896]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-18877]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72761; File No. SR-ICEEU-2014-12]


Self-Regulatory Organizations; ICE Clear Europe Limited; Notice 
of Filing of Proposed Rule Change to Liquidity Policies Relating to 
EMIR

August 5, 2014.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on July 25, 2014, ICE Clear Europe Limited (``ICE Clear Europe'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change described in Items I, II and III below, which 
Items have been prepared primarily by ICE Clear Europe. The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The principal purpose of the proposed change is to amend and 
formalize certain ICE Clear Europe liquidity policies and procedures 
(the ``Liquidity Policy Amendments''), including to facilitate 
compliance with requirements under the European Market Infrastructure 
Regulation (including regulations thereunder, ``EMIR'') \3\ that will 
apply to ICE Clear Europe as an authorized central counterparty.
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    \3\ Regulation (EU) No. 648/2012 of the European Parliament and 
of the Council of 4 July 2012 on OTC derivatives, central 
counterparties and trade repositories.
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II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, ICE Clear Europe included 
statements concerning the purpose of and basis for the proposed rule 
change and discussed any comments it received on the proposed rule 
change. The text of these statements may be examined at the places 
specified in Item IV below. ICE Clear Europe has prepared summaries, 
set forth in sections A, B and C below, of the most significant aspects 
of these statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    ICE Clear Europe proposes to amend its existing Liquidity Risk 
Management Framework (``LRMF'') and to adopt a separate Liquidity Plan 
that formalizes certain procedures and internal processes relating to 
liquidity objectives and monitoring, testing and decision-making 
relating to sufficiency of liquidity resources. In ICE Clear Europe's 
view, the creation of the Liquidity Plan does not materially change 
existing procedures and processes but is intended to formalize them, in 
order to be consistent with requirements under EMIR.
    The Liquidity Plan has been drafted in accordance with Article 32 
of the Regulatory Technical Standards implementing EMIR.\4\ Consistent 
with Article 32, the stated objectives of the Liquidity Plan are to: 
(i) Identify sources of liquidity risk; (ii) manage and monitor 
liquidity needs across a range of stressed market scenarios; (iii) 
maintain sufficient and distinct financial resources to cover liquidity 
needs; (iv) assess and value the liquid assets available to the 
clearing house and its liquidity needs; (v) assess timescales over 
which liquid financial resources should be available; (vi) manage a 
liquidity shortfall event; (vi) replace financial resources used in a 
liquidity shortfall event; and (vii) assess potential liquidity needs 
stemming from Clearing Members ability to swap cash for non-cash 
collateral. The Liquidity

[[Page 46895]]

Plan also reflects requirements and guidance of the Bank of England.
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    \4\ Commission Delegated Regulation (EU) No. 153/2013 of 9 
December 2012 Supplementing Regulation (EU) No. 648/2012 of the 
European Parliament and of the Council with regard to Regulatory 
Technical Standards on Requirements for Central Counterparties (the 
``Regulatory Technical Standards'').
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    The Liquidity Plan contains details about ICE Clear Europe's 
liquidity monitoring, stress testing, reporting and management 
procedures. With respect to monitoring, various systems and processes 
are used by ICE Clear Europe to ascertain the status of settlements at 
the start of the day, intra-day and at the end of day, as well as the 
status of related investment activity during the day. Any deviation 
from established tolerance levels will be escalated in accordance with 
the Liquidity Plan. The Liquidity Plan also uses certain Key Risk & 
Performance Indicators (``KRPIs'') to ensure the investment policies 
are respected in light of ICE Clear Europe's credit and liquidity 
requirements, based on a number of investment categories (such as 
secured investments, unsecured investments, sovereign investors) and 
tenor categories.
    The Liquidity Plan identifies various sources of liquidity risks, 
including exposure to settlement banks, custodian banks, liquidity 
providers, investment counterparties, payment systems, clearing members 
and other service providers, and provides for regular stress testing 
based on those risks. The Liquidity Plan also addresses liquidity risk 
tolerances and appetite limits established by the Board in connection 
with stress testing. Stress testing is conducted using a range of 
scenarios, including both historical scenarios and forward-looking 
scenarios involving extreme but plausible market events and conditions. 
Both types of scenarios simulate extreme but plausible losses arising 
from the default of the clearing members with the two largest liquidity 
exposures, consistent with EMIR requirements. Scenarios also address 
the required level of liquidity resources in a range of other 
conditions in the relevant currencies used by ICE Clear Europe, 
including defaults of investment counterparties, settlement banks, 
Nostro agents, intraday liquidity providers and other service 
providers, market infrastructure failures and other systemic events 
(and combinations thereof). Historical scenarios are run on a single 
day, and a historical trend is kept. Forward-looking scenarios project 
these cash flows over the coming eight-day period.
    ICE Clear Europe's Liquidity Plan also specifies procedures for 
liquidity management in cases of potential liquidity stress. ICE Clear 
Europe has defined a series of liquidity events and stress situations, 
ordered by severity, which trigger a notification to the relevant level 
of management and, if further escalation is required, the Board. The 
Liquidity Plan also outlines actions that may be taken in each 
situation to address the liquidity event or stress.
    The Liquidity Plan provides for daily, weekly and monthly reporting 
requirements to relevant levels of clearing house management, Board 
risk committee, the Board and regulators, as appropriate. In addition, 
the Liquidity Plan establishes a protocol for breaches and liquidity 
events, which includes reporting and escalation based on the severity 
of the event, mitigating actions and replenishment of liquidity. The 
Liquidity Plan also provides for periodic testing of liquidity 
resources to ensure that they are ``highly reliable'' within the 
meaning of Article 44 of EMIR.
    As part of the specified governance process, the Liquidity Plan 
will be reviewed by management and must be approved by the Board 
annually following consultation with the Board risk committee. 
Deviations and interim changes similarly require Board approval 
following consultation with the Board risk committee.
    ICE Clear Europe has also revised its LRMF to reflect the adoption 
of the new, separate Liquidity Plan (and the two documents together are 
intended to reflect the clearing house's approach to liquidity 
management). Various sections of the LRMF have also been modified to 
improve clarity and readability. As revised, the LRMF specifies the 
objectives of liquidity management, and references relevant policies, 
including investment policies, collateral management and haircut 
policies, stress testing policies and operational risk management 
policies. The LRMF also addresses the policies for establishing 
liquidity risk tolerances and appetites, the range of relevant stress 
scenarios (which are derived from the CPSS-IOSCO Principles for 
Financial Market Infrastructures and Regulatory Technical Standards 
Article 32.4), reverse stress testing requirements in accordance with 
Regulatory Technical Standards Article 49, and the resources the 
clearing house will treat as available for liquidity management 
purposes. The LRMF specifies further procedures concerning liquidity 
shortfalls and replenishment, complementing the provisions set forth in 
the Liquidity Plan. The LRMF also specifies procedures for internal 
review and governance over the liquidity policies, as well as 
procedures for exceptions and breaches of risk tolerance or risk 
appetite levels.
2. Statutory Basis
    ICE Clear Europe believes that the proposed rule change is 
consistent with the requirements of Section 17A of the Act \5\ and the 
regulations thereunder applicable to it, including the standards under 
Rule 17Ad-22.\6\ Section 17A(b)(3)(F) of the Act \7\ requires, among 
other things, that the rules of a clearing agency be designed to 
promote the prompt and accurate clearance and settlement of securities 
transactions, and to the extent applicable, derivative agreements, 
contracts and transactions and to comply with the provisions of the Act 
and the rules and regulations thereunder. The proposed rules are 
designed to formalize the clearing house's policies and procedures 
relating to liquidity risk management. In particular, the revised 
policies address ICE Clear Europe's liquidity resources and procedures 
for testing the adequacy of those resources in a range of scenarios, 
including extreme but plausible scenarios involving, among other 
things, the default of a clearing member, settlement bank, liquidity 
provider and other service providers. They also provide further clarity 
as to the steps ICE Clear Europe may take when confronted with a 
potential liquidity shortfall or similar event. In ICE Clear Europe's 
view, the amendments thereby enhance the ability of the clearing house 
to assess potential liquidity events that may impact its ability to 
conduct settlements for cleared transactions and its ability to avoid 
or manage such events and continue clearing house operations. As such, 
ICE Clear Europe believes that the changes will promote the prompt and 
accurate settlement of securities and derivatives transactions, and 
therefore are consistent with the requirements of the Act and the rules 
and regulations thereunder applicable to ICE Clear Europe, in 
particular, to Section 17(A)(b)(3)(F).
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    \5\ 15 U.S.C. 78q-1.
    \6\ 17 CFR 240.17Ad-22.
    \7\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    ICE Clear Europe does not believe the Liquidity Policy Amendments 
would have any impact, or impose any burden, on competition not 
necessary or appropriate in furtherance of the purposes of the Act. The 
amendments formalize certain liquidity management policies and 
procedures. ICE Clear Europe does not believe that the revised policies 
will materially affect the cost of clearing for clearing members or 
their customers, impose additional requirements on clearing members, or 
otherwise affect access to clearing. The amendments will promote 
liquidity risk

[[Page 46896]]

management and thereby enhance the stability of the clearing house and 
its ability to continue to provide clearing services in the case of 
liquidity stresses.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    Written comments relating to the proposed change to the rules have 
not been solicited or received. ICE Clear Europe will notify the 
Commission of any written comments received by ICE Clear Europe.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml) or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-ICEEU-2014-12 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-ICEEU-2014-12. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filings also will be available 
for inspection and copying at the principal office of ICE Clear Europe 
and on ICE Clear Europe's Web site at https://www.theice.com/clear-europe/regulation.
    All comments received will be posted without change; the Commission 
does not edit personal identifying information from submissions. You 
should submit only information that you wish to make available 
publicly. All submissions should refer to File Number SR-ICEEU-2014-12 
and should be submitted on or before September 2, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-18877 Filed 8-8-14; 8:45 am]
BILLING CODE 8011-01-P


