
[Federal Register Volume 79, Number 180 (Wednesday, September 17, 2014)]
[Notices]
[Pages 55848-55850]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-22113]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73075; File No. SR-ICEEU-2014-12]


Self-Regulatory Organizations; ICE Clear Europe Limited; Order 
Granting Approval of Proposed Rule Change to Liquidity Policies 
Relating to EMIR

September 11, 2014.

I. Introduction

    On July 25, 2014, ICE Clear Europe Limited (``ICE Clear Europe'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change SR-ICEEU-2014-12 pursuant to Section 19(b)(1) of 
the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder.\2\ The proposed rule change was

[[Page 55849]]

published for comment in the Federal Register on August 11, 2014.\3\ 
The Commission received no comment letters regarding the proposed 
change. For the reasons discussed below, the Commission is granting 
approval of the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 34-72761 (August 5, 
2014), 79 FR 46894 (August 11, 2014) (SR-ICEEU-2014-12).
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II. Description of the Proposed Rule Change

    ICE Clear Europe is proposing this change to revise and formalize 
certain ICE Clear Europe liquidity policies and procedures, and to 
facilitate compliance with requirements under the European Market 
Infrastructure Regulation (including regulations thereunder, ``EMIR'') 
\4\ that will apply to ICE Clear Europe as an authorized central 
counterparty.
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    \4\ 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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    ICE Clear Europe proposes to revise 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.
    ICE Clear Europe states that the Liquidity Plan has been drafted in 
accordance with Article 32 of the Regulatory Technical Standards 
implementing EMIR.\5\ ICE Clear Europe represents that, 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. ICE 
Clear Europe also states that the Liquidity Plan reflects requirements 
and guidance of the Bank of England.
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    \5\ 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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    ICE Clear Europe states that the Liquidity Plan contains details 
about its liquidity monitoring, stress testing, reporting and 
management procedures. ICE Clear Europe represents that, with respect 
to monitoring, it uses various systems and processes 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. ICE Clear Europe contends that any deviation from established 
tolerance levels will be escalated in accordance with the Liquidity 
Plan. ICE Clear Europe also states that the Liquidity Plan uses certain 
``Key Risk & Performance Indicators'' to ensure compliance with the 
investment policies in light of ICE Clear Europe's credit and liquidity 
requirements, based on a number of investment categories and tenor 
categories.
    ICE Clear Europe states that its 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. According to 
ICE Clear Europe, the Liquidity Plan also addresses liquidity risk 
tolerances and appetite limits established by its Board in connection 
with stress testing. ICE Clear Europe also states that 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 and that 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. ICE Clear Europe also claims that the scenarios 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). According to ICE Clear Europe, historical 
scenarios are run on a single day, and a historical trend is kept, 
while forward-looking scenarios project these cash flows over the 
coming eight-day period.
    According to ICE Clear Europe, its Liquidity Plan also specifies 
procedures for liquidity management in cases of potential liquidity 
stress. ICE Clear Europe states that it 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. ICE Clear Europe also states 
that the Liquidity Plan outlines actions that may be taken in each 
situation to address the liquidity event or stress.
    ICE Clear Europe contends that 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, ICE Clear Europe states that 
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 and 
that 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.
    ICE Clear Europe states that, 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, and that deviations and interim changes similarly 
require Board approval following consultation with the Board risk 
committee.
    According to ICE Clear Europe, it 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). ICE Clear Europe states that various 
sections of the LRMF have been modified to improve clarity and 
readability. ICE Clear Europe further states that, 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. ICE Clear Europe also states that 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

[[Page 55850]]

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. ICE Clear Europe also contends that the LRMF specifies 
further procedures concerning liquidity shortfalls and replenishment, 
complementing the provisions set forth in the Liquidity Plan and 
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.

III. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act \6\ directs the Commission to 
approve a proposed rule change of a self-regulatory organization if the 
Commission finds that such proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to such self-regulatory organization. Section 17A(b)(3)(F) 
of the Act \7\ requires, among other things, that the rules of a 
clearing agency are 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.
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    \6\ 15 U.S.C. 78s(b)(2)(C).
    \7\ 15 U.S.C. 78q-1(b)(3)(F).
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    The Commission finds that the proposed rule change is consistent 
with Section 17A of the Act \8\ and the rules thereunder applicable to 
ICE Clear Europe. The revised policies address the liquidity resources 
and procedures for testing the adequacy of those resources in a range 
of scenarios, including scenarios involving extreme but plausible 
market conditions. Furthermore, the revised policies would provide 
further clarity as to the steps ICE Clear Europe may take when 
confronted with a potential liquidity shortfall or similar event. The 
proposed revisions are thereby reasonably designed to 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, the Commission 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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    \8\ 15 U.S.C. 78q-1.
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IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposal is consistent with the requirements of the Act and in 
particular with the requirements of Section 17A of the Act \9\ and the 
rules and regulations thereunder.
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    \9\ 15 U.S.C. 78q-1.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\10\ that the proposed rule change (File No. SR-ICEEU-2014-12) be, 
and hereby is, approved.\11\
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    \10\ 15 U.S.C. 78s(b)(2).
    \11\ 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.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-22113 Filed 9-16-14; 8:45 am]
BILLING CODE 8011-01-P


