
[Federal Register Volume 82, Number 98 (Tuesday, May 23, 2017)]
[Notices]
[Pages 23692-23694]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-10462]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80706; File No. SR-ICEEU-2017-005]


Self-Regulatory Organizations; ICE Clear Europe Limited; Notice 
of Filing of Proposed Rule Change, Security-Based Swap Submission or 
Advance Notice Relating to Clearing House Contributions to CDS Default 
Resources

May 17, 2017.
    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 May 4, 2017, ICE Clear Europe Limited (``ICE Clear Europe'' or 
``Clearing House'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change described in Items I, II and 
III below, which Items have been primarily prepared 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. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change, Security-Based Swap Submission, or Advance Notice

    The principal purpose of the changes is to modify the ICE Clear 
Europe Finance Procedures to implement certain changes to the Clearing 
House CDS Contributions.

II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change, Security-Based Swap Submission or 
Advance Notice

    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 such statements.

A. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change, Security-Based Swap Submission or 
Advance Notice

1. Purpose
    ICE Clear Europe proposes revising its Finance Procedures to 
implement certain changes to the Clearing House CDS Contributions. 
These revisions do not involve any changes to the ICE Clear Europe 
Clearing Rules.\3\
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    \3\ Capitalized terms used but not defined herein have the 
meanings specified in the ICE Clear Europe Clearing Rules (the 
``Rules'').
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    ICE Clear Europe maintains a waterfall of defined default 
resources, including its CDS Guaranty Fund, to provide financial 
resources to cover potential losses resulting from the default of a CDS 
Clearing Member.\4\ The CDS Guaranty Fund consists of required 
contributions made by CDS Clearing Members. Currently, ICE Clear 
Europe's contribution to CDS default resources is split into two 
parts--namely, a Clearing House CDS Initial Contribution and a Clearing 
House CDS GF Contribution. Under the default resource waterfall, assets 
(including margin and CDS Guaranty Fund contributions) provided by the 
defaulting CDS Clearing Member are used first to cover default losses. 
In the event the Clearing House experiences losses from the default of 
a CDS Clearing Member that exceed the resources provided by the 
defaulter, the Clearing House CDS Initial Contribution would, in 
accordance with the Rules, be applied next, and prior the use of CDS 
Guaranty Fund contributions of non-defaulting CDS Clearing Members. 
Following exhaustion of the Clearing House CDS Initial Contribution, 
the CDS Guaranty Fund contributions of non-defaulting CDS Clearing 
Members and the Clearing House CDS GF Contribution would be applied to 
cover

[[Page 23693]]

CDS default losses, on a pro rata basis. The respective amounts of the 
Clearing House CDS Initial Contribution and Clearing House CDS GF 
Contribution are determined in accordance with paragraph 15.2 of the 
Finance Procedures, and are notified to Clearing Members by Circular.
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    \4\ The waterfall of application of default resources upon the 
default of a CDS Clearing Member is set out in ICE Clear Europe 
Rules 908(c) and (g), and is summarized here for reference.
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    ICE Clear Europe proposes to amend paragraph 15.2 of the Finance 
Procedures in order to permit the Clearing House to redesignate all or 
a part of the Clearing House CDS GF Contribution as additional Clearing 
House CDS Initial Contribution. ICE Clear Europe does not propose to 
change the aggregate amount of, or basis for calculating, the Clearing 
House CDS GF Contribution and Clearing House CDS Initial Contribution. 
The effect of any such redesignation would be that more of ICE Clear 
Europe's contribution to CDS default resources would be used at an 
earlier point in the waterfall of default resources, prior to the use 
of CDS Guaranty Fund contributions of non-defaulting CDS Clearing 
Members. Such a redesignation will thus provide greater protection of 
CDS Clearing Member contributions of non-defaulting CDS Clearing 
Members, and reduce the likelihood that the use of CDS Clearing Member 
contributions will be necessary in a default scenario.
    Specifically, paragraph 15.2(a) of the Finance Procedures, which 
establishes the amount of the Clearing House CDS Initial Contribution, 
would be amended to provide that the Clearing House can increase such 
amount by redesignating all or part of the Clearing House CDS GF 
Contribution as a Clearing House CDS Initial Contribution. ICE Clear 
Europe would be required to notify Clearing Members by circular of any 
such redesignation.
    Conforming amendments have been made in paragraph 15.2(b) to refer 
to amounts so redesignated as Clearing House CDS Initial Contributions, 
as well as to clarify a cross-reference. Similar conforming changes are 
made in paragraph 15.2(c), which establishes the amount of required 
Clearing House CDS GF Contributions, to take into account any amounts 
thereof that are redesignated as Clearing House CDS Initial 
Contributions. Paragraph 15.2(d) would be revised to clarify the 
obligation to replenish Clearing CDS GF Contributions (including such 
amounts that are redesignated as Clearing House Initial CDS 
Contributions) when applied in accordance with the Rules, as well as to 
provide that any required replenishments of the Clearing House CDS GF 
Contribution could similarly be redesignated as Clearing House CDS 
Initial Contributions and to clarify a cross-reference. Paragraph 
15.2(g) would be revised to clarify that the Clearing House would not 
be required or permitted to redesignate any amount as Clearing House 
CDS Initial Contributions as Clearing House CDS GF Contributions solely 
as a result of changes in the amounts of a Clearing House CDS 
Contribution because of exchange rate fluctuations.
    The decision to redesignate any amount of Clearing House CDS GF 
Contribution as Clearing House CDS Initial Contribution (and to make 
any change in any such redesignation) would be made by the ICE Clear 
Europe Board, in consultation with the CDS Risk Committee.
2. Statutory Basis
    ICE Clear Europe believes that the changes described herein are 
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\ and are consistent with the prompt and accurate 
clearance of and settlement of securities transactions and, to the 
extent applicable, derivative agreements, contracts and transactions, 
the safeguarding of securities and funds in the custody or control of 
ICE Clear Europe or for which it is responsible and the protection of 
investors and the public interest, within the meaning of Section 
17A(b)(3)(F) of the Act.\7\ ICE Clear Europe is not changing the 
aggregate level of its contributions to CDS default resources, or the 
overall level of CDS default resources generally. The amendments will 
provide the Clearing House the ability to move its own contributions to 
CDS default resources higher in the waterfall of default resources, so 
that more of such contributions will be used prior to the CDS Guaranty 
Fund contributions of non-defaulting CDS Clearing Members. Such a 
redesignation will make it less likely that the Clearing House would 
need to use the CDS Guaranty Fund contributions of non-defaulting CDS 
Clearing Members, and thus provide additional protection to such 
contributions of non-defaulting CDS Clearing Members. ICE Clear Europe 
notes in this regard ongoing industry discussions concerning the 
appropriate level and seniority of clearing house contributions to 
default resources generally.\8\ In light of the evolving views of 
market participants on these issues, ICE Clear Europe believes that the 
amendments will provide it appropriate flexibility to determine to 
change the balance between Clearing House CDS Initial Contributions and 
Clearing House CDS GF Contributions to place more of its own assets at 
risk earlier in the waterfall of default resources. In ICE Clear 
Europe's view, the amendments will thus promote the prompt and accurate 
clearance and settlement of cleared contracts, and the protection of 
market participants and the public interest, within the meaning of 
Section 17A(b)(3)(F) of the Act.\9\ For similar reasons, ICE Clear 
Europe believes that the amendments are also consistent with the 
requirements regarding financial resources in Rule 17Ad-22(b)(3) \10\ 
and Rule 17Ad-22(e)(4).\11\ As noted above, the decision to redesignate 
any amount of Clearing House CDS GF Contribution as Clearing House CDS 
Initial Contribution (and to make any change in any such redesignation) 
would be made by the ICE Clear Europe Board, in consultation with the 
CDS Risk Committee. As a result, in ICE Clear Europe's view, the 
amendments incorporate governance arrangements that fulfill the 
requirements of Rule 17Ad-22(e)(2),\12\ including that the governance 
arrangements, among other matters, support the public interest 
requirements of Section 17A of the Act and the objectives of 
participants, as set forth above.
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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).
    \8\ See, e.g., Committee on Payment and Market Infrastructures/
Board of the International Organization of Securities Commissions, 
Resilience and Recovery of Central Counterparties (CCPs): Further 
Guidance on the PFMIs (consultative report) (August 2016), paragraph 
6.
    \9\ 15 U.S.C. 78q-1(b)(3)(F).
    \10\ 17 CFR 240.17Ad-22(b)(3).
    \11\ 17 CFR 240.17Ad-22(e)(4).
    \12\ 17 CFR 240.17Ad-22(e)(2).
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B. Clearing Agency's Statement on Burden on Competition

    ICE Clear Europe does not believe the proposed changes to the rules 
would have any impact, or impose any burden, on competition not 
necessary or appropriate in furtherance of the purpose of the Act. The 
amendments will solely affect the relative priority of ICE Clear 
Europe's contributions to CDS default resources, in a manner that will 
allow ICE Clear Europe to use more such resources prior to the use of 
any CDS Guaranty Fund contributions of non-defaulting CDS Clearing 
Members. ICE Clear Europe does not believe the amendments would 
adversely affect Clearing Members, materially affect the cost of 
clearing, adversely affect access to clearing in CDS Contracts for 
Clearing Members or their customers, or otherwise adversely affect 
competition in clearing services. As a result, ICE

[[Page 23694]]

Clear Europe does not believe that the amendments would impose any 
impact or burden on competition that is not appropriate in furtherance 
of the purpose of the Act.

C. Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants or Others

    Written comments relating to the proposed changes 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, Security-Based 
Swap Submission and Advance Notice 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.
    The proposal shall not take effect until all regulatory actions 
required with respect to the proposal are completed.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, security-based swap submission or advance notice 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-2017-005 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-2017-005. 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, security-
based swap submission or advance notice that are filed with the 
Commission, and all written communications relating to the proposed 
rule change, security-based swap submission or advance notice 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 will also 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#rule-filings.
    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-2017-005 
and should be submitted on or before June 13, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-10462 Filed 5-22-17; 8:45 am]
BILLING CODE 8011-01-P


