
[Federal Register Volume 82, Number 131 (Tuesday, July 11, 2017)]
[Notices]
[Pages 32037-32038]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-14427]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81076; File No. SR-ICEEU-2017-005]


Self-Regulatory Organizations; ICE Clear Europe Limited; Order 
Approving Proposed Rule Change Relating to Clearing House Contributions 
to CDS Default Resources

July 5, 2017.

I. Introduction

    On May 4, 2017, ICE Clear Europe Limited (``ICE Clear Europe'') 
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 (SR-
ICEEU-2017-005) to modify its Finance Procedures with respect to ICE 
Clear Europe's contributions to funds available in the event of a 
clearing member's default. The proposed rule change was published for 
comment in the Federal Register on May 23, 2017.\3\ The Commission 
received no comment letters regarding the proposed change. For the 
reasons discussed below, the Commission is approving 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. 34-80706 (May 17, 2017), 
82 FR 23692 (May 23, 2017) (SR-ICEEU-2017-005) (the ``Notice'').
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II. Description of the Proposed Rule Change

    ICE Clear Europe maintains financial resources to cover potential 
losses resulting from a CDS Clearing Member default by collecting 
margin from CDS Clearing Members, maintaining the CDS Guaranty Fund 
which is made up of CDS Member Contributions, and allocating its own 
contribution. In the event that ICE Clear Europe experiences losses 
from the default of a CDS Clearing Member, it first looks to the margin 
and CDS Guaranty Fund contributions provided by that defaulting CDS 
Clearing Member. Next, ICE Clear Europe applies part of its own 
contribution--the Clearing House CDS Initial Contribution. Third, ICE 
Clear Europe applies the CDS Guaranty Fund contributions of non-
defaulting CDS Clearing Members together with the remainder of its own 
contribution (the Clearing House CDS GF Contribution).
    ICE Clear Europe has proposed revisions to its Finance Procedures 
to permit ICE Clear Europe to redesignate all or a part of the Clearing 
House CDS GF Contribution as the Clearing House CDS Initial 
Contribution. If such redesignation were to occur, the Clearing House 
CDS GF Contributions would no longer be used pari passu with non-
defaulting CDS Clearing Members' contributions to the CDS Guaranty 
Fund. Instead, the redesignated amounts would be used before non-
defaulting CDS Clearing Members' contributions. Accordingly, ICE Clear 
Europe has proposed amending paragraph 15.2(a) of the Finance 
Procedures, which establishes the amount of the Clearing House CDS 
Initial Contribution, to provide that ``[t]he amount of the Clearing 
House CDS Initial Contribution may be further increased by [ICE Clear 
Europe] redesignating all or part of any of the Clearing House CDS GF 
Contributions as Clearing House CDS Initial Contributions.'' Section 
15.2(a) will also provide that any redesignation will be notified by 
circular. ICE Clear Europe has also proposed additional, conforming 
changes to paragraphs 15.2(b) to refer to amounts so redesignated as 
Clearing House CDS Initial Contribution; 15.2(c) to take into account 
amounts that are redesignated when establishing the Clearing House CDS 
GF Contributions; 15.2(d) to include redesignated amounts in the 
Clearing House CDS GF Contribution when calculating any replenishment 
to the Clearing House CDS GF

[[Page 32038]]

Contribution; and 15.2(g) to clarify that redesignation for purposes of 
top-up as a result of exchange rate fluctuations is not required, and 
that redesignation for purposes of withdrawal as a result of exchange 
rate fluctuations is not permitted.
    ICE Clear Europe believes that redesignation will reduce the 
likelihood that non-defaulting CDS Clearing Members' contributions will 
be used in a default scenario, and has represented that it ``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.'' \4\ ICE Clear Europe has represented that its Board, in 
consultation with its CDS Risk Committee, will make any redesignation 
decision.\5\ With respect to flexibility on the redesignation amount, 
ICE Clear Europe noted that there are ``ongoing industry discussions 
concerning the appropriate level and seniority of clearing house 
contributions to default resources'' and that market participants have 
``evolving views'' on the subject.\6\
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    \4\ Notice, 82 FR at 23693. ICE Clear Europe noted that ``The 
respective amounts [] are determined in accordance with paragraph 
15.2 of the Finance Procedures, and are notified to Clearing Members 
by Circular.'' Id.
    \5\ Id.
    \6\ Id.
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III. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act directs the Commission to approve a 
proposed rule change of a self-regulatory organization if it finds that 
such proposed rule change is consistent with the requirements of the 
Act and the rules and regulations thereunder applicable to such 
organization.\7\ Section 17A(b)(3)(F) of the Act requires,\8\ among 
other things, that the rules of a registered clearing agency be 
designed 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 the protection of investors and the public interest. 
Rule 17Ad-22(b)(3) requires that a clearing agency that performs 
central counterparty services for security-based swaps shall establish, 
implement, maintain, and enforce written policies and procedures 
reasonably designed to maintain sufficient financial resources to 
withstand, at a minimum, a default by the two participant families to 
which it has the largest exposures in extreme but plausible market 
conditions, in its capacity as a central counterparty for security-
based swaps.\9\ Rule 17Ad-22(e)(4) requires that a covered clearing 
agency involved in activities with a more complex risk profile shall 
establish, implement, maintain and enforce written policies and 
procedures reasonably designed to effectively identify, measure, 
monitor, and manage its credit exposures to participants and those 
arising from its payment, clearing, and settlement processes, including 
by, in relevant part, (i) maintaining sufficient financial resources to 
cover its credit exposure to each participant fully with a high degree 
of confidence, (ii) maintaining additional financial resources at the 
minimum to enable it to cover a wide range of foreseeable stress 
scenarios that include, but are not limited to, the default of the two 
participant families that would potentially cause the largest aggregate 
credit exposure for the covered clearing agency in extreme but 
plausible market conditions, (iv) including prefunded financial 
resources, exclusive of assessments for additional guaranty fund 
contributions or other resources that are not prefunded, when 
calculating the financial resources available, and (v) maintaining the 
financial resources required under Rule 17Ad-22(e)(4)(ii) in combined 
or separately maintained clearing or guaranty funds, as applicable.\10\ 
Rule 17Ad-22(e)(2) requires that a covered clearing agency shall 
establish, implement, maintain and enforce written policies and 
procedures reasonably designed to provide for governance arrangements 
that are clear and transparent and support the public interest 
requirements in Section 17A of the Act applicable to clearing agencies, 
and the objectives of owners and participants.\11\
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    \7\ 15 U.S.C. 78s(b)(2)(C).
    \8\ 15 U.S.C. 78q-1(b)(3)(F).
    \9\ 17 CFR 240.17Ad-22(b)(3).
    \10\ 17 CFR 240.17Ad-22(e)(4)(i), (ii), (iv) and (v).
    \11\ 17 CFR 240.17Ad-22(e)(2)(i) and (iii).
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    The Commission finds that the proposed rule change is consistent 
with Section 17A of the Act and Rule 17Ad-22 thereunder. Because ICE 
Clear Europe has not proposed changing the amount of financial 
resources it contributes to cover default losses, but rather, to give 
itself the authority to apply some or all of those amounts in a default 
scenario sooner than it otherwise would, the proposed rule change is 
consistent with Section 17A(b)(3)(F) \12\ and Rules 17Ad-22(b)(3) and 
(e)(4).\13\ ICE Clear Europe's flexibility in deciding whether and, if 
so, how much, of the Clearing House CDS GF Contribution to designate is 
consistent with the public interest in light of ongoing industry 
discussions, consistent with Section 17A(b)(3)(F) of the Act.\14\ 
Finally, ICE Clear Europe's proposal to vest resdeisgnation authority 
with its Board, in consultation with its CDS Risk Committee and 
publication by circular, is consistent with the requirement in Rule 
17Ad-22(e)(2) concerning governance arrangements that are clear and 
transparent and support the public interest requirements of Section 17A 
of the Act applicable to clearing agencies and the objectives of 
participants. \15\
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    \12\ 15 U.S.C. 78q-1(b)(3)(F).
    \13\ 17 CFR 240.17Ad-22(b)(3) and (e)(4).
    \14\ 15 U.S.C. 78q-1(b)(3)(F).
    \15\ 17 CFR 240.17Ad-22(e)(2)(i) and (iii).
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IV. Conclusion

    It is therefore ordered pursuant to Section 19(b)(2) of the Act 
that the proposed rule change (SR-ICEEU-2017-005) be, and hereby is, 
approved.\16\
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    \16\ 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.\17\
Eduardo A. Aleman,
Assistant Secretary.
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    \17\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2017-14427 Filed 7-10-17; 8:45 am]
 BILLING CODE 8011-01-P


