[Federal Register Volume 83, Number 31 (Wednesday, February 14, 2018)]
[Notices]
[Pages 6660-6662]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-02974]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82659; File No. SR-ICEEU-2017-011]


Self-Regulatory Organizations; ICE Clear Europe Limited; Order 
Approving Proposed Rule Change Relating to Amendments to the ICE Clear 
Europe Collateral and Haircut Policy

February 8, 2018.

I. Introduction

    On November 2, 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 to modify the ICE Clear Europe Collateral and 
Haircut Policy to incorporate certain changes to the calculation of 
absolute collateral limits for bonds provided as Permitted Cover by 
Clearing Members and make certain clarifications and updates and add 
certain general provisions.\3\ The proposed rule change was published 
for comment in the Federal Register on November 17, 2017.\4\ The 
Commission did not receive comments regarding the proposed rule change. 
On December 27, 2017, the Commission designated a longer period for 
Commission action on the proposed rule change.\5\ 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\ Capitalized terms used in this order but not defined herein 
have the same meanings specified in the ICE Clear Europe Clearing 
Rules.
    \4\ Securities Exchange Act Release No. 82063 (Nov. 13, 2017), 
82 FR 54423 (Nov. 17, 2017) (SR-ICEEU-2017-011) (``Notice'').
    \5\ Securities Exchange Act Release No. 82405 (Dec. 27, 2017), 
83 FR 181 (Jan. 2, 2018).
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II. Description of the Proposed Rule Change

    The proposed rule change would amend ICE Clear Europe's Collateral 
and Haircut Policy to set the absolute collateral limits for bonds 
provided as Permitted Cover by Clearing Members so as to more 
accurately capture the trading liquidity of each bond. The proposal 
would also take into account ICE Clear Europe's committed repo 
facilities to permit Clearing Members to maintain collateral in excess 
of normal absolute limits.\6\ In addition, the proposed rule change 
would revise the haircut calculation. Finally, the proposed rule change 
would update the Collateral and Haircut Policy to add certain general 
provisions designed to enhance ICE Clear Europe's governance. These 
changes are further described below.
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    \6\ As used herein, the term ``absolute limit'' refers to the 
maximum amount of bonds from an individual issuer that ICE Clear 
Europe will accept from a Member Group. See Notice, 82 FR at 54424.
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    With respect to setting absolute collateral limits for bonds 
provided as Permitted Cover by Clearing Members, ICE Clear Europe 
proposed to set limits for each bond issuer and collateral type at 10% 
of the average daily volume over the past three months, rounded to the 
nearest million.\7\ The proposed rule change would also change the 
underlying data used in the calculation of the absolute limit from a 
repo survey of market participants to actual secondary market trading 
volume data provided by ICE Data Services, except where official 
trading volume data is

[[Page 6661]]

available from a primary source, such as a governmental agency or 
central bank.\8\
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    \7\ Id.
    \8\ Id.
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    To complement the changes to the absolute collateral limits 
described above, ICE Clear Europe proposed changes to its haircut 
methodology. In particular, the proposed rule change would amend the 
haircut methodology to include a two-sided VaR estimation based on the 
largest absolute returns.\9\ The proposed rule change would also amend 
the Collateral and Haircut Policy to note scenarios in which the ICE 
Clear Europe Clearing Risk Department may consider other factors in 
setting haircuts, such as the effects caused by changes in the 
different underlying bonds used to build bond price time-series or the 
impact of unexpected currency events on the calculation of cross-
currency FX haircuts.\10\
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    \9\ Id.
    \10\ Id.
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    In addition, the proposed rule change would also amend the 
Collateral and Haircut Policy to account for ICE Clear Europe's 
committed repo facilities. For example, in certain circumstances, ICE 
Clear Europe permits a Clearing Member to maintain a collateral bond 
position that otherwise exceeds the applicable absolute collateral 
limits if ICE Clear Europe is able to determine that it would be able 
to use its committed repo facility to convert the excess collateral 
securities into cash. In addition, to permit the use of repo facilities 
in this way, the proposed rule change also clarifies that the repo 
facilities are available at any time there is an intra-day liquidity 
need and not just in case of Clearing Member default.\11\
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    \11\ Id.
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    Finally, the proposed rule change would amend the Collateral and 
Haircut Policy to update references to internal ICE Clear Europe 
personnel, departments and committees and to explain the process for 
validation and oversight of the models used to support the Collateral 
and Haircut Policy.

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.\12\ For the reasons given below, the Commission finds 
that the proposal is consistent with Section 17A(b)(3)(F) of the Act 
\13\ and Rules 17Ad-22(e)(2) and (5) thereunder.\14\
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    \12\ 15 U.S.C. 78s(b)(2)(C).
    \13\ 15 U.S.C. 78q-1(b)(3)(F).
    \14\ 17 CFR 240.17Ad-22(e)(2), (5).
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A. Consistency With Section 17A(b)(3)(F) of the Act

    Section 17A(b)(3)(F) of the Act requires, 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, in 
general, to protect investors and the public interest.\15\ The proposed 
rule change will enhance ICE Clear Europe's ability to control the 
credit, liquidity, and market risks stemming from the collateral it 
accepts by establishing a maximum amount of bonds from an individual 
issuer that ICE Clear Europe will accept from a Member Group as 
collateral. These new maximum amounts will be derived from actual 
secondary market trading volume data, and therefore should be more 
reliable than the prior absolute limits, which as noted above, were 
based on a repo survey of market participants as a proxy for trading 
liquidity. Therefore, these limits should be more accurate, and 
consequently, enhance ICE Clear Europe's ability to liquidate the bond 
collateral in a timely manner. Further, the proposed rule change also 
proposes to incorporate a two-sided VaR estimation based on the largest 
absolute returns for purposes of setting haircuts. Taken together these 
two changes should enhance ICE Clear Europe's ability to manage the 
credit, liquidity, and market risks it faces from posted collateral, 
and therefore enhance ICE Clear Europe's ability to safeguard 
securities and funds which are in its custody or control or for which 
it is responsible. Therefore, the Commission finds that the proposed 
rule change is designed to assure the safeguarding of securities and 
funds which are in the custody or control of ICE Clear Europe or for 
which it is responsible and, in general, protects investors and the 
public interest, and is therefore consistent with Section 17A(b)(3)(F) 
of the Act.\16\
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    \15\ 15 U.S.C. 78q-1(b)(3)(F).
    \16\ Id.
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B. Consistency With Rule 17Ad-22(e)(5)

    The Commission further finds that the proposed rule change is 
consistent with Rule 17Ad-22(e)(5). Rule 17Ad-22(e)(5) requires that a 
covered clearing agency establish, implement, maintain and enforce 
written policies and procedures reasonably designed to limit the assets 
it accepts as collateral to those with low credit, liquidity, and 
market risks, and set and enforce appropriately conservative haircuts 
and concentration limits if the covered clearing agency requires 
collateral to manage its or its participants' credit exposure; and 
require a review of the sufficiency of its collateral haircuts and 
concentration limits to be performed not less than annually.\17\
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    \17\ 17 CFR 240.17Ad-22(e)(5).
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    The proposed rule change will enhance ICE Clear Europe's ability to 
control the liquidity and market risks stemming from the posting of 
collateral by establishing a maximum amount of bonds from an individual 
issuer that ICE Clear Europe will accept from a Member Group as 
collateral. The proposed rule change will improve the accuracy of the 
Collateral and Haircut Policy by taking into account the trading 
liquidity of the bond using secondary market trading volume data 
provided by ICE Data Services. Moreover, by updating the Collateral and 
Haircut Policy to incorporate a two-sided VaR estimation based on the 
largest absolute returns, the proposed rule change will capture a 
broader range of price volatility information, thereby enhancing ICE 
Clear Europe's ability to liquidate the bond collateral in a timely 
manner without losses beyond the given haircuts. The Commission finds 
that these aspects of the proposed rule change are intended to limit 
the assets ICE Clear Europe accepts as collateral to those with low 
credit, liquidity, and market risks, and to set and enforce 
appropriately conservative haircuts. Therefore, the proposed rule 
change is consistent with Rule 17Ad-22(e)(5).\18\
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    \18\ Id.
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C. Consistency with Rule 17Ad-22(e)(2)

    Rule 17Ad-22(e)(2) requires that a covered clearing agency 
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.\19\ The proposed rule 
change will update references to internal ICE Clear Europe personnel, 
departments and committees and will explain the process for validation 
and oversight of the models used to support the Collateral and Haircut 
Policy. Therefore, the Commission finds that the proposed rule change 
is consistent with the requirement in Rule 17Ad-

[[Page 6662]]

22(e)(2) concerning governance arrangements that are clear and 
transparent and that support the public interest requirements of 
Section 17A of the Act applicable to clearing agencies and the 
objectives of participants.\20\
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    \19\ 17 CFR 240.17Ad-22(e)(2)(i) and (iii).
    \20\ Id.
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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 \21\ and 
Rules 17Ad-22(e)(2) and (5) thereunder.
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    \21\ 15 U.S.C. 78q-1.
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    It is therefore ordered pursuant to Section 19(b)(2) of the Act 
\22\ that the proposed rule change (SR-ICEEU-2017-011) be, and hereby 
is, approved.\23\
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    \22\ 15 U.S.C. 78s(b)(2).
    \23\ 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).
    \24\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-02974 Filed 2-13-18; 8:45 am]
 BILLING CODE 8011-01-P


