[Federal Register Volume 83, Number 37 (Friday, February 23, 2018)]
[Notices]
[Pages 8138-8140]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-03691]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82729; File No. SR-ICEEU-2018-004]


Self-Regulatory Organizations; ICE Clear Europe Limited; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating to a New F&O Concentration Charge Policy

February 16, 2018.
    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 February 8, 2018, ICE Clear Europe Limited (``ICE Clear Europe'' or 
the ``Clearing House'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule changes described in 
Items I, II, and III below, which Items have been prepared primarily by 
ICE Clear Europe. ICE Clear Europe filed the proposed rule changes 
pursuant to Section 19(b)(3)(A) of the Act,\3\ and Rule 19b-4(f)(4)(ii) 
thereunder,\4\ so that the proposal was immediately effective upon 
filing with the Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(4)(ii).
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    ICE Clear Europe proposes to implement a new F&O Concentration 
Charge Policy (the ``Policy''), which will replace separate existing 
concentration charge policies for its energy and its financials and 
softs products.

II. Clearing Agency'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 such statements.

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

(a) Purpose
    ICE Clear Europe proposes to adopt the Policy, which will implement 
a new concentration charge margin model that will apply to all F&O 
Contracts, in both the energy and financials and softs (``F&S'') 
sectors. ICEU currently uses two separate concentration charge models: 
One for energy products and one for F&S products. The existing 
concentration models and their associated policies will be retired upon 
implementation of the Policy. The concentration charge model is 
designed to provide the Clearing House with extra margin to cover the 
potential additional default costs where liquidation of a defaulter's 
positions may be delayed or prolonged due to highly concentrated 
positions within the defaulter's portfolio.
    The new Policy is largely based on the existing concentration 
charge model applicable to F&S products, and as a result it is expected 
only marginally to impact margin for F&S products. The new Policy adds 
a few enhancements to the existing F&S model. Specifically, certain 
technical detail from the F&S model will be enhanced such that the 
concentration charge will no longer be calculated as a multiple of 
total SPAN initial margin, but instead as a multiple of individual 
margin component (i.e., outright or the scanning risk and the inter-
month risk) summed together.
    The new Policy marks a more significant methodology change for 
energy products, and may more significantly increase concentration 
charges for those products. The existing energy concentration charge 
model is based on the percentage share of each clearing member's 
initial margin to the total clearing house initial margin, while the 
new Policy (like the existing F&S policy) is based on the clearing 
member's position relative to the perceived level of market depth as 
represented by the daily trading volume in the relevant products. ICE 
Clear Europe believes that the new Policy will provide a more robust 
approach to measuring concentration risk, based on expected cost and 
time of liquidation, and to imposing additional margin charges as a 
result.

[[Page 8139]]

    The Policy itself sets out the key steps and procedures for 
calculating the concentration charge for F&O contracts. Calculations 
are made for each underlying commodity and each relevant expiration 
period. The Policy operates by scaling the initial margin requirement 
upward by extending the holding or liquidation period beyond the margin 
period of risk used in the standard margin calculation, to account for 
the longer time it is expected to take the Clearing House to liquidate 
the positions in light of the average daily trading volume in the 
product. The concentration charge is thus designed to reflect the 
portion of the defaulter's position expected to be remaining after the 
margin period of risk. The Policy uses a concentration charge scaling 
formula that takes into account these considerations. The final 
concentration charge takes into account both an outright position 
scanning range calculation and an intermonth (calendar spread) position 
calculation.
    The Policy sets out additional operational steps related to 
determining concentration charges, including weekly calculations and 
reports to members regarding their concentration charge percentages per 
underlying, per Clearing Member and on an account level. Additional 
detail can be provided to Clearing Members upon request. Parameters for 
the model are reviewed on an ongoing basis in conjunction with the 
charge calculation cycle and through a quarterly formal review of all 
parameters, where the latest market statistics are used to assess their 
adequacy.
    The Policy also incorporates an overall Board risk appetite and 
limit framework, which is consistent with other ICE Clear Europe 
policies, based on ICE Clear Europe's corporate objectives and risk 
objectives as established by the Board. The Policy also addresses 
governance and reporting, including independent validation, policy 
review and exception handling. Relevant models used to support the 
Policy are subject to an annual independent validation and governance 
oversight. The Policy addresses review and oversight by the policy 
owner, as well as escalation and notification protocols. The Policy 
will be reviewed by the F&O Risk Committee and Board at least annually. 
At a minimum, any material changes will be discussed by the ICE Clear 
Europe executive risk committee and approved by the Board (on the 
advice of the F&O Risk Committee and Board Risk Committee). Material 
deviations are reported to the ICE Clear Europe President and the risk 
oversight department to determine the appropriate governance escalation 
and notification requirements.
(b) Statutory Basis
    ICE Clear Europe believes that the proposed amendments 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\ 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, the safeguarding of securities and funds 
in the custody or control of the clearing agency or for which it is 
responsible, and the protection of investors and the public interest. 
The new Policy is designed to enhance the Clearing House's margin 
model, by providing a more robust analysis of concentration risk that 
may be caused by clearing member positions that cannot be liquidated 
within the standard margin period of risk, and to provide for 
additional initial margin resources to cover that risk. The Policy will 
thus better align clearing member margin requirements with the 
concentration risks presented by such members. As such, the Policy will 
facilitate the prompt and accurate clearance and settlement of 
transactions, and protect the Clearing House against the risk of 
default, which will in turn enhance the protection of investors and the 
public interest, within the meaning of Section 17A(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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    In addition, Rule 17Ad-22(e)(6) \8\ requires that a clearing agency 
cover its credit exposures to its participants by establishing a risk-
based margin system that, among other matters, produces margin levels 
commensurate with, the risks and particular attributes of each relevant 
product, portfolio, and market; and calculates margin sufficient to 
cover its potential future exposure to participants in the interval 
between the last margin collection and the close out of positions 
following a participant default. As noted above, the new Policy is 
designed to enhance the Clearing House's ability to set additional 
margin requirements that reflect the concentration risk of particular 
Clearing Member portfolios, and thereby to hold sufficient margin to 
cover the additional liquidation risk inherent in those portfolios. The 
Policy sets appropriately conservative concentration limits that will 
bring concentration charges for energy products into alignment with 
other F&O products. The Policy is thus consistent with the requirements 
of Rule 17Ad-22(e)(6).
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    \8\ 17 CFR 240.17Ad-22(e)(6).
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    Rule 17Ad-22(e)(6)(vii) \9\ further requires that each covered 
clearing agency establish written policies and procedures that provide 
for a model validation for the covered clearing agency's margin system 
and related models to be performed not less than annually, or more 
frequently as may be contemplated by the covered clearing agency's risk 
management framework. As set forth above, the models underlying the 
Policy are subject to an annual independent validation. The Policy 
itself is subject to review by the F&O Risk Committee and Board at 
least annually. The Model parameters used to determine concentration 
limits are reviewed on an ongoing basis and there is also a quarterly 
formal review of all the parameters, where the latest market statistics 
are used to assess their adequacy. These procedures are consistent with 
Rule 17Ad-22(e)(6)(vii).
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    \9\ 17 CFR 240.17Ad-22(e)(6)(vii).
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(B) Clearing Agency's Statement on Burden on Competition

    ICE Clear Europe does not believe the proposed rule changes would 
have any impact, or impose any burden, on competition not necessary or 
appropriate in furtherance of the purposes of the Act. The changes are 
being proposed in order to more appropriately manage concentration 
risks in the portfolios of Clearing Members, and ensure that ICE Clear 
Europe imposes sufficient concentration charges to cover the potential 
liquidation risks arising from concentrated portfolios. The revised 
approach may result in increased concentration charges for F&O Clearing 
Member, particularly those with concentrated energy portfolios, and so 
may increase the cost of clearing for those Clearing Members. However, 
ICE Clear Europe believes that any such additional cost is appropriate 
to take into account the concentration risk posed to the Clearing House 
by such Clearing Members, consistent with the provisions of the Act and 
Commission regulations relating to margin requirements and 
methodologies as discussed above. The Policy will apply to all F&O 
Clearing Members, and such Clearing Members will be able to manage 
their positions to limit potential concentration charges if they so 
choose. ICE Clear Europe does not believe that

[[Page 8140]]

the revised Policy will otherwise impact competition among Clearing 
Members or other market participants, or affect the ability of market 
participants to access clearing generally. As a result, ICE Clear 
Europe believes that any impact on competition is appropriate in 
furtherance of the purposes 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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \10\ and paragraph (f) of Rule 19b-4 \11\ 
thereunder. At any time within 60 days of the filing of the proposed 
rule change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f).
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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 [email protected]. Please include 
File Number SR-ICEEU-2018-004 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-2018-004. 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 website (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 website 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 website at https://www.theice.com/clear-europe/regulation#rule-filings.
    All comments received will be posted without change. Persons 
submitting comments are cautioned that we do not redact or edit 
personal identifying information from comment submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-ICEEU-2018-004 and should be 
submitted on or before March 16, 2018.

    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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Eduardo Aleman,
Assistant Secretary.
[FR Doc. 2018-03691 Filed 2-22-18; 8:45 am]
 BILLING CODE 8011-01-P


