[Federal Register Volume 83, Number 221 (Thursday, November 15, 2018)]
[Notices]
[Pages 57513-57516]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-24870]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84556; File No. SR-ICEEU-2018-011]


Self-Regulatory Organizations; ICE Clear Europe Limited; Notice 
of Filing and Immediate Effectiveness of Proposed Rule Change Relating 
to Amendments to the F&O Guaranty Fund Policy (the ``Policy''), 
Clearing Rules (the ``Rules'') and Finance Procedures (``Finance 
Procedures'')

November 8, 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 October 29, 2018, ICE Clear Europe Limited (``ICE Clear Europe'') 
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 make certain amendments to the Policy, 
Rules and Finance Procedures relating to the calculation methodology 
for F&O Clearing Member contributions, the minimum size of the F&O 
Guaranty Fund and the review cycle and to make various drafting 
clarifications and improvements.

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 is generally amending the Policy to address the 
following aspects of the F&O Guaranty Fund: Changing the calculation 
methodology for F&O Clearing Member contributions to incorporate an 
uncollateralized stress loss factor (in addition to a factor based on 
the intraday original margin requirement), in line with the Clearing 
House principle of `polluter pays'; specifying the minimum size of the 
F&O Guaranty Fund at 2% of the amount of F&O original margin; and 
changing the review cycle for the F&O Guaranty Fund level from 
quarterly to every two months, in line with the F&O Risk Committee 
meeting schedule. Various drafting clarifications and improvements have 
also been made, and certain descriptions in the Policy that duplicate 
or describe provisions in other Rules, ICE Clear Europe Procedures and 
policies have been removed as unnecessary. ICE Clear Europe is also 
making corresponding amendments to the Rules and Finance Procedures to 
accommodate the changes being made to the Policy. Set out below are 
further details regarding the specific proposed amendments.
    ICE Clear Europe is proposing to amend its description of the 
purposes and objectives of the Policy to include a broader statement 
that the Policy defines how and how often the F&O Guaranty Fund is 
sized, how Clearing Member contributions are apportioned and the sizing 
frequency, as well as that the Policy also defines stress margin and 
its uses, eligible assets covering F&O Guaranty Fund requirement 
liabilities, the default sequence and powers of assessment. Certain 
descriptions of the

[[Page 57514]]

use of F&O Guaranty Fund that summarize provisions of the Rules have 
been removed as unnecessary, and a cross reference to the Rules has 
been added.
    The provisions of the Policy relating to the sizing of the F&O 
Guaranty Fund would be amended to remove details found in other 
Clearing House policies and documentation, including the methodology 
used to calculate and allocate the additional guaranty fund 
apportionment (``AGA'') between the energy and financials & softs 
segments of the F&O Guaranty Fund. Detail regarding the review of the 
validity of the stress testing scenario(s) is being removed, as it is 
covered by other existing stress-testing policies. These changes do not 
represent a modification to ICE Clear Europe's current practices.
    The amendments to the Policy also reflect that the frequency of 
certain reviews will be changed from a quarterly basis to each time the 
F&O Risk Committee meets (which is typically every two months). 
Corresponding amendments to the Rules specify that the Guaranty Fund 
Period will be set pursuant to the Finance Procedures, instead of being 
a fixed three month period. The amendments to the Finance Procedures 
state that the start and end dates of Guaranty Fund Periods will be 
communicated to F&O Clearing Members.
    The amendments change the deadline for Clearing Members to deposit 
additional funds to comply with an increased F&O Guaranty Fund 
requirement. Specifically, as amended in section 6.1(i)(iii) of the 
Finance Procedures and as set out in the amended Policy, the deadline 
has been reduced from ten business days to five business days.
    The proposed amendments define the minimum overall F&O Guaranty 
Fund size as 2% of the total F&O original margin requirement (averaged 
over the review period), as compared to the current minimum which is 
based on the fixed ICE Clear Europe initial contribution to the F&O 
Guaranty Fund.
    The discussion of extraordinary reviews of the F&O Guaranty Fund is 
being amended to remove certain details relating to actions that will 
be taken by the clearing risk department when the stress testing 
results are observed to exceed the level of the relevant F&O Guaranty 
Fund segment, as this is documented in other Clearing House policies 
and documentation. The description instead notes that the amber and red 
limits defined as part of the Board Risk Appetite will potentially 
trigger an extraordinary review of the F&O Guaranty Fund which would be 
communicated via the standard process for review.
    The requirements of the Policy regarding information presented to 
the F&O Risk Committee are being simplified such that the following 
information will be presented to the F&O Risk Committee at each review 
of the level of the Fund: Historical daily stress-testing results from 
the Members showing at least the first and second largest 
uncollateralized losses; details of the stress scenario driving the 
largest exposures; and any other information supporting a resizing 
decision. Certain more prescriptive information requirements have been 
removed, as ICE Clear Europe believes they are unnecessary.
    The provisions of the Policy relating to recommendations as to 
changes in the overall level of the F&O Guaranty Fund have been 
condensed and simplified. The revised Policy identifies several factors 
on which the Clearing House will base its recommendations on the level 
of the Fund (including the level of uncollateralized losses as compared 
to the F&O Guaranty Fund or relevant segments and the level of stress 
margin called for relevant F&O product categories), rather than 
describing specific circumstances under which a `no change' 
recommendation or a recommendation to increase a Fund segment will be 
made. The Clearing House believes the more flexible approach better 
takes into account the range of factors that may warrant a change in 
the F&O Guaranty Fund level. In any case, as under the current Policy, 
a full explanation of the conclusions and related data is to be 
presented to the F&O Risk Committee and Board Risk Committee.
    As noted above, the amendments alter the calculation of F&O 
Clearing Member contributions to take into account potential 
uncollateralized, or stress, loss as well as the maximum intraday 
original margin requirement. The governing principle with respect to 
this determination is that each Clearing Member's contribution to each 
of the Fund segments should reflect their relative share of clearing 
activity as well as their relative share of uncollateralized loss. 
Under the revised approach, subject to minimum contribution 
requirements set out in the Policy, an F&O Clearing Member's relative 
share of the F&O Guaranty Fund requirement will be based 40% on its 
maximum intraday original margin requirement and 60% on its 
uncollateralized loss. This will be recalculated at each review 
(instead of on a quarterly cycle). This two factor contribution model 
is intended to offer a balanced contribution taking into account 
clearing activity and stress results. Various conforming and clarifying 
changes have been made throughout the Policy. As discussed above, F&O 
Clearing Members will have five (instead of ten) UK business days from 
notification to cover any increase in their F&O Guaranty Fund 
requirement. The description of the data validation process is being 
deleted (as the process is documented in other Clearing House 
procedures). The proposed amendments to the Policy also specify the 
minimum fund contribution for an F&O Clearing Member to be the larger 
of USD 1 million or the calculated member's contribution under the 
revised methodology. The corresponding proposed amendments to section 
14.1(b) of the Finance Procedures accommodate this change, by 
specifying that the Clearing House will establish from time to time a 
minimum fund contribution for an F&O Clearing Member based on a 
methodology adopted by the Clearing House, of not less than USD 1 
million.
    The proposed amendments also remove a description of the manner in 
which a drawdown of the F&O Guaranty Fund is made across the different 
fund segments, as that is covered in greater detail in the existing 
Rules.
    Finally, references to quarterly reviews of stress test results are 
being replaced with references to general review cycles throughout the 
Policy and an appendix with an example of a stress margin request is 
being deleted as unnecessary.
(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, to assure 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 proposed amendments are generally intended to enhance the 
F&O Guaranty Fund allocation methodology to take into account both 
original margin

[[Page 57515]]

requirements and potential stress losses that may exceed normal margin 
levels. The amendments also clarify the minimum size of the F&O 
Guaranty Fund, in a manner tied to the original margin requirements and 
thus the overall level of F&O clearing activity. The amendments further 
shorten the deadline under which F&O Clearing Members must provide 
additional F&O Guaranty Fund contributions when required. The Clearing 
House believes that these changes will more appropriately allocate F&O 
Guaranty Fund Contributions among F&O Clearing Members, further the 
risk management of the Clearing House and more generally promote the 
prompt and accurate clearance and settlement of transactions. The 
amendments also streamline the Policy to reduce redundancies with other 
Clearing House policies and the Rules and increase the review cycle 
from quarterly to every two months, consistent with the cycle of F&O 
Risk Committee meetings. In ICE Clear Europe's view, enhancing the 
clarity of the Policy and increasing the oversight of the Policy 
through more frequent reviews is also expected to better risk 
management and promote the prompt and accurate clearance and settlement 
of transactions. As a result, in ICE Clear Europe's view, the 
amendments are consistent with the requirements of Section 17A(b)(3)(F) 
of the Act.
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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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    The amendments are also consistent with relevant requirements of 
Rule 17Ad-22.\8\ Rules 17Ad-22(e)(4) \9\ and 17Ad-22(b)(3) \10\ require 
clearing agencies to maintain certain financial resources at specified 
levels sufficient to support their clearing operations, including 
through the use of guaranty funds. The amendments will facilitate 
compliance with these requirements, through an enhanced approach to 
allocating F&O Guaranty Fund requirements that takes into account both 
clearing activity (as indicated through original margin levels) and 
potential stress losses in extreme but plausible market conditions. The 
revised Policy also contemplates review of by the F&O Risk Committee of 
daily stress testing results showing at least the first and second 
largest uncollateralized losses and details of the stress scenario 
driving the largest exposures. Taken together, the changes will help 
the Clearing House ensure that, consistent with regulatory 
requirements, the F&O Guaranty Fund, together with other financial 
resources, is sufficient to enable the Clearing House to cover a wide 
range of foreseeable stress scenarios.
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    \8\ 17 CFR 240.17Ad-22.
    \9\ 17 CFR 240.17Ad-22(e)(4)(i)--(v). The rule states that 
``[e]ach covered clearing agency shall establish, implement, 
maintain and enforce written policies and procedures reasonably 
designed to, as applicable:
    (4) Effectively identify, measure, monitor, and manage its 
credit exposures to participants and those arising from its payment, 
clearing, and settlement processes, including by:
    (i) Maintaining sufficient financial resources to cover its 
credit exposure to each participant fully with a high degree of 
confidence;
    (ii) To the extent not already maintained pursuant to paragraph 
(e)(4)(i) of this section, for a covered clearing agency providing 
central counterparty services that is either systemically important 
in multiple jurisdictions or a clearing agency involved in 
activities with a more complex risk profile, 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;
    (iii) To the extent not already maintained pursuant to paragraph 
(e)(4)(i) of this section, for a covered clearing agency not subject 
to paragraph (e)(4)(ii) of this section, 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 participant family 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 to meet the standards under paragraphs (e)(4)(i) 
through (iii) of this section, as applicable;
    (v) Maintaining the financial resources required under 
paragraphs (e)(4)(ii) and (iii) of this section, as applicable, in 
combined or separately maintained clearing or guaranty funds;''
    \10\ 17 CFR 240.17Ad-22(b)(3). The rule states that ``[a] 
registered clearing agency that performs central counterparty 
services 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 
participant family to which it has the largest exposure in extreme 
but plausible market conditions.
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    Rule 17Ad-22(e)(2) \11\ requires clearing agencies to establish 
reasonably designed policies and procedures to provide for governance 
arrangements that are clear and transparent and specify clear and 
direct lines of responsibility. To facilitate compliance with this 
requirement, the proposed amendments to the Policy more clearly set out 
the information that will be provided to the F&O Risk Committee at each 
review of the level of the F&O Guaranty Fund and the factors that will 
be considered in making recommendations on the appropriate level of the 
F&O Guaranty Fund.
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    \11\ 17 CFR 240.17 Ad-22(e)(2). The rule states that ``[e]ach 
covered clearing agency shall establish, implement, maintain and 
enforce written policies and procedures reasonably designed to, as 
applicable:
    (2) Provide for governance arrangements that:
    (i) Are clear and transparent
    (ii) Clearly prioritize the safety and efficiency of the covered 
clearing agency;
    (iii) Support the public interest requirements in Section 17A of 
the Act (15 U.S.C. 78q-1) applicable to clearing agencies, and the 
objectives of owners and participants;
    (iv) Establish that the board of directors and senior management 
have appropriate experience and skills to discharge their duties and 
responsibilities;
    (v) Specify clear and direct lines of responsibility; and
    (vi) Consider the interests of participants' customers, 
securities issuers and holders, and other relevant stakeholders of 
the covered clearing agency.''
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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 clarify and enhance the Policy and reduce 
overlap with other Clearing House Rules and policies. The amendments 
will apply to all F&O Clearing Members. ICE Clear Europe does not 
believe the amendments will generally affect the overall cost of 
clearing for F&O Clearing Members or other market participants or 
otherwise affect access to clearing generally. The amendments may alter 
the allocation of F&O Guaranty Fund requirements across F&O Clearing 
Members, which could increase requirements for some members, but such 
changes are designed to more appropriately take into account potential 
stress losses as well as clearing activity of such members. In ICE 
Clear Europe's view, such amendments will enhance the risk management 
of the Clearing House and tailor the F&O Guaranty Fund requirements to 
the risks presented by F&O Clearing Members. As a result, any 
additional burdens placed on F&O Clearing Members will be appropriate 
in furtherance of that goal. The amendments will provide a transparent 
and objective methodology for the calculation of F&O Guaranty Fund 
requirements, and are not intended to disadvantage any particular 
Clearing Member. 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 amendments have not been 
solicited or received by ICE Clear Europe. ICE Clear Europe will notify 
the Commission of any comments received

[[Page 57516]]

with respect to the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act and paragraph (f) of Rule 19b-4 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.

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-2018-011 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-2018-011. 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.
    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-2018-011 and should be 
submitted on or before December 6, 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 A. Aleman,
Assistant Secretary.
[FR Doc. 2018-24870 Filed 11-14-18; 8:45 am]
 BILLING CODE 8011-01-P


