
[Federal Register Volume 83, Number 239 (Thursday, December 13, 2018)]
[Notices]
[Pages 64171-64173]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-26945]



[[Page 64171]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84754; File No. SR-ICEEU-2018-015]


Self-Regulatory Organizations; ICE Clear Europe Limited; Notice 
of Filing of Amendment No. 1 and Order Granting Accelerated Approval of 
a Proposed Rule Change, as Modified by Amendment No. 1, Relating to 
Amendments to the ICE Clear Europe Limited Liquidity Plan

December 7, 2018.

I. Introduction

    On October 22, 2018, 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-2018-015) to amend its Liquidity Plan 
\3\ to (i) refer to approved financial institutions (``AFI'') (such as 
investment agents and custodians) more generally, rather than to 
specific institutions; (ii) add an additional default scenario; (iii) 
revise procedures related to liquid resources and make other 
miscellaneous updates, including (a) clarifying the sources of 
liquidity to be relied upon in stress scenarios, (b) indicating which 
resources are excluded from those considered potential sources of 
liquidity, (c) updating key risk and performance indicators used in 
determining credit and liquidity standards of investments, and (d) 
removing unnecessary risk default scenarios and correcting 
typographical errors; and (iv) streamline its internal reporting 
process. The proposed rule change was published for comment in the 
Federal Register on November 9, 2018.\4\ On November 30, ICE Clear 
Europe filed Amendment No. 1 to the proposed rule change to make a 
technical change to the Liquidity Plan. The Commission did not receive 
comments on the proposed rule change. The Commission is publishing this 
notice to solicit comment on Amendment No. 1 from interested persons 
and is approving the proposed rule change, as modified by Amendment No. 
1, on an accelerated basis.
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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 meaning as in the ICE Clear Europe Rules.
    \4\ Securities and Exchange Act Release No. 34-84533 (November 
5, 2018), 83 FR 56107 (November 9, 2018) (SR-ICEEU-2018-015) 
(``Notice'').
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II. Description of the Proposed Rule Change

A. Changes to Approved Financial Institution

    ICE Clear Europe proposes to amend its Liquidity Plan to reflect 
changes in its treasury arrangements and certain other enhancements.\5\ 
Specifically, the approved AFI default and AFI plus Member default 
liquidity stress testing scenarios have been revised to refer to AFIs 
more generally, rather than to specific institutions.\6\ Currently, 
these two scenarios refer to specific institutions. However, ICE Clear 
Europe believes that because it may use a number of different financial 
institutions in these roles at various times, not naming a specific 
institution would assist in keeping its Liquidity Plan up to date as 
these service providers change.\7\
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    \5\ Notice, 83 FR 56107.
    \6\ Id.
    \7\ Id.
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B. Additional Default Scenario

    ICE Clear Europe proposes to amend the Liquidity Plan to add a new 
Central Securities Depository (CSD) default scenario, which is defined 
as a CSD being unable to process settlements.\8\ Currently, the 
Liquidity Plan does not have a stress testing scenario assessing the 
liquidity impact of the possibility that CSDs such as Euroclear Bank or 
Euroclear UK & Ireland cease to be functional and not able to process 
settlements. Under the scenario being proposed, available liquidity is 
assessed against the expected net cash payment outflow for a single day 
on a per currency basis, to determine if such a default could result in 
a delay in payment to clearing members.\9\
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    \8\ Id.
    \9\ Id.
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C. Updates and Clarifications to Liquidity Stress Testing Scenarios

    Other proposed updates and clarifications to the Liquidity Plan 
include: adding intra-day overdraft facilities to the sources used for 
the risk tolerance and risk appetite evaluations in the liquidity 
stress testing scenarios; eliminating references to an ICE Inc. (ICE 
Clear Europe's parent company) credit facility; in calculating the 
investment loss component of liquidity stress losses in clearing member 
default scenario, time deposits are assumed to have a 100% liquidity 
loss; for liquidity stress testing scenarios that look at cash invested 
with a one-day maturity, U.S. dollar investments in reverse repurchase 
agreements in assets denominated in Euro or pounds sterling will be 
excluded from available liquidity resources and cross-currency 
investments for Euro and British pounds sterling balances are not 
permitted; key risk and performance indicators used by ICE Clear Europe 
to determine if investments meet its credit and liquidity standards 
have been added; typographical errors corrected and a cross-reference 
to various treasury operating procedures was updated; and certain risk 
default scenarios have been removed.\10\
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    \10\ Id.
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D. Changes in Reporting and Governance

    ICE Clear Europe has also proposed changes related to its internal 
reporting process. Specifically, several weekly and monthly liquidity 
reports will no longer be sent to the Board Risk Committee and the 
Board. Instead, the Audit Committee will receive certain liquidity 
metrics, the Business Risk Committee will receive a liquidity 
management summary and other summary data, and the Board will receive 
collateral and investment data, certain liquidity metrics and 
assessments, and key risk and performance indicators.\11\
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    \11\ Id.
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    Other proposed revisions to the Liquidity Plan include that the 
Executive Risk Committee, as opposed to the Business Control Committee, 
will review the plan annually and that aspects of the Liquidity Plan 
will be tested annually.\12\
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    \12\ 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.\13\ For the reasons given below, the Commission finds 
that the proposal is consistent with Section 17A(b)(3)(F) of the Act, 
and Rule 17Ad-22(e)(7).
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    \13\ 15 U.S.C. 78s(b)(2)(C).
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A. Consistency With Section 17A(b)(3)(F)

    Section 17A(b)(3)(F) of the Act requires, among other things, that 
the rules of a registered clearing agency be designed to promote the 
prompt and accurate clearance and settlement of securities transactions 
and, to the extent applicable, derivatives agreements,

[[Page 64172]]

contracts and transactions, and 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.\14\
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    \14\ 15 U.S.C. 78q-1(b)(3)(F).
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    The Commission believes that the proposed changes described above, 
taken as a whole, should improve ICE Clear Europe's ability to monitor 
and test its liquidity in a variety of scenarios. First, by referring 
to AFIs generally, ICE Clear Europe can efficiently plan for the 
default by any AFI rather than having its plans linked to a particular 
financial institution. This gives ICE Clear Europe the ability to 
replace an AFI with another AFI without needing to first change the 
text of its Liquidity Plan. This in turn would promote ICE Clear 
Europe's ability manage the liquidity needed to promptly and accurately 
clear and settle securities transactions and to safeguard the 
securities and funds which are in its custody or control or for which 
it is responsible by helping to ensure that ICE Clear Europe always has 
an AFI to serve as an investment agent and/or custodian.
    Similarly, the Commission believes that the other amendments 
described above serve to enhance the Liquidity Plan, thereby promoting 
prompt and accurate clearance and settlement and the safeguarding of 
funds and securities. For example, the Commission believes that adding 
a new default scenario to liquidity stress testing and clarifying the 
sources used to evaluate risk tolerance and appetite would enhance ICE 
Clear Europe's ability to use the Liquidity Plan to anticipate 
liquidity risks and the sources necessary to cope with such risks. 
Further, the Commission believes that excluding investments in 
repurchase agreements with foreign currency as collateral from 
available liquid resources would assist ICE Clear Europe in avoiding 
reliance on assets considered to contain more risk, thereby bolstering 
ICE Clear Europe's overall approach to liquidity management. Likewise, 
the Commission believes that the manner in which ICE Clear Europe has 
added to and revised its key risk and performance indicators would 
enhance the compliance tool used to test if investments made by 
investment agents meet credit and liquidity requirements. As a result, 
the Commission believes that these proposed changes to the Liquidity 
Plan would in turn assist ICE Clear Europe in maintaining a level of 
liquidity sufficient to promptly and accurately clear and settle 
transactions and safeguard securities and funds. The Commission 
therefore finds that the proposed rule changes are consistent with the 
requirements of Section 17A(b)(3)(F) of the Act.\15\
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    \15\ Id.
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B. Consistency With Rule 17Ad-22(e)(7)

    Rule 17Ad-22(e)(7) requires in relevant part that a clearing agency 
establish, implement, maintain and enforce written policies and 
procedures reasonably designed to effectively measure, monitor, and 
manage the liquidity risk that arises in or is borne by it, including 
through liquidity testing and by holding qualified liquid 
resources.\16\ As described above, ICE Clear Europe proposes to refer 
in its liquidity stress testing procedures to third party financial 
institutions that serve as investment agents or custodians in general 
terms rather than naming a specific institution. The Commission 
believes that this change would bolster the Liquidity Plan by enhancing 
the efficiency of the process ICE Clear Europe will use to account for 
changes in such agents. This in turn would contribute to ICE Clear 
Europe's ability to manage its liquidity risks.
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    \16\ 17 CFR 240.17Ad-22(e)(7).
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    As described above, ICE Clear Europe proposes to add a CSD default 
scenario to its stress testing procedures. The Commission believes that 
adding another default scenario would enhance ICE Clear Europe's 
Liquidity Plan by anticipating specifically how to prepare for a 
default of a key participant in the clearing process, thereby 
furthering ICE Clear Europe's ability to effectively measure, monitor, 
and manage its liquidity risk.
    The Commission believes that the various other updates to the 
Liquidity Plan described above would help ICE Clear Europe to 
effectively measure, monitor, and manage its liquidity risk. For 
instance, clarifying in the Liquidity Plan that ICE Clear Europe has 
intra-day overdraft facilities to rely upon in various stress scenarios 
would explain with greater specificity what sources of liquidity are 
available to ICE Clear Europe to manage its liquidity risk. 
Additionally, as noted above, other changes to the Liquidity Plan 
include the fact that time deposits are assumed to have 100% liquidity 
loss similar to other unsecured investments and that in scenarios which 
include cash invested with a one day maturity, collateral underlying 
investments that are denominated in foreign currency are excluded from 
available liquid resources. The Commission believes that these changes 
would enhance ICE Clear Europe's ability to manage liquidity risk by 
specifying more clearly which resources constitute potential measures 
to manage liquidity risk for the purposes of Rule 17Ad-22(e)(7) and 
which resources do not.
    As described above, the Liquidity Plan also updates the table of 
key performance indicators that it uses to determine if investments 
meet credit and liquidity standards. For instance, the Liquidity Plan 
now includes, among others, ratings checks for unsecured investments 
and repo balance per counterparty. The Commission believes the proposed 
changes to the key risk and performance indicators would enhance ICE 
Clear Europe's liquidity monitoring by giving it more tools to monitor 
investments and hence its liquidity.
    As described above, ICE Clear Europe also is revising its reporting 
process so that certain reports would no longer be routinely provided 
to the Board but rather to the Audit and Business Risk Committees. The 
Commission believes these changes would enhance the Liquidity Plan by 
prioritizing reporting to the most relevant level. Additionally, ICE 
Clear Europe is revising its procedures so that certain testing is done 
on an annual rather than periodic basis, the Liquidity Plan is reviewed 
by the Executive Risk Committee, and certain irrelevant risk default 
scenarios have been removed. Overall, the Commission believes that 
these changes will enable ICE Clear Europe to efficiently measure and 
monitor its liquidity risk by ensuring that relevant scenarios are 
reviewed by appropriate staff on a regular basis.
    As a result of the foregoing, the Commission finds that the 
proposed rule change is consistent with the requirements of Rule 17Ad-
22(e)(7).\17\
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    \17\ Id.
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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 rule-comments@sec.gov. Please include 
File Number SR-ICEEU-2018-015 on the subject line.

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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-2018-015. 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-filing. 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-2018-015 
and should be submitted on or before January 3, 2019.

V. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 1

    In its filing, ICE Clear Europe requested that the Commission grant 
accelerated approval of the proposed rule change pursuant to Section 
19(b)(2) of the Exchange Act.\18\ Under Section 19(b)(2)(C)(iii) of the 
Act,\19\ the Commission may grant accelerated approval of a proposed 
rule change if the Commission finds good cause for doing so. ICE Clear 
Europe believes that accelerated approval is warranted because the 
proposed rule change, as modified by Amendment No. 1, is not expected 
to change the rights or obligations of clearing members or other 
persons using the clearing service or the terms or conditions of any 
cleared contract. Accordingly, ICE Clear Europe does not believe that 
any delay in implementing amendments with respect to such matters will 
benefit clearing members, their customers or any other market 
participants. Rather, ICE Clear Europe is seeking to enable the full 
onboarding of additional treasury service providers as soon as 
possible.
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    \18\ 15 U.S.C. 78s(b)(2).
    \19\ 15 U.S.C. 78s(b)(2)(C)(iii).
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    The Commission finds good cause, pursuant to Section 
19(b)(2)(C)(iii) of the Act,\20\ for approving the proposed rule 
change, as modified by Amendment No. 1, on an accelerated basis, prior 
to the 30th day after the date of publication of notice in the Federal 
Register, because the proposed rule change is required as soon as 
possible in order to facilitate ICE Clear Europe's efforts to provide 
further treasury services. The Commission also finds good cause to 
approve the proposed rule change, as modified by Amendment No. 1, prior 
to the thirtieth day after the date of publication of the notice of 
Amendment No. 1 in the Federal Register. As discussed above, ICE Clear 
Europe submitted Amendment No. 1 to make a technical change to the 
Liquidity Plan. The Commission believes that Amendment No. 1 does not 
raise any novel issues or alter the proposed changes in any way. In 
addition, the Commission finds that the proposed rule change, as 
modified by Amendment No. 1, is consistent with the Exchange Act and 
applicable rules thereunder for the reasons discussed above. 
Accordingly, the Commission finds good cause to approve the proposed 
rule change, as modified by Amendment No. 1, on an accelerated basis, 
pursuant to Section 19(b)(2) of the Exchange Act.
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    \20\ 15 U.S.C. 78s(b)(2)(C)(iii).
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VI. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rule change is consistent with the requirements of Section 17A 
of the Act,\21\ and Rule 17Ad-22(e)(7) \22\ thereunder.
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    \21\ 15 U.S.C. 78q-1.
    \22\ 17 CFR 240.17Ad-22(e)(7).
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    It is therefore ordered pursuant to Section 19(b)(2) of the Act 
\23\ that the proposed rule change (File Number SR-ICEEU-2018-015), as 
modified by Amendment No. 1, be, and hereby is, approved on an 
accelerated basis.\24\
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    \23\ 15 U.S.C. 78s(b)(2).
    \24\ 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.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2018-26945 Filed 12-12-18; 8:45 am]
 BILLING CODE 8011-01-P


