[Federal Register Volume 84, Number 143 (Thursday, July 25, 2019)]
[Notices]
[Pages 35892-35898]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-15777]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86413; File No. SR-ICEEU-2019-012]


Self-Regulatory Organizations; ICE Clear Europe Limited; Notice 
of Filing of Proposed Rule Change, Security-Based Swap Submission or 
Advance Notice Relating to the ICE Clear Europe Treasury and Banking 
Services Policy, Liquidity Management Procedures, Investment Management 
Procedures and Unsecured Credit Limits Procedures

July 19, 2019.
    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 July 5, 2019, 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 by ICE Clear Europe. The 
Commission is publishing

[[Page 35893]]

this notice to solicit comments on the proposed rule change from 
interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change, Security-Based Swap Submission, or Advance Notice

    ICE Clear Europe proposes to adopt a new Treasury and Banking 
Services Policy, new Liquidity Management Procedures and Investment 
Management Procedures and revised Unsecured Credit Limits Procedures 
(collectively, the ``Treasury Documents''). (The Investment Management 
Procedures, Liquidity Management Procedures and Unsecured Credit Limits 
Procedures are referred to herein as the ``Procedures Documents''.) The 
Treasury Documents would replace the existing Liquidity Risk Management 
Framework, Liquidity Plan, Investment Management Policy and Approved 
Financial Institutions Policy (the ``Existing Documents''). The 
revisions would not involve any changes to the ICE Clear Europe 
Clearing Rules or Procedures.\3\
---------------------------------------------------------------------------

    \3\ Capitalized terms used but not defined herein have the 
meanings specified in the ICE Clear Europe Clearing Rules (the 
``Rules'').
---------------------------------------------------------------------------

II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change, Security-Based Swap Submission or 
Advance Notice

    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, Security-Based Swap Submission or 
Advance Notice

(a) Purpose
    ICE Clear Europe is proposing to adopt the new Treasury Documents 
in order to:
     Simplify and streamline the documentation;
     remove inaccuracies and unused elements;
     remove elements that are documented or managed elsewhere;
     better separate between policy-level documentation 
(Policies) and implementation-level documentation (Procedures); and
     improve operational flexibility.
    Generally, other than certain additional liquidity review 
procedures as discussed below, the changes would not alter the existing 
substantive treasury and banking practices of the Clearing House. 
Broadly, the proposed amendments would combine the high level policy 
elements of the Existing Documents into the Treasury and Banking 
Services Policy. The supporting detail for the policy would be in the 
new Procedures Documents. Following adoption of the Treasury Documents, 
the Existing Documents would be retired.
Treasury and Banking Services Policy
    The Treasury and Banking Services Policy (the ``Policy'') would set 
out the overall principles applied to the ICE Clear Europe cash and 
collateral management functions for Clearing Member (``CM'') assets. 
The Treasury and Banking Services Policy would replace the existing 
Liquidity Risk Management Framework and contain policy-level 
information relating to liquidity risk management and investment 
management.
a. Treasury and Banking Services
    The proposed Policy would state that the treasury and banking 
services (``TBS'') department is responsible for cash and collateral 
management functions for CM assets including relating to liquidity and 
cash margin investment and that these functions are subject to 
applicable regulations and the Rules and Procedures, particularly the 
Finance Procedures. The Policy would further outline certain procedures 
relating to initial margin (``IM''), guaranty fund (``GF'') 
contributions and variation margin (``VM'') and the manner in which CMs 
would cover these liabilities.
b. Cash Management
    The proposed Policy would address the manner in which ICE Clear 
Europe transfers cash in the relevant currencies intraday through an 
Assured Payment System (``APS'') into its `concentration banks' and 
invests or secures such cash at end of day. ICE Clear Europe uses 
multiple APS banks which are approved financial institutions that have 
committed to meet certain technical and operational requirements. 
Approved financial institutions are financial service providers that 
have been approved by the Credit Risk team and meet eligibility and 
monitoring criteria set out in the Unsecured Credit Limits Procedures.
c. Liquidity Risk
    The proposed Policy would describe the sources of liquidity risks 
and, at a high level, how liquidity shortfalls may be addressed. It 
would further set out ICE Clear Europe's liquidity risk management 
objective to maintain sufficient liquid resources in all relevant 
currencies to meet its payment obligations as they come due and its 
strategy to achieve this objective. Its strategy would entail 
structuring and sequencing its cash flows to minimize liquidity risks, 
monitoring intraday cash inflows and outflows to ensure payments are 
met, and running daily liquidity stress tests (``LSTs'').
    The Policy would set out that ICE Clear Europe runs daily liquidity 
monitoring and stress testing to: Measure and monitor its liquidity 
position on an ongoing basis and assess its potential immediate and 
future liquidity needs across a range of extreme but plausible market 
scenarios. The LSTs are set out in the LST Model Documentation and 
would be reviewed periodically as would be set out in the Liquidity 
Management Procedures. Models underpinning the LSTs would be reviewed 
in accordance with ICE Clear Europe's Model Risk Governance Framework.
d. Investment of Cash
    The proposed Policy would set out ICE Clear Europe's investment 
management objective to safeguard the principal of its CMs' cash, 
maintain sufficient liquidity to cover its payment obligations and 
obtain a reasonable rate of return. Its related strategy would be to: 
(i) Manage its investment portfolio to ensure it has sufficient 
liquidity; (ii) rebalance its investment portfolio as a result of the 
LSTs and available liquidity to ensure enough cash is available to meet 
daily payment obligations; and (iii) invest or secure cash after the 
relevant deadline has passed for CMs to withdraw or exchange excess 
cash. The proposed Policy would set out the criteria to determine 
whether investment instruments are acceptable, including requiring: (i) 
That the market for the instruments have sufficient price history and 
be sufficiently liquid and transparent; and (ii) that the instrument 
not be issued by a CM or entity that is part of the same group as a CM 
and not be issued by a CCP or entity providing services critical to ICE 
Clear Europe's functioning. The proposed Policy would further require 
that investments are in sufficiently liquid currencies, diversified 
across counterparties, subject to credit criteria and, with respect to 
reverse repo collateral, subject

[[Page 35894]]

to suitable haircuts. Parties and employees involved in the investment 
process would be required to refrain from conflicts of interest and ICE 
Clear Europe would be required to keep appropriate records.
e. Collateral Management
    Pursuant to the proposed Policy, CMs could substitute cash covering 
IM or GF requirements with collateral or cash in a different currency, 
subject to constraints set out in the ICE Clear Europe Finance 
Procedures. Whenever practicable, ICE Clear Europe would hold accounts 
with Central Securities Depositories (``CSDs''). Assets of individual 
CMs and, where appropriate, clients with individually segregated 
assets, would be required to be readily identifiable in ICE Clear 
Europe's systems.
f. Governance
    The Policy would also address procedures for ensuring that the 
proposed Treasury Documents remain up-to-date and are reviewed in 
accordance with ICE Clear Europe's governance processes, as well as for 
handling exceptions. The policy would also address reporting of 
material breaches or unapproved deviations from the Policy to the Head 
of Department, a senior member of the Risk Oversight Department and a 
senior member of the Compliance Department who would together will 
determine if further escalation should be made to relevant senior 
executives, the Board and/or competent authorities.
Liquidity Management Procedures
(i) Proposed Amendments
    Pursuant to the proposed amendments, the Liquidity Management 
Procedures would replace the current Liquidity Plan. The procedures 
would provide a number of improvements over existing liquidity risk 
management practices and in particular address the issues described 
below.
     Pursuant to the proposed amendments, a haircut would be 
applied to the liquidation value of securities owned outright as part 
of the LSTs.
     ICE Clear Europe would more clearly and concisely document 
its liquidity strategy including a clear explanation of how it manages 
its so-called ``cover 2'' requirements. Further, the LST scenarios 
would no longer be detailed in the Liquidity Management Procedures but 
would be moved to LST Model Documentation that can be updated more 
flexibly as needed.
     The amendments would clarify the distinction between 
liquidity tools used to address a technical obstacle to making payments 
and those used to address a default or investment loss.
     Currencies would no longer be distinguished as material or 
non-material, and instead ICE Clear Europe would look to the size of 
the relevant obligation for LST purposes.
     The Liquidity Management Procedures would explicitly 
document ICE Clear Europe's approach to reviewing scenarios and 
assumptions underlying its LSTs.
     The Liquidity Management Procedures would address 
settlements and deliveries in more detail including how this is 
additive to defaulting member exposure and how this risk is managed.
     The Liquidity Management Procedures would explicitly 
document periodic reviews on a monthly basis, including consideration 
of emerging risks.
     The Liquidity Management Procedures would establish and 
document a process for formal governance review and challenge of the 
assumptions for the hypothetical LST scenarios (e.g., systemic or 
market infrastructure scenarios), with a link to emerging risks.
     The cover 1 liquidity stress scenario required under 
Commission rules,\4\ based on qualifying liquid resources under such 
rules, would be referenced in the Liquidity Management Procedures and 
documented in the LST Model Documentation.
---------------------------------------------------------------------------

    \4\ 17 CFR 240.17Ad-22(e)(7).
---------------------------------------------------------------------------

     The procedures would recognize that ICE Clear Europe has 
determined that `other prearranged funding arrangements' are highly 
reliable even in extreme but plausible market conditions.
     The procedures would memorialize the process of conducting 
comprehensive periodic reviews to evaluate LSTs and stress scenarios.
(ii) Summary of Other Aspects of Liquidity Management Procedures
(A) Overview
    The proposed Liquidity Management Procedures would generally set 
out how ICE Clear Europe would address:
     Monitoring and management of liquidity risks, liquidity 
needs and liquidity resources; and
     Access to liquidity resources, including in case of 
liquidity shortfalls.
    The procedures would be structured to address:
     ICE Clear Europe's payment obligations;
     Management and monitoring of ICE Clear Europe's liquidity 
needs and maintenance of sufficient liquid resources;
     Daily assessment and valuation of liquid assets;
     Sources and mitigations of liquidity risk; timescales of 
liquid resources;
     Substitution of cash with non-cash collateral and 
withdrawal of excess margin by CMs;
     Liquidity shortfalls;
     Replenishment of liquidity in stress events;
     Periodic reviews of liquidity stress tests and liquidity 
providers; and
     Governance, breach management and exception handling (in 
the same manner as under the Policy).
(B) Payment Obligations
    This section of the proposed procedures would set out the sources 
of payment obligations relevant to liquidity management, which are: (i) 
Paying VM to those with positive P&L on their trades, (ii) paying 
delivery or settlement monies when trades deliver or settle; and (iii) 
returning surplus IM or other margin to individual CMs. ICE Clear 
Europe would only have a liquidity need not covered in the ordinary 
course where there has been a firm default or a technical issue at a 
financial services provider. The proposed procedures would explain the 
various structural arrangements that ICE Clear Europe has in place to 
minimize liquidity risk.
(C) Management and Monitoring of Liquidity Needs
    The proposed procedures would explain that ICE Clear Europe runs a 
range of LSTs each day as set out in the LST Model Documentation, which 
covers CM default scenarios as well as defaults of financial service 
providers and defaults with other operational outflows. The Clearing 
Risk team develops market scenarios and calculates stress losses to set 
the required levels of IM and GF for CMs and accounts which the TBS 
department then aggregates across different operational scenarios to 
set the level of liquid resources ICE Clear Europe must maintain. 
Potential investment losses are also calculated should the defaulting 
CMs also be investment counterparties, as well as cash outflows due to 
deliveries and settlements. Throughout the day, the TBS department 
monitors outstanding payment requests to identify failures which could 
lead to default using exception-based monitoring tools, as well as the 
current level of available liquid resources compared to the level 
needed within currency and maturity buckets.

[[Page 35895]]

(D) Sources and Mitigation of Liquidity Risk
    The proposed procedures would list specific sources of default 
liquidity risk, and the means through which ICE Clear Europe generally 
manages such risks.
(E) Timescale of Liquidity Resources
    The proposed procedures note that for liquidity management 
monitoring, ICE Clear Europe would only include resources that can be 
drawn upon on a same day basis, including cash, investments maturing 
that day, sovereigns with different maturities that can be liquidated 
that day, highly reliable uncommitted operating lines and committed 
repo lines. Treasuries held as collateral against reverse repo 
agreements have been determined to be highly reliable, even in extreme 
but plausible market conditions, because ICE Clear Europe would only 
accept those of high credit quality and subject them to haircuts in its 
LSTs which were developed, including stressed market conditions.
(F) Liquidity Shortfalls
    The proposed procedures would describe how in a default situation, 
liquidity is generated through the default management waterfall and ICE 
Clear Europe could use its existing pool of cash first to cover payment 
obligations as this may be more readily available. In a liquidity 
shortfall situation due to a technical issue, ICE Clear Europe could 
use its uncommitted and committed lines or liquidate non-cash 
collateral.
(G) Replenishment of Liquidity in Stress Events
    The procedures would explain that with respect to replenishment, 
provided losses would be covered by the default waterfall, (i) if the 
losses were covered by the margin and GF contribution of the defaulting 
CM, there would be no need for replenishment, and (ii) if part of the 
GF contributions of the other CMs or ICE Clear Europe's GF contribution 
were used, then after contribution requirements are reassessed, they 
would be replenished as set out in the Rules. Where additional 
liquidity would be required due to a technical issue, it would 
automatically be remedied upon resolution of the issue as it would 
involve no overall reduction in liquidity resources.
(H) Liquidity Stress Tests
    The LSTs would assess the impact on sources of liquidity and 
liquidity exposures in both currency and time in a broad range of 
market and operational scenarios. To assess them, the TBS, Clearing 
Risk and Risk Oversight departments would meet monthly to analyze and 
discuss: Whether to include any new or emerging risks in the stress 
tests, the adequacy and assumptions of LST scenarios, the adequacy of 
stress test inputs, acceptance of current LST scenario calibrations, 
performance of liquidity providers, annual due diligence reviews of 
liquidity providers to assess their ability to perform their role as 
such, and annual testing of sources of liquidity. In stressed market 
conditions, the TBS, Clearing Risk and Risk Oversight departments would 
meet more frequently than monthly to ensure LSTs and stress scenarios 
are fit for purpose. The above analysis of LSTs would be periodically 
reported to a Board-level committee.
Investment Management Procedures
    Pursuant to the proposed amendments, the Investment Management 
Procedures would contain the procedures-level information from the 
current Investment Management Policy, setting out the permitted 
investments when investing or securing cash received from CMs either as 
GF contributions, IM or other types of margin. The proposed procedures 
would also set out constraints on these investments, including 
concentration limits, credit ratings and maturity limits and any 
additional considerations in times of insufficient market supply of 
approved investments. The procedures would set out the investment 
management objective and investment currencies (EUR, GDP, and USD).
    With respect to authorized investments in times of normal supply, 
pursuant to the proposed procedures: (i) Investments could only be made 
with approved financial institutions; (ii) at least 50% of the 
portfolio in each currency should be invested in overnight reverse 
repurchase (``repo'') agreements; (iii) non-overnight investments 
should have a variety of maturity dates; (iv) customer funds of FCM/BD 
Clearing Members would be required to be segregated from those of other 
CMs, to be held in permitted depositories for such customer funds 
(consistent with applicable regulations) and to be invested only in 
overnight reverse repos and direct purchases of U.S. sovereign 
obligations with permitted counterparties for such transactions under 
applicable regulations; and (v) purchased securities would be required 
to be held until maturity to minimize market risk impact. The proposed 
procedures would contain a table setting out the authorized 
instruments, concentration limits, maximum maturity and minimum credit 
ratings or allowed entities. The TBS department would monitor adherence 
to the investment criteria.
    The proposed procedures would set out additional considerations for 
reverse repo agreements requiring: (i) At least four investment 
counterparties in each currency; (ii) consideration by the Head of the 
TBS department, or their delegate, in the event of a counterparty 
downgrade, as to whether it may be more prudent to liquidate or hold a 
trade until maturity; (iii) deeming repo agreements to have a maturity 
equal to the schedule repurchase date of the underlying securities, or 
where the agreement is subject to a demand, the applicable notice 
period; and (iv) collection of only certain collateral deemed 
acceptable and subject to a predetermined haircut.
    In times of insufficient market supply, U.S. government agency 
securities and supranational obligations would also be acceptable for 
investment and repo agreement collateral. Further, ICE Clear Europe 
would no longer need to invest at least 50% in overnight repurchase 
agreements and concentration limits would no longer apply. In periods 
of lower overnight supply, investments should be allocated to other 
investment types according to the order of preference set out in the 
procedures.
    Breaches of concentration limits would be escalated to the Risk 
Oversight Department and the Compliance team as well as reported to the 
relevant regulators through regular reports. The investment portfolio 
would be rebalanced to return within the concentration limits. The TBS 
department would, in conjunction with the Risk Oversight Department and 
Clearing Risk team, review the concentration limits every quarter. The 
procedures would also address procedure governance, breach management 
and exception handling (in the same manner as under the Policy).
Unsecured Credit Limits Procedures
    The proposed revised Unsecured Credit Limits Procedures would 
support aspects of the Policy, the Investment Management Procedures and 
the Counterparty Rating Systems. The amendments to the procedures would 
address the eligibility requirements for counterparties and monitoring 
procedures for unsecured exposure.
(i) Eligibility Methodology
    The proposed amendments to the procedures would require that in 
order for a legal entity to be eligible as a counterparty or financial 
service provider, it would need to be regulated

[[Page 35896]]

by a competent authority and comply with the applicable minimum 
external rating and maximum ICE Clear Europe rating for such entity 
type as set out in the procedures. If the entity is a repo provider, it 
would need to be organized in the US or EU countries satisfying the 
minimum external rating.
(ii) Monitoring
    The proposed procedures would require daily monitoring of overnight 
unsecured exposure at the legal entity level. Subject to data 
availability and technology, overnight unsecured exposures relative to 
unsecured limits would also be monitored at least weekly. Other 
exposures and aggregation with other Legal Entities of the same group 
of companies would be monitored at least monthly. The procedures would 
also address procedure governance, breach management and exception 
handling (in the same manner as under the Policy).
(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. In particular, Section 
17A(b)(3)(F) of the Act \6\ 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 proposed 
Treasury Documents are intended to consolidate and clarify certain 
existing policies and procedures relating to treasury operations and 
liquidity management. Except as noted above, the amendments would not 
generally change existing practices, but in ICE Clear Europe's view the 
revised documentation would facilitate ongoing treasury risk and 
liquidity risk management by the Clearing House, so that the Clearing 
House would be able to meet its short-term financial obligations in the 
event of clearing member defaults or other liquidity stress events. 
These processes would therefore promote overall Clearing House risk 
management and facilitate the prompt and accurate clearing of cleared 
contracts and protect investors and the public interest in the sound 
operations of the Clearing House, consistent with the requirements of 
Section 17A(b)(3)(F).\7\ Through facilitating ongoing treasury risk and 
liquidity risk management that enables the Clearing House to meet its 
short-term financial obligations in the event of clearing member 
defaults or other liquidity stress events, the amendments may also 
enhance the safeguarding of securities and funds in the custody or 
control of the Clearing House or for which it is responsible.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78q-1.
    \6\ 15 U.S.C. 78q-1(b)(3)(F).
    \7\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    The proposed Treasury Documents are further consistent with the 
requirements of Rule 17Ad-22(e)(3)(i) and (ii) \8\ through generally 
strengthening ICE Clear Europe's risk management framework for managing 
liquidity risks, including setting out in detail how such risks are 
monitored and managed, and addressing the possibility of recovery 
should other mechanisms to address liquidity resource shortfalls fail.
---------------------------------------------------------------------------

    \8\ 17 CFR 240.17Ad-22(e)(3)(i)-(ii). The rule states that 
``[e]ach covered clearing agency shall establish, implement, 
maintain and enforce written policies and procedures reasonably 
designed to, as applicable: [m]aintain a sound risk management 
framework for comprehensively managing legal, credit, liquidity, 
operational, general business, investment, custody, and other risks 
that arise in or are borne by the covered clearing agency, which:
    (i) Includes risk management policies, procedures, and systems 
designed to identify, measure, monitor, and manage the range of 
risks that arise in or are borne by the covered clearing agency, 
that are subject to review on a specified periodic basis and 
approved by the board of directors annually;
    (ii) Includes plans for the recovery and orderly wind-down of 
the covered clearing agency necessitated by credit losses, liquidity 
shortfalls, losses from general business risk, or any other 
losses;''
---------------------------------------------------------------------------

    The proposed Treasury Documents are also consistent with the 
requirements of Rule 17Ad-22(e)(7)(i) and (ii) and Rule 17Ad-22(a)(14) 
\9\ which require ICE Clear Europe to maintain sufficient qualifying 
liquid resources. In compliance with this requirement, the proposed 
Treasury Documents would document ICE Clear Europe's procedures for 
holding liquid resources in the relevant currencies to effect same-day 
settlement payment obligations under a wide range of scenarios. As 
would be described in the proposed Liquidity Management Procedures, the 
LST scenarios used to test resources are designed to cover the default 
of at least the two CMs with the largest exposure to ICE Clear Europe, 
in extreme but plausible market conditions, together with defaults of 
financial service providers and other operational outflows. The 
Liquidity Management Procedures would also expressly address the 
scenario of the default of the family with the largest aggregate 
payment obligation for ICE Clear Europe, in extreme but plausible 
market conditions, as required under Commission Rule 17Ad-22(e)(7).\10\ 
As would be described in the Liquidity Management Procedures, if 
necessary, ICE Clear Europe has uncommitted FX lines to enable it to 
make the necessary currency conversions and committed and uncommitted 
repo facilities to obtain cash from securities positions. It would also 
apply haircuts to any non-cash collateral or cash in currencies other 
than required currencies in calculating available liquid resources. The 
TBS department would monitor liquid resource requirements relative to 
exposures throughout the day to further ensure that ICE Clear Europe 
would be able to meet its liquidity requirements. In compliance with 
the definition of ``qualifying liquid resources,'' the Liquidity 
Management Procedures would require that ICE Clear Europe only include 
resources which would be cash or which could be transferred into

[[Page 35897]]

cash or could be drawn upon on a same day basis, specifically listing 
appropriate resources. In further compliance with Rule 17Ad-
22(e)(5),\11\ ICE Clear Europe sets and enforces appropriately 
conservative haircuts with respect to the assets it accepts as 
collateral as would be described in the Liquidity Management 
Procedures.
---------------------------------------------------------------------------

    \9\ 17 CFR 240.17Ad-22(e)(7)(i)-(ii). The rule states that 
``[e]ach covered clearing agency shall establish, implement, 
maintain and enforce written policies and procedures reasonably 
designed to, as applicable: [e]ffectively measure, monitor, and 
manage the liquidity risk that arises in or is borne by the covered 
clearing agency, including measuring, monitoring, and managing its 
settlement and funding flows on an ongoing and timely basis, and its 
use of intraday liquidity by, at a minimum, doing the following:
    (i) Maintaining sufficient liquid resources at the minimum in 
all relevant currencies to effect same-day and, where appropriate, 
intraday and multiday settlement of payment obligations with a high 
degree of confidence under a wide range of foreseeable stress 
scenarios that includes, but is not limited to, the default of the 
participant family that would generate the largest aggregate payment 
obligation for the covered clearing agency in extreme but plausible 
market conditions;
    (ii) Holding qualifying liquid resources sufficient to meet the 
minimum liquidity resource requirement under paragraph (e)(7)(i) of 
this section in each relevant currency for which the covered 
clearing agency has payment obligations owed to clearing members;
    17 CFR 240.17Ad-22(a)(14) Qualifying liquid resources means, for 
any covered clearing agency, the following, in each relevant 
currency:
    (i) Cash held either at the central bank of issue or at 
creditworthy commercial banks;
    (ii) Assets that are readily available and convertible into cash 
through prearranged funding arrangements, such as:
    (A) Committed arrangements without material adverse change 
provisions, including:
    (1) Lines of credit;
    (2) Foreign exchange swaps; and
    (3) Repurchase agreements; or
    (B) Other prearranged funding arrangements determined to be 
highly reliable even in extreme but plausible market conditions by 
the board of directors of the covered clearing agency following a 
review conducted for this purpose not less than annually; and
    (iii) Other assets that are readily available and eligible for 
pledging to (or conducting other appropriate forms of transactions 
with) a relevant central bank, if the covered clearing agency has 
access to routine credit at such central bank in a jurisdiction that 
permits said pledges or other transactions by the covered clearing 
agency.
    \10\ 17 CFR 240.17Ad-22(e)(7).
    \11\ 17 CFR 240.17Ad-22(e)(5). The rule states that ``[e]ach 
covered clearing agency shall establish, implement, maintain and 
enforce written policies and procedures reasonably designed to, as 
applicable: [l]imit 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.''
---------------------------------------------------------------------------

    The Treasury Documents are similarly compliant with Rule 17Ad-
22(e)(16) \12\ and would require assets be held in a manner that 
minimizes risk of loss and invested in assets with minimal liquidity 
risk. The Investment Management Procedures would set out detailed 
requirements to ensure that investment risks are minimized. Only 
certain investments would be permitted and they would be subject to 
constraints such as concentration limits, credit ratings, currencies 
and maturity limits.
---------------------------------------------------------------------------

    \12\ 17 CFR 240.17Ad-22(e)(16). The rule states that ``[e]ach 
covered clearing agency shall establish, implement, maintain and 
enforce written policies and procedures reasonably designed to, as 
applicable: [s]afeguard the covered clearing agency's own and its 
participants' assets, minimize the risk of loss and delay in access 
to these assets, and invest such assets in instruments with minimal 
credit, market, and liquidity risks.''
---------------------------------------------------------------------------

    Rules 17Ad-22(e)(7)(iii) and (e)(9) \13\ require clearing agencies, 
where possible, to access accounts and services at a central bank. As 
would be described in the proposed Treasury Documents, ICE Clear Europe 
uses central banks for EUR and GBP deposits, and uses highly rated 
commercial banks as concentration banks for USD to minimize the risk of 
concentration bank defaults (as it is not eligible to maintain a USD 
account with the Federal Reserve). Investments are made as soon as 
possible after the deadline for CM withdrawals or exchanges of margin 
to further manage custody related risks.
---------------------------------------------------------------------------

    \13\ 17 CFR 240.17Ad-22(e)(7)(iii). The rule states that 
``[e]ach covered clearing agency shall establish, implement, 
maintain and enforce written policies and procedures reasonably 
designed to, as applicable: [e]ffectively measure, monitor, and 
manage the liquidity risk that arises in or is borne by the covered 
clearing agency, including measuring, monitoring, and managing its 
settlement and funding flows on an ongoing and timely basis, and its 
use of intraday liquidity by, at a minimum, doing the following:
    (iii) Using the access to accounts and services at a Federal 
Reserve Bank, pursuant to Section 806(a) of the Payment, Clearing, 
and Settlement Supervision Act of 2010 (12 U.S.C. 5465(a)), or other 
relevant central bank, when available and where determined to be 
practical by the board of directors of the covered clearing agency, 
to enhance its management of liquidity risk;'' maintain and enforce 
written policies and procedures reasonably designed to, as 
applicable: [c]onduct its money settlements in central bank money, 
where available and determined to be practical by the board of 
directors of the covered clearing agency, and minimize and manage 
credit and liquidity risk arising from conducting its money 
settlements in commercial bank money if central bank money is not 
used by the covered clearing agency.''
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(7)(iv) \14\ requires clearing agencies to undertake 
due diligence to confirm their liquidity providers have sufficient 
information to understand the risks and have the capacity to perform 
their liquidity commitments. As would be described in the proposed 
Treasury Documents, ICE Clear Europe uses multiple APS banks and 
ensures that they sign contracts committing to meet certain technical 
and operational requirements to confirm that these parties understand 
the risks. They must also be financial service providers that have been 
approved by the Credit Risk team and meet eligibility, credit limit and 
monitoring criteria as would be described in the Unsecured Credit 
Limits Procedures.
---------------------------------------------------------------------------

    \14\ 17 CFR 240.17Ad-22(e)(7)(iv). The rule states that ``[e]ach 
covered clearing agency shall establish, implement, maintain and 
enforce written policies and procedures reasonably designed to, as 
applicable: [e]ffectively measure, monitor, and manage the liquidity 
risk that arises in or is borne by the covered clearing agency, 
including measuring, monitoring, and managing its settlement and 
funding flows on an ongoing and timely basis, and its use of 
intraday liquidity by, at a minimum, doing the following:
    (iv) Undertaking due diligence to confirm that it has a 
reasonable basis to believe each of its liquidity providers, whether 
or not such liquidity provider is a clearing member, has:
    (A) Sufficient information to understand and manage the 
liquidity provider's liquidity risks; and
    (B) The capacity to perform as required under its commitments to 
provide liquidity to the covered clearing agency;
---------------------------------------------------------------------------

    In compliance with the liquid resource stress testing requirements 
of Rule 17Ad-22(e)(7)(vi),\15\ as would be described in the proposed 
Treasury Documents, ICE Clear Europe runs daily liquidity stress 
testing to measure and monitor its liquidity position and assess the 
impact on sources of liquidity and liquidity exposures in both currency 
and time in a broad range of market and operational scenarios. The TBS, 
Clearing Risk and Risk Oversight departments would meet monthly to 
assess the tests and more frequently in stressed market conditions. The 
LSTs are set out in the LST Model Documentation and models underpinning 
the LSTs would be reviewed in accordance with ICE Clear Europe's Model 
Risk Governance Framework.
---------------------------------------------------------------------------

    \15\ 17 CFR 240.17Ad-22(e)(7)(vi). The rule states that ``[e]ach 
covered clearing agency shall establish, implement, maintain and 
enforce written policies and procedures reasonably designed to, as 
applicable: [e]ffectively measure, monitor, and manage the liquidity 
risk that arises in or is borne by the covered clearing agency, 
including measuring, monitoring, and managing its settlement and 
funding flows on an ongoing and timely basis, and its use of 
intraday liquidity by, at a minimum, doing the following:
    (vi) Determining the amount and regularly testing the 
sufficiency of the liquid resources held for purposes of meeting the 
minimum liquid resource requirement under paragraph (e)(7)(i) of 
this section by, at a minimum:
    (A) Conducting stress testing of its liquidity resources at 
least once each day using standard and predetermined parameters and 
assumptions;
    (B) Conducting a comprehensive analysis on at least a monthly 
basis of the existing stress testing scenarios, models, and 
underlying parameters and assumptions used in evaluating liquidity 
needs and resources, and considering modifications to ensure they 
are appropriate for determining the clearing agency's identified 
liquidity needs and resources in light of current and evolving 
market conditions;
    (C) Conducting a comprehensive analysis of the scenarios, 
models, and underlying parameters and assumptions used in evaluating 
liquidity needs and resources more frequently than monthly when the 
products cleared or markets served display high volatility or become 
less liquid, when the size or concentration of positions held by the 
clearing agency's participants increases significantly, or in other 
appropriate circumstances described in such policies and procedures; 
and
    (D) Reporting the results of its analyses under paragraphs 
(e)(7)(vi)(B) and (C) of this section to appropriate decision makers 
at the covered clearing agency, including but not limited to, its 
risk management committee or board of directors, and using these 
results to evaluate the adequacy of and adjust its liquidity risk 
management methodology, model parameters, and any other relevant 
aspects of its liquidity risk management framework;''
---------------------------------------------------------------------------

    In compliance with Rule 17Ad-22(e)(7)(ix),\16\ the proposed 
Liquidity Management Procedures would set out ICE Clear Europe's 
process to replenish liquid resources. Provided losses would be covered 
by the default waterfall, (i) if the losses were covered by the margin 
and GF contribution of the defaulting CM, there would be no need for 
replenishment, and (ii) if part of the GF contributions of the other 
CMs or ICE Clear Europe's GF contribution were used, they would be 
replenished as set out in the Rules.
---------------------------------------------------------------------------

    \16\ 17 CFR 240.17Ad-22(e)(7)(ix). The rule states that ``[e]ach 
covered clearing agency shall establish, implement, maintain and 
enforce written policies and procedures reasonably designed to, as 
applicable: [e]ffectively measure, monitor, and manage the liquidity 
risk that arises in or is borne by the covered clearing agency, 
including measuring, monitoring, and managing its settlement and 
funding flows on an ongoing and timely basis, and its use of 
intraday liquidity by, at a minimum, doing the following: 
[d]escribing the covered clearing agency's process to replenish any 
liquid resources that the clearing agency may employ during a stress 
event;''
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(2) \17\ requires that a covered clearing agency 
provide for governance arrangements that, among other matters, are 
``clear and

[[Page 35898]]

transparent'' and ``specify clear and direct lines of responsibility.'' 
The proposed amendments would ensure that it is clear that material 
breaches and unapproved deviations from the Treasury Documents would 
need to be reported to certain senior leaders and that those 
individuals would determine whether issues should be further escalated. 
The amendments therefore enhance the governance arrangements relating 
to breaches of the Treasury Documents.
---------------------------------------------------------------------------

    \17\ 17 CFR 240.17Ad-22(e)(2).
---------------------------------------------------------------------------

(B) Clearing Agency's Statement on Burden on Competition

    ICE Clear Europe does not believe the proposed amendments would 
have any impact, or impose any burden, on competition not necessary or 
appropriate in furtherance of the purposes of the Act. The amendments 
would apply uniformly to all CMs, are being adopted to strengthen and 
clarify the Clearing House's liquidity risk management processes and 
should not affect the rights or obligations of CMs. Further, the 
amendments are generally intended to simplify and streamline 
documentation and reflect current practices, rather than substantially 
alter existing practices. As a result, ICE Clear Europe does not 
believe the amendments would affect the cost of clearing for CMs or 
other market participants, the market for cleared services generally or 
access to clearing by CMs or other market participants, or otherwise 
affect competition among CMs or market participants in a manner not 
necessary or 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 written comments received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change, Security-Based 
Swap Submission and Advance Notice and Timing for Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.
    The proposal shall not take effect until all regulatory actions 
required with respect to the proposal are completed.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, security-based swap submission or advance notice 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-2019-012 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-2019-012. 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, security-based 
swap submission or advance notice that are filed with the Commission, 
and all written communications relating to the proposed rule change, 
security-based swap submission or advance notice 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-2019-012 and should be submitted on or before August 15, 2019.
---------------------------------------------------------------------------

    \18\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-15777 Filed 7-24-19; 8:45 am]
BILLING CODE 8011-01-P


