[Federal Register Volume 85, Number 101 (Tuesday, May 26, 2020)]
[Notices]
[Pages 31564-31571]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-11138]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88909; File No. SR-ICEEU-2020-006]


Self-Regulatory Organizations; ICE Clear Europe Limited; Notice 
of Filing and Immediate Effectiveness of Proposed Rule Change, 
Security-Based Swap Submission or Advance Notice Relating to Amendments 
to the ICE Clear Europe Auction Terms for F&O Default Auctions and F&O 
Default Management Policy (Formerly the F&O Default Management 
Framework)

May 19, 2020.
    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 May 11, 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. ICE 
Clear Europe filed the proposed rule change pursuant to Section 
19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(4)(ii) thereunder,\4\ such 
that the proposed rule change 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, Security-Based Swap Submission, or Advance Notice

    The principal purpose of the proposed amendments is for ICE Clear 
Europe to amend its Auction Terms for F&O Default Auctions (the 
``Auction Terms'') and F&O Default Management Policy (the ``Policy''), 
formerly the F&O Default Management Framework. The revisions do not 
involve any changes to the ICE Clear Europe Clearing Rules (the 
``Rules'') or other Procedures.\5\
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    \5\ Capitalized terms used but not defined herein have the 
meanings specified in the Rules.

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[[Page 31565]]

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 amend its Auction Terms. The 
proposed amendments would (1) add a new ``all or nothing'' bidding 
type, (2) provide for determination of minimum bid requirements based 
on the relative margin requirements of Clearing Members, (3) provide 
for the use of ICEU's default management system, in lieu of email or 
other manual forms of communication, for submission of bids and 
provision of certain notices to auction participants by the Clearing 
House, (4) clarify certain regulatory and compliance obligations of 
auction participants, and (5) generally update and clarify certain 
terms and provisions and correct certain typographical errors. The 
proposed amendments to the Policy would make corresponding changes to 
reference the new ``all or nothing'' bidding type, the minimum bid 
requirement and the default management system and to make general 
updates and clarifications.

I. Auction Terms

1. All or Nothing Bid Type
    The amendments would allow auction participants to submit a new 
type of bid for an Auction Lot, an ``All or Nothing Bid.'' As provided 
in amendments to paragraph 3.2 of the Auction Terms, an All or Nothing 
Bid would constitute a bid for the entire Auction Lot which, if it is 
the winning bid, would provide for the bidder to receive 100% of the 
Auction Lot without that award being split among more competitively 
priced bids (as may occur with bids under the current bidding process 
(referred to as ``Standard Bids'')). Use of All or Nothing Bids would 
be optional, and auction participants could continue to use Standard 
Bids as under the current process. An auction participant may also 
submit both Standard Bids and an All or Nothing Bid. Revised paragraph 
3.2 would also address the manner in which an All or Nothing Bid may 
satisfy the Minimum Bid Requirement for an Auction Lot and the 
requirement to identify an All or Nothing Bid as such.
    Paragraph 3.1 would amended to provide for determining the 
competitiveness of an All or Nothing Bid for purposes of the 
``juniorization'' provisions in that paragraph relating to the 
application of F&O Guaranty Fund Contributions and F&O Assessment 
Contributions under the Rules, based on an appropriate scale factor to 
calculate a deemed price per unit.
    Paragraph 5.3 would be amended to provide for the determination of 
whether an All or Nothing Bid is a winning bid. As under the current 
process, the auction clearing price (proposed to be defined as the F&O 
Auction Clearing Price'') would be the price of the bid at which the 
sum of the notional amount of F&O Contracts with equal or higher bid 
prices equals or is greater than the notional amount of F&O Contracts 
being auctioned. If an All or Nothing Bid is not accepted, the Auction 
Lot will be allocated in full to bids at or above the F&O Auction 
Clearing Price, but at the F&O Auction Clearing Price. If, however, an 
All or Nothing Bid is included in the group of bids with equal or 
higher bid prices, then the All or Nothing Bid will be accepted for the 
entire Lot, and the F&O Auction Clearing Price will be price of the All 
or Nothing Bid. The examples in Paragraph 5.3 would be modified to take 
into account All or Nothing Bids, including to show information 
regarding a ``price rank'', whether it is an All or Nothing Bid, the 
bid size (as a percentage of auction lot), bid price (payment per 
100%), size multiplied by price and the allocation percentage of the 
auction lot.
    Paragraph 5.4 would clarify that All or Nothing Bids are given 
precedence over Standard Bids, in the sense that if an All or Nothing 
Bid is accepted, a Standard Bid will not be accepted even if it had a 
higher price than the F&O Auction Clearing Price. It would also provide 
that if multiple All or Nothing Bids are received at the F&O Auction 
Clearing Price, the Auction Lot will be allocated equally among those 
bidders.
    Paragraph 5.5 would be amended to clarify that in the scenario 
where the Clearing House elects to determine the F&O Auction Clearing 
Price for less than 100% of the contracts in the lot and hold a Second 
F&O Auction for the remainder, any All or Nothing Bids would be 
disregarded. Related examples in paragraph 5.5 have been amended 
accordingly.
2. Minimum Bid Requirement
    The amendments would revise paragraph 2.2 to provide that each F&O 
Clearing Member's Minimum Bid Requirement for a lot would be determined 
separately for each category of F&O Contract and would be determined 
pro rata based on the Original Margin requirement applicable to the 
Open Contract Positions of such F&O Clearing Member as compared to the 
total Original Margin requirements for all the Open Contract Positions 
of all F&O Clearing Members. Further, setting Minimum Bid Requirements 
would no longer require consultation with the F&O Default Committee. 
ICE Clear Europe believes that this approach (as opposed to the current 
minimum bid requirement, which is the same for all F&O Clearing 
Members) is more appropriately tied to each Clearing Member's relative 
risk position in the relevant contract, as demonstrated by original 
margin levels. A further conforming change would be made in paragraph 
2.2 to reflect that a Clearing Member could have a zero Minimum Bid 
Requirement (in which case it would not be required to bid for the 
relevant lot).
    Minor amendments to paragraph 2.3 would better clarify what is 
counted to toward the Minimum Bid Requirement. Specifically, a Clearing 
Member's bid for one of its Proprietary Accounts or Customer Accounts, 
including Individually Segregated Sponsored Accounts for the account of 
any Sponsored Principal for which it acts as Sponsor, would count 
towards its Minimum Bid Requirement. The precise wording of the 
paragraph has also been revised to improve general clarity. The 
amendments are also consistent with changes throughout the Auction 
Terms, as discussed herein, to clarify that Individually Segregated 
Sponsored Accounts are treated as Customer Accounts for purposes of the 
Auction Terms.
    Paragraph 2.4 would be amended such that an F&O Clearing Member's 
Minimum Bid Requirement would be communicated to it through the DMS (or 
via such other means as specified by the Clearing House), as discussed 
below, as soon as practicable prior to the relevant F&O Auction instead 
of through the template notification set out in an annex to the Auction 
Terms (which would accordingly be removed). The amendments would also 
clarify the procedures for the Clearing House to determine that a 
Minimum Bid

[[Page 31566]]

Requirement would be inappropriate for a particular F&O Clearing Member 
in particular circumstances, and explicitly provides that the Clearing 
House must confirm that it agrees with the Clearing Member's assessment 
that an exception to the Minimum Bid Requirement applies. An F&O 
Clearing Member would be required to notify the Clearing House 
promptly, but in any event within one hour of the Clearing House 
publishing details of the F&O Contracts comprising the relevant Auction 
Lot (instead of 12 hours prior to the opening of the auction), in 
writing, if it reasonably considers that the Minimum Bid Requirement 
would not apply to it. ICE Clear Europe does not believe the current 12 
hour period is necessarily practicable as an operational matter, as the 
Clearing House may need to conduct an auction with less than 12 hours' 
notice. The current requirement could thus either create an undesirable 
delay in conducting an auction or impose an unnecessary limitation on 
the F&O Clearing Member's ability to request an exception to the 
Minimum Bid Requirement. The proposed change, to allow notice within 
one hour after the Clearing House publishes auction details, will allow 
the Clearing House to move more quickly to minimize losses and preserve 
the F&O Clearing Member's ability to request an exception where 
warranted. The amendments would also clarify that F&O Clearing Members 
could outsource the operational processing of any of their auction 
obligations under Rule 102(w) (regarding outsourcing). F&O Clearing 
Members could also transfer their Minimum Bid Requirements to an 
Affiliate that is also an F&O Clearing Member, subject to notification 
to the Clearing House prior to an auction and execution of an agreement 
in an approved format.
    Paragraph 2.5 would be amended to state that the Clearing House 
would expect to create one or more separate Auction Lots consisting of 
F&O Contracts for which one or more F&O Clearing Members is excused 
from a Minimum Bid Requirement or has a zero Minimum Bid Requirement 
under paragraphs 2.2 and 2.4. This change is intended to state more 
clearly the Clearing House's existing practice in establishing separate 
lots in connection with an auction. Consistent with changes discussed 
above relating to setting Minimum Bid Requirements, paragraph 2.5 would 
also be amended to remove a requirement to consult with the F&O Default 
Committee in establishing Auction Lots, which ICE Clear Europe believes 
is unnecessary in light of the standards set out in paragraph 2.5.
3. Default Management System
    The amendments would provide for the use of the Clearing House's 
electronic default management system (``DMS'') for a number of 
communications between the Clearing House and auction participants, in 
lieu of the current manual notice process. Pursuant to amended 
paragraph 2.1, the Clearing House would notify F&O Clearing Members 
electronically through the DMS (or other means specified by the 
Clearing House) of an auction taking place instead of by Circular. 
Conforming changes would be made throughout the Auction Terms to make 
reference to communication through the DMS instead of through existing 
means. For example, as noted above, the Clearing House would notify 
Clearing Members of Minimum Bid Requirements through the DMS, pursuant 
to revised paragraph 2.4. Paragraph 2.6 would be amended to state that 
F&O Auction Specifications would be provided through the DMS instead of 
in the template format currently attached to the Auction Terms. 
Paragraphs 2.8 and 2.9 would be amended to state that all bids must be 
submitted via DMS (or other means specified by the Clearing House) 
instead of through the existing bid form. Certain provisions such as 
paragraph 2.10 have been correspondingly removed as no longer relevant 
with electronic submission through DMS. Paragraph 3.7 would be amended 
to provide that modified or amended bids may be submitted through DMS 
(or another format specified by the Clearing House). Pursuant to 
revised paragraph 5.8, winning bidders could also be notified through 
the DMS.
4. Clarification of Certain Regulatory and Compliance Obligations
    Paragraph 7.7 would be amended to clarify and state explicitly 
certain obligations for auction participants in respect of information 
they may receive in connection with an auction, including the contents 
of the portfolio or the outcome or timing of an auction. Specifically, 
the auction participant would acknowledge that such information may 
constitute inside information for the purposes of the Market Abuse 
Regulation (Regulation (EU) No 596/2014) (``MAR'') or fall within the 
definition of any similar term under Applicable Law (``Market Abuse 
Laws'') in respect of any Contracts cleared by the Clearing House or in 
respect of securities of a Defaulter. Under the revisions, each such 
participant would be required to assess whether such information is 
inside information and, if so, agree to: (a) Comply with applicable 
Market Abuse Laws; (b) generally not disclose such information to 
persons outside of its organization; (c) prevent persons engaged in 
client trading at such organization from possessing such information; 
(d) prevent those in possession of such information from trading on 
such information until it ceases to be inside information; and (e) 
where such information constitutes inside information under Regulation 
(EU) No. 596/2014, maintain an insider list of persons with access to 
this information.
5. Other Clarifications and Updates
    The amendments would make a number of other clarifications, 
drafting improvements and corrections to the Auction Terms. Certain 
changes to defined terms would be made throughout the Auction Terms, 
including the use of the term ``F&O Default Auction Terms'' instead of 
F&O Auction Terms, the new defined term ``Bidding Close Time'' instead 
of ``Closing Time'', and the defined term ``Auction Lot'' instead of 
the undefined ``lot''. Proposed amendments to paragraph 1.1 would 
clarify that references to F&O Contracts, for purposes of the Auction 
Terms, include (i) where automatic early termination has taken place 
under Part 9 of the Rules or Contract Terms, a reference to the 
terminated F&O Contracts or notional amounts representing such 
terminated F&O Contracts and (ii) where contracts have arisen from 
hedging transactions pursuant to Rule 903(c), a reference to any such 
hedging contracts executed by the Clearing House. These amendments thus 
clarify that such contracts may be auctioned for purposes of 
establishing replacement contracts with non-defaulting Clearing Members 
to balance the Clearing House's positions as part of the default 
management process, and thereby also establishing an auction price to 
be used in determining the Clearing House's loss with respect to the 
close out of the defaulter's positions for purposes of the Rules. In 
paragraph 1.2, the amendments would clarify that nothing in the Auction 
Terms would prevent the Clearing House from administering a sale or 
entering into offsetting transactions without holding an auction to 
which the Auction Terms apply. This reflects the Clearing House's 
existing authority under the Rules, and is intended to avoid any 
potential confusion as to the scope of the Auction Terms. New paragraph 
1.11 would

[[Page 31567]]

cross-reference defined terms in the Rules, F&O Procedures, Finance 
Procedures or F&O Standard Terms as applicable, and in the order of 
priority specified in Rule 102(f).
    Paragraph 2.3 would be amended to remove an unnecessary statement 
that F&O Clearing Members are deemed to have confirmed their intention 
to bid in a particular auction prior to the time window for bidding and 
the Auction closing time. In this regard, the Auction Terms (in 
paragraph 2.2) already impose a requirement on F&O Clearing Members to 
bid in the auction.
    Paragraph 2.10 (former paragraph 2.11) would be amended to clarify 
that after the Bidding Close Time, the Clearing House will notify 
participants of the fact that the F&O Auction took place, in addition 
to the outcome.
    Paragraph 3.1 would be amended to provide that where, in respect of 
a particular F&O auction, the portfolio of a Defaulter is split into 
multiple auction lots, the process for determining the competitiveness 
of bids described (which is used for determining the priority of 
application of Clearing Members' F&O Guaranty Fund Contribution and F&O 
Assessment Contributions) would be carried out separately for each 
Auction Lot. In such case, the weighted average price per unit for each 
auction lot would be scaled based on the proportion that the Original 
Margin requirement applicable to the Open Contract Positions comprising 
such Auction Lot represents in relation to the total Original Margin 
requirements for all the Open Contract Positions of the Defaulter in 
relation to auctioned F&O Contracts. Paragraph 3.1 would only apply to 
bids indicated or deemed related to Minimum Bid Requirements (i.e., 
those Standard Bids, or if applicable the All or Nothing Bid, that 
count toward the Minimum Bid Requirement).
    An additional clarification would be made in Paragraph 3.2 that the 
Minimum Bid Requirement could be satisfied by submitting multiple bids 
provided that any individual bid is equal to (and not merely larger 
than) any applicable minimum bid size.
    Under revised Paragraph 3.7, following the bidding close time, upon 
request of an F&O Auction Participant stating that a mistake was made 
in the bid submission, the Clearing House could invalidate the bid and 
the participant would be treated as if it had not made such a bid. The 
Clearing House would no longer be required to permit the participant to 
submit a corrected bid. This reflects the operation of DMS, which does 
not permit submission of a bid following the bidding close time, and 
further reflects ICE Clear Europe's view that given the objective of 
ensuring a fair and orderly auction, it is not appropriate for Clearing 
Members to modify bids following the bidding close deadline.
    The amendments to Paragraph 4.1 would remove a statement that an 
F&O Clearing Member may make an unlimited number of separate bids and 
clarify that the member may make separate bids for Customers or 
Sponsored Principals for whom it acts as Sponsor in the same way as it 
may make a bid for one of its Proprietary Accounts and subject to the 
same provisions of the Auction Terms. This amendment reflects that 
relevant systems do not permit an infinite number of separate bids, and 
in practice is intended to give ICE Clear Europe flexibility to set a 
maximum number of bids if it determines that is appropriate. Amendments 
to paragraph 4.2 would clarify that F&O Clearing Members are liable for 
the entry into of F&O Contracts resulting from bids made on behalf of a 
Customer or Sponsored Principal (including a Customer or Sponsored 
Principal that is an F&O Auction Participant) in the same manner and to 
the same extent as for other customer contracts. The amendments clarify 
the drafting to remove statements that the F&O Clearing Member becomes 
liable for the bid (as opposed to the contract resulting from the bid 
if accepted.
    Amendments to Paragraph 4.3 would require that each F&O Auction 
Participant that is not an F&O Clearing Member enter into an F&O 
Auction Participation Agreement with its F&O Clearing Member prior to 
participation in an F&O Auction (as opposed to merely deeming the F&O 
Auction Participant to have agreed to be bound by the Auction Terms). 
ICE Clear Europe believes it is preferable to have a formal agreement 
with the F&O Auction Participant in this situation, as it provides a 
clearer and stronger basis for enforcement of the Auction Terms against 
the F&O Auction Participant.
    Amendments to Paragraph 5.1 would clarify a reference to the 
Clearing House's F&O default management policies and procedures 
generally, as opposed to only the Default Management Policy.\6\ This 
would ensure that the Auction Terms themselves as well as the relevant 
provisions of the Rules are also incorporated in these references. 
Amendments to Paragraph 5.2 would also permit the Clearing House to at 
its discretion withdraw an auction lot after (as well as prior to) the 
bidding close time. An additional amendment to Paragraph 5.3 would 
provide that in the event of invalid or void bid or no F&O Contract 
being established, such bid would not be accepted and the F&O Auction 
Participant would be treated as if it had not made such bid.
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    \6\ This change would be consistent with similar clarifications 
made in Paragraphs 5.5.
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    In Paragraph 5.4, an additional clarification would add that bids 
invalidated pursuant to certain Paragraph 3 (Bidding Process) 
provisions could, at Clearing House discretion, be excluded for 
purposes of calculating the auction clearing price or allocating sizes 
at that price.
    Paragraph 5.7 would be amended to provide that the Winning Bidder 
will be the relevant F&O Clearing Member, acting for its Proprietary 
Accounts or Customer Account, including Individually Segregated 
Sponsored Accounts, as applicable. This amendment clarifies that an 
Individually Segregated Sponsored Account is treated as a Customer 
Account for this purpose and that the relevant F&O Clearing Member (and 
not the Sponsored Principal for which it is acting) is treated as the 
Winning Bidder.
    Amendments to Paragraph 5.8 would state in more detail the 
mechanism under the Rules through which F&O Contracts are entered into 
as a result of an auction, by providing that each bid constitutes an 
offer by the F&O Clearing Member to the Clearing House to enter into 
F&O Contracts pursuant to a Transfer governed by Rule 904(b) (but 
without regard to any Customer or Customer-CM Transactions of the 
Defaulter) and Part 4 of the Rules. The amendment is intended as a 
clarification of the existing process for entering into contracts and 
is not a substantive change in the Auction Terms. A reference to such 
an offer being made by a Sponsored Principal would be removed, as the 
F&O Clearing Member would be offering to enter into the contract on 
behalf of the Sponsored Principal in such case. Other changes in this 
paragraph clarify that resulting F&O Contracts would arise between the 
Clearing House and the winning bidder (acting for one of its 
Proprietary Accounts or Customer Accounts, including for an 
Individually Segregated Sponsored Account, as applicable), in 
accordance with such a Transfer and Part 4 of the Rules, but without 
regard to any Customer or Customer-CM Transactions of the Defaulter, on 
economically identical terms to the F&O Contracts that are the subject 
of the auction lot in the relevant F&O Auction. The additional text has 
been added for clarification and for consistency with

[[Page 31568]]

the amendments to Paragraph 5.7 as discussed above.
    Paragraph 5.10 would be amended such that if the Clearing House 
accepts bids below a reserve price or above a maximum price, the F&O 
auction for that lot would not be treated as a failed F&O auction.
    Paragraph 6.2 would be amended to clarify that Customer-CM F&O 
Transactions would only arise as a result of the F&O auction for 
Customers of the Winning Bidder. The amendment was intended to make a 
drafting clarification and does not reflect a substantive change in the 
operation of the Auction Terms.
    Clarifying amendments as to the treatment of Individually 
Segregated Sponsored Accounts as a form of Customer Account, consistent 
with other amendments discussed above, are made in paragraph 7.1.

II. Default Management Policy

    ICE Clear Europe is also proposing to make various amendments to 
its F&O Default Management Framework, which would be renamed the F&O 
Default Management Policy. The amendments would be consistent with the 
amendments to the Auction Terms discussed above and make certain other 
clarifications and updates. Conforming changes would also be made 
throughout the document to reflect the name change.
    In the statement of purpose of the document, a reference to the 
``Executive'' would be replaced with the ``Senior Management Team'' (to 
more accurately reflect relevant ICE Clear Europe governance 
arrangements). References to Executive elsewhere in the Policy would 
similarly be updated. With respect to default declarations, the Policy 
would be updated to clarify that the Board has delegated authority to 
declare an event of default to the President (instead of the President 
& COO or the Head of Clearing Risk). This reflects a change in the 
authority that has been delegated by the Board. Also, the Policy would 
state more clearly that legal representation as appropriate would be 
present at meetings of the Default Management Committee where required.
    The amendments would also clarify that the Clearing House expects 
to liaise with the relevant regulators prior to the declaration of an 
Event of Default and issuance of a Default Notice, but removes a 
statement that it would do so in all instances. In ICE Clear Europe's 
view, there may be circumstances in which liaising with regulators in 
advance may not be feasible, such as where a default may require 
immediate action to protect the Clearing House. The revised Policy 
nonetheless retains the requirement that the Clearing House notify its 
regulators prior to declaration of an Event of Default.
    With respect to the issuance of a circular and the posting of a 
website notice regarding an event of default, the amendments would 
remove a requirement that such actions be taken ``immediately'' 
following notice to the Defaulter. Similarly, the amendments would 
remove the requirement that the Clearing House act ``immediately'' to 
take certain additional actions relating to forming committees, 
suspending Defaulter trading access and preventing payments from the 
Clearing House to the Defaulter following issuance of the Default 
Notice. Although ICE Clear Europe expects that such actions would be 
implemented in a timely manner under the circumstances, it is not 
necessary (or necessarily feasible) to specify that it do so 
immediately.
    Pursuant to the amendments, the statement that in the event that 
the President and COO are absent, the Head of Clearing Risk would have 
the ability to overrule any other head of department (including Head of 
Treasury and Head of Operations) where necessary on matters relating to 
default management, would be removed. The amendment is intended to be 
consistent with the change in the Board's delegation of authority to 
the President referred to above. With respect to preventing payments 
from the Clearing House to the Defaulter, the requirement for treasury 
to call and email the Clearing House's account manager to stop the 
auto-release of funds would be amended to remove the reference to a 
specific bank (as a number of financial institutions may be relevant in 
particular circumstances). Certain other clarifications would be made 
as to the means of contacting default brokers (by phone or email) and 
to refer to relevant liquidity groups rather than sub-markets, as 
discussed in further detail below.
    Certain references to the ``Risk Management'' would be updated to 
refer to the ``Clearing Risk Department'' to better reflect the 
Clearing House's internal organization.
    The provisions of the Policy regarding bidding mechanics would be 
amended to address ``All or Nothing'' bids and the ``Minimum Bid 
Requirement'', among other general clarifications and drafting 
improvements. The amendments would clarify that the positions to be 
auctioned will generally be divided by liquidity group. The term 
``liquidity group'' replaces the less accurate term ``sub-market'', but 
the change is not intended to result in a substantive change in product 
grouping. The term liquidity group is intended to indicate product 
categories within the broader F&O Guaranty Fund segments. The liquidity 
groups, as listed in the Policy, are defined by underlying product and 
in some cases by margin group. The amendments would also reference the 
ability for Auction Participants to also submit an ``All or Nothing'' 
bid type and would explain this bid type. Amendments would also clarify 
that Clearing Member participation in the auction is mandatory provided 
that Clearing Members have an initial margin requirement in the 
liquidity group of the auctioned portfolio and that each Clearing 
Member is allocated a Minimum Bid Requirements based its portion of the 
initial margin of a liquidity group. This amendment is intended to be 
the same as set forth in the revised Auction Terms as discussed above 
(with certain differences in terminology (such as the use of the term 
``initial margin'' to be consistent with the use of terms in the 
Policy). Clearing Members who do not participate in an auction where 
they have an allocated Minimum Bid Requirement would be liable to the 
juniorization of their own Guaranty Fund contributions related to that 
liquidity group. The example regarding the bidding process as well as 
the distinctions in the process relating to listed contracts would be 
removed as no longer representative of the amended bidding process. The 
description of the bid submission process would be updated to refer to 
submission of bids through the DMS. Winning bidders would also receive 
notice through the ICE DMS rather than through the ICE secure server. 
The statement that in the event that a Clearing Member would receive a 
partial fill at auction if its bid is over the cusp for clearing the 
auction would be amended to clarify that this is only true of standard 
(i.e., non All or Nothing) bids. The statement that the Clearing House 
only expects to utilize mirror portfolios for the Dutch auction 
methodology would be removed (as it is unnecessary in the context of 
current F&O products).
    The amendments also remove certain provisions of the Policy that 
would be inconsistent with or superseded by the amended Auction Terms. 
This includes statements with respect to requirements for participation 
by clients in auctions (which are now addressed in paragraph 4.3 of the 
Auction Terms, among other provisions). A statement as to a requirement 
by certain clients to post collateral to the F&O Guaranty Fund in 
connection with auctions has been

[[Page 31569]]

removed as not reflecting current practice or practice under the 
Auction Terms as proposed to be amended. A statement that auction 
procedures are executed by asset class and then sub-market has been 
removed as it has been superseded by paragraph 2.5 of the Auction 
Terms. The amendments would also clarify that trades resulting from the 
auction would be booked against the margin account specified in the 
portfolio bid submission, instead of the DTCC account ID specified. The 
change reflects current Clearing House practices for identification of 
relevant accounts, and is consistent with the operation of the new DMS 
system for bid submission.
    The amendments to the Policy would also update arrangements for 
breach management, ongoing Policy reviews and exception handling. The 
amendments are intended to make the Policy consistent in this regard 
with other ICE Clear Europe policies and governance processes. Pursuant 
to the amendments, the document owner would be responsible for ensuring 
that the Policy remains up-to-date and is reviewed in accordance with 
ICEU's governance processes. The owner would also be responsible for 
reporting report material breaches or unapproved deviations from this 
document to the Head of Department, the Chief Risk Officer and the Head 
of Compliance (or their delegates) who together would determine if 
further escalation should be made to relevant senior executives, the 
Board and/or competent authorities. Exceptions to the Policy would 
approved in accordance with ICE Clear Europe's governance process for 
the approval of changes to the Policy.
(b) Statutory Basis
    ICE Clear Europe believes that the proposed amendments are 
consistent with the requirements of Section 17A of the Act \7\ and the 
regulations thereunder applicable to it. In particular, Section 
17A(b)(3)(F) of the Act \8\ 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. ICE Clear Europe 
believes that the proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to ICE Clear Europe, in particular, to Section 
17(A)(b)(3)(F),\9\ because ICE Clear Europe believes that the proposed 
changes to the Auction Terms and the Policy enhance ICE Clear Europe's 
ability to manage the risk of defaults. The proposed changes introduce 
All or Nothing Bidding to ICE Clear Europe's existing auction 
methodology. This new bid type is intended to reward auction 
participants for bidding competitively on both size and price, rather 
than just price (as with a Standard Bid). If an All or Nothing Bid sets 
the auction clearing price, the revised Auction Terms award 100% to 
that bid, rather than splitting the award with participants bidding 
more competitively on price but with smaller size. Such changes 
incentivize competitive bidding by rewarding auction participants for 
bidding competitively on both price and size and are designed to 
promote effective and efficient auctions to facilitate the close-out of 
the defaulter's portfolio.
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    \7\ 15 U.S.C. 78q-1.
    \8\ 15 U.S.C. 78q-1(b)(3)(F).
    \9\ 15 U.S.C. 78q-1(b)(3)(F).
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    The amendments to the determination of the Minimum Bid Requirement 
are intended to enhance default management by more closely linking the 
bid requirement for a clearing member with the risk of the clearing 
member's particular positions, as evidenced through original margin 
requirements. The amendments are designed to allocate potential risk in 
the auction taking into account the ability of the clearing member to 
trade in the particular product and thus to manage the risk of 
positions that it may acquire in the auction as a result of its minimum 
bid requirement. The amendments would thus reduce the risk to a 
clearing member of being forced to bid on a type of contract that it 
does not typically trade and may have less capability to manage. ICE 
Clear Europe believes this approach is more appropriate than the 
current approach of assigning each clearing member the same minimum bid 
requirement.\10\ ICE Clear Europe further believes that the revised 
approach, with a more tailored minimum bid requirement, will be more 
likely to result in competitive bidding by those clearing members 
consistent with their ability to manage the resulting positions.
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    \10\ The change is also consistent with recently adopted 
requirements of the Commodity Futures Trading Commission applicable 
to derivatives clearing organizations, including ICE Clear Europe. 
See 17 CFR 39.16(c)(2)(iii)(C) (a DCO shall not require a clearing 
member to bid for a portion of the defaulting clearing member's 
positions that is not proportional to the size of bidding clearing 
member's positions in the same product class at the DCO).
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    The proposed amendments also implement the use of the automated DMS 
to replace certain manual communication tasks in the auction process, 
including announcing the auction, communicating Minimum Bid 
Requirements and auction specifications, submitting bids and notifying 
winning bidders. Such changes allow ICE Clear Europe to more 
efficiently and safely manage its auction process and reduce the risk 
of miscommunication or error. The added compliance requirements around 
treatment of information concerning the auction will help prevent 
market abuse, enhance compliance with applicable law and thus generally 
promote the public interest. Finally, the clarification and clean-up 
changes provide greater specificity with respect to the Auction Terms 
and the Policy such that auction participants have greater certainty 
and clarity regarding the auction process and the requirements for 
their participation. ICE Clear Europe believes that the proposed 
amendments augment ICE Clear Europe's procedures relating to default 
management and enhance ICE Clear Europe's ability to withstand defaults 
and continue providing clearing services, thereby promoting the prompt 
and accurate clearance and settlement of securities transactions, 
derivatives agreements, contracts, and transactions, the safeguarding 
of securities and funds which are in the custody or control of ICE 
Clear Europe or for which it is responsible; and the protection of 
investors and the public interest, within the meaning of Section 
17A(b)(3)(F) of the Act.\11\
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    \11\ 15 U.S.C. 78q-1(b)(3)(F).
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    In addition, the proposed rule change is consistent with the 
relevant requirements of Rule 17Ad-22.\12\ Rule 17Ad-22(e)(4)(ii) \13\ 
requires ICE Clear Europe to establish, implement, maintain and enforce 
written policies and procedures reasonably designed to maintain 
sufficient financial resources at a 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 exposures in extreme but 
plausible market conditions. ICE Clear Europe believes that the 
proposed revisions enhance its Auction Terms. As described above, the 
optional All or Nothing Bid incentivizes competitive bidding, promoting 
the goal of reaching an efficient auction clearing price that permits 
ICE Clear Europe to close out

[[Page 31570]]

the defaulter's portfolio and return ICE Clear Europe to a matched 
book. Such new bid type rewards auction participants for bidding 
competitively on both size and price and may increase the willingness 
and ability of participants and their customers to participate in an 
auction and absorb the defaulter's positions through the default 
management process. Similarly, the changes to the Minimum Bid 
Requirement will incentivize bidding by clearing members that have 
taken on positions of the relevant type and may be better placed to 
manage the risks of the auctioned positions. In ICE Clear Europe's 
view, these enhancements represent tools that strengthen ICE Clear 
Europe's ability to manage its financial resources and withstand the 
pressures of defaults, consistent with the requirements of Rule 17Ad-
22(e)(4)(ii).\14\
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    \12\ 17 CFR 240.17Ad-22.
    \13\ 17 CFR 240.17Ad-22(e)(4)(ii).
    \14\ 17 CFR 240.17Ad-22(e)(4)(ii).
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    In addition, ICE Clear Europe believes the amendments satisfy Rule 
17Ad-22(e)(13),\15\ which requires a clearing agency to ensure that it 
``has the authority and operational capacity to take timely action to 
contain losses and liquidity demands'' in the case of default. As 
discussed above, the proposed amendments would enhance ICE Clear 
Europe's default management capabilities in F&O default auctions. 
Specifically, ICE Clear Europe believes the proposed addition of All or 
Nothing Bidding, the new methodology for calculating Minimum Bid 
Requirements and the automated DMS enhance ICE Clear Europe's ability 
to withstand defaults and continue providing clearing services, 
including by incentivizing competitive bidding to promote effective and 
efficient auctions that facilitate the close-out of the defaulter's 
portfolio and maximizing ICE Clear Europe's ability to efficiently and 
safely manage its auction process in default events, to ensure that ICE 
Clear Europe can take timely action to contain losses and liquidity 
pressures and to continue meeting its obligations in the event of a 
participant default consistent with the requirements of Rule 17Ad-
22(e)(13).\16\
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    \15\ 17 CFR 240.17Ad-22(e)(13).
    \16\ 17 CFR 240.17Ad-22(e)(13).
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    Rule 17Ad-22(e)(1) \17\ requires that clearing agencies establish 
policies and procedures that provide for a well-founded, clear, 
transparent, and enforceable legal basis for each aspect of its 
activities in all relevant jurisdictions. The amendment to Paragraph 
7.7 of the Auction Terms are designed to enhance compliance by F&O 
auction participants with Market Abuse Laws to the extent that they 
receive any inside information relating to any Contracts cleared by the 
Clearing House or in respect of securities of a Defaulter. In ICE Clear 
Europe's view, the amendments are therefore consistent with the 
requirements of Rule 17Ad-22(e)(1).\18\
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    \17\ 17 CFR 240.17Ad-22(e)(1).
    \18\ 17 CFR 240.17Ad-22(e)(1).
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    Rule 17Ad-22(e)(3)(i) \19\ requires clearing agencies to maintain a 
sound risk management framework that identifies, measures, monitors and 
manages the range of risks that it faces. The amendments to the Policy 
are intended to ensure that the Policy is consistent with the Auction 
Terms and to ensure risks relating to defaults continue to be well 
managed. In ICE Clear Europe's view, the amendments are therefore 
consistent with the requirements of Rule 17Ad-22(e)(3)(i).\20\
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    \19\ 17 CFR 240.17 Ad-22(e)(3)(i).
    \20\ 17 CFR 240.17 Ad-22(e)(3)(i).
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    Rule 17Ad-22(e)(2) \21\ 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. The proposed amendments to the Policy 
more clearly define the roles and responsibilities of the document 
owner, the Head of Department, the senior members of the Risk Oversight 
Department and the senior members of the Compliance Department, and are 
therefore consistent with the requirements of Rule 17Ad-22(e)(2).\22\
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    \21\ 17 CFR 240.17 Ad-22(e)(2).
    \22\ 17 CFR 240.17 Ad-22(e)(2).
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(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 
are being adopted further clarify and update the Auction Terms and 
better calibrate how market risks are allocated among F&O Clearing 
Members. The addition of All or Nothing Bids would provide an 
additional bidding option for Clearing Members if they choose to use 
it. Although the amendments to the Minimum Bid Requirement 
determination may result in some Clearing Members having higher Minimum 
Bid Requirements than others, ICE Clear Europe believes that this 
result is appropriate as it reflects the position risk in contracts of 
the relevant type that the Clearing Member has taken on, as exhibited 
by original margin requirements. As such, in ICE Clear Europe's view, 
the approach more appropriately allocates the risk of mandatory 
participation in default auctions to those clearing members that may 
have better ability to manage the risk of the contracts being 
auctioned, as demonstrated by their existing positions. ICE Clear 
Europe does not expect that the proposed changes will adversely affect 
access to clearing or the ability of Clearing Members, their customers 
or other market participants to continue to clear contracts. ICE Clear 
Europe also does not believe the amendments would materially affect the 
cost of clearing or otherwise impact competition among Clearing Members 
or other market participants or limit market participants' choices for 
selecting clearing services. Accordingly, ICE Clear Europe does not 
believe the amendments would impose any burden on competition not 
necessary or appropriate in furtherance of the purpose 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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \23\ and paragraph (f) of Rule 19b-4 \24\ 
thereunder. At any time within 60 days of the filing of the proposed 
rule change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.
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    \23\ 15 U.S.C. 78s(b)(3)(A).
    \24\ 17 CFR 240.19b-4(f).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, security-based swap submission or advance notice is consistent 
with the Act. Comments may be submitted by any of the following 
methods:

[[Page 31571]]

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-2020-006 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-2020-006. 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-2020-006 and should be 
submitted on or before June 16, 2020.

    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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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-11138 Filed 5-22-20; 8:45 am]
BILLING CODE 8011-01-P


