[Federal Register Volume 85, Number 103 (Thursday, May 28, 2020)]
[Notices]
[Pages 32075-32082]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-11403]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88928; File No. SR-ICEEU-2020-007]


Self-Regulatory Organizations; ICE Clear Europe Limited; Notice 
of Filing of Proposed Rule Change, as Modified by Partial Amendment No. 
1, Relating to the ICE Clear Europe Auction Terms for CDS Default 
Auctions and CDS Default Management Policy (formerly the CDS Default 
Management Framework).

May 21, 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 12, 2020, 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. On May 
20, 2020, ICE Clear Europe filed Partial Amendment No. 1 to the 
proposed rule change.\3\ The Commission is publishing this notice to 
solicit comments on the proposed rule change, as modified by Partial 
Amendment No. 1 (hereinafter 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\ Partial Amendment Number 1 amended Exhibit 5A of the filing 
to correct the paragraph numbering in Part 2 of the CDS Auction 
Terms.
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    ICE Clear Europe Limited (``ICE Clear Europe'' or the ``Clearing 
House'') proposes to amend its Auction Terms for CDS Default Auctions 
(the ``CDS Auction Terms'') and CDS Default Management Policy (the 
``Policy''), formerly the CDS Default Management Framework. The 
revisions do not involve any changes to the ICE Clear Europe Clearing 
Rules (the ``Rules'') or other Procedures.\4\
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    \4\ Capitalized terms used but not defined herein have the 
meanings specified in the Rules.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    In its filing with the Commission, ICE Clear Europe included 
statements concerning the purpose of and basis for the proposed rule 
change and discussed any comments it received on the proposed rule 
change. The text of these statements may be examined at the places 
specified in Item IV below. ICE Clear Europe has prepared summaries, 
set forth in sections (A), (B), and (C) below, of the most significant 
aspects of such statements.

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

(a) Purpose
    ICE Clear Europe is proposing to amend its CDS Auction Terms and 
the Policy. The proposed amendments to the CDS Auction Terms would (1) 
add a new ``all or nothing'' bidding type, (2) clarify certain 
procedures regarding determination of minimum bid requirements, (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

[[Page 32076]]

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 and make 
general updates and clarifications.
I. CDS 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 the proposed new definition in paragraph 1.2 as well as paragraph 
3.8 of Part 1 and paragraph 3.6 of Part 2, 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 3.8 of Part 1 and 
paragraph 3.6 of Part 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.
    The term ``BP'' would be similarly amended to include the price of 
any valid All or Nothing Bid made by a Primary CDS Auction Participant 
or Secondary CDS Auction Participant in the Primary CDS Auction or 
Secondary CDS Auction, in either case proportionately scaled to a 
portfolio size representing 100% of the relevant Auction Lot. This 
definition would be further amended to provide that where the Standard 
Bids submitted by an auction participant do not comply with any 
applicable Minimum Bid Requirement, the BP shall be only the price of 
any All or Nothing Bid made by such participant, should it have made 
one. If a participant does not comply with any applicable Minimum Bid 
Requirement based on its Standard Bids, and does not provide a valid 
All or Nothing Bid, then the participant would be considered a Non-
Bidding CDS Clearing Member. Where a participant submitted only 
Standard Bids, or only an All or Nothing Bid, BP would be the weighted 
average bid price of the Standard Bids, or the price of the All or 
Nothing Bid, respectively.
    The definitions of Primary CDS Auction Priority AC Sequence and 
Primary CDS Auction Priority GF Sequence (previously CDS Auction 
Priority AC Sequence and CDS Auction Priority GF Sequence) would be 
amended to clarify that each amount in the sequence would be applied 
pro rata for the relevant Auction Lot of a Primary CDS Auction by 
applying the Auction Lot Guaranty Fund Weighting. As discussed below, 
the terms CDS Auction Priority AC Sequence and CDS Auction Priority GF 
Sequence, would be renamed to indicate more clearly that these terms 
relate to the Primary CDS Auction. A number of other terms relating to 
the Primary CDS Auction would be similarly renamed. The clarification 
that the amount in the sequence would be applied pro rata would provide 
additional detail that is consistent with existing practice. The term 
Lot Guaranty Fund Weighting has been renamed Auction Lot Guaranty Fund 
Weighting, consistent with the update from the term Lot to Auction Lot. 
The definition of this term has been clarified to refer to the 
aggregate of the PRIs for all Auction Lots in a Defaulter's portfolio 
rather than all Lots in a CDS Auction or Secondary CDS Auction, which 
is a more precise definition, but the change is not intended to result 
in a substantive change in practice. The definitions of Secondary CDS 
Auction Priority AC Sequence, Secondary CDS Auction Priority GF 
Sequence would be amended generally to conform to the corresponding 
Primary CDS Auction definitions, including to cross-refer, for clarity, 
to Rule 908(i) (which is the relevant provision of the Rules relating 
to the order of application of Guaranty Fund Contributions) and to 
clarify that each amount in the sequence would be applied pro rata for 
the relevant Auction Lot of a Secondary CDS Auction by applying the 
Auction Lot Guaranty Fund Weighting. The cross-reference would be added 
to ensure clarity and consistency between the relevant terms used for 
Primary and Secondary Auctions and between the CDS Auction Terms and 
the Rules, but is not intended to change the substance of current 
practice. The definition of CDS Auction Clearing Price would be 
redefined as Primary CDS Auction Clearing Price and a proviso would be 
added to this defined term and to the defined term Secondary CDS 
Auction Clearing Price stating that in the event that an All or Nothing 
Bid is included in such sum of the notional amount of CDS Contracts, 
the term would mean the price of the All or Nothing Bid in accordance 
with paragraph 5.4 of Part 1 or paragraph 5.4 of Part 2, as applicable, 
of the CDS Auction Terms. If an All or Nothing Bid is not submitted to 
or accepted by the Clearing House, then consistent with the current CDS 
Auction Terms, the Auction Lot will be allocated in full to bids at or 
above the Primary CDS Auction Clearing Price or Secondary CDS Auction 
Clearing Price, as applicable. If, however, an All or Nothing Bid is 
included in the group of bids with equal or higher bid prices, then the 
price of such All or Nothing Bid would be the Primary CDS Auction 
Clearing Price. The examples in Paragraph 5.4 of Part 1 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. The examples in Paragraph 5.4 of Part 2 would be 
removed, and cross-reference to the examples in Paragraph 5.4 of Part I 
would be added instead.
    Paragraph 5.5 of Parts 1 and 2 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 Primary CDS Auction Clearing 
Price or Secondary CDS Auction Clearing Price, as applicable. It would 
also provide that if multiple All or Nothing Bids are received at the 
Primary CDS Auction Clearing Price or Secondary CDS Auction Clearing 
Price, as applicable, the Auction Lot will be allocated equally among 
those bidders.
    Paragraph 5.6 in Part 1 would be amended to clarify that in the 
scenario where the Clearing House elects to determine the CDS Auction 
Clearing Price for less than 100% of the contracts in the lot and hold 
a further auction (a ``Repeat CDS Auction'') for the remainder, any All 
or Nothing Bids would be disregarded. Related examples in paragraph 5.6 
have been amended accordingly.
2. Minimum Bid Requirement
    The amendments would revise Paragraph 2.2 of Parts 1 and 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) and to remove a stated exception from the requirement for 
each CDS Clearing Member to bid in every Primary CDS Auction or

[[Page 32077]]

Secondary CDS Auction (as such terms are defined in the CDS Auction 
Terms), as applicable, for those whose membership privileges permit 
them not to participate (as there are no such CDS Clearing Members).
    Paragraph 2.4 of Parts 1 and 2 would be amended such that a CDS 
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 CDS Auction instead of through the template notification set 
out in an annex to the CDS Auction Terms (which would accordingly be 
removed). The amendments to Paragraph 2.4 of Part 1 and Paragraphs 2.4 
and 2.5 of Part 2 would also clarify the procedures for the Clearing 
House to determine that a Minimum Bid Requirement would be 
inappropriate for a particular CDS Clearing Member in particular 
circumstances, which would permit the Clearing House greater 
flexibility in appropriate circumstances. A CDS 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 CDS 
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 CDS 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 CDS 
Clearing Member's ability to request an exception where warranted. The 
amendments would also clarify that CDS Clearing Members could outsource 
the operational processing of any of their auction obligations under 
Rule 102(w) (regarding outsourcing). CDS Clearing Members could also 
transfer their Minimum Bid Requirements to an Affiliate that is also a 
CDS Clearing Member, subject to notification to the Clearing House 
prior to an auction and execution of an agreement in an approved 
format. The amendments would clarify that a CDS Clearing Member that 
outsources any of its obligations would remain liable for any breach by 
any Affiliate or outsourcee of the CDS Auction Terms or the Primary CDS 
Auction Specifications, including without limitation in respect of CDS 
Guaranty Fund juniorization. This amendment broadens the existing 
requirement which only refers to transfers or outsources of the Minimum 
Bid Requirement rather than any obligation, and makes specific 
reference to the CDS Guaranty Fund juniorization, and reflects the 
general principle that outsourcing or transfer of an obligation does 
not avoid responsibility for complying with the obligation. The 
amendments would further add that a CDS Clearing Member that transfers 
or outsources its Minimum Bid Requirement to an Affiliate would, for 
the purposes of determining its Senior Guaranty Fund Contribution, 
Subordinate Guaranty Fund Contribution, Senior Assessment Contribution 
and/or Subordinate Assessment Contribution, and for determining whether 
it should be designated as a Non-Bidding CDS Clearing Member, assume 
the same position as a Senior Bidder, Split Bidder, Subordinate Bidder 
or Non-Bidding CDS Clearing Member as the Affiliate, as appropriate.
3. Default Management System
    The amendments would provide for the use of the 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 of Parts 1 and 2 and the revised definitions of Primary 
CDS Auction Announcement and Secondary CDS Auction Announcement, the 
Clearing House would notify CDS 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 CDS 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 in Parts 1 and 2. Paragraph 2.5 of Part 1 and Paragraph 2.7 of Part 
2 would be amended to state that Primary CDS Auction Specifications or 
Secondary CDS Auction Specifications, as applicable would be provided 
through the DMS instead of in the template format currently attached to 
the CDS Auction Terms. Further, in Paragraph 2.5 of Part 1 and 
Paragraph 2.7 of Part 2, the statement that the Clearing House will 
provide each auction participant (other than Defaulters) with 
information about CDS Contracts to be auctioned would be amended to 
remove the exception for Defaulters because it is clear that Defaulters 
would not be auction participants and as such, the exception was 
unnecessary. The requirement that any minimum or maximum reserve price 
be provided would be deleted because, consistent with Paragraph 5.2, 
any reserve price would not necessarily be disclosed to bidders.
    Paragraph 2.9 and 2.10 of Part 1 and Paragraphs 2.10 and 2.11 of 
Part 2 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. Former Paragraph 2.11 of Part 1 and Paragraph 
2.12 of Part 2 has been correspondingly removed as no longer relevant 
with electronic submission through DMS. Paragraph 3.12 of Part 1 and 
Paragraph 3.10 of Part 2 (each as renumbered) 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 5.7 of Part 1, further Primary CDS Auction Specifications for 
any repeat CDS Auction would be notified by the Clearing House through 
the Primary CDS Auction Announcement and through the DMS (or via such 
other means and in such format as is specified by the Clearing House). 
Pursuant to revised Paragraph 5.8 of Part 1 and Paragraph 5.9 of Part 
2, winning bidders could also be notified through the DMS. References 
to submission of a bid form would be removed from the definition of 
``Bid'' and the term ``Bid Form'' would be amended to ``Bid 
Submission'' and would mean submission of a bid via DMS rather than via 
the ICE file transfer server.
4. Clarification of Certain Regulatory and Compliance Obligations
    Paragraph 7.7 of Parts 1 and 2 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

[[Page 32078]]

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 CDS Auction Terms. Certain 
changes to defined terms would be made throughout the CDS Auction 
Terms, including the use of the term ``CDS Default Auction Procedures'' 
instead of CDS Auction Procedures, the new defined term ``Bidding Close 
Time'' instead of ``Closing Time'' (which ICE Clear Europe views as a 
more precise term in this context (as the concept of closing time more 
generally has other uses), but which would have the same definition), 
and the defined term ``Auction Lot'' instead of ``Lot'' to better 
distinguish the term from the generic term, ``lot''. The definition of 
Auction Lot would also be clarified to refer only to CDS Contracts of 
the Defaulter (rather than the generic term ``portfolio'' of a 
Defaulter), and to all or any part of such contracts as determined by 
the Clearing House for a particular discrete auction. ICE Clear Europe 
does not believe such change would result in any change in practice. 
Conforming changes would be made to the defined terms for Lot 
Assessment Contribution, Lot CDS Direct Auction Participant 
Contribution, Lot Guaranty Fund Contribution, Lot Guaranty Fund 
Weighting, Lot Resources and Lot Resource Shortfall.
    A series of other changes is intended to more clearly distinguish 
between primary auctions under Part 1 and secondary auctions under Part 
2. Thus, the term ``CDS Auction'' would be amended to ``Primary CDS 
Auction'' with corresponding changes to CDS Auction Announcement, CDS 
Auction Clearing Price, CDS Auction Participant, CDS Auction Priority, 
CDS Auction Priority AC Sequence, CDS Auction Priority GF Sequence and 
CDS Auction Specifications to refer to Primary CDS Auction 
Announcement, Primary CDS Auction Clearing Price, Primary CDS Auction 
Participant, Primary CDS Auction Priority, Primary CDS Auction Priority 
AC Sequence, Primary CDS Auction Priority GF Sequence and Primary CDS 
Auction Specifications. Conforming changes would be made throughout the 
CDS Auction Terms. The terms ``Non-Bidding CDS Clearing Member'' and 
``Non-Bidding Direct Participating Customer'' would be clarified to 
explicitly reference such persons that do not submit or make (or would 
not be deemed to submit or make) a bid in the relevant Primary CDS 
Auction or Secondary CDS Auction in order to clarify that the terms 
capture those persons who do not participate or who are deemed not to 
participate (such as where their bid has been declared invalid under 
the CDS Auction Terms), whether or not they can be said to have 
``chosen'' not to participate. The term ``Elective CDS Auction 
Participants'' and references to this term would be removed, as there 
are no CDS Clearing Members in such category. The term ``Second CDS 
Auction'' would be amended to ``Repeat CDS Auction'', which term 
currently refers to a further Primary CDS Auction under Part 1 after an 
unsuccessful or partially unsuccessful first CDS auction, with the 
intention to more clearly distinguish such an auction from a Secondary 
CDS Auction under Part 2. The terms ``Split Bidder'' and ``Subordinate 
Bidder'' would be amended to explicitly note that this could be either 
a Primary CDS Participant or a Secondary CDS Auction Participant, as 
applicable for the relevant auction. This does not reflect a change in 
substance, but is intended to make the drafting consistent with the 
deletion of the term ``CDS Auction Participant'' and addition of the 
more specific terms, Primary CDS Auction Participant and Secondary CDS 
Auction Participant.
    Proposed amendments to paragraph 1.64 would clarify that references 
to CDS Contracts, for purposes of the CDS 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 CDS Contracts or 
notional amounts representing such terminated CDS 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. Amendments to this paragraph would also add 
a general introductory note that the CDS Auction Terms govern the 
auctioning of lots representing one or more CDS Contracts to which a 
Defaulter is or was a party, where such auction is administered by the 
Clearing House pursuant to Part 9 of the Rules. In paragraph 1.65, the 
amendments would clarify that nothing in the CDS Auction Terms would 
prevent the Clearing House from administering a sale or entering into 
offsetting transactions without holding an auction to which the CDS 
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 CDS Auction Terms.
    Introductory provisions would be added in paragraph 1.67 and 
following paragraphs to address matters such as governing law and 
dispute resolution (including submission to arbitration and 
jurisdiction). These are substantially similar to existing provisions 
in the Rules and the other Procedures, and ICE Clear Europe is 
proposing to add them here for consistency across its documentation.
    Paragraph 2.11 of Part 1 and Paragraph 2.13 of Part 2 would be 
amended to clarify that after the Bidding Close Time, the Clearing 
House will notify participants of the fact that the CDS Auction took 
place, in addition to the outcome.
    Paragraph 3.3 of Parts 1 and 2 would clarify that the specified 
order of application of CDS Guaranty Fund Contributions and Assessment 
Contributions in the Primary CDS Auction Priority or Secondary CDS 
Auction Priority, as applicable, 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 3.8 of Part 
1 and Paragraph 3.6 of Part 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.

[[Page 32079]]

    A clarification would be made in Paragraph 3.11 of Part 1 and 
Paragraph 3.9 of Part 2 that a bidder making a referential Bid (e.g. a 
Bid which purports to be a Bid which is [euro]1 higher or lower than 
the highest or lowest Bidder) would be treated as if it had not made 
such bid. This change is consistent with other changes to the CDS 
Auction Terms to refer to a person that does not bid in the auction (or 
is deemed not to bid) as ``Non-Bidding CDS Clearing Member'' or ``Non-
Bidding Direct Participating Customer'', without regard to whether the 
person ``chose'' not to participate. Similarly, under revised Paragraph 
3.12 of Part 1 and Paragraph 3.10 of Part 2, following the bidding 
close time, upon request of a CDS 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 provide for the 
submitter to withdraw or correct the bid in this case. 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.
    Similar amendments changing ``treated as if it had chosen not to 
participate'' to ``as if it had not made such Bid'' would be made to 
Paragraphs 3.13, 3.14, 3.15, 4.4 and 5.5 of Part 1 and Paragraphs 3.11, 
3.12, 3.13, 4.4, 5.4 and 5.5 of Part 2 for similar reasons. An 
additional amendment to Paragraph 5.4 of Parts 1 and 2 would provide 
that in the event of invalid or void bid or no CDS Contract being 
established, such bid would not be accepted and the CDS Auction 
Participant would be treated as if it had not made such bid, instead of 
chosen not to participate, for similar reasons.
    The amendments to Paragraph 4.1 of Parts 1 and 2 would remove a 
statement that a CDS 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 relevant Part of the CDS 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 4.3 of Parts 1 
and 2 would require that each Direct Participating Customer (as defined 
in the CDS Auction Terms) enter into a CDS Auction Participation 
Agreement with its CDS Clearing Member prior to participation in a 
Primary CDS Auction or Secondary CDS Auction, as applicable (rather 
than deeming them to be bound by the CDS Auction Terms). ICE Clear 
Europe believes it is preferable to have a formal agreement with the 
Direct Participating Customer in this situation, as it provides a 
clearer and stronger basis for enforcement of the CDS Auction Terms 
against the Direct Participating Customer.
    Amendments to Paragraph 5.3 of Parts 1 and 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.
    In Paragraph 5.5 of Parts 1 and 2, an additional clarification 
would add that bids invalidated pursuant to certain Paragraph 3 
(Bidding Process) provisions could, at the Clearing House's discretion, 
be excluded for purposes of calculating the auction clearing price or 
allocating sizes at that price.
    Amendments to Paragraph 5.8 of Part 1 and Paragraph 5.9 of Part 2 
would clarify the mechanism under the Rules through which CDS Contracts 
are entered into as a result of an auction, by providing that each bid 
constitutes an offer by the CDS Clearing Member to the Clearing House 
to enter into CDS 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 CDS Auction Terms. Any unnecessary 
reference to acceptance of such offer by the Clearing House would be 
removed (as the paragraph provides for the relevant contracts to arise 
between the Clearing House and the winning bidder without need for any 
further step). Other changes in this paragraph would clarify that 
resulting CDS Contracts would arise between the Clearing House and the 
winning bidder, 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 CDS Contracts 
that are the subject of the auction lot in the relevant Primary CDS 
Auction or Secondary CDS Auction, as applicable.
    Clarifying amendments as to the treatment of Individually 
Segregated Sponsored Accounts as a form of Customer Account, consistent 
with other amendments discussed above, would be made in Paragraph 7.1 
of Parts 1 and 2.
    Throughout the CDS Auction Terms, various provisions would be 
renumbered as a result of the changes described above and related 
cross-references would be corrected and updated.
II. CDS Default Management Policy
    ICE Clear Europe is also proposing to make various amendments to 
its CDS Default Management Framework, which would be renamed the CDS 
Default Management Policy. The amendments would be consistent with the 
amendments to the CDS 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 terms of the procedures for declaring a default, the Policy 
would be revised to remove a requirement that the default management 
process be implemented ``immediately'' after approval by appropriate 
management of the declaration of a default. Although ICE Clear Europe 
expects that such process would be implemented in a timely manner under 
the circumstances, it is not necessary (or necessarily feasible) to 
specify that it do so immediately. A similar change would be made to 
the requirement that ICE Clear Europe cease clearing trades for the 
defaulting Clearing Member when it is declared in default.
    With respect to activation of the clearing risk team, the Policy 
would be amended to remove the statement that in the event that the 
President/Chief Operating Officer being absent, the Head of Clearing 
Risk has 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. The amendment reflects a change 
in the Board's delegation of authority to the President (and not to the 
Chief Operating Officer or Head of Clearing Risk in the President's 
absence).
    With respect to liquidation of a defaulting member's collateral, 
the amendments would remove a statement that for all assets the 
Clearing House ensures that it can sell the collateral, subject to 
settlements terms, within a single working day. This statement is 
unnecessary and an oversimplification, and the Clearing House in any 
event relies on its existing and detailed

[[Page 32080]]

collateral and liquidity policies to ensure it has sufficient access to 
liquidity in case of default. A related statement that the Head of 
Clearing Risk will have the discretion to postpone the collateral sale 
would be removed as unnecessary in light of the general standard that 
the Clearing House will take appropriate action to ensure an orderly 
close out. Amendments would also clarify that the Clearing House may 
(but need not) convert any portion of the defaulting Clearing Member's 
non-cash margin or collateral into cash, as the Clearing House 
determines appropriate. This is intended as a drafting improvement that 
provides greater clarity, but does not affect the Clearing House's 
rights with respect to such margin or collateral.
    The provisions of the Policy regarding bidding mechanics would be 
amended to address ``All or Nothing'' bids. A paragraph would be added 
to this section to provide that auction participants may submit ``All 
or Nothing'' bids for each auction. The amendments provide explanation 
as to the meaning of such a bid and an example of how such bids work. 
The amendments would also provide that further information on the 
bidding types utilized in any given auction would be published as part 
of the CDS Default Auction Terms Specifications.
    The existing requirement that ICE Clear Europe conduct quarterly 
reviews of the Policy would be deleted as the Policy would reviewed as 
part of the ICE Clear Europe's separate annual documentation review 
process. The Policy would continue to require ICE Clear Europe, in 
coordination with its Clearing Members, conduct an annual mock Clearing 
Member default test with the Clearing Risk Department, appropriate 
Clearing House management and CDS Default Committee Members for each 
Clearing Member.
    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, as specified in ICE Clear Europe 
policies, would 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 \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. 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),\7\ because ICE Clear Europe believes that the proposed 
changes to the CDS Auction Terms 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 CDS 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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    \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).
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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 CDS Auction 
Terms 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.\8\
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    In addition, the proposed rule change is consistent with the 
relevant requirements of Rule 17Ad-22.\9\ Rule 17Ad-22(e)(4)(ii) \10\ 
requires ICE Clear Europe to establish, implement, maintain and enforce 
written policies and procedures reasonably designed to effectively 
identify, measure, monitor, and manage its credit exposures to 
participants and those arising from its payment, clearing, and 
settlement processes, including by maintaining additional financial 
resources at the minimum to enable it to cover a wide range of 
foreseeable stress scenarios that include, but are not limited to, the 
default of the two participant families that would potentially cause 
the largest aggregate credit exposure for the covered clearing agency 
in extreme but plausible market conditions. ICE Clear Europe believes 
that the proposed revisions enhance its CDS 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 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

[[Page 32081]]

customers to participate in an auction and absorb the defaulter's 
positions through the default management process. In ICE Clear Europe's 
view, these enhancements represent tools that strengthen ICE Clear 
Europe's ability to maintain its financial resources and withstand the 
pressures of defaults, consistent with the requirements of Rule 17Ad-
22(e)(4)(ii).\11\
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    \9\ 17 CFR 240.17Ad-22.
    \10\ 17 CFR 240.17Ad-22(e)(4)(ii).
    \11\ 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),\12\ 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 CDS default auctions. 
Specifically, ICE Clear Europe believes the proposed addition of All or 
Nothing Bidding 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).\13\
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    \12\ 17 CFR 240.17Ad-22(e)(13).
    \13\ 17 CFR 240.17Ad-22(e)(13).
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    Rule 17Ad-22(e)(1) \14\ 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 Parts 1 and 2 are designed to enhance compliance by CDS 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). \15\
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    \14\ 17 CFR 240.17Ad-22(e)(1).
    \15\ 17 CFR 240.17Ad-22(e)(1).
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    Rule 17Ad-22(e)(3)(i) \16\ 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 CDS 
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).\17\
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    \16\ 17 CFR 240.17 Ad-22(e)(3)(i).
    \17\ 17 CFR 240.17 Ad-22(e)(3)(i).
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    Rule 17Ad-22(e)(2) \18\ 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).\19\
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    \18\ 17 CFR 240.17 Ad-22(e)(2).
    \19\ 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 CDS Auction Terms, 
with the goal of enhancing default management. The addition of All or 
Nothing Bids would provide an additional bidding option for Clearing 
Members if they choose to use it. The amendments will otherwise apply 
to all CDS Clearing Members. 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

    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 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-2020-007 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-2020-007. 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

[[Page 32082]]

change that are filed with the Commission, and all written 
communications relating to the proposed rule change between the 
Commission and any person, other than those that may be withheld from 
the public in accordance with the provisions of 5 U.S.C. 552, will be 
available for website viewing and printing in the Commission's Public 
Reference Room, 100 F Street NE, Washington, DC 20549, on official 
business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of 
such filings will also be available for inspection and copying at the 
principal office of ICE Clear Europe and on ICE Clear Europe's website 
at https://www.theice.com/clear-europe/regulation. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-ICEEU-2020-007 and should be submitted 
on or before June 18, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-11403 Filed 5-27-20; 8:45 am]
BILLING CODE 8011-01-P


