[Federal Register Volume 85, Number 129 (Monday, July 6, 2020)]
[Notices]
[Pages 40369-40377]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-14389]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89186; File No. SR-ICEEU-2020-007]


Self-Regulatory Organizations; ICE Clear Europe Limited; Order 
Approving 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

June 29, 2020.

I. Introduction

    On May 12, 2020, ICE Clear Europe Limited (``ICE Clear Europe'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4,\2\ a proposed rule change to amend 
its Auction Terms for CDS Default Auctions (the ``CDS Auction Terms'') 
and CDS Default Management Policy (the ``Policy''). On May 20, 2020, 
ICE Clear Europe filed Partial Amendment No. 1 to the proposed rule 
change.\3\ The proposed rule change, as modified by Partial Amendment 
No. 1, was published for comment in the Federal Register on May 28, 
2020.\4\ The Commission did not receive comments regarding the proposed 
rule change, as modified by Partial Amendment No. 1. For the reasons 
discussed below, the Commission is approving the proposed rule change, 
as modified by Partial Amendment No. 1 (hereinafter the ``proposed rule 
change'').
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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.
    \4\ 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), Exchange Act Release No. 88928 
(May 21, 2020); 85 FR 32075 (May 28, 2020) (SR-ICEEU-2020-007) 
(``Notice'').
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II. Description of the Proposed Rule Change

    As discussed below, the proposed rule change would amend the CDS 
Auction Terms and the Policy.\5\ The CDS Auction Terms explain how ICE 
Clear Europe would auction one or more lots of a defaulting Clearing 
Member's CDS Contracts, and the Policy describes the processes that ICE 
Clear Europe would use to close a defaulting Clearing Member's CDS 
Contracts, including by auction.
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    \5\ Capitalized terms not otherwise defined herein have the 
meanings assigned to them in the CDS Auction Terms, the Policy, or 
the ICE Clear Europe Rulebook, as applicable. The description that 
follows is excerpted from the Notice, 85 FR at 32075.
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A. Amendments to the CDS Auction Terms

    Currently, the CDS Auction Terms contain provisions that apply to 
Primary CDS Auctions (meaning initial auctions of CDS contracts) and 
Secondary CDS Auctions (meaning auctions conducted under part two of 
the CDS Auction Terms and in accordance with ICE Clear Europe Rule 
905(d)(i)(B).\6\ The provisions of the CDS Auction Terms applicable to 
Primary CDS Auctions are substantially the same as those applicable to 
Secondary CDS Auctions, and the proposed rule change would make the 
changes described below to

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both sets of provisions. Thus, for the sake of brevity, the description 
below refers collectively to changes to the CDS Auction Terms and to an 
``Auction,'' rather than a Primary CDS Auction and Secondary CDS 
Auction, unless needed to distinguish between the two terms.
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    \6\ A Secondary CDS Auction is an auction that ICE Clear Europe 
may conduct if ICE Clear Europe does not terminate, transfer, or 
close out all of the CDS Contracts of a Defaulter pursuant to a 
Primary CDS Auction and the other actions permitted under ICE Clear 
Europe Rule 905(a)-(c). Moreover, in the event of the failure of one 
or more Secondary CDS Auctions to eliminate or replace all remaining 
risk of the open contracts of a defaulting Clearing Member, ICE 
Clear Europe may employ its ability to engage in reduced gains 
distributions under Rule 914 and to partially terminate open 
contracts under Rule 915.
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    As described below, the proposed rule change would make changes 
primarily related to (i) updating and revising defined terms of the CDS 
Auction Terms; (ii) interpretation and application of the CDS Auction 
Terms; (iii) the operation of an Auction; (iv) Minimum Bid 
Requirements; (v) use of the Default Management System; (vi) 
introducing All or Nothing Bids; and (vii) adding provisions to cover 
the EU Market Abuse Regulation.
i. Amendments to the Defined Terms
    The proposed rule change would amend a number of the defined terms 
found in Section 1 of the CDS Auction Terms. First, the proposed rule 
change would update the names of certain defined terms to refer to an 
``Auction Lot'' rather than a ``Lot.'' For example, the proposed rule 
change would re-title the term ``Failed Lot'' to ``Failed Auction 
Lot.'' ICE Clear Europe is making this change to be more specific and 
distinguish the term Auction Lot from the more general term Lot. 
Moreover, this change is consistent with ICE Clear Europe's current 
authority under the CDS Auction Terms, which permit ICE Clear Europe to 
divide a Clearing Member's portfolio into one or more Auction Lots and 
auction off each Auction Lot separately, as ICE Clear Europe considers 
appropriate.
    Similarly, the proposed rule change would rename and amend certain 
defined terms to clarify that they apply to Primary CDS Auctions rather 
than Secondary CDS Auctions. The CDS Auction Terms contain one set of 
defined terms that contain definitions that are applicable to both 
Primary CDS Auctions and Secondary CDS Auctions. To clarify the terms 
applicable only to Primary CDS Auctions and better distinguish them 
from Secondary CDS Auctions, the proposed rule change would re-name the 
terms that currently only refer to a ``CDS Auction'' to specify that 
they apply to a Primary CDS Auction. For example, the proposed rule 
change would change the name of the terms ``CDS Auction'' and ``CDS 
Auction Participant'' to ``Primary CDS Auction'' and ``Primary CDS 
Auction Participant.'' With respect to Secondary CDS Auctions, no 
change is necessary because the CDS Auction Terms already contain terms 
specific to Secondary CDS Auctions. For example, the CDS Auction Terms 
already have a term called ``Secondary CDS Auction Participant.''
    The proposed rule change would also amend the defined term ``Second 
CDS Auction.'' A Second CDS Auction is a Primary CDS Auction that ICE 
Clear Europe may hold to sell an Auction Lot if it fails to sell all of 
the contracts in that Auction Lot via an initial Primary CDS Auction. A 
Second CDS Auction is an additional Primary CDS Auction, rather than a 
Secondary CDS Auction, as described above, and would therefore be 
subject to the rules for a Primary CDS Auction. To better clarify that 
point, the proposed rule change would rename the term ``Second CDS 
Auction'' to ``Repeat CDS Auction.''
    Moreover, the proposed rule change would revise the terms ``Split 
Bidder'' and ``Subordinate Bidder'' to note that they could apply to 
either a Primary CDS Auction Participant or a Secondary CDS Auction 
Participant, as applicable for the relevant auction. ICE Clear Europe 
represents that this amendment does not reflect a change in substance 
but would make the drafting consistent with the distinction between 
Primary and Secondary CDS Auctions discussed above.
    Next, the proposed rule change would make changes to defined terms 
that affect the specifics of how ICE Clear Europe conducts an Auction. 
Specifically, the proposed rule change would change the name of the 
term ``Closing Time'' to ``Bidding Close Time'' to be more precise. The 
proposed rule change would not alter the substance of this definition, 
however.
    Similarly, the proposed rule change would slightly revise the 
definitions of ``Primary CDS Auction Priority AC Sequence'', 
``Secondary CDS Auction Priority AC Sequence'', ``Primary CDS Auction 
Priority GF Sequence,'' and ``Secondary CDS Auction Priority GF 
Sequence''. These defined terms specify the order in which ICE Clear 
Europe would use non-defaulting Clearing Members' Guaranty Fund 
Contributions and Assessment Contributions if needed as additional 
financial resources to resolve the default of a Clearing Member under 
ICE Clear Europe Rule 908(i). Generally, under the current definitions, 
ICE Clear Europe would first apply the contributions of those Clearing 
Members whose bids in an Auction were the least competitive, starting 
with Non-Bidding CDS Clearing Members, and would then apply the 
contributions of those Clearing Members whose bids in an Auction were 
more competitive. The proposed rule change would not alter this order 
of priority. The proposed rule change would require, however, that ICE 
Clear Europe take each amount in the sequence pro rata for the relevant 
Auction Lot by applying the Auction Lot Guaranty Fund Weighting. The 
Auction Lot Guaranty Fund Weighting would be a percentage equal to the 
Initial Margin requirement associated with the contracts in the Auction 
Lot divided by the Initial Margin requirement associated with all of 
the contracts in all of the Auction Lots comprising the defaulting 
Clearing Member's portfolio. Thus, under this change, ICE Clear Europe 
would determine the amounts in the sequence by Auction Lot, taking into 
account the Initial Margin requirement associated with each Auction Lot 
versus all Auction Lots. ICE Clear Europe represents that this change 
is consistent with, and does not represent an alteration to, its 
current practices because the CDS Auction Terms already permit ICE 
Clear Europe to divide a Clearing Member's portfolio into one or more 
Auction Lots and auction off each Auction Lot separately, as ICE Clear 
Europe considers appropriate.
    Finally, consistent with the changes described below, the proposed 
rule change would add new defined terms. For example, the proposed rule 
change would add the terms ``All or Nothing Bid'', ``DMS'', and 
``Standard Bid.'' The definitions of those new terms are discussed 
further below as part of the discussion of the specific changes related 
to those terms.
ii. Interpretation and Application of CDS Auction Terms
    The proposed rule change would add several paragraphs regarding 
interpretation and application of the CDS Auction Terms. For example, 
the proposed rule change would add paragraphs to define the governing 
law for the CDS Auction Terms, to identify which courts shall have 
jurisdiction over disputes, and to provide for submission of matters to 
arbitration. ICE Clear Europe represents that these provisions are 
substantially similar to existing provisions in the Rulebook and the 
other Procedures, and ICE Clear Europe is proposing to add them to the 
CDS Auction Terms for consistency across its documentation.
    Similarly, the proposed rule change would clarify that nothing in 
the CDS Auction Terms would prevent ICE Clear Europe from administering 
a sale or entering into offsetting transactions without holding an 
Auction and that the CDS Auction Terms are subject to ICE Clear 
Europe's Rulebook. These changes reflect ICE Clear Europe's existing 
authority under its Rulebook, and ICE Clear Europe is adding these 
clarifications to avoid any potential

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confusion as to the scope of the CDS Auction Terms.
    The proposed rule change would also clarify that references to CDS 
Contracts, for purposes of the CDS Auction Terms, include (i) CDS 
Contracts terminated via automatic early termination or notional 
amounts representing such terminated CDS Contracts and (ii) CDS 
Contracts that have arisen from hedging transactions executed by ICE 
Clear Europe. ICE Clear Europe is making these changes to clarify that 
it may auction such CDS Contracts to establish replacement contracts 
with non-defaulting Clearing Members and to determine a price for 
calculating ICE Clear Europe's loss from closing the defaulting 
Clearing Member's positions.
iii. Operation of an Auction
    The proposed rule change would also make certain changes regarding 
the operation of an Auction, specifically relating to the Bidding Close 
Time for an Auction, the treatment of Bids, and participation of 
customers of Clearing Members in an Auction.
    Currently, the CDS Auction Terms provide that Clearing Members may 
only submit Bids for an Auction prior to the Bidding Close Time for 
that Auction. The proposed rule change would not alter this provision, 
but it would further specify that ICE Clear Europe could postpone the 
Bidding Close Time for up to one hour by giving notice of such 
postponement to all participants and following consultation to the 
extent practicable with the CDS Default Committee. Similarly, the CDS 
Auction Terms permit ICE Clear Europe to withdraw an Auction Lot prior 
to the Bidding Close Time. The proposed rule change would expand this 
authority to permit ICE Clear Europe to withdraw an Auction Lot after 
the Bidding Close Time. ICE Clear Europe believes these changes would 
provide it additional flexibility to deal with any potential 
operational issues that could arise during an Auction.
    The proposed rule change would update provisions related to the 
treatment of Bids in an Auction. First, the proposed rule change would 
revise the wording of a number of provisions to specify that in certain 
circumstances ICE Clear Europe would treat Clearing Members as having 
not made a Bid in Auction rather than not participating in an auction, 
as currently stated. This is not a substantive change because in either 
case, whether not participating in the Auction or not making a Bid in 
the Auction, the CDS Auction Terms as amended would treat the Clearing 
Member as a Non-Bidding CDS Clearing Member. This designation is 
important because under the CDS Auction Terms and ICE Clear Europe Rule 
908(i), in the event that ICE Clear Europe needs to use non-defaulting 
Clearing Members' Guaranty Fund Contributions or Assessment 
Contributions to resolve the default of a Clearing Member, ICE Clear 
Europe would use Non-Bidding CDS Clearing Members' Contributions first. 
Thus, under the proposed rule change, the CDS Auction Terms would treat 
a Clearing Member that submits a referential Bid (meaning a Bid that is 
one Euro higher or lower than the highest or lowest bidder), an invalid 
Bid, a void Bid, a Bid after the Bidding Close Time, a Bid in breach of 
the CDS Auction Terms, position limits, or other risk policies of ICE 
Clear Europe, or that submits a Bid while a Defaulter, as having not 
made a Bid in an Auction and as a Non-Bidding Clearing Member. Although 
effectively this treatment is the same as under the current CDS Auction 
Terms (designation as a Non-Bidding CDS Clearing Member), ICE Clear 
Europe is making this change because its believes that it is more 
accurate to describe the Clearing Member as having not made a Bid 
rather than not participating.
    Relatedly, the CDS Auction Terms currently permit ICE Clear Europe 
to exclude certain Bids for purposes of calculating the CDS Auction 
Clearing Price (as defined below). Specifically, the CDS Auction Terms 
permit ICE Clear Europe to exclude a Bid that is invalid because ICE 
Clear Europe reasonably believes that if it accepted such Bid, the 
Clearing Member would not clear the resulting CDS Contract. The 
proposed rule change would expand this provision to include Bids that 
are invalid for other reasons under the CDS Auction Terms, like Bids 
submitted below the minimum bid size, if any, Bids submitted after the 
Bidding Close Time, and Bids that do not comply with the requirements 
of the CDS Auction Terms.
    In addition, under the current CDS Auction Terms, each Bid 
constitutes an offer from a CDS Clearing Member to ICE Clear Europe to 
enter into CDS Contracts. The proposed rule change would not change 
this provision. The proposed rule change would clarify, however, that 
the offer would be an offer to enter into CDS Contracts pursuant to a 
Transfer governed by ICE Clear Europe Rule 904(b) and Part 4 of the ICE 
Clear Europe Rulebook. This change would not alter the substance of 
this provision. Rather, ICE Clear Europe is making this change to 
provide additional specificity by referencing the existing process for 
entering into CDS Contracts under the ICE Clear Europe Rulebook.
    Finally, the CDS Auction Terms currently permit customers of 
Clearing Members to participate in Auctions by becoming Direct 
Participating Customers. To become a Direct Participating Customer, a 
customer must meet certain requirements, including making a deposit and 
entering into an agreement with ICE Clear Europe regarding its 
participation. The proposed rule change would further require that that 
each Direct Participating Customer enter into a CDS Auction 
Participation Agreement with its CDS Clearing Member. ICE Clear Europe 
is making this change to establish a clearer and stronger basis for 
enforcement of the CDS Auction Terms against the Direct Participating 
Customer.
iv. Minimum Bid Requirements
    Currently, the CDS Auction Terms require each CDS Clearing Member 
to bid in every CDS Auction and for every lot in a CDS Auction unless 
its membership privileges permit it not to participate and it elects 
not to participate, with this obligation referred to as a CDS Clearing 
Member's Minimum Bid Requirement. The CDS Auction Terms provide 
further, however, that a Minimum Bid Requirement would not apply to the 
extent: (i) it would breach applicable law or the ICE Clear Europe 
Rulebook; (ii) it would result in a self-referencing CDS; or (iii) 
where ICE Clear Europe, after being notified in writing by the Clearing 
Member that it would be inappropriate, reasonably determines that the 
Minimum Bid Requirement does not apply. In that case, the Clearing 
Member must notify ICE Clear Europe promptly and in any event at least 
12 hours prior to the opening of the relevant Auction.
    The proposed rule change would make a number of amendments to these 
provisions. First, to acknowledge the fact there may be circumstances 
where a minimum Bid is not required, the proposed rule change would 
amend the requirement that each CDS Clearing Member bid in every CDS 
Auction for every lot in a CDS Auction to make it subject to a zero 
Minimum Bid Requirement being established under the conditions 
described further below.
    Next, the proposed rule change would delete the qualification that 
the Minimum Bid Requirement does not apply to a CDS Clearing Member 
whose membership privileges permit it not to participate. ICE Clear 
Europe is deleting that particular provision because there are no 
Clearing Members whose

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membership privileges permit them not to participate in CDS Auctions. 
Relatedly, the proposed rule change would also delete the term 
``Elective CDS Auction Participant,'' which refers to a CDS Clearing 
Member whose membership privileges permit it not to participate.
    Moreover, with respect to the circumstances in which a Minimum Bid 
Requirement does not apply, the proposed rule change would amend the 
portion of the CDS Auction Terms regarding a Clearing Member's 
notification to ICE Clear Europe that the Minimum Bid Requirement 
should not apply. Under the proposed rule change, a Clearing Member 
would still be required to notify ICE Clear Europe, and ICE Clear 
Europe still would have to reasonably determine that the Minimum Bid 
Requirement would be inappropriate. The Clearing Member would be 
required to provide the notice, however, within one hour of ICE Clear 
Europe publishing details of the CDS Contracts comprising the relevant 
Auction Lot, and ICE Clear Europe would need to confirm that it agrees 
with the Clearing Member's assessment. ICE Clear Europe is making this 
particular change because ICE Clear Europe does not believe the current 
12-hour period is feasible given that it may need to conduct an Auction 
with less than 12 hours' notice.
    Finally, the CDS Auction Terms currently provide that a Clearing 
Member can satisfy its Minimum Bid Requirement by submitting multiple 
Bids with differing Bid prices and Bid sizes provided that, in the 
aggregate, its submitted Bids equal or exceed the Minimum Bid 
Requirement and any individual Bid is larger than any applicable 
minimum Bid size imposed for that particular Auction, consistent with 
the CDS Auction Terms. The proposed rule change would clarify this 
provision by providing that any individual Bid must be equal to or 
larger than any applicable minimum Bid size.
    Additionally, the CDS Auction Terms currently allow affiliated 
Clearing Members to transfer, outsource, or aggregate their Minimum Bid 
Requirements to apply to a single one of them, subject to notifying ICE 
Clear Europe prior to a CDS Auction. The CDS Auction Terms further 
provide that a Clearing Member that transfers or outsources its Minimum 
Bid Requirement to an Affiliate remains liable for any breach by its 
Affiliate in respect of such Clearing Member's Minimum Bid Requirement 
(in addition to the liability on the part of its Affiliate for such 
breach) and is subject to the CDS Auction Priority as if such Bid were 
its own. Under the proposed rule change, the CDS Auction Terms would 
continue to allow a Clearing Member to transfer its Minimum Bid 
Requirement to an Affiliate but would further require that the 
Affiliate also be a Clearing Member and that both Clearing Members 
execute an agreement provided by ICE Clear Europe for this purpose. The 
proposed rule change also would allow Clearing Members to outsource the 
operational processing of any of their obligations under the CDS 
Auction Terms pursuant to ICE Clear Europe Rule 102(w), which permits 
Clearing Members to outsource the performance of their obligations 
under the ICE Clear Europe Rulebook. Thus, this change would expand a 
Clearing Member's ability to outsource the operational processing of 
any of its obligations under the CDS Auction Terms (not just the 
Minimum Bid Requirement) and would reference the applicable ICE Clear 
Europe Rule. Moreover, the proposed rule change, as under the current 
CDS Auction Terms, would provide that a Clearing Member that transfers 
its Minimum Bid Requirement to an Affiliate remains liable with respect 
to that Minimum Bid Requirement. The proposed rule change also would 
expand this liability to make a Clearing Member liable for any breach 
of the CDS Auction Terms by the person to whom the Clearing Member has 
outsourced its operational obligations, consistent with the expansion 
discussed above. Finally, the proposed rule change would further 
specify that a Clearing Member that transfers or outsources its Minimum 
Bid Requirement to an Affiliate would assume the same position as the 
Affiliate for the purposes of determining the order of application of 
non-defaulting Clearing Members' Guaranty Fund Contributions and 
Assessment Contributions under ICE Clear Europe Rule 908(i) and for 
designation as a Non-Bidding CDS Clearing Member. ICE Clear Europe is 
making this particular change to better specify the consequences of 
transfer of a CDS Clearing Member's obligations to an Affiliate.
    Finally, to clarify the extent of the Minimum Bid Requirements, the 
proposed rule change would add a provision to state that only those 
Bids that count toward the Minimum Bid Requirement would be taken into 
account in determining the order of application of Guaranty Fund 
Contributions and Assessment Contributions under the Primary and 
Secondary CDS Auction Priority AC Sequence, Primary and Secondary CDS 
Auction Priority GF Sequence, and ICE Clear Europe Rule 908(i) (as 
discussed above). Thus, for example, a Clearing Member that submits a 
Bid despite having a Minimum Bid Requirement of zero (for one of the 
reasons discussed above), would not see that Bid considered in 
determining where the Clearing Member stands in the CDS Auction 
Priority GF Sequence.
v. Use of the Default Management System
    As mentioned above, the proposed rule change would add a new 
defined term, ``DMS.'' The proposed rule change would define DMS as the 
Default Management System operated by ICE Clear Europe. The Default 
Management System would be the system used by ICE Clear Europe to 
communicate information to, and receive information from, CDS Clearing 
Members regarding Auctions. The proposed rule change would make changes 
to various aspects of the CDS Auction Terms to reflect use of this new 
defined term. With respect to the defined terms, the proposed rule 
change would make amendments to reflect the use of the DMS rather than 
the currently specified forms of communication, which usually require 
some form of manual delivery. For example, the proposed rule change 
would rename the term ``Bid Form'' to ``Bid Submission'' and revise the 
definition to reflect that it would refer to a Bid submitted via the 
DMS rather than a Bid submitted on a form prescribed by ICE Clear 
Europe. Similarly, the proposed rule change would amend the definitions 
for Primary and Secondary CDS Auction Announcement to reflect that ICE 
Clear Europe would send the announcement via the DMS rather than a 
circular.
    Similarly, the proposed rule change would amend other parts of the 
CDS Auction Terms to reflect ICE Clear Europe's use of the DMS. 
Specifically, the proposed rule change would require that Minimum Bid 
Requirements be communicated via the DMS (or via such other means and 
in such format as is specified by ICE Clear Europe), rather than by the 
template notification currently set out in Annex B. Accordingly, the 
proposed rule change would delete Annex B from the CDS Auction Terms. 
The proposed rule change would also require that ICE Clear Europe send 
the particular specifications for an Auction Lot, like its minimum 
reserve price (the lowest price ICE Clear Europe would accept), via the 
DMS rather than by the template notification currently set out in Annex 
A. Accordingly, the proposed rule change would delete Annex A from the 
CDS Auction Terms. Finally, the

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proposed rule change would require that ICE Clear Europe notify the 
winning bidders for particular Auction Lots via the DMS.
    In addition, the proposed rule change would amend the CDS Auction 
Terms to reflect Clearing Members' use of the DMS. The proposed rule 
change would require Clearing Members to submit bids via the DMS. The 
proposed rule change would also specify that a Clearing Member could 
amend its Bid by resubmitting the entire bid through DMS.
    To reflect the particular operations of the DMS, the proposed rule 
change would delete a provision from the CDS Auction Terms that 
currently states that Clearing Members may make an unlimited number of 
separate Bids. Operationally, the DMS does not accept an unlimited 
number of separate Bids from Clearing Members. Rather, the DMS would 
allow a Clearing Member to make separate Bids in respect of either its 
Customers for whom it acts as Clearing Member or its Sponsored 
Principals for whom it acts as Sponsor (in addition to any Bids for its 
Proprietary Accounts), in the same way as it may make a Bid for one of 
its Proprietary Accounts and subject to the same provisions of the CDS 
Auction Terms. Similarly, the proposed rule change would delete a 
statement that a Clearing Member who has made a mistaken or erroneous 
bid may withdraw the Bid and correct the mistake. The DMS would not 
permit Clearing Members to withdraw Bids. Instead, the Clearing Member 
would need to request that ICE Clear Europe invalidate the Bid, which, 
as under the current CDS Auction Terms, ICE Clear Europe could do at 
its own discretion if the Clearing Member has made a genuine mistake in 
the submission of a Bid.
    Finally, the CDS Auction Terms currently allow ICE Clear Europe to 
set a minimum bid size for an Auction and provide that any bid below 
the minimum bid size will be null and void. The proposed rule change 
would leverage the DMS to automate these existing requirements by 
specifying that the DMS would be designed to automatically prevent 
Clearing Members from submitting bids below the minimum bid size and to 
render null and void any bid below the minimum bid size that the DMS 
accepted in error.
vi. All or Nothing Bids
    As mentioned above, the proposed rule change would add a new 
defined term, ``All or Nothing Bid.'' An All or Nothing Bid would be a 
Bid that stipulates that if the Bid is the winning Bid, the bidder 
would receive all of the contracts being auctioned in the lot, without 
any of the contracts being split among other Bids. To make an All or 
Nothing Bid, the bidder would need to mark the Bid as such in its 
submission. The proposed rule change would introduce a new defined term 
for Bids that are not All or Nothing Bids, calling them Standard Bids.
    Clearing Members would not be required to make All or Nothing Bids 
pursuant to the proposed rule change. If a Clearing Member submits an 
All or Nothing Bid, however, then in the absence of other bids, the All 
or Nothing Bid would satisfy the Clearing Member's Minimum Bid 
Requirement (if any) at the same price but adjusted on a pro rata basis 
for the notional amount of contracts in the Auction Lot. If a Clearing 
Member makes an All or Nothing Bid, the Clearing Member still would be 
able to submit one or more Standard Bids for the same Auction Lot, 
whether for its account or the account of its customers, provided that 
all of the Bids are submitted in the same submission.
    Under the CDS Auction Terms, ICE Clear Europe currently determines 
the price of an Auction by ordering Bids sequentially, starting with 
the highest price and ending with the lowest price. The price of the 
Bid at which, along with any equal or higher Bids, the sum of the 
notional amount of contracts being purchased equals or is greater than 
the notional amount of contracts that ICE Clear Europe is auctioning is 
the clearing price of the Auction (the ``CDS Auction Clearing Price''). 
In other words, ICE Clear Europe proceeds down the list of Bids by 
price, starting with the highest priced Bid, and sets the CDS Auction 
Clearing Price at the Bid that, along with the other higher priced Bids 
before it, allows ICE Clear Europe to allocate 100% of the open CDS 
contracts in the Auction Lot.
    The CDS Auction Terms currently require that, in the event there 
are multiple Bids at the CDS Auction Clearing Price and there is a 
shortfall of open CDS contracts, ICE Clear Europe must allocate the 
contracts pro rata according to the notional amount of contracts that 
each winning bidder requested in its Bid. As revised under the proposed 
rule change, the CDS Auction Terms would require that, where there is 
an All or Nothing Bid in the sequence of Bids before the CDS Auction 
Clearing Price, the price of the All or Nothing Bid would set the CDS 
Auction Clearing Price (because that would be the highest priced bid 
that would allow ICE Clear Europe to allocate 100% of the open 
contracts). In that case, ICE Clear Europe would allocate to the bidder 
that submitted the All or Nothing Bid 100% of the contracts even if 
there are Standard Bids at a higher or equal price. If there were more 
than one All or Nothing Bid at the CDS Auction Clearing Price, then the 
CDS Auction Procedures, as revised under the proposed rule change, 
would require that ICE Clear Europe allocate the portfolio equally 
among the All or Nothing Bids.
    The proposed rule change would update two other provisions of the 
CDS Auction Terms to clarify how those provisions would apply in light 
of the presence of All or Nothing Bids. First, the CDS Auction Terms 
currently provide that ICE Clear Europe may, after a Primary Auction, 
in its discretion and after consultation with the CDS Default 
Committee, determine the CDS Auction Clearing Price to be less than 
100% of the notional amount of the contracts and declare a Repeat 
Auction to auction off the remaining contracts. ICE Clear Europe may do 
so if, in its reasonable determination, awarding 100% of the notional 
amount of the contracts would have a material impact on the amounts 
payable or receivable by ICE Clear Europe. The proposed rule change 
would not alter this provision but would specify that, in such a 
situation, ICE Europe could disregard any All or Nothing Bids.
    Second, the proposed rule change would revise the CDS Auction Terms 
to clarify how an All or Nothing Bid affects the calculation of a 
Clearing Member's Bid price for purposes of determining the 
competitiveness of a Clearing Member's Bid and satisfaction of a 
Clearing Member's Minimum Bid Requirement. The competitiveness of a 
Clearing Member's Bid and satisfaction of a Clearing Member's Minimum 
Bid Requirement are important because under the CDS Auction Terms and 
ICE Clear Europe Rule 908(i), in the event that ICE Clear Europe needs 
to use non-defaulting Clearing Members' Guaranty Fund Contributions or 
Assessment Contributions to resolve the default of a Clearing Member, 
ICE Clear Europe uses first the contributions attributable to Clearing 
Members that did not satisfy their Minimum Bid Requirement (Non-Bidding 
CDS Clearing Members), followed by those that submitted less 
competitive Bids. Currently, ICE Clear Europe uses the weighted average 
price of all valid Standard Bids made by the Clearing Member in the 
Auction (weighted by the portfolio size of each such Bid, and converted 
into Euro, if applicable) to determine Bid price and thus to determine 
the competitiveness

[[Page 40374]]

of a Clearing Member's Bids in an Auction.
    Under the CDS Auction Terms as revised by the proposed rule change, 
where a Clearing Member has submitted both an All or Nothing Bid and 
one or more Standard Bids, the Clearing Member's Bid price would be the 
(i) the weighted average price of all valid Standard Bids made by the 
Clearing Member in the Auction (weighted by the portfolio size of each 
such bid, and converted into Euro, if applicable) and (ii) the price of 
any valid All or Nothing Bid made by the Clearing Member in the 
Auction, in either case proportionately scaled to a portfolio size 
representing 100% of the relevant Auction Lot. Moreover, under the 
proposed rule change, if a Clearing Member's Standard Bids do not 
satisfy its Minimum Bid Requirement, the Clearing Member's Bid price 
would be the price of its All or Nothing Bid. Where a Clearing Member 
has submitted one or more Standard Bids (and has not submitted an All 
or Nothing Bid), and that Clearing Member's Standard Bids do not 
satisfy its Minimum Bid Requirement, the CDS Auction Terms would treat 
the Clearing Member as a Non-Bidding CDS Clearing Member, which, as 
noted above, has consequences under ICE Clear Europe Rule 908(i).
vii. Market Abuse Regulation
    The proposed rule change would also amend the CDS Auction Terms 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 and the 
outcome or timing of an Auction. Specifically, a participant in an 
Auction would be required to acknowledge that such information may 
constitute inside information for the purposes of the EU Market Abuse 
Regulation (Regulation (EU) No 596/2014) or any similar under 
applicable law in respect of any Contracts cleared by the ICE Clear 
Europe or in respect of securities of a defaulting Clearing Member. 
Under the proposed rule change, each participant in an Auction would be 
required to assess whether such information is inside information for 
purposes of the Market Abuse Regulation and, if so, to agree to: (i) 
Comply with applicable Market Abuse Laws; (ii) generally not disclose 
such information to persons outside of its organization; (iii) prevent 
persons engaged in client trading at such organization from possessing 
such information; (iv) prevent those in possession of such information 
from trading on such information until it ceases to be inside 
information; and (v) where such information constitutes inside 
information under Regulation (EU) No. 596/2014, maintain an insider 
list of persons with access to this information.

B. Amendments to the Policy

    The proposed rule change would make a number of changes to the 
Policy in relation to the amendments to the CDS Auction Terms. First, 
as mentioned above, the proposed rule change would change the name from 
the CDS Default Management Framework to the CDS Default Management 
Policy. The proposed rule change would make amendments to that effect 
throughout the document.
    Next, the proposed rule change would revise certain 
characterizations of the timeframe within which certain actions would 
occur under the Policy. The Policy currently provides that after the 
approval for the declaration of a default, ICE Clear Europe will 
immediately institute its default management process as outlined in the 
Policy. The proposed rule change would remove ``immediately'' from this 
provision. In addition, the proposed rule change would remove 
``immediately'' from the provision that ICE Clear Europe cease clearing 
trades for the defaulting Clearing Member when that Clearing Member is 
declared in default. Although ICE Clear Europe expects that it would 
implement such actions in a timely manner under the circumstances, ICE 
Clear Europe does not believe it is necessary or feasible to specify 
that it would do take such actions immediately.
    Similarly, with respect to assembling the Clearing Risk Team after 
a default, the Policy currently requires that the Head of Clearing Risk 
assemble the Clearing Risk Team as soon as a Clearing Member is deemed 
to have defaulted. The proposed rule change would amend this to require 
assembly once a Clearing Member is deemed to have defaulted. Again, ICE 
Clear Europe does not believe it is necessary or feasible to specify 
that assembly occur as soon as a Clearing Member is deemed to have 
defaulted. Finally, the Policy currently provides that when liquidating 
collateral assets of a default Clearing Member, ICE Clear Europe 
ensures that it can sell the collateral, subject to settlements terms, 
within a single working day, but the Head of Clearing Risk has 
discretion to postpone the collateral sale. The proposed rule change 
would delete this statement. ICE Clear Europe believes the statement is 
not needed to ensure timely sale of collateral and that it is 
unnecessary given that ICE Clear Europe relies on its existing and 
detailed collateral and liquidity policies to ensure it has sufficient 
access to liquidity in case of default.
    The proposed rule change would also make a change with respect to 
the personnel authorized to take action regarding default management. 
The proposed rule change would remove a statement that in the event 
that the President/Chief Operating Officer is 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. Thus, if the President/Chief 
Operating Officer is absent, the Head of Clearing Risk no longer has 
the ability to overrule any head of department. ICE Clear Europe is 
making this amendment to reflect a change in the Board's delegation of 
authority. Under the current delegation of authority, where the 
President/Chief Operating Officer is absent, the Executive Risk 
Committee has authority to make decisions, and thus override any head 
of department.
    The proposed rule change would also amend the Policy regarding ICE 
Clear Europe's authority to convert a default Clearing Member's non-
cash margin to cash. The Policy currently provides that to manage the 
risks related to a Clearing Member's default, ICE Clear Europe will 
internally isolate the Defaulting Clearing Member's positions and, if 
deemed appropriate, convert any non-cash portion of the Defaulting 
Member's margin and collateral securing their portion of the Guaranty 
Fund into cash. The proposed rule change would alter this slightly to 
provide that ICE Clear Europe ``may'' convert any non-cash portion of 
the Defaulting Member's margin and collateral securing their portion of 
the Guaranty Fund into cash. ICE Clear Europe is making this change to 
clarify the drafting of this provision, but it does not believe this 
change would substantively alter ICE Clear Europe's authority under 
this provision.
    The proposed rule change would also amend the portion of the Policy 
related to the mechanics of bidding in an Auction to address the 
introduction of All or Nothing Bids, as discussed above. The proposed 
amendments would provide explanation regarding the meaning of an All or 
Nothing Bid and an example of how an All or Nothing Bid would work. The 
proposed amendments would also provide that ICE Clear Europe would 
publish further information on the bidding types utilized in any given 
Auction as part of the specifications for that Auction.

[[Page 40375]]

    Finally, the proposed rule change would amend the Policy's 
provisions regarding review, breach management, and exception handling. 
With respect to reviewing and revising the Policy, the Policy currently 
provides that ICE Clear Europe will conduct a quarterly review of the 
Policy, to include an assessment of responsibilities, trading 
facilities, and equipment. The proposed rule change would delete this 
provision because ICE Clear Europe would review and revise the Policy 
as part of ICE Clear Europe's separate annual documentation review 
process rather than on a quarterly basis and, as discussed below, the 
document owner would be responsible for ensuring the Policy remains up-
to-date. In its place, the proposed rule change would add a provision 
explaining that ICE Clear Europe, in coordination with its Clearing 
Members, would 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 
proposed rule change would also make the Policy's provisions for breach 
management and exception handling consistent with other ICE Clear 
Europe policies and governance processes.\7\ Pursuant to the 
amendments, the document owner, as specified in ICE Clear Europe 
policies, would be responsible for making sure the Policy is up-to-date 
and for reporting report material breaches or unapproved deviations 
from the Policy 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 be approved in accordance with ICE Clear Europe's 
governance process for the approval of changes to the Policy.
---------------------------------------------------------------------------

    \7\ See Self-Regulatory Organizations; ICE Clear Europe Limited; 
Notice of Filing of Partial Amendment No. 2 and Order Granting 
Accelerated Approval of Proposed Rule Change, as Modified by Partial 
Amendment No. 1 and Partial Amendment No. 2, To Revise the ICE Clear 
Europe Treasury and Banking Services Policy, Liquidity Management 
Procedures, Investment Management Procedures and Unsecured Credit 
Limits Procedures, Exchange Act Release No. 86891 (Sept. 6, 2019); 
84 FR 48191 (Sep. 12, 2019) (SR-ICEEU-2019-012) (approving similar 
provisions in the ICE Clear Europe Treasury and Banking Services 
Policy, Liquidity Management Procedures, Investment Management 
Procedures and Unsecured Credit Limits Procedures).
---------------------------------------------------------------------------

III. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act directs the Commission to approve a 
proposed rule change of a self-regulatory organization if it finds that 
such proposed rule change is consistent with the requirements of the 
Act and the rules and regulations thereunder applicable to such 
organization.\8\ For the reasons given below, the Commission finds that 
the proposed rule change is consistent with Section 17A(b)(3)(F) of the 
Act \9\ and Rules 17Ad-22(e)(2)(v) and (e)(13).\10\
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    \8\ 15 U.S.C. 78s(b)(2)(C).
    \9\ 15 U.S.C. 78q-1(b)(3)(F).
    \10\ 17 CFR 240.17Ad-22(e)(2)(v), (e)(13).
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A. Consistency With Section 17A(b)(3)(F) of the Act

    Section 17A(b)(3)(F) of the Act requires, among other things, that 
the rules of ICE Clear Europe be designed to promote the prompt and 
accurate clearance and settlement of securities transactions and, to 
the extent applicable, derivative agreements, contracts, and 
transactions, as well as to assure the safeguarding of securities and 
funds which are in the custody or control of ICE Clear Europe or for 
which it is responsible.\11\ As discussed in more detail below, the 
Commission generally believes that the proposed rule change should 
improve the CDS Auction Terms and the Policy and, therefore, ICE Clear 
Europe's conduct of an Auction in response to a Clearing Member's 
default, and, as a result, believes that the proposed rule change is 
consistent with Section 17A(b)(3)(F) of the Act.\12\
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78q-1(b)(3)(F).
    \12\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    Specifically, the Commission believes that the proposed rule 
change, in amending certain defined terms and adding defined terms 
needed for the other changes as discussed in Part II,A,i above, should 
reduce the possibility for confusion in the application of the CDS 
Auction Terms by clarifying the terminology in the CDS Auction Terms 
and by identifying and defining the terms needed to enact the other 
changes discussed above. In addition, amending the defined terms with 
respect to certain operations of an auction, including changing the 
term Closing Time to Bidding Close Time and revising the definitions of 
Primary and Secondary CDS Auction Priority AC Sequence and Primary and 
Secondary CDS Auction Priority GF Sequence, should help to clarify 
these operational aspects of Auctions and thereby improve the 
efficiency of Auctions.
    Moreover, adding provisions to explain how ICE Clear Europe would 
interpret and apply the CDS Auction Terms, as discussed in Part II.A.ii 
above, including how the CDS Auctions Terms would relate to the ICE 
Clear Europe Rulebook, should help to reduce the possibility for 
confusion when interpreting and applying the CDS Auction Terms 
alongside the ICE Clear Europe Rulebook. Similarly, the additional 
provisions to explain that the CDS Contracts part of an Auction would 
include certain terminated CDS Contracts and hedging CDS Contracts 
should allow ICE Clear Europe to replace such contracts and establish a 
price to calculate its loss with respect to such contracts, thereby 
further improving the efficacy of Auctions.
    Further, giving ICE Clear Europe the ability to postpone the 
Bidding Close Time and withdraw a lot after the Bidding Close Time, as 
discussed in Part II.A.iii above, should afford ICE Clear Europe 
flexibility to respond to changing conditions as Auctions are being 
conducted and therefore to respond as needed to conduct a successful 
Auction. Clearing Members should also benefit from additional clarity 
with respect to the consequences of making Bids in an Auction as a 
result of the proposed rule change specifying the circumstances in 
which a Clearing Member is treated as having not made a Bid, in which 
ICE Clear Europe could exclude certain bids for purposes of calculating 
the CDS Auction Clearing Price, and in which a Bid would constitute an 
offer governed by ICE Clear Europe Rule 904(b) and Part 4 of the ICE 
Clear Europe Rulebook. Finally, the additional requirement that each 
Direct Participating Customer enter into a CDS Auction Participation 
Agreement with its CDS Clearing Member should provide an additional 
assurance that Customers participating in an Auction would comply with 
the requirements of the CDS Auction Terms.
    As it relates to Minimum Bid Requirements discussed in Part II.A.iv 
above, the Commission believes that the proposed rule change could 
increase participation in Auctions by reducing the potential for 
avoidance of Minimum Bid Requirements, thereby leading to more 
successful Auctions. Three particular aspects of the proposed rule 
change should help to reduce the possibility that a Clearing Member 
elects not to participate in an Auction or avoids the Minimum Bid 
Requirement: (i) Removal of the possibility that a Clearing Member 
could elect not to participate in an Auction; (ii) shortening the time 
by which a Clearing Member must provide notice to ICE Clear Europe that 
a Minimum Bid Requirement should not apply; and (iii) requiring ICE 
Clear Europe to confirm that it agrees to the Clearing Member's 
assessment

[[Page 40376]]

    At the same time, the proposed rule change should increase the 
flexibility with which Clearing Members may address Minimum Bid 
Requirements by allowing Clearing Members to outsource the operational 
processing of their obligations under the CDS Auction Terms; continuing 
to allow Clearing Members to transfer their Minimum Bid Requirements to 
Affiliates (subject to both being Clearing Members and entering into an 
agreement); making explicit that a Clearing Member can satisfy its 
Minimum Bid Requirement with multiple Bids provided that any individual 
Bid is equal to or larger than the applicable minimum Bid size; and 
adding a provision to state that only those Bids that count toward the 
Minimum Bid Requirement would be taken into account under the Primary 
and Secondary CDS Auction Priority AC Sequence, Primary and Secondary 
CDS Auction Priority GF Sequence, and ICE Clear Europe Rule 908(i). 
Similarly, the additional clarity provided regarding the continued 
liability of a Clearing Member that transfers its Minimum Bid 
Requirement or outsources other operational obligations would allow 
Clearing Members to better understand the consequences of transferring 
or outsourcing a Minimum Bid Requirement. The Commission believes that 
this additional flexibility and information should generally help to 
ensure Clearing Members comply with Minimum Bid Requirements, which, in 
turn, should help to increase the likelihood of a successful Auction.
    As discussed in part II.A.v above, the proposed rule change would 
make a number of changes reflecting the role and operations of the DMS 
in the context of an Auction. These changes would replace manual 
communications with electronic ones and therefore should improve the 
efficiency and accuracy of communications regarding Auctions, which may 
help to avoid delays or miscommunications that could delay the 
successful completion of an Auction. Thus, requiring use of the DMS and 
amending the CDS Auction Terms to reflect the operation of the DMS 
should help to promote the smooth conduct and successful completion of 
Auctions.
    The proposed rule change would also add All or Nothing Bids, and 
make related changes, to the CDS Auction Terms, as discussed in Part 
II.A.vi above. Because an All or Nothing Bid provides a means for a 
single bidder to take all of the contracts in an Auction and requires 
that ICE Clear Europe allocate such contracts to that bidder if the All 
or Nothing Bid meets the Auction Clearing Price, All or Nothing Bidding 
should increase the likelihood that ICE Clear Europe successfully sells 
all of a defaulting Clearing Member's contracts by an Auction. Thus, 
the Commission believes that the changes discussed regarding All or 
Nothing Bids, including how an All or Nothing Bid would affect Minimum 
Bid Requirements and the calculation of bid price, should help to 
increase the likelihood of a successful Auction.
    Moreover, adding provisions for the EU Market Abuse Regulations as 
discussed in Part II.A.vii above should ensure compliance with 
applicable EU law in the conduct of Auctions and should protect 
sensitive information shared as part of an Auction. The Commission 
believes this should, in turn, increase participants' confidence in the 
security of information shared as part of an Auction and therefore 
increase participation in an Auction.
    Finally, the Commission believes that the changes to the Policy 
discussed in Part II.B above should improve ICE Clear Europe's ability 
to use the processes outlined in the Policy to respond to a Clearing 
Member's default and increase the clarity regarding the operation of 
the Policy, including when ICE Clear Europe may take certain actions 
and its authority for doing so. These changes include: (i) Renaming the 
Policy; (ii) revising the timing requirements for certain actions; and 
(iii) specifying that ICE Clear Europe may convert the defaulting 
Clearing Member's non-cash Margin and Guaranty Fund Contributions into 
cash. Similarly, removing a 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) to reflect a change 
in the Board's delegation of authority, should reduce the possibility 
for confusion or mistakes in taking action under the Policy. Amending 
the mechanics of bidding in an Auction to address the introduction of 
All or Nothing Bids should further help to implement All or Nothing 
Bidding, which, as discussed above, should increase the likelihood for 
a successful Auction. Deleting the requirement that ICE Clear Europe 
conduct a quarterly review and instead making the document owner 
responsible for ensuring that the Policy is up-to-date and for 
reporting breaches, consistent with other ICE Clear Europe policies and 
governance processes, should establish a means for ensuring that ICE 
Clear Europe maintains and adheres to the Policy. For these reasons, 
the Commission believes the changes to the Policy should generally 
improve ICE Clear Europe's conduct of Auctions.
    Through Auctions, ICE Clear Europe sells the open CDS contracts of 
a defaulting Clearing Member. Thus, in improving the efficiency of such 
Auctions, the Commission believes the proposed rule change should 
promote the prompt and accurate clearance and settlement of the CDS 
transactions resulting from such Auctions. Moreover, the Commission 
believes that the default of a Clearing Member, if not promptly 
resolved, could cause losses for ICE Clear Europe. The Commission 
believes the proposed rule change should help to avoid these losses by 
promoting the prompt resolution of Auctions, and therefore the prompt 
resolution of a Clearing Member's default. Because losses resulting 
from the default of a Clearing Member could disrupt ICE Clear Europe's 
ability to operate and therefore threaten ICE Clear Europe's ability to 
clear and settle transactions and access securities and funds, the 
Commission believes the proposed rule change also should help to 
promote the prompt and accurate clearance and settlement of 
transactions and assure the safeguarding of securities and funds in ICE 
Clear Europe's custody and control.
    Therefore, the Commission finds that the proposed rule change 
should promote the prompt and accurate clearance and settlement of 
securities transactions and assure the safeguarding of securities and 
funds in ICE Clear Europe's custody and control, consistent with the 
Section 17A(b)(3)(F) of the Act.\13\
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    \13\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

B. Consistency with Rule 17Ad-22(e)(2)(v)

    Rule 17Ad-22(e)(2)(v) requires that ICE Clear Europe establish, 
implement, maintain and enforce written policies and procedures 
reasonably designed to provide for governance arrangements that, among 
other things, specify clear and direct lines of responsibility.\14\ As 
discussed in Part II.B above, the proposed rule change would amend the 
Policy to make the document owner responsible for ensuring that the 
Policy is up-to-date and for reporting breaches. The Commission 
believes that this aspect of the proposed rule change would place on 
the document owner a clear and direct responsibility for ensuring that 
ICE Clear Europe maintains the Policy and complies with it. For this 
reason, the Commission finds

[[Page 40377]]

that the proposed rule change is consistent with Rule 17Ad-
22(e)(2)(v).\15\
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    \14\ 15 U.S.C. 17Ad-22(e)(2)(v).
    \15\ 15 U.S.C. 17Ad-22(e)(2)(v).
---------------------------------------------------------------------------

C. Consistency with Rule 17Ad-22(e)(13)

    Rule 17Ad-22(e)(13) requires that ICE Clear Europe establish, 
implement, maintain and enforce written policies and procedures 
reasonably designed to ensure ICE Clear Europe has the authority and 
operational capacity to take timely action to contain losses and 
liquidity demands and continue to meet its obligations by, at a 
minimum, requiring its Clearing Members and, when practicable, other 
stakeholders to participate in the testing and review of its default 
procedures, including any close-out procedures, at least annually and 
following material changes thereto.\16\
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 17Ad-22(e)(13).
---------------------------------------------------------------------------

    As discussed above, the Commission believes the proposed rule 
change should generally improve the clarity and operation of the CDS 
Auction Terms and, therefore, ICE Clear Europe's ability to conduct a 
successful Auction via the CDS Auction Terms. Because ICE Clear Europe 
uses Auctions to close out a defaulting Clearing Member's contracts and 
contain the losses and liquidity demands stemming from a Clearing 
Member's default, the Commission believes the proposed rule change, in 
improving ICE Clear Europe's ability to conduct a successful Auction 
via the CDS Auction Terms, should help to ensure ICE Clear Europe has 
the authority and operational capacity to take timely action to contain 
losses and liquidity demands. Moreover, as discussed in Part II.B 
above, the proposed rule change would amend the Policy to add a 
provision explaining that ICE Clear Europe, in coordination with its 
Clearing Members, would conduct an annual mock Clearing Member default 
test with the Clearing Risk Department, appropriate ICE Clear Europe 
management, and CDS Default Committee Members for each Clearing Member. 
The Commission believes this particular change should help to ensure 
that ICE Clear Europe requires its Clearing Members to participate in 
the testing and review of its default procedures.
    For these reasons, the Commission finds that the proposed rule 
change is consistent with Rule 17Ad-22(e)(13).\17\
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    \17\ 15 U.S.C. 17Ad-22(e)(13).
---------------------------------------------------------------------------

IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act, 
and in particular, with the requirements of Section 17A(b)(3)(F) of the 
Act \18\ and Rules 17Ad-22(e)(2)(v) and (e)(13).\19\
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    \18\ 15 U.S.C. 78q-1(b)(3)(F).
    \19\ 17 CFR 240.17Ad-22(e)(2)(v) and (e)(13).
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    It is therefore ordered pursuant to Section 19(b)(2) of the Act 
\20\ that the proposed rule change, as modified by Partial Amendment 
No. 1 (SR-ICEEU-2020-007), be, and hereby is, approved.\21\
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    \20\ 15 U.S.C. 78s(b)(2).
    \21\ In approving the proposed rule change, the Commission 
considered the proposal's impact on efficiency, competition, and 
capital formation. 15 U.S.C. 78c(f).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-14389 Filed 7-2-20; 8:45 am]
BILLING CODE 8011-01-P


