[Federal Register Volume 85, Number 242 (Wednesday, December 16, 2020)]
[Notices]
[Pages 81548-81551]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-27597]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90627; File No. SR-ICEEU-2020-013]


Self-Regulatory Organizations; ICE Clear Europe Limited; Order 
Approving Proposed Rule Change Relating to the ICE Clear Europe 
Investment Management Procedures

December 10, 2020.

I. Introduction

    On October 23, 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 thereunder,\2\ a 
proposed rule change to amend its Investment Management Procedures (the 
``Procedures'') to make certain clarifications and updates with respect 
to permissible investments.\3\ The proposed rule change was published 
for comment in the Federal Register on November 5, 2020.\4\ The 
Commission did not receive comments regarding the proposed rule change. 
For the reasons discussed below, the Commission is approving the 
proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Self-Regulatory Organizations; ICE Clear Europe Limited; 
Notice of Filing of Proposed Rule Change Relating to the ICE Clear 
Europe Investment Management Procedures, Exchange Act Release No. 
90290 (October 30, 2020), 85 FR 70697 (November 5, 2020) (SR-ICEEU-
2020-013) (``Notice'').
    \4\ See Notice supra note 3.
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II. Description of the Proposed Rule Change

    The proposed rule change would amend the Procedures to clarify the 
requirements for investment of customer funds by FCM/BD Clearing 
Members \5\ resulting from the expansion of permitted investments to 
include qualifying Euro-denominated non-U.S. sovereign debt pursuant to 
an exemptive order issued by the U.S. Commodity

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Futures Trading Commission (the ``CFTC Order'').\6\
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    \5\ Capitalized terms used but not defined herein have the 
meanings specified in the Procedures or the ICE Clear Europe 
Clearing Rules (the ``Rules''), as applicable.
    \6\ Order Granting Exemption From Certain Provisions of the 
Commodity Exchange Act Regarding Investment of Customer Funds and 
From Certain Related Commission Regulations, 83 FR 35241, 35245 
(July 25, 2018) (permitting the investment of futures and swap 
customer funds in euro-denominated debt issued by the French 
Republic and the Federal Republic of Germany under specified 
conditions, and granting other related limited exemptions to CFTC-
registered derivatives clearing organizations or ``DCOs'').
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    In Section 1 of the Procedures, ICE Clear Europe proposes to amend 
its investment management objective to clarify that the cash subject to 
investment excludes its corporate cash held for operating purposes, but 
would include cash held for the purposes of meeting ICE Clear Europe's 
contributions to the guaranty fund (referred to below as ``skin in the 
game''), maintaining its capital pursuant to applicable regulatory 
requirements (referred to below as ``regulatory capital''), or for any 
other purpose in connection with its daily treasury activities for the 
management of Clearing Members' margin or guaranty fund contributions. 
ICE Clear Europe represented that this clarification is consistent with 
current practice.\7\
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    \7\ See Notice, 85 FR at 70697.
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    In Section 2 of the Procedures, ICE Clear Europe proposes three 
main changes to its overall investment considerations, which are a list 
of criteria that ICE Clear Europe considers when making investments. 
First, it would clarify that the goal for non-overnight investments to 
have a variety of maturity dates only applies where applicable and thus 
not necessarily in all cases, such as investments in bank deposits. 
Second, it would amend the description of how futures commission 
merchant (``FCM'') customer funds may be invested by permitting 
investments in cash deposits, clarifying that direct purchases with 
U.S. dollar cash are limited to U.S. sovereign bonds, and providing 
that direct purchases with Euro cash may be made in French and German 
sovereign bonds as permitted in the CFTC Order. Third, it would clarify 
that ICE Clear Europe calculates the requirement of no more than 5% of 
the investible funds should be held as unsecured cash over an average 
period of one calendar month. In addition, ICE Clear Europe would make 
certain other typographical and similar corrections to this section of 
the Procedures.
    ICE Clear Europe would also amend its table of authorized 
investments and concentration limits for cash from Clearing Members and 
from skin in the game to expand the investments in which ICE Clear 
Europe may invest such cash and skin in the game. This table identifies 
the permitted instruments for investment and then identifies, for each 
instrument: (i) The maximum issuer or counterparty concentration 
limits; (ii) the maximum portfolio concentration limits; (iii) the 
maximum maturity; and (iv) the minimum credit ratings of the instrument 
or allowed issuers of the instrument. The proposed rule change would 
retain the permitted investments currently listed in this table (i.e., 
reverse repurchase agreements, US, UK, and EU sovereign obligations, 
US, UK, and EU government agency bonds, central bank obligations, and 
commercial bank obligations) and make four main changes with respect to 
the currently permitted instruments. First, it would apply the existing 
maximum issuer/counterparty concentration limit of 15% of the total EUR 
balance in a single government issuer only to government bonds issued 
by Belgium and the Netherlands, and provide no limit for French and 
German government bonds. Second, it would remove the current reference 
to the issuer limit and impose new maximum portfolio concentration 
limits for EU government bonds at 20% of the total EUR balance in a 
single issue for German or French government bonds, and 10% of the 
total EUR balance in a single issue for Belgian or Dutch government 
bonds. Third, for investments of FCM customer funds in EU government 
bonds, it would apply additional criteria as required in the CFTC 
Order, as described further below in the new defined term ``Permitted 
Purchases of Euro denominated debt for FCM Customer Funds'' in the 
Glossary section of the Procedures. Fourth, with respect to central 
bank deposits, it would add the Federal Reserve and the European 
Central Bank (ECB) to the list of allowed central banks. While ICE 
Clear Europe represented that it does not necessarily have access to 
deposits at such central banks at this time, the amendment would allow 
for possible future developments.\8\
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    \8\ See Notice, 85 FR at 70697.
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    The proposed rule change would also add a new instrument category 
of commercial bank deposits to ICE Clear Europe's table of authorized 
investments and concentration limits for its regulatory capital. This 
table currently lists US, UK, and EU sovereign obligations, and US, UK, 
and EU government agency bonds as the only permitted investments for 
ICE Clear Europe's regulatory capital. The addition of commercial bank 
deposits thus expands this list. For this instrument category, ICE 
Clear Europe would set unsecured cash limits separately for financial 
service providers; impose a maximum portfolio concentration limit at no 
more than 5% of the total investible funds in unsecured cash on average 
each calendar month; set the maximum maturity at overnight; and require 
minimum credit ratings of A-1/P-1.
    The Procedures currently contain an additional table that describes 
the collateral acceptable for reverse repurchase agreements (also 
referred to below as ``reverse repo''). This table specifies the 
currency of the agreement, the currency of the collateral, the credit 
rating, the securities used as collateral, and the haircut applied by 
ICE Clear Europe. The proposed rule change would expand the scope of 
acceptable collateral for reverse repurchase agreements to allow ICE 
Clear Europe to use GBP and EUR agency bonds with AA-/Aa3 credit 
ratings and a 2% haircut. The proposed rule change would also remove 
the current credit rating requirement of AA-/Aa3 for UK and US 
sovereign bonds. For FCM customer funds invested in EUR reverse 
repurchase agreements, the proposed rule change would specify that only 
collateral meeting the CFTC Order requirements will be accepted.
    ICE Clear Europe would also update the Glossary section of the 
Procedures to add central banks to the definition of ``Permitted 
Depositories for FCM Customer Funds'' where the CFTC has provided the 
relevant exemption to ICE Clear Europe. In addition, the proposed rule 
change would include a definition of the term ``Permitted Purchases of 
Euro denominated debt for FCM Customer Funds.'' This new definition 
would set forth the conditions under the CFTC Order for investment of 
FCM customer funds in euro-denominated sovereign debt issued by the 
French Republic and the Federal Republic of Germany.\9\
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    \9\ Specifically, the proposed definition of ``Permitted 
Purchases of Euro denominated debt for FCM Customer Funds'' would 
include the conditions listed in section (3)(a) through (d) in the 
CFTC Order. See supra note 6 at 35245.
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III. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act directs the Commission to approve a 
proposed rule change of a self-regulatory organization if it finds that 
such proposed rule change is consistent with the requirements of the 
Act and the rules and regulations thereunder applicable to such 
organization.\10\ For the reasons given below, the Commission finds 
that the proposed

[[Page 81550]]

rule change is consistent with Section 17A(b)(3)(F) of the Act \11\ and 
Rule 17Ad-22(e)(16).\12\
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    \10\ 15 U.S.C. 78s(b)(2)(C).
    \11\ 15 U.S.C. 78q-1(b)(3)(F).
    \12\ 17 CFR 240.17Ad-22(e)(16).
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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.\13\
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    \13\ 15 U.S.C. 78q-1(b)(3)(F).
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    The Commission believes that, by clarifying ICE Clear Europe's 
criteria for investments of cash received from Clearing Members and 
certain other cash it holds for skin in the game and regulatory 
capital, and updating the requirements for investment of customer funds 
by FCM/BD Clearing Members resulting from the CFTC's authorized 
expansion of permitted investments to include qualifying Euro-
denominated sovereign debt, the proposed rule change generally should 
provide ICE Clear Europe with enhanced efficiency and flexibility in 
how it manages and invests customer funds and cash balances, in a 
manner consistent with applicable regulatory requirements. The 
Commission believes that these aspects of the proposed rule change 
would help to diversify permissible investments for such cash in a 
conservative manner that protects against loss. Thus, the Commission 
believes these aspects of the proposed rule change should ensure that 
ICE Clear Europe will have sufficient resources to promptly and 
accurately clear and settle securities transactions and, therefore, are 
consistent with Section 17A(b)(3)(F) of the Act.\14\ Further, the 
Commission believes that the proposed amendments to add a new category 
of commercial bank deposits as an authorized investment for ICE Clear 
Europe's regulatory capital, to facilitate investments in bank deposits 
or other non-overnight investments by only requiring a variety of 
maturity dates where applicable, and to add GBP and EUR agency bonds 
with AA-/Aa3 credit ratings and a 2% haircut as acceptable collateral 
for reverse repo, should also enhance ICE Clear Europe's efficiency in 
meeting its investment management objective to safeguard the principal 
of cash and maintain sufficient liquidity for its payment obligations. 
By having defined investment criteria and conservative investment 
management procedures, the Commission believes that these aspects of 
the proposed rule change should also help to ensure that cash is 
invested reasonably, conservatively, and in a manner that protects 
against loss, which, in turn, should help to thereby assuring the 
safeguarding of securities and funds which are in the custody or 
control of ICE Clear Europe or for which it is responsible, and, 
therefore, are consistent with Section 17A(b)(3)(F) of the Act.\15\
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    \14\ 15 U.S.C. 78q-1(b)(3)(F).
    \15\ 15 U.S.C. 78q-1(b)(3)(F).
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    Similarly, the Commission believes that by facilitating ICE Clear 
Europe's use of central bank deposits, including by expanding the list 
of allowed central banks; updating certain concentration and similar 
limits for investment in US, UK, and EU government bonds; and adding 
acceptable collateral for reverse repo, the proposed rule change would 
expand ICE Clear Europe's permitted investments to include investments 
that should be generally reasonable and conservative and have minimal 
credit, market, and liquidity risks. Moreover, the Commission believes 
that the other changes to the authorized investments discussed above, 
i.e., eliminating the maximum issuer/counterparty concentration limit 
for French and German sovereign bonds, removing the credit rating 
requirement for UK and US sovereign bonds as acceptable collateral for 
reverse repo, and specifying that only collateral that meets the CFTC 
Order requirements is acceptable for FCM customer funds invested in EUR 
reverse repo, should not reduce the reasonableness or conservativeness 
of ICE Clear Europe's permitted investments. Thus, the Commission 
believes these aspects of the proposed rule change should provide ICE 
Clear Europe additional investment options that should help to 
safeguard skin in the game, regulatory capital, and Clearing Member 
cash against loss. Because the loss of skin in the game, regulatory 
capital, and Clearing Member cash could impair ICE Clear Europe's 
ability to operate and therefore clear and settle transactions and 
safeguard securities and funds, the Commission believes that these 
aspects of the proposed rule change should be consistent with Section 
17A(b)(3)(F) of the Act.\16\
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    \16\ 15 U.S.C. 78q-1(b)(3)(F).
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    Therefore, for these reasons, 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.\17\
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    \17\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rule 17Ad-22(e)(16)

    Rule 17Ad-22(e)(16) requires that ICE Clear Europe establish, 
implement, maintain and enforce written policies and procedures 
reasonably designed to, among other things, safeguard its own and its 
Clearing Members' assets, minimize the risk of loss of loss and delay 
in access to these assets, and invest such assets in instruments with 
minimal credit, market, and liquidity risks.\18\ The Commission 
believes that by clarifying ICE Clear Europe's criteria for investments 
of cash, updating investment concentration limits and similar 
requirements for EU, US, and UK government bonds, and generally 
expanding permitted investment options to facilitate ICE Clear Europe's 
flexibility to diversify investments, the proposed rule change should 
help to ensure that ICE Clear Europe safeguards its own and its 
participants' assets--specifically, ICE Clear Europe's deposits of 
cash, which would include cash posted by Clearing Members to satisfy 
their margin and guaranty fund requirements--in a manner that should 
appropriately minimize the risk of loss or delay of such assets.
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    \18\ 17 CFR 240.17Ad-22(e)(16).
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    In addition, the proposed rule change would facilitate ICE Clear 
Europe's use of commercial and central bank deposits, in particular by 
adding the Federal Reserve and ECB to the list of allowed central banks 
to facilitate access to these deposits. Further, the proposed rule 
change would expand the scope of acceptable collateral in reverse 
repurchase agreements subject to appropriate limitations. The 
Commission believes these investments, as well as the investments 
currently permitted under the Procedures, constitute instruments with 
minimal credit, market, and liquidity risks. Therefore, the Commission 
believes the proposed rule change generally should help to ensure that 
ICE Clear Europe invests cash reasonably and in a manner that protects 
against loss which, in turn, should help ICE Clear Europe to safeguard 
its own and its Clearing Members' assets and invest such assets in 
instruments with minimal credit, market, and liquidity risks. For these 
reasons, the Commission finds that the

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proposed rule change is consistent with Rule 17Ad-22(e)(16).\19\
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    \19\ 17 CFR 240.17Ad-22(e)(16).
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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 \20\ and Rule 17Ad-22(e)(16).\21\
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    \20\ 15 U.S.C. 78q-1(b)(3)(F).
    \21\ 17 CFR 240.17Ad-22(e)(16).
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    It is therefore ordered pursuant to Section 19(b)(2) of the Act 
\22\ that the proposed rule change (SR-ICEEU-2020-013), be, and hereby 
is, approved.\23\
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    \22\ 15 U.S.C. 78s(b)(2).
    \23\ 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.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-27597 Filed 12-15-20; 8:45 am]
BILLING CODE 8011-01-P


