[Federal Register Volume 86, Number 223 (Tuesday, November 23, 2021)]
[Notices]
[Pages 66607-66609]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-25479]



[[Page 66607]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93603; File No. SR-ICEEU-2021-018]


Self-Regulatory Organizations; ICE Clear Europe Limited; Order 
Approving Proposed Rule Change Relating to Amendments to the ICE Clear 
Europe Collateral and Haircut Procedures

November 17, 2021.

I. Introduction

    On September 20, 2021, 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 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to make certain changes to its existing Collateral 
and Haircut Procedures (the ``Collateral Procedures''). The proposed 
rule change was published for comment in the Federal Register on 
October 7, 2021.\3\ The Commission did not receive comments on 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 Amendments to 
the ICE Clear Europe Collateral and Haircut Procedures, Exchange Act 
Release No. 93236 (Oct. 1, 2021), 86 FR 55879 (Oct. 7, 2021) (SR-
ICEEU-2021-018) (``Notice'').
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II. Description of the Proposed Rule Change

    ICE Clear Europe is proposing to revise the Collateral Procedures 
to (i) state explicitly its formula for calculating the value of its 
published list of acceptable collateral (``Permitted Cover'') provided 
by Clearing Members (``Members'') for covering their margin and 
guaranty fund requirements and (ii) update its processes for monitoring 
data related to collateral valuations, and specify the roles and 
responsibilities of its various internal teams in performing such 
monitoring processes.\4\ The proposed revisions are described in more 
detail below.\5\
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    \4\ Capitalized terms used not defined herein have the meanings 
specified in the Collateral Procedures or the ICE Clear Europe 
Clearing Rules (the ``Rules''), as applicable.
    \5\ The following description of the proposed rule change is 
substantially excerpted from the Notice.
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    To ensure that the collateral ICE Clear Europe holds is highly 
liquid with low credit and market risk, ICE Clear Europe only accepts 
assets that meet the criteria set forth in the Collateral Procedures, 
which ICE Clear Europe refers to as Permitted Cover. To facilitate 
Permitted Cover valuations, ICE Clear Europe is proposing an explicit 
formula to calculate the Permitted Cover value in new Section 2.2 of 
the Collateral Procedures. As proposed, cover value is equal to Nominal 
* Price/100 * (1-Haircut) \6\ + Nominal * Accrued, where price is clean 
(i.e., without accrued interest) and accrued is expressed in %. 
Proposed Section 2.2 also would state that as a matter of standard 
practice at ICE Clear Europe, Treasuries are given no cover value two 
business days prior to maturity and a cash call would be issued if a 
Member's account is in deficit. Additionally, proposed Section 2.2 
would state that accrued interest will lose value one day prior to the 
coupon pay date. ICE Clear Europe represents that these changes reflect 
its existing practice for the valuation of Permitted Cover and are 
intended to document such practice more clearly.\7\
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    \6\ The term ``Haircut'' refers to the risk-based haircut or 
reduction percentage that ICE Clear Europe sets and applies to the 
value of certain collateral.
    \7\ See Notice at 55879.
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    The proposed rule change also would update ICE Clear Europe's 
processes for monitoring data related to collateral pricing and would 
describe the roles of various teams tasked with such monitoring. 
Specifically, the proposed changes to Section 5.1 (Data Monitoring) 
would add a new sentence stating that the System Operations team checks 
end of day collateral pricing. The proposed changes to Section 5.1 
would then state that the Credit team has controls to monitor end of 
day market data that the ECS System Operations team uses to value 
collateral against thresholds to ensure that the data is not ``stale,'' 
and also would remove intraday market data from the scope of such 
monitoring. Currently, Section 5.1 does not specify the 
responsibilities of any internal teams, stating that ICE Clear Europe 
monitors end of day and intraday market data it uses to value 
collateral thresholds to ensure that the data is not ``stale.'' 
Additionally, the proposed changes would add a new sentence at the end 
of Section 5.1 which states that the Treasury team reconciles and 
confirms the daily bilateral collateral positions (nominal amounts).
    Finally, the proposed rule change would update the scope of the 
Collateral Procedures in Section 1.2 to include intraday and end of day 
valuation of collateral, which is consistent with ICE Clear Europe's 
existing practice. Currently, Section 1.2 excludes intraday and end of 
day valuation of collateral and any associated margin processes from 
the scope of the Collateral Procedures.

III. 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. For the reasons given below, the Commission finds that 
the proposed rule change is consistent with Section 17A(b)(3)(F) of the 
Act \8\ and Rules 17Ad-22(e)(2)(i) and (v), and (e)(5) thereunder.\9\
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    \8\ 15 U.S.C. 78q-1(b)(3)(F).
    \9\ 17 CFR 240.17Ad-22(e)(2)(i) and (v), and (e)(5).
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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, and 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.\10\
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    \10\ 15 U.S.C. 78q-1(b)(3)(F).
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    As described above, the proposed rule change would revise the 
Collateral Procedures to state explicitly ICE Clear Europe's formula 
for calculating the value of Permitted Cover and to update ICE Clear 
Europe's processes for monitoring data related to collateral 
valuations, which would also specify the roles and responsibilities of 
its various internal teams in performing such monitoring processes. For 
the specific reasons discussed below, the Commission believes that, in 
general, the proposed rule change would facilitate the sound operation 
of ICE Clear Europe's margin framework and overall risk management and 
financial stability of ICE Clear Europe, and thereby promote ICE Clear 
Europe's prompt and accurate clearance and settlement of cleared 
contracts, and help assure the safeguarding of securities and funds 
which are in ICE Clear Europe's custody or control or for which ICE 
Clear Europe is responsible.
    First, the Commission believes that proposed new Section 2.2, in 
clearly documenting ICE Clear Europe's formula for calculating the 
value of Permitted Cover; its standard practice of giving no cover 
value two business days prior to maturity of Treasuries and

[[Page 66608]]

issuing a cash call if a Member's account is in deficit; and also its 
standard practice for accrued interest to lose value one day prior to 
the coupon pay date, would help ensure that Members and internal 
personnel at ICE Clear Europe make accurate and consistent cover value 
calculations that adequately cover Members' margin and guaranty fund 
requirements. These aspects of the proposed rule change would, in turn, 
enhance ICE Clear Europe's ability to reduce the risk of loss 
mutualization among its Members when closing out a defaulting Member's 
portfolio and liquidating collateral under potentially stressed market 
conditions, thereby safeguarding the financial resources of non-
defaulting Members.
    Second, the Commission believes that the proposed changes to 
Section 5.1 (Data Monitoring), in documenting that the System 
Operations team checks end of day collateral pricing; that the Credit 
team has controls to monitor end of day market data that the ECS System 
Operations team uses to value collateral against thresholds to ensure 
that the data is not ``stale,'' and thus more timely and accurate; that 
monitoring of intraday market data is removed from the scope of such 
monitoring, and that the Treasury team reconciles and confirms the 
daily bilateral collateral positions (or nominal amounts), would, taken 
together, enhance the accuracy, clarity, and transparency of ICE Clear 
Europe's collateral valuation data monitoring procedures and help 
internal teams focus procedurally on their monitoring responsibilities. 
For example, the proposed removal of monitoring intraday market data 
would help focus the ECS System Operations team on monitoring end of 
day pricing, but not intraday pricing. The Commission believes that 
these aspects of the proposed rule change would support the ongoing 
accuracy of Permitted Cover valuations that inform and facilitate the 
adequacy of ICE Clear Europe's calculations of its Members' margin and 
guaranty fund requirements and, in turn, would further enhance ICE 
Clear Europe's ability to mitigate the risk of loss mutualization in 
the event of a Member's default, thereby safeguarding the financial 
resources of non-defaulting Members.
    Third, the Commission believes that the proposed changes in Section 
1.2 to include intraday and end of day valuation of collateral would 
ensure that the Collateral Procedures clearly document ICE Clear 
Europe's existing collateral valuation practice and also clarify that 
such practice is conducted under the Collateral Procedures. Clarifying 
the scope of the Collateral Procedures document would enhance its 
completeness and comprehensiveness, and help ICE Clear Europe's 
personnel efficiently implement the associated operational activities, 
thereby contributing to the prompt and accurate clearance and 
settlement of cleared contracts.
    The Commission also notes that it has previously found the 
Collateral Procedures consistent with the Act \11\ and because there 
are no proposed material changes, believes that the Collateral 
Procedures continue to be consistent with the Act.
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    \11\ Self-Regulatory Organizations; ICE Clear Europe Limited; 
Order Approving Proposed Rule Change Relating to the ICE Clear 
Europe Collateral and Haircut Policy and Collateral and Haircut 
Procedures, Exchange Act Release No. 88136 (Feb. 6, 2020), 85 FR 
8075 (Feb. 12, 2020) (SR-ICEEU-2019-019).
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    Therefore, for the reasons discussed above, the Commission finds 
that the proposed rule change would 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 or 
control, consistent with the Section 17A(b)(3)(F) of the Act.\12\
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    \12\ 15 U.S.C. 78q-(b)(3)(F).
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B. Consistency With Rules 17Ad-22(e)(2)(i) and (v) Under the Act

    Rules 17Ad-22(e)(2)(i) and (v) require that ICE Clear Europe 
establish, implement, maintain, and enforce written policies and 
procedures reasonably designed to provide for governance arrangements 
that are clear and transparent and specify clear and direct lines of 
responsibility, respectively.\13\
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    \13\ 17 CFR 240.17Ad-22(e)(2)(i) and (v).
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    With respect to Rule 17Ad-22(e)(2)(i), the Commission believes that 
the proposed changes in Section 1.2, by including intraday and end of 
day valuation of collateral within the scope of the Collateral 
Procedures, would clearly and transparently document that such 
collateral valuation activities are conducted under the Collateral 
Procedures and thus subject to the governance process currently set 
forth in the Collateral Procedures document.
    With respect to Rule 17Ad-22(e)(2)(v), the Commission believes that 
the proposed changes to Section 5.1 (Data Monitoring), in documenting 
that the System Operations team checks end of day collateral pricing, 
that the Credit team has controls to monitor end of day market data 
that the ECS System Operations team uses to value collateral against 
thresholds to ensure that the data is not ``stale,'' and that the 
Treasury team reconciles and confirms the daily bilateral collateral 
positions (or nominal amounts), would specify clear and direct roles 
and responsibilities of the internal teams involved in ICE Clear 
Europe's data monitoring processes.
    The Commission therefore believes the proposed changes in Section 
1.2 provide for governance arrangements that are clear and transparent, 
and the proposed changes to Section 5.1 specify clear and direct lines 
of responsibility.
    For these reasons, the Commission finds that the proposed rule 
change is consistent with Rules 17Ad-22(e)(2)(i) and (v).\14\
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    \14\ 17 CFR 240.17Ad-22(e)(2)(i) and (v).
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C. Consistency With Rule 17Ad-22(e)(5) Under the Act

    Rule 17Ad-22(e)(5) requires that ICE Clear Europe establish, 
implement, maintain, and enforce written policies and procedures 
reasonably designed to, as applicable, limit the assets it accepts as 
collateral to those with low credit, liquidity, and market risks, and 
set and enforce appropriately conservative haircuts and concentration 
limits if the covered clearing agency requires collateral to manage its 
or its participants' credit exposure; and require a review of the 
sufficiency of its collateral haircuts and concentration limits to be 
performed not less than annually.\15\
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    \15\ 17 CFR 240.17Ad-22(e)(5).
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    The Commission believes that the proposed rule change, by 
documenting ICE Clear Europe's formula for calculating the value of 
Permitted Cover and related standard practices for valuing Treasuries 
and accrued interest, and also by documenting that the ECS System 
Operations team uses end of day market data to value collateral against 
thresholds to ensure that the data is not stale, would enhance the 
accuracy of ICE Clear Europe's collateral valuation practices and help 
ensure that ICE Clear Europe continues to manage prudently its and its 
Members' credit exposure by adequately covering Members' margin and 
guaranty fund requirements.
    For these reasons, the Commission finds that the proposed rule 
change is consistent with Rule 17Ad-22(e)(5).\16\
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    \16\ 17 CFR 240.17Ad-22(e)(5).
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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 \17\ and

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Rules 17Ad-22(e)(2)(i) and (v), and (e)(5) thereunder.\18\
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    \17\ 15 U.S.C. 78q-1(b)(3)(F).
    \18\ 17 CFR 240.17Ad-22(e)(2)(i) and (v), and (e)(5).
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    It is therefore ordered pursuant to Section 19(b)(2) of the Act 
\19\ that the proposed rule change (SR-ICEEU-2021-018) be, and hereby 
is, approved.\20\
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    \19\ 15 U.S.C. 78s(b)(2).
    \20\ 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.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-25479 Filed 11-22-21; 8:45 am]
BILLING CODE 8011-01-P


