[Federal Register Volume 86, Number 246 (Tuesday, December 28, 2021)]
[Notices]
[Pages 73833-73835]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-28111]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93845; File No. SR-ICEEU-2021-020]


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

December 21, 2021.

I. Introduction

    On October 22, 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 (the ``Act''),\1\ and Rule 19b-4,\2\ a proposed 
rule change to amend its Liquidity Management Procedures and Investment 
Management Procedures. The proposed rule change was published for 
comment in the Federal Register on November 10, 2021.\3\ 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 Amendments to 
the ICE Clear Europe Liquidity Management Procedures and Investment 
Management Procedures, Exchange Act Release No. 93523 (Nov. 4, 
2021); 86 FR 62588 (Nov. 10, 2021) (SR-ICEEU-2021-020) (``Notice'').
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II. Description of the Proposed Rule Change

A. Liquidity Management Procedures

    The proposed rule change would make three changes to the Liquidity 
Management Procedures, as described below.\4\ In addition, the proposed 
rule change would correct typographical errors in Section 2.4.1 and 
Section 2.7.2.
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    \4\ Capitalized terms not otherwise defined herein have the 
meanings assigned to them in the ICE Clear Europe Rules, Liquidity 
Management Procedures, or Investment Management Procedures, as 
applicable.
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    First, Section 2.1.1 of the Liquidity Management Procedures 
provides an overview of ICE Clear Europe's payment obligations and 
liquidity needs. Currently, this section describes three sources of 
payment obligations relevant to liquidity management: (i) Paying 
variation margin; (ii) paying delivery or settlement monies when trades 
deliver or settle; and (iii) returning surplus Initial Margin or other 
margin to Clearing Members. The proposed rule change would add to this, 
as a fourth payment obligation, cash substitution requests by Clearing 
Members. ICE Clear Europe is making this change to make the list more 
comprehensive, by expressly taking into account cash substitution, 
which, as a current practice, ICE Clear Europe allows Clearing Members 
to request.\5\
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    \5\ Notice, 86 FR at 62588.
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    Second, the proposed rule change would add a new section relating 
to special considerations for account opening. This section would 
provide that when ICE Clear Europe is adding new accounts or amending 
existing accounts with counterparties, the Treasury Department would 
advise the Legal and Compliance Departments in accordance with relevant 
departmental procedures to ensure that relevant banking agreements are 
modified, any side or acknowledgement letters are obtained, and any 
required regulatory submissions are timely made, as appropriate. This 
section would provide that this process would include, for example, the 
opening of new accounts for futures customer funds in accordance with 
CFTC Rule 1.20(g).\6\
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    \6\ 17 CFR 1.20(g).
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    Finally, the proposed rule change would amend provisions relating 
to haircutting (i.e., risk-based discounting) of non-cash collateral 
and cash collateral in currencies other than the required currency. 
Section 2.3.1 currently provides that the Clearing Risk Team monitors 
the price of non-cash collateral and cash that is in currencies other 
than the required currency during the day and calls for additional 
Initial Margin if there is a shortfall in the value of the collateral 
held. The proposed rule change would amend this provision so that it is 
the Credit Risk Team, not the Clearing Risk Team, which monitors the 
price of such assets. This change is

[[Page 73834]]

intended to correct the reference to the responsible internal team, as 
this monitoring practice is currently performed by the Credit Risk 
Team. The proposed rule change would also add that the price of such 
assets would be monitored during the day against the applied haircuts, 
as a clarification that reflects current practice. Finally, the 
proposed rule change would remove the statement about calling for 
additional Initial Margin in the event of a shortfall in the value of 
the collateral held. ICE Clear Europe represents that this statement 
would be unnecessary as it is addressed in the ICE Clear Europe 
Collateral and Haircut Procedures.\7\
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    \7\ Notice, 86 FR at 62588.
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B. Investment Management Procedures

    The Investment Management Procedures set out the permitted 
investments and related concentration limits for ICE Clear Europe when 
investing or securing cash received from Clearing Members, ICE Clear 
Europe's contributions to the Guaranty Fund, or ICE Clear Europe's own 
regulatory capital. As such, the Investment Management Procedures 
contain a table listing investments authorized for cash from Clearing 
Members and ICE Clear Europe's contributions to the Guaranty Fund. This 
table provides, among other things, the instrument for investment and 
maximum issuer/counterparty concentration limits.
    The proposed rule change would amend this table with respect to the 
maximum issuer/counterparty concentration limits for reverse repurchase 
agreements. Currently, the limits apply per counterparty family. Under 
the proposed rule change, the limits would apply per counterparty 
group. The proposed rule change also would add a footnote to explain 
that breaches of those issuer limits for reverse repurchase agreements 
solely due to valuation differences or operational failure/error will 
not be considered as a breach of policy. ICE Clear Europe represents 
that these updates provide additional detail about existing practices 
but do not reflect any change to such practices.\8\
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    \8\ Notice, 86 FR at 62588.
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    The proposed rule change would add another table to the Investment 
Management Procedures that would specify the additional concentration 
limits for reverse repurchase agreements involving funds from customers 
of Futures Commission Merchants (``FCM''). For those investments, the 
Maximum Issuer/Counterparty Concentration Limits would be 25% of total 
FCM customer cash balance per counterparty group. ICE Clear Europe 
represents this amendment would document an existing limitation based 
on CFTC Rule 1.25.\9\
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    \9\ 17 CFR 1.25. Notice, 86 FR at 62588.
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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 discussed below, the Commission finds 
that the proposed rule change is consistent with Section 17A(b)(3)(F) 
of the Act,\11\ and Rules 17Ad-22(e)(2)(v), (e)(7), and (e)(16) 
thereunder.\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)(2)(v), (e)(7), and (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\ Overall, the Commission believes that the 
changes to the Liquidity Management Procedures discussed above would 
help improve ICE Clear Europe's management of liquidity. Specifically, 
the Commission believes that listing cash substitution as a liquidity 
need, adding procedures for opening new accounts, and clarifying how 
the Credit Risk team monitors the price of cash denominated in other 
currencies and the price of non-cash assets, would help to ensure that 
ICE Clear Europe calculates its liquidity needs, establishes new 
accounts, and values the price of cash in other currencies and non-cash 
assets in a consistent, predictable manner. Moreover, the Commission 
believes correcting typographical errors would help to ensure that ICE 
Clear Europe personnel apply the Liquidity Management Procedures in an 
accurate and consistent manner.
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    \13\ 15 U.S.C. 78q-1(b)(3)(F).
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    The Commission similarly believes that the proposed changes to the 
Investment Management Procedures discussed above, taken together, would 
help improve ICE Clear Europe's management of its investments. For 
example, the Commission believes that clarifying that the numerical 
concentration limits are based on total cash balance per counterparty 
group would help to ensure that ICE Clear Europe calculates the limits 
consistently on the basis of counterparty groups. Moreover, adding a 
specific concentration limit of 25% of total FCM customer cash balance 
per counterparty group for reverse repurchase agreements involving 
funds from customers of FCMs should help to ensure that ICE Clear 
Europe does not concentrate FCM customer cash in a single reverse 
repurchase counterparty.\14\ Finally, clarifying that breaches of 
issuer limits for reverse repurchase agreements solely due to valuation 
differences or operational failure/error would not be a breach of the 
policy would help ICE Clear Europe accommodate different valuation 
methodologies from a variety of repo market participants by not 
considering breaches resulting only from valuation differences or time 
delays in obtaining valuations resulting from operational errors.
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    \14\ The Commission notes that ICE Clear Europe represents that 
this change would document an existing limitation based on CFTC Rule 
1.25. See 17 CFR 1.25; Notice, 86 FR at 62588
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    In making these improvements, the Commission believes the changes 
discussed above would help ICE Clear Europe to better manage its 
liquidity and investments and thereby avoid losses related to its 
liquidity and investments. Because such losses, if realized, could 
impede ICE Clear Europe's operations and therefore its ability to clear 
and settle transactions and safeguard securities and funds, the 
Commission believes the proposed rule change would help to promote the 
prompt and accurate clearance and settlement of securities transactions 
and assure the safeguarding of securities and funds which are in the 
custody or control of ICE Clear Europe or for which it is responsible. 
Moreover, the Commission believes that better of ICEEU's liquidity and 
investments, and avoiding losses related to such investments, could 
reduce the likelihood that ICE Clear Europe would need to access liquid 
resources provided or backed by a surviving clearing member's 
collateral in case of a default, and therefore would help 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.

[[Page 73835]]

    Therefore, the Commission finds that the proposed rule change is 
consistent with Section 17A(b)(3)(F) of the Act.\15\
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    \15\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rule 17Ad-22(e)(2)(v) Under the Act

    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 specify 
clear and direct lines of responsibility.\16\ As discussed above under 
Section II.A, the proposed rule change would describe certain 
responsibilities of the ICE Clear Europe Treasury Department when 
adding new accounts or amending existing accounts with counterparties. 
The Commission believes this change would specify a clear and direct 
line of responsibility for the Treasury Department. Similarly, the 
proposed rule change would clarify the direct line of responsibility of 
the Credit Risk Team, not the Clearing Risk Team, to monitor the 
intraday price of non-cash collateral and cash that is in currencies 
other than the required currency. Therefore, the Commission finds that 
the proposed rule change is consistent with Rule 17Ad-22(e)(2)(v).\17\
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    \16\ 17 CFR 240.17Ad-22(e)(2)(v).
    \17\ 17 CFR 240.17Ad-22(e)(2)(v).
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C. Consistency With Rule 17Ad-22(e)(7) Under the Act

    Rule 17Ad-22(e)(7) generally requires that ICE Clear Europe 
establish, implement, maintain and enforce written policies and 
procedures reasonably designed to effectively measure, monitor, and 
manage the liquidity risk that arises in or is borne by ICE Clear 
Europe, including measuring, monitoring, and managing its settlement 
and funding flows on an ongoing and timely basis, and its use of 
intraday liquidity.\18\ As discussed above, the proposed rule change 
would add to the Liquidity Management Procedures a fourth payment 
obligation, cash substitution requests by Clearing Members, which would 
be another liquidity need for ICE Clear Europe. The Commission believes 
that this additional description would help to clarify the potential 
liquidity needs that ICE Clear Europe would need to satisfy. Moreover, 
as described in the Liquidity Management Procedures, ICE Clear Europe 
treats non-cash collateral and cash that is in currencies other than 
the requirement as two sources of available liquidity, among other 
sources. Accordingly, the Commission believes that the changes 
described above, which would clarify that the Credit Risk team monitors 
the price of these assets during the day against the applied haircuts, 
would help to clarify the value of these potential sources of 
liquidity. Therefore, the Commission finds that the proposed rule 
change is consistent with Rule 17Ad-22(e)(7).\19\
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    \18\ 17 CFR 240.17Ad-22(e)(7).
    \19\ 17 CFR 240.17Ad-22(e)(7).
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D. Consistency With Rule 17Ad-22(e)(16) Under the Act

    Rule 17Ad-22(e)(16) requires that ICE Clear Europe establish, 
implement, maintain, and enforce written policies and procedures 
reasonably designed to safeguard its own and its participants' assets, 
minimize the risk of loss and delay in access to these assets, and 
invest such assets in instruments with minimal credit, market, and 
liquidity risks.\20\ The Commission believes that the changes to the 
Investment Management Procedures described above, in clarifying that 
the numerical concentration limits are based on total cash balance per 
counterparty group, rather than per counterparty family, would help to 
ensure that ICE Clear Europe consistently applies its concentration 
limits to groups of counterparties, in line with related ICE Clear 
Europe procedures. The Commission believes that this change would 
therefore help to ensure that ICE Clear Europe considers the risks of 
concentrating investments of cash in one counterparty group, and 
thereby would help to safeguard the investment of ICE Clear Europe's 
and its Clearing Members' assets. Similarly, the Commission believes 
that the additional concentration limit for reverse repurchase 
agreements involving funds from customers of FCMs would help to 
safeguard the assets of those customers by helping to ensure that ICE 
Clear Europe not concentrate FCM customer cash in a single reverse 
repurchase investment counterparty.\21\ Therefore, the Commission finds 
that the proposed rule change is consistent with Rule 17Ad-
22(e)(16).\22\
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    \20\ 17 CFR 240.17Ad-22(e)(16).
    \21\ The Commission notes that ICE Clear Europe represents that 
this change would document an existing limitation based on CFTC Rule 
1.25. See 17 CFR 1.25; Notice, 86 FR at 62588.
    \22\ 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,\23\ and Rules 17Ad-22(e)(2)(v), (e)(7), and (e)(16).\24\
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    \23\ 15 U.S.C. 78q-1(b)(3)(F).
    \24\ 17 CFR 240.17Ad-22(e)(2)(v), (e)(7), and (e)(16).
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    It is therefore ordered pursuant to Section 19(b)(2) of the Act 
\25\ that the proposed rule change (SR-ICEEU-2021-020) be, and hereby 
is, approved.\26\
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    \25\ 15 U.S.C. 78s(b)(2).
    \26\ 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.\27\
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    \27\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-28111 Filed 12-27-21; 8:45 am]
BILLING CODE 8011-01-P


