[Federal Register Volume 87, Number 7 (Tuesday, January 11, 2022)]
[Notices]
[Pages 1457-1460]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-00267]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93906; File No. SR-ICEEU-2021-026]


Self-Regulatory Organizations; ICE Clear Europe Limited; Notice 
of Filing and Immediate Effectiveness of Proposed Rule Change Relating 
to Amendments to the ICE Clear Europe Futures & Options Default 
Management Policy

January 5, 2022.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on December 22, 2021, ICE Clear Europe Limited (``ICE Clear Europe'' or 
the ``Clearing House'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule changes described in 
Items I, II and III below, which Items have been prepared primarily by 
ICE Clear Europe. ICE Clear Europe filed the proposed rule change 
pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(4)(ii) 
thereunder,\4\ such that the proposed rule change was immediately 
effective upon filing with the Commission. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(4)(ii).
---------------------------------------------------------------------------

I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The principal purpose of the proposed amendments is for ICE Clear 
Europe to modify its Futures & Options Default Management Policy (``F&O 
Default Management Policy'' or ``Policy'') to make certain 
clarifications and updates.

[[Page 1458]]

II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

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

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

(a) Purpose
    ICE Clear Europe is proposing to amend its F&O Default Management 
Policy to (i) further describe certain aspects of the background UK 
legal framework applicable to default management, (ii) update the 
composition of the Clearing House's default management committee, (iii) 
remove as unnecessary certain operational steps ICE Clear Europe will 
take in order to suspend a Defaulter's trading access, (iv) update and 
clarify the procedures related to hedging or liquidation of a 
Defaulter's positions, (v) remove certain details around the auction 
process that are set out in other Clearing House documentation; (vi) 
clarify certain procedures for intra-group information sharing, (vii) 
revise the description of the Clearing House's default testing, (viii) 
revise and remove certain appendices in accordance with the other 
changes made in the Policy, and (ix) make other various drafting 
clarifications and improvements.
    The background discussion of Points of Law applicable to default 
management would be revised to provide certain clarification and 
simplifications. Specifically, the amendments clarify the ability of 
the Clearing House to transfer client positions and collateral in an 
omnibus client account to a single solvent Clearing Member provided 
that all clients in the omnibus account agree to such transfer. The 
amendments would also clarify the benefits of legal certainty provided 
to actions taken by the Clearing House in accordance with its default 
rules under Part VII of the UK Companies Act. Other non-substantive 
drafting clarifications and grammatical updates would be made to 
improve readability.\5\ These amendments do not reflect a change in law 
but are intended to further clarify state the existing UK legal 
background principles.
---------------------------------------------------------------------------

    \5\ The amendments to this discussion do not affect the existing 
statement, consistent with the Rules, that with respect to FCM/BD 
Clearing Members in default, the customer accounts are intended to 
be treated in accordance with applicable U.S. law.
---------------------------------------------------------------------------

    The section addressing the actions to be taken by the Clearing 
House immediately following declaration of an Event of Default would be 
updated to bifurcate the composition of the Clearing House's internal 
default management committee to personnel that are always required to 
be present and personnel (or deputies) that may attend if required. 
Specifically, the default management committee would, at minimum, 
consist of the President, Head of Clearing Risk and Chief Risk Officer. 
The Chief Operating Officer or Head of Operations, Head of Treasury, 
Head of Legal and Head of Compliance may attend if required. 
Additionally, the amendments would provide that legal advisors or 
counsel to the Clearing House may also be present where required. 
Conforming changes would be made in other sections of the policy. The 
amendments would also remove from a statement regarding the segmenting 
of F&O Guaranty Fund resources in the waterfall by asset class, and 
related information. The construction and composition of the F&O 
Guaranty Fund is set out in the Rules and Procedures and existing F&O 
Guaranty Fund Policy, and the Clearing House does not believe it needs 
to be set out in the Policy.
    Amendments would also remove provisions relating to an interest 
rate swap default management committee, which are not used as the 
Clearing House does not clear interest rate swaps.
    Procedures for suspending the trading access of a defaulting 
Clearing Member would also be clarified. The amendments would clarify 
that the Clearing House may (but is not obligated to) instruct the 
relevant market surveillance department and helpdesk to disable trading 
accesses of the defaulter. The amendments would also remove certain 
operational details as to the business hours of the ICE helpdesk and 
the scope of denial of trading access that the Clearing House believes 
are unnecessary for the Policy. The amendments are not intended to 
reflect a change in practice but further describe document existing 
practice.
    In the section relating to identifying and hedging market exposure 
from the defaulter's positions, amendments would add that the Clearing 
House may seek to delta hedge the positions through its Exchanges, in 
addition to conducting such hedging through brokers (as referenced in 
the current Policy). The amendments would also remove a statement that 
priority should be giving to hedging products contributing the greatest 
original margin requirement. ICE Clear Europe does not believe the 
limitation is necessary, as the hedging strategy should take into 
account the particular circumstances and market conditions at the time. 
Additionally, information describing the processes for entering 
positions into the ICE Clear Europe internal risk database would be 
removed as unnecessary operational detail.
    Provisions addressing the treatment of physically deliverable 
positions nearing expiry would be updated to clarify that once a 
default has been declared, the Operations Department would be 
responsible for taking control and may suspend delivery settlements due 
back to the Defaulter, to implement the Clearing House's existing 
rights under the Rules. Amendments would also clarify that while the 
Clearing House may need to close out positions prior to the 
commencement of the delivery process, it would not necessarily be 
obligated to do so. In the Clearing House's view, this change would 
provide appropriate flexibility in managing such positions of a 
defaulter.
    The section relating to liquidation of remaining positions would be 
amended to reference all positions (not merely house positions), to 
remove certain details about specific hedging strategies and to remove 
a statement as to the order of preference of different options. ICE 
Clear Europe believes that it is appropriate in default management to 
have flexibility as to the particular type of hedging or liquidation 
actions to be taken, in light of the nature of the positions and market 
conditions at the time, and accordingly it is not desirable to state in 
advance which default management option is preferable. Similarly, the 
Clearing House does not believe it is necessary to specify particular 
hedging strategies in the Policy; the appropriate strategy in a 
particular default scenario should be selected at the time.
    Amendments would also provide that the Clearing House default 
management committee may seek advice from third party traders, in 
addition to traders of non-defaulting Clearing Members, with respect to 
liquidating the positions in a complex trading book. The amendments 
would remove as unnecessary a requirement that the senior management 
team first approach representatives of Clearing Members on the F&O 
product risk committee for assistance.
    Certain clarifications to the Policy relating to the conduct of a 
default

[[Page 1459]]

auction and related auction portfolio disclosures would be made, 
including to be consistent with the existing published F&O Auction 
Terms. In particular, statements that the portfolio would be hedged 
before commencing the auction would be removed, as it is not necessary 
in all cases under the Rules or Procedures that a portfolio be hedged 
before being auctioned. References to Clearing Members would be 
replaced with more general references to auction participants, as the 
F&O Auction Terms permit participation by non-Clearing Members in 
certain circumstances. In line with the changes described above to 
remove references to the IRS Default Committee, information relating to 
the IRS Default Committee's role in directing the auction process would 
be removed. A detailed description and example of bidding mechanics 
would be removed as such details are addressed in the published F&O 
Auction Terms.
    Section 10.1 (Intra-group Information Sharing) would be amended to 
remove certain details about coordination between ICE Group entities 
that ICE Clear Europe believes are unnecessary under the Policy. As 
proposed to be revised, the ICE Clear Europe President would remain 
responsible for notifying counterparts at other ICE Group entities 
where the defaulter is active in other relevant markets. Specific 
details about the persons to be notified, and relevant backup 
personnel, have been removed as unnecessary for the Policy.
    The section of the Policy relating to F&O default testing would be 
revised to reflect further describe current testing purposes and 
practices and make other enhancements. As revised, the Clearing House 
would conduct testing on an annual basis with compulsory participation 
of Clearing members, with the goal of testing the responsibilities of 
each Clearing House department, the systems and tools in the default 
management process and external parties' preparation and understanding 
of default procedures. The amendments would also revise and clarify 
certain elements that comprise a default management test plan. As a 
result, Former Appendix A--Default Test Plan (Summary) would be removed 
as unnecessary given the updated description of default testing in the 
Policy. The subsequent appendices would be renumbered accordingly.
    Appendix B (Trade Procedure) (formerly Appendix C) would be updated 
in respect of the description of the frequency of certain trade tests. 
Specifically, the amendments would provide that Test trades would take 
place according to the Multi-Year Default Management Plan, instead of 
monthly or quarterly. Additionally, the amendments would remove an 
incorrect reference to CDS Clearing Members (which are not as such 
subject to an F&O policy).
    Appendix C (formerly Appendix D) relating to regulatory reporting 
would be replaced with a new schedule of default management information 
to be shared with the Bank of England under applicable regulations, 
including information as to actions taken prior to and following the 
default, summary of positions and relevant margin and guaranty fund 
contributions, and certain other exposures.
    Other drafting clarifications and other changes would be made 
throughout the Policy to make non-substantive typographical and other 
corrections, including replacing ``Original Margin'' with ``Initial 
Margin'' (and related abbreviations throughout), to conform to the 
terminology used in the Rules and Procedures.
(b) Statutory Basis
    ICE Clear Europe believes that the proposed amendments to the F&O 
Default Management Policy are consistent with the requirements of 
Section 17A of the Act \6\ and the regulations thereunder applicable to 
it. In particular, Section 17A(b)(3)(F) of the Act \7\ requires, among 
other things, that the rules of a clearing agency be designed to 
promote the prompt and accurate clearance and settlement of securities 
transactions and, to the extent applicable, derivative agreements, 
contracts, and transactions, the safeguarding of securities and funds 
in the custody or control of the clearing agency or for which it is 
responsible, and the protection of investors and the public interest.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78q-1.
    \7\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    The proposed changes to the F&O Default Management Policy are 
designed to clarify and strengthen ICE Clear Europe's procedures for 
managing the risk of default losses. The amendments would, among other 
matters, update the composition of the default management committee, 
clarify certain matters relating to the background UK legal framework 
for default management, clarify and update certain procedures around 
hedging and liquidation of the risk of a defaulter's positions, clarify 
testing procedures, and ensure consistency with Clearing House Rules 
and Procedures, including those relating to auctions. Through better 
managing risks in Clearing Member default scenarios in this manner, the 
proposed amendments to the F&O Default Management Policy would promote 
the stability of the Clearing House and the prompt and accurate 
clearance and settlement of cleared contracts. The enhanced default 
risk management is therefore also generally consistent with the 
protection of investors and the public interest in the safe operation 
of the Clearing House. (ICE Clear Europe would not expect the 
amendments to affect materially the safeguarding of securities and 
funds in ICE Clear Europe's custody or control or for which it is 
responsible.) Accordingly, the amendments satisfy the requirements of 
Section 17A(b)(3)(F).\8\
---------------------------------------------------------------------------

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

    The amendments to the F&O Default Management Policy are also 
consistent with relevant provisions of Rule 17Ad-22.\9\ Rule 17Ad-
22(e)(3)(i) provides that ``[e]ach covered clearing agency shall 
establish, implement, maintain and enforce written policies and 
procedures reasonable designed to, as applicable [ . . . ] identify, 
measure, monitor and manage the range of risks that arise in or are 
borne by the covered clearing agency''.\10\ The amendments to the F&O 
Default Management Policy are intended to clarify the Clearing House's 
policies and practices that relate to default management, for 
consistency with relevant Rules and Procedures and to make various 
clarifications and other improvements. In ICE Clear Europe's view, the 
amendments would enhance overall risk management, consistent with the 
requirements of Rule 17Ad-22(e)(3)(i).\11\
---------------------------------------------------------------------------

    \9\ 17 CFR 240.17Ad-22.
    \10\ 17 CFR 240.17Ad-22(e)(3)(i).
    \11\ 17 CFR 240.17Ad-22(e)(3)(i).
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(2) provides that ``[e]ach covered clearing agency 
shall establish, implement, maintain and enforce written policies and 
procedures reasonable designed to, as applicable [ . . . ] provide for 
governance arrangements that are clear and transparent'' \12\ and 
``[s]pecify clear and direct lines of responsibility''.\13\ The 
amendments to the F&O Default Management Policy would clarify certain 
responsibilities of the Clearing House's committees and personnel in 
relation to default management. The amendments would also remove unused 
provisions related to the IRS Default Management Committee. In ICE 
Clear Europe's view, the amendments are therefore consistent with the 
requirements of Rule 17Ad-22(e)(2).\14\
---------------------------------------------------------------------------

    \12\ 17 CFR 240.17Ad-22(e)(2)(i).
    \13\ 17 CFR 240.17Ad-22(e)(2)(v).
    \14\ 17 CFR 240.17Ad-22(e)(2).

---------------------------------------------------------------------------

[[Page 1460]]

    In addition, ICE Clear Europe believes the amendments satisfy Rule 
17Ad-22(e)(13),\15\ which provides that ``[e]ach covered clearing 
agency shall establish, implement, maintain and enforce written 
policies and procedures reasonable designed to, as applicable [ . . . ] 
ensure that the covered clearing agency 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 the covered clearing agency's participants and, when 
practicable, other stakeholders to participate in the testing and 
review of its default procedures, including any close-out procedures, 
at least annually.'' As discussed above, the proposed amendments would 
enhance ICE Clear Europe's overall default management processes, 
including those relating to hedging and liquidation of the defaulter's 
positions. In addition, the amendments would enhance default testing 
practices, including to provide explicitly for annual compulsory 
participation by Clearing Members and further describe the purposes of 
such testing. Other amendments would ensure the Policy remains 
consistent with the F&O Auction Terms. Overall, the amendments will 
thus ensure that the Clearing House has clear processes in place to 
manage Clearing Member defaults and be able to continue to meet the 
Clearing House's obligations in default scenarios. The amendments 
overall strengthen ICE Clear Europe's ability to contain losses in a 
manner consistent with the requirements of Rule 17Ad-22(e)(13).\16\
---------------------------------------------------------------------------

    \15\ 17 CFR 240.17Ad-22(e)(13).
    \16\ 17 CFR 240.17Ad-22(e)(13).
---------------------------------------------------------------------------

(B) Clearing Agency's Statement on Burden on Competition

    ICE Clear Europe does not believe the proposed amendments would 
have any impact, or impose any burden, on competition not necessary or 
appropriate in furtherance of the purposes of the Act. The amendments 
are being adopted to update and clarify the Clearing House's F&O 
Default Management Policy, which relates to the Clearing House's 
internal processes for addressing risks posed by F&O Clearing Member 
defaults. The amendments do not change the obligations of Clearing 
Members under the Rules or Procedures. Accordingly, ICE Clear Europe 
does not believe the amendments would affect the costs of clearing, the 
ability of market participants to access clearing, or the market for 
clearing services generally. Although the Policy does state certain 
obligations of Clearing Members to participate in annual default 
testing, ICE Clear Europe believes this is appropriate in light of 
regulatory requirements and the importance of such testing to the 
default management process. Therefore, ICE Clear Europe does not 
believe the proposed rule change imposes any burden on competition that 
is not necessary or appropriate in furtherance of the purposes of the 
Act.

(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants or Others

    Written comments relating to the proposed amendments have not been 
solicited or received by ICE Clear Europe. ICE Clear Europe will notify 
the Commission of any written comments received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \17\ and paragraph (f) of Rule 19b-4 \18\ 
thereunder. At any time within 60 days of the filing of the proposed 
rule change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml) or
     Send an email to [email protected]. Please include 
File Number SR-ICEEU-2021-026 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-ICEEU-2021-026. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of such filings will also be available for inspection 
and copying at the principal office of ICE Clear Europe and on ICE 
Clear Europe's website at https://www.theice.com/clear-europe/regulation. All comments received will be posted without change. 
Persons submitting comments are cautioned that we do not redact or edit 
personal identifying information from comment submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-ICEEU-2021-026 and should be 
submitted on or before February 1, 2022.
---------------------------------------------------------------------------

    \19\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-00267 Filed 1-10-22; 8:45 am]
BILLING CODE 8011-01-P


