[Federal Register Volume 87, Number 120 (Thursday, June 23, 2022)]
[Notices]
[Pages 37539-37542]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-13386]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95120; File No. SR-ICEEU-2022-011]


Self-Regulatory Organizations; ICE Clear Europe Limited; Notice 
of Filing and Immediate Effectiveness of Proposed Rule Change 
Amendments to the ICE Clear Europe Rules

June 16, 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 June 10, 2022, 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.
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    \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).
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    ICE Clear Europe Limited (``ICE Clear Europe'' or the ``Clearing 
House'') proposes to modify its Clearing Rules (``Clearing Rules'' or 
``Rules'') to provide greater certainty and additional detail with 
respect to: (i) the correction of settlement prices in the case of 
certain external events and (ii) the cash settlement of transactions in 
lieu of delivery where a Clearing Member is in default or there are 
grounds for declaring a default in respect of a Clearing Member, each 
of the foregoing in respect of F&O Contracts. A copy of the proposed 
amendments is set forth in Exhibit 5.

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 Clearing Rules to 
provide greater certainty and additional detail in relation to (i) the 
scenarios where there is an external or other change in a relevant 
price or event which results in a need for the Clearing House to 
correct settlement prices; and (ii) the cash settlement of transactions 
in lieu of delivery where a Clearing Member is in default or there are 
grounds for declaring a default in respect of a Clearing Member.
Determination of Settlement Price
Futures Contracts
    Although the Exchange Delivery Settlement Price (``EDSP'') for a 
futures contract is generally determined based on data provided by the 
relevant Market, Rule 701(c) provides that in a number of scenarios the 
Clearing House may itself determine the Exchange Delivery Settlement 
Price. The amendments would add the cases of Force Majeure Event, 
Illegality or Impossibility as circumstances in which the Clearing 
House could take such

[[Page 37540]]

action. Although the existing general language of Rule 701(c) would 
generally permit the determination by the Clearing House of the EDSP in 
those cases, ICE Clear Europe believes it is appropriate, as a matter 
of clarity and transparency, to provide so explicitly. The amendments 
would also remove a redundant reference to the Clearing House acting in 
its discretion. Rule 701(c) would also be updated to provide that any 
EDSP determined under such Rule would be communicated only to affected 
Clearing Members (as communication to unaffected Clearing Members 
should be unnecessary).
    A new subsection (d) would be added to Rule 701 and would provide 
that the Clearing House would be entitled to amend any previously 
communicated EDSP, including in respect of futures contracts already 
settled or delivered, in the following two scenarios: (i) a Market or 
other external pricing source has made an error in or amends the EDSP 
or the basis for, or any element or input data in respect of the EDSP, 
or (ii) there has been an error by the Clearing House. In such 
scenarios, the Clearing House would be able to order revised payments 
to reflect the amended EDSP, including in respect of settled or 
delivered Contracts. Any amended EDSP determined by the Clearing House 
under each new such subsection would be communicated to affected 
Clearing Members, and any revised payments ordered by the Clearing 
House in connection therewith would be promptly processed by the 
Clearing House as part of its usual operational processes. The 
amendments are intended to provide greater certainty under the Rules as 
to the situations in which a change of price might take place and the 
consequences of such change, including the rights and obligations of 
the Clearing House in the event of a change in a settlement price, or 
an input in the settlement price, and the rights and obligations of the 
Clearing House and F&O Clearing Members to make appropriate payments in 
the event of a resulting change in an EDSP, including following 
settlement of a Contract. Such a change could occur, for example, where 
an input for the EDSP is based by the relevant Market on a price 
reporting service or prices in a spot or cash market for an underlying 
commodity, or where an input price is subject to or affected by action 
of relevant governmental or other authorities with jurisdiction over 
those markets. Although the Clearing House has other existing general 
authority, including under Rule 701(c) and Rule 109, that it might 
potentially use to address such situations, the Clearing House believes 
it is appropriate for the Clearing House to have explicit, specific 
rules addressing the possibility of such a change in a relevant price, 
in light of experiences with errors involving underlying prices and 
other cases in which underlying or related markets have considered such 
changes that could potentially have affected the EDSP. The amendments 
would also provide increased certainty for Clearing Members and other 
market participants as to the likely consequences of such changes 
occurring. ICE Clear Europe does not expect that Rule 701(d) would be 
commonly used in the ordinary course of business.
    The amendments would also redesignate the ultimate paragraph in 
Rule 705 as subsection (b). This non-substantive update is intended to 
improve the organization and readability of the Rules, and to align 
with the parallel provision in Rule 805. A further conforming change 
would be made to the same paragraph provide that the discharge of the 
rights and obligations of Clearing Members upon settlement would be 
made expressly subject to Rule 701(d) (as discussed above), a change 
which reflects the Clearing House's present interpretation of how these 
two provisions interrelate.
    Parallel changes would be made for Options Contracts in Rules 
802(c) and (d). Rule 802(c) would be amended to add Force Majeure 
Event, Illegality or Impossibility to the list of scenarios that 
entitle the Clearing House to determine the EDSP at its discretion. The 
amendments would also remove a redundant reference to the Clearing 
House acting in its discretion. Rule 802(c) would be updated to provide 
that any EDSP determined under such Rule would be communicated to 
affected Clearing Members, for the reasons discussed for Rule 701(c) 
above.
    A new subsection (d) would also be added to Rule 802 and would 
provide that the Clearing House would be entitled at its discretion to 
amend any previously communicated EDSP for option contracts, including 
in respect of contracts already settled or delivered, in the following 
two scenarios: (i) a Market or other external pricing source has made 
an error in or amends the EDSP or the basis for, or any element or 
input data in respect of the EDSP, or (ii) there has been an error by 
the Clearing House. In such scenarios, the Clearing House would be able 
to order revised payments, including in respect of settled or delivered 
Contracts. Any amended EDSP determined by the Clearing House under each 
new such subsection would be communicated to affected Clearing Members, 
and any revised payments ordered by the Clearing House in connection 
therewith would be promptly processed by the Clearing House as part of 
its usual operational processes. The purpose and rationale for these 
amendments is substantially the same as for the amendments to Rule 
701(d), as discussed above.
    Similar to the changes to Rule 705 discussed above, a conforming 
change would be made to Rule 807 to provide that the discharge of 
Clearing Members on settlement would be subject to Rule 802(d) (as 
discussed above). Likewise, a change would be made to Rule 808(b) to 
provide that the termination of rights and obligations upon abandonment 
of an option would be subject to Rule 802(d), for similar reasons.
Cash Settlement on Default
    The Clearing House proposes to amend Rule 703(h) to provide greater 
certainty as to the treatment of delivery obligations under F&O 
Contracts in the event of a default by a Clearing Member or when there 
are grounds for declaring a default in respect of a Clearing Member. 
Depending upon the kind of F&O Contract, pursuant to existing Rule 
703(f) and the Delivery Procedures, selling Clearing Members may be 
matched with buying Clearing Members to effect delivery between them, 
in satisfaction of the selling Clearing Member's delivery obligation to 
the Clearing House and the Clearing House's delivery obligation to the 
buying Clearing Member. In the case of other F&O Contracts, there is no 
such matching and delivery is made by Sellers to the Clearing House and 
then by the Clearing House to Buyers, pursuant to Rules 703(b) to (e) 
and the Delivery Procedures.
    The proposed amendments to Rule 703(h) would provide further 
detail, consistent with existing Clearing House practices and 
interpretations, as to what happens when a Clearing Member which has 
been matched for purposes of delivery fails to perform its delivery 
obligations. Rule 703(h) applies to a Clearing Member that has been 
declared a Defaulter or is subject to grounds for declaring an Event of 
Default or Force Majeure Event. In such a case, the Clearing House 
already has under Rule 703(h) the ability to direct that delivery 
obligations be substituted for cash, including as against non-
defaulting Clearing Members. This enables it to ensure that the number 
of Contracts under delivery remain matched and that the Clearing House 
does not need to source deliverable commodities in the physical 
marketplace. Amended Rule

[[Page 37541]]

703(h) would provide explicitly that a relevant Contract of the 
defaulter may be substituted for cash settlement obligations at a price 
determined by ICE Clear Europe at its discretion. The rights, 
liabilities, and obligations of any Clearing Member with an Account 
having an opposite delivery position in Contracts in the same Set could 
then, at the discretion of the Clearing House, also be substituted for 
cash settlement obligations at the same price. These amendments are 
intended to build on the Clearing House's existing authority to 
substitute cash settlement for delivery obligations in the case of 
default, in furtherance of its default management, and more clearly 
reflect how the existing authority would operate in practice.
(b) Statutory Basis
    ICE Clear Europe believes that the proposed amendments to the 
Clearing Membership Procedures are consistent with the requirements of 
Section 17A of the Act \5\ and the regulations thereunder applicable to 
it. In particular, Section 17A(b)(3)(F) of the Act \6\ 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.
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    \5\ 15 U.S.C. 78q-1.
    \6\ 15 U.S.C. 78q-1(b)(3)(F).
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    The proposed changes to the Rules are intended to provide greater 
certainty and additional detail as to (i) the rights and obligations of 
the Clearing House and F&O Clearing Members in scenarios where there is 
an external or other change of price which results in a need to change 
or correct the EDSP, including after settlement occurs; and (ii) the 
way in which the Clearing House could effect cash settlement in lieu of 
delivery in the case of an F&O Clearing Member default or where a 
Clearing Member is subject to ground for declaring a default. The 
amendments relating to changes in EDSP are intended to provide greater 
certainty as to the actions the Clearing House may take in 
circumstances where there is a potential change in a settlement price, 
including where settlement has already occurred and additional payments 
would be required. The Clearing House believes it is important to have 
clear provisions in the Rules for this scenario given the potential 
impact on market participants. The amendments with respect to cash 
settlement of delivery obligations in case of default are not intended 
to materially change the substance of the rights or obligations of the 
Clearing House and Clearing Members but would provide greater clarity 
as to the applicable process. The amendments also remove certain 
overlapping or duplicative information in order to improve organization 
and readability. In ICE Clear Europe's view the amendments would thus 
facilitate the clearing and settlement process, as well as default 
management, by the Clearing House. The proposed amendments would 
therefore facilitate the prompt and accurate clearing of cleared 
Contracts, the safeguarding of securities and funds in the custody or 
control of the Clearing House or for which it is responsible, and the 
protection of investors and the public interest in the sound operations 
of the Clearing House, consistent with the requirements of Section 
17A(b)(3)(F).\7\
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    \7\ 15 U.S.C. 78q-1(b)(3)(F).
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    For similar reasons, the amendments to the Rules are also 
consistent with relevant provisions of Rule 17Ad-22.\8\ Rule 17Ad-
22(e)(1) provides that ``[e]ach covered clearing agency shall 
establish, implement, maintain and enforce written policies and 
procedures reasonable designed to, as applicable [. . .] provide for a 
well-founded, clear, transparent and enforceable legal basis for each 
aspect of its activities in all relevant jurisdictions''.\9\ As 
discussed above, the amendments will provide greater certainty for 
market participants as to the rights and obligations of the Clearing 
House and F&O Clearing Members in cases where there is a subsequent 
change in a settlement price or inputs in the settlement price. The 
amendments also elucidate the rights and obligations relating to 
delivery in a default scenario. As such, the amendments are consistent 
with establishing a well-founded, clear and transparent basis for the 
activities of the Clearing House, within the meaning of Rule 17Ad-
22(e)(1).\10\
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    \8\ 17 CFR 240.17Ad-22.
    \9\ 17 CFR 240.17Ad-22(e)(1).
    \10\ 17 CFR 240.17Ad-22(e)(1).
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    Rule 17Ad-22(e)(8) provides that ``[e]ach covered clearing agency 
shall establish, implement, maintain and enforce written policies and 
procedures reasonable designed to, as applicable [. . .] define the 
point at which settlement is final to be no later than the end of the 
day on which the payment or obligation is due. . . .''.\11\ As 
described above, the amendments address a change in EDSP in limited 
circumstances where there has been an error or other change in a 
relevant underlying price. Where necessary, the amendments would also 
provide for additional payments to or from Clearing Members to reflect 
the amended price. ICE Clear Europe does not believe that correction of 
an error or similar circumstance, even though it may require additional 
payments, would be inconsistent with finality of settlement within the 
meaning of Rule 17Ad-22(e)(8). Specifically, in ICE Clear Europe's 
view, the proposed amendments should not be viewed as affecting the 
finality of settlement payments previously made (which were final and 
irrevocable when made in accordance with the settlement finality 
provisions of the ICE Clear Europe Rules and applicable settlement 
finality regulations) but rather as establishing an independent new 
payment obligation, with a new payment date, to reflect the change in 
EDSP. Such new payment obligation would itself give rise to or be 
subsumed in a new payment transfer order which would be subject to the 
settlement finality provisions of Part 12 of the ICE Clear Rules. As 
such, the amendments are not inconsistent with the finality 
requirements of Rule 17Ad-22(e)(8).\12\
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    \11\ 17 CFR 240.17Ad-22(e)(8).
    \12\ 17 CFR 240.17Ad-22(e)(8).
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    Rule 17Ad-22(e)(10) provides that ``[e]ach covered clearing agency 
shall establish, implement, maintain and enforce written policies and 
procedures reasonable designed to, as applicable [. . .] establish and 
maintain transparent written standards that state its obligations with 
respect to the delivery of physical instruments, and establish and 
maintain operational practices that identify, monitor and manage the 
risks associated with such physical deliveries.'' \13\ As set forth 
above, the amendments would clarify the rights and obligations of the 
Clearing House and Clearing Members with respect to physical delivery 
in the case of a failure to perform by a Clearing Member, by setting 
forth the ability of the Clearing House to provide for cash settlement 
in lieu of physical delivery in that scenario. In addition, this 
authority will facilitate the Clearing House's ability to manage its 
risk associated with a failed physical delivery in the context of a 
Clearing Member default. The amendments are therefore consistent with 
the requirements of Rule 17Ad-22(e)(10).\14\
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    \13\ 17 CFR 240.17Ad-22(e)(10).
    \14\ 17 CFR 240.17Ad-22(e)(10).

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[[Page 37542]]

(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 provide greater legal certainty under 
the Rules to address scenarios in which the Clearing House may need to 
amend an EDSP, including as a result of a change in a relevant input. 
Other amendments would elucidate the rights and obligations of Clearing 
Members with respect to physical delivery in the case of a Clearing 
Member default. The amendments would apply to all F&O Clearing Members. 
Although the amendments address scenarios where a market participant 
may be obligated to make a payment as a result of a change in an EDSP, 
which could impose costs on such market participant, that result would 
depend on the market participant's own positions and reflect a change 
in the underlying relevant price or input to correctly reflect the 
value of the relevant Contract. Similarly, the amendments address the 
ability of the Clearing House to impose cash settlement in lieu of 
physical settlement, including on non-defaulters, which could impose a 
cost on such market participant. However, that result would depend on 
the Clearing Member's own positions and reflects a cost and risk to 
which the Clearing Members are already exposed and which arise commonly 
in clearing systems. ICE Clear Europe does not believe the amendments 
would otherwise affect the costs of clearing, the ability of market 
participants to access clearing, or the market for clearing services 
generally. Therefore, ICE Clear Europe does not believe the proposed 
rule change imposes any burden on competition that is inappropriate 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

    ICE Clear Europe consulted with a number of market participants, 
including a relevant futures industry group, in connection with the 
development of the proposed rule changes, and considered feedback from 
such participants in preparing the specific rule changes that are now 
proposed to be adopted. In particular, market participants raised 
questions concerning (i) the circumstances in which settlement prices 
might be changed, and (ii) the appropriate timeframe in which a change 
to EDSP may be made. In developing the current proposal, ICE Clear 
Europe notes that the amendments are generally intended to deal with 
changes from external pricing sources, which may be permitted to make 
such changes in a variety of circumstances, and with a variety of 
characterizations, that are outside the control of ICE Clear Europe and 
may be difficult to define more specifically in advance. ICE Clear 
Europe also notes that it has not defined a specific timeframe in which 
a change to EDSP may be made, in light of the fact that different 
Markets cleared by ICE Clear Europe and different external pricing 
sources may have their own time period in which changes to relevant 
prices may be made. ICE Clear Europe has thus sought to maintain 
appropriate flexibility to deal with the range of potential changes to 
relevant prices as they may arise.
    ICE Clear Europe has also conducted a formal public consultation 
with respect to the proposed rule changes.\15\ No written comments were 
received as a result of the public consultation. ICE Clear Europe will 
notify the Commission of any written comments received with respect to 
the proposed rule change.
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    \15\ ICE Clear Europe Circular C22/056 (25 April 2022), 
available at https://www.theice.com/publicdocs/clear_europe/circulars/C22056.pdf.
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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 \16\ and paragraph (f) of Rule 19b-4 \17\ 
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.
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f).
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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-2022-011 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-2022-011. 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/notices/Notices.shtml?regulatoryFilings.
    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-2022-011 and should be 
submitted on or before July 14, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-13386 Filed 6-22-22; 8:45 am]
BILLING CODE 8011-01-P


