
[Federal Register Volume 88, Number 150 (Monday, August 7, 2023)]
[Rules and Regulations]
[Pages 52229-52230]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-16719]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98032; File No. SR-ICEEU-2023-013]


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

August 1, 2023.

I. Introduction

    On June 9, 2023, 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 
the ICE Clear Europe Collateral and Haircut Procedures (the 
``Procedures''). The proposed rule change was published for comment in 
the Federal Register on June 26, 2023.\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 Collateral Haircut Procedures, Exchange Act Release No. 97766 
(June 20, 2023); 88 FR 41439 (June 26, 2023) (SR-ICEEU-2023-013) 
(``Notice'').
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II. Description of the Proposed Rule Change

    ICE Clear Europe is registered with the Commission as a clearing 
agency for the purpose of clearing security-based swaps. In its role as 
a clearing agency for security-based swaps, ICE Clear Europe provides 
services to its Clearing Members and Clearing Members transfer assets 
to ICE Clear Europe.\4\ For example, ICE Clear Europe's Clearing 
Members transfer to ICE Clear Europe cash and other assets as 
collateral to cover the exposures presented by the positions that ICE 
Clear Europe clears. ICE Clear Europe communicates such collateral 
requirements as Initial Margin and Guaranty Fund requirements.\5\ ICE 
Clear Europe generally refers to the assets that it accepts from 
Clearing Members to cover their Initial Margin and Guaranty Fund 
requirements as Permitted Cover.\6\
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    \4\ Capitalized terms not otherwise defined herein have the 
meanings assigned to them in the Procedures or the ICE Clear Europe 
Clearing Rules.
    \5\ ICE Clear Europe's Clearing Rules note that Initial Margin 
means ``the Permitted Cover required to be provided or actually 
provided . . . to the Clearing House as collateral for the 
obligations of a Clearing Member or Sponsored Principal in respect 
of CDS Contracts . . . .'' ICE Clear Europe Clearing Rule 101. 
Guaranty fund contributions serve to secure the obligations of a 
Clearing Member to ICE Clear Europe and may be used to cover losses 
sustained by ICE Clear Europe in the event of a default of the 
Clearing Member. ICE Clear Europe Clearing Rule 1103.
    \6\ ICE Clear Europe Rule 101 defines ``Permitted Cover'' as ``. 
. . cash in Eligible Currencies and other assets determined by the 
Clearing House as permissible for Margin or Guaranty Fund 
Contributions and includes, where the context so requires, any such 
cash or assets transferred to the Clearing House and any proceeds of 
realisation of the same. A particular kind of currency or asset may 
be determined by the Clearing House to be Permitted Cover only in 
respect of Proprietary Accounts, particular kinds of Customer 
Accounts, Energy Contracts, Financials & Softs Contracts, F&O 
Contracts, FX Contracts, CDS Contracts or certain Sets of 
Contracts.''
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    The Procedures describe ICE Clear Europe's operational activities 
and related governance processes with respect to Permitted Cover. These 
operational activities include, among other things, enforcing basic 
eligibility criteria that assets must satisfy to be Permitted Cover, 
valuing Permitted Cover, and applying haircuts to that value.\7\
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    \7\ ICE Clear Europe uses these haircuts to reduce the value of 
the Permitted Cover. Doing so helps account for a potential decline 
in value that ICE Clear Europe could face if it had to liquidate the 
Permitted Cover in stressed market conditions.
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    The proposed rule change relates to the eligibility criteria that 
ICE Clear Europe uses to determine whether to accept a particular asset 
as Permitted Cover. Section 2 of the Procedures sets out the general 
criteria that all assets must satisfy to be considered Permitted Cover. 
Among other things, to be considered Permitted Cover an asset must be 
highly liquid with an active sale or repurchase agreement market with a 
diverse group of buyers and sellers.
    In addition to the general criteria found in Section 2, which 
applies to all assets submitted as Permitted Cover, Appendix A to the 
Procedures provides additional eligibility criteria for two specific 
asset classes: financial instruments and gold. To qualify as

[[Page 52230]]

Permitted Cover, financial instruments and gold must satisfy both the 
general eligibility criteria in Section 2 and the specialized criteria 
in Appendix A.
    The proposed rule change would amend the specialized criteria for 
gold found in Appendix A. Currently ICE Clear Europe will accept gold 
as Permitted Cover in either of the following circumstances: (i) the 
gold is owned as allocated gold bullion, meaning ICE Clear Europe 
directly owns an interest in specific gold bars or (ii) the gold is 
owned as unallocated gold bullion through a firm with low credit risk 
based on ICE Clear Europe's own assessment. Unallocated means ICE Clear 
Europe owns an interest in a pool of gold bars rather than specific 
gold bars. Thus, unallocated gold represents a claim against the 
relevant custodian for an amount of metal held in bulk, while allocated 
gold held by a custodian is specifically identified for a particular 
owner. The proposed rule change would delete the unallocated option. 
Under Appendix A as amended, ICE Clear Europe would only accept gold if 
it is specifically allocated to ICE Clear Europe.
    Specifically, the amended Appendix A would state that ICE Clear 
Europe would only recognize gold as Permitted Cover where the gold is 
transferred from an unallocated account to an allocated account of a 
custodian in the name of ICE Clear Europe. Once the gold meets those 
criteria, it will be deemed to be allocated pure gold bullion of 
recognized good delivery.
    This amendment would help to ensure that ICE Clear Europe's 
eligibility criteria for gold collateral conforms to certain 
requirements under the European Market Infrastructure Regulation that 
gold collateral be held in allocated form.\8\
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    \8\ See Notice, 88 FR 41440; Commission Delegated Regulation 
(EU) No 153/2013 of 19 December 2012 supplementing Regulation (EU) 
No 648/2012 of the European Parliament and of the Council with 
regard to regulatory technical standards on requirements for central 
counterparties, Annex I, Section 3.
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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.\9\ For the reasons discussed below, the Commission finds 
that the proposed rule change is consistent with Section 17A(b)(3)(F) 
of the Act \10\ and Rule 17Ad-22(e)(5) thereunder.\11\
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    \9\ 15 U.S.C. 78s(b)(2)(C).
    \10\ 15 U.S.C. 78q-1(b)(3)(F).
    \11\ 17 CFR 240.17Ad-22(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.\12\ Based on its review of the record, and for the 
reasons discussed below, the Commission believes the proposed changes 
to the Procedures are consistent with the promotion of the prompt and 
accurate clearance and settlement of securities transactions.
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    \12\ 15 U.S.C. 78q-1(b)(3)(F).
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    The Commission believes that accepting gold as Permitted Cover only 
if in allocated form would help to ensure the availability of that gold 
for liquidation. Should ICE Clear Europe need to liquidate gold to 
satisfy a Clearing Member's Initial Margin or Guaranty Fund 
requirement, the Commission believes gold in allocated form is more 
likely to be available than gold not in allocated form. The Commission 
believes this to be the case because allocated gold would be held by a 
custodian in the name of ICE Clear Europe, giving ICE Clear Europe an 
interest in specific bars of gold, rather than an interest in shared 
pool of bars of gold.
    The Commission therefore believes that accepting only allocated 
gold would improve ICE Clear Europe's ability to liquidate that gold if 
needed, thereby helping to improve ICE Clear Europe's ability to manage 
potential losses that could result from a Clearing Member's default. 
The Commission further believes these potential losses, if not properly 
managed, could disrupt ICE Clear Europe's ability to clear and settle 
transactions. Accordingly, the Commission believes the proposed rule 
change, by requiring ICE Clear Europe to only accept allocated gold as 
Permitted Cover, would be consistent with the promotion of the prompt 
and accurate clearance and settlement of securities transactions.
    Therefore, the Commission finds that the proposed rule change is 
consistent with Section 17A(b)(3)(F) of the Act.\13\
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    \13\ 15 U.S.C. 78q-1(b)(3)(F).
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B. 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, among other things, limit the assets it accepts 
as collateral to those with low credit, liquidity, and market risks. 
The Commission believes that accepting gold as Permitted Cover only in 
allocated form would help to lower the credit risk associated with that 
gold. As discussed above, allocated gold would give ICE Clear Europe an 
interest in specific bars of gold, rather than an interest in shared 
pool of bars of gold. Unallocated gold represents a claim against the 
custodian for an amount of metal held in bulk, while allocated gold 
held by a custodian is specifically identified for a particular owner 
and therefore represents a lower credit risk than unallocated gold. The 
Commission therefore believes that accepting gold as Permitted Cover 
only in allocated form would support ICE Clear Europe's ability to 
limit the assets it accepts as collateral to those with low credit 
risks.
    Therefore, the Commission finds that the proposed rule change is 
consistent with Rule 17Ad-22(e)(5).\14\
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    \14\ 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 \15\ and Rule 17Ad-22(e)(5) thereunder.\16\
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    \15\ 15 U.S.C. 78q-1(b)(3)(F).
    \16\ 17 CFR 240.17Ad-22(e)(5).
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    It is therefore ordered pursuant to Section 19(b)(2) of the Act 
\17\ that the proposed rule change (SR-ICEEU-2023-013), be, and hereby 
is, approved.\18\
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    \17\ 15 U.S.C. 78s(b)(2).
    \18\ 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.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-16719 Filed 8-4-23; 8:45 am]
BILLING CODE 8011-01-P


