
[Federal Register Volume 88, Number 208 (Monday, October 30, 2023)]
[Notices]
[Pages 74214-74217]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-23814]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98790; File No. SR-ICEEU-2023-022]


Self-Regulatory Organizations; ICE Clear Europe Limited; Order 
Approving Proposed Rule Change, as Modified by Amendment No. 1, 
Relating to Amendments to the Clearing Membership Policy and Clearing 
Membership Procedures

October 24, 2023.

I. Introduction

    On August 8, 2023, ICE Clear Europe Limited (``ICEEU'') 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 modify its 
Clearing Membership Policy (``Policy'') and Clearing Membership 
Procedures (``Procedures''). On August 22, 2023, ICE Clear Europe filed 
Amendment No. 1 to the proposed rule change to make certain changes to 
the Exhibits 5A and 5B.\3\ Notice of the proposed rule change, as 
modified by Amendment No. 1, was published for comment in the Federal 
Register on August 29, 2023.\4\ The Commission has not received any 
comments on the proposed rule change, as modified by Amendment No. 1 
(hereinafter ``Proposed Rule Change''). For the reasons discussed 
below, the Commission is approving the Proposed Rule Change.\5\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 amends the Exhibit 5A and Exhibit 5B to 
correctly reflect the addition of the Document Handling subsection 
to each document's Table of Contents. The proposed rule change 
includes an Exhibit 4A and Exhibit 4B. Exhibit 4A shows the change 
that Amendment No. 1 makes to Exhibit 5A, and Exhibit 4B does the 
same with respect to Exhibit 5B.
    \4\ Securities Exchange Act Release No. 98207 (August 23, 2023), 
88 FR 59547 (August 29, 2023) (File No. SR-ICEEU-2023-022) 
(``Notice'').
    \5\ Capitalized terms not otherwise defined herein have the 
meanings assigned to them in the Policy or the Procedures or, if not 
defined therein, ICE Clear Europe's Clearing Rules.
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II. Description of the Proposed Rule Change

    ICEEU 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 clearing security-based swaps, ICEEU provides services to 
its Clearing Members. ICEEU's Clearing Members enter into a Clearing 
Membership Agreement with ICEEU and are admitted as clearing members of 
ICEEU under Part 2 of ICEEU's clearing rules.\6\
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    \6\ The Clearing Membership Agreement is an agreement between 
ICEEU and a Clearing Member under which the Clearing House agrees to 
provide clearing in respect of Contracts to that Clearing Member and 
that Clearing Member agrees to be bound by and subject to ICEEU's 
Clearing Rules. ICE Clear Europe Clearing Rule 101.
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    As a result of its relationship with its Clearing Members, ICEEU 
faces a number of risks. For example, ICEEU's Clearing Members may not 
meet membership criteria which ultimately could increase the chances of 
both a Clearing Member defaulting and ICEEU needing to use mutualized 
funds.\7\ ICEEU manages these risks, and relationships with its 
Clearing Members, through the Policy and the Procedures. The Policy 
describes ICEEU's membership criteria and related processes for 
assessing applicants for membership, on-going monitoring of its 
Clearing Members, and termination of its Clearing Members. The 
Procedures in turn provide additional detail as to how ICE Clear Europe 
applies its policies for reviewing applications for clearing 
membership, variations of permissions for Clearing Members, ongoing 
monitoring of Clearing Members, and termination of clearing 
membership.\8\
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    \7\ Clearing Membership Policy 2.1.
    \8\ Securities Exchange Act Release No. 93178 (Sept. 29, 2021), 
86 FR 55045, 55046 (Oct. 5, 2021) (File No. SR-ICEEU-2021-014).
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    Through the Proposed Rule Change, ICEEU proposes to make changes to 
both the Policy and the Procedures.\9\ These proposed changes correct 
an improper reference to model documents; clarify that clearing members 
must provide notice of certain situations; update sections on 
monitoring membership criteria; update sections on document governance; 
update the Procedures' clearing membership application process; and 
clarify that ICEEU may take certain steps in its absolute discretion.
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    \9\ In addition to the changes described below, ICEEU proposes 
various non-substantive changes to the Policy and Procedures.
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1. Correction of Improper Reference to Model Documents in the Policy

    The current Policy notes that procedural aspects and relevant

[[Page 74215]]

parameters related to the Policy are set out in the corresponding 
procedures and model documents. However, Policy parameters are set 
forth in parameter documents, not model documents.\10\ Therefore the 
Proposed Rule Change would remove the reference to model documents and 
state instead that procedural aspects and relevant parameters related 
to the Policy are set out in the corresponding procedures and parameter 
documents respectively.
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    \10\ Notice, 88 FR at 59548.
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2. Requiring Clearing Members To Provide Certain Notifications in the 
Policy and Procedures

    In the ``Objective'' section of the current Policy, ICEEU notes 
that it achieves the objectives of the Policy by, among other things, 
``includ[ing] relevant notifications to ensure that Clearing Members'' 
promptly notify ICEEU of certain changes that could impact their 
ability to meet ICEEU's membership criteria. The ``Objective'' section 
of the current Procedures includes similar language. The Proposed Rule 
Change would change this language in both the Policy and the Procedures 
to specify that ICEEU achieves the objectives of the Policy and 
Procedures by, among other things, ``requir[ing]'' that Clearing 
Members promptly notify ICEEU of any changes to their business which 
may affect their ability to meet ICEEU's membership criteria.\11\
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    \11\ Id.
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3. Monitoring of Membership Criteria in the Policy

    The current Policy states that in order to monitor Clearing 
Members' on-going adherence to the membership criteria, ICEEU carries 
out periodic in-depth counterparty reviews; undertakes a quarterly 
review of financial position using Audited Annual Accounts and 
quarterly financial information; updates its Counterparty Rating System 
on a quarterly basis; maintains a Watch List; requires Clearing Members 
to complete an Annual Member Return; and monitors operational matters 
daily, including, for example, margin calls and end-of-day price 
submissions. ICEEU proposes to remove and consolidate much of this 
text. The Policy as revised would state that in order to monitor 
Clearing Members' on-going adherence to the membership criteria, ICEEU 
carries out periodic in-depth counterparty reviews; undertakes ongoing 
monitoring, which consists of continuous monitoring and additional 
trigger-based reviews, including relating to credit and AML/KYC risk 
and to daily operational matters (such as margin calls); and requires 
Clearing Members to complete an Annual Member Return.
    ICEEU proposes to remove the text discussing quarterly review of 
financial position through Audited Annual Accounts and financial 
information, updates to its Counter Party Rating System done quarterly, 
and the requirement to maintain a Watch List because these subjects 
relate to credit issues that are covered in its Counterparty Credit 
Risk Policy and Procedures.\12\ Given the deletion of this text, ICEEU 
proposes to remove the sentence noting that information on monitoring 
is available in the Clearing Membership Procedures and the Counterparty 
Credit Risk Policy because ICEEU believes this cross reference to 
support now-deleted references would no longer be necessary.\13\ 
Finally, ICEEU proposes deleting the sentence that provides that ICEEU 
monitors a number of specific operational matters daily because it 
would be replaced with the text noting that ICEEU undertakes ongoing 
monitoring.
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    \12\ Id.
    \13\ Id.
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4. Document Governance in the Policy and Procedures

    The Proposed Rule Change would update the Document Governance and 
Exception Handling sections of both the Policy and the Procedures to 
make them consistent with similar document governance provisions in 
other ICEEU policies.\14\ The updates would specify that the scope of 
the document review encompasses, at a minimum, regulatory compliance, 
documentation and purpose, implementation, use, and open items from 
previous validations or reviews (where appropriate). The Proposed Rule 
Change would also add text identifying the document owner or relevant 
staff as the individuals responsible for conducting document reviews to 
ensure they are updated and reviewed in accordance with the internal 
governance processes. The changes would also specify that the head of 
the department (or their delegate) and the Chief Risk Officer (or their 
delegate) provide approval for document reviews and that, in some 
circumstances, the document review findings are reported to the Model 
Oversight Committee, but outside of those circumstances, the document 
review's results, including any findings, are reported to the Executive 
Risk Committee along with the priority of findings, proposed 
remediations, and target due date to remediate the findings. The 
updates also would provide that it is the document owner's 
responsibility to address any findings, complete internal governance, 
and, if necessary, obtain regulatory approvals before the subsequent 
annual review is due. Finally, the proposed changes would note that 
changes to the Policy and Procedures must be approved in accordance 
with ICEEU's governance process and will take effect after completion 
of all necessary internal and regulatory approvals.
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    \14\ Id. For example, ICEEU recently amended its Recovery Plan 
and Outsourcing Policy to make changes similar to those now 
proposed. See Securities Exchange Act Release No. 98337 (Sept. 8, 
2023), 88 FR 63149, 63154-55 (Sept. 14, 2023) (File No. SR-ICEEU-
2023-020) (Recovery Plan); Securities Exchange Act Release No. 98387 
(Sept. 14, 2023), 88 FR 64953, 64955 (Sept. 20, 2023) (File No. SR-
ICEEU-2023-018) (Outsourcing Policy).
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5. Clearing Membership Procedures

    The Proposed Rule Change would amend the Clearing Membership 
Procedures to make certain clarifications and updates. One proposed 
change would clarify that applicants must provide sufficient evidence, 
details, and information to ICEEU as required by the Rules, as opposed 
to sufficient evidence, details, or information.\15\ Another adds text 
indicating that the membership team will ensure that all Applicants are 
added to the schedule of insured entities by the ICE Group insurer. The 
Proposed Rule Change would also delete a provision noting that after 
approval of an application by the Executive Risk Committee, the 
relevant Product Risk Committees would be notified of a new application 
for clearing membership. ICEEU believes that it is unnecessary to 
notify the Product Risk Committees because those committees' duties and 
functions are not implicated by a new member being admitted.\16\ 
ICEEU's proposed amendments would also clarify that ICEEU issues a 
Circular confirming approval of a Clearing Member once their 
application is approved and move a clause indicating that Clearing 
Members are required to respond to additional information requests in a 
timely manner statement to a standalone sentence. ICEEU believes 
stating this requirement in a standalone sentence makes the information 
clearer.\17\
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    \15\ Notice, 88 FR at 59548.
    \16\ Id.
    \17\ Id.
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6. ICEEU's Absolute Discretion in the Procedures

    Throughout the Procedures, ICEEU proposes to add the phrase ``in 
its absolute discretion'' in connection with

[[Page 74216]]

certain actions described in the Procedures. Specifically, ICEEU's 
proposed changes note that ICEEU has absolute discretion to take 
certain actions with respect to its minimum capital requirements, 
standards and characteristics of subordinated loans, the acceptability 
of a Controller Guarantee, cash or collateral requirements, and its 
guaranty fund. ICEEU also proposes changes making clear that it defines 
a maximum period between in-depth counterparty reviews and a threshold 
for following up with the Clearing Member regarding negative changes to 
its financial condition in its absolute discretion. ICEEU believes that 
these amendments do not change its existing authority, but more 
explicitly state the scope of its discretion.\18\
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    \18\ Id.
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III. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act requires the Commission to approve a 
proposed rule change of a self-regulatory organization if it finds that 
the proposed rule change is consistent with the requirements of the Act 
and the rules and regulations thereunder applicable to the 
organization.\19\ For the reasons given below, the Commission finds 
that the Proposed Rule Change is consistent with Section 17A(b)(3)(F) 
of the Act \20\ and Rules 17Ad-22(e)(2)(i), (e)(2)(v),\21\ and 
(e)(18).\22\
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    \19\ 15 U.S.C. 78s(b)(2)(C).
    \20\ 15 U.S.C. 78q-1(b)(3)(F).
    \21\ 17 CFR 240.17Ad-22(e)(2).
    \22\ 17 CFR 240.17Ad-22(e)(18).
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A. Consistency With Section 17A(b)(3)(F) of the Act

    Under Section 17A(b)(3)(F) of the Act, ICEEU's rules, among other 
things, must be ``designed to promote the prompt and accurate clearance 
and settlement of securities transactions and, to the extent 
applicable, derivative agreements, contracts, and transactions, to 
assure the safeguarding of securities and funds which are in the 
custody or control of the clearing agency or for which it is 
responsible . . . and, in general, to protect investors and the public 
interest . . . .'' \23\ Based on its review of the record, and for the 
reasons discussed below, the Commission concludes that ICEEU's Proposed 
Rule Change is consistent with Section 17A(b)(3)(F) of the Act.
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    \23\ 15 U.S.C. 78q-1(b)(3)(F).
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    As noted above, ICEEU faces a number of risks as a result of its 
relationship with its Clearing Members. These risks include 
operational, default, and other risks that could impact or threaten 
ICEEU's ability to clear and settle transactions, safeguard securities 
and funds which are in its possession or control or for which it is 
responsible, or otherwise protect investors and the public interest. 
ICEEU manages these risks through, among other things, the Policy and 
Procedures. Therefore, improving or enhancing the Policy and Procedures 
likewise improves or enhances ICEEU's ability to manage or mitigate the 
risks it faces as a result of its relationship with its Clearing 
Members.
    As discussed above, the Proposed Rule Change would enhance the 
Policy and Procedures in a number of ways, including clarifying certain 
provisions, highlighting certain important information, removing 
incorrect or duplicative information, and ensuring the Policy and 
Procedures are consistent with each other and with ICEEU's other 
policies and procedures. For example, the Proposed Rule Change would 
clarify in both the Policy and Procedures that Clearing Members must 
promptly notify ICEEU of any changes to their business which may impact 
their ability to meet membership criteria. Additionally, the Proposed 
Rule Change would revise the Procedures to clarify that Clearing 
Membership applicants must provide sufficient evidence, details, and 
information to ICEEU as required by the Rules, that ICEEU will issue a 
Circular confirming approval of a Clearing Member once its membership 
application is approved, that Clearing Members must respond to 
information requests from ICEEU in a timely manner, and that ICEEU has 
absolute discretion to take certain steps.\24\ Similarly, the Proposed 
Rule Change would update the Policy to note that procedural aspects and 
relevant parameters related to the Policy are set out in the 
corresponding procedures and parameter documents, rather than model 
documents as the current Policy states, and highlight that procedural 
aspects related to the Policy are set out in the corresponding 
procedures. The Proposed Rule Change also would delete as unnecessary 
and duplicative certain information related to its monitoring of 
Clearing Members' financial information because that information is 
addressed in other ICEEU policies.\25\
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    \24\ Notice, 88 FR at 59548.
    \25\ Id.
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    The Proposed Rule Change will help clarify the Policy and 
Procedures and ensure that they are accurate and consistent both with 
each other and with ICEEU's other policies and procedures, which will 
enhance the ability of ICEEU and its stakeholders to understand the 
Policy and Procedures and apply them accurately and consistently. 
Ensuring the Policy and Procedures are easily understood and applied 
accurately and consistently will, in turn, help ensure that ICEEU 
effectively manages and mitigates the operational and other risks 
presented by its relationship with Clearing Members, thereby supporting 
ICEEU's ability to promote the prompt and accurate clearance and 
settlement of securities transactions, assure the safeguarding of 
securities and funds which are in ICEEU's custody or control or for 
which it is responsible, and protect investors and the public interest.
    For these reasons, the Commission finds that the Proposed Rule 
Change is consistent with the requirements of Section 17A(b)(3)(F) of 
the Act.\26\
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    \26\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rule 17Ad-22(e)(2)(i) and (v)

    Rules 17Ad-22(e)(2)(i) and (v) require ICEEU to ``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.'' \27\ Based on its review of the record, and for the 
reasons discussed below, the Commission finds that the Proposed Rule 
Change is consistent with Rule 17Ad-22(e)(2)(i) and (v).
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    \27\ 17 CFR 240.17Ad-22(e)(2).
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    The Proposed Rule Change clearly defines responsibilities for a 
number of ICEEU employees. For instance, in both the Policy and 
Procedures, the Proposed Rule Change identifies the document owner and 
relevant staff as responsible for conducting document reviews, 
remediating findings, completing internal governance, and receiving 
regulatory approvals. The Proposed Rule Change also would add text to 
the Procedures that makes clear that the Membership team will ensure 
that all Applicants are added to the schedule of insured entities by 
the ICE Group insurer, and would remove as unnecessary text requiring 
notification of the relevant Product Risk Committees of new 
applications for clearing membership.\28\ By defining who has or does 
not have responsibilities and making this information readily available 
in the Policy and Procedures the Proposed Rule Change achieves clarity 
and transparency.
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    \28\ Notice, 88 FR at 59548.
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    The Commission finds, therefore, that the Proposed Rule Change is 
consistent

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with the requirements of Rule 17Ad-22(e)(2)(i) and (v).\29\
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    \29\ 17 CFR 240.17Ad-22(e)(2).
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C. Consistency With Rule 17Ad-22(e)(18)

    Rule 17Ad-22(e)(18) requires ICEEU to ``establish, implement, 
maintain, and enforce written policies and procedures reasonably 
designed to . . . establish objective, risk-based, and publicly 
disclosed criteria for participation, which permit fair and open access 
by direct and, where relevant, indirect participants and other 
financial market utilities, require participants to have sufficient 
financial resources and robust operational capacity to meet obligations 
arising from participation in the clearing agency, and monitor 
compliance with such participation requirements on an ongoing basis.'' 
\30\ Based on its review of the record, and for the reasons discussed 
below, the Commission finds that the Proposed Rule Change is consistent 
with Rule 17Ad-22(e)(18).\31\
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    \30\ 17 CFR 240.17Ad-22(e)(18).
    \31\ 17 CFR 240.17Ad-22(e)(18).
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    The Proposed Rule Change would update the Policy to specify that 
ICEEU undertakes ongoing monitoring to monitor Clearing Member's 
adherence to membership criteria and that ongoing monitoring consists 
of continuous monitoring and additional trigger-based reviews, 
including relating to credit and AML/KYC risk and to daily operational 
matters (such as margin calls). Because these aspects of the Proposed 
Rule Change are reasonably designed to help ensure that ICEU monitors 
compliance with its membership criteria on an ongoing basis, the 
Commission finds that the Proposed Rule Change is consistent with the 
requirements of Rule 17Ad-22(e)(18).\32\
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    \32\ 17 CFR 240.17Ad-22(e)(18).
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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, Section 17A(b)(3)(F) of the Act \33\ and Rules 17Ad-
22(e)(2)(i), (e)(2)(v),\34\ and (e)(18) thereunder.\35\
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    \33\ 15 U.S.C. 78q-1(b)(3)(F).
    \34\ 17 CFR 240.17Ad-22(e)(2).
    \35\ 17 CFR 240.17Ad-22(e)(18).
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    It is therefore ordered pursuant to Section 19(b)(2) of the Act 
that the Proposed Rule Change (SR-ICEEU-2023-022) be, and hereby is, 
approved.\36\
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    \36\ In approving the Proposed Rule Change, the Commission 
considered the proposal's impacts 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.\37\
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    \37\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-23814 Filed 10-27-23; 8:45 am]
BILLING CODE 8011-01-P


