[Federal Register Volume 82, Number 74 (Wednesday, April 19, 2017)]
[Notices]
[Pages 18512-18515]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-07870]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80449; File No. SR-ICEEU-2017-004]


Self-Regulatory Organizations; ICE Clear Europe Limited; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating to Third Party Collateral Purchase Arrangements Under the ICE 
Clear Europe Finance Procedures and Other Clarifying Changes to the ICE 
Clear Europe Finance Procedures

April 13, 2017.
    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 April 6, 2017, ICE Clear Europe Limited (``ICE Clear Europe'') 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 changes pursuant to Section 19(b)(3)(A) 
of the Act,\3\ and Rule 19b-4(f)(4)(i) and (ii) \4\ thereunder, so that 
the proposal was 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)(i), (ii).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The principal purpose of the changes is to modify certain aspects 
of the ICE Clear Europe Finance Procedures in connection with third 
party collateral purchase arrangements. The amendments also make 
certain other clarifying changes and updates to the Finance Procedures.

II. Self-Regulatory Organization'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. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the amendments is to modify the Finance Procedures 
to expand the permitted use of certain third-party collateral purchase 
arrangements with respect to Triparty Collateral provided by F&O 
Clearing Members in the context of an Individually Segregated Margin-
flow Co-mingled Account (commonly referred to as an ``ISOC Account''). 
The amendments also make certain other clarifying changes to the 
Finance Procedures. ICE Clear Europe is not proposing to modify its 
Clearing Rules (the ``Rules'') \5\ in connection with these amendments.
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    \5\ Capitalized terms used but not defined herein have the 
meanings specified in the Rules.
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    Under paragraph 3.32 of the existing Finance Procedures, an F&O 
Clearing Member may request that the Clearing House enter into a third 
party collateral purchase agreement (a ``Purchase Agreement'') with a 
third party collateral purchaser (the ``TPCP'') designated by the F&O 
Clearing Member.\6\ The Clearing House has no obligation to enter into 
a Purchase

[[Page 18513]]

Agreement. The TPCP may be an affiliate of the Clearing Member. Under 
the terms of a Purchase Agreement, if the Clearing House declares the 
F&O Clearing Member to be a Defaulter under the Rules, the Clearing 
House will offer to sell that Clearing Member's Triparty Collateral to 
the TPCP, for a specified price established by the Clearing House based 
on its determination of the market value of the collateral. The TPCP 
will have a specified period to accept or reject the offer to sell. If 
the TPCP accepts the offer, the Clearing House will sell the Triparty 
Collateral to the TPCP at the specified price. The proceeds of such 
sale would be applied by the Clearing House in the default management 
process and net sum calculation in the same manner as any other 
liquidation of margin of a Defaulter. If the TPCP rejects the offer to 
sell, or does not respond within the specified period, the offer will 
expire, and the Clearing House will apply or liquidate the Triparty 
Collateral pursuant to the Rules as part of its usual default 
management process. Under the current Finance Procedures, Purchase 
Agreements can only apply to Triparty Collateral provided by F&O 
Clearing Members in respect of their proprietary accounts, and cannot 
apply to other margin, collateral or permitted cover provided by F&O 
Clearing Members or any margin, collateral or permitted cover provided 
by CDS or FX Clearing Members in respect of CDS or FX Contracts, 
respectively.
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    \6\ A more detailed discussion of the existing third party 
collateral purchase arrangements is set out in Notice of Filing of 
Proposed Rule Change to Finance Procedures, Exchange Act Release No. 
34-73667, File No. SR-ICEEU-2014-23 (Nov. 21, 2014), 79 FR 70905 
(Nov. 28, 2014).
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    At the request of certain F&O Clearing Members and their customers, 
the Clearing House proposes to expand these arrangements to permit the 
use of third party collateral purchase arrangements for a customer of 
an F&O Clearing Member in respect of which positions and margin are 
held in an ISOC Account.\7\ ICE Clear Europe understands that some such 
customers have requested such arrangements to facilitate their own 
collateral management activities, under which they (or their 
affiliates) may wish to reacquire collateral held in an ISOC Account to 
settle other transactions following an F&O Clearing Member default.
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    \7\ As defined under the Rules, ISOC Accounts provide a form of 
individual segregation for positions and margin of certain 
customers. Each ISOC Account constitutes a separate account, 
referencing a single client, for which the Clearing House keeps 
separate records of both positions and margin. However, as an 
operational matter, margin flows are aggregated across all such ISOC 
Accounts of a Clearing Member. ISOC Accounts are only available for 
Non-FCM/BD Clearing Members.
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    Specifically, ICE Clear Europe is amending paragraph 3.32 of the 
Finance Procedures to permit the use of a Purchase Agreement in respect 
of an ISOC Account of an F&O Clearing Member. As with Purchase 
Agreements involving the proprietary account, the Purchase Agreement 
for such an account would provide that upon default of the F&O Clearing 
Member, the Clearing House would offer to the TPCP the Triparty 
Collateral in the relevant ISOC Account. The amendments also provide 
that the relevant customer must be a party to the Purchase Agreement, 
and that the identity of the customer must be approved by the Clearing 
House. The amendments clarify that the net proceeds of any sale 
pursuant to a Purchase Agreement (for either the proprietary or an ISOC 
Account) would be included in the net sum calculation under Rules 
905(b)(vii) and 906(a). Purchase Agreements could not be used for any 
other category of customer account of an F&O Clearing Member.
    The Finance Procedures are also being amended to make certain 
unrelated clarifying changes relating to the timing of settlement of 
the transfer of securities as Permitted Cover. Paragraph 11.4 was 
amended in a previous filing \8\ to remove certain account details and 
matching criteria for particular securities transfer systems (with the 
relevant details to be made available from time to time on ICE Clear 
Europe's Web site). Those amendments inadvertently removed certain 
settlement timing provisions (including as to instruction deadlines, 
trade dates and contractual settlement dates). Those settlement timing 
provisions have now been reinstated in paragraph 11.4. Certain updates 
to the settlement timings have been made (which are consistent with the 
timing requirements currently in effect as set forth on ICE Clear 
Europe's Web site).
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    \8\ Notice of Filing and Immediate Effectiveness of a Proposed 
Rule Change Relating to the Finance Procedures, Exchange Act Release 
No. 34-79375, File No. SR-ICEEU-2016-013 (Nov. 22, 2016), 81 FR 
86048 (Nov. 29, 2016).
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2. Statutory Basis
    ICE Clear Europe believes that the proposed rule changes are 
consistent with the requirements of Section 17A of the Act \9\ and the 
regulations thereunder applicable to it, including the relevant 
standards under Rule 17Ad-22,\10\ and are consistent with the prompt 
and accurate clearance of 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 ICE Clear Europe or for which it is responsible and the 
protection of investors and the public interest, within the meaning of 
Section 17A(b)(3)(F) of the Act.\11\
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    \9\ 15 U.S.C. 78q-1.
    \10\ 17 CFR 240.17Ad-22.
    \11\ 15 U.S.C. 78q-1(b)(3)(F).
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    The amended third party collateral purchase arrangements will use 
the existing Clearing House procedures for Triparty Collateral, which 
is held with a triparty collateral service provider such as Euroclear 
Bank. As a result, the amendments will not adversely affect the manner 
in which collateral provided by a Clearing Member is currently held, 
prior to default, and accordingly will not adversely affect the 
safeguarding of securities or funds in the custody or control of ICE 
Clear Europe or for which it is responsible, within the meaning of 
Section 17A(b)(3)(F) of the Act.\12\ The arrangement would not apply to 
CDS Clearing Members or FX Clearing Members acting in their capacities 
as such.
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    \12\ 15 U.S.C. 78q-1(b)(3)(F).
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    In terms of default management, ICE Clear Europe believes that the 
proposed amendments would not interfere with its ability to manage a 
Clearing Member default, consistent with the standards in the Act and 
Rule 17Ad-22.\13\ Under its Rules, the Clearing House has broad rights 
to apply and liquidate collateral provided by a Clearing Member 
following its default.\14\ In ICE Clear Europe's view, the arrangements 
provide an additional means by which Triparty Collateral can be 
liquidated following default, through a pre-arranged alternative 
purchase by a TPCP. The amendments expand the potential use of these 
arrangements to a particular type of individually segregated customer 
account. The arrangements may provide certain default management 
benefits for the Clearing House if the collateral purchase option is 
exercised, as the collateral purchase option will provide the Clearing 
House with the cash value of the relevant collateral promptly, without 
the need for the Clearing House to undertake the liquidation of the 
collateral in the market (and incur related expenses). As under the 
current Finance Procedures, the proposed third party collateral 
purchase arrangement would provide only a brief period in which the 
TPCP would have the right to purchase the Triparty Collateral. ICE 
Clear Europe does not believe this delay, even in the event the TPCP 
did not elect to purchase the collateral, would materially impact the 
Clearing House's ability to manage a default or liquidate collateral 
following expiration of the period. By limiting the arrangement to ISOC 
Accounts, in

[[Page 18514]]

which positions and margin of a customer are individually segregated, 
the Clearing House also avoids any concern that the arrangement could 
affect other customers of the F&O Clearing Member. In ICE Clear 
Europe's view, the amendments will thus promote the prompt and accurate 
clearance and settlement of cleared contracts, and the protection of 
market participants and the public interest, within the meaning of 
Section 17A(b)(3)(F) of the Act.\15\ For similar reasons, ICE Clear 
Europe believes that the amendments are also consistent with the 
requirements to establish default procedures that ensure that the 
clearing agency can take timely action to contain losses and liquidity 
pressures and to continue meetings its obligations in the event of a 
clearing member default in Rule 17Ad-22(d)(11) \16\ and (as and when 
compliance therewith is required) Rule 17Ad-22(e)(13).\17\
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    \13\ 17 CFR 240.17Ad-22.
    \14\ See Rules 903-906.
    \15\ 15 U.S.C. 78q-1(b)(3)(F).
    \16\ 17 CFR 240.17Ad-22(d)(11).
    \17\ 17 CFR 240.17Ad-22(e)(13).
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    The approach will also benefit certain F&O Clearing Members (and 
their relevant customers using ISOC Accounts), who have requested such 
arrangements in order to facilitate their own collateral management 
activities, under which they or their affiliates may want to have the 
ability to reacquire the relevant collateral. In this respect, ICE 
Clear Europe believes that the amendments are also consistent with the 
requirements of Rule 17Ad-22(d)(6) \18\ and (as and when compliance 
therewith is required) Rule 17Ad-22(e)(21),\19\ which require that 
clearing agency procedures be cost-effective in meeting the 
requirements of market participants while maintaining safe and secure 
operations.
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    \18\ 17 CFR 240.17Ad-22(d)(6).
    \19\ 17 CFR 240.17Ad-22(e)(21).
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B. Self-Regulatory Organization'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 proposed 
changes will provide additional flexibility by permitting the use, on a 
voluntary basis, of third party collateral purchase arrangements for 
those F&O Clearing Members (and their customers) that are interested in 
such arrangements in respect of an ISOC Account. No Clearing Member 
will be required to use these arrangements, and the changes will thus 
not affect those Clearing Members (or their customers) that do not 
participate in such arrangements. In addition, the amendments will not 
otherwise affect the terms or conditions of any cleared contract or the 
standards or requirements for participation in or use of the Clearing 
House. Accordingly, the changes should not, in the Clearing House's 
view, affect the availability of clearing, access to clearing services 
or the costs of clearing for clearing members or other market 
participants.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    Written comments relating to the proposed changes to the rules have 
not been solicited or received. ICE Clear Europe will notify the 
Commission of any written comments received by ICE Clear Europe.

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

    The foregoing rule change has become effective upon filing pursuant 
to Section 19(b)(3)(A) \20\ of the Act and paragraphs (f)(4)(i) and 
(ii) of Rule 19b-4 \21\ thereunder, because it effects a change in an 
existing service of a registered clearing agency that does not 
adversely affect the safeguarding of securities or funds in the custody 
or control of the clearing agency or for which it is responsible, and 
does not significantly affect the respective rights or obligations of 
the clearing agency or persons using its clearing service, within the 
meaning of Rule 19b-4(f)(4)(i),\22\ and because it effects a change in 
an existing service of a registered clearing agency that primarily 
affects the clearing operations of the clearing agency with respect to 
products that are not securities, including futures that are not 
security futures, swaps that are not security-based swaps or mixed 
swaps, and forwards that are not security forwards, and does not 
significantly affect any securities clearing operations of the clearing 
agency or any rights or obligations of the clearing agency with respect 
to securities clearing or persons using such securities clearing 
service, within the meaning of Rule 19b-4(f)(4)(ii),\23\ as applicable. 
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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    \20\ 15 U.S.C. 78s(b)(3)(A).
    \21\ 17 CFR 240.19b-4(f)(4)(i) and (ii).
    \22\ 17 CFR 240.19b-4(f)(4)(i).
    \23\ 17 CFR 240.19b-4(f)(4)(ii).
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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-2017-004 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-2017-004. 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 Web site (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 Web site 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 Web site at https://www.theice.com/clear-europe/regulation#rule-filings.
    All comments received will be posted without change; the Commission 
does not edit personal identifying information from submissions. You 
should submit only information that you wish to make available 
publicly. All submissions should refer to File Number SR-ICEEU-2017-004 
and should be submitted on or before May 10, 2017.


[[Page 18515]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2017-07870 Filed 4-18-17; 8:45 am]
BILLING CODE 8011-01-P