[Federal Register Volume 82, Number 221 (Friday, November 17, 2017)]
[Notices]
[Pages 54423-54425]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-24935]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82063; File No. SR-ICEEU-2017-011]


Self-Regulatory Organizations; ICE Clear Europe Limited; Notice 
of Filing of Proposed Rule Change, Security Based Swap Submission, or 
Advance Notice Relating to Amendments to the ICE Clear Europe 
Collateral and Haircut Policy

November 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 November 2, 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 primarily prepared by ICE Clear Europe. 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.
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The principal purpose of the changes is to modify the ICE Clear 
Europe

[[Page 54424]]

Collateral and Haircut Policy to incorporate certain changes to the 
calculation of absolute collateral limits for bonds provided as 
Permitted Cover by Clearing Members. The changes also make certain 
clarifications and updates and add certain general provisions 
addressing overall risk appetite and risk limits.

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 proposes revising its Collateral and Haircut 
Policy (the ``Collateral and Haircut Policy'') to incorporate certain 
changes to the calculation of absolute collateral limits for bonds 
provided as Permitted Cover by Clearing Members and certain other 
revisions as described below. The amendments do not involve any changes 
to the ICE Clear Europe Clearing Rules or Procedures.
    The Collateral and Haircut Policy establishes a maximum amount of 
bonds from an individual issuer that ICE Clear Europe will accept from 
a Member Group (an ``Absolute Limit''). The Absolute Limit is designed 
to take into account the trading liquidity of the bond, and accordingly 
the ability of ICE Clear Europe to liquidate the collateral when 
required. Currently, the underlying data used in the calculation of the 
Absolute Limit is based on the bi-annual International Capital Market 
Associate repo survey of market participants (the ``ICMA Data''), as a 
proxy for secondary market trading activity. Under the revised 
Collateral and Haircut Policy, the Absolute Limit will be determined 
using actual secondary market trading volume data provided by ICE Data 
Services (the ``IDS Data''). The IDS Data is compiled from a wide range 
of market data sources for transactions in government and corporate 
bonds. In certain circumstances where official trading volume data is 
published from a primary source, such as a governmental or central 
bank, such data will be used in lieu of the IDS Data. (For example, for 
bonds issued by Canada and Japan, ICE Clear Europe will utilize data 
provided by the Bank of Canada and the Japan Securities Dealers 
Association, respectively, instead of IDS Data.) In either case, the 
Absolute Limit for each bond issuer and collateral type will be 10% of 
the average daily volume over the past three months, rounded to the 
nearest million. ICE Clear Europe believes that the revised approach 
will provide a more direct and accurate estimation of liquidity than 
under the current approach, which will facilitate calculation of 
conservative and appropriate absolute concentration limits.
    The revisions also provide that in order to capture price 
volatility information on a conservative basis, the haircut calculation 
methodology, which incorporates a historical VaR model, among other 
factors, will use a two-sided VaR estimation based on the largest 
absolute returns.
    The Collateral and Haircut Policy has also been amended to more 
clearly take into account the existence of ICE Clear Europe's 
approximately U.S. $1 billion in committed repo facilities. As under 
the existing policy, in certain circumstances the Clearing House may 
permit a Clearing Member to maintain a collateral bond position in 
excess of normal absolute limits, in reliance on the Clearing House's 
ability to obtain cash for any excess securities using the committed 
repo facility. The amendments clarify that the repo facilities are 
available at any time there is an intra-day liquidity need, and are not 
limited to use in case of Clearing Member default.
    The amendments also note certain particular scenarios in which the 
clearing risk department may, consistent with the current policy, 
consider other qualitative and quantitative factors in setting prudent 
haircuts. These include the need to clean the bond price input data to 
remove spurious effects caused by changes in the different underlying 
bonds used to build bond price time-series. In this regard, the time 
series of bond price data in some instances may be spliced together 
from bonds with the same maturities but certain differences in other 
terms. These differences may cause the bonds to trade at different 
price levels, which could introduce spurious price spikes into the time 
series. To avoid an effect on the calculated haircut levels, ICE Clear 
Europe removes such spurious price spikes from the time series. The 
policy also notes that the clearing house may also need to consider the 
impact of unexpected currency de-pegging events on the calculation of 
cross-currency FX haircuts (such as the Swiss franc de-pegging from the 
Euro in January 2015, which caused unexpected sharp movements in the 
underlying exchange rate), as such events may not be fully captured by 
the quantitative approach in the Collateral and Haircut Policy.
    In addition, the Collateral and Haircut Policy has been revised to 
add certain general provisions, consistent with the approach taken in 
other ICE Clear Europe policies, addressing overall risk appetite and 
risk limits in the context of the purposes of the Collateral and 
Haircut Policy. Certain references in the policy to internal ICE Clear 
Europe personnel, departments and committees have been updated. The 
amendments also provide further detail as to the process for annual 
independent validation and governance oversight of relevant models used 
to support the Collateral and Haircut Policy. The policy owner, with 
the support of risk department personnel, will be responsible for the 
continuous review and reporting of the risk profile of the policy. The 
policy will be reviewed at least annually by the CDS and F&O Risk 
Committees and approved by the Board. Any material changes to the 
policy must be discussed with the Executive Risk Committee, reviewed by 
the CDS and F&O Risk Committees and the Board Risk Committee and 
approved by the Board. A ``red-amber-green'' escalation process has 
also been implemented to handle identified risks or situations as they 
arise.
(b) Statutory Basis
    ICE Clear Europe believes that the changes described herein are 
consistent with the requirements of Section 17A of the Act \3\ and the 
regulations thereunder applicable to it, including the standards under 
Rule 17Ad-22,\4\ and in particular 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.\5\ The amendments are intended, among 
other matters, to adopt a more robust and direct method for obtaining 
relevant bond trading volume data that is used

[[Page 54425]]

to determine concentration limits and to clarify certain other matters 
relating to calculation of haircuts and limits. The amendments also 
enhance the governance process around the Collateral and Haircut 
Policy. In ICE Clear Europe's view, the amendments will help ICE Clear 
Europe more clearly determine the liquidity of relevant bonds, which in 
turn will facilitate establishment of accurate concentration limits. As 
a result, ICE Clear Europe believes the amendments are consistent with 
the requirements of Section 17A(b)(3)(F) \6\ of the Act. In addition, 
for the foregoing reasons, the amendments will facilitate setting and 
enforcing appropriately conservative haircuts and concentration limits, 
and provide for a review of the sufficiency of such haircuts and limits 
not less than annually, within the meaning of Rule 17Ad-22(e)(5).\7\
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    \3\ 15 U.S.C. 78q-1.
    \4\ 17 CFR 240.17Ad-22.
    \5\ 15 U.S.C. 78q-1(b)(3)(F).
    \6\ 15 U.S.C. 78q-1(b)(3)(F).
    \7\ 17 CFR 240.17Ad-22(e)(5).
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(B) Clearing Agency's Statement on Burden on Competition

    ICE Clear Europe does not believe the proposed changes to the rules 
would have any impact, or impose any burden, on competition not 
necessary or appropriate in furtherance of the purpose of the Act. ICE 
Clear Europe is adopting the amendments to the Collateral and Haircut 
Policy in order to enhance the calculations of concentration limits and 
haircuts and make certain other governance and related enhancements to 
the Collateral and Haircut Policy. The amendments will apply to all 
Clearing Members and products. ICE Clear Europe does not believe the 
amendments would materially affect the cost of clearing, adversely 
affect access to clearing in these products for Clearing Members or 
their customers, or otherwise adversely affect competition in clearing 
services. Although the amendments may change the haircuts or 
concentration limits for particular bonds, which may affect the costs 
and benefits of using those bonds as collateral, ICE Clear Europe 
believe that such changes are appropriate in light of the risk 
management enhancements provided by the revised policy. As a result, 
ICE Clear Europe believes that any impact or burden on competition from 
such amendments would be appropriate in furtherance of the purpose 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 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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

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-2017-011 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-2017-011. 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 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 the filing also will 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/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-2017-011 and should be 
submitted on or before December 8, 2017.
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    \8\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-24935 Filed 11-16-17; 8:45 am]
 BILLING CODE 8011-01-P