[Federal Register Volume 83, Number 13 (Friday, January 19, 2018)]
[Notices]
[Pages 2847-2850]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-00854]



[[Page 2847]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82497; File No. SR-ICEEU-2017-017]


Self-Regulatory Organizations; ICE Clear Europe Limited; Notice 
of Proposed Rule Change, Security-Based Swap Submission or Advance 
Notice Relating to the ICE Clear Europe Wind Down Framework and Plan 
(the ``Wind-Down Plan'' or the ``Plan''), as Most Recently Amended

January 12, 2018.
    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 December 29, 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 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, Security-Based Swap Submission, or Advance Notice

    Consistent with its obligations under applicable laws and 
regulations,\3\ ICE Clear Europe has adopted its Wind-Down Plan, which 
is intended to address scenarios in which the clearing house determines 
to wind down, in an orderly fashion, its clearing services.
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    \3\ As discussed in further detail herein, ICE Clear Europe is 
required to establish a wind-down plan under relevant provisions of 
the UK Financial Services and Markets Act 2000 (Recognition 
Requirements for Investment Exchanges and Clearing Houses) 
Regulations 2001 (SI/2001/1995) and Commission Rule 17Ad-
22(e)(3)(ii), 17 CFR 240.17Ad-22(e)(3)(ii).
    The Plan is also designed to be consistent with the Committee on 
Payments and Market Infrastructures (``CPMI'')--International 
Organization of Securities Commissions (``IOSCO'') Principles for 
Financial Market Infrastructures (``PFMIs''), including supplemental 
guidance from CPMI-IOSCO which includes its report on ``Recovery of 
financial market infrastructures'' published in October 2014 and 
revised July 2017 (the ``Recovery Guidance'').
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change, Security-Based Swap Submission or 
Advance Notice

    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, Security-Based Swap Submission or 
Advance Notice

(a) Purpose
    Consistent with its obligations under applicable laws and 
regulations, ICE Clear Europe has adopted a Wind-Down Plan. A wind-down 
may result from situations where neither ICEU's Recovery Plan \4\ nor 
application of its loss allocation rules have succeeded in stemming 
default losses or non-default losses incurred by the clearing house, 
and as a result the clearing house cannot remain viable as a going 
concern. The Wind-Down Plan is also intended to address scenarios in 
which the clearing house, for business reasons, decides that it no 
longer wishes to operate as a clearing agency, and therefore may need 
to conduct an orderly wind-down of its business. The Wind-Down Plan is 
based on, and is intended to be consistent with, ICE Clear Europe's 
Clearing Rules (the ``Rules'') \5\ and Procedures, as well as its 
existing risk management frameworks, policies and procedures.
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    \4\ See SR-ICEEU-2017-016, filed December 2017.
    \5\ Capitalized terms used but not defined herein have the 
meanings specified in the Rules.
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Wind-Down Scenarios
    The Plan addresses three particular categories of scenarios in 
which wind-down may occur:
    1. Non-insolvency scenario: In this scenario, the ICE Clear Europe 
Board voluntarily decides to wind down the clearing business (for 
example, if it were to determine that clearing house's business model 
had become unviable) (a ``voluntary unwind'').
    2. Insolvency scenario not linked to a member default: In this 
scenario, the clearing house would be wound down as a result of a 
severe loss unrelated to a clearing member default (a ``non-default 
loss'') that could not be addressed through the Recovery Plan or other 
means that permit continued operation. Such a non-default loss could 
result from fraud or similar circumstances.
    3. Insolvency scenario linked to a member default: In this 
scenario, the clearing house would be wound down as a result of losses 
from the default of one or more clearing members that could not be 
addressed through the Recovery Plan or other means that permit 
continued operation, in accordance with the relevant default rules.
    In relation to each of these scenarios, the Plan provides for 
consideration of (i) winding down the clearing service in an orderly 
manner to close out contracts while minimizing the impact on clearing 
members and markets cleared, (ii) ensuring risk continues to be 
effectively managed during any wind-down period, and (iii) exiting all 
contractual obligations (both within the ICE group and with third 
parties, including exchanges, payment banks, custodians, investment 
counterparties and service providers). It is contemplated that the 
clearing house would take into account input from clearing members and 
exchanges on their preferences in connection with any decision to wind 
down or as to the means of wind down. The Plan also addresses a 
timeline of decision-making processes and notice periods, among other 
matters, proposed treatment of positions of different maturities, and 
the interaction of cleared positions with the unwinding of treasury 
investments and ongoing cash management. The Plan presumes that initial 
and variation margin will continue to be collected and paid (by non-
defaulting clearing member) normally until contracts are terminated.
    The Wind-Down Plan is prepared on the basis that no resolution or 
similar proceeding occurs with respect to the clearing house in any 
jurisdiction.
Wind-Down Options
    The Wind-Down Plan sets out a variety of options for wind-down, 
depending on the scenario involved. In the case of an insolvency of ICE 
Clear Europe as a result of non-default losses, the Plan contemplates 
that all open contracts will be terminated and net sums calculated to 
be payable to or from each clearing member for each account category, 
in accordance with Rules 912-918 (for the F&O product category) or Rule 
209 (for the CDS product category).
    For a voluntary unwind or an unwind following a clearing member 
default, the Wind-Down Plan contemplates that for each product 
category, ICE Clear Europe will either transfer clearing to another 
clearing house or terminate clearing. ICE Clear Europe can take 
different actions with respect to the two product categories, and in 
the event of a transfer F&O clearing need not be transferred to the 
same clearing house as CDS clearing. The ability to transfer clearing 
will depend on whether the relevant market and market participants 
desire, and are able, to continue trading and

[[Page 2848]]

clearing of the relevant product through another clearing house, and on 
whether another clearing house can be found to take the product. 
Following the transfer and/or termination of clearing, ICE Clear Europe 
will wind down the remaining aspects of its business and contractual 
relationships.
    The Plan also addresses the timing of wind-down. Pursuant to the 
Rules, ICE Clear Europe must give advance notice of a proposed 
``Withdrawal Date'' should it cease acting as a clearing house either 
generally or in relation to a particular exchange or class of 
contracts. In those circumstances such notice must be given at least 
four months in advance, unless any action by a regulator, delivery 
facility or market causes cessation to take effect within a shorter 
period. In other wind-down circumstances, one month's notice is 
required.
    Any decision to wind down is expected to be considered over a 
period of months, will involve consultation with members, potential 
alternative clearing houses, exchange and regulators, and will need 
approval by the ICE Clear Europe Board. The Plan contemplates that a 
specific execution plan will be developed for any wind-down, based on 
the relevant situation.
Types of Execution Plans
1. Transfer of F&O Clearing
    Under this approach, an existing alternative clearing house with 
similar platform and capabilities (risk, operations and treasury) to 
that of ICE Clear Europe will agree to have ICE Clear Europe's F&O 
markets clearing transferred to it. The alternative clearing house will 
add any needed additional members and contracts to its platform, and 
having tested these additions, will have open positions and margin 
funds transferred to it on a specified date.
    The Plan takes into account that for ICE Clear Europe F&O contracts 
that are not currently cleared on the recipient clearing house's 
platform, the necessary clearing capability will be built and tested 
prior to transfer. Positions for which transfer cannot be arranged in 
this way could be terminated. The Plan outlines certain conditions that 
will be necessary for any transfer to occur. The Plan also outlines key 
steps would need to be taken, including communication with stakeholders 
(including members, regulators and exchanges), negotiation with the 
alternative clearing house, making strategic determinations as to what 
systems are to be transferred as between the exchange and clearing 
house, notices and required approvals, novation arrangements for 
positions being moved, building and testing of new systems, listing of 
new contracts at the recipient clearing house, transfer of position 
data, novating contracts, and transfer of available margin funds, among 
other steps, as applicable. This process is anticipated to take no more 
than six months based on experience with other clearing transfers.
2. Termination of F&O Clearing
    Under this approach, ICE Clear Europe will terminate the clearing 
of contracts on a specified date, expected to be five months after 
notice is provided. Prior to that date, clearing members may unwind 
their contracts through market transactions, and trading and clearing 
would be expected to continue during the period. ICE Clear Europe will 
monitor positions regularly to ensure credit risk is not increasing. 
Any remaining trades at the five month point will be terminated at the 
end of day price. The Plan outlines certain key steps in the process, 
including with respect to communication with stakeholders and position 
monitoring.
3. Transfer of CDS Clearing
    Under this approach, clearing of CDS contracts would be transferred 
to an alternative clearing house with a similar platform and 
capabilities. As with the transfer of F&O clearing, the alternative 
clearing house will add any needed additional members and contracts to 
its platform, and having tested these additions, will have open 
positions and margin funds transferred to it on a specified date. If 
that is not possible within the desired timeframe, an additional 
option, for CDS contracts that are not subject to a mandatory clearing 
obligation, would be to convert open positions into uncleared 
contracts, and then parties could resubmit those contracts for clearing 
to the new clearing house when ready.
    The Plan outlines certain conditions that will be necessary for any 
transfer to occur. The Plan also outlines key steps would need to be 
taken, including communication with stakeholders (including members, 
regulators and exchanges), negotiation with the alternative clearing 
house(s), notices and required regulatory approvals, development and 
execution of novation arrangements for positions to be transferred, 
building and testing of new systems, migrating open position data, 
novating contracts, and transfer of available margin funds, among other 
steps, as applicable. This process is anticipated to take no more than 
six months based on experience with other clearing transfers. ICE Clear 
Europe would continue to provide clearing and maintain risk, treasury 
and operations teams up to that point.
4. Termination of CDS Clearing
    This option winds down ICE Clear Europe CDS clearing. ICE Clear 
Europe has more limited authority under the Rules to cause a tear-up of 
contracts in the CDS product category, and as a result the Plan 
contemplates that CDS clearing members would need to agree amongst 
themselves in advance as to the manner of and procedures for 
termination. If they cannot agree, the Board may decide to enforce 
termination in accordance with Rule 105.
    Following ICE Clear Europe's determination to terminate CDS 
clearing, it would establish a five month period for CDS clearing 
members to unwind their open positions. This could be done through 
trading by such clearing members in the market that offsets their 
positions, or if this is not possible, by negotiating the conversion of 
open matched positions into uncleared contracts (where mandatory 
clearing does not apply).
    This Plan specifies certain conditions, including obtains the 
necessary agreement of members. The Plan also outlines certain key 
steps, including notification of stakeholders of the decision to 
terminate, communication of matched open positions to members, and 
monitoring the reduction of positions of CDS clearing members during 
the five month termination period.
5. Final Wind Down of ICE Clear Europe
    Once the decision to wind down ICE Clear Europe is made, six 
months' notice will be provided to terminate all service agreements and 
employee contracts. Consideration will be given to incentives to key 
staff to stay on through the wind down process.
    The Plan outlines the termination provisions and notice periods 
that apply under key agreements, including those with other ICE 
entities and with banks and custodians. The Plan also addresses 
liquidity considerations during the wind-down period, such that ICE 
Clear Europe will be able to obtain and maintain sufficient liquidity 
from its investment arrangements to support clearing during the wind-
down period. In this regard, ICE maintains significant liquidity in 
cash and short-term instruments such that it expects to be able to meet 
liquidity needs during the period. ICE Clear Europe also runs liquidity 
stress scenarios that closely match the closing of trading positions in 
a wind down situation.

[[Page 2849]]

Governance
    Once there is a possibility of wind down, or the ICE Clear Europe 
Board has agreed in principle to a wind-down, a Wind Down Planning 
Committee, including senior management, would be established. The 
Committee will have the following membership: Chair--Non-Executive 
Director or Board Chairperson; President; Chief Operating Officer; 
Chief Risk Officer; Chief Compliance Officer; and other advisors as 
appropriate, e.g., legal counsel. The Committee would be tasked with 
exploring with clearing members, exchanges, alternative clearing houses 
and regulators the relevant approaches to wind-down, with a goal of 
minimizing adverse impact on clearing members. The Plan outlines a 
number of considerations for both termination and transfer options that 
the Committee should explore. The Committee would report to the Board. 
This consultation process is designed to reflect the fact that in a 
wind down situation, the Plan would likely be affected by numerous 
additional considerations and could require adjustment and modification 
to match specific circumstances.
    The maintenance of the Plan is the responsibility of ICE Clear 
Europe's Chief Operating Officer and each time the scope of clearing 
services change or a planning assumption changes, the Plan will be 
updated. The Plan is reviewed annually by the Board Audit Committee and 
the full Board.
(b) Statutory Basis
    ICE Clear Europe believes that the proposed amendments are 
consistent with the requirements of Section 17A of the Act \6\ and the 
regulations thereunder applicable to it, including the standards under 
Rule 17Ad-22.\7\
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    \6\ 15 U.S.C. 78q-1.
    \7\ 17 CFR 240.17Ad-22.
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    Section 17A(b)(3)(F) of the Act \8\ 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. In addition, Rule 
17Ad-22(e)(3)(ii) \9\ requires that each covered clearing agency shall 
establish, implement, maintain and enforce written policies and 
procedures reasonably designed to, as applicable, maintain a sound risk 
management framework for comprehensively managing legal, credit, 
liquidity, operational, general business, investment, custody, and 
other risks that arise in or are borne by the covered clearing agency, 
which includes plans for the recovery and orderly wind-down of the 
covered clearing agency necessitated by credit losses, liquidity 
shortfalls, losses from general business risk, or any other losses.
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    \8\ 15 U.S.C. 78q-1(b)(3)(F).
    \9\ 17 CFR 240.17Ad-22(e)(3)(ii).
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    The Wind-Down Plan is designed to meet the requirements of Rule 
17Ad-22(e)(3)(ii), and is further consistent with the requirements of 
the Act. The Wind-Down Plan considers scenarios in which the wind-down 
of the clearing services of ICE Clear Europe may be necessary or 
desirable, both voluntarily and as a result of default or non-default 
losses that cannot be resolved through the Recovery Plan. It sets out 
procedures for transferring or terminating clearing of both the CDS and 
F&O product categories in a wind-down scenario, as well as terminating 
related agreements and arrangements. The Wind-Down Plan also provides 
greater transparency to market participants, including clearing 
members, about the expected sequence and scope of actions that ICE 
Clear Europe may take in a wind-down scenario, and addresses procedures 
for consultations with clearing members and other relevant 
stakeholders. In ICE Clear Europe's view, the Plan thus meets the 
requirements of Rule 17Ad-22(e)(3)(ii). Furthermore, ICE Clear Europe 
views the Plan as a key aspect of its general risk management framework 
for severe loss scenarios, as it provides an orderly procedure for 
termination or transfer of clearing, and thereby promotes the 
protection of investors and the public interest, within the meaning of 
Section 17A(b)(3)(F) of the Act.
    ICE Clear Europe further notes the requirement in Rule 17Ad-
22(e)(15) \10\ to hold sufficient liquid net assets funded by equity to 
cover potential general business losses so that the covered clearing 
agency can continue operations and services as a going concern if those 
losses materialize, including by (i) determining the amount of liquid 
net assets funded by equity based upon its general business risk 
profile and the length of time required to achieve a recovery or 
orderly wind-down, as appropriate, of its critical operations and 
services if such action is taken, and (ii) holding liquid net assets 
funded by equity equal to the greater of either (x) six months of the 
covered clearing agency's current operating expenses, or (y) the amount 
determined by the board of directors to be sufficient to ensure a 
recovery or orderly wind-down of critical operations and services of 
the covered clearing agency, as contemplated by the plans established 
under Rule 17Ad-22(e)(3)(ii) of this section. ICE Clear Europe has 
determined that it believes any wind-down can be completed within six 
months, and that it holds equity capital at least sufficient to cover 
the costs of a wind-down of its clearing services under the Wind-Down 
Plan during that period, consistent with the requirements of Rule 17Ad-
22(e)(15).\11\
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    \10\ 17 CFR 240.17Ad-22(e)(15).
    \11\ 17 CFR 240.17Ad-22(e)(15)(i).
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(B) Clearing Agency's Statement on Burden on Competition

    ICE Clear Europe does not believe the proposed Wind-Down Plan would 
have any impact, or impose any burden, on competition not necessary or 
appropriate in furtherance of the purposes of the Act. The Wind-Down 
Plan does not itself change the rights or obligations of the clearing 
house or clearing members, and is based on the termination provisions 
set forth in the existing Rules. The Wind-Down Plan has been designed 
to meet specific regulatory requirements concerning wind-down planning, 
principally to address the circumstance where default or non-default 
losses are sufficiently severe that they cannot be addressed through 
the Recovery Plan and necessitate termination or transfer of clearing. 
ICE Clear Europe does not believe the amendments will impact 
competition among clearing members or other market participants, or 
affect the ability of market participants to access clearing generally. 
While implementation of the Wind-Down Plan, and in particular use of 
the plan in a severe loss scenario, would likely impose costs on 
clearing members or other market participants, such costs are 
consistent with the existing Rules, and in ICE Clear Europe's view, 
would be appropriate in light of a loss situation requiring wind-down 
of clearing in accordance with applicable regulations.

(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants or Others

    Written comments relating to the proposed amendments have not been 
solicited or received by ICE Clear Europe. ICE Clear Europe will notify 
the Commission of any comments received with respect to the proposed 
rule change.

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III. Date of Effectiveness of the Proposed Rule Change, Security-Based 
Swap Submission and Advance Notice 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.
    The proposal shall not take effect until all regulatory actions 
required with respect to the proposal are completed.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, security-based swap submission or advance notice 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-2017-017 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE, 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-ICEEU-2017-017. 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, security-based 
swap submission or advance notice that are filed with the Commission, 
and all written communications relating to the proposed rule change, 
security-based swap submission or advance notice 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 
Section, 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-2017-017 and should be 
submitted on or before February 9, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-00854 Filed 1-18-18; 8:45 am]
BILLING CODE 8011-01-P