[Federal Register Volume 83, Number 77 (Friday, April 20, 2018)]
[Notices]
[Pages 17575-17577]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-08338]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83055; File Nos. SR-ICEEU-2017-016 and SR-ICEEU-2017-
017]


Self-Regulatory Organizations; ICE Clear Europe Limited; Order 
Instituting Proceedings To Determine Whether To Approve or Disapprove 
Proposed Rule Changes Related to ICEEU's Recovery and Wind-Down Plans

April 17, 2018.

I. Introduction

    On December 29, 2017, 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 (``Exchange Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change (ICEEU-2017-016) concerning the 
ICE Clear Europe Recovery Plan (``Recovery Plan''). The proposed rule 
change was published for comment in the Federal Register on January 19, 
2018.\3\ On December 29, 2017, ICE Clear Europe filed with the 
Commission a proposed rule change (ICEEU-2017-017) concerning the ICE 
Clear Europe Wind-Down Plan (``Wind-Down Plan''). The proposed rule 
change was published for comment in the Federal Register on January 19, 
2018.\4\ On February 27, 2018, the Commission designated a longer 
period for Commission action on both proposed rule changes.\5\ To date, 
the Commission has not received any comments on the proposed rule 
changes. The Commission is publishing this order to institute 
proceedings pursuant to Section 19(b)(2)(B) \6\ of the Exchange Act to 
determine whether to approve or disapprove the proposed rule changes.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Exchange Act Release No. 82496 (Jan. 12, 2018), 83 FR 2855 
(Jan. 19, 2018) (SR-ICEEU-2017-016) (``Recovery Plan Notice'').
    \4\ Exchange Act Release No. 82497 (Jan. 12, 2018), 83 FR 2847 
(Jan. 19, 2018) (SR-ICEEU-2017-017) (``Wind-Down Plan Notice'').
    \5\ Exchange Act Release No. 82786 (Feb. 27, 2018), 83 FR 9345 
(Mar. 5, 2018); Exchange Act Release No. 82782 (Feb. 27, 2018), 83 
FR 9351 (Mar. 5, 2018).
    \6\ 15 U.S.C. 78s(b)(2)(B).
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    Institution of proceedings does not indicate that the Commission 
has reached any conclusions with respect to the proposed rule changes, 
nor does it mean that the Commission will ultimately disapprove the 
proposed rule changes. Rather, as discussed below, the Commission seeks 
additional input on the proposed rule changes and issues presented by 
the proposed rule changes.

II. Description of the Proposed Rule Changes

    As a ``covered clearing agency,'' \7\ ICE Clear Europe is required 
to, among other things, ``establish, implement, maintain and enforce 
written policies and procedures reasonably designed to . . . 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.'' \8\ The Commission has previously clarified that it believes 
that such recovery and wind-down plans are ``rules'' within the meaning 
of Section 19(b) of the Exchange Act and Rule 19b-4 thereunder because 
such plans would constitute changes to a stated policy, practice, or 
interpretation of a covered clearing agency.\9\ Accordingly, a covered 
clearing agency, such as ICE Clear Europe, must file its recovery and 
wind-down plans with the Commission.
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    \7\ The term ``covered clearing agency'' is defined in Rule 
17Ad-22(a)(5) under the Exchange Act. 17 CFR 240.17Ad-22(a)(5).
    \8\ 17 CFR 240.17Ad-22(e)(3)(ii).
    \9\ Standards for Covered Clearing Agencies, Exchange Act 
Release No. 78961 (Sep. 28, 2016), 81 FR 70786, 70809 (Oct. 13, 
2016).
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A. The Recovery Plan (ICEEU-2017-016)

    According to ICE Clear Europe, the Recovery Plan is based on, and 
intended to be consistent with, ICE Clear Europe's Rules and 
Procedures, as well as its existing risk management frameworks, 
policies, and procedures.\10\ The Recovery Plan, as further described 
in the Recovery Plan Notice, (1) identifies the critical services that 
ICE Clear Europe provides and the business functions that support those 
services; \11\ (2) outlines a number of stress scenarios that may 
result in significant losses, a liquidity shortfall, suspension or 
failure of its critical services and related functions and systems, and 
damage to other market infrastructures, including both default and non-
default loss scenarios and evaluating different impact categories and 
severity levels of these stress scenarios; \12\ and (3) describes the 
recovery tools, mechanisms, and options that ICE Clear Europe may use 
to address a stress scenario and continue to provide its

[[Page 17576]]

critical services, as well as the actions that would be necessary to 
implement those recovery tools, mechanisms, and options, including 
appropriate escalation and early warning procedures and communications 
with regulators and other relevant stakeholders.\13\ It also considers 
the implications of certain situations that may be beyond its control, 
such as interdependencies with other institutions.\14\
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    \10\ Recovery Plan Notice, 83 FR at 2855.
    \11\ Id. at 2855-56.
    \12\ Id. at 2856.
    \13\ Id. at 2856-57.
    \14\ Id. at 2857.
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    The Recovery Plan also addresses the roles and responsibility of 
ICE Clear Europe Board of Directors, management, and other personnel, 
including with respect to development, review and approval, testing and 
maintenance, and liaison with relevant regulatory authorities.\15\ The 
Recovery Plan includes a description of ICE Clear Europe, its 
organizational structure, its applicable regulatory regime, and the 
standards and guidelines that have informed the Recovery Plan.\16\
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    \15\ Id.
    \16\ Id.
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B. The Wind-Down Plan (ICEEU-2017-017)

    ICE Clear Europe stated that a wind-down may result from situations 
where neither the Recovery Plan nor application of its loss allocation 
rules have succeeded in stopping default losses or non-default losses 
incurred and, as a result, ICE Clear Europe cannot remain viable as a 
going concern.\17\ As described further in the Wind-Down Plan Notice, 
the Wind-Down Plan addresses three particular categories of scenarios 
in which wind-down may occur: (1) A non-insolvency scenario where the 
ICE Clear Europe Board of Directors voluntarily decides to wind down 
the clearing business, (2) an insolvency scenario not linked to 
clearing member default, and (3) an insolvency scenario linked to a 
member default.\18\ The Wind-Down Plan sets out a variety of options 
for wind-down, depending on the scenario involved.\19\ In the case of 
an insolvency as a result of non-default losses, the Wind-Down Plan 
contemplates that all open contracts would be terminated and net sums 
calculated to be payable to or from each clearing member for each 
account category, in accordance with the applicable rules.\20\ For a 
voluntary wind-down or a wind-down following a clearing member default, 
the Wind-Down Plan contemplates that for each product category, ICE 
Clear Europe would either transfer clearing to another clearing house 
or terminate clearing.\21\
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    \17\ Wind-Down Plan Notice, 83 FR at 2847.
    \18\ Id.
    \19\ Id.
    \20\ Id.
    \21\ Id. at 2847-48.
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    As stated by ICE Clear Europe, any decision to wind down is 
expected to be considered over a period of months, involve consultation 
with members, potential alternative clearing houses, exchange, and 
regulators, and would need approval by the ICE Clear Europe Board of 
Directors.\22\ The Wind-Down Plan contemplates that a specific 
execution plan will be developed for any wind-down, based on the 
relevant situation.\23\ The Wind-Down Plan also addresses procedural 
issues related to a wind-down, such as providing appropriate notice to 
terminate all service agreements and employee contracts, and liquidity 
considerations during a wind-down.\24\ It also contemplates the 
establishment of a Wind-Down Planning Committee, which 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, and the committee 
would report to the ICE Clear Europe Board of Directors.\25\
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    \22\ Id. at 2848.
    \23\ Id.
    \24\ Id.
    \25\ Id. at 2849.
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III. Proceedings To Determine Whether To Approve or Disapprove the 
Proposed Rule Changes and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Exchange Act to determine whether the proposed rule 
changes should be approved or disapproved.\26\ Institution of 
proceedings is appropriate at this time in view of the legal and policy 
issues raised by the proposed rule changes. As noted above, institution 
of proceedings does not indicate that the Commission has reached any 
conclusions with respect to any of the issues involved. Rather, the 
Commission seeks and encourages interested persons to comment on the 
proposed rule changes and provide arguments to support the Commission's 
analysis as to whether to approve or disapprove the proposals.
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    \26\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Exchange Act,\27\ the 
Commission is providing notice of the grounds for disapproval under 
consideration. The Commission is instituting proceedings to allow for 
additional analysis of, and input from, commenters with respect to the 
proposed rule changes' consistency with the Exchange Act \28\ and the 
rules thereunder, including the following provisions:
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    \27\ 15 U.S.C. 78s(b)(2)(B).
    \28\ 15 U.S.C. 78q-1.
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     Section 17A(b)(3)(F) of the Exchange Act, which requires 
that the rules of a clearing agency be designed to, among other things, 
promote the prompt and accurate clearance and settlement of securities 
transactions, assure the safeguarding of securities and funds which are 
in the custody or control of the clearing agency for which it is 
responsible, and, in general, to protect investors and the public 
interest; \29\
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    \29\ 15 U.S.C. 78q-1(b)(3)(F).
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     Rule 17Ad-22(e)(2) under the Exchange Act, which requires 
that a covered clearing agency establish, implement, maintain, and 
enforce written policies and procedures reasonably designed to provide 
for governance arrangements that are clear and transparent and support 
the public interest requirements in Section 17A of the Exchange Act 
applicable to clearing agencies, and the objectives of owners and 
participants; \30\
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    \30\ 17 CFR 240.17Ad-22(e)(2).
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     Rule 17Ad-22(e)(3)(ii) under the Exchange Act, which 
requires that covered clearing agencies, among other things, 
``establish, implement, maintain and enforce written policies and 
procedures reasonably designed to . . . 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;'' 
and
     Rules 17Ad-22(e)(15)(i)-(ii) under the Exchange Act,\31\ 
which require a covered clearing agency to establish, implement, 
maintain and enforce written policies and procedures reasonably 
designed to determine 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 to 
establish, implement, maintain and enforce written policies and 
procedures reasonably designed to provide for holding liquid net assets 
funded by equity equal to the greater of either six

[[Page 17577]]

months of its current operating expenses or 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).\32\
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    \31\ 17 CFR 240.17Ad-22(e)(15)(i)-(ii).
    \32\ 17 CFR 240.17Ad-22(e)(3)(ii).
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IV. Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
issues raised by the proposed rule changes. In particular, the 
Commission invites the written views of interested persons concerning 
whether the proposed rule changes are inconsistent with Section 
17A(b)(3)(F) of the Exchange Act \33\ and Rules 17Ad-22(e)(2),\34\ 
17Ad-22(e)(3)(ii),\35\ and 17Ad-22(e)(15)(i)-(ii) \36\ under the 
Exchange Act, or any other provision of the Exchange Act or rules and 
regulations thereunder.
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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)(3)(ii).
    \36\ 17 CFR 240.17Ad-22(e)(15)(i)-(ii).
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    Although there do not appear to be any issues relevant to approval 
or disapproval that would be facilitated by an oral presentation of 
views, data, and arguments, the Commission will consider, pursuant to 
Rule 19b-4, any request for an opportunity to make an oral 
presentation.\37\
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    \37\ Section 19(b)(2) of the Exchange Act, as amended by the 
Securities Acts Amendments of 1975, Public Law 94-29, 89 Stat. 97 
(1975), grants the Commission flexibility to determine what type of 
proceeding--either oral or notice and opportunity for written 
comments--is appropriate for consideration of a particular proposal 
by a self-regulatory organization. See Securities Acts Amendments of 
1975, Report of the Senate Committee on Banking, Housing and Urban 
Affairs to Accompany S. 249, S. Rep. No. 75, 94th Cong., 1st Sess. 
30 (1975).
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    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposed rule changes should be 
approved or disapproved on or before May 11, 2018. Any person who 
wishes to file a rebuttal to any other person's submission must file 
that rebuttal on or before May 25, 2018. 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-2017-016 and SR-ICEEU-2017-017 on the subject 
line.

Paper Comments

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

All submissions should refer to SR-ICEEU-2017-016 and SR-ICEEU-2017-
017. These file numbers 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 submissions, all subsequent amendments, 
all written statements with respect to the proposed rule changes that 
are filed with the Commission, and all written communications relating 
to the proposed rule changes 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 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 filings also will 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/clear-europe.
    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-2017-016 and 
SR-ICEEU-2017-017 and should be submitted on or before May 11, 2018. If 
comments are received, any rebuttal comments should be submitted on or 
before May 25, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\38\
Eduardo A. Aleman,
Assistant Secretary.
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    \38\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2018-08338 Filed 4-19-18; 8:45 am]
BILLING CODE 8011-01-P