[Federal Register Volume 83, Number 233 (Tuesday, December 4, 2018)]
[Notices]
[Pages 62642-62644]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-26268]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84669; File No. SR-ICEEU-2018-018]


Self-Regulatory Organizations; ICE Clear Europe Limited; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change, 
Relating to Amendments to Futures and Options Risk Procedures (the 
``F&O Risk Procedures'') \1\

November 28, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\2\ and Rule 19b-4 thereunder,\3\ notice is hereby given that 
on November 16, 2018, 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 \4\ and Rule 19b-4(f)(4)(ii) thereunder,\5\ so that the 
proposal was immediately 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\ Capitalized terms used but not defined herein have the 
meanings specified in the ICE Clear Europe Clearing Rules (the 
``Rules'').
    \2\ 15 U.S.C. 78s(b)(1).
    \3\ 17 CFR 240.19b-4.
    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ 17 CFR 240.19b-4(f)(4)(ii).
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    ICE Clear Europe proposes to make certain amendments to the F&O 
Risk Procedures to enhance monitoring and addressing potential 
uncollateralized exposure to Clearing Members during overnight hours.

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.

[[Page 62643]]

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

(a) Purpose
    ICE Clear Europe is amending its F&O Risk Procedures to enhance 
certain procedures for monitoring and addressing potential 
uncollateralized exposure to Clearing Members during overnight hours. 
The amendments supplement certain enhancements to intraday margining 
that the Clearing House has recently implemented.\6\
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    \6\ See Exchange Act Release No. 34-84375 (SR-ICEEU-2018-012), 
83 FR 51715 (Oct. 12, 2018).
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    The proposed amendments apply to F&O Contracts that are margined 
using a one-business day margin period of risk.\7\ The revised 
procedures contemplate that the Clearing House can make margin calls 
outside of the standard margin hours (specifically, before 7:30 and 
after 20:00 London time), but recognize that Clearing Members may have 
reduced operational capabilities to provide additional margin during 
those times. The amended policy sets out procedures under which 
uncollateralized exposures for such contracts will be monitored by the 
Credit Risk Department (``CRD'') overnight. Pursuant to the proposed 
amendments, the CRD monitors margin exposures in near real time and 
senior CRD team members are alerted if Clearing Member exposures breach 
the margin threshold. The senior CRD person will decide whether to 
issue a margin call or require the Clearing Member to take other risk 
reducing actions, taking into account factors such as the particular 
member, its known operational capabilities and those of its APS bank, 
the product, market circumstances and the type and materiality of the 
exposure. If such Clearing Member cannot be contacted, does not reduce 
its positions or does not meet a margin call, the senior CRD person 
will further escalate to ICEU's President (or delegate) and together 
decide on an appropriate response, which may include temporarily 
accepting the risk, suspending the relevant account or holding the 
Clearing Member in default. If ICEU's President or delegate cannot be 
contacted, then the senior CRD person shall make the decision. Relevant 
regulators will be contacted should ICEU decide to hold a Clearing 
Member in default.
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    \7\ Such contracts are generally F&O energy contracts. The 
amendments are intended to be consistent with certain additional 
risk management requirements that apply to such contracts under 
European Market Infrastructure Regulation (EMIR) implementing 
regulations, specifically Article 26(1)(c) of Commission Delegated 
Regulation (EU) No. 153/2013 of 19 December 2012 supplementing 
Regulation (EU) No. 648/2012 of the European Parliament and of the 
Council with regard to regulatory technical standards on 
requirements for central counterparties, as amended by Commission 
Delegated Regulation (EU) 2016/822 of 21 April 2016 as regards the 
time horizons for the liquidation period to be considered for the 
different classes of financial instruments.
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    The amendments also clarify the applicability of a specified 
overnight buffer to contracts using a one-day margin period of risk, 
and removes a reference to the buffer amount being locked at end of day 
(in light of the overnight monitoring procedures discussed above). 
Certain other typographical corrections and similar clarifications are 
also made.
(b) Statutory Basis
    ICE Clear Europe believes that the proposed amendments are 
consistent with the requirements of Section 17A of the Act \8\ and the 
regulations thereunder applicable to it, including the standards under 
Rule 17Ad-22.\9\ Section 17A(b)(3)(F) of the Act \10\ 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, to assure 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. As discussed above, the proposed amendments to the F&O Risk 
Procedures are intended to enhance ICE Clear Europe's ability to 
monitor and limit its exposure to Clearing Members during overnight 
trading hours. This will facilitate the Clearing House's ability to 
manage risk generally, and therefore promote the prompt and accurate 
clearance and settlement of transactions, and further the public 
interest in the sound operation of clearing agencies. (The amendments 
should not affect the safeguarding of securities or funds in the 
custody or control of the Clearing House or for which it is 
responsible.) As a result, in ICE Clear Europe's view, the amendments 
are consistent with the requirements of Section 17A(b)(3)(F) of the 
Act.
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    \8\ 15 U.S.C. 78q-1.
    \9\ 17 CFR 240.17Ad-22.
    \10\ 15 U.S.C. 78q-1(b)(3)(F).
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    The amendments are also consistent with relevant requirements of 
Rule 17Ad-22 regarding margin and credit risk management.\11\ Rule 
17Ad-22(b)(1) and (2) \12\ in particular require that ICE Clear Europe 
measure its credit exposure at least once per day and use margin 
requirements to limit its exposures to participants under normal market 
conditions. Consistent with these requirements, the proposed amendments 
facilitate additional measurement of credit exposures during overnight 
trading hours and to collect margin or take other action if appropriate 
to reduce its credit risk to Clearing Members. The proposed amendments 
are also consistent with Rule 17Ad-22(e)(4)(i),\13\ as the additional 
ability to conduct overnight margining will help the Clearing House 
maintain sufficient financial resources to cover its credit exposures 
to Clearing Members. Rule 17Ad-22(e)(6)(ii) \14\ requires that clearing 
agencies have sufficient operational capacity to make intraday margin 
calls in defined circumstances and extending ICE Clear Europe's ability 
to make such margin calls or to take other action, as appropriate in 
the circumstances, into the overnight period facilitates compliance 
with this requirement.
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    \11\ 17 CFR 240.17Ad-22.
    \12\ 17 CFR 240.17Ad-22(b)(1) and (2). The rule states that: [a] 
registered clearing agency that performs central counterparty 
services shall establish, implement, maintain and enforce written 
policies and procedures reasonably designed to:
    (1) Measure its credit exposures to its participants at least 
once a day and limit its exposures to potential losses from defaults 
by its participants under normal market conditions so that the 
operations of the clearing agency would not be disrupted and non-
defaulting participants would not be exposed to losses that they 
cannot anticipate or control.
    (2) Use margin requirements to limit its credit exposures to 
participants under normal market conditions and use risk-based 
models and parameters to set margin requirements and review such 
margin requirements and the related risk-based models and parameters 
at least monthly.''
    \13\ 17 CFR 240.17Ad-22(e)(4)(i). The rule states that: ``[e]ach 
covered clearing agency shall establish, implement, maintain and 
enforce written policies and procedures reasonably designed to, as 
applicable: (4) Effectively identify, measure, monitor, and manage 
its credit exposures to participants and those arising from its 
payment, clearing, and settlement processes, including by: (i) 
Maintaining sufficient financial resources to cover its credit 
exposure to each participant fully with a high degree of 
confidence;''
    \14\ 17 CFR 240.17Ad-22(e)(6) which states that ``[e]ach covered 
clearing agency shall establish, implement, maintain and enforce 
written policies and procedures reasonably designed to, as 
applicable: (6) Cover, if the covered clearing agency provides 
central counterparty services, its credit exposures to its 
participants by establishing a risk-based margin system that, at a 
minimum:
    (ii) Marks participant positions to market and collects margin, 
including variation margin or equivalent charges if relevant, at 
least daily and includes the authority and operational capacity to 
make intraday margin calls in defined circumstances;''

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[[Page 62644]]

(B) Clearing Agency's Statement on Burden on Competition

    ICE Clear Europe does not believe the proposed rule changes would 
have any impact, or impose any burden, on competition not necessary or 
appropriate in furtherance of the purposes of the Act. The changes are 
being proposed in order to enhance ICE Clear Europe's ability to limit 
its credit exposure during overnight trading hours. The amendments will 
apply to all F&O Clearing Members that trade contracts in the relevant 
category. ICE Clear Europe does not believe the amendments will 
generally affect the overall cost of clearing for F&O Clearing Members 
or other market participants or otherwise affect access to clearing 
generally. The amendments may require F&O Clearing Members to post 
margin, or take other action, outside of the standard margin call 
window, but such changes are designed to better manage Clearing House 
risk and are tailored to the risks presented by such F&O Clearing 
Members and the positions they carry. As a result, any additional 
burdens placed on F&O Clearing Members will be appropriate in 
furtherance of enhancing risk management, and are not intended to 
disadvantage any particular Clearing Member. As a result, ICE Clear 
Europe believes that any impact on competition is appropriate in 
furtherance of the purposes 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 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.

III. Date of Effectiveness of the Proposed Rule Change

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act and paragraph (f) of Rule 19b-4 thereunder. 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.

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-2018-018 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-2018-018. 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 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 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 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/clear-europe/regulation#rule-filing.
    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-2018-018 and should be 
submitted on or before December 26, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Eduardo Aleman,
Assistant Secretary.
[FR Doc. 2018-26268 Filed 12-3-18; 8:45 am]
 BILLING CODE 8011-01-P