[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