[Federal Register Volume 84, Number 137 (Wednesday, July 17, 2019)]
[Notices]
[Pages 34241-34243]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-15137]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86359; File No. SR-ICEEU-2019-010]


Self-Regulatory Organizations; ICE Clear Europe Limited; Order 
Approving Proposed Rule Change to Clearing Membership Policy

July 11, 2019.

I. Introduction

    On May 13, 2019, ICE Clear Europe Limited (``ICE Clear Europe'' or 
``Clearing House'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend its Clearing Membership Policy. The 
proposed rule change was published for comment in the Federal Register 
on May 28, 2019.\3\ The Commission did not receive comments on the 
proposed rule change. For the reasons discussed below, the Commission 
is approving the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 85908 (May 21, 2019), 84 
FR 24573 (May 28, 2019) (SR-ICEEU-2019-010) (``Notice'').
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II. Description of the Proposed Rule Change

    ICE Clear Europe's proposed rule change would make three amendments 
to its Clearing Membership Policy.\4\
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    \4\ Notice, 84 FR at 24574. Capitalized terms not otherwise 
defined herein have the meanings given to them in the ICE Clear 
Europe Rules or the Clearing Membership Policy.
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    First, the proposed rule change would specify that applications for 
membership are formally considered and, as appropriate, approved and 
rejected by, the Executive Risk Committee, through a delegation of 
authority from the ICE Clear Europe Board of Directors, rather than the 
F&O and CDS Product Risk Committees (collectively, the ``Product Risk 
Committees''). The proposed rule change would also specify that the 
Product Risk Committees would be notified of approved applications. The 
Executive Risk Committee is made up of ICE Clear Europe management and 
advises management on all key aspects of risk management and produces 
proposals for review by the Board Risk Committee, Product Risk 
Committees, and ICE Clear Europe Board, as appropriate.\5\ The Product 
Risk Committees are made up of appointees nominated by ICE Clear 
Europe's Clearing Members.\6\
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    \5\ See ICE Clear Europe Disclosure Framework, available at 
https://www.theice.com/publicdocs/clear_europe/ICE_Clear_Europe_Disclosure_Framework.pdf (``The role of the ERC is 
to advise the management team on all key aspects of risk management 
and produce proposals for review by the Board Risk Committee, the 
Product Risk Committees, the Client Risk Committee, the Audit 
Committee and the Board as appropriate.'').
    \6\ See ICE Clear Europe Disclosure Framework, available at 
https://www.theice.com/publicdocs/clear_europe/ICE_Clear_Europe_Disclosure_Framework.pdf (``The CDS PRC is 
comprised of appointees nominated by CDS Clearing Members, 
Independent Non-Executives and representatives of ICEU.'').
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    Second, the proposed rule change would add a requirement that a 
person applying to become a CDS Clearing Member (an ``Applicant'') 
prove its ability to determine and submit end-of-day prices for CDS 
instruments to fulfill the pricing capabilities requirements set out in 
ICE Clear Europe's CDS End-Of-Day Price Discovery Policy. The proposed 
rule change would further specify how ICE Clear Europe's Clearing Risk 
Department would review and determine Applicants' pricing capabilities. 
Thus, the proposed rule change would provide the Executive Risk 
Committee, as the delegated committee responsible for approving or 
rejecting an Applicant, with authority to reject an Applicant that 
cannot demonstrate such pricing capabilities.
    Finally, the proposed rule change would add an explicit requirement 
that, in evaluating applications for membership, the Clearing Risk 
Department consider the performance of Applicants in a Default 
Management Test and review Applicants' internal policies and procedures 
to assess the efficacy of their default management process. Thus, the 
proposed rule change would provide the Executive Risk Committee, as the 
delegated committee responsible for approving or rejecting an 
Applicant, with authority to reject an Applicant that cannot 
demonstrate the efficacy of its default management process.

III. Commission Findings

    Section 19(b)(2)(C) of the Act directs the Commission to approve a 
proposed rule change of a self-regulatory organization if it finds that 
the proposed rule change is consistent with the requirements of the Act 
and the rules

[[Page 34242]]

and regulations thereunder applicable to the organization presenting 
it.\7\ For the reasons given below, the Commission finds that the 
proposed rule change is consistent with Section 17A(b)(3)(F) of the Act 
\8\ and Rules 17Ad-22(e)(2) and (e)(18) thereunder.\9\
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    \7\ 15 U.S.C. 78s(b)(2)(C).
    \8\ 15 U.S.C. 78q-1(b)(3)(F).
    \9\ 17 CFR 240.17Ad-22(e)(2) and (e)(18).
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A. Consistency With Section 17A(b)(3)(F) of the Act

    Section 17A(b)(3)(F) of the Act requires, among other things, that 
the rules of ICE Clear Europe 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 which 
are in the custody or control of ICE Clear Europe or for which it is 
responsible, and, in general, to protect investors and the public 
interest.\10\
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    \10\ 15 U.S.C. 78q-1(b)(3)(F).
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    As discussed above, the proposed rule change would specify that 
applications for membership are formally considered, and approved and 
rejected by, the Executive Risk Committee, rather than the Product Risk 
Committees. The proposed change would also specify the procedure by 
which ICE Clear Europe would test and screen Applicants for their 
ability to satisfy end-of-day pricing and default management 
requirements. The Commission believes that ICE Clear Europe's end-of-
day pricing and robust and effective default management protocols both 
are critical to its ability to contribute to the prompt and accurate 
clearance and settlement of securities transactions and the 
safeguarding of securities and funds. For example, ICE Clear Europe 
relies on accurate end-of-day prices to generate margin requirements, 
which it uses to manage the risks associated with clearing security-
based swap portfolios. Similarly, ICE Clear Europe relies on its 
default management tools to help manage and reduce the risks associated 
with a defaulting Clearing Member's portfolio. Such risks, if not 
properly managed, could cause ICC to realize losses on such portfolios 
and could disrupt ICE Clear Europe's ability to promptly and accurately 
clear security based swaps transactions and safeguard securities and 
funds which are in the custody or control of ICE Clear Europe or for 
which it is responsible. For these reasons, the Commission believes 
that the proposed rule change, in establishing a procedure by which ICE 
Clear Europe would test and screen Applicants for their ability to 
satisfy end-of-day pricing and default management requirements, and 
providing the Executive Risk Committee authority to reject Applicants 
that do not meet such requirements, would promote the prompt and 
accurate clearance and settlement of securities transactions and help 
assure the safeguarding of securities and funds which are in the 
custody or control of the ICE Clear Europe or for which it is 
responsible. For the same reasons, the Commission also believes the 
proposed rule change would, in general, protect investors and the 
public interest.
    Section 17A(b)(3)(F) of the Act further requires that the rules of 
ICE Clear Europe are not designed to permit unfair discrimination in 
the admission of participants or among participants in the use of the 
clearing agency.\11\ The Commission believes that the proposed changes 
discussed above would establish procedures by which ICE Clear Europe 
would test and screen Applicants for their ability to satisfy end-of-
day pricing and default management requirements on an objective basis, 
without discriminating in the admission of Applicants.
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    \11\ 15 U.S.C. 78q-1(b)(3)(F).
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    Therefore, the Commission finds that the proposed rule change would 
promote the prompt and accurate clearance and settlement of securities 
transactions, assure the safeguarding of securities and funds in ICE 
Clear Europe's custody and control, in general, protect investors and 
the public interest, and not be designed to permit unfair 
discrimination in the admission of participants or among participants 
in the use of the clearing agency, consistent with the Section 
17A(b)(3)(F) of the Act.\12\
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    \12\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rule 17Ad-22(e)(2)

    Rule 17Ad-22(e)(2) requires, among other things, that ICE Clear 
Europe establish, implement, maintain, and enforce written policies and 
procedures reasonably designed to provide for governance arrangements 
that are clear and transparent and that specify clear and direct lines 
of responsibility.\13\
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    \13\ 17 CFR 240.17Ad-22(e)(2).
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    The proposed rule change would specify that applications for 
membership are formally considered, and approved and rejected by, the 
Executive Risk Committee, rather than the Product Risk Committees and 
that the Product Risk Committees are notified of approved applications. 
The Commission believes that the proposed rule change would help to 
ensure that the governance regarding approval of Applicants is clear 
and transparent, and establishes a clear and direct line of 
responsibility, by clearly specifying that the Executive Risk Committee 
would approve or disapprove applications. Moreover, in establishing 
that the Executive Risk Committee, through a delegation of authority 
from the ICE Clear Europe Board of Directors, is responsible for 
approving or rejecting Applicants, rather than the Product Risk 
Committees, the Commission believes the proposed rule change would 
consolidate, within ICE Clear Europe management, decisions regarding 
admission of applicants for membership at ICE Clear Europe. The 
Commission believes this would therefore clearly specify the 
responsibility of ICE Clear Europe management in approving or rejecting 
Applicants. Therefore, the Commission finds that the proposed rule 
change is consistent with Rule 17Ad-22(e)(2).\14\
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    \14\ 17 CFR 240.17Ad-22(e)(2).
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C. Consistency With Rule 17Ad-22(e)(18)

    Rule 17Ad-22(e)(18) requires, among other things, that ICE Clear 
Europe establish, implement, maintain, and enforce written policies and 
procedures reasonably designed to establish objective, risk-based, and 
publicly disclosed criteria for participation which permit fair and 
open access by direct and, where relevant, indirect participants and 
other financial market utilities.\15\
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    \15\ 17 CFR 240.17Ad-22(e)(18).
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    As discussed above, the proposed rule change would specify the 
procedure by which ICE Clear Europe would test and screen Applicants 
for their ability to satisfy end-of-day pricing and default management 
requirements. The proposed rule change also would specifically require 
that Applicants prove the ability to fulfill the pricing capabilities 
requirements set out in ICE Clear Europe's CDS End-Of-Day Price 
Discovery Policy and perform acceptably in a Default Management Test. 
The Commission believes that, in doing so, the proposed rule change 
would establish objective and disclosed procedures for approving 
Applicants based on the risk of Applicants not being able to comply 
with ICE Clear Europe's end-of-day pricing and default management 
requirements. Moreover, the Commission believes that these procedures 
represent objective criteria which any Applicant could potentially 
satisfy, thereby permitting fair and open access to membership at ICE 
Clear

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Europe. Therefore, the Commission finds that the proposed rule change 
is consistent with Rule 17Ad-22(e)(18).\16\
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    \16\ 17 CFR 240.17Ad-22(e)(18).
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IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act, 
and in particular, with the requirements of Section 17A(b)(3)(F) of the 
Act \17\ and Rules 17Ad-22(e)(2) and (e)(18) thereunder.\18\
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    \17\ 15 U.S.C. 78q-1(b)(3)(F).
    \18\ 17 CFR 240.17Ad-22(e)(2) and (e)(18).
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    It is therefore ordered pursuant to Section 19(b)(2) of the Act 
\19\ that the proposed rule change (SR-ICEEU-2019-010) be, and hereby 
is, approved.\20\
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    \19\ 15 U.S.C. 78s(b)(2).
    \20\ In approving the proposed rule change, the Commission 
considered the proposal's impact on efficiency, competition, and 
capital formation. 15 U.S.C. 78c(f).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-15137 Filed 7-16-19; 8:45 am]
BILLING CODE 8011-01-P