[Federal Register Volume 85, Number 45 (Friday, March 6, 2020)]
[Notices]
[Pages 13200-13221]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-04574]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88308; File No. SR-ICEEU-2020-003]


Self-Regulatory Organizations; ICE Clear Europe Limited; Notice 
of Filing of Proposed Rule Change, Security-Based Swap Submission or 
Advance Notice Relating to the ICE Clear Europe Rules and Procedures

March 2, 2020.
    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 February 18, 2020, ICE Clear Europe Limited (``ICE Clear Europe'' or 
the ``Clearing House'') 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

    ICE Clear Europe Limited proposes to revise its Clearing Rules (the 
``Rules''),\3\ the Standard Terms contained in the annexes to the 
Rules, the Clearing Procedures, Finance Procedures, Delivery 
Procedures, CDS Procedures, FX Procedures, Complaint Resolution 
Procedures, Business Continuity Procedures, Membership Procedures, and 
General Contract Terms (collectively, the ``Amended Documents'') to 
make various updates and enhancements.
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    \3\ Capitalized terms used but not defined herein have the 
meanings specified in the Rules.
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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
    ICE Clear Europe is submitting proposed amendments to the Amended 
Documents that are intended to make a variety of improvements and 
changes, including (1) to enhance the customer documentation framework 
for Non-FCM/BD Clearing Members to facilitate default management by the 
Clearing House, (2) to adopt an ``externalised payments mechanism'' to 
facilitate making certain payments to and from Clearing Members outside 
of the standard net settlement process, (3) to make certain amendments 
to the variation and mark-to-market margin settlement process (and 
related calculations) in order to facilitate treatment of such margin 
as a settlement payment rather than collateral for purposes of Clearing 
Member capital calculations, (4) to revise certain provisions relating 
to option settlement to enhance clarity and reflect operational 
procedures, (5) to revise certain disciplinary and complaints 
procedures, (6) to add certain provisions relating to compliance with 
applicable U.S. tax requirements, (7) to make certain other default 
management enhancement and clarifications, (8) to update and clarify 
various aspects of the Delivery Procedures and (9) to make certain 
other drafting improvements and clarifications, in each case as 
described in further detail herein.
    Specifically, ICE Clear Europe proposes to make amendments to Parts 
1, 2, 3, 4, 5, 7, 8, 9, 10 and 12 of the Rules, the Customer-Clearing 
Member Standard Terms contained in the annexes to the Rules, and the 
Clearing Procedures, Finance Procedures, Delivery Procedures, CDS 
Procedures, Complaint Resolution Procedures, Business Continuity 
Procedures, Membership Procedures and General Contract Terms. The text 
of the proposed Rule and Procedure amendments is attached [sic] in 
Exhibits 5A-5J, with additions underlined and deletions in 
strikethrough text. The proposed Rule and Procedure amendments are 
described in detail as follows.
(i) Customer Documentation Framework
    Changes have been proposed to strengthen the legal foundations for 
the Standard Terms, which form part of the ICE Clear Europe customer 
documentation framework for Non-FCM/BD Clearing Members.\4\ The 
existing Standard Terms promote post-default porting in the case of a 
Non-FCM/BD Clearing Member default through contractual provisions that 
bind Customers and Clearing Members. These provisions are designed to 
limit interference with the porting process and give additional comfort 
that margin is transferred by Customers to Clearing Members on terms 
that allow usage and porting of margin and positions. Purported close-
out actions by the Customer against a defaulting Clearing Member prior 
to porting are also restricted, so that all terminations and re-
establishments of cleared contracts occur at the same time and at the 
same

[[Page 13201]]

price, reducing the possibility of valuation disputes or other claims 
that might prevent or reduce the likelihood of porting.
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    \4\ The Standard Terms do not apply to FCM/BD Clearing Members 
and their customers.
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    In order to enhance the Standard Terms framework, and in particular 
ICE Clear Europe's ability to rely on the Standard Terms so as to carry 
out default management and use margin without interference from claims 
by Customers of defaulting Clearing Members, ICE Clear Europe is 
proposing to make the following amendments:
    Under existing Rule 202(b), Non-FCM/BD Clearing Members are 
required to ensure that the Standard Terms are contractually binding as 
between themselves and their Customers. As a further protection to 
support this requirement, Rule 202(b) would be amended to add an 
additional provision that Customers and Non-FCM/BD Clearing Members 
will be deemed to be bound by the Standard Terms through acceptance by 
conduct as a result of their continued use of the Clearing House. The 
change would provide an additional basis for certainty that the 
Standard Terms would apply as between the Customer and Non-FCM/BD 
Clearing Member, notwithstanding that a Non-FCM/BD Clearing Member had 
otherwise failed to obtain its Customer's agreement to the Standard 
Terms. ICE Clear Europe believes that this additional protection is a 
reasonable approach, in light of the Customer's choice to clear its 
transaction through the Non-FCM/BD Clearing Member at ICE Clear Europe, 
and given that the provisions in question are published and referred to 
in ICE Clear Europe's customer disclosures under the European Market 
Infrastructure Regulation (``EMIR'').\5\
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    \5\ Regulation (EU) No 648/2012 of the European Parliament and 
of the Council of 4 July 2012 on OTC derivatives, central 
counterparties and trade repositories.
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    Amendments to Rule 504(c) would extend Clearing Member warranties 
with respect to Permitted Cover to expressly cover all transfers of 
Permitted Cover to ICE Clear Europe (rather than merely the usage of 
Permitted Cover in accordance with the Rules) as not violating 
applicable law or third party rights or contractual obligations. This 
change would further enhance ICE Clear Europe's assurance that it can 
accept Permitted Cover without risk of interference from third party 
claims.
    A change in Rule 102(o) would clarify that the Rules, together with 
the applicable Clearing Membership Agreement, and other documents 
listed in Rule 102(f) that are given contractual force pursuant to 
these Rules (other than the Standard Terms and Settlement and Notices 
Terms) form a contract between the Clearing House and each Clearing 
Member. (By contrast, the Standard Terms and Settlement and Notice 
Terms apply as between the Non-FCM/BD Clearing Member and its 
Customer.) Pursuant to the Standard Terms themselves, ICE Clear Europe 
would also benefit from the Standard Terms as a third party beneficiary 
under the UK Contracts (Rights of Third Parties) Act 1999.
    In Rule 401(n), it is proposed that the words ``at the same time as 
the Contract'' be added after the words ``an opposite Customer-CM F&O 
Transaction shall arise between such Customer and Non-FCM/BD Clearing 
Member''. The additional words are intended to clarify that the 
opposite Customer-CM F&O Transaction arises at the same time as the F&O 
Contract arises. In ICE Clear Europe's view, this timing is implicit in 
the current Rule, and so the amendment would not result in an actual 
change in the timing at which the Customer-CM F&O Transaction arises. 
ICE Clear Europe believes that the amendment is a non-substantive 
drafting improvement that would nonetheless improve the clarity of the 
Rules on this point.
    In section 2 of each of the Standard Terms (CDS, F&O and FX), added 
drafting would make it clear that attempts by Customers or Non-FCM/BD 
Clearing Members to modify or disapply the Standard Terms are of no 
effect and that the Standard Terms cannot be overridden. The amendment 
would also provide that ICE Clear Europe is a third party beneficiary 
of the Standard Terms and may enforce them. This provision is intended 
to assist in promoting the consistent implementation of the Standard 
Terms, without modification, to govern the contractual relationships 
between Non-FCM/BD Clearing Members and their Customers. A non-standard 
modification of the Standard Terms could, in theory, interfere with or 
complicate attempts by the Clearing House to provide post-default 
porting in accordance with the Rules. The proposed amendments do not 
reflect any particular problem or scenario experienced by the Clearing 
House, but are intended as a general default management planning 
improvement in furtherance of ICE Clear Europe's ability to provide 
post-default porting.
    In Section 3(b) of each of the Standard Terms, the proposed change 
would remove the reference to transactions arising (as between Non-FCM/
BD Clearing Member and Customer) ``at the Acceptance Time'' and 
replaces this with a reference to CDS transactions arising (as between 
the Non-FCM/BD Clearing Member and Customer) ``as set out in Part 4 of 
the Rules''. This change is necessary as a drafting matter, since the 
term ``Acceptance Time'' is not defined in the Rules. In addition, the 
cross-reference to Part 4 of the Rules is appropriate because Part 4 
contains various provisions dictating how contracts and transactions 
arise pursuant to the Rules, rather than solely dictating the time at 
which a contract is deemed to be formed.
    In Section 4(b) of each of the Standard Terms, the proposed change 
is intended to: (a) Clarify the Customer's consent for margin to be 
used by the Non-FCM/BD Clearing Member consistent with its obligations, 
representations and warranties under the Rules; (b) provide that the 
Customer makes substantially equivalent representations, warranties and 
acknowledgments with respect to collateral posted by the Non-FCM/BD 
Clearing Member to the Clearing House with respect to the relevant 
Customer Account; (c) provide further assurance that, if any perfection 
or other formalities are required for ICE Clear Europe to use the 
collateral originating with the Customer, as ICE Clear Europe is 
entitled to do so under the Rules, ICE Clear Europe is able to instruct 
the Customer to take such additional steps; and (d) limit Customer 
assertions that such collateral is subject to encumbrances in favor of 
the Customer. The amendments are collectively designed to provide 
additional clarity to the Clearing House as to its ability to use 
collateral ultimately provided by a Customer, including to cover 
default losses and to provide for porting of the Customer's positions 
in case of the relevant Non-FCM/BD Clearing Member's default, in each 
case to the extent permitted by the Rules, and mitigate the risk of any 
Customer or third party claims with respect to such collateral that may 
interfere with such uses.
    In Section 5(c) of each of the Standard Terms (and related changes 
at Rule 202(b)(iii)), ICE Clear Europe proposes to clarify its approach 
to the use of automatic early termination in client clearing 
documentation of Non-FCM/BD Clearing Members. It has come to ICE Clear 
Europe's attention that some EU Non-FCM/BD Clearing Members may use 
automatic early termination provisions in their client clearing 
documentation even though Rule 202(b)(iii) (as currently in force) 
generally prohibits this. In that case, such Clearing Member-Customer 
clearing agreements may not adequately support porting to the extent 
legally possible. In particular, such provisions

[[Page 13202]]

expose ICE Clear Europe, the Non-FCM/BD Clearing Member and any 
Customer to the risk that the Customer-Clearing Member Transaction and 
cleared Contract may terminate at different times, and accordingly may 
have different termination values following a post-default close-out. 
Automatic or early termination clauses also may give rise to legal 
uncertainties as to whether certain protections from the disapplication 
of insolvency law for porting in Part VII of the UK's Companies Act 
1989 are available, since following an automatic termination there 
would be no contract left to port or transfer. The Clearing House's 
position is that such terminated contracts may still be subject to 
porting but a legal uncertainty is acknowledged. To reduce risks 
related to such situations, it is proposed that the prohibition on 
including automatic early termination provisions in Clearing Member-
Customer documentation in Rule 202(b)(iii) be removed and a new section 
5(c) of the Standard Terms be introduced instead. The new section 
5(c)(ii) would disapply automatic termination provisions for contracts 
cleared at ICE Clear Europe (with an exception for parties incorporated 
in Switzerland \6\ or other jurisdictions designated by the Clearing 
House) and new section 5(c)(i) would instead provide for the suspension 
of performance under the Customer-Clearing Member Transaction until the 
corresponding cleared Contract is terminated or the relevant payment 
date for the net sum owed between the Customer and Non-FCM/BD Clearing 
Member following termination has occurred. The suspension of 
performance provides similar economic protections for Customers as 
compared to automatic termination (as the Customer would not be 
obligated to make payments to a defaulting or insolvent Non-FCM/BD 
Clearing Member) but does not expose ICE Clear Europe to the risks of 
inconsistent timing or valuation between the Customer-Clearing Member 
Transaction or expose Customers to the risks of their positions being 
not portable due to automatic termination of the Customer-Clearing 
Member Transaction. Section 5(c)(iii) would provide that even if, 
notwithstanding the other provisions of the Standard Terms, automatic 
early termination of the Customer-Clearing Member transaction occurred, 
the provisions of the Standard Terms relating to calculation of 
termination values and portability would apply with necessary 
modifications.
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    \6\ The exception for Switzerland reflects the fact that such 
jurisdiction is the only Clearing Member jurisdiction for which 
automatic early termination is recommended for derivatives by the 
International Swaps and Derivatives Association, Inc. (``ISDA'').
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(ii) Externalised Payments Mechanism
    A number of changes have been proposed to the Rules and Procedures 
to introduce a new ``Externalised Payments Mechanism'' alternative for 
certain cash flows. Under the Externalised Payments Mechanisms, mark-
to-market or variation margin payment flows or certain other payment 
flows (including potentially, for example, clearing house and exchange 
fees), between ICE Clear Europe and the relevant Clearing Member can, 
at the option of the Clearing Member, not be netted in the same way as 
they would be under the standard approach (referred to in the amended 
Rules as the ``Standard Payments Mechanism''). The introduction of a 
payments mechanism under which such amounts exchangeable between ICE 
Clear Europe and a Clearing Member are not netted has been requested by 
CDS Clearing Members, some of which wish to align payment flows more 
closely with those in the OTC markets or under their Customer 
documentation. The various changes proposed to implement the 
Externalised Payments Mechanism are described in more detail as 
follows:
    New defined terms ``Standard Payments Mechanism'' and 
``Externalised Payments Mechanism'' are proposed to be added in Rule 
101, which would cross-refer to the full definitions of these terms in 
Rule 302(a). Proposed changes to Rule 302(a) would clarify that the 
current provisions regarding the calculation of a net amount payable by 
or to ICE Clear Europe in respect of each Account are part of the 
Standardised Payments Mechanism. In addition, new language would be 
added to confirm that the Standard Payments Mechanism would apply 
unless the Clearing House has agreed that the Externalised Payments 
Mechanism applies to a particular kind of cash payment, account and 
Clearing Member. The definition of Externalised Payments Mechanism is 
proposed to be added at the end of Rule 302(a). This definition would 
provide that the Externalised Payments Mechanism is an alternative 
payments mechanism available to Clearing Members who elect to use it, 
provided that ICE Clear Europe agrees to such usage in relation to 
particular accounts. The proposed definition also clarifies that the 
Externalised Payments Mechanism can only be used for certain Margin and 
other cash payments as specified in the Finance Procedures. The effect 
of using the Externalised Payments Mechanism in respect of cash 
payments would be that payments would be settled pursuant to a separate 
cash flow process at a separate time from that under the Standard 
Payments Mechanism.
    Various conforming changes are proposed throughout the Rules and 
Procedures to reflect the introduction of the Externalised Payments 
Mechanism and the different processes applicable where payments are 
settled under the Externalised Payments Mechanism. In Rule 301(f), 
amendments clarify which provisions set out under that paragraph are 
only applicable to (a) payments made under the Standard Payments 
Mechanism or (b) payments made under the Externalised Payments 
Mechanism. Other amendments of a similar nature are proposed to Rules 
110(g), 303(a) and 1902(h)(i).
    A number of changes are also proposed to the Finance Procedures to 
implement the Externalised Payments Mechanism. Paragraph 6.1(b) would 
be amended to clarify that cash payments between ICE Clear Europe and a 
Clearing Member (including Margin) may only be set off and consolidated 
where the Standard Payments Mechanism is used.
    In paragraphs 6.1(i)(i) and (ii), new language is proposed to 
explain the effect of the Externalised Payments Mechanism on payment 
flows, namely that ``cash payments will be settled through a separate 
cash flow and not included in a combined overnight call or return as 
would apply under the Standard Payments Mechanism''. Paragraph 6.1(b) 
would provide that Clearing Members are able to elect for upfront fees, 
Mark-to-Market Margin, FX Mark-to-Market Margin, Variation Margin or 
other payments to be dealt with using the Externalised Payments 
Mechanism, subject to the written consent of ICE Clear Europe. It is 
expected that the process would principally be used for Mark-to-Market 
Margin. Further, in paragraph 6.1(i)(vii), a drafting change would be 
made to clarify that other amounts payable by a Clearing Member to ICE 
Clear Europe (or vice versa) would be included within an end-of-day or 
ad hoc payment under the Standard Payments Mechanism. Paragraph 
6.1(i)(vii) is also expanded to reference certain other types of 
payments under the Rules and Procedures (including option premiums 
corporate action payments for delivered investments under certain 
Financials & Softs Contracts, amounts resulting from reduced gain 
distributions, product terminations and non-default losses) as 
includible in end-of-day or ad hoc

[[Page 13203]]

payments under the Standard Payments Mechanism.
    A new paragraph 6.1(i)(viii) would address the applicability of the 
Externalised Payments Mechanism in circumstances where certain payments 
are being made under Part 9 of the Rules (Default Rules), including 
Margin Adjustment Amounts in connection with reduced gain distribution 
under Rule 914, Product Termination Amounts in connection with product 
termination under Rule 916 and Collateral Offset Obligations under Rule 
919. Specifically, where the Externalised Payments Mechanism applies to 
variation or mark-to-market margin payments, the Clearing House can net 
Margin Adjustment Amounts against payments under the Standard or 
Externalised Payments Mechanism, at the Clearing House's discretion. 
Similarly, the Clearing House may choose to net or aggregate Product 
Termination Amounts with payments under the Standard or Externalised 
Payment Mechanism, at its discretion. Payments of Collateral Offset 
Obligations, assessments and Guaranty Fund contributions and 
replenishments would be made under the Standard Payment Mechanism 
unless otherwise directed by the Clearing House. In addition, paragraph 
6.1(i)(ix) (as renumbered) would be amended to clarify that additional 
original or initial margin requirements as a result of the payment of 
variation margin or mark-to-market margin in a different currency from 
the contractual currency (as a result of a currency holiday) would be 
collected via the Standard Payments Mechanism, regardless of whether 
the Externalised Payments Mechanism applies to the relevant variation 
or mark-to-market margin payment in question.
(iii) Clearing Member Capital Requirements and Settlement to Market 
Amendments
    Certain changes are proposed to the Rules and Procedures to reflect 
requirements under the EU Capital Requirements Regulation (the 
``CRR'').\7\ In Rule 101, it is proposed that the defined term 
``Capital'' be revised to remove outdated references to the EU Banking 
Consolidation Directive, which is no longer in force. This directive, 
which set out the capital requirements framework for EU banks and 
broker-dealers, was replaced and superseded by the CRR and Capital 
Requirements Directive (together referred to as the ``CRD IV'' 
package). Related to this, new definitions of ``Capital Requirements 
Directive'' and ``Capital Requirements Regulation'' are proposed to be 
introduced to replace the outdated ``Banking Consolidation Directive'' 
definition (which is proposed to be deleted). Although, as a technical 
matter, Rule 102(a) provides already for the update of references to 
legislation as they are amended or supplemented, as a matter of clarity 
ICE Clear Europe is proposing this amendment to explicitly and 
correctly reference current EU law. ICE Clear Europe does not believe 
the change will have any substantive effect on Clearing Members or the 
Clearing House.
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    \7\ Regulation (EU) No 575/2013.
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    In addition, ICE Clear Europe proposes to amend the Rules to 
provide more clearly for the characterization of Clearing Members' 
exposures for cleared derivatives under Article 274(2)(c) CRR as 
``settled to market'' (as opposed to ``collateralized to market''). For 
the Article 274(2)(c) treatment to be available, Variation Margin or 
Mark-to-Market margin must be characterized as a cash payment ``to 
settle outstanding exposure following specific payment dates'',\8\ 
rather than as collateralizing the exposure. The proposed amendments do 
not change the manner in which Variation Margin or Mark-to-Market 
Margin is calculated, or other current operational practices. Rather, 
the amendments consist of revisions to terminology and other drafting 
changes to clarify the legal characterization that payments of 
Variation Margin and Mark-to-Market Margin represent settlement 
payments rather than collateral payments for purposes of the CRR, as 
requested by Clearing Members.
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    \8\ CRR, Article 274(2)(c).
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    With respect to settlement to market, changes have been proposed to 
the defined terms ``Margin'', ``Mark-to-Market Margin'' and ``Variation 
Margin'' to more accurately and certainly characterize such margin as 
settlement payments, so that the relevant exposures more clearly 
benefit from the settlement to market treatment under Article 274(2)(c) 
CRR. In the defined term ``Margin'', changes are to be made to the 
language in parentheses to confirm that Variation Margin, Mark-to-
Market Margin and FX Mark-to-Market Margin are all ``provided to or by 
the Clearing House by outright transfer of cash as a settlement 
payment''. The defined term ``Mark-to-Market Margin'' currently refers 
to such margin being provided ``by way of title transfer pursuant to a 
Clearing Membership Agreement or Sponsored Principal Clearing Agreement 
or[. . .]by way of a pledge pursuant to a Pledged Collateral 
Addendum''. This would be replaced with clear language denoting that 
such margin would be provided ``by way of outright transfer of cash as 
a settlement payment''. Similarly, the definition of ``Variation 
Margin'' is proposed to be updated to clarify that the cash required to 
be provided or actually provided by a Clearing Member is ``by way of 
outright transfer of cash as a settlement payment''.
    The defined term ``Original Margin'' is proposed to be amended to 
move the words ``, but excluding in any case Variation Margin'' to the 
end of the definition. This is a drafting change to ensure that 
Variation Margin is excluded from the entirety of this definition, as 
the definition generally concerns Permitted Cover provided as 
collateral.
    In various places throughout the Rules and Procedures, amendments 
are proposed to remove all references to the term ``deposit'' in the 
context of this being a word to describe the transfer of cash variation 
or mark-to-market margin. This, and similar terms, would be replaced 
with terms that are more consistent with a settlement payment 
characterization of margin, such as ``transfer''. The amendments will 
not reflect a change in actual operational practice. These proposed 
changes would also more accurately reflect ICE Clear Europe's role in 
receiving cash payments under title transfer and its regulatory status 
as a central counterparty (``CCP'') which is not a bank or credit 
institution.\9\ The changes fall into the following types and are 
proposed in relation to the provisions of the Rules and Procedures 
noted below:
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    \9\ In this regard, ICE Clear Europe does not keep payments it 
receives on deposit for its customers, nor does it engage in the 
regulated activity of deposit-taking in the UK, for which a banking 
license is required.
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    (a) Removal of the term ``deposit'' (or a derivation thereof) from 
existing drafting where a suitable alternative term (such as 
``transfer'') is already present: Rules 101 (definition of ``Monetary 
Default''); 110(b); 110(c); 110(e); 204(a)(vi); 208(b)(iii); 919(e) and 
paragraph 4.2 of the Membership Procedures (section B, row 1 of the 
table);
    (b) Replacing the word ``deposit'' (or a derivation thereof) with 
the word ``transfer'' (or a derivation thereof): Rule 102(q); 1602(a); 
1602(b); 1602(c); 1602(d); 1605(i); 1804(b); 1806(a); paragraphs 
3.3(b), 3.7, 3.8, 3.32, 6.1(f), 6.1(g), 10.4, 10.5 and 10.12 of the 
Finance Procedures (in 3.3(b), 3.7 and 3.32 the words ``[from/to] the 
Clearing House'' are also added as a drafting improvement); and

[[Page 13204]]

    (c) Similar drafting changes to achieve the same effect are made in 
Rule 202(a)(xi) (replacing the words ``for the deposit of funds in 
Eligible Currencies and the deposit of securities required to be 
transferred to and from the Clearing House'' with the words ``for the 
purposes of cash transfers to and from the Clearing House in Eligible 
Currencies''; Rule 1103(b) (replacing the words ``pledged to or 
deposited with'' with ``transferred to''); Paragraph 3.26 of the 
Finance Procedures (replacing the words ``on deposit'' with the words 
``upon completion of the relevant transfer to the Clearing House''); 
Paragraph 10.17 of the Finance Procedures (replacing the words 
``confirmation of deposit'' with the words ``confirmation of completion 
of the relevant transfer''); and Paragraph 11.1 of the Finance 
Procedures (replacing the words ``All transactions to deposit or 
withdraw'' with the words ``All transactions including each transfer to 
or withdrawal'').
    In Rule 505, changes are proposed to clarify that settlement 
payments (including payments of Variation Margin, Mark-to-Market Margin 
and FX Mark-to-Market Margin) are excluded from constituting financial 
collateral within the scope of the UK Financial Collateral Arrangements 
(No. 2) Regulations 2003 (which implement Directive 2002/47/EC on 
financial collateral (the ``FCD'')). These proposed changes reflect 
feedback received by ICE Clear Europe from some Clearing Members and 
are to ensure consistency with the characterization of such payments as 
contractual payments settling derivatives liabilities and not as 
collateral, as described above. In addition, the word ``collateral'' in 
the last sentence would be replaced with the more general term ``such 
assets''. This links the clause back to statutory definitions more 
clearly, since only collateral of certain types (essentially ``cash'' 
and ``financial instruments'') are covered by the FCD and, for example, 
gold collateral accepted by ICE Clear Europe is not.
    A new concept of ``CDS Price Alignment Amount'' would be added. 
Pursuant to Rule 1519(e), a daily payment in respect of CDS Price 
Alignment Amounts would be required on each Business Day. The CDS Price 
Alignment Amount would be economically equivalent to the price 
alignment ``interest'' that ICE Clear Europe currently pays or charges 
a CDS Clearing Member with respect to net Mark-to-Market Margin 
transferred between the parties. Since the term ``interest'' may be 
more typically associated with collateral, ICE Clear Europe proposes to 
refer to such amounts as CDS Price Alignment Amounts to avoid confusion 
over the characterization of Mark-to-Market Margin as settlement 
payments. Correspondingly, references to interest on Mark-to-Market 
Margin would be removed in the CDS Procedures, as discussed below. The 
definition of CDS Price Alignment Amount would be added in Rule 
1501(h), which cross-refers to the definition in the CDS Procedures as 
proposed to be amended (discussed below).
    Although FX clearing has not yet been launched, similar changes 
would be made to relevant FX clearing provisions to maintain 
consistency throughout the Rules. The defined term ``FX Mark-to-Market 
Margin'' is proposed to be amended to clarify that Permitted Cover 
would be provided ``by way of outright transfer as a settlement 
payment''. This change is intended to support the characterization of 
mark-to-market margin as a settlement payment. There is also a small 
drafting tweak within this definition to clarify that the relevant 
Procedures are the FX Procedures. The defined term ``FX Mark-to-Market 
Interest'' would be deleted and replaced with a new defined term of 
``FX Price Alignment Amount''. The deleted definition currently refers 
to ``interest calculated by reference to the FX Mark-to-Market Margin 
Balance''. The new definition of ``FX Price Alignment Amount'' would 
instead refer to ``a price alignment amount calculated by reference to 
the relevant FX Notional Margin Balance'', which avoids any reference 
to interest (or a similar concept) for the reasons discussed above. 
Similarly, amendments to the defined term ``FX Mark-to-Market Margin 
Balance'' are proposed so that references to FX Mark-to-Market Margin 
being ``delivered'' by a Clearing Member or ICE Clear Europe are 
replaced with references to such margin being ``transferred'' and it is 
clear that that FX Mark-to-Market Margin is a settlement payment. It is 
also intended that the definition be renamed ``FX Notional Margin 
Balance'', with the word ``notional'' being added within the 
definition, to ensure that the FX Price Alignment Amounts are regarded 
as using the mark-to-market margin merely as a notional sum to 
calculate the relevant amount, rather than such amounts constituting an 
interest or an interest-like return on deposited assets. The proposed 
addition of the words ``(notwithstanding that FX Mark-to-Market Margin 
is a settlement payment)'' within the definition would further support 
a settlement payment characterization.
    Rule 1703 is proposed to be amended to reflect the replacement of 
the current defined term ``FX Mark-to-Market Interest'' with the new 
defined term ``FX Price Alignment Amounts'', as discussed above. The 
heading of the rule would be updated to reflect the new defined term 
and the words ``an amount in respect of FX Mark-to-Market Interest'' 
are to be replaced with the term ``FX Price Alignment Amount''. 
Proposed additional language to be added after this amendment would 
expressly confirm in the Rules that payment of the FX Price Alignment 
Amount must be made on each Business Day in accordance with the FX 
Procedures. In the FX Procedures themselves, amendments are proposed at 
paragraph 7.2 to reflect the replacement of ``FX Mark-to-Market 
Interest'' with ``FX Price Alignment Amounts'' and the replacement of 
``FX Mark-to-Market Margin Balance'' with ``FX Notional Margin 
Balance''. These include replacing the old defined term with the new 
defined term and adding additional language to remove any 
interpretative doubt that ``FX Mark-to-Market Margin is a settlement 
payment''. Headings and the table of contents are to be updated 
accordingly.
    In the Finance Procedures, a new paragraph 2.3 is proposed which 
would confirm explicitly that Variation Margin, Mark-to-Market Margin 
and FX Mark-to-Market Margin are transferred to and from ICE Clear 
Europe by way of outright cash transfer and that no such margin would 
be subject to any pledge under the Rules or Procedures, or the 
requirement in Rule 1603(c) for Margin provided by an FCM/BD Clearing 
Member in respect of a Customer Account to be in the form of Pledged 
Collateral. As with the various changes set out above, it is proposed 
that this clarification be added to ensure that Margin provided by way 
of outright cash transfer is characterized as a settlement payment, so 
that the settlement to market treatment can be applied.
    Changes are also proposed in paragraph 6.1(i)(i) of the Finance 
Procedures to refer to the ``resulting settlement payments'' from 
Variation Margin, Mark-to-Market Margin and FX Mark-to-Market Margin 
calls, to support the characterization discussed above. Additional 
language would be added to explain that once settlement payments 
resulting from daily margin calls have been paid in cleared funds, the 
valuation of the Contracts would be reset to zero. This is consistent 
with the requirements of settlement to market

[[Page 13205]]

treatment under Article 274(2)(c) CRR, which requires that contracts 
``are structured to settle outstanding exposure following specified 
payment dates and where the terms are reset so that the market value of 
the contract is zero on those specified dates''. A drafting change is 
also proposed in this paragraph to clarify that the standard process 
would be for adjustments to margin requirements to be calculated, and 
payments to be executed, in the currency of the relevant Contracts, but 
leave it open for payments to be made in a different currency.
    Similarly, it is proposed that paragraph 6.1(i)(iv) of the Finance 
Procedures be amended so that it addresses the payment of price 
alignment amounts in relation to variation margin separately from 
interest payable on initial margin. Language that previously referred 
to interest being payable on variation margin would be deleted and new 
language would be inserted confirming that price alignment amounts 
instead fall payable as further detailed in the relevant Procedures for 
the Contract in question. The heading to this provision would be 
updated accordingly.
    In the CDS Procedures, new defined terms of ``CDS Price Alignment 
Amount'' and ``CDS Notional Margin Balance'' are proposed to be added 
in paragraph 1, which are intended to replace the terms ``Mark-to-
Market Interest'' and ``Mark-to-Market Margin Balance'' respectively. 
``CDS Price Alignment Amount'' describes amounts paid with reference to 
Mark-to-Market Margin as price alignment amounts calculated daily ``by 
applying the applicable overnight rate'' to the CDS Notional Margin 
Balance. The CDS Notional Margin Balance is defined as a notional sum 
based on the aggregate amount of transferred Mark-to-Market Margin, to 
be consistent with the characterization of the Mark-to-Market Margin as 
a settlement payment.
    Further to these changes, it is proposed that paragraph 1 of the 
CDS Procedures be amended to replace the defined term ``Daily Aggregate 
MTM Interest Amount'', with a new defined term ``Daily Aggregate CDS 
Price Alignment Amount''. Instances of usage of the terms ``Mark-to-
Market Interest'', ``Mark-to-Market Margin Balance'' and ``Daily 
Aggregate MTM Interest Amount'' are also proposed to be replaced with 
the new defined terms ``CDS Price Alignment Amount ``, ``CDS Notional 
Margin Balance'' and ``Daily Aggregate CDS Price Alignment Amount'' 
respectively. Similar changes would be made in paragraphs 3.1 and 3.3 
of the CDS Procedures.
(iv) Enhancement of Settlement for Option and Futures
    Various changes are proposed to the Rules and Procedures to clarify 
certain provisions relating to Options cleared by ICE Clear Europe, 
including use of terminology and other drafting improvements, and to 
address more clearly the concept of ``net liquidating value''. As 
discussed herein, the changes are in the nature of drafting 
clarifications and improvements following an internal legal and 
operational review of the relevant provisions. The amendments are also 
intended to harmonize drafting of similar provisions across certain 
affiliated ICE futures clearing organizations.
    A number of changes are proposed to the definitions in Rule 101 
with the aim of clarifying, improving and harmonising the drafting of 
terms used in the Rules to refer to concepts applicable to both Futures 
and Options. The definition of ``Deliverable'' is proposed to be 
updated to reflect the fact that the term is used not only in relation 
to property deliverable under F&O Contracts, but also in relation to 
the calculation of settlement amounts. The words ``or with respect to 
which settlement amounts are calculated'' are to be added at the end of 
the definition to clarify this point. The term ``Reference Price'' in 
relation to Options would be removed from the Rules and replaced with 
``Exchange Delivery Settlement Price''. The definition of ``Exchange 
Delivery Settlement Price'' would be updated to clarify that it also 
applies to Options, through addition of a cross-reference to the option 
settlement price determination procedure under Rule 802. These changes, 
and conforming changes throughout the Rules, are intended to simplify 
and clarify the drafting of the Rules around option settlement (and are 
not intended to materially change the operational process for such 
settlement). Other non-substantive drafting clarifications would also 
be made to the definitions of ``Put'', ``Set'' and ``Short''.
    A number of similar drafting clarifications and related changes 
have been proposed to Part 8 to ensure that provisions set out 
thereunder clearly and accurately describe relevant settlement 
processes in relation to Options. Rule 802 would be amended to reflect 
the replacement of the term ``Reference Price'' with the term 
``Exchange Delivery Settlement Price'' to refer to the settlement price 
of an Option. Changes have also been proposed in Rule 802 to better 
describe the processes surrounding determination and publication of the 
Exchange Delivery Settlement Price in relation to Options on the basis 
of data provided or published by the relevant Market. The preamble to 
Part 8 is also proposed to be amended to refer to F&O Contracts ``that 
are Options'', rather than F&O Contracts generally (which would include 
Futures, which are outside the scope of Part 8).
    Moreover, changes are proposed to Rule 809(d) to provide 
flexibility for the Clearing House, in a scenario where it directs a 
Clearing Member to make delivery of a Deliverable in settlement of an 
option directly to another Clearing Member (rather than to the Clearing 
House) in accordance with that Rule, to also permit payments to be made 
directly between such parties rather than to and from the Clearing 
House.
    Changes are proposed in Rule 810(d) to reflect the replacement of 
the term ``Reference Price'' with the term ``Exchange Delivery 
Settlement Price'' for Options, and to clarify the cash settlement 
price for an Option would be determined using the Exchange Delivery 
Settlement Price ``on the day of settlement or exercise''. In addition, 
the amendment would provide that all outstanding premium payments must 
have been made in relation to the relevant set of Options (in addition 
to Margin payments) in order to receive cash settlement. This change is 
being proposed to more clearly describe relevant Clearing House 
operational practices and processes (and is not intended to alter those 
practices and processes).
    Similar provisions related to Futures would also be updated for 
consistency. Rules 701 to 705 would be amended to ensure that the 
provisions relating to (a) the determination of the Exchange Delivery 
Settlement Price for Futures, (b) the processes for cash settlement and 
physical settlement, and (c) the number of Contracts by reference to 
which settlement and delivery obligations are calculated all reflect 
operational practice. As with the changes described above in Rule 802, 
the proposed changes to Rule 701 would more clearly describe the 
processes surrounding determination and publication of the Exchange 
Delivery Settlement Price in relation to Futures on the basis of data 
provided or published by the relevant Market (and are not intended to 
result in a change in those processes). While the existing Rules 
currently describe these processes, the amendments are intended as 
drafting improvements to better ensure that the description is clear. 
In Rules 702(b) and 705(a), the words ``Without prejudice to any 
contractual netting under Rule 406 or

[[Page 13206]]

the Clearing Procedures'' are proposed to be added. Under Rule 406, 
contractual netting may be applied to offsetting positions in respect 
of one of a Clearing Member's Customer accounts even though such 
positions are ordinarily held gross. The additional language clarifies 
that while cash settlement and delivery amounts are determined for 
Customer Accounts based on gross positions under Part 7, this does not 
preclude contractual netting of positions where provided for under Rule 
406 or the Clearing Procedures (including contractual netting within 
the positions of a particular Customer of a Clearing Member). The 
change is intended to avoid any potential questions as to whether there 
might otherwise be a conflict between Part 7 and Rule 406. In Rule 
702(c), changes are proposed to clarify the method of determining the 
amount payable for cash settlement of a Future. The amended language 
would confirm that the relevant amount is based on the price at which 
Open Contract Positions were last recorded on ICE Clear Europe's books 
and the Exchange Delivery Settlement Price (and not necessarily the 
difference between these two prices), in any case as provided in the 
applicable Contract Terms. In addition, in Rule 703(a), a clarification 
would be added that a Market may administer matters or exercise rights 
on behalf of ICE Clear Europe pursuant to Rule 703 and the Delivery 
Procedures. This reflects the fact that Markets are typically involved 
in the delivery process for Futures and may carry out functions 
otherwise specified to be discharged by ICE Clear Europe pursuant to 
the Rules or Procedures.
    In Rule 703(f), a parallel change for Futures would be made to that 
described above in Rule 809(d) for options, to provide flexibility for 
the Clearing House, in a scenario where it directs a Clearing Member to 
make delivery of a Deliverable in settlement of an option directly to 
another Clearing Member (rather than to the Clearing House) in 
accordance with that Rule, to also permit payments to be made directly 
between such parties rather than to and from the Clearing House. 
Changes are also proposed to Rule 703(h) to provide that both legs (not 
just one side) of a Contract in delivery may be subject to mandatory 
cash settlement directions in the case of Clearing Member default. This 
will facilitate management of such a default by the Clearing House, and 
avoid need for the Clearing House itself to make or take delivery of 
the underlying asset. Finally, a new Rule 703(j) would be added to 
require Sellers to represent that they convey good title to products 
(free of encumbrances) when physical settlement takes place. This would 
be consistent with market expectation around deliveries, consistent 
with any other deliveries made of such products in the relevant cash 
markets.
    A change is proposed to Rule 906(a) to refer to the ``abandonment'' 
of an Option in addition to the ``exercise'' of an Option in 
subparagraph (iii) under the description of ``L'', one of the variables 
in the net sum calculation. This change is proposed because abandoning 
an Option could also affect the aggregate amount payable by or to a 
defaulting Clearing Member in respect of positions recorded in a given 
account and such impact should be taken into account in addition to the 
impact of any exercise of an Option.
    Various changes have been proposed in the Clearing Procedures to 
reflect the use of the Exchange Delivery Settlement Price for Options 
(which replaces the ``Reference Price'') and provide greater detail on 
the calculation and application of net liquidating value for an Option 
(``NLV''). Paragraph 4.4(c) would be amended to clarify that NLV would 
be calculated on each Business Day based on relevant Exchange Delivery 
Settlement Prices. The new language would also confirm that for long 
Option holders, a positive NLV amount would be applied against the 
requirement for Original Margin, and that for short Option holders, 
negative NLV would contribute to the requirement for Original Margin. 
This approach reflects current practice for calculating margin 
requirements, but is not currently not stated explicitly in the 
Procedures. Moreover, the amendments in paragraph 4.4(c) confirm that 
where a gross margin model is used for a particular account, NLV would 
be held on a gross basis without any setting off between different 
Customers interested in the account. Paragraphs 5.1, 5.5(a) and 5.6 of 
the Clearing Procedures are also to be amended to reflect the 
replacement of the Reference Price with the Exchange Delivery 
Settlement Price for Options.
    Several other changes are also proposed in the Clearing Procedures 
to better reflect the processes and terminology used in relation to 
Options. Paragraph 5.2(d) would be amended to specify that it only 
applies in relation to Options ``whose Deliverable is a Future 
Contract''. This provision specifies that where such Options are 
exercised a Contract at the Strike Price would arise in accordance with 
Rule 401, and such Contract would only arise if the Deliverable under 
the Option Contract is a Future (as opposed to a security). Changes are 
also proposed to paragraph 5.7(a) to cross-reference the operation of 
automatic exercise (as applicable), as described in paragraph 5.5 of 
the Clearing Procedures, as relevant to determining whether elective 
exercise and/or abandonment of Options on the relevant expiry day is 
permitted.
    In the General Contract Terms, paragraph 3.1(b) would be amended to 
reflect changes to defined terms and other relevant terms relating to 
settlement prices for Contracts (including replacement of ``Market 
Delivery Settlement Price'' and ``Reference Price'', with ``Exchange 
Delivery Settlement Price'').
(v) Complaints and Disciplinary Processes
    Various changes are proposed to Part 10 of the Rules and to the 
Complaint Resolution Procedures to streamline and improve ICE Clear 
Europe's complaints and disciplinary processes. Many of the proposed 
changes are drafting improvements and other enhancements following a 
detailed internal review at both ICE Futures Europe and ICE Clear 
Europe, based on lessons learned from the practice of previous 
complaint and disciplinary processes, especially at the exchange level 
where such processes occur more regularly.
    Changes have been proposed to Rule 1001(d) to ensure that the scope 
of the Complaint Resolution Procedures extends to complaints against 
Directors, committees and any individual committee members of ICE Clear 
Europe. Current Rule 1001(d) currently only expressly applies to 
officers and employees of ICE Clear Europe. ICE Clear Europe did not 
intend to exclude directors and committees from the scope of the 
Complaints Resolution Procedures, and believes it is appropriate and 
beneficial for Clearing Members and other market participants to 
include such persons explicitly in the coverage of those procedures.
    Drafting improvements are proposed to Rule 1002 to improve the 
clarity of the provisions governing investigations into breaches of the 
Rules. These changes involve clearer language in certain places to aid 
readability and also inserting language in Rule 1002(c) to ensure that 
ICE Clear Europe's advisers treat not only information obtained in the 
course of the investigation as confidential, but also information that 
the advisers have been given access to. Changes have also been proposed 
to Rule 1002(d)(iv) to require a Clearing Member, as part of their 
cooperation with an investigation, to provide access to documents and 
materials in its

[[Page 13207]]

possession at the direction of the Clearing House (in addition to the 
making such documents or materials available for inspection).
    Rule 1002(e) is proposed to be amended to clarify that non-
compliance with an investigation can lead to additional disciplinary 
action being brought against a Clearing Member. This provision 
currently specifies that failure to co-operate with an investigation 
would constitute a breach of the Rules, but the added language would 
specify that non-compliance is capable of giving rise to separate and/
or additional disciplinary action in accordance with Part 10 of the 
Rules (including by amendment of the Notice of alleged breaches 
pursuant to Rule 1003(i)). Certain typographical corrections and 
clarifications would be made in Rule 1002(f) and (g), and Rule 1002(g) 
would also be amended to clarify that initial meetings following 
service of a Letter of Mindedness would be conducted in private.
    Proposed changes to Rule 1002(h), in the context of investigations, 
would clarify that the initial findings to be communicated to the 
Clearing Member in writing must also be accompanied by an indication of 
the intended steps to be taken under Rule 1002(i) (for example, 
discontinuing the investigation or commencing disciplinary 
proceedings). The Clearing House would also be required to provide 
certain notices to the Clearing Member of the acts or practice which it 
has been found to taken, the relevant provisions breached and the 
proposed sanctions to be taken. Similar changes have also been proposed 
to Rule 1003 in relation to different stages involved in disciplinary 
proceedings and to section 1 of the Complaint Resolution Procedures.
    Rule 1002(i) would be amended to better clarify certain of the 
steps that ICE Clear Europe may take following the communication of its 
initial findings to a Clearing Member, as set out in clauses (i)-(vii). 
In clause (v), the amendments would specify that the Clearing House may 
refer a matter for further inquiry by the Clearing House, a Market or 
Governmental Authority, where the Clearing House considers it necessary 
that the matter be investigated further. Clause (vii) would be revised 
to add a reference to written comments that may be received from the 
Clearing Member following the service of the Letter of Mindedness under 
Rule 1002(g). Certain typographical corrections would also be made in 
Rule 1002(i). A new subclause (viii) would also be added to state 
expressly that ICE Clear Europe may take a combination of the actions 
listed.
    Various amendments proposed to Rule 1003 would enhance and clarify 
the process for disciplinary proceedings. The changes would, for 
example, reduce unnecessarily complex drafting, describe the various 
steps involved in the disciplinary process in more detail (similar to 
those changes proposed for Rule 1002(h) in the context of 
investigations) and specify further the timing by which certain actions 
must be taken. Specifically, in Rule 1003(b), the amendments would 
require notice to the Clearing Member in writing that disciplinary 
proceedings are to be commenced and state explicitly that the Clearing 
House will appoint the chairman and members of a disciplinary panel. 
Revised Rule 1003(c) would establish that the Clearing Member subject 
to the proceeding would be notified of the composition of the 
Disciplinary Panel within seven calendar days and then have ten further 
calendar days to object in writing to any particular appointment. Other 
changes include specifying, in further detail in Rule 1003(p), what 
information the Disciplinary Panel must communicate (to ICE Clear 
Europe and the relevant Clearing Member) once a decision has been made 
as to whether a breach of the Rules has been proven (following a 
hearing). This includes, for example, the rationale for the 
Disciplinary Panel's decision, details of the breach of the Rules and 
any sanctions to be imposed. The amendment further clarifies that 
sanctions will be suspended pending the determination of any appeal, 
unless the Clearing House determines that any order of suspension of 
the Clearing Member should be enforced during that period. In addition, 
Rule 1003(s) would be amended to clarify the Disciplinary Panel's 
ability to order a party to pay costs of disciplinary proceedings, 
including specifically the fees and expenses of the members of the 
Disciplinary Panel. This amendment is meant to clarify current 
practice, currently governed by a broad discretion by the panel to give 
awards on costs, and not substantively change the Disciplinary Panel's 
authority with respect to assessment of costs.
    In Rule 1004, various amendments would be made to clarify certain 
conditions surrounding the use of the Summary Procedure and to improve 
the drafting of the provisions in this Rule more generally. The Summary 
Procedure is designed to be used in a scenario where a full 
disciplinary process would be disproportionate in terms of time or 
cost. Rule 1004(a) would be revised to clarify the timing for the use 
of the Summary Procedure, in order to facilitate prompt resolution of 
matters subject to the Summary Procedure. Rule 1004(b) would be amended 
to provide ICE Clear Europe with the express ability to refuse the use 
of the Summary Procedure for matters which are more serious or are 
``considered of particular significance or relevance to the market in 
general or in the public interest''. This changes thus would clarify 
the circumstances in which ICE Clear Europe may reject the 
inappropriate use of the Summary Procedure. It is also proposed that 
Rule 1004(i) be amended to specify the information that the Summary 
Disciplinary Committee must communicate to the Clearing Member in 
greater detail (mirroring the changes to similar requirements imposed 
on the Disciplinary Panel under Rule 1003). Rule 1004(i) would also 
clarify that in keeping with the summary nature of the proceeding, the 
range of sanctions available to the Summary Disciplinary Committee 
would be limited to those set out in the Notice and any additional 
sanctions arising out of the conduct of the proceeding. Various other 
non-substantive drafting clarifications would be made in Rule 1004.
    Rule 1005, addressing appeals in the context of disciplinary 
proceedings, would be revised to include a number of drafting 
clarifications and typographical corrections. Rule 1005(a)(ii) would 
clarify that the stated grounds in that provision are the only grounds 
for appeal. Rule 1005(d) would be amended to add a requirement that the 
lawyer appointed to the Appeal Panel has been in practice for more than 
ten years and to clarify that an expert assessor may not have a 
personal or financial interest in or have been involved in the 
investigation of or proceedings with respect to the matter under 
consideration.
    A new Rule 1006 would be added to address the interaction between 
ICE Clear Europe's disciplinary procedures under the Rules and any 
similar procedures under Market Rules. Exchanges that ICE Clear Europe 
clears are likely to have their own disciplinary procedures, with the 
result that a single disciplinary issue may give rise to two different 
disciplinary procedures dealing with the same fundamental issues. For 
example, ICE Futures Europe has disciplinary procedures set out in 
Section E of its Regulations. The intention behind new Rule 1006 is to: 
(a) Ensure that the existence of parallel disciplinary procedures under 
Market Rules does not preclude ICE Clear Europe's own disciplinary 
procedures; and (b) confirm that where an exchange is carrying out 
disciplinary proceedings

[[Page 13208]]

at the same time as ICE Clear Europe in relation to an exchange member 
that is also a Clearing Member, such proceedings may be consolidated 
with those of ICE Clear Europe to avoid unnecessary duplication of 
efforts and resources. For example, it may be appropriate for the 
exchange and the Clearing House to rely on the same pieces of evidence 
and for combined interviews of witnesses to be conducted on behalf of 
both the exchange and the Clearing House in the investigative phase of 
the disciplinary process, to avoid unnecessary duplication of effort. 
Such coordinated proceedings may be appropriate in a range of 
circumstances, including alleged breaches of operational systems and 
controls, AML matters, market abuses and delivery failures.
    Various changes have also been proposed to the Complaint Resolution 
Procedures to ensure that ICE Clear Europe's complaints procedures are 
consistent with the applicable requirements of UK law and are clear to 
follow and to improve the processes concerning the investigation and 
handling of complaints by ICE Clear Europe. Relevant changes would 
include:
    (a) Adding a clarification in paragraph 2.1 of the Complaint 
Resolution Procedures that Eligible Complaints are only those 
complaints relating to the manner in which the Clearing House has 
performed, or failed to perform, its regulatory functions as defined by 
section 291(3) of the Financial Services and Markets Act 2000 
(``FSMA''). FSMA imposes various regulatory functions on markets and 
clearing houses such as ICE Clear Europe. The Complaint Resolution 
Procedures are intended specifically, and solely, to address complaints 
involving the regulatory functions specified in such section of the 
FSMA, in accordance with the requirements of FSMA.\10\ Similar changes 
to include a reference to section 291(3) of FSMA have also made in 
paragraphs 4.4 and 7.4 of the Complaint Resolution Procedures. In 
addition, the scope of Eligible Complaints would be amended in Rule 2.2 
to clarify that as with its relationship with employees, the Clearing 
House's relationship with directors, officers, committees and committee 
member would not be the subject of an Eligible Complaint (consistent 
with the clarifications discussed above as to the role of such persons 
in the context of the disciplinary procedures). The amendments would 
also clarify the drafting of the exclusion for commercial disputes in 
paragraph 2.2(b);
---------------------------------------------------------------------------

    \10\ As provided in paragraph 1.3 of the Complaint Resolution 
Procedures, these procedures do not preclude the Clearing House from 
considering or addressing any other complaint pursuant to such 
procedures as it may determine, and in accordance with any 
applicable law. Accordingly, the Clearing House may use such other 
procedures for purposes of considering or addressing complaints 
relating to other applicable laws, including the Exchange Act.
---------------------------------------------------------------------------

    (b) adding a time-limited ability for ICE Clear Europe to apply 
alternative processes instead of an investigation (including mediation) 
to resolve an Eligible Complaint, under new paragraph 3.6 of the 
Complaint Resolution Procedures;
    (c) revising and clarifying stages of the Eligible Complaints 
investigation process under paragraph 4 of the Complaint Resolution 
Procedures--this includes new provisions dealing with the process for 
appointing of an investigator, procedures for delaying the complaints 
process where there are contemporaneous court or other proceedings 
dealing with the same or a related matter, timelines for complaints 
investigations, and procedures surrounding the referral of complaints 
to the independent Complaints Commissioner where they are not dealt 
with expeditiously by an investigation. The revisions also address the 
matters that the investigator must have regard to when deciding whether 
a complaint should be upheld, which are a failure to act fairly, a 
failure to perform the Clearing House's regulatory functions having 
regard to all of the circumstances, a lack of care or a mistake, or an 
act of fraud, bad faith or negligence (which factors are consistent 
with the requirements of FSMA);
    (d) in paragraph 5, clarifying the manner in which the investor 
will provide his conclusions and recommendations for remedial action, 
if any, to the Clearing House and complainant, and removing an 
unnecessary reference to referral of a complaint to the Commissioner 
(which is covered in paragraph 4 and 6);
    (e) confirming, in new section 6.3 of the Complaint Resolution 
Procedures, that the Commissioner's decision, if adopted by the 
Clearing House, would be in full and final resolution and settlement of 
a complaint, binding a Clearing Member and preventing the use of any 
other dispute resolution procedure in relation to the same complaint 
(for example arbitration). Similar language in existing section 1.4 of 
the Complaint Resolution Procedures would be removed as duplicative
    (f) in paragraph 7, revising the timing for certain actions of the 
Commissioner upon referral of a complaint and making similar changes as 
discussed regarding paragraph 4 above to clarify the basis for uphold 
or rejecting complaint, consistent with the FSMA;
    (g) in paragraph 8, clarifying the procedures for the Commissioner 
to report on the results of the investigation and providing the 
Clearing House's discretion to make such report, in whole or in part, 
public; and
    (h) throughout the Complaint Resolution Procedures, including 
paragraphs 1, 9, 10 and 11, making a number of typographical and 
similar corrections, updates to cross-references, and similar non-
substantive drafting corrections.
(vi) U.S. Tax Requirements
    The proposed amendments would adopt a new Paragraph 6.1(k) of the 
Finance Procedures to address the application of Section 871(m) 
(``Section 871(m)'') of the Internal Revenue Code of 1986, as amended 
(the ``I.R.C.'') and regulations thereunder to futures and option 
contracts that reference certain underlying equity securities or equity 
indexes and are cleared by ICE Clear Europe (``equity contracts''). 
Section 871(m) imposes a 30% withholding tax on ``dividend equivalent'' 
payments that are made or deemed to be made to non-U.S. persons with 
respect to certain derivatives that reference equity of a U.S. issuer. 
Under the regulations implementing Section 871(m), certain financial 
transactions entered into by a non-U.S. person are considered ``Section 
871(m) Transactions'' and can potentially give rise to dividend 
equivalents subject to withholding tax. A dividend equivalent is deemed 
to arise if a dividend is paid on the underlying U.S. equity referenced 
by such Section 871(m) Transaction. Furthermore, under applicable 
regulations, ICE Clear Europe itself becomes a ``Withholding Agent'' 
whenever it enters into a Section 871(m) Transaction with a non-U.S. 
Clearing Member. Unless the non-U.S. Clearing Member enters into 
certain agreements with the Internal Revenue Service (``IRS''), ICE 
Clear Europe would be required to withhold on dividend equivalents with 
respect to any transactions with the non-U.S. Clearing Member that are 
Section 871(m) Transactions. However, a potential Withholding Agent, 
such as ICE Clear Europe, can avoid the burden of reporting, 
collecting, and remitting the withholding taxes imposed by Section 
871(m) on certain payments (including dividend equivalent payments) 
made or deemed to be made to a non-U.S. Clearing Member if (i) with 
respect to transactions in which the non-U.S. Clearing Member acts as a 
principal, such non-U.S. Clearing Member has

[[Page 13209]]

entered into a ``qualified intermediary agreement'' with the IRS as a 
``qualified derivatives dealer'' whereby the non-U.S. Clearing Member 
essentially agrees to undertake the withholding responsibilities (a 
``QDD'') and (ii) with respect to transactions in which the non-U.S. 
Clearing Member acts as an intermediary, such non-U.S. Clearing Member 
has entered into a qualified intermediary agreement with the IRS as a 
``qualified intermediary'' and the non-U.S. Clearing Member assumes the 
primary obligation for withholding under relevant tax provisions (a 
``Withholding QI'').
    For these reasons, ICE Clear Europe is proposing to adopt a new 
paragraph 6.1(k) of the Finance Procedures. Subparagraph (i) would 
require that, as a precondition for a non-U.S. Clearing Member to clear 
equity contracts with ICE Clear Europe, any such non-U.S. Clearing 
Member that is treated as a non-U.S. entity for U.S. federal income tax 
purposes must enter into appropriate agreements with the IRS and meet 
certain other specified qualifications under procedures of the IRS, 
such that ICE Clear Europe will not be responsible for withholding on 
dividend equivalents under Section 871(m). Subparagraph (ii) would 
require non-U.S. Clearing Members to certify annually to the clearing 
house that they satisfy these requirements. Subparagraph (iii) would 
require non-U.S. Clearing Members to provide, on an annual basis, 
certain information necessary for ICE Clear Europe to make required IRS 
filings. Subparagraph (iv) would require non-U.S. Clearing Members to 
notify the clearing house of relevant changes in their circumstances 
affecting compliance with paragraph 6.1(k). Subparagraph (v) would 
clarify that a Clearing Member's tax status as an ``intermediary'' or 
``dealer'' for this purpose would not affect its status for regulatory 
or other purposes.
(vii) Other Default Management Changes
    The amendments would make a number of other changes related to 
default management. The definition of ``Bankruptcy'' in Rule 101 would 
be amended to include a scenario where a person is ``granted suspension 
of payments''. Insolvency laws may sometimes allow for a suspension of 
payments, which ICE Clear Europe would treat as a ``Bankruptcy'' under 
the Rules to ensure that it has the full range of default management 
powers available to address such a scenario. (The amendment would not 
affect the existing limitations on exercising default remedies in 
connection with a Resolution Step.)
    The definition of ``Failure to Pay'' in Rule 101 would be amended 
to clarify the length of the cure period between the service of a 
failure to pay notice on ICE Clear Europe by a Clearing Member and the 
point at which a ``Failure To Pay'' occurs, in circumstances where ICE 
Clear Europe is granted an extension under Rule 110(b) or (c).
    The definitions of ``Insolvency'' and ``Insolvency Practitioner'' 
in Rule 101 would be amended to ensure that all relevant insolvency 
scenarios and insolvency office-holders are covered by the definitions. 
The defined term ``Insolvency'' would be widened to also cover a 
suspension of payments or moratorium being granted, which reflects a 
similar change made to the ``Bankruptcy'' definition (described above). 
In addition, the proposed changes would bring the making of an 
``instrument or other measure'' by a Governmental Authority pursuant to 
which a person's property is transferred within the definition, in 
addition to ``orders'' of a similar nature. These changes have been 
proposed following a legal review of relevant clearing member 
jurisdictions.
    A change is proposed at Rule 901(a)(viii) to expand the list of 
approvals and similar statuses, the revocation of which may constitute 
an Event of Default, to include loss of relevant ``exemptions'' by any 
Governmental Authority, Regulatory Authority, Exchange, Clearing 
Organisation or Delivery Facility. The change is being made as the loss 
of such an exemption is effectively equivalent to the loss of a licence 
or regulatory authorization, and ICE Clear Europe accordingly believes 
that loss of an exemption should similarly be treated as an Event of 
Default under Rule 901(a)(viii).
    A new Rule 902(d) is proposed to be added, which would provide that 
``Transfer Orders shall be legally enforceable, irrevocable and binding 
on third parties in accordance with Part 12, even on the occurrence of 
an Event of Default''. This proposed new provision refers to Part 12 of 
the Rules within the main default rules in Part 9, which is intended to 
provide comfort that the protections from the application of insolvency 
law under EMIR and the UK Companies Act 1989 for the default procedures 
of a central counterparty are available for Transfer Orders described 
under Part 12.
    In Rule 904(b), changes are proposed to clarify the price at which 
positions are transferred (``ported'') from a defaulting Clearing 
Member to a non-defaulting Clearing Member and the relevant time for 
the determination of such price, which is at the discretion of the 
Clearing House. The proposed changes would allow ICE Clear Europe to 
use the time of porting, the time of an Event of Default, Insolvency or 
Unprotected Resolution Step, or the end of the Business Day prior to 
porting, Event of Default, Insolvency or Unprotected Resolution Step as 
the time to determine the porting price. These changes are designed to 
facilitate ICE Clear Europe's ability to manage defaults efficiently 
and effectively, taking into account different insolvency regimes in 
Clearing Member jurisdictions. Similar changes are also proposed to 
Rule 905(b)(xiv) to provide that ICE Clear Europe would determine the 
price at which it ports positions to a transferee Clearing Member.
    Rule 905(b)(vi), which addresses how ICE Clear Europe would 
determine the liquidation price for offsetting Contracts that are to be 
paired and cancelled as part of the default management process, would 
be revised to refer to a new Rule 905(g). Rule 905(g) would provide 
that for purposes of liquidations, terminations and close-outs under 
Rule 905 ICE Clear Europe would have discretion to determine the 
relevant price of the Contract. ICE Clear Europe would be permitted to 
do so on the basis of the Exchange Delivery Settlement Price, Mark-to-
Market Price, FX Market Price, Reference Price, Market-to-Market Value, 
current market value or any other price specified by ICE Clear Europe. 
The changes would also clarify that ICE Clear Europe has discretion to 
determine the reference time for the purposes of the liquidation price 
calculation. A further change has been proposed to Rule 905(b)(vi) to 
insert the words ``buy and sell or'' before ``Long and Short 
Positions'' to reflect the terminology used throughout the Rules to 
refer to opposite positions in Futures. (``Long and Short'' are 
typically used to refer to positions in Options rather than Futures.)
    New Rule 905(b)(xix) would be added to clarify that ICE Clear 
Europe has authority to carry out default auctions and construct 
auction lots, which may include positions relating to multiple customer 
accounts of a Non-FCM/BD Clearing Member. (Consistent with US 
regulatory requirements, an auction lot relating to Contracts of a 
defaulting FCM/BD Clearing Member may only contain positions relating 
to a single account.) The new provision would not permit a single 
auction lot to consist of both proprietary and client positions. 
Further, the new provision would provide ICE Clear Europe with the 
explicit power to use a single bid price received for a particular lot 
of auctioned

[[Page 13210]]

positions to calculate liquidation values and net sums by apportioning 
this bid price across the various accounts in which the contracts in 
the auction lot are recorded. Although the existing Rules do not 
necessarily preclude ICE Clear Europe from constructing an auction lot 
consisting of contracts recorded in different accounts, the proposed 
amendment would provide an express authority to do so. The amendment 
would thus enhance transparency.
    In Rule 906(a), the definition of the ``GFC'' variable in the net 
sum calculation, which references guaranty fund contributions of the 
Defaulter, would be amended to provide that guaranty fund contributions 
must be applied for this purpose ``in accordance with Rules 906(b) and 
(c)''. The referenced provisions set out restrictions on the setting 
off or aggregation of assets attributable to different accounts of a 
defaulting Clearing Member for the purposes of the net sum calculation 
and require a separate net sum calculation to be carried out for each 
account. The reference in the ``GFC'' definition to these provisions is 
not intended to change current practice, but to clarify that these 
limitations apply to the use of the guaranty fund contributions in 
determining the net sum calculations. A similar change is proposed to 
the final subparagraph of Rule 906(b), to clarify that guaranty fund 
contributions and other amounts may be used for the purpose of 
calculating any net sum on any account of the defaulting Clearing 
Member, subject to the restrictions in Rule 906(c) (the restrictions in 
Rule 906(b) are already referenced in the current version of this 
provision).
    Rule 906(c) is proposed to be amended to provide that ICE Clear 
Europe ``shall'' aggregate, set off, or apply surplus assets in 
relation to a defaulting Clearing Member's Proprietary Account to meet 
a shortfall on one or more of its Customer Accounts (rather than 
``may''). This is not intended to change the Clearing House's default 
management practices (under which such application of the Proprietary 
Account would be made), but is intended to clarify the operation of the 
Rules and avoid potential questions regarding whether or not ICE Clear 
Europe has legitimately exercised its discretion to set off assets in 
this way.
    A clarification would be made in Rule 912(b)(iv), which addresses 
liability of the Sponsor and Sponsored Principal on an Individually 
Segregated Sponsored Account, to add the words ``and severally'' after 
the word ``jointly''. The change was suggested by counsel to an 
industry association concerning the sponsored principal model, and is 
intended to fix a drafting error to ensure that the liabilities and 
assets on sponsored accounts have mutuality. The revised language is 
consistent with other provisions in Part 19 addressing joint and 
several liability for such accounts, and the ``and severally'' language 
in this provision was inadvertently omitted.
    Rule 1202(b)(i) would be amended to include a new paragraph (B) 
stating an additional circumstance in which a Securities Transfer Order 
would be deemed to arise under the designated system operated by ICE 
Clear Europe for the purposes of the Financial Markets and Insolvency 
(Settlement Finality) Regulations 1999. In the event of one Clearing 
Member (or Sponsored Principal) allocating an F&O Contract to another 
Clearing Member (or Sponsored Principal) under Part 4 of the Rules, a 
new Securities Transfer Order would be deemed to arise under the 
Designated System under new Rule 1202(b)(i)(B). The intended result of 
this change is that such a transfer would be covered by the settlement 
finality provisions under the Settlement Finality Regulations 
(implementing the EU Settlement Finality Directive), and subject to 
section 20 of those Regulations, and benefit from the Regulations' 
protections against the application of national EU insolvency laws. 
Changes have also been proposed to Rule 1202(f) to implement this new 
Transfer Order for allocations by inserting the words ``or allocated'' 
after ``transferred, assigned or novated''.
    In Rule 1202(m)(iv)(A), changes are proposed to refer to rights, 
liabilities and obligations of Clearing Members being transferred or 
assigned, in addition to the current reference to these being novated. 
These proposed changes would ensure consistency with the terminology 
used elsewhere in the Rules (for example in Part 9) in relation to the 
transfer of positions from one Clearing Member to another Clearing 
Member (whether in a default scenario or otherwise) and that the 
provisions in Part 12 relating to Position Transfer Orders capture the 
full range of mechanisms through which positions can be transferred 
from one Clearing Member to another. Rule 1202(m)(vi)(B) is also 
proposed to be amended to add the words ``or Customer'' after the word 
``Affiliate'' to correct an unintentional omission.
    Rule 1205(i) would be amended to provide that New Contract Payments 
Transfer Orders shall also be satisfied if and at the point that the 
relevant F&O Transaction or Contract ``has become subject to a Position 
Transfer Order that has itself become satisfied under Rule 1205(b)''. 
This drafting change has been proposed to clarify that a New Contract 
Payment Transfer Order would terminate if the relevant transaction or 
contract to which it relates has become subject to a Position Transfer 
Order that has been satisfied, which would occur once the relevant 
contracts have been transferred, assigned or novated to the relevant 
transferee Clearing Member.
(viii) Delivery Procedures Changes
    In the Delivery Procedures, various changes would be made to ensure 
that the procedures are consistent with the operational practices and 
systems of ICE Clear Europe and affiliated trading venues, including 
with respect to the processes set out in the delivery timetables. 
Paragraph 19 of the General Provisions, which describes the Guardian 
electronic grading and delivery system used by ICE Clear Europe, would 
be amended to reflect the fact that other deliverable products may be 
dealt with in the Guardian system in addition to those financials & 
softs commodities already specifically listed in that paragraph.
    In Parts A and C of the Delivery Procedures, a new paragraph would 
be added to clarify that all references to timings or times of day in 
that Part are references to London times. In addition, updates to 
several Parts of the Delivery Procedures would be made to reflect 
current operational practices whereby certain submissions (such as 
delivery intentions) are made electronically through the ECS system, 
rather than through submission of specified delivery forms, which in 
many cases are out of date (and accordingly references to such forms 
have been removed). Other changes to update deadlines and descriptions 
for particular delivery steps or, in some cases, to delete delivery 
steps that are no longer carried out would be made. Section 7, which 
addressed alternative delivery procedure for certain European emissions 
contracts, would be deleted as it is unnecessary in light of the 
provisions of Part A of the Delivery Procedures. The various changes 
have been proposed in the following parts of the Delivery Procedures: 
Part A, paragraphs 5.1, 5.2 and 5.3 (Delivery Timetables); Part B, 
paragraph 2 (Delivery Timetable) and paragraph 4 (Delivery 
Documentation Summary); Part C, paragraph 5 (Delivery Timetable) and 
paragraph 9 (Delivery Documentation Summary); Part D, paragraphs 5.1 
and 5.2 (Delivery Timetables) and paragraphs 8.1 and 8.2

[[Page 13211]]

(Delivery Documentation Summaries); Part F, paragraphs 6.1 and 6.2 
(Delivery Timetables) and paragraphs 9.1 and 9.2 (Delivery 
Documentation Summaries); Part G, paragraphs 5.1 (Delivery Timetable) 
and 8.1 (Delivery Documentation Summary); Part H, paragraphs 5.1 
(Delivery Timetable) and 8.1 (Delivery Documentation Summary); Part I, 
paragraphs 6.1 (Delivery Timetable) and 9.1 (Delivery Documentation 
Summary); Part K, paragraphs 4 (Delivery Timetable) and 8 (Delivery 
Documentation Summary); Part L, paragraphs 4 (Delivery Timetable) and 8 
(Delivery Documentation Summary); Part N, paragraph 5 (Delivery 
Timetable); Part Q, paragraph 1 (Delivery Timetable); Part U, 
paragraphs 1.6 and 1.9 (Delivery Timetables); and Part AA, paragraphs 
6.1 (Delivery Timetable) and 9.1 (Delivery Documentation Summary).
(ix) Other Changes
    Various other miscellaneous changes and clarifications are proposed 
to the Rules and Procedures.
    Changes have been proposed to expand the definition of ``Board'' in 
Rule 101 so that it clearly includes, in the context of any power, 
discretion or authority of the board, other similar bodies and 
committees established by ICE Clear Europe thereunder. Similarly, in a 
number of places in the Rules, changes have been proposed to include 
``committees'', ``individual committee members'' and similar terms in 
addition to existing terms referring to persons exercising governance 
or other functions for ICE Clear Europe or a Clearing Member, such as 
``directors'' or ``officers''. These were previously omitted in various 
places or terms were used inconsistently to describe individuals or 
governance bodies in different provisions of the Rules. ICE Clear 
Europe has determined, following an internal review, to make these 
changes to more accurately describe the persons involved in governance 
in a consistent way in the Rules. The proposed changes are contained in 
Rules 102(j)(B), 102(p), 109(c), 111(a), 114(a), 201(a)(xxvi), 905(f), 
1001(d) and 1003(q). The definition of ``Representative'' has also been 
expanded so as to cover any persons who are employed or authorised by, 
or appointed to act on behalf of, another person and such term would be 
inserted in the Rules to refer to representatives of Clearing Members 
in Rule 102(j).
    Certain changes have also been proposed to the Rules to improve the 
provisions concerning intellectual property (``IP'') rights. The 
definition of ``Intellectual Property'' in Rule 101 would be revised to 
improve the international coverage of the definition, by expressly 
confirming that it covers IP rights in any part of the world and all IP 
rights ``for the entire duration of such rights''. This clarifies the 
provisions relating to IP under the Rules to ensure that all the 
standard IP rights are covered. In addition, a new Section 12(d) would 
be inserted in each of the Standard Terms, which would require 
Customers to agree to Rule 406(g), which concerns the Clearing House's 
intellectual property rights. As part of its review of the Standard 
Terms more generally, as discussed herein, ICE Clear Europe has 
determined that this change is appropriate to avoid any uncertainty as 
to the applicability of Rule 406(g) in the context of customer 
transactions. The representation in question supports the position in 
relation to IP rights provided for in the Rules. ICE Clear Europe has 
added this provision to ensure that it has the same contractual 
representation from Customers as regards IP rights as it does from 
Clearing Members.
    Rule 106 would be amended to expand the provisions relating to 
confidentiality and the disclosure of information. For drafting 
clarity, redesignated paragraph (b) would set out the information to be 
held in confidence by the Clearing House, and redesignated paragraph 
(c) would specify disclosures of confidential information permitted to 
be made by the Clearing House. In terms of the scope of confidential 
information under Rule 106(b), clarifications would be made to provide 
that any information in relation to a Customer in connection with 
Margin payments is covered by the confidentiality obligation. Changes 
proposed to Rule 106(c) would clarify and extend the circumstances in 
which ICE Clear Europe would be permitted, under the Rules, to disclose 
confidential information. Specifically, a clarification would be added 
at Rule 106(c)(i) to allow for confidential information to be disclosed 
where ``lawful requests'' are received from regulators (rather than 
only a formal statutory request with legal force or Court order) or if 
necessary for the making of a complaint or report for offences which 
may have been committed under Applicable Laws. This amendment follows 
an internal review of these provisions and is intended to avoid 
potential questions as to ICE Clear Europe's ability to disclose 
confidential information when ICE Clear Europe is subjected to 
regulatory requests for information or where the disclosure is 
advisable under Applicable Law but not necessarily required by formal 
exercise of statutory powers or an unequivocal court order or statutory 
mandate.
    Rule 115(b), which addresses the sharing of information with 
Governmental Authorities or referrals of complaints to Exchanges, 
Clearing Organisations or Regulatory Authorities, would be amended to 
provide that such actions are subject to the requirements of Rule 106.
    Various corrections and clarifications are proposed at Rule 110(a), 
Rule 114(d) and paragraph 4.2 of the Business Continuity Procedures 
relating to ICE Clear Europe's ability to extend or waive requirements 
of the Rules. In Rule 110(a), a sentence would be added providing that 
waivers may be publicized at the discretion of ICE Clear Europe. (ICE 
Clear Europe does not believe that this amendment alters its existing 
authority, but believes it would be useful to clarify that it may make 
public information about any such waiver.) A new Rule 114(d) is 
proposed to provide expressly that ICE Clear Europe may take any 
measure that it deems reasonably necessary in relation to the 
organization and operation of the Clearing House. ICE Clear Europe is 
proposing to add this provision to ensure that it is not prevented from 
taking action under a range of circumstances that may arise, including, 
but not limited to a default scenario, merely because there is no 
specific provision of the Rules explicitly empowering it to do so. This 
authority is subject to a proviso that ICE Clear Europe may not take 
any action in breach of any provision of the Rules or Procedures or 
that would modify the Rules or Procedures, and that any such action 
must be taken in accordance with the Clearing House's internal 
governance requirements. ICE Clear Europe does not believe that this 
amendment would alter its existing ability to take actions in such 
circumstances, but the amendment would provide greater clarity and 
legal certainty as to its permitted scope of action. ICE Clear Europe 
would rely on its internal controls and compliance function to ensure 
that any such actions are consistent with its Rules and Procedures. A 
related change at paragraph 4.2 of the Business Continuity Procedures 
would clarify that ICE Clear Europe's discretionary powers to amend or 
waive requirements or deadlines in the case of a Business Continuity 
Event affecting a Clearing Member only apply to the affected Clearing 
Member(s).
    It is proposed that Rule 117(k) be amended to clarify that Clearing 
Members with the ability to claim

[[Page 13212]]

sovereign immunity would be deemed to have ``irrevocably'' waived such 
immunity for the purposes of dispute resolution processes under Rule 
117, to the extent permitted by applicable law. This approach is 
consistent with typical practice for waivers of sovereign immunity and 
the documentation thereof in the derivatives markets. ICE Clear Europe 
is adopting this amendment, following an internal review, for clarity 
and to avoid any suggestion that a waiver of immunity in this context 
could be revoked.
    Various enhancements to clearing membership requirements for 
Clearing Members have been proposed in Rule 201(a). For example, the 
need for representatives of Clearing Members to hold all 
authorizations, licences, consents and approvals required under 
applicable laws would be added in Rule 201(a)(vi). Additional detail on 
operational, managerial, back office, systems, controls, business 
continuity and banking requirements, among others, for Clearing Members 
has been proposed in Rules 201(a)(xi), (xiv), (xxv), (xxvi) and 
(xxvii). Similarly, changes are proposed to Rule 202(a)(xiv), (xxii) 
and (xxiii) to enhance the ongoing requirements for Clearing Members. 
These changes include additional detail on system and controls 
requirements and the addition of two new requirements to ensure that 
ICE Clear Europe has sufficient access rights in relation to its 
Clearing Members. Proposed new Rule 202(a)(xxii) would require Clearing 
Members to be accessible during and for two hours immediately after 
close of business on every business day. Further, proposed new Rule 
202(a)(xxiii) would require Clearing Members to provide such access as 
ICE Clear Europe requires to their premises, records and personnel for 
the purposes of, for example, carrying out investigations or audits. 
Following an internal review of relevant requirements, ICE Clear Europe 
has proposed some of these proposed changes to address identified 
commercial and operational risks for ICE Clear Europe and to ensure 
that Clearing Members meet appropriate and evolving standards 
concerning their systems and operations based on day-to-day operational 
experience with Clearing Members. The amendments also generally reflect 
improvements are further intended to better harmonize Rules and 
membership requirements across ICE clearinghouses.
    In Rule 203(a)(xvi), a change is proposed to clarify that Clearing 
Members are prohibited from engaging in conduct that would render them 
unable to satisfy obligations on Clearing Members under Rule 202(a) 
(just as the current Rule prohibits conduct that would render the 
Clearing Member unable to satisfy the membership criteria under Rule 
201(a)). The amendment is intended to avoid any potential gap in 
ongoing obligations under the Rule. New Rule 203(a)(xxii) would 
explicitly limit the ability of Clearing Members or Affiliates to 
exercise set-off rights against ICE Clear Europe where such Clearing 
Members (or their Affiliates) have a relationship in another capacity, 
for example providing banking or custodial services to ICE Clear 
Europe. This change is intended to reduce the risks that other 
contractual agreements contain provisions that could interfere with 
default management or operational processes. The approach aims to 
provide a level playing field for all Clearing Members, regardless of 
any other commercial relationships with the ICE group.
    Changes are proposed in Rules 204(a)(xii) and 204(b)(i) to enhance 
certain notification requirements imposed on Clearing Members. The 
Clearing Members' notification requirement at Rule 204(a)(xii) would be 
extended to require notification of investigations or allegations of 
breaches of Applicable Laws by a Clearing Member (if they are non-
frivolous and non-vexatious), in addition to actual breaches. ICE Clear 
Europe believes this is an appropriate extension of the Rule, to 
facilitate ongoing monitoring by the Clearing House of circumstances 
that may significantly affect Clearing Members. In Rule 204(b)(i), 
additional language is proposed to require that a Clearing Member 
notify the Clearing House of a change of control where that change of 
control is subject to the approval of the FCA or PRA, in addition to a 
change of control notifiable to the FCA or PRA (as required under the 
current version of Rule 204(b)(i)). In ICE Clear Europe's view, the 
amendment avoids a potential gap in notification requirements based on 
a distinction between regulatory notice and approval that is not 
relevant in this context.
    It is proposed that Rules 206(a) and (b) be amended to reflect the 
fact that Clearing Members are required to maintain other financial 
resources requirements (in addition to Capital) under the relevant CDS, 
Finance and Membership Procedures. (The amendment thus does not change 
requirements applicable to Clearing Members but is intended to 
correctly cross-refer to the existing requirements of various 
Procedures documents.) The proposed amendments would also require 
Clearing Members to provide documentation and statements supporting 
calculations of financial resources requirements, as well as details of 
the terms and conditions of any documentation relating to financial 
resources requirements, upon ICE Clear Europe's request.
    Rule 301(f) would be revised to allow the Clearing House to grant 
an exception to the requirement for payments to be made by electronic 
transfer from an account at an Approved Financial Institution for any 
type of payment (and not merely application fees, as in the current 
Rules). This is intended to provide ICE Clear Europe with greater 
flexibility to allow payments to be made using a different method 
should this become necessary.
    A clarification is proposed to Rule 404(a)(vii) that ICE Clear 
Europe must have requested additional Margin or Permitted Cover ``at 
the time of the Transaction'' for a Contract to be voidable under this 
provision if such additional Margin or Permitted Cover is not provided 
by a specified time. The amendment is intended to provide greater legal 
certainty by ensuring that the Clearing House's ability to void the 
Contract is limited to the specific situation where additional margin 
is requested at the time of the transaction and is not provided. (A 
failure to provide margin requested at other times would be addressed 
by the default rules.)
    In Rule 501(a), a change is proposed that Approved Financial 
Institutions may only act in another capacity if ICE Clear Europe has 
provided its approval ``in writing''. The amendment is intended to 
provide greater certainty for the Clearing House and Approved Financial 
Institutions as to the capacities in which such institutions may be 
acting.
    At the beginning of Part 15 of the Rules and at paragraph 1.86 of 
the CDS Procedures, changes have been proposed to clarify that 
references to timings or times of day in connection with CDS Contracts 
are to Greenwich Mean Time (without taking into account daylight 
savings time (British Summer Time)). These changes are necessary to 
reflect applicable timings for the CDS market under standard CDS 
documentation, and to avoid application of Rule 102(h) (which specifies 
London time by default, including with daylight savings time 
adjustments). This change is intended to avoid `basis risk' between 
cleared CDS Contracts and uncleared CDS contracts (which also follow 
standard CDS documentation using Greenwich Mean Time). The changes 
reflect current operational practices and remove an

[[Page 13213]]

unintended inconsistency in the Rules and Procedures.
    Various changes have been proposed in paragraphs 2.2, 2.4(c), 2.6-
2.7, 6.1(a)(i) and 6.2(g) of the Clearing Procedures to update certain 
deadlines in order to conform to or reflect relevant Market Rules, 
conform to certain operational practices and specify the message format 
requirements for F&O Contracts to be validly accepted by ICE Clear 
Europe's systems. In paragraph 2.2(c)(ii) a reference to allocation of 
trades within one hour would be removed, as the timing of allocation 
may be a matter of the relevant Market Rules. Paragraph 2.6 would make 
explicit in the Clearing Procedures the Clearing House's position that 
Clearing Members bear the risk of late or incorrect instructions to the 
Clearing House. Paragraph 2.7 would provide clarity as to specific 
reasons for rejection of F&O Contracts and procedures for resubmission.
    The Finance Procedures would be amended to clarify references to 
certain operational practices involved in settling margin payments 
between ICE Clear Europe and its Clearing Members. Changes have been 
proposed in paragraphs 2.1 and 2.2 to reflect settlement requirements 
in relevant currencies, whether in whole or in part. The amendments 
would also clarify the drafting of the existing provision providing for 
a ``haircuts'' to be applied to original margin provided in a currency 
other than the reference currency for a particular contract. Similarly, 
changes are to be made in paragraphs 5.6 (Table 1) and 6.1(i)(i) of the 
Finance Procedures to refer to the full range of currencies aside from 
EUR, USD and GBP that are currently available to be used for 
settlement. These amendments are intended to update the Finance 
Procedures to reflect current settlement practice.
    Paragraph 6.1(b) of the Finance Procedures would be reorganized and 
a statement would be added (for clarification and reflecting the 
current requirements of the Rules) that payment requirements in respect 
of Margin adjustments would be subject to Part 3 of the Rules. In 
addition, drafting clarifications in paragraphs 6.1(e) and (f) would 
confirm that instructions for withdrawals of cash must be received by 
the deadlines specified in the relevant table for cash to be withdrawn 
on the same day and to specify the conditions that must be satisfied 
for ICE Clear Europe to accept cash transfers entered into its systems 
after the instruction deadlines. The amendments are intended to state 
more clearly current operational practices of the Clearing House.
    Paragraph 6.1(g) would be revised to provide explicitly that ICE 
Clear Europe has the ability to delay cash withdrawals by a Clearing 
Member under paragraph 6.1 if there are outstanding amounts payable by 
that Clearing Member (or any Affiliate of that Clearing Member) to ICE 
Clear Europe, and that such amounts withheld would be treated as 
additional required margin of the Clearing Member. This amendment would 
codify an existing operational practice of the Clearing House and will 
enhance the Clearing House's ability to manage the credit and liquidity 
risk of a potential default by a Clearing Member that has not completed 
its daily settlement obligations.
    In paragraphs 6.1(i)(i) and 6.1(i)(ii) of the Finance Procedures, 
amendments have also been proposed to provide that ICE Clear Europe may 
publish circulars in relation to certain matters relating to intra-day 
margin calls affecting a significant number of Clearing Members but is 
not obligated to do so. The change is intended to provide the Clearing 
House flexibility to determine the best means of communicating with 
affected Clearing Members under the particular circumstances, which 
will not necessarily be a widely distributed circular to the entire 
market.
    In paragraph 6.1(i)(iii) of the Finance Procedures, amendments 
would provide that adjustments to guaranty fund contributions will be 
made 5 Business Days after the date of notification by circular for all 
guaranty fund segments (a change from two Business Days for the CDS and 
FX Guaranty Funds). ICE Clear Europe believes that it is appropriate to 
harmonize the guaranty fund contribution requirements across all 
product categories, and further that the five Business Day timeframe is 
sufficiently protective of the Clearing House in the case of ordinary 
course adjustments to the guaranty funds.
    In paragraph 6.1(i)(vii), the list of types of payments that may be 
included in end-of-day or ad hoc net payments would be updated to 
include Option premiums, corporate action payments, and amounts 
resulting from reduce gain distributions, product terminations or non-
default loss contributions under Part 9 of the Rule. The change is 
intended to reflect the full range of payments that may be made to and 
from the Clearing House, consistent with current practice.
    Various changes have been proposed in paragraph 7.2 of the Finance 
Procedures in relation to non-cash assets provided as Permitted Cover. 
The changes are intended to update and improve the drafting of this 
provision and more clearly reflect the operational detail of how ICE 
Clear Europe deals with Permitted Cover, including the use of the ECS 
system to provide information in relation to non-cash Permitted Cover 
provided to the Clearing House. The amendments would also reflect in 
the Rules the Clearing House's existing ability to generate liquidity 
from non-cash assets transferred to the Clearing House by title 
transfer pursuant to repurchase transactions, secured lending 
facilities or similar arrangements, subject to the requirement of the 
Clearing House to return unused Margin and Guaranty Fund contributions 
of the same kind as was provided. (The use of such transactions is not 
currently addressed in the Rules.) In paragraph 8.2, a clarification 
would be added that a request form to lodge new certificates of deposit 
is available on ICE Clear Europe's website.
    In paragraphs 11.2 and 11.4 of the Finance Procedures, changes are 
proposed to remove a presumption that instructions relating to 
securities are for same-day settlement and to reflect that ICE Clear 
Europe accepts settlement instructions specifying a settlement date up 
to two business days after the relevant trade date, and to make certain 
other drafting improvements. This amendment is intended to reflect 
existing practice for the range of securities accepted by ICE Clear 
Europe, and the amendments are intended to provide improved clarity.
    Various other typographical corrections and similar changes have 
been proposed elsewhere throughout the Finance Procedures.
    A drafting change is proposed to paragraph 3.1(m) of the General 
Contract Terms to make the general termination provision for all 
contracts more generic. Following the proposed amendments, paragraph 
3.1(m) would simply state that contracts terminate automatically ``only 
in accordance with and at the times specified in the Rules''. This 
change would ensure that this provision of the General Contract Terms 
does not need to be updated when termination provisions in the Rules 
are amended.
    The Membership Procedures would be amended in various places to 
update the various requirements that Clearing Members must meet to 
attain and maintain membership (consistent with the amendments to the 
membership provisions of the Rules discussed above), and ensure that 
the Membership Procedures use terminology consistent with the Rules. 
Paragraph 1.1 would be amended to confirm that ICE Clear

[[Page 13214]]

Europe would require evidence of authority of Clearing Member 
signatories to be provided, which is consistent with the Clearing 
House's current practices. In the table at paragraph 4.2, various 
updates are proposed to reflect the wording used in the current Rules 
(as amended by this and previous filings) and to ensure that accurate 
details of timing and other requirements for submission of 
notifications and documentation are specified. In parts C.4, D.5, D.7 
and D.11 of the table, references to key personnel of a clearing member 
(or similar references) have been expanded to include the board of 
directors. Amendments to part C.11 would also clarify that notices 
relating to changes in Eligible Persons (i.e. persons for which 
Clearing Members clear) include suspension of clearing arrangements for 
Eligible Persons, and are separate from any requirements under the 
Clearing Membership Agreement. In part E.2, the timeframe for certain 
notices relating to complaints has been revised to be consistent with 
amendments to the Complaint Resolution Procedures.
(b) Statutory Basis
    ICE Clear Europe believes that the proposed rule changes are 
consistent with the requirements of Section 17A of the Act \11\ and the 
regulations thereunder applicable to it, including the standards under 
Rule 17Ad-22.\12\ In particular, Section 17A(b)(3)(F) of the Act 
requires that that rule changes be consistent with the prompt and 
accurate clearance and settlement of securities transactions and 
derivative agreements, contracts and transactions cleared by ICE Clear 
Europe, t[aring]he safeguarding of securities and funds in the custody 
or control of ICE Clear Europe or for which it is responsible, and the 
protection of investors and the public interest.\13\
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78q-1.
    \12\ 17 CFR 240.17Ad-22.
    \13\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    As discussed herein, the proposed rule changes are principally 
designed to enhance key aspects of the clearing framework, including by 
improving the customer documentation framework for Non-FCM/BD Clearing 
Members, adopting an Externalized Payments Mechanism, facilitating 
treatment of variation and mark-to-market margin as settlement payments 
for purposes of Clearing Member capital requirements, improving futures 
and option settlements and related calculations, facilitating 
compliance with certain U.S. tax requirements and improving overall 
default management. The amendments also clarify various aspects of the 
Rules and Procedures to improve drafting and ensure consistency with 
operational practices and processes as they have evolved. In ICE Clear 
Europe's view, these changes, as discussed in detail herein, will 
facilitate the prompt and accurate clearance and settlement of 
transactions through the Clearing House and are further generally 
consistent with the protection of investors and the public interest. 
Furthermore, enhancing the customer documentation framework, and 
improving the ability of ICE Clear Europe to conduct post-default 
porting, as well as other improvements to the margin process and the 
default management processes discussed herein, will enhance the 
safeguarding of securities and funds in the custody or control of the 
Clearing House or for which it is responsible. As such, the amendments 
are consistent with the requirements of Section 17A(b)(3)(F) of the 
Act.\14\
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    With respect to proposed paragraph 6.1(k) of the Finance 
Procedures, the changes are intended to facilitate compliance by ICE 
Clear Europe and Clearing Members with their obligations under Section 
871(m) and related U.S. tax obligations. ICE Clear Europe further 
believes that the amendments will facilitate the clearance and 
settlement of securities and derivative transactions by allowing it to 
avoid having to withhold on payments to non-U.S. Clearing Members 
relating to dividend equivalents. The imposition of withholding 
responsibilities on ICE Clear Europe would potentially interfere with 
the current ICE Clear Europe daily settlement process for equity 
contracts, and introduce new complications and risks for that process. 
The proposed rule change would eliminate such potential complications 
and risks, and permit ICE Clear Europe to continue its current 
settlement procedures for equity contracts, without need for ICE Clear 
Europe to withhold on payments made to Clearing Members. Thus, ICE 
Clear Europe believes the proposed rule change will promote the prompt 
and accurate clearance and settlement of securities and derivatives 
transactions and the protection of investors and the public interest, 
within the meaning of Section 17A(b)(3)(F) of the Act.\15\
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    Moreover, ICE Clear Europe believes that proposed paragraph 6.1(k) 
does not unfairly discriminate among participants in the use of the 
clearing agency, within the meaning of Section 17A(b)(3)(F).\16\ 
Although the proposed rule change would impose additional requirements 
and/or restrictions on non-U.S. Clearing Members that would not apply 
to Clearing Members that are U.S. entities for U.S. federal income tax 
purposes (``U.S. Clearing Members''), ICE Clear Europe believes that 
this approach reflects the nature of the requirements of Section 871(m) 
(as the additional withholding requirements under Section 871(m) would 
not apply with respect to payments by the Clearing House to U.S. 
Clearing Members). Moreover, ICE Clear Europe believes it is preferable 
for the clearing system as a whole to place compliance costs with 
respect to Section 871(m) Transactions on the relevant Clearing Member, 
rather than on the Clearing House itself, given that withholding can be 
avoided at the Clearing House level if the relevant Clearing Member has 
entered into the requisite agreements with the IRS complies with 
certain other conditions. Therefore, ICE Clear Europe believes that the 
proposed rule change is not unfairly discriminatory among participants 
in the use of the clearing agency and is consistent with Section 
17A(b)(3)(F) of the Act.\17\
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78q-1(b)(3)(F).
    \17\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    The amendments are additionally consistent with Section 
17A(b)(3)(G) of the Act which requires that the rules of a clearing 
agency provide that its participants be appropriately disciplined for 
violation of any provision of the rules of the clearing agency by 
expulsion, suspension, limitation of activities, functions, and 
operations, fine, censure, or any other fitting sanction.\18\ The 
amendments are also similarly consistent with Section 17A(b)(3)(H) of 
the Act which requires that the rules of a clearing agency in general, 
provide a fair procedure with respect to the disciplining of 
participants, the denial of participation to any persons seeking 
participation therein, and the prohibition or limitation by the 
clearing agency of any person with respect to access to services 
offered by the clearing agency.\19\ The various changes proposed to 
Part 10 of the Rules to streamline and improve ICE Clear Europe's 
disciplinary processes are consistent with these requirements of the 
Act. The drafting improvements would clarify the process of 
investigating rule breaches, clarify that non-compliance with an 
investigation could lead to additional disciplinary action against a 
Clearing Member, clarify the conditions surrounding the use of the 
Summary Procedure, and address the interaction between ICE Clear 
Europe's disciplinary procedures

[[Page 13215]]

under the Rules and any similar procedures under Market Rules to ensure 
that parallel disciplinary procedures under Market Rules would not 
preclude disciplinary procedures ICE Clear Europe's own rules. ICE 
Clear Europe believes that the clarity relating to disciplinary 
processes will better ensure appropriate disciplinary actions are taken 
with respect to rule violations, consistent with the requirements of 
Section 17A(b)(3)(G) of the Act \20\ and Section 17A(b)(3)(H) of the 
Act.\21\
---------------------------------------------------------------------------

    \18\ 15 U.S.C. 78q-1(b)(3)(G).
    \19\ 15 U.S.C. 78q-1(b)(3)(H).
    \20\ 15 U.S.C. 78q-1(b)(3)(G).
    \21\ 15 U.S.C. 78q-1(b)(3)(H).
---------------------------------------------------------------------------

    The amendments are also consistent with the relevant specific 
requirements of Rule 17Ad-22,\22\ as set forth in the following 
discussion:
---------------------------------------------------------------------------

    \22\ 17 CFR 240.17Ad-22.
---------------------------------------------------------------------------

(i) Legal Framework
    Rule 17Ad-22(e)(1) \23\ requires that clearing agencies establish 
policies and procedures that provide for a well-founded, clear, 
transparent, and enforceable legal basis for each aspect of its 
activities in all relevant jurisdictions. Various amendments have been 
proposed to strengthen the legal foundations for the customer 
documentation framework, through the Standard Terms, in particular. 
Amendments would be made to the Rules to confirm Customers' and non-
FCM/BD Clearing Members' acceptance of the Standard Terms, and to limit 
the effect of conflicting automatic early termination provisions in 
customer documentation. These changes would reduce legal uncertainties 
in default management. The definitions of Bankruptcy, Insolvency and 
Insolvency Practitioner would be amended to better capture all relevant 
proceedings in relevant jurisdictions. The Rules would also be amended 
to improve the provisions relating to confidentiality and the 
disclosure of information by clarifying and extending the circumstances 
in which ICE Clear Europe would be permitted to disclose confidential 
information to allow it to facilitate compliance with regulatory 
requests.
---------------------------------------------------------------------------

    \23\ 17 CFR 240.17Ad-22(e)(10). The rule states the following: 
``(e) Each covered clearing agency shall establish, implement, 
maintain and enforce written policies and procedures reasonably 
designed to, as applicable:
    (1) Provide for a well-founded, clear, transparent, and 
enforceable legal basis for each aspect of its activities in all 
relevant jurisdictions.''
---------------------------------------------------------------------------

    Other changes would enhance legal certainty and settlement 
finality. Amendments would enhance representations as to transfer of 
Permitted Cover, including that a ``transfer of Permitted Cover'' is 
not contrary to or in breach of a requirement of Applicable Law, third 
party right or other contractual obligation. A further Rule change 
would enhance the enforceability of Transfer Orders in default 
scenarios and take advantage of protections from the application of 
insolvency law under EMIR and the UK Companies Act 1989. Another Rule 
amendment would include an additional circumstance in which a 
Securities Transfer Order would be deemed to arise under the designated 
system operated by ICE Clear Europe for the purposes of settlement 
finality legislation. (These amendments are also consistent with the 
settlement finality requirements under SEC Rule 17Ad-22(e)(8).\24\)
---------------------------------------------------------------------------

    \24\ 17 CFR 240.17Ad-22(e)(8). The rule states the following: 
``(e) Each covered clearing agency shall establish, implement, 
maintain and enforce written policies and procedures reasonably 
designed to, as applicable: . . . (8) Define the point at which 
settlement is final to be no later than the end of the day on which 
the payment or obligation is due and, where necessary or 
appropriate, intraday or in real time.''
---------------------------------------------------------------------------

    Finally, certain changes will also facilitate compliance with U.S. 
tax requirements under Section 871(m), to facilitate the ability of ICE 
Clear Europe to make payments of dividend equivalents to Clearing 
Members free of US withholding taxes, in compliance with US tax laws.
    The amendments also generally update and clarify the drafting of 
various provisions of the Rules and Procedures, with the goal of 
enhancing the clarity of the overall legal and documentation framework. 
In totality, the amendments largely act so as to align the rules with 
existing operational practice, to correct errors, to promote legal 
certainty and to provide transparency.
    For the foregoing reasons, in ICE Clear Europe's view, the 
amendments are consistent with the requirements of Rule 17Ad-
22(e)(1).\25\
---------------------------------------------------------------------------

    \25\ 17 CFR 240.17Ad-22(e)(1).
---------------------------------------------------------------------------

(ii) Physical Settlement
    Pursuant to Rule 17Ad(e)(10),\26\ clearing agencies are required to 
establish and maintain written standards stating their obligations with 
respect to the delivery of physical instruments and manage the 
associated risks. Multiple changes have been made to the Amended 
Documents to clarify and update delivery arrangements and better align 
them with operational practice. As discussed herein, clarifications 
have been made to the Rules and Procedures relating to the 
determination of the Exchange Delivery Settlement Price for Futures, 
settlement of Futures and Options, representations and warranties as to 
title and other matters on physical settlement, the role of Markets in 
the settlement process and various other processes for physical 
settlement, including the delivery of securities, among others. The 
Delivery Procedures in particular have also been updated to reflect 
operational systems and practices, including as to delivery timetables 
and documentation. Through enhancing and clarifying ICE Clear Europe 
processes and arrangements with respect to physical deliveries, and 
better aligning their descriptions in the Amended Documents with 
operational practice, in ICE Clear Europe's view, the amendments are 
consistent with the requirements of Rule 17Ad(e)(10).\27\
---------------------------------------------------------------------------

    \26\ 17 CFR 240.17Ad-22(e)(10). The rule states the following: 
``(e) Each covered clearing agency shall establish, implement, 
maintain and enforce written policies and procedures reasonably 
designed to, as applicable: . . .
    (10) Establish and maintain transparent written standards that 
state its obligations with respect to the delivery of physical 
instruments, and establish and maintain operational practices that 
identify, monitor, and manage the risks associated with such 
physical deliveries.''
    \27\ 17 CFR 240.17Ad-22(e)(10).
---------------------------------------------------------------------------

(iii) Margin
    Rules 17Ad-22(b)(2) \28\ and (e)(6) \29\ require clearing agencies 
to use margin requirements to limit their credit exposures and have the 
operational capacity to make intraday margin calls. The amendments 
enhance ICE Clear Europe's approach to managing margin, particularly 
with respect to variation

[[Page 13216]]

margin and mark-to-market margin. The Amended Documents would introduce 
a new ``Externalised Payments Mechanism'' to permit variation margin 
cash payments to be settled through separate cash flows, without being 
netted with other payment obligations, where Clearing Members so elect. 
The amendments would also clarify margin calculations for Options, 
taking into account the calculation of NLV. The amendments would 
facilitate the characterization of variation and mark-to-market margin 
as settlement payments (and not as collateral) for purposes of 
settlement to market treatment under Article 274(2)(c) of the CRR.
---------------------------------------------------------------------------

    \28\ 17 CFR 240.17Ad-22(b)(2) The rule states the following: ``A 
registered clearing agency that performs central counterparty 
services shall establish, implement, maintain and enforce written 
policies and procedures reasonably designed to: . . .
    (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.''
    \29\ 17 CFR 240.17Ad-22(e)(6) The rule states the following: 
``(e) Each 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:
    i. Considers, and produces margin levels commensurate with, the 
risks and particular attributes of each relevant product, portfolio, 
and market;
    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;
    iii. Calculates margin sufficient to cover its potential future 
exposure to participants in the interval between the last margin 
collection and the close out of positions following a participant 
default;''
---------------------------------------------------------------------------

    The Finance Procedures would be amended to clarify certain 
provisions relating to settlement of margin payments in relevant 
currencies and haircuts for cross-currency payments.
    As the amendments clarify and strengthen ICE Clear Europe's 
approach to treatment of margin and better align description in the 
Amended Documents with operational practice, in ICE Clear Europe's 
view, the amendments meet the requirements of Rules 17Ad-22(b)(2) \30\ 
and (e)(6) \31\ to appropriately cover its credit exposures with a 
risk-based margin system.
---------------------------------------------------------------------------

    \30\ 17 CFR 240.17Ad-22(b)(2).
    \31\ 17 CFR 240.17Ad-22(e)(6).
---------------------------------------------------------------------------

(iv) Segregation and Portability
    Rule 17Ad-22(e)(14) \32\ requires that clearing agencies enable the 
segregation and portability of positions of a participant's customers 
and the collateral provided to the clearing agency with respect to 
those positions. In general, a number of changes proposed to the 
customer clearing documentation in the Rules and Standard Terms are 
intended to promote porting. Specifically, as described above, 
amendments to the Standard Terms are intended to, among other things, 
prevent possible Customer claims that could interfere with ICE Clear 
Europe's ability to offer porting, which would enhance the feasibility 
of relying on the Standard Terms to effect post-default porting. 
Changes are further being proposed to confirm the parameters around ICE 
Clear Europe's discretion to determine timing of the price at which 
positions are ported from a defaulting Clearing Member to a non-
defaulting Clearing Member and the reference time for the determination 
of such price. Further proposed changes address rights, liabilities and 
obligations of Clearing Members being transferred or assigned to ensure 
that the provisions in Part 12 relating to Position Transfer Orders 
capture the full range of mechanisms through which positions can be 
transferred from one Clearing Member to another. As a result, ICE Clear 
Europe believes the amendments are in compliance with the segregation 
and portability requirements of Rule 17Ad-22(e)(14).\33\
---------------------------------------------------------------------------

    \32\ 17 CFR 240.17Ad-22(e)(14). The rule states the following: 
``(e) Each covered clearing agency shall establish, implement, 
maintain and enforce written policies and procedures reasonably 
designed to, as applicable:
    (14) Enable, when the covered clearing agency provides central 
counterparty services for security-based swaps or engages in 
activities that the Commission has determined to have a more complex 
risk profile, the segregation and portability of positions of a 
participant's customers and the collateral provided to the covered 
clearing agency with respect to those positions and effectively 
protect such positions and related collateral from the default or 
insolvency of that participant.''
    \33\ 17 CFR 240.17Ad-22(e)(14).
---------------------------------------------------------------------------

(v) Default Management
    Rule 17Ad-22(e)(13) \34\ requires the covered clearing agency to 
ensure that it ``has the authority and operational capacity to take 
timely action to contain losses and liquidity demands'' in the case of 
default.
---------------------------------------------------------------------------

    \34\ 17 CFR 240.17Ad-22(e)(13). The rule states the following: 
``(e) Each covered clearing agency shall establish, implement, 
maintain and enforce written policies and procedures reasonably 
designed to, as applicable: . . . (13) Ensure the covered clearing 
agency has the authority and operational capacity to take timely 
action to contain losses and liquidity demands and continue to meet 
its obligations by, at a minimum, requiring the covered clearing 
agency's participants and, when practicable, other stakeholders to 
participate in the testing and review of its default procedures, 
including any close-out procedures, at least annually and following 
material changes thereto.''
---------------------------------------------------------------------------

    As described above, amendments to Rule 905 would clarify ICE Clear 
Europe's ability to determine Contract liquidation prices in the 
default management process and provide the Clearing House with 
additional flexibility in this regard. The amendments would clarify ICE 
Clear Europe's obligation to apply excess assets on the defaulter's 
Proprietary Account to meet a shortfall on one or more of its Customer 
Accounts. The proposed amendments would also clarify concepts relating 
to guaranty fund contributions adjustments and the application of such 
contributions to the net sum payable calculation set out in Rule 906. 
ICE Clear Europe believes that these amendments would strengthen the 
Clearing House's ability to efficiently and effectively manage extreme 
default events. As a result, in ICE Clear Europe's view, the amendments 
would allow it to take timely action to contain losses and liquidity 
pressures, within the meaning of Rule 17Ad-22(e)(13).\35\
---------------------------------------------------------------------------

    \35\ 17 CFR 240.17Ad-22(e)(13).
---------------------------------------------------------------------------

(vi) Governance
    Rule 17Ad-22(e)(2) \36\ requires that a covered clearing agency 
provide for governance arrangements that, among other matters, are 
clear and transparent. The amendments more accurately define terms 
related to ICE Clear Europe governance in the Rules by expanding the 
definition of ``Board'' to include other similar bodies and committees 
and making similar clarifications throughout the Rules. ICE Clear 
Europe believes that the amendments would thus provide greater clarity 
relating to governance arrangements, in furtherance of the safety and 
efficiency of ICE Clear Europe in a default scenario and consistent 
with the requirements of Rule 17Ad-22(e)(2).\37\
---------------------------------------------------------------------------

    \36\ 17 CFR 240.17Ad-22(e)(2). The rule states the following: 
``(e) Each covered clearing agency shall establish, implement, 
maintain and enforce written policies and procedures reasonably 
designed to, as applicable:
     (2) Provide for governance arrangements that:
     (i) Are clear and transparent;''
    \37\ 17 CFR 240.17Ad-22(e)(2).
---------------------------------------------------------------------------

(vii) Business Continuity
    Pursuant to Rule 17Ad-22(e)(17)(ii) \38\ clearing agencies must 
establish and maintain a business continuity plan. Proposed amendments 
to the Business Continuity Procedures would clarify that ICE Clear 
Europe's discretionary powers to amend or waive requirements or 
deadlines only apply in the event of a Business Continuity Event 
affecting a Clearing Member or ICE Clear Europe, and that such amended 
requirements only apply to the relevant affected Clearing Member(s). 
ICE Clear Europe believes that providing this clarity would further 
strengthen its ability to deal with business interruptions while 
minimizing impact on unaffected Clearing Members, consistent with the 
requirements of Rule 17Ad-22(e)(17)(ii).\39\
---------------------------------------------------------------------------

    \38\ 17 CFR 240.17Ad-22(e)(17)(iii). The rule states the 
following: ``(e) Each covered clearing agency shall establish, 
implement, maintain and enforce written policies and procedures 
reasonably designed to, as applicable: . . .
     (17) Manage the covered clearing agency's operational risks by: 
. . .
     (iii) Establishing and maintaining a business continuity plan 
that addresses events posing a significant risk of disrupting 
operations.''
    \39\ 17 CFR 240.17Ad-22(e)(17)(iii).
---------------------------------------------------------------------------

(viii) Membership Criteria
    Rule 17Ad-22(e)(18) \40\ requires clearing agencies to establish 
criteria for

[[Page 13217]]

participation which ensures participants have sufficient financial 
resources and robust operational capacity to meet obligations arising 
from participation and to monitor compliance. The amendments include 
various enhancements to clearing membership requirements to ensure that 
Clearing Members meet appropriate initial and ongoing standards 
concerning their operational, managerial, back office, systems, 
controls, business continuity and banking arrangements. The amendments 
would also clarify Clearing Members' obligations to maintain financial 
resources requirements (in addition to Capital) and provide 
documentation supporting calculations of financial resources 
requirements upon ICE Clear Europe's request. By further ensuring that 
Clearing Members have sufficient financial resources and robust 
operational capacity, the amendments are consistent with Rule 17Ad-
22(e)(18).\41\
---------------------------------------------------------------------------

    \40\ 17 CFR 240.17Ad-22(e)(18). ``(e) Each covered clearing 
agency shall establish, implement, maintain and enforce written 
policies and procedures reasonably designed to, as applicable: . . .
     (18) 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, require participants to have sufficient 
financial resources and robust operational capacity to meet 
obligations arising from participation in the clearing agency, and 
monitor compliance with such participation requirements on an 
ongoing basis.''
    \41\ 17 CFR 240.17Ad-22(e)(18).
---------------------------------------------------------------------------

(ix) Financial Resources and Guaranty Fund
    Pursuant to Rule 17Ad-22(e)(4)(v),\42\ clearing agencies must 
maintain required financial resources, including through a guaranty 
fund. The amendments to the Finance Procedures clarify ICE Clear 
Europe's approach to guaranty fund contributions while maintaining 
compliance with this regulatory requirement. Proposed amendments to the 
Finance Procedures would apply the effective date for adjustments to 
guaranty fund contributions for all contract categories to be 5 
Business Days after the date of notification by circular. ICE Clear 
Europe believes this is an appropriate period, and that having a 
harmonized approach for all guaranty fund segments will facilitate its 
ongoing maintenance of financial resources and ability to manage risk. 
As a result, in ICE Clear Europe's view, the amendments are consistent 
with the requirements of Rule 17Ad-22(e)(4)(v).\43\
---------------------------------------------------------------------------

    \42\ 17 CFR 240.17Ad-22(e)(4)(v). The rule states the following: 
``(e) Each 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;
     (ii) To the extent not already maintained pursuant to paragraph 
(e)(4)(i) of this section, for a covered clearing agency providing 
central counterparty services that is either systemically important 
in multiple jurisdictions or a clearing agency involved in 
activities with a more complex risk profile, maintaining additional 
financial resources at the minimum to enable it to cover a wide 
range of foreseeable stress scenarios that include, but are not 
limited to, the default of the two participant families that would 
potentially cause the largest aggregate credit exposure for the 
covered clearing agency in extreme but plausible market conditions; 
. . .
     (v) Maintaining the financial resources required under 
paragraphs (e)(4)(ii) and (iii) of this section, as applicable, in 
combined or separately maintained clearing or guaranty funds;''
    \43\ 17 CFR 240.17Ad-22(e)(4)(v).
---------------------------------------------------------------------------

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

    ICE Clear Europe does not believe the proposed amendments would 
have any impact, or impose any burden, on competition not necessary or 
appropriate in furtherance of the purpose of the Act. The amendments 
are intended to enhance clearing operations, including through better 
customer documentation, default management, updated settlement 
procedures and general clarifications and updates. The amendments would 
add a new option for settlement of variation and mark-to-market margin 
(and certain other payments), the Externalised Payments Mechanism, 
which Clearing Members could choose to use. The amendments would also 
facilitate the capital treatment of mark-to-market and variation margin 
as settlement payments, rather than as collateral, for purposes of the 
CRR, which generally should enhance Clearing Member capital treatment. 
Certain changes relating to the customer documentation model would only 
apply to Non-FCM/BD Clearing Members (as the model only applies to such 
members). While those changes may impose some additional requirements 
on Non-FCM/BD Clearing Members, those requirements will facilitate 
default management and porting by the Clearing House, in furtherance of 
the overall clearing system and the requirements and goals of 
applicable law. Certain other changes relating to Section 871(m) would 
impose certain additional obligations on non-U.S. Clearing Members that 
clear equity derivatives, but these generally reflect the requirements 
of Section 871(m) itself, and are intended to facilitate the ability of 
the Clearing House to make payments to such non-U.S. Clearing Members 
free of U.S. withholding taxes.
    Overall, ICE Clear Europe does not believe the amendments would 
adversely affect the ability of Clearing Members or other market 
Clearing Members to continue to clear contracts. ICE Clear Europe also 
does not believe the amendments would cause Clearing Members to cease 
clearing activities, limit the availability of clearing for Clearing 
Members or their customers or otherwise limit market Clearing Members' 
choices for selecting clearing members. As a result, ICE Clear Europe 
does not believe that the proposed amendments impose any burden on 
competition that is not 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

    ICE Clear Europe has conducted a public consultation on amendments 
to its Rules that included the rule changes set forth herein. ICE Clear 
Europe received three detailed and written responses to the overall 
consultation, which included a number of comments relating to the 
amendments described in this filing. Relevant comments are discussed 
below, together with a summary of the action taken by ICE Clear Europe 
to address these comments. In a small number of cases, ICE Clear Europe 
has decided not to proceed with the change at this time. In some cases, 
ICE Clear Europe agreed to a drafting change in the Rules to address 
the concerns of the respondent Clearing Member. In other cases, it 
discussed aspects of the Rule changes, as were presented in such 
consultation, with those interested Clearing Members who responded.
    Within the definitions in Rule 101, one Clearing Member commented 
on proposed changes to the definition of ``Margin'', suggesting 
alternative language to that proposed as part of the draft changes 
annexed to this submission. It appeared to ICE Clear Europe that the 
Clearing Member in question was querying the inclusion of variation 
margin within the definition of ``Margin''. ICE Clear Europe explained 
to the Clearing Member that the inclusion of variation margin within 
this definition is necessary to ensure that the settlement-to-market 
changes discussed earlier in this submission operate as intended. The 
removal of variation margin from the defined term ``Margin'' would 
require a major overhaul to the Rules. ICE Clear Europe determined that 
this explanation was sufficient to address the Clearing Member's 
comment.
    One Clearing Member commented on proposed amendments to Rule 
106(b), which set out a list of different types of information received 
or held by ICE

[[Page 13218]]

Clear Europe that will be treated as confidential. The Clearing Member 
suggested that any non-public information passed by a Clearing Member 
to ICE Clear Europe should be subject to confidentiality. ICE Clear 
Europe discussed this rule change with the Clearing Member in question, 
and explained that the list contained in Rule 106(b) is very broad and 
that all relevant information should be covered. ICE Clear Europe 
subsequently determined that the Clearing Member's comment was 
adequately addressed by those discussions and that no material changes 
to the amended Rules were required. No further issues were raised by 
the Clearing Member following discussion.
    One Clearing Member commented on proposed amendments to Rule 
106(c)(i), which are intended to ensure that disclosures of 
confidential information are permitted where the disclosure is 
``necessary for the making of a complaint or report under Applicable 
Laws for an offence alleged or suspected to have been committed under 
Applicable Laws''. The Clearing Member in question was of the view that 
the disclosure of confidential information in order to make a report or 
complaint under Applicable Laws was already covered by the existing 
drafting. ICE Clear Europe discussed this rule change with the Clearing 
Member in question, and explained that the additional drafting was 
introduced to cover reporting under the UK Proceeds of Crime Act 2002, 
suspicious transaction reporting under the EU Market Abuse Regulation 
and other regulatory reporting regimes, and is necessary to ensure that 
such reporting is covered by confidentiality carve-outs under the 
Rules. ICE Clear Europe subsequently determined that the Clearing 
Member's comment was adequately addressed by these explanations and 
discussions and that no material changes to the amended Rules were 
required.
    One respondent provided two comments on proposed changes to Rule 
111(a). The Clearing Member stated that, as a result of the proposed 
changes, Clearing Members would need to indemnify members of committees 
and that this broadening of scope should be dropped. ICE Clear Europe 
discussed this comment with the Clearing Member in question and agreed 
that the proposed language could potentially cover members of 
committees outside of their committee function. ICE Clear Europe 
accepted that the proposed change was not intended to cover committee 
members acting in a proprietary capacity and proposed a drafting change 
to limit the indemnity to ``any individual committee member, but only 
in so far as that Person is acting in the capacity of a committee 
member''. To ICE Clear Europe's knowledge, this drafting change 
adequately addressed the Clearing Member's concerns. The Clearing 
Member also commented separately on the definition of ``Director'' in 
the Rules in the context of its comments on Rule 111(a), arguing that 
the definition should be limited to persons who are listed as directors 
on the UK company registry (Companies House). ICE Clear Europe 
discussed this comment with the Clearing Member in question, explaining 
that the correct interpretation of the lower case term ``director'' in 
this context was only to capture actual directors and not staff members 
that may have the title ``director'' in their job role. On the basis of 
this explanation and the fact that this comment did not strictly relate 
to the changes proposed to the Rules, ICE Clear Europe determined it 
did not need to make any drafting changes in response to the comment.
    Two Clearing Members queried the insertion of new Rule 114(d), 
which would allow ICE Clear Europe to ``take any measure it deems 
reasonably necessary in relation to the organization and the operation 
of the Clearing House taking all relevant circumstances into account, 
whether or not these measures are set out in these Rules''. Both 
Clearing Members were concerned about the breadth of this power and the 
potential for ICE Clear Europe to take any action it wishes, whether or 
not such action is in line with the provisions of the Rules. ICE Clear 
Europe discussed the proposed provision with the two respondents and 
explained that it was aimed at ensuring that ICE Clear Europe is not 
prevented from taking necessary action because there is no provision in 
the Rules explicitly empowering it to do so. However, ICE Clear Europe 
agreed that some additional language would be beneficial in the new 
provision to clarify that it may not take action in contravention of 
the Rules or to modify the Rules under the new provision. This language 
would be included in the proposed rule changes annexed to this 
submission.
    One Clearing Member queried the following additional language in 
the clearing membership criterion in Rule 201(a)(xxvii): ``and satisfy 
the Clearing House of the adequacy of its contingency banking 
arrangements in the event of an Insolvency or failure to pay or default 
of an Approved Financial Institution which affects the operation of a 
Nominated Bank Account or Accounts or a Clearing House Account''. 
Specifically, the respondent asked what the additional language means 
and how ICE Clear Europe would expect Clearing Members to satisfy the 
requirement. ICE Clear Europe discussed the proposed change with the 
Clearing Member in question, and explained that the criterion was 
required in order to meet current back-up arrangements being 
implemented. These arrangements would essentially require the Clearing 
Member to have a back-up approved payment bank or to establish means of 
direct payments via a back-up procedure. ICE Clear Europe subsequently 
determined that the Clearing Member's comment was adequately addressed 
by these explanations and discussions.
    All three respondents provided comments on proposed changes to the 
ongoing requirements for Clearing Members in Rule 202(a). Two Clearing 
Members commented on amendments to Rule 202(a)(xiv)(A), one Clearing 
Member commented on a proposed new Rule 202(a)(xxii) and all three 
Clearing Members commented on a proposed new Rule 202(a)(xxiii). With 
respect to Rule 202(a)(xiv)(A), Clearing Members were unsure of what 
was required by the new drafting. ICE Clear Europe explained in 
discussions with the relevant Clearing Members that the proposed 
language entails compliance by Clearing Members with general conduct of 
business and threshold condition type business organization rules, and 
would unlikely go so far as to require Clearing Members to go beyond 
what is required by applicable law, although that would depend on the 
legal regime of the Clearing Member. As regards the proposed new Rule 
202(a)(xxii), one respondent challenged the provision on the basis that 
it would require employees to be available for longer hours. ICE Clear 
Europe discussed this new provision with the Clearing Member concerned 
and explained the importance of having Clearing Member personnel 
available to deal with issues that arise after the closing of the 
markets and that this requirement was effectively already in place as 
an operational matter. ICE Clear Europe understands that this 
explanation was sufficient to address the Clearing Member's comment and 
no rules changes were necessary. The comments on the proposed Rule 
202(a)(xxiii) conveyed a general reluctance to accept ICE Clear Europe 
having a broad power to access Clearing Member premises, records and 
personnel and copy any required documentation. ICE Clear Europe

[[Page 13219]]

discussed this proposed requirement with all three Clearing Members and 
pointed out that the provision is restricted to action required to 
``facilitate discharge of the Clearing House's regulatory obligations 
under Applicable Laws''. Having explained the limitations to the new 
requirement, ICE Clear Europe felt that the Clearing Members' concerns 
were adequately addressed and changes to the proposed rule amendments 
were made. ICE Clear Europe did not receive further objection to the 
provision following this discussion.
    One Clearing Member asked why ICE Clear Europe had included the 
words ``(or any non-frivolous or non-vexatious investigation or 
allegation of a breach by it)'' in Rule 204(a)(xii). ICE Clear Europe 
discussed this comment with the respondent in question and explained 
that the test for a ``non-frivolous'' and ``non-vexatious'' 
investigation is intentionally objective, to ensure that Clearing 
Members would not need to inform ICE Clear Europe of frivolous or 
vexatious investigations. ICE Clear Europe determined that the Clearing 
Member's comment was adequately addressed by this explanation and that 
changes were necessary.
    One Clearing Member suggested a small, uncontroversial drafting 
amendment to Rule 204(b)(i), which ICE Clear Europe accepted and which 
is reflected in the rule changes annexed to this submission.
    One Clearing Member asked for clarification of the meaning of the 
term ``settlement payment'' in additional language proposed to be added 
to Rule 505. ICE Clear Europe reviewed the proposed language as a 
result of the comment and decided to make some amendments to ensure 
that the new language read more clearly. The proposed language now 
refers to ``a payment of Variation Margin, Mark-to-Market Margin, or FX 
Mark-to-Market Margin or a settlement or delivery payment'', rather 
than just a ``settlement payment'', to make it clear which sorts of 
payments are intended to be referred to in that provision. This change 
is included in the rule amendments annexed to this submission. As a 
result of this rule change, ICE Clear Europe considered that the 
Clearing Member's comment was adequately addressed.
    One respondent commented that proposed changes to Rule 703(h) 
appeared to entail an expansion of powers for ICE Clear Europe, in that 
ICE Clear Europe would be able to replace a delivery obligation under a 
contract with a non-defaulting Clearing Member with a cash settlement 
sum. ICE Clear Europe discussed this proposed change with the 
respondent and agreed that the change would allow a contract between 
ICE Clear Europe and a non-defaulting Clearing Member to be terminated, 
allowing ICE Clear Europe to pay a cash settlement sum rather than make 
physical delivery. However, ICE Clear Europe explained that the 
existing rules already provide for this power, albeit less explicitly, 
and that its experience of handling defaults (including the MF Global 
default) indicated that this is what Clearing Members and their clients 
prefer in practice as opposed to waiting for ICE Clear Europe to 
arrange for an alternative means of delivery. ICE Clear Europe 
determined that the Clearing Member's comment was adequately addressed 
by this explanation and that changes to the proposed rules were 
necessary.
    One Clearing Member asked why language had been added in a new Rule 
902(d) to indicate that Transfer Orders shall be legally enforceable. 
ICE Clear Europe explained that the wording buttressed the position 
that Part 12 is a ``default rule'' for purposes of the UK Companies Act 
1989, as discussed above. No changes to the proposed rules were made as 
a result of this comment.
    All three Clearing Members commented on proposed changes to the 
methodology for determining the price of a Contract for porting and 
close-out purposes in Rule 904(b), 905(b) and 905(g). Clearing Members 
generally objected to the Clearing House having discretion to set the 
price of a Contract. ICE Clear Europe discussed the proposed changes 
with Clearing Members, explaining that the discretion here is important 
to cover matters like option pricing and time of insolvency versus time 
of porting issues. It further explained that porting is likely to be 
problematic from an operational perspective without these changes and 
that the price of ported contracts may vary depending upon Clearing 
Member jurisdiction, the existence or absence of mandatory early 
termination under applicable insolvency laws, the terms of relevant 
Court orders supporting porting and other factors, such that these 
changes are important to ensuring the default management process 
operates smoothly. It was also highlighted that these changes provide 
additional clarity to Clearing Members and consistency between 
provisions addressing the issue of default pricing. Having explained 
this, ICE Clear Europe felt that the Clearing Members' comments were 
adequately addressed and that changes to the proposed rules were 
necessary. ICE Clear Europe did not receive any further objection to 
the changes following this discussion.
    One Clearing Member asked why the words ``and severally'' had been 
added in Rule 912(b)(iv)(A). ICE Clear Europe explained to the 
respondent that this change was raised by external legal counsel to an 
industry association concerning the sponsored principal model at ICE 
Clear Europe. The change fixes a drafting error, to ensure that the 
liabilities and assets on sponsored accounts have mutuality. It pointed 
out that the wording is included elsewhere in Part 19 and is 
unintentionally omitted in Rule 912(b)(iv)(A). No changes to the 
proposed rules were made as a result of this comment.
    Various comments were received on proposed changes to Part 10 of 
the Rules to improve ICE Clear Europe's disciplinary procedures. In 
most cases, these comments asked for clarification as to the intent or 
effect of a rule change. ICE Clear Europe addressed all of the Clearing 
Members' comments on Part 10 amendments with one exception through oral 
discussions and explanations with the relevant respondents. The one 
exception involved a proposed drafting change to replace the word 
``days'' with the term ``calendar days'', which ICE Clear Europe 
accepted as this ensured consistency with other parts of the Rules and 
greater precision of meaning. This change is included in the rule 
amendments annexed to this submission. As a result of this rule change, 
and the various explanations provided in relation to the other Part 10 
amendments, ICE Clear Europe considered that the Clearing Members' 
comments were adequately addressed, and ICE Clear Europe has received 
no further objections on these provisions.
    One Clearing Member objected to proposed amendments to paragraph 2 
of the CDS, FX and F&O Standard Terms (in the Exhibits to the Rules), 
commenting that the amendments would override agreements between 
Clearing Members and their clients. ICE Clear Europe discussed the 
proposed amendments with the Clearing Member, explaining that the 
amendments are intended to override clearing agreements between 
Clearing Members and Customers (as required by Part 2 of the Rules and 
ICE Clear Europe Customer documentation Circular C14/055 of 2 May 2014) 
and that this should already be the case anyway due to the ``Mandatory 
CCP Provisions'' mechanic in industry standard documentation. This 
means that proposed changes are in line with market practice. Having 
explained this to the Clearing Member in question, ICE Clear Europe 
determined that the Clearing Member's comments were adequately 
addressed.

[[Page 13220]]

    Two Clearing Members commented on proposed amendments to paragraph 
4(b) of the CDS, F&O and FX Standard Terms. One of these comments was 
based on a misunderstanding of the intention behind certain drafting 
amendments concerning notices of Encumbrances and ICE Clear Europe 
amended the relevant drafting to provide additional clarification that 
Customers must not ``create or give notice'' of any Encumbrance. The 
other comment requested clarification as to the intention behind the 
paragraph 4(b) amendments more generally, which would require Customers 
to provide certain representations to ICE Clear Europe as regards the 
provision of Customer collateral. ICE Clear Europe discussed the 
proposed amendments to paragraph 4(b) with the Clearing Member in 
question, explaining that ICE Clear Europe requires such 
representations to be made to provide ICE Clear Europe with comfort 
that it can handle Customer collateral in accordance with the Rules 
without risk of legal intervention. Given that ICE Clear Europe has no 
sight of documentation between Clearing Members and Customers, which 
may or may not include this or similar wording, it is necessary to 
include the relevant wording in the Standard Terms. ICE Clear Europe 
considered that the drafting change referred to above and the 
explanations provided adequately addressed the two Clearing Members' 
comments.
    Two Clearing Members commented on the proposed new paragraph 5(c) 
of the CDS, FX and F&O Standard Terms. One of these comments generally 
queried the rationale for the new provision, which overrides the 
termination mechanism in clearing agreements between Clearing Members 
and Customers. ICE Clear Europe explained that this language has been 
proposed because it has come to ICE Clear Europe's attention that some 
Clearing Member-Customer clearing agreements may not adequately support 
porting to the extent legally possible. It would, for example, appear 
to be the case, based on feedback from some Clearing Members, that some 
such agreements have been negotiated so as to provide for a contractual 
right to automatic or early termination upon a default before porting 
can take place. In particular, EMIR, the Companies Act 1989 and some 
other legislation, on some interpretations, would appear to require 
there to actually be a contract in place in order for that contract to 
be ported following a default. This means that automatic or early 
termination provisions may frustrate porting or increase the risks of 
legal claims against clearing houses such as ICE Clear Europe. Although 
the Rules provide for ICE Clear Europe still to be able to port where 
the contracts have already terminated, and ICE Clear Europe believes 
the better view is that such terminated contracts are still portable, 
the proposed rules changes promote legal certainty by reducing risks 
associated with porting. ICE Clear Europe further explained that such 
automatic or early termination provisions are currently in breach of 
Rule 202 and that this raises enforcement and disciplinary issues for 
some Clearing Members. The proposed new provision would bring affected 
Clearing Members back into compliance with the Rules and promote 
porting by ensuring that automatic or early termination provisions are 
overridden.
    A second comment suggested a small drafting change to the tense of 
a verb in paragraph 5(c)(i)(B), which ICE Clear Europe accepted (such 
drafting change being included in the final amendments annexed to this 
submission). Finally, one Clearing Member queried why there is an 
exception from paragraph 5(c)(ii) where one of the parties to a 
Customer-CM Transaction is incorporated in Switzerland. ICE Clear 
Europe discussed this provision with the Clearing Member in question, 
clarifying that Switzerland is the only Clearing Member jurisdiction 
for which automatic or early termination is recommended by the 
International Swaps and Derivatives Association (``ISDA''). ICE Clear 
Europe determined that as a result of these explanations, the Clearing 
Members' comments were adequately addressed and no drafting changes 
were needed.
    Finally, one Clearing Member asked why Customers are required to 
provide an intellectual property representation to ICE Clear Europe in 
new paragraph 12(d) of the CDS, FX and F&O Standard Terms. ICE Clear 
Europe explained that the representation in question supports the 
position in relation to IP rights provided for in the Rules. ICE Clear 
Europe has added this provision to ensure that it has the same 
contractual representation from Customers as regards IP rights as it 
does from Clearing Members, and the Standard Terms is the appropriate 
place for this provision to be added. ICE Clear Europe considered that 
this explanation was sufficient to address the Clearing Member's query 
and no rules changes were made. No further issues were raised by the 
Clearing Member following discussion with the Clearing Member.

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-2020-003 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-2020-003. 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

[[Page 13221]]

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. 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-2020-003 and should be submitted on or before March 27, 2020.
---------------------------------------------------------------------------

    \44\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\44\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-04574 Filed 3-5-20; 8:45 am]
BILLING CODE 8011-01-P