[Federal Register Volume 85, Number 101 (Tuesday, May 26, 2020)]
[Notices]
[Pages 31571-31575]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-11137]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88907; File No. SR-ICEEU-2020-002]
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 Investment Management
Procedures and Treasury and Banking Services Policy (To Be Renamed
Liquidity and Investment Management Policy)
May 19, 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 May 13, 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 proposes to amend its Investment Management
Procedures (the ``Procedures'') and its Treasury and Banking Services
Policy, which would be renamed the Liquidity and Investment Management
Policy (the ``Policy'', and collectively with the Procedures, the
``Documents''). The revisions would not involve any changes to the ICE
Clear Europe Clearing Rules.\3\
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\3\ Capitalized terms used but not defined herein have the
meanings specified in the ICE Clear Europe Clearing Rules (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 proposing to adopt the amendments to the
Documents following an annual review by Treasury to:
Include investment limits and criteria for the investment
of ICE Clear Europe's contribution to default resources (a.k.a. ``skin
in the game''), in addition to the investment of clearing member
contributions;
Similarly include investment limits and criteria for the
investment of ICEU's regulatory capital;
Remove the requirement for 50% of the investable balance
per currency to be invested in overnight reverse repurchase agreements
(``repos''), as this requirement was potentially constraining the use
of central bank deposits where available;
Include cross currency sovereign bonds as acceptable
assets (``collateral'') under reverse repos; and
Eliminate the separate section regarding investments in
`times of insufficient market supply' (as it was unclear when this
applied). Instead, the revised Documents include a single set of
relevant permitted investments and collateral in the acceptable lists
for all market circumstances (and the allocation to different
investment and collateral within those lists can be managed across
different market circumstances).
Certain other clarifications would also be made to the Procedures,
including to the glossary, and conforming changes would be made to the
Policy. The Policy would also be renamed the Liquidity and Investment
Management Policy to reflect its coverage of investment management more
broadly.
Proposed Amendments to the Procedures
The purpose section of the Procedures would be updated to note that
it addresses permitted investments and concentration limits relating to
ICE Clear Europe contributions to default resources and regulatory
capital in addition to clearing member margin and guaranty fund
contributions (which are covered by the existing Procedures).
With respect to overall investment considerations, a number of
modifications would be made. The requirement that at least 50% of the
investable portfolio in each currency
[[Page 31572]]
should be invested in overnight reverse repurchase agreements would be
removed. (This change would facilitate use of central bank deposits
where available to ICE Clear Europe for the relevant currency.) A
requirement that no more than 5% of the investible funds can be held as
unsecured cash each calendar month would be added, which requirement
would be applied separately to (i) ICE Clear Europe's regulatory
capital; and (ii) total Clearing Member cash and Clearing House skin in
the game. Central bank deposits would be considered secured and thus
outside of the 5% threshold.
The table of authorized investments and concentration limits for
investments of cash provided by Clearing Members and ICE Clear Europe
skin in the game would be amended as follows:
--US, UK and EU government agency bonds would be added to the list of
eligible instruments (as a distinct category from sovereign obligations
(renamed sovereign bonds) of those countries)
[cir] Qualifying government agency bonds would have a maximum
maturity of 13 calendar months and minimum credit ratings of AA- from
at least two nationally recognized statistical rating organizations
(``NRSROs'').
[cir] US and UK government agency bonds would have no issuer
concentration limits and their maximum portfolio limits would be 20% of
the total USD or GBP, as applicable, balance in a single issue.
[cir] EU government agency bonds would have an issuer concentration
limit of 15% of the total EUR balance in a single issuer.
--For qualifying US, UK and EU sovereign bonds, minimum credit ratings
of would be deleted.
--The maximum concentration limit for reverse repurchase agreements
would be amended to apply per counterparty family instead of per
counterparty.
--Commercial bank obligations would be amended to refer to commercial
bank deposits and related maximum counterparty concentration limits
would be amended to clarify that unsecured cash limits for financial
service providers are set out separately.\4\
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\4\ Currently set out in the existing Unsecured Credit Limit
Procedures.
A new table of authorized investments and concentration limits for
investment of ICE Clear Europe's regulatory capital would be added.
Authorized instruments would be limited to US, UK and EU sovereign
bonds and US, UK and EU government agency bonds with a maximum maturity
of 90 days. The US and UK sovereign and government agency bonds would
have no issuer concentration limit and a portfolio concentration limit
of 20% (for sovereign bond) and 25% (for government agency bonds) of
the total USD or GBP balance, as applicable, in a single issue. The EU
government agency bonds would have a maximum counterparty concentration
limit of 25% of the EUR balance in a single issuer. EU sovereign bonds
would need to be issued by the German, French, Belgian or Dutch
governments. The minimum credit ratings for government agency bonds
would be AA- from at least two NRSROs.
The acceptable collateral table for reverse repo transactions would
be revised to include certain additional types of underlying collateral
as well as to permit greater use of cross-currency collateral (e.g., a
EUR denominated reverse repo on US Sovereign Bonds), subject to
additional haircuts. The range of accepted collateral would be extended
to include Supranational obligations denominated in USD, EUR and GBP
and USD government agency bonds, in addition to the existing permitted
US, UK and EU Sovereign Bonds. The required credit rating for all
collateral would be AA-/Aa3, consistent with current requirements. The
revisions would allow greater use of cross-currency reverse repo
involving US, UK and EU sovereign bond collateral, subject to a 4%
haircut (as compared to 2% for repo in the same currency). The
Procedures would also provide that ICE Clear Europe's preferred form of
collateral would be sovereign bonds in same currency of as reverse repo
and the use of non-preferred collateral would be reviewed monthly by
the Head of Treasury and the Chief Risk Officer (or their delegates).
The section regarding changes to the investment criteria in times
of insufficient market supply would be deleted. In ICE Clear Europe's
view, under the existing procedures it is not entirely clear when this
section would apply. Furthermore, the revised investment limits
discussed above are, in ICE Clear Europe's view, appropriate for all
market circumstances and provide sufficient flexibility to permit ICE
Clear Europe to manage changes in supply of particular types of
investments.
The amendments would provide that investments would be monitored
against the concentration limits and investment criteria daily by
Treasury and Finance and clarify that breaches of both concentration
limits and the investment criteria would be escalated to the Risk
Oversight and Compliance team. The amendments also note that
concentration limit and investment criteria breaches could also trigger
general regulatory notifications.
The glossary section of the Procedures would be amended as follows:
The terms Central Bank Obligations and Commercial Bank
Obligations would be removed as no longer necessary as the Procedures
would refer to, respectively, central bank deposits and commercial bank
deposits instead;
The term EU Sovereign Obligations would be amended to the
more general defined term, Government Agency Bonds, which would be
defined as bonds issued by or that have their principal and interest
fully guaranteed by their government;
The term Permitted Investment Counterparties for FCM
Customer Funds would be amended slightly for clarification;
The term UK Sovereign Obligations and US Sovereign
Obligations would be removed and references to these terms would be
removed or amended to, respectively, UK Sovereign Bonds and US
Sovereign Bonds; and
The term Supranational Obligations would be added and
would be defined as securities that: (i) Are issued by institutions
that are owned or established by governments of two or more countries
that are all members of the Organization for Economic Co-operation and
Development (OECD) or of the European Union (EU); and (ii) are fully
guaranteed as to principal and interest by those governments.
Proposed Amendments to the Policy
As noted above, the Policy is being renamed the Liquidity and
Investment Management Policy. The amendments to the Policy conform to
the amendments to the Procedures, including to provide that management
of ICE Clear Europe's skin in the game and regulatory capital are
within the scope of the Policy. Accordingly, the description of ICE
Clear Europe investment management objective would be broadened to
refer to safeguarding cash generally rather than Clearing Member cash
specifically. The amendments also include non-substantive changes to
refer to both liquidity management and investment in various places. In
the purpose section of the Policy, the statement that the Policy
constitutes ICE Clear Europe's liquidity risk management framework for
the purposes of EMIR would be deleted. In the background section of the
Policy, the statement that Treasury Banking Services operates within
the
[[Page 31573]]
risk appetites set by the board and in compliance with applicable
regulations would be deleted as unnecessary (given that the Board-
adopted risk appetites apply to all activities of the Clearing House).
(b) Statutory Basis
ICE Clear Europe believes that the proposed amendments are
consistent with the requirements of Section 17A of the Act \5\ and the
regulations thereunder applicable to it. In particular, Section
17A(b)(3)(F) of the Act \6\ requires, among other things, that the
rules of a clearing agency be designed to promote the prompt and
accurate clearance and settlement of securities transactions and, to
the extent applicable, derivative agreements, contracts, and
transactions, the safeguarding of securities and funds in the custody
or control of the clearing agency or for which it is responsible, and
the protection of investors and the public interest. The proposed
Documents are intended generally to enhance the Clearing House's
criteria for investments. The changes would bring the investment of the
Clearing House's own skin in the game and regulatory capital within the
same investment framework as investment of Clearing Member
contributions, which will facilitate overall risk management of
investment by the Clearing House. The amendments would also update
investment criteria to remove certain constraints on the use of central
bank deposits (specifically, the requirement for 50% of the investable
balance per currency to be invested in overnight repo), and permit
greater use of cross currency repo. The amendments also remove a
unnecessary distinction between normal market conditions and conditions
of insufficient supply. In ICE Clear Europe's view the revised
documentation would facilitate ongoing investment risk management by
the Clearing House, and facilitate the Clearing House's ability to meet
its short-term financial obligations in the event of clearing member
defaults or other liquidity stress events. These amendments would
therefore promote overall Clearing House risk management and facilitate
the prompt and accurate clearing of cleared contracts and protect
investors and the public interest in the sound operations of the
Clearing House, consistent with the requirements of Section
17A(b)(3)(F).\7\ In ICE Clear Europe's view, the amendments are also
consistent with maintaining the value of, and access to, funds invested
by the Clearing House, and therefore will enhance the safeguarding of
securities and funds in the custody or control of the Clearing House or
for which it is responsible, within the meaning of Section
17A(b)(3)(F).
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\5\ 15 U.S.C. 78q-1.
\6\ 15 U.S.C. 78q-1(b)(3)(F).
\7\ 15 U.S.C. 78q-1(b)(3)(F).
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The proposed amendments to the Documents are further consistent
with the risk management requirements of Rule 17Ad-22(e)(3)(i) \8\
through enhancing ICE Clear Europe's investment management policies. As
noted above, the amendments would extend these policies to cover
investment limits and criteria relating to ICE Clear Europe's skin in
the game and regulatory capital. Allowing for greater investment
flexibility through the removal of the requirement for 50% of the
investable balance per currency be invested in overnight reverse repo
would also remove a constraint to appropriate risk management that
limit ICE Clear Europe's ability to use central bank deposits.
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\8\ 17 CFR 240.17Ad-22(e)(3)(i)-(ii). The rule states that
``[e]ach covered clearing agency shall establish, implement,
maintain and enforce written policies and procedures reasonably
designed to, as applicable: [m]aintain a sound risk management
framework for comprehensively managing legal, credit, liquidity,
operational, general business, investment, custody, and other risks
that arise in or are borne by the covered clearing agency, which:
(i) Includes risk management policies, procedures, and systems
designed to identify, measure, monitor, and manage the range of
risks that arise in or are borne by the covered clearing agency,
that are subject to review on a specified periodic basis and
approved by the board of directors annually;''
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The proposed amendments to the Documents are also consistent with
the requirements of Rule 17Ad-22(e)(7)(i) and (ii) and Rule 17Ad-
22(a)(14) \9\ which require ICE Clear Europe to maintain sufficient
qualifying liquid resources. In compliance with this requirement, the
proposed amendments would detail investment limits and criteria to
better manage liquidity of ICE Clear Europe's skin in the game and
regulatory capital. The amendments would also allow greater flexibility
to maintain liquid resources in the form of central bank deposits by
removing requirements relating to maintaining certain minimum balances
in overnight reverse repos.
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\9\ 17 CFR 240.17Ad-22(e)(7)(i)--(ii). The rule states that
``[e]ach covered clearing agency shall establish, implement,
maintain and enforce written policies and procedures reasonably
designed to, as applicable: [e]ffectively measure, monitor, and
manage the liquidity risk that arises in or is borne by the covered
clearing agency, including measuring, monitoring, and managing its
settlement and funding flows on an ongoing and timely basis, and its
use of intraday liquidity by, at a minimum, doing the following:
(i) Maintaining sufficient liquid resources at the minimum in
all relevant currencies to effect same-day and, where appropriate,
intraday and multiday settlement of payment obligations with a high
degree of confidence under a wide range of foreseeable stress
scenarios that includes, but is not limited to, the default of the
participant family that would generate the largest aggregate payment
obligation for the covered clearing agency in extreme but plausible
market conditions;
(ii) Holding qualifying liquid resources sufficient to meet the
minimum liquidity resource requirement under paragraph (e)(7)(i) of
this section in each relevant currency for which the covered
clearing agency has payment obligations owed to clearing members;
17 CFR 240.17Ad-22(a)(14) Qualifying liquid resources means, for
any covered clearing agency, the following, in each relevant
currency:
(i) Cash held either at the central bank of issue or at
creditworthy commercial banks;
(ii) Assets that are readily available and convertible into
cash through prearranged funding arrangements, such as:
(A) Committed arrangements without material adverse change
provisions, including:
(1) Lines of credit;
(2) Foreign exchange swaps; and
(3) Repurchase agreements; or
(B) Other prearranged funding arrangements determined to be
highly reliable even in extreme but plausible market conditions by
the board of directors of the covered clearing agency following a
review conducted for this purpose not less than annually; and
(iii) Other assets that are readily available and eligible for
pledging to (or conducting other appropriate forms of transactions
with) a relevant central bank, if the covered clearing agency has
access to routine credit at such central bank in a jurisdiction that
permits said pledges or other transactions by the covered clearing
agency.
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The amendments to the Documents would be similarly compliant with
Rule 17Ad-22(e)(16),\10\ which would require assets of the Clearing
House and Clearing Members be held in a manner that minimizes risk of
loss and invested in assets with minimal credit, market and liquidity
risk. As noted above, the amendments would apply to both the Clearing
House's own assets and Clearing Member assets. The amendments to the
acceptable collateral table would set out appropriate investment,
concentration, maturity, rating and other criteria for investments and
reverse repo collateral that are intended to minimize credit, market
and liquidity risks from these investments.
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\10\ 17 CFR 240.17Ad-22(e)(16). The rule states that ``[e]ach
covered clearing agency shall establish, implement, maintain and
enforce written policies and procedures reasonably designed to, as
applicable: [s]afeguard the covered clearing agency's own and its
participants' assets, minimize the risk of loss and delay in access
to these assets, and invest such assets in instruments with minimal
credit, market, and liquidity risks.''
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Rules 17Ad-22(e)(7)(iii) and (e)(9) \11\ require clearing agencies,
where
[[Page 31574]]
possible, to access accounts and services at a central bank. The
proposed removal of the requirement that 50% of the investable balance
per currency be invested in overnight reverse repo would provide
greater flexibility for the Clearing House to use central bank
deposits, consistent with these requirements.
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\11\ 17 CFR 240.17Ad-22(e)(7)(iii). The rule states that
``[e]ach covered clearing agency shall establish, implement,
maintain and enforce written policies and procedures reasonably
designed to, as applicable: [e]ffectively measure, monitor, and
manage the liquidity risk that arises in or is borne by the covered
clearing agency, including measuring, monitoring, and managing its
settlement and funding flows on an ongoing and timely basis, and its
use of intraday liquidity by, at a minimum, doing the following:
(iii) Using the access to accounts and services at a Federal
Reserve Bank, pursuant to Section 806(a) of the Payment, Clearing,
and Settlement Supervision Act of 2010 (12 U.S.C. 5465(a)), or other
relevant central bank, when available and where determined to be
practical by the board of directors of the covered clearing agency,
to enhance its management of liquidity risk;'' maintain and enforce
written policies and procedures reasonably designed to, as
applicable: [c]onduct its money settlements in central bank money,
where available and determined to be practical by the board of
directors of the covered clearing agency, and minimize and manage
credit and liquidity risk arising from conducting its money
settlements in commercial bank money if central bank money is not
used by the covered clearing agency.''
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The amendments to the Documents would also be compliant with Rule
17Ad-22(e)(15)(ii).\12\ The proposed new table of authorized
investments and concentration limits for investment of ICE Clear
Europe's regulatory capital relates to highly liquid government
securities that constitute liquid net assets for purposes of this rule,
and is consistent with existing practice. The concentration limits
provided, which are consistent with those set with respect to cash from
Clearing Members and skin in the game, would further enable ICE Clear
Europe to continue to hold sufficient liquid net assets to meet this
requirement.
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\12\ 17 CFR 240.17Ad-22(e)(15)(ii). The rule states that
``[e]ach covered clearing agency shall establish, implement,
maintain and enforce written policies and procedures reasonably
designed to, as applicable: (15) Identify, monitor, and manage the
covered clearing agency's general business risk and hold sufficient
liquid net assets funded by equity to cover potential general
business losses so that the covered clearing agency can continue
operations and services as a going concern if those losses
materialize, including by: (ii) Holding liquid net assets funded by
equity equal to the greater of either (x) six months of the covered
clearing agency's current operating expenses, or (y) the amount
determined by the board of directors to be sufficient to ensure a
recovery or orderly wind-down of critical operations and services of
the covered clearing agency, as contemplated by the plans
established under paragraph (e)(3)(ii) of this section, and which:
(A) Shall be in addition to resources held to cover participant
defaults or other risks covered under the credit risk standard in
paragraph (b)(3) or paragraphs (e)(4)(i) through (iii) of this
section, as applicable, and the liquidity risk standard in
paragraphs (e)(7)(i) and (ii) of this section; and
(B) Shall be of high quality and sufficiently liquid to allow
the covered clearing agency to meet its current and projected
operating expenses under a range of scenarios, including in adverse
market conditions;''
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(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 purposes of the Act. The amendments
would apply uniformly to all investments made by the Clearing House,
are being adopted to strengthen and clarify the Clearing House's
investment management policies and procedures and should not affect the
rights or obligations of Clearing Members. The amendments are also
intended to treat investment of ICE Clear Europe's own assets (as skin
in the game or regulatory capital) in the same manner as Clearing
Member assets. As a result, ICE Clear Europe does not believe the
amendments would affect the cost of clearing for Clearing Members or
other market participants, the market for cleared services generally or
access to clearing by Clearing Members or other market participants, or
otherwise affect competition among Clearing Members or market
participants in a manner not necessary or appropriate in furtherance of
the purposes of the Act.
(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants or Others
Written comments relating to the proposed amendments have not been
solicited or received by ICE Clear Europe. ICE Clear Europe will notify
the Commission of any written comments received with respect to the
proposed rule change.
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.
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-2020-002 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-2020-002. 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 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-2020-002 and should be
submitted on or before June 16, 2020.
[[Page 31575]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-11137 Filed 5-22-20; 8:45 am]
BILLING CODE 8011-01-P