[Federal Register Volume 85, Number 215 (Thursday, November 5, 2020)]
[Notices]
[Pages 70697-70699]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-24500]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90290; File No. SR-ICEEU-2020-013]


Self-Regulatory Organizations; ICE Clear Europe Limited; Notice 
of Filing of Proposed Rule Change Relating to the ICE Clear Europe 
Investment Management Procedures

October 30, 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 October 23, 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 primarily 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'') to make certain clarifications and 
updates with respect to permissible investments, as further described 
herein. 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 
Procedures to clarify the requirements for investment of customer funds 
provided by FCM/BD Clearing Members, in light of the expansion of 
permitted investments to include qualifying Euro-denominated non-U.S. 
sovereign debt pursuant to an exemptive order issued by the Commodity 
Futures Trading Commission (the ``CFTC Order'').\4\ The amendments 
would also remove certain credit rating requirements for government 
bonds, clarify certain matters relating to the use of central bank 
deposits and update certain portfolio concentration limits in light of 
market conditions.
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    \4\ Order Granting Exemption From Certain Provisions of the 
Commodity Exchange Act Regarding Investment of Customer Funds and 
From Certain Related Commission Regulations, 83 FR 35241 (July 25, 
2018).
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    ICE Clear Europe is proposing to amend the investment management 
objectives to clarify that the references to cash subject to investment 
under the Procedures are not intended to refer to ICE Clear Europe's 
corporate cash held for operating purposes and not for meeting skin-in-
the-game contributions, regulatory capital or other purposes connected 
to treasury activities in connection with the management of Clearing 
Member margin or guaranty fund contributions. This is consistent with 
current practice.
    In the discussion of overall investment considerations, the 
amendments would clarify that the overall goal that non-overnight 
investments should have a variety of maturity dates is not necessarily 
applicable in all cases (such as investments in bank deposits). 
Further, the description of how futures commission merchant (``FCM'') 
customer funds may be invested would be amended to permit investments 
in cash deposits, to clarify that direct purchases with U.S. dollar 
cash are limited to U.S. sovereign bonds and to provide that direct 
purchases with Euro cash may be made in French and German sovereign 
bonds as permitted in the CFTC Order. The requirement that no more than 
5% of the investible funds should be held as unsecured cash would be 
clarified to state that the calculation would be made over an averaging 
period of one calendar month. Certain other typographical and similar 
corrections would be made to this section.
    The table of authorised investments and concentration limits for 
cash from Clearing Members and Clearing House ``Skin In The Game'' 
would be amended such that: (i) Instead of stating that the maximum 
issuer/counterparty concentration limit is 15% of the total EUR balance 
in a single government issuer, there would be no limit for French/
German government bonds and the 15% limit would apply for government 
bonds issued by Belgium and the Netherlands; and (ii) an additional 
concentration limit for EU government bonds would be imposed at 20% of 
the total EUR balance in a single issue for German or French government 
bonds and 10% of the total EUR balance in a single issue for Belgian or 
Dutch government bonds. For investments of FCM customer funds in EU 
government bonds, additional criteria would apply as set out in the 
CFTC Order. With respect to central bank deposits, the Federal Reserve 
and the European Central Bank (``ECB'') would be added to the list of 
allowed central banks. While ICE Clear Europe does not necessarily have 
access to deposits at such central banks at this time, the amendment is 
intended to allow for possible future developments.
    The amendments would add an additional category to the table of 
authorised investments and concentration limits for regulatory capital 
for commercial bank deposits with unsecured cash limits to be set 
separately for financial service providers, the maximum portfolio 
concentration limit being no more than 5% of the total investible funds 
in unsecured cash on average each calendar month, the maximum maturity 
being overnight and the minimum credit ratings being A-1/P-1.
    The acceptable collateral table for reverse repurchase agreements 
would be amended to add GBP and EUR agency bonds with AA-/Aa3 credit 
ratings and a 2% haircut. The credit rating requirement (currently (AA-
/Aa3) would be removed for UK and US sovereign bonds. The amendments 
would also specify that for FCM customer funds invested in EUR reverse 
repo, only collateral meeting the requirements of the CFTC Order would 
be accepted.
    The Glossary section would be updated such that central banks would 
be added to the definition of Permitted Depositories for FCM Customer 
Funds where the CFTC has provided the relevant exemption to ICE Clear 
Europe.

[[Page 70698]]

A definition of Permitted Purchases of Euro denominated debt for FCM 
Customer Funds would be added to set forth the restrictions and 
conditions on investment of FCM customer funds in euro denominated 
sovereign debt issued by the French Republic and the Federal Republic 
of Germany under the CFTC Order.
(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 
amendments are intended generally to clarify the Clearing House's 
criteria for investments of cash provided by Clearing Members and 
certain other cash held by the Clearing House, including to take 
advantage of the authorization under the CFTC to invest FCM customer 
funds in qualifying Euro-denominated sovereign debt. The amendments 
would also clarify the permitted use of commercial and central bank 
deposits margin, remove unnecessary rating requirements for UK and US 
sovereign debt under reverse repurchase agreements, and update certain 
concentration and similar limits. Overall, in ICE Clear Europe's view, 
the amendments would provide appropriate flexibility for investment of 
cash balances while remaining consistent with regulatory requirements. 
The amendments would thus 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 would 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).\8\
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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).
    \8\ 15 U.S.C. 78q-1(b)(3)(F).
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    For similar reasons, the proposed amendments to the Procedures are 
also consistent with the risk management requirements of Rule 17Ad-
22(e)(3)(i) \9\ through enhancing ICE Clear Europe's investment 
management procedures and providing greater investment flexibility, 
including for FCM customer funds, in a manner consistent with 
applicable regulatory requirements.
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    \9\ 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 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 Procedures are also consistent with 
the provisions of Rule 17Ad-22(e)(7)(i) and (ii) and Rule 17Ad-
22(a)(14) \10\ which require ICE Clear Europe to maintain sufficient 
qualifying liquid resources. In compliance with this requirement, the 
proposed amendments would update investment concentration limits and 
criteria to better manage liquidity of ICE Clear Europe's Clearing 
Member customer funds and regulatory capital. The amendments would also 
allow greater flexibility to maintain liquid resources in the form of 
central bank and commercial bank deposits.
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    \10\ 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 Procedures would be similarly compliant with 
Rule 17Ad-22(e)(16),\11\ which requires 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. 
The amendments to the acceptable collateral table permit the use of 
certain government agency collateral (subject to appropriate 
limitations), remove unnecessary rating requirements on US and UK 
government bonds and update concentration and similar requirements for 
EU government bonds. In ICE Clear Europe's view, these amendments 
update and clarify investment options in a manner that appropriately 
minimizes credit, market and liquidity risks from these investments, 
taking into consideration the benefits of sufficient flexibility to 
diversify investments.
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    \11\ 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) \12\ require clearing agencies, 
where

[[Page 70699]]

possible, to access accounts and services at a central bank. The 
proposed addition of the Federal Reserve and the ECB to the allowed 
entities for central bank deposits in the table of authorized 
investments would provide greater flexibility for the Clearing House to 
use central bank deposits, consistent with these requirements, where 
permissible.
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    \12\ 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; (9) [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 Procedures would also be compliant with Rule 
17Ad-22(e)(15)(ii).\13\ The proposed addition of commercial bank 
deposits to the table of authorized investments and concentration 
limits for investment of ICE Clear Europe's regulatory capital will be 
consistent with the treatment of such investments as liquid net assets 
for purposes of this rule and provide ICE Clear Europe with additional 
flexibility to meet this requirement.
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    \13\ 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 
to the authorized investments would apply uniformly to all investments 
of Clearing Member customer funds made by the Clearing House, are being 
adopted to strengthen and clarify the Clearing House's investment 
management procedures and should not affect the rights or obligations 
of Clearing Members. The amendments also provide the Clearing House 
greater flexibility to hold its own regulatory capital in commercial 
bank deposits, which would not have any significant impact on Clearing 
Members. 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 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-2020-013 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-2020-013. 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 that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of such filings will also be available for inspection 
and copying at the principal office of ICE Clear Europe and on ICE 
Clear Europe's website at https://www.theice.com/notices/Notices.shtml?regulatoryFilings.
    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-2020-013 and should be 
submitted on or before November 27, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2020-24500 Filed 11-4-20; 8:45 am]
BILLING CODE 8011-01-P