[Federal Register Volume 86, Number 33 (Monday, February 22, 2021)]
[Notices]
[Pages 10610-10613]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-03493]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91141; File No. SR-ICEEU-2020-018]


Self-Regulatory Organizations; ICE Clear Europe Limited; Order 
Approving Proposed Rule Change as Modified by Partial Amendment No. 1 
Relating to Amendments to the ICE Clear Europe CDS Procedures and CDS 
Default Management Policy.

February 17, 2021.

I. Introduction

    On December 14, 2020, ICE Clear Europe Limited (``ICE Clear 
Europe'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend its CDS Procedures and CDS Default 
Management Policy. The proposed rule change was published for comment 
in the Federal Register on January 4, 2021.\3\ On December 31, 2020, 
ICE Clear Europe filed Partial Amendment No. 1 to the proposed rule 
change. Notice of Partial Amendment No. 1 was published in the Federal 
Register on January 12, 2021.\4\ The Commission did not receive 
comments on the proposed rule change, as modified by Partial Amendment 
No. 1. For the reasons discussed below, the Commission is approving the 
proposed rule change, as modified by Partial Amendment No. 1 
(hereinafter, the ``proposed rule change'').
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 90806 (December 28, 
2020), 86 FR 169 (January 4, 2021) (SR-ICEEU-2020-018) (``Notice'').
    \4\ Securities Exchange Act Release No. 90861 (January 6, 2021), 
86 FR 2472 (January 12, 2021) (SR-ICEEU-2020-018) (``Partial 
Amendment No. 1''). ICE Clear Europe filed Partial Amendment No. 1 
to amend Item 3(a) of the original filing to add an explanation as 
to the circumstances pursuant to which ICE Clear Europe may permit a 
CDS Committee-Eligible Clearing Member to postpone participation in 
the CDS Default Committee. Partial Amendment No. 1 did not otherwise 
make changes to the substance of the filing, nor did it raise any 
novel regulatory issues
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II. Description of the Proposed Rule Change

    As described below, the proposed rule change would amend the CDS 
Procedures and CDS Default Management Policy primarily related to CDS 
Default Committee participation. The proposed changes would also 
clarify certain other provisions to better reflect current practices. 
\5\
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    \5\ Capitalized terms not otherwise defined herein have the 
meanings assigned to them in the CDS Procedures, CDS Default 
Management Policy or the ICE Clear Europe Rulebook, as applicable. 
The description that follows is excerpted from the Notice.

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[[Page 10611]]

A. CDS Procedures

    The proposed rule change would amend the CDS Procedures' 
definitions to clarify that the term ``CDS Committee-Eligible Clearing 
Members'' must be approved in accordance with paragraph 5.2 of the 
Procedures and continue to meet the criteria of such Paragraph. 
Paragraph 5.2 would thus be amended to specify the requirements for a 
Clearing Member to be approved to be a CDS Committee-Eligible Clearing 
Member. Specifically, the Clearing Member would need to meet the 
following conditions in order to be eligible: (a) In the event that it 
has one or more Affiliates that are CDS Clearing Members, it has the 
longest period of membership of the Clearing House among such 
Affiliates; (b) it has a London-based CDS trading desk; and (c) it is 
deemed appropriate to be a CDS Default Committee Member by the Clearing 
House at its discretion. The amendments to paragraph 5.2 would also be 
amended to note that the Clearing House would maintain a list of all 
CDS Committee-Eligible Clearing Members. The procedure for maintaining 
the CDS Default Committee Participant List (including adding CDS 
Clearing Members to, removing CDS Clearing Members from or changing the 
order of Clearing Members on the CDS Default Committee Participant 
List) would be determined from time to time by the Clearing House at 
its discretion. (Certain such matters would be addressed in further 
detail in the Policy, as discussed below.) CDS Clearing Members would 
be able to provide information of relevance to the Clearing House with 
respect to their own inclusion or omission or order on the list, but 
such information would not be binding on the Clearing House. 
Additionally, the Procedures would state that ICE Clear Europe may also 
share the CDS Default Committee Participant List with any other 
clearing house.
    Other amendments to section 5 include proposed amendments to 
paragraph 5.3, which would add that if a CDS Committee-Eligible 
Clearing Member considers that it is unable to take part in the CDS 
Default Committee for the Relevant CDS Default Committee Period for 
which it is due to take part, it may request to postpone its 
participation for that period. ICE Clear Europe could, at its 
discretion, approve such request. As described in Partial Amendment No. 
1, an acceptable excuse would most likely relate to temporary resource 
constraints at the Clearing Member. For example, if the committee 
member were already serving on the default committee of another 
clearing house during the relevant period or if a committee member 
otherwise had limited staffing resources to commit to the committee 
during that period, this may be considered satisfactory. ICE Clear 
Europe would expect to discuss the particular situation with the 
Clearing Member in question and would respond to any request for 
postponement to let the Clearing Member know whether its rationale was 
satisfactory. Once postponement is approved, the following events would 
take place: that CDS Committee-Eligible Clearing Member would be 
identified to take part in the CDS Default Committee for the next 
Relevant CDS Default Committee Period as one of the three CDS Default 
Committee Participants; and one of the next three CDS Committee-
Eligible Clearing Members on the CDS Default Committee Participant List 
would be selected by the Clearing House at its discretion to take part 
in the CDS Default Committee during that Relevant CDS Default Committee 
Period. The CDS Default Committee Participant List would be amended 
accordingly.
    Paragraph 5.4 would be amended to add that if a CDS Clearing Member 
becomes a defaulter or is suspended or receives a termination notice 
with respect to its Clearing Membership, it would be removed from the 
CDS Default Committee Participant List. Paragraphs 5.4 and 5.5 would be 
amended to clarify that the CDS Default Committee Participant List 
would be amended to take into account any Clearing Member that becomes 
(or resumes being) a CDS Committee-Eligible Clearing Member or is 
removed from being a CDS Default Committee Participant because the 
Clearing House determines that such Clearing Member has a conflict or 
lacks impartiality.
    The amendments in paragraph 5.6 would provide that the Clearing 
House would give notice that, since CDS Default Committee Members and 
CDS Default Committee Participants act as part of the governance of ICE 
Clear Europe, such CDS Default Committee Members and CDS Default 
Committee Participants would take the benefit of all exclusions and 
limitations of liability available to the Clearing House under the 
Rules or Applicable Laws. The change is intended to make the exclusions 
and limitations on liability for such persons consistent with those 
generally applicable to Clearing House governance process.\6\
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    \6\ Notice, 86 Federal Register at 170.
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    The amendments in paragraph 5.8 would provide that CDS Clearing 
Members agree and acknowledge that each CDS Default Committee Member 
and CDS Default Committee Participant (each a ``Covered Party'') would 
be subject to the provisions of Rule 106 (regarding confidentiality of 
information received and permitted disclosures) as if that Covered 
Party were the Clearing House. Furthermore, each CDS Clearing Member 
would be required to ensure that each such Covered Party nominated by 
it would not use any Confidential Material for its own benefit or the 
benefit of any of its Affiliates and, if so requested by the Clearing 
House, would execute any documentation specified by the Clearing House 
acknowledging the same. The procedures that would apply in the event 
that a Covered Party is served with or otherwise subject to legal 
process have been removed as unnecessary in light of the referenced 
provisions of Rule 106. Paragraph 5.9 would be amended to clarify that 
each CDS Clearing Member agrees that each Covered Party would be 
responsible for its own costs associated with its service in such 
position.
    The proposal would also make several changes to the CDS Procedures 
not related to CDS Default Committee participation. Specifically, the 
rule proposal would also amend paragraph 4.4 of the Procedures, which 
describes the timing requirements for submitting CDS Trade Particulars, 
to clarify that with respect to CDS Trade Particulars submitted after 
6:00 p.m. on a Business Day or on a day that is not a Business Day, 
unless a revocation right exists and is exercised or unless otherwise 
stated in circular, among other existing exceptions, such CDS Trade 
Particulars would be deemed to have been submitted at 8:00 a.m. on the 
following Business Day. Furthermore, the Procedures would provide that 
if the Trade Date specified in the CDS Trade Particulars is not a 
Business Day, then the relevant CDS Trade Particulars would be 
rejected. According to ICE Clear Europe, this reflects current Clearing 
House practice.\7\
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    \7\ Notice, 86 Federal Register at 169.
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B. CDS Default Management Policy

    ICE Clear Europe is proposing to make amendments to its CDS Default 
Management Policy related to the Default Committee consistent with the 
CDS Procedures as well as several general clarification amendments to 
the Policy. First, under the section CDS

[[Page 10612]]

Default Committee Activation, consistent with the changes to the CDS 
Procedures, the proposal would amend the Policy to provide that a 
Clearing Member would only be defined as Committee-Eligible if such 
Clearing Member (i) is deemed appropriate by the Clearing House, (ii) 
is the primary clearing entity of an affiliate group, and (iii) has a 
London based trading desk. The Policy would also clarify that the 
Clearing House maintains a list of all CDS Committee-Eligible Clearing 
Members and that the relevant term for the committee is six calendar 
months or until the end of any active Default event.
    Additionally, the Policy would be amended to provide that in the 
event that a CDS Default Committee Participant is unable to fulfill its 
upcoming rotation obligation for any reason including serving in the 
CDS Default Committee of another clearing house, such CDS Default 
Committee Participant would have the option to request to postpone 
their Relevant CDS Default Committee for a Relevant CDS Default 
Committee Period. If the Clearing House finds the reason for 
postponement satisfactory, the CDS Default Committee Participant would 
be substituted for a CDS Committee-Eligible Clearing Member from the 
next three members on the CDS Default Committee Participant List. Prior 
to commencement of a rotation, CDS Default Committee Members would be 
required to have signed all documentation required by the Clearing 
House (including but not limited to a Seconded Trader Agreement), and 
the Clearing House would use reasonable efforts to ensure that such 
requirement is enforced. The amendments would also clarify that CDS 
Default Committee Members would be responsible for assisting in 
executing any CDS transactions (with respect to Rules 902 or 903) on 
behalf of the Clearing House only if needed. Under the Committee 
Activation Procedures section, the procedure for use of an alternate 
CDS Default Committee Member contact would be revised to refer 
generally to a situation where the designated primary representative 
cannot be reached in a reasonable amount of time, and to remove 
specific examples of reasons a member could not be reached.
    With respect to the Secondment Facilities section, the proposed 
amendments would clarify that upon arrival at the ICE Clear Europe 
offices, each CDS Default Committee Member would be assigned a PC with 
the ICE Clear Europe risk reports concerning the defaulter's portfolio 
and a third-party data provider application. References to how the CDS 
Default Committee Member would be able to login to the PC and view 
certain information sent to ICE Clear Europe by the non-defaulting 
Clearing Members would be removed as unnecessary. The amendments would 
also clarify that CDS Default Committee Members would only execute the 
hedging and liquidating transactions that the Head of Clearing Risk and 
the team deem necessary.
    The amendments would also remove the requirement that seconded 
traders sign an additional confidentiality agreement pertaining to 
their role within a given member default (as ICE Clear Europe believes 
the existing single secondment agreement is sufficient).\8\ Instead, 
the Policy would provide that CDS Default Committee Members would be 
reminded of ongoing confidentiality obligations by the ICE Clear Europe 
Compliance department.
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    \8\ Notice, 86 Federal Register at 170.
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    The amendments would provide that details of the auction and 
relevant position data will be made available through the ICE Default 
Management System, consistent with the ICE Clear Europe auction 
procedures. The amendments would also clarify that following the close 
of an auction for sub-portfolio, the Clearing House would publish the 
new trades to be booked to the winning bidders through the ICE Default 
Management System. The Clearing House would no longer notify the point 
of contact for the winning bidders verbally. The change is intended to 
conform to the ICE Clear Europe auction procedures.\9\
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    \9\ Notice, 86 Federal Register at 171.
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    The amendments would provide additional detail with respect to 
default management testing. Specifically, pursuant to the amendments, 
the Policy would state that the Clearing House would test and review 
its default procedures at least quarterly and perform simulation 
exercises at least annually. The default test would be conducted in 
coordination with Clearing Members by engaging all the internal and 
external stakeholders that would be involved in the default management 
process (for example, the Clearing Risk Department, ICE Clear Europe 
Senior Management Team, CDS Default Committee Members, regulators, 
etc.). Each default test would be planned in accordance with the ICE 
Clear Europe Multi-Years Default Plan, which would list several 
different default scenarios that would need to be tested by the 
Clearing House on a regular basis. The ICE Clear Europe Senior 
Management Team would be responsible for approving the scope of the 
annual default test by choosing different scenarios outlined in the 
Plan. The Plan and changes to it would need to be approved by the 
Executive Risk Committee.
    The rule proposal would also amend the Policy with general drafting 
clarifications and improvements. Specifically, the amendments to the 
Policy would remove Appendices A and B, which contain various forms of 
notice and examples, as well as references thereto. In ICE Clear 
Europe's view, these appendices do not need to be included in the 
Policy and, to the extent they remain relevant, forms of notice can be 
maintained by the Clearing House separately.\10\ Certain terminology 
would be updated throughout the Policy as follows: (i) The term, 
Employee, would be updated to Eligible Employee; and (ii) the terms, 
Defaulting Clearing Member or Defaulting Member, would be updated to 
defaulter in certain instances in order to avoid repetition and aid 
with readability. Certain provisions relating to the Clearing House 
ceasing to clear new trades for a Defaulting Clearing Member would be 
moved and renumbered.
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    \10\ Notice, 86 Federal Register at 170.
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III. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act directs the Commission to approve a 
proposed rule change of a self-regulatory organization if it finds that 
such proposed rule change is consistent with the requirements of the 
Act and the rules and regulations thereunder applicable to such 
organization.\11\ For the reasons given below, the Commission finds 
that the proposed rule change is consistent with Section 17A(b)(3)(F) 
of the Act \12\ and Rules 17Ad-22(e)(3)(i) and (e)(13) thereunder.\13\
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    \11\ 15 U.S.C. 78s(b)(2)(C).
    \12\ 15 U.S.C. 78q-1(b)(3)(F).
    \13\ 17 CFR 240.17 Ad-22(e)(3)(i), (e)(13).
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A. Consistency With Section 17A(b)(3)(F) of the Act

    Section 17A(b)(3)(F) of the Act requires, among other things, that 
the rules of ICE Clear Europe be designed to promote the prompt and 
accurate clearance and settlement of securities transactions and, to 
the extent applicable, derivative agreements, contracts, and 
transactions, as well as to assure the safeguarding of securities and 
funds which are in the custody or control of ICE Clear Europe or for 
which it is responsible.\14\
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    \14\ 15 U.S.C. 78q-1(b)(3)(F).

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[[Page 10613]]

    As noted above, ICE Clear Europe utilizes seconded representatives 
of Clearing Members to serve on ICE Clear Europe's CDS Default 
Committee to manage the portfolios of defaulting clearing members. The 
proposed rule changes would update and clarify the requirements for a 
Clearing Member to be eligible to serve on the CDS Default Committee as 
well as clarify the procedures to be used by the CDS Default Committee 
if such Clearing Member is unable to fulfill its upcoming rotation 
obligation. The proposed rule changes also describe the process ICE 
Clear Europe follows when a CDS Committee-Eligible Clearing Member is 
unable to take part in the CDS Default Committee. The proposed changes 
also make various changes to the procedures clarifying the fact that 
CDS Default Committee Members and participants are subject to 
confidentiality requirements and that these participants have the 
benefit of all exclusions and limitations of liability available to ICE 
Clear Europe. Further, the CDS Policy changes clarify the detailed 
resources available to CDS Default Committee Members necessary for 
carrying out their functions.
    Taken together, the Commission believes that these changes and 
clarifications with respect to CDS Default Committee participation and 
the process for when a CDS Committee-Eligible Clearing Member cannot 
participate in the CDS Default Committee should allow ICE Clear Europe 
to better ensure that the committee is comprised of participants who 
possess the requisite knowledge and experience to assist in a default 
management process. The Commission, in turn, believes that this should 
help ICE Clear Europe more effectively manage defaults, ensuring 
ICEEU's ability to continue functioning, thereby promoting the prompt 
and accurate clearance and settlement of transactions.
    For the reasons stated above, the Commission finds that the 
proposed rule change is consistent with the Section 17A(b)(3)(F) of the 
Act.\15\
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    \15\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rule 17Ad-22(e)(13)

    Rule 17Ad-22(e)(13) requires that ICE Clear Europe establish, 
implement, maintain and enforce written policies and procedures 
reasonably designed, as applicable, to ensure ICE Clear Europe 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 its Clearing Members 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.\16\
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    \16\ 15 U.S.C. 17Ad-22(e)(13).
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    As noted above, the proposed changes to the CDS Procedures would 
define the requirements for Clearing Members to become eligible to 
participate in the CDS Default Committee as well as the process for 
addressing situations when parties postpone their participation will 
ensure that the committee is staffed with appropriate representatives. 
The Commission believes that these changes should help to ensure ICE 
Clear Europe has the operational capacity to take timely action to 
contain losses.
    In addition, as noted above, the proposed rule change would revise 
the CDS Default Management Policy to specify that it will engage in 
testing and review of its default procedures at least quarterly and 
perform simulation exercises as least annually, which is conducted in 
coordination with its clearing members as well as internal stakeholders 
such as the Clearing Risk Department, senior clearing house management, 
and the CDS Default Committee. Further, the Policy would be amended to 
state that these default tests would be planned to take into account 
various scenarios that are tested and approved by the stakeholders, 
including senior management. The Commission believes that this 
additional detail regarding the testing of ICE Clear Europe's default 
procedures would support ICE Clear Europe's ability to meet its 
obligations through regular testing and review of its default 
procedures with the requisite stakeholders.
    For these reasons, the Commission finds that the proposed rule 
change is consistent with Rule 17Ad-22(e)(13).\17\
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    \17\ 15 U.S.C. 17Ad-22(e)(13).
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IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act, 
and in particular, with the requirements of Section 17A(b)(3)(F) of the 
Act \18\ and Rules 17Ad-22(e)(3)(i) and (e)(13).\19\
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    \18\ 15 U.S.C. 78q-1(b)(3)(F).
    \19\ 17 CFR 240.17Ad-22(e)(3)(i) and (e)(13).
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    It is therefore ordered pursuant to Section 19(b)(2) of the Act 
\20\ that the proposed rule change, as modified by Partial Amendment 
No. 1 (SR-ICEEU-2020-018), be, and hereby is, approved.\21\
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    \20\ 15 U.S.C. 78s(b)(2).
    \21\ In approving the proposed rule change, the Commission 
considered the proposal's impact on efficiency, competition, and 
capital formation. 15 U.S.C. 78c(f).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-03493 Filed 2-19-21; 8:45 am]
BILLING CODE 8011-01-P