[Federal Register Volume 86, Number 144 (Friday, July 30, 2021)]
[Notices]
[Pages 41125-41128]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-16227]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92492; File No. SR-ICEEU-2021-013]


Self-Regulatory Organizations; ICE Clear Europe Limited; Order 
Approving Proposed Rule Change Relating to the ICE Clear Europe 
Articles of Association

July 26, 2021.

I. Introduction

    On May 25, 2021, 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 
(the ``Act''),\1\ and Rule 19b-4,\2\ a proposed rule change to amend 
its Articles of Association (the ``Articles''). The proposed rule 
change was published for comment in the Federal Register on June 11, 
2021.\3\ The Commission did not receive comments regarding the proposed 
rule change. For the reasons discussed below, the Commission is 
approving the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Self-Regulatory Organizations; ICE Clear Europe Limited; 
Notice of Filing of Proposed Rule Change Relating to the ICE Clear 
Europe Articles of Association, Exchange Act Release No. 92120 (June 
7, 2021); 86 FR 31348 (June 11, 2021) (SR-ICEEU-2021-013) 
(``Notice'').
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II. Description of the Proposed Rule Change

    As discussed further below, the proposed rule change would amend 
the Articles to: (i) Update definitions related to the ICE Clear Europe 
Board of Directors (the ``Board'') and references to Board committees; 
(ii) modify the composition and structure of the Board and Board 
committees; (iii) revise the provisions regarding Super-Quorum Matters; 
(iv) add an article regarding presence at a Board meeting and amend an 
article related to expenses for directors; and (v) adopt gender-neutral 
language and make non-substantive typographical edits throughout the 
Articles.\4\
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    \4\ The description that follows is excerpted from the Notice, 
86 FR at 31348. Capitalized terms not otherwise defined herein have 
the meanings assigned to them in the ICE Clear Europe Clearing Rules 
or the Articles, as applicable.
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A. Definitions Related to the Board and Board Committees

    Beginning in the defined terms found in Article 3, the proposed 
rule change would change the name of the Risk Committee to Product Risk 
Committee and update references to this committee throughout the 
Articles accordingly. This change would reflect the correct current 
name and function of this committee (and distinguish the Product Risk 
Committee from other existing risk committees). Further, the proposed 
rule change would delete from the definition of Product Risk Committee 
the statement that it is composed of the directors, to reflect that the 
committee is comprised of directors as well as representatives of 
Clearing Members.
    The proposed rule change would next delete definitions of, and 
references to, Board committees other than the Product Risk Committee. 
The proposed rule change would delete from article 3 \5\ the 
definitions of Audit Committee, Board Risk Committee, Compensation 
Committee, and Nomination Committee. In addition, the proposed rule 
change would also amend the defined term Committees. Currently that 
term is defined to mean certain committees of the Board (Audit 
Committee, Board Risk Committee, etc.). The proposed rule change would 
revise this definition to mean any committee constituted by the Board 
under the Articles. Although ICE Clear Europe is not proposing to 
change its current committee structure at this time, it does not 
believe the committees need to be defined in the Articles. Given that 
the Board is authorized to create, modify, or dissolve committees as it 
determines to be appropriate, the amendments would facilitate future 
changes to the committee structure by the Board without need to amend 
the Articles.\6\ The proposed rule change would retain the definition 
of, and references to, the Product Risk Committee, however, because 
that Committee plays a specific role relating to the CDS Director, as 
discussed below.\7\
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    \5\ References herein to the numbering of particular articles 
will be to the articles as amended.
    \6\ Notice, 86 FR at 31348.
    \7\ Notice, 86 FR at 31348.
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B. Composition and Structure of the Board and Board Committees

    The proposed rule change also would make certain revisions to the 
composition of the Board and Board committees. Currently, the Articles 
provide that the number of directors shall be not less than six and not 
more

[[Page 41126]]

than twelve, with at least two and not more than four Independent 
Directors. The proposed rule change would not alter the size of Board; 
it would retain the not less than six and not more than twelve 
numerical requirement. The proposed rule change would provide, however, 
that at least one third of directors should be Independent Directors, 
replacing the current requirement of at least two and not more than 
four. Under a minimum Board size of six, this would result in two 
Independent Directors, and under a maximum Board size of twelve, this 
would result in four Independent Directors. Thus, this proposed change 
would in effect keep the number of independent directors the same, 
while providing flexibility and clarifying the language.
    Relatedly, the proposed rule change would update the definition of 
Independent Director. Independent Director is currently defined as a 
person who is independent of the Company and of the Clearing House and 
who is appointed as a non-executive director of the Company. The 
proposed rule change would modify this definition to mean a person who 
meets the independence criteria for a director, as defined under 
relevant applicable legislation and who is appointed as a non-executive 
director.\8\
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    \8\ Specifically, ICE Clear Europe represented such legislation 
would include the definition of ``independent member'' pursuant to 
Article 2(28) of the European Market Infrastructure Regulation 
(EMIR), 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 as incorporated into UK law 
under the European Union (Withdrawal) Act 2018 (UK EMIR). Notice, 86 
FR at 31349, n.4.
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    Similarly, the proposed rule change would clarify the definition of 
CDS Director. A CDS Director is defined as a person, reasonably 
acceptable to the Board and approved by the Bank of England, with 
appropriate experience of credit derivatives and the credit default 
swaps marketplace, and further experience including, but not limited 
to, corporate governance, management oversight, and financial markets, 
who is appointed by the Board as a non-executive director of the 
Company and who has been nominated by the Product Risk Committee with 
responsibility for CDS. The proposed rule change would retain this 
definition but would add a sentence to clarify that the CDS Director 
may also meet the criteria required of an Independent Director but, for 
the avoidance of doubt, would continue to be classified only as a CDS 
Director. Thus, even if the CDS Director meets the criteria required of 
an Independent Director, they will be classified only as a CDS Director 
and not as an Independent Director.
    The proposed rule change would also modify the Board composition 
requirement with respect to CDS Directors. Currently, the Articles 
require that two CDS Directors be appointed to serve on the Board. The 
proposed rule change would modify this provision to require only that 
one CDS Director serve on the Board. The proposed rule change also 
would amend the provisions relating to the appointment and retirement 
of CDS Directors to reflect this change. ICE Clear Europe represented 
that the proposed reduction to the required number of CDS Directors 
follows the retirement of one of the previous CDS Directors and that it 
was unnecessary to have two CDS Directors because Clearing Members 
would continue to be represented through the remaining CDS Director and 
the CDS Product Risk Committee.\9\
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    \9\ Notice, 86 FR at 31349.
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C. Super-Quorum Matters

    Super-Quorum Matters are certain matters before the Board that are 
subject to additional requirements regarding the presence of a CDS 
Director at the meeting where those matters are considered. Article 3 
currently defines Super-Quorum Matters as matters regarding those 
aspects of the Rules that relate to: CDS Clearing Members; CDS 
contracts; the structure, size, or application of the CDS guaranty 
fund; the methodology for calculating a CDS Clearing Member's CDS 
guaranty fund contribution or the components thereof; permitted cover 
for CDS guaranty fund contributions; powers of assessment in respect of 
CDS Clearing Members; the time period for, or means by which, CDS 
margin is returned to a CDS Clearing Member; the methodology for 
determining the rate of return on the CDS guaranty fund; the use, re-
hypothecation or investment of the CDS guaranty fund; the terms of 
reference for the CDS Risk Committee; and, the subject and content of 
the Board Resolution relating to those matters. The proposed rule 
change would retain this definition, with some additional 
clarifications. Specifically, the proposed rule change would clarify 
that the definition includes those aspects of the Rules that relate to 
``criteria for CDS Clearing Membership'' instead of just ``CDS Clearing 
Members.'' Because seemingly any aspect of the Rules could relate to 
CDS Clearing Members, including those aspects of the rules that are 
already specifically covered in the definition of Super-Quorum Matters, 
this specific change would narrow and clarify this aspect of the 
definition. Moreover, clarifying that the definition covers those 
aspects of the Rules that relate to criteria for CDS Clearing 
Membership would ensure that those provisions of the Rules are also 
covered by the definition. Finally, the remaining portions of the 
definition of the Super-Quorum Matters would continue to broadly cover 
other aspects of the Rule that could relate to CDS Clearing Members, 
including any aspects of the rules relating to CDS contracts.
    In addition, the proposed rule change would update a reference to 
the terms of reference for the CDS Risk Committee to the terms of 
reference for the Product Risk Committee, in furtherance of the change 
discussed above. The proposed rule change would also resolve a drafting 
ambiguity by removing ``the subject and content of the Board 
Resolution'' as a Super-Quorum Matter as, by current practice, not all 
Board resolutions are Super-Quorum Matters.
    The proposed rule change next would amend the Articles to clarify 
the operation of the super-quorum requirement for Super-Quorum Matters, 
and to reflect the requirement to have one CDS Director present. The 
Articles currently require that, in relation to Super-Quorum Matters, a 
super-quorum is needed for the transaction of business, which means a 
majority of the directors serving on the Board at that time including 
at least one CDS Director. The proposed rule change would modify this 
provision to make the term ``Super-Quorum'' a defined term, meaning a 
majority of the directors serving on the Board at that time and, for as 
long as a CDS Director has been nominated by the Product Risk Committee 
with responsibility for CDS and appointed by the Board, the Super-
Quorum must include a CDS Director who must be present at the meeting. 
Because under the Articles as revised there will only be one CDS 
Director, the proposed rule change would add this language to clarify 
that where a CDS Director has retired or resigned and a new CDS 
Director has not yet been nominated by the Product Risk Committee and 
appointed by the Board, the Board could still act on a Super-Quorum 
Matter. Thus, as in the current Articles, under the proposed rule 
change a Super-Quorum would include a CDS Director.
    The proposed rule change would further clarify that while the CDS 
Director must be present at a meeting requiring a Super-Quorum, the CDS 
Director need not vote in favor of the resolution. The Articles do not 
currently require that the CDS Director vote in favor of the Board 
resolution relating to

[[Page 41127]]

the Super-Quorum Matter, so this provision would clarify this point.
    Moreover, the Articles currently provide that in relation to Super-
Quorum Matters that need to be resolved in an emergency the quorum 
necessary shall be the number equal to a majority of the directors 
serving on the Board at that time. Thus, under the current Articles, 
the Board could resolve a Super-Quorum Matter at an emergency meeting 
without a CDS Director present. The proposed rule change would retain 
this provision, but would clarify that the ICE Clear Europe President 
or their delegate would deem whether there is an emergency. The 
proposed rule change would also add language to would clarify that, for 
the avoidance of doubt, the presence of a CDS Director is not necessary 
at the emergency meeting, as under the current Articles.
    Finally, the Articles currently provide that where no CDS Directors 
are present at a meeting requiring a Super-Quorum, consideration of the 
business relating to relevant Super-Quorum Matters shall be adjourned 
to a re-convened meeting to be called subject to a minimum of two 
Business Days' notice to the Board, at which transaction of business in 
relation to the relevant Super-Quorum Matters shall not require a 
Super-Quorum and may be transacted by a quorum equal to a majority of 
the directors serving on the Board at that time. The proposed rule 
change would retain this provision but would clarify that at the 
subsequent meeting, a CDS Director need not be present.

D. Presence and Directors' Expenses

    The proposed rule change, through a new article, would provide that 
a member shall be deemed present at a general meeting if participating 
by telephone or other electronic means and all participating members 
can hear each other. Relatedly, the proposed rule change would amend 
the Articles to state explicitly that for a quorum to be met for non-
Super-Quorum Matters, the required majority of directors must be 
present at the meeting (under the new definition).
    The proposed rule change also would amend the Articles regarding 
directors' expenses. The Articles provide that directors may, subject 
to the approval of the Board, be paid all travelling, hotel and other 
expenses properly incurred by them in connection with their attendance 
at meetings of directors or committees of directors or general meetings 
or separate meetings of the Company or otherwise in connection with the 
discharge of their duties. The proposed rule change would modify this 
provision by adding the word ``reasonable'' immediately before 
``travelling,'' thus in effect requiring the expenses to be reasonable. 
The proposed rule change also would remove the requirement that the 
expenses be subject to Board approval. ICE Clear Europe represented 
that, instead, the ICE Clear Europe President would approve such 
expenses.\10\
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    \10\ Notice, 86 FR at 31349.
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E. Gender Neutral Language and Typographical Errors

    Throughout the Articles, the proposed rule change would amend 
various provisions to use gender-neutral language. The proposed rule 
change also would correct certain non-substantive typographical errors 
and update numbering due to the changes discussed above.

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 discussed below, the Commission finds 
that the proposed rule change is consistent with Section 17A(b)(3)(C) 
of the Act,\12\ Section 17A(b)(3)(F) of the Act,\13\ and Rule 17Ad-
22(e)(2)(i).\14\
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    \11\ 15 U.S.C. 78s(b)(2)(C).
    \12\ 15 U.S.C. 78q-1(b)(3)(C).
    \13\ 15 U.S.C. 78q-1(b)(3)(F).
    \14\ 17 CFR 240.17Ad-22(e)(2)(i).
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A. Consistency With Section 17A(b)(3)(C) of the Act

    Section 17A(b)(3)(C) of the Act requires, among other things, that 
the rules of ICE Clear Europe assure a fair representation of its 
shareholders (or members) and participants in the selection of its 
directors and administration of its affairs.\15\ The Commission 
believes that the proposed rule change, in general, would be consistent 
with assuring a fair representation of ICE Clear Europe's shareholders, 
members, and participants in the selection of its directors and 
administration of its affairs. Although, as discussed in Part II.B 
above, one aspect of the proposed rule change would reduce the minimum 
representation of CDS Directors on the Board of Directors from two to 
one, the proposed rule change would not reduce any of the authority or 
responsibility of the remaining CDS Director. Currently under the 
Articles the presence of at least one CDS Director is required at Board 
meetings relating to Super-Quorum Matters, and no provision explicitly 
requires that a CDS Director vote in favor of Board resolutions 
relating to Super-Quorum Matters. Similarly under the proposed rule 
change, the presence of the CDS Director is required at Board meetings 
relating to Super-Quorum Matters, but the CDS Director need not vote in 
favor of a Board resolution relating to a Super-Quorum Matter for the 
resolution to pass. Moreover, the current provisions relating to the 
conduct of emergency meetings and re-convened meetings relating to 
Super-Quorum matters without a CDS Director present are largely the 
same under the Articles as proposed to be amended, with some additional 
clarifications. Finally, the Commission notes ICE Clear Europe's 
representation that Clearing Members would continue to be represented 
through the CDS Product Risk Committee, which, other than the Chair, is 
composed entirely of representatives of Clearing Members.\16\
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    \15\ 15 U.S.C. 78q-1(b)(3)(C).
    \16\ Notice, 86 FR at 31349.
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    Taking these factors together, the Commission finds that the 
proposed rule change is consistent with 17A(b)(3)(C) of the Act.\17\
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    \17\ 15 U.S.C. 78q-1(b)(3)(C).
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B. 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.\18\ As discussed in more detail below, the 
Commission generally believes that the changes discussed above should 
facilitate the efficient operation of the clearing house and a clear 
and transparent governance structure, which would promote the prompt 
and accurate clearance and settlement of transactions and assure the 
safeguarding of securities and funds. Therefore, the Commission 
believes that the proposed rule change is consistent with Section 
17A(b)(3)(F) of the Act.\19\
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    \18\ 15 U.S.C. 78q-1(b)(3)(F).
    \19\ 15 U.S.C. 78q-1(b)(3)(F).
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    The Commission believes the changes discussed in Part II.A above 
would ensure that the Articles are consistent with the current 
operations of ICE Clear Europe by correcting the name of the

[[Page 41128]]

Risk Committee to the Product Risk Committee and amending the 
definition of that committee to reflect its current composition. 
Moreover, revising the defined term ``Committees'' and removing 
references to other Board committees would make the Articles more 
flexible by allowing for the addition, modification, or elimination of 
Board committees without the need to amend the Articles. The Commission 
believes that these changes should improve ICE Clear Europe's ability 
to adapt its Board to evolving circumstances and unforeseen areas of 
priority.
    Similarly, the Commission believes that the changes discussed in 
Part II.B above would clarify the Articles with respect to the 
composition of the Board. Specifically, changing the minimum number of 
Independent Directors to one third of the Board, from at least two but 
not more than four, would in effect result in the same number of 
Independent Directors as currently, given that the size of the Board 
could still range from six to twelve directors. This change would 
clarify and simplify the language of this requirement, however. 
Similarly, the Commission believes that revising the definition of an 
Independent Director to refer to independence criteria as defined under 
applicable legislation would allow this definition to change in 
response to changes to relevant legislation, thus furthering the 
clarity and flexibility of this definition. The Commission also 
believes that clarifying the definition of CDS Director, by adding 
language that a CDS Director can also meet the criteria for an 
Independent Director, will clarify the Articles by absolving a 
potential ambiguity of director classification. Finally, the Commission 
believes that changing the required Board representation of CDS 
Directors from two to one and revising other provisions to reflect this 
change would clarify the number of CDS Directors on the Board without 
substantially reducing the representation of Clearing Members.
    The Commission also believes that amending the Articles pertaining 
to Super-Quorum Matters as discussed in Part II.C above would clarify 
the requirements applicable to Super-Quorum Matters. Specifically, the 
Commission believes clarifying the definition of Super-Quorum Matters 
would make it easier to determine what matters fall within the category 
of Super-Quorum Matters. Similarly, the Commission believes that by 
making the term ``Super-Quorum'' a defined term and including, as in 
the current Articles, a requirement that a CDS Director be present at a 
meeting to achieve a Super-Quorum, the proposed rule change would 
clarify these provisions. Finally, the Commission believes the other 
changes discussed in Part II.C above would clarify points currently 
implied in the Articles: That a CDS Director need not vote in favor of 
a resolution during a Super-Quorum Matter; that the President or their 
delegate would determine the existence of an emergency as needed for an 
emergency meeting; and that a CDS Director need not be present at an 
emergency or reconvened Board meeting involving a Super-Quorum Matter.
    Similarly, the Commission believes that the changes to the Articles 
concerning the acceptable criteria constituting presence at a Board 
meeting, as discussed in Part II.D above, would clarify when a director 
is present at a Board meeting, especially when participating by 
telephone. Revising the provision regarding directors' expenses 
discussed in Part II.D above should would clarify this provision given 
that the ICE Clear Europe President, and not the Board, approves such 
expenses. Finally, the Commission believes that the changes to the 
Articles to reflect gender-neutral language, correct typographical 
errors, and renumber the Articles in accord with the above changes to 
the Articles would clarify the Articles and eliminate drafting 
mistakes.
    The Commission believes that by clarifying and revising the 
Articles, the proposed rule change would reduce the possibility for 
error in interpreting and applying the Articles, thus improving the 
operation of ICE Clear Europe's governance in general and the Board in 
particular. The Commission further believes that improved governance 
and Board oversight may facilitate the efficient and effective 
operations of ICE Clear Europe, including its clearance and settlement 
of transactions and safeguarding of securities and funds. Therefore, 
the Commission finds that the proposed rule change should promote the 
prompt and accurate clearance and settlement of securities transactions 
and assure the safeguarding of securities and funds in ICE Clear 
Europe's custody and control, consistent with the Section 17A(b)(3)(F) 
of the Act.\20\
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    \20\ 15 U.S.C. 78q-1(b)(3)(F).
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C. Consistency With Rule 17Ad-22(e)(2)(i)

    Rule 17Ad-22(e)(2)(i) requires that ICE Clear Europe establish, 
implement, maintain, and enforce written policies and procedures 
reasonably designed to provide for governance arrangements that are 
clear and transparent.\21\ As discussed above, the Commission believes 
that the proposed rule change would clarify the Articles and the 
operation of the Board pursuant to the Articles. For example, by 
establishing when a director is present at a Board meeting, including 
when participating by telephone, the Commission believes the proposed 
rule change would clarify when a director is present and counted for 
purposes of establishing a quorum or Super-Quorum. Moreover, a number 
of changes discussed in Part II.C above would clarify points currently 
implied in the Articles: That the CDS Director need not vote in favor 
of the Board resolution relating to the Super-Quorum Matter; that the 
President would determine the existence of an emergency as needed for 
an emergency meeting; and that a CDS Director need not be present at an 
emergency or reconvened Board meeting. Thus, the Commission finds that 
the proposed rule change is consistent with Rule 17Ad-22(e)(2)(i).\22\
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    \21\ 17 CFR 240.17Ad-22(e)(2)(i).
    \22\ 17 CFR 240.17Ad-22(e)(2)(i).
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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)(C) of the 
Act,\23\ 17A(b)(3)(F) of the Act,\24\ and Rule 17Ad-22(e)(2)(i).\25\
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    \23\ 15 U.S.C. 78q-1(b)(3)(C).
    \24\ 15 U.S.C. 78q-1(b)(3)(F).
    \25\ 17 CFR 240.17Ad-22(e)(2)(i).
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    It is therefore ordered pursuant to Section 19(b)(2) of the Act 
\26\ that the proposed rule change (SR-ICEEU-2021-013), be, and hereby 
is, approved.\27\
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    \26\ 15 U.S.C. 78s(b)(2).
    \27\ 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.\28\
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    \28\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-16227 Filed 7-29-21; 8:45 am]
BILLING CODE 8011-01-P