[Federal Register Volume 86, Number 190 (Tuesday, October 5, 2021)]
[Notices]
[Pages 55045-55049]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-21616]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93178; File No. SR-ICEEU-2021-014]


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

September 29, 2021.

I. Introduction

    On August 2, 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

[[Page 55046]]

Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to adopt a new Clearing Membership Policy (the 
``Policy'') and new Clearing Membership Procedures (the ``Procedures,'' 
and together with the Policy, the ``Documents''). The proposed 
Documents would consolidate and summarize ICE Clear Europe's existing 
clearing membership criteria and document certain existing processes 
and procedures concerning the membership application process. On August 
11, 2021, ICE Clear Europe filed Partial Amendment No. 1 to the 
proposed rule change.\3\ Notice of the proposed rule change, as 
modified by Partial Amendment No. 1, was published in the Federal 
Register on August 18, 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 (hereafter 
referred to as the ``proposed rule change'').
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ ICE Clear Europe filed Partial Amendment No. 1 to delete 
from the filed Exhibit 5B, Clearing Membership Procedures, certain 
statements in sections 2.4.1 and 2.4.2 of such Procedures concerning 
the termination of clearing membership by a Clearing Member. 
Specifically, ICE Clear Europe proposes to remove the statements 
that it will define a minimum notice period and may publish a 
Circular confirming that a Termination Notice has been issued, 
because the appropriate minimum notice period and requirements for 
publishing a Circular are set forth in existing Clearing Rule 209, 
which is not proposed to be amended. Partial Amendment No. 1 did not 
otherwise make any changes to the substance of the filing or the 
text of the proposed rule change.
    \4\ Self-Regulatory Organizations; ICE Clear Europe Limited; 
Notice of Filing of Proposed Rule Change, as Modified by Partial 
Amendment No. 1, Relating to the ICE Clear Europe Clearing 
Membership Policy and Clearing Membership Procedures, Exchange Act 
Release No. 92652 (August 12, 2021), 86 FR 46290 (August 18, 2021) 
(SR-ICEEU-2021-014) (``Notice'').
---------------------------------------------------------------------------

II. Description of the Proposed Rule Change

    As described in more detail below, ICE Clear Europe proposes to 
adopt the Documents to consolidate and summarize its existing clearing 
membership criteria and to document certain existing processes and 
procedures concerning its membership application and monitoring 
processes to ensure that Clearing Members meet admission criteria upon 
initial membership and continue to meet such criteria throughout their 
membership.\5\
---------------------------------------------------------------------------

    \5\ Capitalized terms used but not defined herein have the 
meanings specified in the ICE Clear Europe Clearing Rules (the 
``Rules''). The description herein of the proposed rule change is 
substantially excerpted from the Notice.
---------------------------------------------------------------------------

A. Clearing Membership Policy

    The proposed new Policy would consolidate and summarize ICE Clear 
Europe's existing clearing membership criteria, which are set forth in 
full detail in the Rules, and its related processes for assessing 
applicants for membership, variations of permissions concerning 
membership class, and termination of membership, all of which would be 
documented in more detail in the proposed Procedures as described 
below.
    The Policy would describe ICE Clear Europe's membership risks and 
state the objectives of the Policy to ensure that such risks are 
properly managed, and that clearing membership admission criteria are 
non-discriminatory, transparent, and objective to ensure fair and open 
access, and designed to meet relevant regulatory requirements. The 
Policy also would describe how such objectives are met by ICE Clear 
Europe through setting and monitoring appropriate membership criteria, 
establishing a due diligence process, and requiring prompt 
notifications from Clearing Members of any changes to their businesses 
that may impact a Clearing Member's ability to meet the membership 
criteria. The core clearing membership criteria, including holding 
sufficient capital, being a party to a Clearing Membership Agreement, 
and other financial and operational criteria, would be summarized in 
the Policy, with the full criteria set out in Rule 201 and the CDS 
Procedures.
    In addition to a summary of the core clearing membership criteria, 
the Policy would provide that ICE Clear Europe has established 
processes for clearing membership application, permission variations, 
and clearing membership termination which are described in further 
detail in the Procedures. The Policy also would address the ongoing 
monitoring of membership criteria, including periodic in-depth 
counterparty reviews, periodic review of financial positions, updates 
to ICE Clear Europe's counterparty rating system, the maintenance of a 
watch list, requiring an annual member return from Clearing Members, 
and other operational monitoring processes such as daily margin calls 
and CDS end-of-day (``EOD'') price submissions.
    Proposed section 5 of the Policy would provide document governance 
arrangements for breach management, ongoing reviews, and exception 
handling. Consistent with the document governance arrangements for 
other ICE Clear Europe policies and procedures, proposed section 5 
would state that (i) the document owner is responsible for ensuring 
that documents remain up-to-date and are reviewed in accordance with 
ICE Clear Europe's governance processes, (ii) the document owner will 
report material breaches or unapproved deviations from the Policy 
document to the document owner's Head of Department, the Chief Risk 
Officer, and the Head of Compliance (or their delegates), who together 
will determine if further escalation should be made to relevant senior 
executives, the Board, and/or competent authorities, and (iii) 
exceptions to the Policy are approved in accordance with ICE Clear 
Europe's governance process for the approval of changes to the Policy 
document.

B. Clearing Membership Procedures

    The proposed new Procedures would describe in further detail the 
processes for reviewing and approving applications for clearing 
membership, variations of membership permissions, ongoing monitoring, 
and membership termination. The stated objective of the Procedures 
would be to establish a due diligence process to ensure applicants meet 
ICE Clear Europe's membership criteria at the time of application and 
on an ongoing basis, and also provide notifications of any changes to 
their businesses that could impact their ability to meet the membership 
criteria.
    The Procedures would describe each phase of the Clearing Member 
application process, starting with the Membership Department providing 
applicants with all relevant application documentation; the internal 
due diligence of applications by relevant ICE Clear Europe departments, 
including Operations, Risk, Treasury, Membership, AML/KYC, Risk 
Oversight, Compliance, and Legal; the process for approval or rejection 
of applications by the Executive Risk Committee under authority 
delegated by the Board, and the right to appeal to the Board; 
notifications of new applications for clearing membership to the 
relevant Product Risk Committees after their approval by the Executive 
Risk Committee; additional membership conditions or criteria that ICE 
Clear Europe may, in its discretion, require prior to approval; and 
additional information requests that ICE Clear Europe may make during 
the application process. The Procedures also would describe the process 
for a Clearing Member to obtain membership to a different membership 
class at ICE Clear Europe (i.e., a CDS Clearing Member authorized to 
clear credit default swap (``CDS'') contracts, or an F&O Clearing 
Member authorized to become party to Energy Contracts or Financials & 
Softs Contracts, or both).

[[Page 55047]]

Regarding termination of clearing membership, the Procedures would 
cross-reference the procedures in existing Rule 209 for a Clearing 
Member to resign its clearing membership, and for ICE Clear Europe to 
terminate a Clearing Member's clearing membership.
    The Procedures would provide detailed core membership requirements 
and additional information on core membership criteria, which would 
include minimum capital requirements as well as a description of 
additional financial requirements that ICE Clear Europe may impose on 
Clearing Members to meet the minimum capital requirement. The 
Procedures would address certain aspects of the calculation of member 
capital, including the disallowance of certain assets from such 
calculation as well as the methods that Clearing Members may use to add 
capital, where necessary, including the use of subordinated debt and 
controller guarantees if approved by ICE Clear Europe. The Procedures 
also would reference Guaranty Fund contributions for CDS and F&O 
clearing services, including the required replenishment of 
contributions in the event of application of the funds and the need to 
meet any additional assessment; the margin-to-capital ratio 
requirement; default management capabilities; and EOD price 
submissions, which apply only to CDS Clearing Members as required by 
the CDS EOD Price Discovery Policy.
    The Procedures also would summarize ICE Clear Europe's ongoing 
monitoring of Clearing Members that include the following: (i) Periodic 
review of the financial position and compliance with the relevant 
membership requirements of each Clearing Member; (ii) quarterly review 
of Clearing Members' capital situation and financial information, and 
monthly reviews of the financial information of FCM/BD Clearing 
Members; (iii) quarterly counterparty rating system report, which 
aggregates risk factors covering credit, market price, liquidity, and 
operational risk for each Clearing Member; (iv) the watch list 
highlighting Clearing Members with special risk situations; (v) annual 
member returns pursuant to which Clearing Members must provide certain 
information to ICE Clear Europe on Anti-Money Laundering/Know Your 
Client (``AML/KYC'') requirements, authorized signatories, compliance 
with the Rules, and key contact information; and (vi) daily monitoring 
of Clearing Member operational performance in fulfilling financial 
obligations to cover cash payments, margin collateral, Guaranty Fund 
contributions, and delivery obligations.
    Finally, the Procedures would also set out the same document 
governance arrangements for breach management, ongoing reviews, and 
exception handling as those described above with respect to the Policy.

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.\6\ For the reasons given below, the Commission finds that 
the proposed rule change, as modified by Partial Amendment No. 1, is 
consistent with Section 17A(b)(3)(F) of the Act \7\ and Rules 17Ad-
22(e)(2)(i) and (v), and (e)(18) thereunder.\8\
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78s(b)(2)(C).
    \7\ 15 U.S.C. 78q-1(b)(3)(F).
    \8\ 17 CFR 240.17Ad-22(e)(2)(i) and (v), and (e)(18).
---------------------------------------------------------------------------

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.\9\
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    As discussed above, the proposed rule change would adopt a new 
Clearing Membership Policy and new Clearing Membership Procedures. The 
proposed Documents would consolidate and summarize existing clearing 
membership criteria and related processes in the Rules that govern 
clearing membership at ICE Clear Europe. For the reasons discussed 
below, the Commission believes that the proposed rule change would 
enable ICE Clear Europe to manage and mitigate the risks posed by 
Clearing Members, including the risk of membership defaults and the 
potential loss of mutualized funds resulting from Clearing Member 
failures to meet clearing membership criteria. The Commission further 
believes that, in turn, managing effectively such risks would enable 
ICE Clear Europe to promote the prompt and accurate clearance and 
settlement of securities transactions and help assure the safeguarding 
of securities and funds which are in the custody or control of ICE 
Clear Europe or for which it is responsible.
i. Clearing Membership Policy
    As discussed above, the proposed rule change would establish a new 
Policy that consolidates and summarizes ICE Clear Europe's existing 
clearing membership criteria and the existing processes that ICE Clear 
Europe undertakes to assess applicants for membership, monitor Clearing 
Member adherence to the membership criteria on an ongoing basis, 
authorize variations of permissions to Clearing Members, and terminate 
membership, whether initiated by the Clearing Member or by ICE Clear 
Europe. The Policy would state that it is designed to ensure that 
membership risks are properly managed, and that clearing membership 
admission criteria are non-discriminatory, transparent, and objective 
to ensure fair and open access, and also meet relevant regulatory 
requirements. The Policy would summarize how ICE Clear Europe achieves 
such objectives by setting appropriate membership criteria and 
monitoring ongoing adherence to such criteria; establishing a due 
diligence process that ensures that applicants meet the membership 
criteria when admitted and on a continuing basis; and requiring prompt 
notifications from Clearing Members of any changes to their businesses 
that may impact a Clearing Member's ability to meet the membership 
criteria. The Policy also would establish document governance and 
procedures for breach management and exceptions and changes to the 
Policy document.
    By creating a consolidated summary of existing clearing membership 
criteria for admitting applicants and the related processes that ICE 
Clear Europe currently undertakes for monitoring and terminating 
Clearing Members, the Commission believes that the Policy would 
facilitate ICE Clear Europe's ability to implement the membership risk 
management objectives of the Policy and thereby enhance its overall 
risk management. In the Commission's view, enhanced management of 
membership risks is critical to mitigating the risk of Clearing Member 
defaults that could undermine ICE Clear Europe's ability to maintain 
prompt and accurate clearance and settlement of securities transactions 
and the safeguarding of securities and funds at ICE Clear Europe. For 
example, ICE Clear Europe relies on accurate end-of-day prices to 
generate margin

[[Page 55048]]

requirements, which it uses to manage the risks associated with 
clearing CDS portfolios. Similarly, ICE Clear Europe relies on its 
default management tools to help manage and reduce the risks associated 
with a defaulting Clearing Member's portfolio. Such risks, if not 
properly managed, could cause ICE Clear Europe to realize losses on 
such portfolios and could disrupt ICE Clear Europe's ability to 
promptly and accurately clear CDS and other derivative transactions and 
safeguard securities and funds which are in the custody or control of 
ICE Clear Europe or for which it is responsible. For these reasons, the 
Commission believes that the proposed rule change, in establishing a 
new Policy that clearly and succinctly documents membership criteria 
and the related processes for admitting, monitoring, and terminating 
Clearing Members, would promote the prompt and accurate clearance and 
settlement of securities transactions and help assure the safeguarding 
of securities and funds which are in the custody or control of ICE 
Clear Europe or for which it is responsible. Finally, the Commission 
believes that, in defining the responsibilities of the document owner 
in document governance, breach management, and exception handling, the 
Policy would help to ensure ongoing and consistent compliance with ICE 
Clear Europe's clearing membership criteria and related processes for 
admission to membership, monitoring, and termination of membership, as 
well as establish a process to modify the Policy as needed.
ii. Clearing Membership Procedures
    As discussed above, the new Procedures would describe in further 
detail ICE Clear Europe's existing processes for reviewing applications 
for clearing membership, variations of membership permissions, ongoing 
monitoring, and membership termination. The Procedures would have a 
stated objective for the membership application process to establish a 
due diligence process to ensure applicants meet ICE Clear Europe's 
membership criteria at the time of application and on an ongoing basis 
after admission, and also provide notifications of any changes to their 
businesses that could impact their ability to meet the membership 
criteria. The Procedures would provide the same document governance 
arrangements for breach management, ongoing reviews, and exception 
handling as those described above with respect to the Policy.
    By creating a consolidated summary that would describe the 
application of ICE Clear Europe's existing procedures and processes for 
reviewing applications for clearing membership, variations of 
membership permissions, ongoing monitoring, and termination of 
membership, the Commission believes that the Procedures would enhance 
ICE Clear Europe's ability to implement the complementary objectives of 
the Documents and thereby enhance its membership risk management 
policies and procedures that contribute to the effectiveness of its 
overall risk management. Also, in defining the responsibilities of the 
document owner in document governance, breach management, and exception 
handling, the Procedures would help to ensure ongoing and consistent 
compliance with ICE Clear Europe's general governance and exceptions 
process for the Procedures document.
iii. Promoting the Prompt and Accurate Clearance and Settlement of 
Securities Transactions, and Assuring the Safeguarding of Securities 
and Funds
    For the reasons discussed above, the Commission believes that the 
proposed rule change would help to ensure that ICE Clear Europe 
effectively manages the potential risks posed by its Clearing Members 
in the clearance and settlement of CDS and other derivative contracts 
and transactions cleared at ICE Clear Europe. Moreover, the Commission 
believes that such membership risks, if not properly managed, could 
threaten ICE Clear Europe's ability to operate and thereby clear and 
settle cleared contracts, and also could threaten access to securities 
and funds in ICE Clear Europe's control. Accordingly, the Commission 
believes that, in ensuring that ICE Clear Europe has clear and 
effective processes and procedures for identifying and managing 
membership risks by setting appropriate membership criteria; assessing 
applicants for membership based on such criteria; monitoring Clearing 
Member adherence to the membership criteria on an ongoing basis; 
authorizing variations of permissions to Clearing Members; terminating 
membership; and establishing clear document governance procedures for 
the Documents, the proposed rule change would promote the prompt and 
accurate clearance and settlement of securities transactions and help 
assure the safeguarding of securities and funds which are in the 
custody or control of the ICE Clear Europe or for which it is 
responsible.
    Therefore, the Commission finds that the proposed rule change would 
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 or control, consistent with the Section 
17A(b)(3)(F) of the Act.\10\
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

B. Consistency With Rule 17Ad-22(e)(2)(i) and (v) Under the Act

    Rule 17Ad-22(e)(2)(i) and (v) require 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 and specify clear and direct lines of 
responsibility, respectively.\11\ As discussed above, each of the 
Documents would establish the general governance and exceptions process 
for that document, and this process would be identical between the 
Documents. The Commission believes that, in doing so, the Documents 
would establish clear and transparent arrangements for ensuring that 
ICE Clear Europe personnel adhere to the Documents and for modifying 
the Documents as needed. The Commission also believes that the 
Documents would define clearly the roles and responsibilities of the 
document owner, the Head of Department, the Chief Risk Officer, and the 
Head of Compliance for document governance, breach management, and 
exception handling. The Commission believes that these lines of 
responsibility would be clear and transparent because they would be 
defined and readily available for review in the Documents.
---------------------------------------------------------------------------

    \11\ 17 CFR 240.17Ad-22(e)(2)(i) and (v).
---------------------------------------------------------------------------

    As discussed above, the Procedures would define the roles and 
responsibilities of the relevant departments within ICE Clear Europe in 
the application process prior to submission of applications to the 
Executive Risk Committee for approval. The Procedures would specify 
that applications for membership are formally considered, and approved 
and rejected by, the Executive Risk Committee, and that the relevant 
Product Risk Committees are notified of approved applications. The 
Commission believes that these aspects of the proposed rule change 
would help to ensure that the governance regarding review and approval 
of applicants is clear and transparent, and also establishes a clear 
and direct line of responsibility, by clearly specifying that the 
Executive Risk Committee would approve or disapprove applications under 
delegated authority from the Board. The Commission believes this would 
therefore clearly specify the

[[Page 55049]]

responsibility of ICE Clear Europe management in approving or rejecting 
applicants.
    For these reasons, the Commission finds that the proposed rule 
change is consistent with Rule 17Ad-22(e)(2)(i) and (v).\12\
---------------------------------------------------------------------------

    \12\ 17 CFR 240.17Ad-22(e)(2)(i) and (v).
---------------------------------------------------------------------------

C. Consistency With Rule 17Ad-22(e)(18) Under the Act

    Rule 17Ad-22(e)(18) requires that ICE Clear Europe establish, 
implement, maintain, and enforce written policies and procedures 
reasonably designed to establish objective, risk-based, and publicly 
disclosed criteria for participation, which permit fair and open access 
by direct and, where relevant, indirect participants and other 
financial market utilities, to require participants to have sufficient 
financial resources and robust operational capacity to meet obligations 
arising from participation in the clearing agency, and monitor 
compliance with such participation requirements on an ongoing 
basis.\13\
---------------------------------------------------------------------------

    \13\ 17 CFR 240.17Ad-22(e)(18).
---------------------------------------------------------------------------

    As discussed above, the Documents would summarize the core 
membership requirements and additional information on core membership 
criteria, which would include minimum capital requirements as well as a 
description of additional financial requirements that ICE Clear Europe 
may impose on Clearing Members to meet the minimum capital requirement. 
In particular, the Procedures would address more detailed aspects of 
the calculation of member capital; Guaranty Fund contributions for both 
CDS and F&O clearing services; the margin-to-capital ratio requirement; 
default management capabilities; and EOD price submissions for CDS 
Clearing Members. The Commission believes that these aspects of the 
proposed rule change would establish objective, risk-based, and 
disclosed clearing membership criteria that require applicants for 
clearing membership to prove that they have sufficient financial 
resources and robust operational capacity to meet obligations arising 
from participation in ICE Clear Europe. Moreover, the Commission 
believes that these criteria represent objective criteria which any 
applicant for clearing membership could potentially satisfy, thereby 
permitting fair and open access to membership at ICE Clear Europe.
    As discussed above, the Documents also would summarize ICE Clear 
Europe's ongoing monitoring of Clearing Members that would include: (i) 
Periodic review of the financial position and compliance with the 
relevant membership requirements of each Clearing Member; (ii) 
quarterly review of Clearing Members' capital situation and financial 
information, and monthly reviews of the financial information of FCM/BD 
Clearing Members; (iii) quarterly counterparty rating system report, 
which aggregates risk factors covering credit, market price, liquidity, 
and operational risk for each Clearing Member; (iv) the watch list 
highlighting Clearing Members with special risk situations; (v) annual 
member returns pursuant to which Clearing Members must provide certain 
information to ICE Clear Europe on AML/KYC requirements, authorized 
signatories, compliance with the Rules, and key contact information; 
and (vi) daily monitoring of Clearing Member operational performance in 
fulfilling financial obligations to cover cash payments, margin 
collateral, Guaranty Fund contributions, and delivery obligations. The 
Commission believes that these aspects of the proposed rule change 
would facilitate ICE Clear Europe's ability to monitor compliance by 
Clearing Members with its participation requirements on an ongoing 
basis and thereby mitigate the risks posed by Clearing Members who may 
no longer meet the requirements for continuing participation in ICE 
Clear Europe.
    For these reasons, the Commission finds that the proposed rule 
change is consistent with Rule 17Ad-22(e)(18).\14\
---------------------------------------------------------------------------

    \14\ 17 CFR 240.17Ad-22(e)(18).
---------------------------------------------------------------------------

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 \15\ and Rules 17Ad-22(e)(2)(i) and (v), and (e)(18) 
thereunder.\16\
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78q-1(b)(3)(F).
    \16\ 17 CFR 240.17Ad-22(e)(2)(i) and (v), and (e)(18).
---------------------------------------------------------------------------

    It is therefore ordered pursuant to Section 19(b)(2) of the Act 
\17\ that the proposed rule change (SR-ICEEU-2021-014), be, and hereby 
is, approved.\18\
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78s(b)(2).
    \18\ 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.\19\
---------------------------------------------------------------------------

    \19\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-21616 Filed 10-4-21; 8:45 am]
BILLING CODE 8011-01-P