[Federal Register Volume 88, Number 45 (Wednesday, March 8, 2023)]
[Notices]
[Pages 14412-14414]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-04682]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97018; File No. SR-ICEEU-2022-027]


Self-Regulatory Organizations; ICE Clear Europe Limited; Order 
Approving Proposed Rule Change Relating to the Capital Replenishment 
Plan

March 2, 2023.

I. Introduction

    On December 29, 2022, ICE Clear Europe Limited (``ICEEU'') filed 
with the Securities and Exchange Commission (``Commission''), pursuant 
to Section 19(b)(2) of the Securities Exchange Act of 1934 (the 
``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
adopt a capital replenishment plan. The proposed rule change was 
published for comment in the Federal Register on January 17, 2023.\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 Capital 
Replenishment Plan; Exchange Act Release No. 96634 (Jan. 11, 2023), 
88 FR 2668 (Jan. 17, 2023) (File No. SR-ICEEU-2022-027) 
(``Notice'').
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II. Description of the Proposed Rule Change

A. Background

    ICE Clear Europe is registered with the Commission as a clearing 
agency for the purpose of clearing security-based swaps. In its role as 
a clearing agency for security-based swaps, ICE Clear Europe maintains 
certain financial resources as capital. A number of different laws and 
regulations require ICEEU to maintain capital, as doing so promotes ICE 
Clear Europe's resiliency and helps it withstand periods of market 
stress. In the proposed rule change, ICEEU would adopt a new Capital 
Replenishment Plan (``CRP'') \4\ to explain how ICEEU would replenish 
its capital following a loss. The proposed adoption of the CRP is 
designed to address ICEEU's need to replenish capital because of a 
Clearing Member default, the occurrence of sudden extraordinary one-off 
losses, net losses resulting from custody or investment risks, or from 
recurring losses which may arise from general business risks.\5\ The 
CRP would consist of five sections, and would include two appendices 
and two annexes. Each of these sections is described below. ICEEU would 
review the CRP annually and would include capital replenishment within 
its annual default management test schedule.
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    \4\ Capitalized terms not otherwise defined herein have the 
meanings assigned to them in the CRF or ICEEU's rulebook, as 
applicable.
    \5\ See Notice, 88 FR 2668.
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B. Section 1--Introduction and Background

    Section 1 of the CRP introduces the plan, describes the purpose of 
the plan, and explains ICEEU's approach in developing the plan. As 
mentioned above, the overall purpose of the plan is to replenish 
capital following a loss. The proposed CRP: (i) describes actions that 
ICEEU could take to replenish its capital, for both its own resources 
contribution to the guaranty fund and for its capital requirement under 
EMIR; (ii) explains ICEEU's approach to capital management and 
maintaining capital; and (iii) identifies associated stakeholders and 
responsibilities.
    Section 1 outlines the steps ICEEU would expect to take to 
replenish capital, including (i) first assessing and using available 
accumulated financial resources, (ii) then looking to use reasonably 
calculated forecasts as to future profits, (iii) if those resources are 
insufficient to restore capital to the legal requirement, by seeking 
resources from its parent company in the ICE group, and (iv) 
thereafter, with the approval of its parent and subject to the rights 
of existing shareholders, by seeking additional capital from third 
parties. ICEEU may also bypass the first two steps outlined above and 
immediately request capital from its parent company.
    Finally, Section 1 of the CRP assigns the overall accountability 
for the CRP to the ICEEU President, the ICEEU Finance Director, and the 
ICEEU Board.

C. Section 2--Responsibilities

    While Section 1 of the CRP assigns overall accountability to the 
President, Finance Director, and Board, Section 2 provides further 
details on that accountability. Specifically, under Section 2, ICEEU's 
Finance Director is responsible for monitoring ICEEU's compliance with 
the applicable regulatory capital requirements, reporting capital 
adequacy internally and to regulators, escalating matters relating to 
capital adequacy to ICEEU's President where appropriate, and 
contributing to the development of plans to increase and/or replenish 
Eligible Capital as required for ICEEU to continue to meet its 
regulatory capital requirements. ICEEU's Finance Director also prepares 
forward-looking calculations of capital adequacy and dividend 
recommendations.
    ICEEU's President is responsible for ensuring ICEEU meets its 
capital adequacy obligations under relevant laws and regulations. 
ICEEU's President is also responsible for developing and executing any 
plans to increase and/or replenish capital as required in order for 
ICEEU to continue to meet its regulatory capital requirements, where 
necessary.
    The Board Risk Committee is responsible for reviewing and 
recommending to the Board the principles underlying the capital 
planning process as well as the Plan itself, and the Board itself would 
be responsible for approving the principles and the Plan. The Board is 
also responsible for holding the President accountable for 
demonstrating adherence to ICEEU capital policies and

[[Page 14413]]

for reviewing and approving any capital transactions. The Board is also 
responsible for reviewing and recommending the principles that underpin 
the capital planning process and reviewing and approving any capital 
transactions.

D. Section 3--Target Capital Amount

    Section 3 of the CRP explains how ICEEU determines its target 
capital amount in excess of the legal minimum capital requirement. 
ICEEU is required to maintain capital under a number of different laws 
and regulations, including regulations issued by the Bank of England 
and the Commission. ICEEU considers its capital, as calculated in 
accordance with Article 1(1) of EMIR Capital RTS, to be its Base 
Capital Requirement.\6\
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    \6\ Commission Delegated Regulation (EU) No. 152/2013 of 19 
December 2012 supplementing Regulation (EU) No. 648/2012 of the 
European Parliament and of the Council with regard to regulatory 
technical standards on capital requirements for central 
counterparties, as on-shored into UK law following the end of the 
Brexit transition period.
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    Section 3 of CRP explains that ICEEU seeks to maintain capital 
above the threshold at which ICEEU would be required to notify the Bank 
of England (which is generally 10% above the required capital level). 
In addition, ICEEU also endeavors to maintain additional capital, on a 
voluntary basis, approximately equal to an additional 10% of the 
required capital level plus the 10% buffer referenced above.

E. Section 4--Capital Replenishment Tools

    Section 4 of the CRP provides further detail regarding the use of 
the capital replenishment tools referenced above in different default 
loss and non-default loss scenarios and related actions to be taken for 
each tool, including as to the key individuals and departments involved 
and approvals required, the estimated timing for various actions, 
relevant documentation requirements, the procedure for determination of 
the relevant amount of additional resources to be sought or applied 
from the relevant sources, and the process for consultation with 
Clearing Members and regulators, among other matters.

F. Section 5, Appendices, and Annexes

    Section 5 of the CRP provides a version history. Appendix A 
provides additional detail on replenishment actions, including the 
timings for the actions and the personnel that are involved. Appendix B 
is a glossary of defined terms found in the CRP. Annex 1 consists of 
template corporate resolutions for ICEEU to use in carrying out certain 
replenishment actions, while Annex 2 consists of template corporate 
resolutions for ICEEU's parent company to use in authorizing ICE Clear 
Europe's replenishment actions.

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.\7\ For the reasons discussed below, the Commission finds 
that the proposed rule change is consistent with Section 17A(b)(3)(F) 
of the Act,\8\ and Rules 17Ad-22(e)(2)(v), (3)(ii), and (e)(15) 
thereunder.\9\
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    \7\ 15 U.S.C. 78s(b)(2)(C).
    \8\ 15 U.S.C. 78q-1(b)(3)(F).
    \9\ 17 CFR 240.17Ad-22(e)(2)(v), (e)(3)(ii), and (e)(15).
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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 ICEEU be designed to promote the prompt and accurate 
clearance and settlement of securities transactions.\10\ Based on its 
review of the record, and for the reasons discussed below, the 
Commission believes the proposed rule change is consistent with the 
promotion of the prompt and accurate clearance and settlement of 
securities transactions at ICEEU because it would adopt the CRP, which 
establishes ICEEU's procedures for replenishing capital.
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    \10\ 15 U.S.C. 78q-1(b)(3)(F).
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    The proposed rule is intended to document procedures for 
replenishing capital. The proposed CRP would facilitate the continued 
operation of ICEEU following a significant loss from one or more 
Clearing Member defaults or a non-default loss (including investment or 
custodial losses and losses from general business risk) by replenishing 
needed financial resources. The proposed rule would address 
replenishment to both the minimum legal capital requirement and the 
higher target level intended to provide additional resources as an 
operating buffer. The proposed CRP would therefore help enable ICEEU to 
continue operations, including clearing and settling transactions, 
following a significant loss that affects ICEEU's capital. The proposed 
rule change is therefore consistent with the continued prompt and 
accurate clearance and settlement of securities transactions, 
consistent with the requirements of Section 17A(b)(3)(F) of the 
Act.\11\
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    \11\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rule 17Ad-22(e)(2)(v) Under the Exchange Act

    Rule 17Ad-22(e)(2)(v) \12\ provides that the ``covered clearing 
agency shall establish, implement, maintain and enforce written 
policies and procedures reasonable designed to, as applicable [. . .] 
provide for governance arrangements'' that ``specify clear and direct 
lines of responsibility.'' \13\
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    \12\ 17 CFR 240.17 Ad-22(e)(2).
    \13\ 17 CFR 240.17 Ad-22(e)(2)(v).
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    The Commission believes the proposed rule change is consistent with 
17Ad-22(e)(2)(v). The CRP identifies responsibilities of key ICEEU 
personnel, including the Board, the President, and other stakeholders 
with respect to ongoing compliance with capital requirements and for 
capital replenishment when necessary. The proposed CRP also provides 
for annual review by ICEEU's President, Finance Director, and Board to 
ensure that it remains up-to-date and is reviewed in accordance with 
the Clearing House's internal governance processes.

C. Consistency With Rule 17Ad-22(e)(3)(ii) Under the Exchange Act

    Rule 17Ad-22(e)(3)(ii) \14\ provides that the ``covered clearing 
agency shall establish, implement, maintain and enforce written 
policies and procedures reasonable designed to, as applicable [. . .] 
maintain a sound risk management framework for comprehensively managing 
legal, credit, liquidity, operational, general business, investment, 
custody and other risks that arise in or are borne by the covered 
clearing agency, which . . . includes plans for the recovery or orderly 
wind-down of the covered clearing agency necessitated by credit losses, 
liquidity shortfalls, losses from general business risk, or any other 
losses.'' \15\
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    \14\ 17 CFR 240.17Ad-22(e)(3)(ii).
    \15\ 17 CFR 240.17Ad-22(e)(3)(ii).
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    The Commission believes that the proposed rule is consistent with 
Rule 17Ad-22(e)(3)(ii). The proposed CRP serves as a recovery tool and 
part of ICEEU's broader Recovery Plan because it documents tools, 
arrangements and procedures for replenishing capital resulting from 
default losses or non-default losses, including losses from general 
business risk. The proposed CRP further sets out the roles and 
functions of the Board, ICEEU management and other internal personnel 
and committees

[[Page 14414]]

in taking such steps to replenish financial resources.

D. Consistency With Rule 17Ad-22(e)(15) Under the Exchange Act

    Rule 17Ad-22(e)(15) \16\ states that a clearing agency shall 
``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 . . .'' by ``[m]aintaining a 
viable plan, approved by the board of directors and updated at least 
annually, for raising additional equity should its equity fall close to 
or below the amount required under paragraph (e)(15)(ii) of this 
section.'' \17\
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    \16\ 17 CFR 240.17Ad-22(e)(15).
    \17\ 17 CFR 240.17 Ad-22(e)(15)(iii).
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    The Commission believes the proposed rule is consistent with Rule 
17Ad-22(e)(15). The proposed rule has been approved by the ICEEU Board 
of Directors, would be reviewed and updated annually, and would outline 
the tools available to restore additional capital if needed. 
Specifically, the proposed rule serves as a part of a broader recovery 
plan and is intended to document tools, arrangements and procedures for 
replenishing capital when needed, including as a result of losses from 
general business risk. The capital restoration levels detailed in the 
proposed rule are based on ICEEU's legal capital requirements and its 
own target capital level. These are designed to exceed the amount 
required under Rule 17Ad-22(e)(15)(ii).\18\
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    \18\ 17 CFR 240.17 Ad-22(e)(15)(ii).
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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 \19\ and Rules 17Ad-22(e)(2)(v), (e)(3)(ii), and (e)(15) 
thereunder.\20\
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    \19\ 15 U.S.C. 78q-1(b)(3)(F).
    \20\ 17 CFR 240.17Ad-22(e)(2)(v), (e)(3)(ii), and (e)(15).
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    It is therefore ordered pursuant to Section 19(b)(2) of the Act 
\21\ that the proposed rule change (SR-ICEEU-2022-027), be, and hereby 
is, approved.\22\
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    \21\ 15 U.S.C. 78s(b)(2).
    \22\ 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.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-04682 Filed 3-7-23; 8:45 am]
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