[Federal Register Volume 88, Number 101 (Thursday, May 25, 2023)]
[Notices]
[Pages 33949-33950]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-11111]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97528; File No. SR-ICEEU-2023-009]


Self-Regulatory Organizations; ICE Clear Europe Limited; Order 
Approving Proposed Rule Change Relating to Amendments of the Investment 
Management Procedures

May 19, 2023.

I. Introduction

    On March 23, 2023, 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 Investment Management Procedures (the ``Investment Management 
Procedures'' or the ``Procedures''). The Proposed Rule Change was 
published for comment in the Federal Register on April 5, 2023.\3\ The 
Commission has not received any comments on 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\ Securities Exchange Act Release No. 97224 (Mar. 30, 2023), 
88 FR 20200 (April 5, 2023) (File No. SR-ICEEU-2023-009) 
(``Notice'').
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II. Description of the Proposed Rule Change

    ICE Clear Europe is registered with the Commission as a clearing 
agency for the purpose of clearing security-based swaps.\4\ In its role 
as a clearing agency for clearing security-based swaps, ICE Clear 
Europe holds and invests assets for a number of reasons. For example, 
ICE Clear Europe's Clearing Members transfer to ICE Clear Europe cash 
and other assets to satisfy their margin and guaranty fund 
requirements.\5\ ICE Clear Europe also contributes money to the 
guaranty fund, and maintains regulatory capital (money that ICE Clear 
Europe sets aside in order to comply with regulatory requirements to 
which it is subject).\6\ ICE Clear Europe invests cash received from 
Clearing Members, its own contributions to the guaranty fund, and its 
regulatory capital with the goal of obtaining a reasonable rate of 
return while also maintaining sufficient liquidity for its payment 
obligations and safeguarding the principal of cash. The Investment 
Management Procedures set out how ICE Clear Europe will make these 
investments. They provide the permitted investments and related 
concentration limits for ICE Clear Europe when investing or securing 
(i) cash received from Clearing Members, (ii) ICE Clear Europe's 
contributions to the guaranty fund, and (iii) ICE Clear Europe's own 
regulatory capital.
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    \4\ Capitalized terms not otherwise defined herein have the 
meanings assigned to them in the Procedures or the ICE Clear Europe 
Clearing Rules.
    \5\ ICE Clear Europe's Clearing Rules note that initial margin 
means ``the Permitted Cover required to be provided or actually 
provided . . . to the Clearing House as collateral for the 
obligations of a Clearing Member or Sponsored Principal in respect 
of CDS Contracts . . . .'' ICE Clear Europe Clearing Rules Rule 101. 
Guaranty fund contributions serve to secure the obligations of a 
Clearing Member to ICE Clear Europe and may be used to cover losses 
sustained by ICE Clear Europe in the event of a default of the 
Clearing Member. ICE Clear Europe Clearing Rules Rule 1103.
    \6\ ICE Clear Europe is subject to regulatory capital 
requirements under its supervision by the Commission, the Bank of 
England, the Commodity Futures Trading Commission, and as a third-
country central counterparty recognized by the European Securities 
and Markets Authority. For a further discussion of these 
requirements, see Self-Regulatory Organizations; ICE Clear Europe 
Limited; Order Approving Proposed Rule Change Relating to the 
Capital Replenishment Plan, Exchange Act Release No. 97018 (Mar. 2, 
2023), 88 FR 14412 (Mar. 8, 2023) (SR-ICEEU-2022-027).
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    The proposed rule change relates to the third category, investments 
of ICE Clear Europe's own regulatory capital. Currently, the Procedures 
contain a Table of Authorised Investments and Concentration Limits for 
ICEU's Regulatory Capital (the ``Table''). The Table provides, among 
other things, the instruments in which ICE Clear Europe may invest its 
regulatory capital and the maximum maturity that those investments may 
have.
    The proposed rule change edits the maximum maturity of certain 
investments in sovereign and government agency bonds listed in the 
Table. Currently, the Table allows ICE Clear Europe to purchase US 
Sovereign Bonds, UK Sovereign Bonds, EU Sovereign Bonds, US Government 
Agency Bonds, UK Government Agency Bonds, and EU Government Agency 
Bonds (collectively, the ``permitted investments''), each with a 
ninety-day maximum maturity. The proposed rule change sets the maximum 
maturity of these permitted investments at thirteen months.
    This change--extending the maximum maturity from ninety days to 
thirteen months--would align the maximum maturity for ICE Clear 
Europe's investment of its regulatory capital with the maximum maturity 
ICE Clear Europe currently applies to its investment of cash provided 
by Clearing Members and ICE Clear Europe's own contribution to the 
guaranty fund.\7\ Thus, the proposed change would establish a single, 
consistent maximum maturity for ICE Clear Europe's investment in 
sovereign and government agency bonds, regardless of whether the source 
of the cash being invested is from Clearing Members, ICE Clear Europe's 
contributions to the guaranty fund, or its regulatory capital.
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    \7\ Currently, the Procedures permit ICE Clear Europe to invest 
Clearing Member cash and ICE Clear Europe's skin-in-the-game in the 
purchase of permitted investments with a maximum maturity of 
thirteen months. Notice, 88 FR at 20200.
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    There are two primary reasons for the proposed change. First, it 
would eliminate what ICE Clear Europe views as an unnecessary 
limitation on the maximum maturities of permitted investments.\8\ 
Although ICE Clear Europe's regulatory capital serves a different 
purpose from its Clearing Member cash and skin-in-the-game default 
resources, ICE Clear Europe believes that the same principles of 
capital preservation and maintaining high levels of liquidity are 
appropriate with respect to all the cash it manages, regardless of 
whether the cash is regulatory capital, collateral provided by Clearing 
Members, or ICE Clear Europe's own contributions to the guaranty fund. 
As such, ICE Clear Europe determined that it is not necessary for the 
maximum maturity for investments of its regulatory capital to be more 
restrictive than for its other investments of cash.\9\
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    \8\ Notice, 88 FR at 20201.
    \9\ Id.
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    Second, the proposed change would provide ICE Clear Europe with the 
flexibility to invest its regulatory capital in longer-term sovereign 
and government bonds than the Procedures currently permit. Although the 
additional maturity is only ten months, the additional flexibility may 
allow ICE Clear Europe to plan for longer investments and avoid having 
to invest or reinvest in shorter duration instruments during potential 
periods of market volatility.\10\
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    \10\ Id. at 20200.
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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 discussed below, the Commission finds 
that the proposed rule change is consistent with section

[[Page 33950]]

17A(b)(3)(F) of the Act,\12\ and Rule 17Ad-22(e)(16).\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 240.17Ad-22(e)(16).
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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 assure the safeguarding of 
securities and funds which are in the custody or control of the 
clearing agency or for which it is responsible.\14\ The proposed rule 
change is consistent with section 17A(b)(3)(F) \15\ because it improves 
ICE Clear Europe's ability to manage its investments without subjecting 
its investments to significantly greater risk.
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    \14\ 15 U.S.C. 78q-1(b)(3)(F).
    \15\ 15 U.S.C. 78q-1(b)(3)(F).
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    The Commission believes that the changes to the Procedures 
discussed above help to improve ICE Clear Europe's management of its 
investments. As noted above, ICE Clear Europe's Procedures prohibit it 
from investing its regulatory capital in permitted investments that 
have a maturity greater than ninety days. At times, this limitation 
could subject ICE Clear Europe's regulatory capital to reinvestment 
risk \16\ and volatility risk.\17\ Under the proposed rule change, ICE 
Clear Europe can more effectively utilize investment strategies that 
would allow it to mitigate some of this reinvestment and volatility 
risk by purchasing longer term instruments when appropriate. Such 
flexibility could be important in light of current and expected market 
conditions, including to assist ICE Clear Europe in avoiding having to 
invest or reinvest in shorter duration instruments during potential 
periods of market volatility.
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    \16\ Reinvestment risk is the risk that an investor will be 
unable to reinvest assets received from an investment at a rate 
comparable to their current rate of return.
    \17\ Volatility risk in this context, i.e., sovereign and 
government agency bonds, refers to the risk that a bond's price will 
fluctuate due to changing interest rates.
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    For the above reasons, the proposed rule change is consistent with 
Section 17A(b)(3)(F) of the Act.\18\
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    \18\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rule 17Ad-22(e)(16) Under the Act

    Rule 17Ad-22(e)(16) requires that ICE Clear Europe establish, 
implement, maintain, and enforce, written policies and procedures 
reasonably designed to safeguard its own and its participants' assets, 
minimize the risk of loss and delay in access to these assets, and 
invest such assets in instruments with minimal credit, market, and 
liquidity risks.\19\ The Commission previously found that applying the 
Procedures to ICE Clear Europe's regulatory capital helps ICE Clear 
Europe to safeguard its own and its Clearing Members' assets and helps 
ICE Clear Europe to invest such assets in instruments with minimal 
credit, market, and liquidity risks.\20\ As discussed above, the 
Procedures would continue to apply to ICE Clear Europe's regulatory 
capital, with the only change being that ICE Clear Europe could invest 
its regulatory capital in instruments with a maturity of up to thirteen 
months, rather than ninety days.
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    \19\ 17 CFR 240.17Ad-22(e)(16).
    \20\ Self-Regulatory Organizations; ICE Clear Europe Limited; 
Notice of Filing of Partial Amendment No. 1 and Order Granting 
Accelerated Approval of Proposed Rule Change, as Modified by Partial 
Amendment No. 1, Relating to the ICE Clear Europe Investment 
Management Procedures and Treasury and Banking Services Policy, 
Securities Exchange Act Release No. 89211 (July 1, 2020), 85 FR 
41082, 41086 (July 8, 2020) (File No. SR-ICEEU-2020-002).
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    Even with this change, the Commission continues to believe that ICE 
Clear Europe would safeguard its regulatory capital and invest it in 
instruments with minimal credit, market, and liquidity risks. The 
Commission believes this to be the case because investing in 
instruments with a maturity of up to thirteen months, rather than 
ninety days, could allow ICE Clear Europe to avoid having to invest or 
reinvest in shorter duration instruments during potential periods of 
market volatility. Moreover, the maximum maturity for regulatory 
capital would be the same as what the Commission previously approved 
for investments of cash from Clearing Members and ICE Clear Europe's 
skin in the game.\21\
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    \21\ Id.; Self-Regulatory Organizations; ICE Clear Europe 
Limited; Notice of Filing of Partial Amendment No. 2 and Order 
Granting Accelerated Approval of Proposed Rule Change, as Modified 
by Partial Amendment No. 1 and Partial Amendment No. 2, To Revise 
the ICE Clear Europe Treasury and Banking Services Policy, Liquidity 
Management Procedures, Investment Management Procedures and 
Unsecured Credit Limits Procedures, Securities Exchange Act Release 
No. 86891 (Sept. 6, 2019), 84 FR 48191 (Sept. 12, 2019) (File No. 
SR-ICEEU-2019-012).
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    For the above reasons, the proposed rule change is consistent with 
Rule 17Ad-22(e)(16) under the Act.\22\
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    \22\ 17 CFR 240.17Ad-22(e)(16).
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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, Section 17A(b)(3)(F) of the Act \23\ and Rule 17Ad-
22(e)(16) thereunder.\24\
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    \23\ 15 U.S.C. 78q-1(b)(3)(F).
    \24\ 17 CFR 240.17Ad-22(e)(16).
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    It is therefore ordered pursuant to section 19(b)(2) of the Act 
that the Proposed Rule Change (SR-ICEEU-2023-009) be, and hereby is, 
approved.\25\
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    \25\ In approving the Proposed Rule Change, the Commission 
considered the proposal's impacts on efficiency, competition, and 
capital formation. 15 U.S.C. 78c(f).
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    For the Commission by the Division of Trading and Markets, pursuant 
to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(12).

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-11111 Filed 5-24-23; 8:45 am]
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