[Federal Register Volume 88, Number 142 (Wednesday, July 26, 2023)]
[Notices]
[Pages 48273-48276]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-15758]



[[Page 48273]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97955; File No. SR-ICEEU-2023-020]


Self-Regulatory Organizations; ICE Clear Europe Limited; Notice 
of Filing of Proposed Rule Change Relating to Amendments to Recovery 
Plan

July 20, 2023
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 
1934,\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on 
July 10, 2023, ICE Clear Europe Limited filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change described 
in Items I, II and III below, which Items have been prepared primarily 
by ICE Clear Europe. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    ICE Clear Europe Limited (``ICE Clear Europe'' or the ``Clearing 
House'') proposes to amend its Recovery Plan (``Plan'') \3\ to update 
certain aspects of recovery planning and operations and testing 
procedures and make certain other clarifications.
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    \3\ Capitalized terms used but not defined herein have the 
meanings specified in the Recovery Plan or, if not defined therein, 
the ICE Clear Europe Clearing Rules.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    In its filing with the Commission, ICE Clear Europe included 
statements concerning the purpose of and basis for the proposed rule 
change and discussed any comments it received on the proposed rule 
change. The text of these statements may be examined at the places 
specified in Item IV below. ICE Clear Europe has prepared summaries, 
set forth in sections (A), (B), and (C) below, of the most significant 
aspects of such statements.

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

(a) Purpose
    ICE Clear Europe is proposing to amend its Recovery Plan to make 
various enhancements, updates and clarifications. In the discussion of 
the scale of coverage of the Clearing House's recovery options, the 
amendments would revise the description of the Significant Coverage 
from Powers of Assessment (``PoA'') to remove references to the 
specific expected coverage of defaults by PoA for the F&O and CDS 
clearing service. ICE Clear Europe is not proposing to change through 
these amendments the amount of the relevant guaranty funds and related 
PoA under the Rules and related policies, but does not believe it is 
necessary to specify expected coverage in this way in the Recovery 
Plan. As revised, the discussion of coverage from PoA would reflect 
that losses from defaults of the largest clearing members under extreme 
but plausible stress scenarios can be immediately covered through PoA, 
as resources can be collected from non-defaulting Clearing Members 
intraday and in cash under the existing Rules and Procedures. The 
amendments would also state that the assessment of the PoA's capacity 
to offset losses can be performed by reverse stress testing.
    In the discussion of the Clearing House's ability to fully cover 
default losses using partial tear-ups, a statement that default losses 
can be fully covered would be removed as unnecessary and repetitive. In 
terms of the discussion of the Clearing House's ability to fully cover 
investment losses, the amendments would remove a reference to the 
specific amount to be covered by Clearing House contributions (as such 
amount is set under the Rules and is subject to change from time to 
time under the Rules). Certain non-substantive drafting clarifications 
would also be made in this section.
    The amendments would also update the discussion of certain 
decision-making requirements. In circumstances where the Board cannot 
be convened in advance of making a material decision under the Plan, 
the amendments would clarify that the Board would be convened 
afterwards as soon as reasonably possible and updated on the steps 
taken. Additionally, the amendments would clarify that although 
exercising recovery options would not need the approval of Clearing 
Members, exchanges or other external stakeholders, ICE Clear Europe 
would seek to communicate its plans and intentions to such stakeholders 
where possible, and as soon as reasonably practicable.
    The procedures for testing of the Plan would be revised to provide 
that testing would be conducted at least annually (rather than only 
annually). The amendments would further specify that given the number 
of recovery options available, one default and one non-default scenario 
would be tested each year, and all the recovery options would be tested 
over a three year cycle. The testing schedule (and changes to it) would 
be approved by, and the results of testing would be reported to, ICEU's 
Executive Risk Committee. The proposed changes would also more fully 
describe the testing strategy, which includes both physical elements 
(such as processing of operational aspects of the Plan in a non-
production environment and governance aspects such as Board engagement) 
and simulated tabletop exercises. Testing of default-related recovery 
scenarios may also be included in default fire drills, including 
coordination with other relevant clearing agencies. Additionally, the 
Recovery Plan test would add to the list of issues examined as part of 
testing whether all services continue to be provided, including those 
to affiliates, and what governance pathways would be used. The 
amendment would clarify that any changes resulting from the review of 
the Plan after each test would be addressed as part of the defined 
governance process included in the Plan.
    The proposed amendments would make certain clarifications relating 
to the critical services provided by the Clearing House. Certain 
updates and corrections are made to the products currently cleared, 
including to reference option contracts generally instead of only 
options on futures and to reference the IFAD exchange for which 
clearing services are provided in the F&O product category. The 
amendments also would add an explanatory footnote to distinguish 
critical services from certain similar concepts use in the Clearing 
House's other policies and frameworks. In the discussion of impacts of 
recovery options of market participants, a clarification would be added 
that capital and liquidity impacts on market participants would be 
taken into account as far as reasonably possible (to reflect certain 
practical limitations on the Clearing House's ability to address such 
matters).
    The service providers supporting the critical services would now 
include repo counterparties in addition to investment agents, to 
reflect the Clearing House's use of repurchase transactions with such 
counterparties. The amendments would also add to the list of such 
service providers default brokers, which may be used to execute market 
transaction in order to hedge a defaulter's book and/or liquidate non-
cash collateral. Amendments would also reflect that inter-affiliate 
arrangements may be documented under intercompany service agreements 
rather than outsourcing agreements.

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    The amendments would make certain enhancements to the discussion of 
how the Clearing House mitigates dependencies on service providers. In 
the context of situations where ICE Clear Europe relies on the 
existence of multiple, substitutable providers, the amendments would 
reflect that ICE Clear Europe regularly tests its assumptions that this 
is an effective strategy, as part of its operational resilience 
framework. Similarly, where the Clearing House relies on resilience and 
redundancy with respect to a provider, it would regularly test these 
assumptions under the operational resilience framework. In terms of 
contractual protections under arrangements with service providers, the 
amendments would state that the Clearing House ensures contracts do not 
permit service providers to unduly alter or terminate the contracts (as 
opposed to the more limited analysis under the current Plan of whether 
alteration or termination would be permitted if ICE Clear Europe were 
under financial stress). The updates would also provide for periodic 
ongoing analyses of these contracts in the context of the Plan. The 
amendments would remove a specific determination that investment 
agents, APS banks, central banks and data providers are excluded from 
being dependencies on the basis of substitutability; under the revised 
Plan such service providers may be subject to the mitigation 
arrangements discussed, as appropriate.
    The proposed changes would remove certain statements that the 
Clearing House does not have a dependency on physical delivery agents, 
other ICE exchange or ICE Clearing Houses. Although there are 
applicable mitigants in many cases, such relationships may nonetheless 
be regarded as dependencies. The amendments would add a provision that 
ICE Clear Europe for certain markets regularly tests its ability to 
perform the functions of delivery agents under certain disruption 
scenarios. The amendments would also clarify certain other testing 
practices, including as part of the operational resilience framework, 
applicable to relationships with ICE Exchanges and ICE Technology and 
Operations Group. For dependencies on other ICE clearing houses, the 
revised Plan would note that the relevant processes that ICE Clear 
Europe could use in the event of a failure by the other clearing house 
are generally already performed by ICE Clear Europe.
    In the discussion of technology infrastructure, clarifying 
references to CDS and F&O are added to the descriptions of the various 
systems to reflect the specific systems currently used for those 
businesses. Additionally, the proposed rules would update the list of 
certain ways in which risks are mitigated to address periodic testing, 
operational resilience, the role of ICE Clear Europe as a participant 
in defining requirements in the development of new capabilities, notice 
periods under service agreements (not merely outsourcing arrangements), 
and other nonsubstantive changes. The revised Plan would also address 
certain services that ICE Clear Europe provides to other ICE 
affiliates, noting that ICE Clear Europe assumes that such services 
will continue to be provided during the execution of the Plan. ICE 
Clear Europe believes that in the event of a Plan execution, there will 
be relevant resources in place that will allow those services to 
continue, particularly for those that are operational in nature or 
almost fully automated. Those not fully automated would have backup 
arrangements that are periodically tested.
    For recovery scenarios and triggers, the amendments would clarify 
the trigger for the non-default losses scenario involving the Clearing 
House's base capital by defining a breach based on referring to 
insufficient EMIR eligible capital. The amendments would clarify that 
each stress scenario listed in the appendix would be mapped to key 
risks contained in the Clearing House's risk appetite statements, to 
ensure that each key risk is covered.
    The amendments would reference the Clearing House's existing 
operational resilience framework, which encompasses (and supersedes 
previous) business continuity and disaster recovery plans and includes 
incident management processes. Various references throughout the Plan 
to business continuity, disaster recovery or similar matters have been 
replaced by references to the operational resilience framework and 
related incident management processes.
    Additional explanatory language with regards to early warnings for 
default and non-default loss scenarios to make consistent with the 
Rules. Throughout the Plan, the language has changed to reflect the 
name update of the Capital Replenishment Plan to be consistent.
    The amendments would also remove from the explanations of the 
Plan's design and development certain duplicative information about 
coverage of various types of losses that is addressed in other parts of 
the Plan. Additionally, the Clearing House would clarify certain 
references to the Crisis Communications and Management Plan (which 
would be renamed the Communications Plan). Members of each 
communications group would be updated to reference relevant personnel, 
including adding the President to most communication groups and 
adjusting certain other referenced personnel to reflect current 
Clearing House operations. In addition, the Plan would address a 
contingency in a recovery situation where the President is not 
available. Similarly, the references to the Major Incident Response 
Plan would be updated to reflect that the plan has been renamed the 
Crisis Management Plan. Regarding the scenario steps in a default and 
non-default loss, the proposed changes will also make certain minor 
changes to timing and notification processes.
    The proposed changes would add a new Document Governance and 
Exception Handling section that is consistent with other Clearing House 
policies. This section would describe the responsibilities for the 
document owners in accordance with ICEU's governance processes, as well 
as breach management, exception handling, and document governance.
    The description of the ICE Clear Europe committee structure in 
Appendix A would be removed. ICE Clear Europe believes the structure is 
fully defined in other documentation and does not need to be included 
in the Plan.
    In addition, amendments throughout the Plan would make other minor 
non-substantive drafting and conforming changes and typographical 
corrections.
(b) Statutory Basis
    ICE Clear Europe believes that the proposed amendments to the Plan 
are consistent with the requirements of Section 17A of the Securities 
Exchange Act of 1934 \4\ (``Act'') and the regulations thereunder 
applicable to it. In particular, Section 17A(b)(3)(F) of the Act \5\ 
requires, among other things, that the rules of a clearing agency be 
designed to promote the prompt and accurate clearance and settlement of 
securities transactions and, to the extent applicable, derivative 
agreements, contracts, and transactions, the safeguarding of securities 
and funds in the custody or control of the clearing agency or for which 
it is responsible, and the protection of investors and the public 
interest. The proposed changes to the Plan are intended to make various 
updates, enhancements and clarifications to the Plan, including with 
regard to the critical service providers and other dependencies of the 
Clearing

[[Page 48275]]

House, as well as mitigants for such dependencies. The amendments would 
also enhance procedures around testing of the Plan and related default 
and non-default scenarios that could lead to the need to implement the 
Plan. Other amendments are intended to conform to changes in other ICE 
Clear Europe policies and procedures. The amendments would also clarify 
certain aspects of the recovery scenarios and procedures as well as 
potentially triggering or warning events for losses. Overall, the 
amendments would help the Clearing House facilitate an orderly recovery 
of its clearing businesses in the event of a severe financial stress or 
loss. As a result, in ICE Clear Europe's view, the amendments would be 
consistent with the prompt and accurate clearance and settlement of the 
contracts, the safeguarding of funds or securities in the custody or 
control of the clearing agency or for which it is responsible, and the 
protection of investors and the public interest, consistent with the 
requirements of Section 17A(b)(3)(F) of the Act.\6\
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    \4\ 15 U.S.C. 78q-1.
    \5\ 15 U.S.C. 78q-1(b)(3)(F).
    \6\ 15 U.S.C. 78q-1(b)(3)(F).
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    Rule 17Ad-22(e)(2) provides that ``[e]ach covered clearing agency 
shall establish, implement, maintain and enforce written policies and 
procedures reasonably designed to, as applicable [. . .] provide for 
governance arrangements that are clear and transparent'' \7\ and 
``[s]pecify clear and direct lines of responsibility.'' \8\ The 
amendments to the Plan would enhance various aspects of the governance 
surrounding the implementation, testing and modification of the Plan. 
Amendments would more clearly state the procedures for communications 
with relevant groups of stakeholders in connection with the Plan, and 
take into account the Clearing House's broader Communications Plan and 
Crisis Management Plan. They would also clarify certain aspects of the 
role of the President and key personnel. In addition, the amendments 
would address document governance, breach management and exception 
handling, in a manner generally consistent with other ICE Clear Europe 
policies. In ICE Clear Europe's view, the amendments are therefore 
consistent with the requirements of Rule 17Ad-22(e)(2).\9\
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    \7\ 17 CFR 240.17 Ad-22(e)(2)(i).
    \8\ 17 CFR 240.17 Ad-22(e)(2)(v).
    \9\ 17 CFR 240.17Ad-22(e)(2).
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    The proposed amendments are also consistent with Rule 17Ad-
22(e)(3)(ii), which provides that ``[e]ach covered clearing agency 
shall establish, implement, maintain and enforce written policies and 
procedures reasonably 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 and orderly wind-
down of the covered clearing agency necessitated by credit losses, 
liquidity shortfalls, losses from general business risk, or any other 
losses . . . .'' \10\ As discussed above, the amendments to the Plan 
would update and clarify various aspects of the Recovery Plan, 
including to enhance the assessment of critical services and 
dependencies in the context of a recovery situation. The amendments 
would also clarify various aspects of the triggers for potential 
implementation of recovery and recovery options to be used under the 
Plan. The amendments would also clarify testing procedures. The 
amendments are thus intended to enhance the effectiveness of the Plan 
as a means of preparing for the potential of losses, whether from 
Clearing Member default or failure or for various other causes, that 
could otherwise threaten the continued operation of the Clearing House. 
As such, in ICE Clear Europe's view, the amendments are consistent with 
the requirements of Rule 17Ad-22(e)(3)(ii).\11\
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    \10\ 17 CFR 270.17Ad-22(e)(3)(ii).
    \11\ 17 CFR 240.17Ad-22(e)(3)(ii).
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(B) Clearing Agency's Statement on Burden on Competition

    ICE Clear Europe does not believe the proposed amendments would 
have any impact, or impose any burden, on competition not necessary or 
appropriate in furtherance of the purposes of the Act. The proposed 
amendments are being adopted to update and clarify the Plan, all of 
which relate to the Clearing House's processes for the recovery of the 
Clearing House in the unlikely occurrence of significant loss events 
that may negatively harm the Clearing House. The amendments do not 
involve a change in the Clearing House's Rules or Procedures and will 
not affect the rights or obligations of Clearing Members, but instead 
address the means in which the Clearing House may use the tools set 
forth in its Rules and Procedures in a recovery scenario. ICE Clear 
Europe does not believe the amendments would affect in the ordinary 
course of business the costs of clearing, the ability of market 
participants to access clearing, or the market for clearing services 
generally. Therefore, ICE Clear Europe does not believe the proposed 
rule change imposes any burden on competition that is inappropriate in 
furtherance of the purposes of the Act.

(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants or Others

    Written comments relating to the proposed amendments have not been 
solicited or received by ICE Clear Europe. ICE Clear Europe will notify 
the Commission of any written comments received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) by order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml) or
     Send an email to [email protected]. Please include 
file number SR-ICEEU-2023-020 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to file number SR-ICEEU-2023-020. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements

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with respect to the proposed rule change that are filed with the 
Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10 a.m. and 3 
p.m. Copies of such filings will also be available for inspection and 
copying at the principal office of ICE Clear Europe and on ICE Clear 
Europe's website at https://www.theice.com/clear-europe/regulation.
    Do not include personal identifiable information in submissions; 
you should submit only information that you wish to make available 
publicly. We may redact in part or withhold entirely from publication 
submitted material that is obscene or subject to copyright protection. 
All submissions should refer to file number SR-ICEEU-2023-020 and 
should be submitted on or before August 16, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-15758 Filed 7-25-23; 8:45 am]
BILLING CODE 8011-01-P