Self-Regulatory Organizations; ICE Clear Europe Limited; Order Approving Proposed Rule Change Relating to ICE Clear Europe Board Risk Committee, 2160-2161 [2015-00529]

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• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 80, Number 10 (Thursday, January 15, 2015)]
[Notices]
[Pages 2160-2161]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-00529]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74026; File No. SR-ICEEU-2014-22]


Self-Regulatory Organizations; ICE Clear Europe Limited; Order 
Approving Proposed Rule Change Relating to ICE Clear Europe Board Risk 
Committee

January 9, 2015.

I. Introduction

    On November 10, 2014, ICE Clear Europe Limited (``ICE Clear 
Europe'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change SR-ICEEU-2014-22 pursuant to 
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ 
and Rule 19b-4 thereunder.\2\ The proposed rule change was published 
for comment in the Federal Register on November 25, 2014.\3\ The 
Commission did not receive 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. 34-73645 (Nov. 18, 
2014), 79 FR 70251 (Nov. 25, 2014) (SR-ICEEU-2014-22).
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II. Description of the Proposed Rule Change

    ICE Clear Europe is proposing this change to establish a risk 
committee (the ``Board Risk Committee''), as described in the ICE Clear 
Europe Board Risk Committee Composition and Terms of Reference (``Terms 
of Reference''), which will advise the ICE Clear Europe Board (the 
``Board'') on certain clearing house-wide risk management matters. The 
establishment of the Board Risk Committee is required under Article 28 
of the European Market Infrastructure Regulation (``EMIR''),\4\ which 
will apply to ICE Clear Europe as an authorized central counterparty.
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    \4\ 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.
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    Pursuant to the Terms of Reference, the role of the Board Risk 
Committee, which will meet at least quarterly and report directly to 
the Board, will be to advise the Board so the Board can ensure that ICE 
Clear Europe (i) implements and maintains agreed risk management 
procedures, processes, and controls, (ii) provides appropriate access 
to its clearing services, and (iii) appropriately considers the 
interests of non-clearing members, including with respect to account 
segregation and collateral protection. ICE Clear Europe states that the 
Board Risk Committee's activities will relate to all product categories 
cleared at ICE Clear Europe, and that they are in addition to ICE Clear 
Europe's existing product-specific risk committees (F&O, CDS and FX).
    Pursuant to its Terms of Reference, the Board Risk Committee's 
responsibilities will include receiving and reviewing all 
recommendations from each of the product-specific risk committees, 
reviewing business risk mitigation procedures and controls at least 
annually, and overseeing all risks facing ICE Clear Europe, including 
counterparty credit risk and non-counterparty credit risks, such as 
operational and liquidity risks. In addition, the Terms of Reference 
provide that the Board Risk Committee will advise the Board regarding 
any arrangements that may materially impact the risk management of ICE 
Clear Europe, such as a significant change in its criteria for 
accepting clearing members, clearing in new markets, or outsourcing of 
certain functions.
    In accordance with its Terms of Reference, the Board Risk Committee 
will be provided with results and analysis of back-testing, sensitivity 
testing, stress testing, and reverse stress testing for any review of 
margin models, methodologies, and/or the liquidity risk management 
framework. The Board Risk Committee's Terms of Reference also provide 
that the Board Risk Committee will consider other issues that may be 
referred to it by the Board and/or executive, including the exercise of 
discretion regarding recovery arrangements under the Rules. Further, 
the Terms of Reference provide that the Board Risk Committee may obtain 
external legal or other independent advice and secure the attendance of 
third parties with relevant experience and expertise. The Terms of 
Reference, however, clarify that the Board Risk Committee's advice is 
not required for the daily operations of ICE Clear Europe.
    The Terms of Reference provide that the Board Risk Committee will 
be composed of at least two, and up to four, Clearing Member 
representatives and at least two, and up to four, customer 
representatives, in each case appointed by the Board Risk Committee 
Chairman following consideration by the ICE Clear Europe Nominations 
Committee. Pursuant to the Board Risk Committee composition 
requirements as described in the Terms of Reference, the Board Risk 
Committee Chairman will be an independent non-executive director of ICE 
Clear Europe appointed by the Board and will be a full voting member of 
the committee. In addition, the Terms of Reference provide that any 
member of the Board Risk Committee may be removed by the Board without 
cause, and that the Board Risk Committee composition will be reviewed 
annually to determine whether the committee has appropriate 
representation of Clearing Members, customers and independent non-
executive directors, and appropriate representation of expertise and 
experience in relevant risk disciplines, including market, credit and 
operational risk. Based on this review, the Chairman may, pursuant to 
the Terms of Reference, request the resignation of one or more 
committee members and/or appoint one or more committee members to 
achieve such appropriate representation.
    Pursuant to the Terms of Reference, ICE Clear Europe's Chief Risk 
Officer, President, and other appropriate staff members will attend 
Board Risk Committee meetings in a non-voting capacity. Additionally, 
the Terms of Reference provide that the chairs of any groups or 
committees involved in developing risk policies and a representative 
from each of the markets cleared by ICE Clear Europe will have a right 
to attend, but not vote, at Board Risk Committee meetings, and that the 
Board Risk Committee may invite external independent experts to attend 
meetings in a non-voting capacity. The Terms of Reference requires that 
a quorum will be a minimum of four members, one of whom must be a 
customer representative and one of whom must be a Clearing Member 
representative, and that the Board Risk Committee Chairman will count 
toward the quorum. The Terms of Reference stipulates that each Board 
Risk Committee member will have one vote and Board Risk Committee 
decisions will be made by a simple majority, provided that if the 
committee is evenly divided, the Chairman may cast a deciding vote (in 
addition to the

[[Page 2161]]

Chairman's normal vote as a committee member).

III. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act \5\ directs the Commission to 
approve a proposed rule change of a self-regulatory organization if the 
Commission finds that such proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to such self-regulatory organization. Section 17A(b)(3)(F) 
of the Act \6\ requires, among other things, that the rules of a 
clearing agency are designed, in general, to protect investors and the 
public interest. In addition, Rule 17Ad-22(d)(8) requires registered 
clearing agencies to establish, implement, maintain and enforce written 
policies and procedures reasonably designed to have governance 
arrangements that are clear and transparent to fulfill the public 
interest requirements in Section 17A of the Act applicable to clearing 
agencies, to support the objectives of owners and participants, and to 
promote the effectiveness of the clearing agency's risk management 
procedures.\7\
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    \5\ 15 U.S.C. 78s(b)(2)(C).
    \6\ 15 U.S.C. 78q-1(b)(3)(F).
    \7\ 17 CFR 240.17Ad-22(d)(8).
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    The Commission finds that the proposed rule change is consistent 
with Section 17A of the Act \8\ and the rules thereunder applicable to 
ICE Clear Europe. As described above, the Board Risk Committee's Terms 
of Reference provide specific information regarding, among other 
things, the Board Risk Committee's objectives, responsibilities, 
composition, and governance, as well as its relationship with the Board 
and other ICE Clear Europe committees. Specifically, the Terms of 
Reference state that the Board Risk Committee's role is to advise the 
Board with respect to various firm-wide risk management matters, while 
helping the Board to ensure that ICE Clear Europe (i) implements and 
maintains agreed risk management procedures, processes and controls, 
(ii) provides appropriate access to its clearing services, and (iii) 
appropriately considers the interests of non-clearing member users of 
cleared products, including with respect to account segregation and 
collateral protection. In this role, the Terms of Reference provide 
that the Board Risk Committee will, among other things, advise the 
Board regarding any arrangements that may materially impact ICE Clear 
Europe's risk management (such as a significant change in its criteria 
for accepting clearing members, clearing in new markets, or outsourcing 
of certain functions).
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    \8\ 15 U.S.C. 78q-1.
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    Moreover, the Terms of Reference provide that the Board Risk 
Committee will oversee all risks facing ICE Clear Europe (including 
counterparty credit risk, operational risk, and liquidity risk). ICE 
Clear Europe states that the Board Risk Committee's activities will 
relate to all categories of products cleared at ICE Clear Europe, and 
will be in addition to the activities of its existing product-specific 
risk committees (i.e., the F&O, CDS and FX risk committees). The Terms 
of Reference also require the Board Risk Committee to report directly 
to the Board and receive and review all recommendations from each of 
the product-specific risk committees. The Commission believes that 
these arrangements are reasonably designed to protect investors and the 
public interest and to promote the effectiveness of ICE Clear Europe's 
risk management procedures. In addition, the Commission believes that 
the composition of the Board Risk Committee, as described in the Terms 
of Reference, is reasonably designed to represent the interests of 
owners, clearing participants, and customers, and, therefore, support 
owner and participant objectives.
    Accordingly, the Commission believes that the proposed rule change 
is consistent with Section 17A(b)(3)(F) of the Act,\9\ and the 
requirements of Rule 17Ad-22(d)(8) \10\ applicable to registered 
clearing agencies.
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    \9\ 15 U.S.C. 78q-1(b)(3)(F).
    \10\ 17 CFR 240.17Ad-22(d)(8).
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IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposal is consistent with the requirements of the Act and in 
particular with the requirements of Section 17A of the Act \11\ and the 
rules and regulations thereunder.
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    \11\ 15 U.S.C. 78q-1.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\12\ that the proposed rule change (SR-ICEEU-2014-22) be, and 
hereby is, approved.\13\
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    \12\ 15 U.S.C. 78s(b)(2).
    \13\ 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.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-00529 Filed 1-14-15; 8:45 am]
BILLING CODE 8011-01-P