Self-Regulatory Organizations; ICE Clear Europe Limited; Notice of Filing and Order Granting Accelerated Approval of a Proposed Rule Change Relating to Amendments to the ICE Clear Europe CDS Risk Policy, 45339-45342 [2017-20750]

Download as PDF Federal Register / Vol. 82, No. 187 / Thursday, September 28, 2017 / Notices advisory agreements with the Regulated Funds and the Affiliated Funds, be shared by the Regulated Funds and the participating Affiliated Funds in proportion to the relative amounts of the securities held or being acquired or disposed of, as the case may be. 14. Transaction Fees.29 Any transaction fee (including break-up, structuring, monitoring or commitment fees but excluding brokerage or underwriting compensation permitted by Section 17(e) or 57(k)) received in connection with any Co-Investment Transaction will be distributed to the participants on a pro rata basis based on the amounts they invested or committed, as the case may be, in such Co-Investment Transaction. If any transaction fee is to be held by an Adviser pending consummation of the transaction, the fee will be deposited into an account maintained by the Adviser at a bank or banks having the qualifications prescribed in Section 26(a)(1), and the account will earn a competitive rate of interest that will also be divided pro rata among the participants. None of the Advisers, the Affiliated Funds, the other Regulated Funds or any affiliated person of the Affiliated Funds or the Regulated Funds will receive any additional compensation or remuneration of any kind as a result of or in connection with a Co-Investment Transaction other than (i) in the case of the Regulated Funds and the Affiliated Funds, the pro rata transaction fees described above and fees or other compensation described in Condition 2(c)(iii)(B)(z), (ii) brokerage or underwriting compensation permitted by Section 17(e) or 57(k) or (iii) in the case of the Advisers, investment advisory compensation paid in accordance with investment advisory agreements between the applicable Regulated Fund(s) or Affiliated Fund(s) and its Adviser. 15. Independence. If the Holders own in the aggregate more than 25 percent of the Shares of a Regulated Fund, then the Holders will vote such Shares as directed by an independent third party when voting on (1) the election of directors; (2) the removal of one or more directors; or (3) any other matter under either the Act or applicable State law affecting the Board’s composition, size or manner of election. 29 Applicants are not requesting and the Commission is not providing any relief for transaction fees received in connection with any Co-Investment Transaction. VerDate Sep<11>2014 18:44 Sep 27, 2017 Jkt 241001 For the Commission, by the Division of Investment Management, under delegated authority. Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–20757 Filed 9–27–17; 8:45 am] 45339 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 BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–81680; File No. SR–ICEEU– 2017–010] Self-Regulatory Organizations; ICE Clear Europe Limited; Notice of Filing and Order Granting Accelerated Approval of a Proposed Rule Change Relating to Amendments to the ICE Clear Europe CDS Risk Policy September 22, 2017. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on September 15, 2017, ICE Clear Europe Limited (‘‘ICE Clear Europe’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule changes described in Items I, II, and III below, which Items have been prepared by ICE Clear Europe. The Commission is publishing this notice and order to solicit comments on the proposed rule change from interested persons and to approve the proposed rule change on an accelerated basis. I. Clearing Agency’s Statement of the Terms of Substance of the Proposed Rule Change The principal purpose of the proposed rule change is to amend ICE Clear Europe’s CDS Risk Policy relating to portfolio margining, as described below, to comply with Article 27 of Commission Delegated Regulation (EU) No. 153/2013 3 (the ‘‘Portfolio Margining Limitation’’). 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 III below. ICE Clear Europe has prepared summaries, 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 Commission Delegated Regulation (EU) No. 153/ 2013 dated 23 February 2013. 2 17 PO 00000 Frm 00084 Fmt 4703 Sfmt 4703 (a) Purpose ICE Clear Europe proposes to adopt amendments to the CDS Risk Policy relating to portfolio margining. The changes discussed herein apply to all cleared credit default swap (‘‘CDS’’) products. The amendments are intended to comply with the Portfolio Margining Limitation implementing the European Market Infrastructure Regulation (‘‘EMIR’’),4 which requires that where portfolio margining covers multiple different instruments, the amount of margin reduction that the clearing house may offer can be no greater than 80% of the difference between the sum of the margins for each product calculated on an individual basis and the margin calculated based on a estimation of the exposure for the combined portfolio. By contrast, where the margin reduction relates to positions in the same instrument, the clearing house may apply a margin reduction of up to 100% of that difference. The European Securities and Markets Authority (‘‘ESMA’’), the competent authority with respect to this requirement under EMIR, has issued an opinion interpreting this requirement in the context of CDS to provide 5 that (i) credit derivatives on different underlying names or indexes (including two series of the same index) should be considered different products; and (ii) credit derivatives on the same underlying name or index with different maturities or coupons may be considered as the same product. According to ICE Clear Europe, the effect of this is to require that credit derivatives on different index series of the same index family be considered different instruments under the Portfolio Margining Limitation and that therefore portfolio margining for such instruments must be limited to 80% of the gross margins. To implement the Portfolio Margining Limitation, ICE Clear Europe is amending its CDS Risk Policy such that when calculating the spread response charge (which provides portfolio margin 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. 5 Section 3.1.2.C of the ESMA Opinion On Portfolio Margining Requirements under Article 27 of Commission Delegated Regulation (EU) No. 153/ 2013 dated 10 April 2017 (the ‘‘ESMA Opinion’’). E:\FR\FM\28SEN1.SGM 28SEN1 45340 Federal Register / Vol. 82, No. 187 / Thursday, September 28, 2017 / Notices reductions across a variety of correlated positions, including positions in different series of the same index), the 99.5% Value-at-Risk (‘‘VaR’’) Monte Carlo (‘‘MC’’) benchmark 6 used in the calculation will have a minimum amount equal to 20% of the portfolio gross 99.5% MC VaR requirements. The gross requirement is defined for this purpose as the sum of the requirements at risk factor level for single names (for single-name CDS) and index series level (for index CDS) (i.e., without portfolio margin offsets across such products). ICE Clear Europe is required to implement the Portfolio Margining Limitation by September 30, 2017. (b) Statutory Basis ICE Clear Europe believes that the proposed amendments are consistent with the requirements of Section 17A of the Act 7 and the regulations thereunder applicable to it, including the standards under Rule 17Ad–22.8 Section 17A(b)(3)(F) of the Act 9 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. In addition, Rule 17Ad– 22(b)(2) 10 requires that a registered clearing agency that performs central counterparty services establish, implement, maintain and enforce written policies and procedures reasonably designed to use margin requirements to limit its credit exposures to participants under normal market conditions and use risk-based models and parameters to set margin requirements. Furthermore, Rule 17Ad– 22(e)(6)(v) 11 requires that each covered clearing agency establish, implement, maintain and enforce written policies and procedures reasonably designed to cover, if the covered clearing agency provides central counterparty services, its credit exposures to its participants by establishing a risk-based margin system that, at a minimum uses an appropriate method for measuring credit exposure that accounts for relevant product risk factors and portfolio effects across products. 6 The 99.5% VaR MC benchmark serves as a minimum initial margin level. 7 15 U.S.C. 78q–1. 8 17 CFR 240.17Ad–22. 9 15 U.S.C. 78q–1(b)(3)(F). 10 17 CFR 240.17Ad–22(b)(2). 11 17 CFR 240.17Ad–22(e)(6)(v). VerDate Sep<11>2014 18:44 Sep 27, 2017 Jkt 241001 The proposed amendments to the CDS Risk Policy would apply a 20% floor to the 99.5% VaR MC aspect of ICE Clear Credit’s spread response margin component calculation, based on the gross margin requirement without portfolio offsets. The amendments are being made in order to comply with the Portfolio Margin Limitation imposed under EMIR, as set out in the ESMA Opinion, and may in some cases result in higher initial margin requirements for market participants. ICE Clear Europe believes that the amended requirement (as with the current methodology) represents an appropriate risk-based margin framework to take into account portfolio risk reduction and related portfolio effects in a manner that will continue to enable the clearing house to mitigate the risk of clearing member default. In ICE Clear Europe’s view, the amendments are therefore consistent with the requirements of the Act and Commission regulations set forth above. (B) Clearing Agency’s Statement on Burden on Competition ICE Clear Europe does not believe the proposed rule changes would have any impact, or impose any burden, on competition not necessary or appropriate in furtherance of the purposes of the Act. The changes are being proposed in order to implement that Portfolio Margining Limitation under EMIR. The amendments will affect all CDS Clearing Members and CDS market participants. ICE Clear Europe does not believe the amendments will impact competition among CDS Clearing Members or other market participants, or affect the ability of market participants to access clearing generally. As noted above, the amendments may increase initial margin requirements with respect to some portfolios, because of the limitation on margin reductions as compared to the current methodology. Although this may affect the cost of clearing for some market participants, any increased costs will reflect the requirements imposed under the EMIR Portfolio Margining Limitation and the risk management benefits for the clearing house that are designed to be obtained through the Portfolio Margining Limitation. As a result, ICE Clear Europe believes that any impact on competition is appropriate 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 PO 00000 Frm 00085 Fmt 4703 Sfmt 4703 solicited or received by ICE Clear Europe. ICE Clear Europe will notify the Commission of any comments received with respect to the proposed rule change. III. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change, security-based swap submission or advance notice is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml) or • Send an email to rule-comments@ sec.gov. Please include File Number SR– ICEEU–2017–010 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–2017–010. 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 Web site (http://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change, security-based swap submission or advance notice that are filed with the Commission, and all written communications relating to the proposed rule change, security-based swap submission or advance notice 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 Web site 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 10:00 a.m. and 3:00 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 Web site at https:// www.theice.com/notices/Notices.shtml? regulatoryFilings. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that E:\FR\FM\28SEN1.SGM 28SEN1 Federal Register / Vol. 82, No. 187 / Thursday, September 28, 2017 / Notices you wish to make available publicly. All submissions should refer to File Number SR–ICEEU–2017–010 and should be submitted on or before October 19, 2017. IV. Commission’s Findings and Order Granting Accelerated Approval of the Proposed Rule Change Section 19(b)(2)(C) of the Act 12 directs the Commission to approve a proposed rule change of a selfregulatory organization if it finds that such proposed rule change is consistent with the requirements of the Exchange Act and the rules and regulations thereunder applicable to such organization. Section 17A(b)(3)(F) of the Act 13 requires, among other things, that the rules of a clearing agency 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 and, in general, to protect investors and the public interest. Rule 17Ad–22(b)(2) 14 requires that a registered clearing agency that performs central counterparty services establish, implement, maintain and enforce written policies and procedures reasonably designed to use margin requirements to limit its credit exposures to participants under normal market conditions and use risk-based models and parameters to set margin requirements. Furthermore, Rule 17Ad– 22(e)(6)(v) 15 requires that each covered clearing agency establish, implement, maintain and enforce written policies and procedures reasonably designed to cover, if the covered clearing agency provides central counterparty services, its credit exposures to its participants by establishing a risk-based margin system that, at a minimum uses an appropriate method for measuring credit exposure that accounts for relevant product risk factors and portfolio effects across products. The Commission finds that the proposed rule change is consistent with Section 17A of the Act and the relevant rules thereunder.16 The proposed rule change is designed to comply with the Portfolio Margining Limitation of Article 27 of Commission Delegated Regulation (EU) No. 153/2013.17 As interpreted by ESMA, this limitation will not permit complete margin offsets between different cleared instruments, which in the CDS context means CDS 12 15 U.S.C. 78s(b)(2)(C). U.S.C. 78q–1(b)(3)(F). 14 17 CFR 240.17Ad–22(b)(2). 15 17 CFR 240.17Ad–22(e)(6)(v). 16 15 U.S.C. 78q–1. 17 Commission Delegated Regulation (EU) No. 153/2013 dated 23 February 2013. 13 15 VerDate Sep<11>2014 18:44 Sep 27, 2017 Jkt 241001 with different reference entities, including different versions of the same index. Instead, any margin reductions resulting from the portfolio margining of different CDS instruments must be limited to 80% of the difference between the sum of the margins for each instrument calculated on an individual basis and the margin calculated based on a combined estimation of the exposure for the combined portfolio. Margin reductions from portfolio margining of the same CDS instruments, i.e. on the same underlying name or index, even with different maturities or coupons, can be applied without limitation. ICE Clear Europe has chosen to implement this requirement by limiting the margin reductions calculated from the 99.5% VaR MC aspect of its spread response methodology to 20% of the gross margin requirement without portfolio offsets. The Commission has reviewed the proposed rule change, including the changes to ICE Clear Europe’s policies and procedures, as well as data on the estimated impact of the proposed rule change on margin requirements. Based on this review, the Commission finds that the proposed rule change is designed to implement a more conservative approach to portfolio margining reductions than under ICE Clear Europe’s existing spread response calculation methodology and is therefore consistent with assuring the safeguarding of securities and funds which are in the custody or control of the clearing agency or for which it is responsible. The approach is risk-based and does not impose unduly conservative margin requirements that would impose a burden on competition not necessary or appropriate in furtherance of the purposes of the Exchange Act.18 For the same reasons, the Commission further finds that the proposed rule change is consistent with Rule 17Ad– 22(b)(2),19 in that any additional margin collected based on this more conservative approach should support ICE Clear Europe’s risk management functions and ability to limit its credit exposures, consistent with Rule 17Ad– 22(b)(2).20 Similarly, the Commission further finds that the proposed rule change is consistent with Rule 17Ad–22(e)(6)(v).21 The proposed rule change does not eliminate portfolio margin reductions. The proposed rule change allows for portfolio margin reductions of 100% 18 See 15 U.S.C. 78q–1(b)(3)(I). CFR 240.17Ad–22(b)(2). 20 17 CFR 240.17Ad–22(b)(2). 21 17 CFR 240.17Ad–22(e)(6)(v). 19 17 PO 00000 Frm 00086 Fmt 4703 Sfmt 4703 45341 where the margin reduction relates to positions in the same instrument. Where the portfolio margining covers multiple different instruments, the proposed rule change limits the margin reduction to no greater than 80%, consistent with EMIR. The Commission finds that this is a reasonably designed method for measuring credit exposure that accounts for relevant product risk factors and portfolio effects across different products consistent with Rule 17Ad– 22(e)(6)(v).22 In its filing, ICE Clear Europe requested that the Commission grant accelerated approval of the proposed rule change pursuant to Section 19(b)(2)(C)(iii) of the Exchange Act.23 Under Section 19(b)(2)(C)(iii) of the Act,24 the Commission may grant accelerated approval of a proposed rule change if the Commission finds good cause for doing so. ICE Clear Europe believes that accelerated approval is warranted because the proposed rule change is required as of September 30, 2017 in order to comply with the Portfolio Margin Limitation under EMIR, as interpreted by ESMA. The Commission finds good cause, pursuant to Section 19(b)(2)(C)(iii) of the Act,25 for approving the proposed rule change on an accelerated basis, prior to the 30th day after the date of publication of notice in the Federal Register, because the proposed rule change is required as of September 30, 2017 in order to comply with EMIR. V. 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 26 and the rules and regulations thereunder. It is therefore ordered, pursuant to Section 19(b)(2) of the Act,27 that the proposed rule change (File No. SR– ICEEU–2017–010) be, and hereby is, approved on an accelerated basis.28 22 17 CFR 240.17Ad–22(e)(6)(v). U.S.C. 78s(b)(2)(C)(iii). 24 15 U.S.C. 78s(b)(2)(C)(iii). 25 15 U.S.C. 78s(b)(2)(C)(iii). 26 15 U.S.C. 78q–1. 27 15 U.S.C. 78s(b)(2). 28 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). 23 15 E:\FR\FM\28SEN1.SGM 28SEN1 45342 Federal Register / Vol. 82, No. 187 / Thursday, September 28, 2017 / Notices For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.29 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–20750 Filed 9–27–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–81681; File No. SR– NYSEArca–2017–107] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change Relating to Listing and Trading of Shares of Breakwave Dry Bulk Shipping ETF Under NYSE Arca Rule 8.200–E, Commentary .02 September 22, 2017. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (the ‘‘Act’’) 2 and Rule 19b–4 thereunder,3 notice is hereby given that, on September 8, 2017, NYSE Arca, Inc. (the ‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been substantially prepared by the selfregulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to list and trade the shares of Breakwave Dry Bulk Shipping ETF under NYSE Arca Rule 8.200–E, Commentary .02 (‘‘Trust Issued Receipts’’). The proposed change is available on the Exchange’s Web site at www.nyse.com, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization 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 those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, 29 17 CFR 200.30–3(a)(12). U.S.C.78s(b)(1). 2 15 U.S.C. 78a. 3 17 CFR 240.19b–4. 1 15 VerDate Sep<11>2014 18:44 Sep 27, 2017 Jkt 241001 set forth in sections A, B, and C below, of the most significant parts of such statements. by the London-based Baltic Exchange Ltd 6 and measures the charter rate for shipping dry bulk freight in a specific size category of cargo ship—Capesize, A. Self-Regulatory Organization’s Panamax or Supramax. The three Statement of the Purpose of, and the Reference Indexes are as follows: Statutory Basis for, the Proposed Rule Capesize: the Capesize 5TC Index; Change Panamax: the Panamax 4TC Index; and 1. Purpose Supramax: the Supramax 6TC Index.7 The Fund will seek to achieve its The Exchange proposes to list and investment objective by investing trade shares (‘‘Shares’’) of the following substantially all of its assets in the under NYSE Arca Rule 8.200–E, Freight Futures currently constituting Commentary .02, which governs the the Benchmark Portfolio. The listing and trading of Trust Issued Receipts: Breakwave Dry Bulk Shipping Benchmark Portfolio will include all existing positions to maturity and settle ETF (the ‘‘Fund’’).4 them in cash. During any given calendar The Fund will be a series of ETF Managers Group Commodity Trust I (the quarter, the Benchmark Portfolio will ‘‘Trust).5 The Fund and the Trust will be progressively increase its position to the next calendar quarter three-month strip, managed and controlled by their thus maintaining constant exposure to sponsor and investment manager, ETF the Freight Futures market as positions Managers Capital LLC (the ‘‘Sponsor’’). mature. The Sponsor is registered with the The Benchmark Portfolio will Commodity Futures Trading maintain long-only positions in Freight Commission (‘‘CFTC’’) as a commodity Futures. The Benchmark Portfolio will pool operator (‘‘CPO’’) and is a member hold a combination of Capesize, of the National Futures Association Panamax and Supramax Freight (‘‘NFA’’). Breakwave Advisors LLC Futures. More specifically, the (‘‘Breakwave’’) is registered as a Benchmark Portfolio will hold 50% commodity trading advisor with the exposure in Capesize Freight Futures CFTC and will serve as the Fund’s contracts, 40% exposure in Panamax commodity trading advisor. ETFMG Freight Futures contracts and 10% Financial LLC will be the Fund’s distributor (‘‘Distributor’’ or ‘‘Marketing exposure in Supramax Freight Futures Agent’’). US Bancorp Fund Services LLC contracts. The Benchmark Portfolio will will be the Fund’s ‘‘Administrator’’ and not include and the Fund will not invest in swaps, non-cleared dry bulk freight ‘‘Transfer Agent’’. forwards or other over-the-counter The Fund’s Investment Objective and 6 The Baltic Exchange, which is a wholly owned Strategy subsidiary of the Singapore Exchange Ltd (‘‘SGX’’), According to the Registration is a membership and an independent source of Statement, the Fund’s investment maritime market information for the trading and settlement of physical and derivative shipping objective will be to provide investors with exposure to the daily change in the contracts. According to the Baltic Exchange, this information is used by shipbrokers, owners and price of dry bulk freight futures, before operators, traders, financiers and charterers as a expenses and liabilities of the Fund, by reliable and independent view of the dry and tanker markets. tracking the performance of a portfolio 7 The Reference Indexes are published by the (the ‘‘Benchmark Portfolio’’) consisting Baltic Exchange’s subsidiary company, Baltic of a three-month strip of the nearest Exchange Information Services Ltd (‘‘Baltic’’), calendar quarter of futures contracts on which publishes a wide range of market reports, specified indexes (each a ‘‘Reference fixture lists and market rate indicators on a daily and (in some cases) weekly basis. The Baltic Index’’) that measure rates for shipping indices, which include the Reference Indexes, are dry bulk freight (‘‘Freight Futures’’). an assessment of the price of moving the major raw Each Reference Index is published daily materials by sea. The indices are based on 4 Commentary .02 to NYSE Arca Rule 8.200–E applies to Trust Issued Receipts that invest in ‘‘Financial Instruments.’’ The term ‘‘Financial Instruments,’’ as defined in Commentary .02(b)(4) to NYSE Arca Rule 8.200–E, means any combination of investments, including cash; securities; options on securities and indices; futures contracts; options on futures contracts; forward contracts; equity caps, collars, and floors; and swap agreements. 5 On June 2, 2017, the Trust filed with the Commission a registration statement on Form S–1 under the Securities Act of 1933 (15 U.S.C. 77a) (‘‘Securities Act’’) relating to the Fund (File No. 333–218453) (the ‘‘Registration Statement’’). The description of the operation of the Trust and the Fund herein is based, in part, on the Registration Statement. PO 00000 Frm 00087 Fmt 4703 Sfmt 4703 assessments of the cost of transporting various bulk cargoes, both wet (e.g., crude oil and oil products) and dry (e.g., coal and iron ore), made by leading shipbroking houses located around the world on a per tonne and daily hire basis. The information is collated and published by the Baltic Exchange. Procedures relating to administration of the Baltic indices are set forth in ‘‘The Baltic Exchange, Guide to Market Benchmarks’’ November 2016 (the ‘‘Guide’’), including production methods, calculation, confidentiality and transparency, duties of panelists, code of conduct, audits and quality control. According to the Guide, these procedures are in compliance with the ‘‘Principles for Financial Benchmarks’’ issued by the International Organization of Securities Commissioners (‘‘IOSCO’’). The Guide is available at www.balticexchange.com. E:\FR\FM\28SEN1.SGM 28SEN1

Agencies

[Federal Register Volume 82, Number 187 (Thursday, September 28, 2017)]
[Notices]
[Pages 45339-45342]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-20750]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81680; File No. SR-ICEEU-2017-010]


Self-Regulatory Organizations; ICE Clear Europe Limited; Notice 
of Filing and Order Granting Accelerated Approval of a Proposed Rule 
Change Relating to Amendments to the ICE Clear Europe CDS Risk Policy

September 22, 2017.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on September 15, 2017, ICE Clear Europe Limited (``ICE Clear Europe'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule changes described in Items I, II, and III below, which 
Items have been prepared by ICE Clear Europe. The Commission is 
publishing this notice and order to solicit comments on the proposed 
rule change from interested persons and to approve the proposed rule 
change on an accelerated basis.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The principal purpose of the proposed rule change is to amend ICE 
Clear Europe's CDS Risk Policy relating to portfolio margining, as 
described below, to comply with Article 27 of Commission Delegated 
Regulation (EU) No. 153/2013 \3\ (the ``Portfolio Margining 
Limitation'').
---------------------------------------------------------------------------

    \3\ Commission Delegated Regulation (EU) No. 153/2013 dated 23 
February 2013.
---------------------------------------------------------------------------

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 III 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 proposes to adopt amendments to the CDS Risk 
Policy relating to portfolio margining. The changes discussed herein 
apply to all cleared credit default swap (``CDS'') products.
    The amendments are intended to comply with the Portfolio Margining 
Limitation implementing the European Market Infrastructure Regulation 
(``EMIR''),\4\ which requires that where portfolio margining covers 
multiple different instruments, the amount of margin reduction that the 
clearing house may offer can be no greater than 80% of the difference 
between the sum of the margins for each product calculated on an 
individual basis and the margin calculated based on a estimation of the 
exposure for the combined portfolio. By contrast, where the margin 
reduction relates to positions in the same instrument, the clearing 
house may apply a margin reduction of up to 100% of that difference. 
The European Securities and Markets Authority (``ESMA''), the competent 
authority with respect to this requirement under EMIR, has issued an 
opinion interpreting this requirement in the context of CDS to provide 
\5\ that (i) credit derivatives on different underlying names or 
indexes (including two series of the same index) should be considered 
different products; and (ii) credit derivatives on the same underlying 
name or index with different maturities or coupons may be considered as 
the same product. According to ICE Clear Europe, the effect of this is 
to require that credit derivatives on different index series of the 
same index family be considered different instruments under the 
Portfolio Margining Limitation and that therefore portfolio margining 
for such instruments must be limited to 80% of the gross margins.
---------------------------------------------------------------------------

    \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.
    \5\ Section 3.1.2.C of the ESMA Opinion On Portfolio Margining 
Requirements under Article 27 of Commission Delegated Regulation 
(EU) No. 153/2013 dated 10 April 2017 (the ``ESMA Opinion'').
---------------------------------------------------------------------------

    To implement the Portfolio Margining Limitation, ICE Clear Europe 
is amending its CDS Risk Policy such that when calculating the spread 
response charge (which provides portfolio margin

[[Page 45340]]

reductions across a variety of correlated positions, including 
positions in different series of the same index), the 99.5% Value-at-
Risk (``VaR'') Monte Carlo (``MC'') benchmark \6\ used in the 
calculation will have a minimum amount equal to 20% of the portfolio 
gross 99.5% MC VaR requirements. The gross requirement is defined for 
this purpose as the sum of the requirements at risk factor level for 
single names (for single-name CDS) and index series level (for index 
CDS) (i.e., without portfolio margin offsets across such products). ICE 
Clear Europe is required to implement the Portfolio Margining 
Limitation by September 30, 2017.
---------------------------------------------------------------------------

    \6\ The 99.5% VaR MC benchmark serves as a minimum initial 
margin level.
---------------------------------------------------------------------------

(b) Statutory Basis
    ICE Clear Europe believes that the proposed amendments are 
consistent with the requirements of Section 17A of the Act \7\ and the 
regulations thereunder applicable to it, including the standards under 
Rule 17Ad-22.\8\ Section 17A(b)(3)(F) of the Act \9\ 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. 
In addition, Rule 17Ad-22(b)(2) \10\ requires that a registered 
clearing agency that performs central counterparty services establish, 
implement, maintain and enforce written policies and procedures 
reasonably designed to use margin requirements to limit its credit 
exposures to participants under normal market conditions and use risk-
based models and parameters to set margin requirements. Furthermore, 
Rule 17Ad-22(e)(6)(v) \11\ requires that each covered clearing agency 
establish, implement, maintain and enforce written policies and 
procedures reasonably designed to cover, if the covered clearing agency 
provides central counterparty services, its credit exposures to its 
participants by establishing a risk-based margin system that, at a 
minimum uses an appropriate method for measuring credit exposure that 
accounts for relevant product risk factors and portfolio effects across 
products.
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    \7\ 15 U.S.C. 78q-1.
    \8\ 17 CFR 240.17Ad-22.
    \9\ 15 U.S.C. 78q-1(b)(3)(F).
    \10\ 17 CFR 240.17Ad-22(b)(2).
    \11\ 17 CFR 240.17Ad-22(e)(6)(v).
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    The proposed amendments to the CDS Risk Policy would apply a 20% 
floor to the 99.5% VaR MC aspect of ICE Clear Credit's spread response 
margin component calculation, based on the gross margin requirement 
without portfolio offsets. The amendments are being made in order to 
comply with the Portfolio Margin Limitation imposed under EMIR, as set 
out in the ESMA Opinion, and may in some cases result in higher initial 
margin requirements for market participants. ICE Clear Europe believes 
that the amended requirement (as with the current methodology) 
represents an appropriate risk-based margin framework to take into 
account portfolio risk reduction and related portfolio effects in a 
manner that will continue to enable the clearing house to mitigate the 
risk of clearing member default. In ICE Clear Europe's view, the 
amendments are therefore consistent with the requirements of the Act 
and Commission regulations set forth above.

(B) Clearing Agency's Statement on Burden on Competition

    ICE Clear Europe does not believe the proposed rule changes would 
have any impact, or impose any burden, on competition not necessary or 
appropriate in furtherance of the purposes of the Act. The changes are 
being proposed in order to implement that Portfolio Margining 
Limitation under EMIR. The amendments will affect all CDS Clearing 
Members and CDS market participants. ICE Clear Europe does not believe 
the amendments will impact competition among CDS Clearing Members or 
other market participants, or affect the ability of market participants 
to access clearing generally. As noted above, the amendments may 
increase initial margin requirements with respect to some portfolios, 
because of the limitation on margin reductions as compared to the 
current methodology. Although this may affect the cost of clearing for 
some market participants, any increased costs will reflect the 
requirements imposed under the EMIR Portfolio Margining Limitation and 
the risk management benefits for the clearing house that are designed 
to be obtained through the Portfolio Margining Limitation. As a result, 
ICE Clear Europe believes that any impact on competition is appropriate 
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 comments received with respect to the proposed 
rule change.

III. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml) or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-ICEEU-2017-010 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-2017-010. 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 Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change, security-
based swap submission or advance notice that are filed with the 
Commission, and all written communications relating to the proposed 
rule change, security-based swap submission or advance notice 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 Web site 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 10:00 a.m. and 3:00 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 Web site at https://www.theice.com/notices/Notices.shtml?regulatoryFilings.
    All comments received will be posted without change; the Commission 
does not edit personal identifying information from submissions. You 
should submit only information that

[[Page 45341]]

you wish to make available publicly. All submissions should refer to 
File Number SR-ICEEU-2017-010 and should be submitted on or before 
October 19, 2017.

IV. Commission's Findings and Order Granting Accelerated Approval of 
the Proposed Rule Change

    Section 19(b)(2)(C) of the Act \12\ 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 Exchange Act and the rules and regulations 
thereunder applicable to such organization. Section 17A(b)(3)(F) of the 
Act \13\ requires, among other things, that the rules of a clearing 
agency 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 and, in general, to protect investors and the public 
interest. Rule 17Ad-22(b)(2) \14\ requires that a registered clearing 
agency that performs central counterparty services establish, 
implement, maintain and enforce written policies and procedures 
reasonably designed to use margin requirements to limit its credit 
exposures to participants under normal market conditions and use risk-
based models and parameters to set margin requirements. Furthermore, 
Rule 17Ad-22(e)(6)(v) \15\ requires that each covered clearing agency 
establish, implement, maintain and enforce written policies and 
procedures reasonably designed to cover, if the covered clearing agency 
provides central counterparty services, its credit exposures to its 
participants by establishing a risk-based margin system that, at a 
minimum uses an appropriate method for measuring credit exposure that 
accounts for relevant product risk factors and portfolio effects across 
products.
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    \12\ 15 U.S.C. 78s(b)(2)(C).
    \13\ 15 U.S.C. 78q-1(b)(3)(F).
    \14\ 17 CFR 240.17Ad-22(b)(2).
    \15\ 17 CFR 240.17Ad-22(e)(6)(v).
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    The Commission finds that the proposed rule change is consistent 
with Section 17A of the Act and the relevant rules thereunder.\16\ The 
proposed rule change is designed to comply with the Portfolio Margining 
Limitation of Article 27 of Commission Delegated Regulation (EU) No. 
153/2013.\17\ As interpreted by ESMA, this limitation will not permit 
complete margin offsets between different cleared instruments, which in 
the CDS context means CDS with different reference entities, including 
different versions of the same index. Instead, any margin reductions 
resulting from the portfolio margining of different CDS instruments 
must be limited to 80% of the difference between the sum of the margins 
for each instrument calculated on an individual basis and the margin 
calculated based on a combined estimation of the exposure for the 
combined portfolio. Margin reductions from portfolio margining of the 
same CDS instruments, i.e. on the same underlying name or index, even 
with different maturities or coupons, can be applied without 
limitation. ICE Clear Europe has chosen to implement this requirement 
by limiting the margin reductions calculated from the 99.5% VaR MC 
aspect of its spread response methodology to 20% of the gross margin 
requirement without portfolio offsets.
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    \16\ 15 U.S.C. 78q-1.
    \17\ Commission Delegated Regulation (EU) No. 153/2013 dated 23 
February 2013.
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    The Commission has reviewed the proposed rule change, including the 
changes to ICE Clear Europe's policies and procedures, as well as data 
on the estimated impact of the proposed rule change on margin 
requirements. Based on this review, the Commission finds that the 
proposed rule change is designed to implement a more conservative 
approach to portfolio margining reductions than under ICE Clear 
Europe's existing spread response calculation methodology and is 
therefore consistent with assuring the safeguarding of securities and 
funds which are in the custody or control of the clearing agency or for 
which it is responsible. The approach is risk-based and does not impose 
unduly conservative margin requirements that would impose a burden on 
competition not necessary or appropriate in furtherance of the purposes 
of the Exchange Act.\18\
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    \18\ See 15 U.S.C. 78q-1(b)(3)(I).
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    For the same reasons, the Commission further finds that the 
proposed rule change is consistent with Rule 17Ad-22(b)(2),\19\ in that 
any additional margin collected based on this more conservative 
approach should support ICE Clear Europe's risk management functions 
and ability to limit its credit exposures, consistent with Rule 17Ad-
22(b)(2).\20\
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    \19\ 17 CFR 240.17Ad-22(b)(2).
    \20\ 17 CFR 240.17Ad-22(b)(2).
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    Similarly, the Commission further finds that the proposed rule 
change is consistent with Rule 17Ad-22(e)(6)(v).\21\ The proposed rule 
change does not eliminate portfolio margin reductions. The proposed 
rule change allows for portfolio margin reductions of 100% where the 
margin reduction relates to positions in the same instrument. Where the 
portfolio margining covers multiple different instruments, the proposed 
rule change limits the margin reduction to no greater than 80%, 
consistent with EMIR. The Commission finds that this is a reasonably 
designed method for measuring credit exposure that accounts for 
relevant product risk factors and portfolio effects across different 
products consistent with Rule 17Ad-22(e)(6)(v).\22\
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    \21\ 17 CFR 240.17Ad-22(e)(6)(v).
    \22\ 17 CFR 240.17Ad-22(e)(6)(v).
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    In its filing, ICE Clear Europe requested that the Commission grant 
accelerated approval of the proposed rule change pursuant to Section 
19(b)(2)(C)(iii) of the Exchange Act.\23\ Under Section 
19(b)(2)(C)(iii) of the Act,\24\ the Commission may grant accelerated 
approval of a proposed rule change if the Commission finds good cause 
for doing so. ICE Clear Europe believes that accelerated approval is 
warranted because the proposed rule change is required as of September 
30, 2017 in order to comply with the Portfolio Margin Limitation under 
EMIR, as interpreted by ESMA.
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    \23\ 15 U.S.C. 78s(b)(2)(C)(iii).
    \24\ 15 U.S.C. 78s(b)(2)(C)(iii).
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    The Commission finds good cause, pursuant to Section 
19(b)(2)(C)(iii) of the Act,\25\ for approving the proposed rule change 
on an accelerated basis, prior to the 30th day after the date of 
publication of notice in the Federal Register, because the proposed 
rule change is required as of September 30, 2017 in order to comply 
with EMIR.
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    \25\ 15 U.S.C. 78s(b)(2)(C)(iii).
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V. 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 \26\ and the 
rules and regulations thereunder.
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    \26\ 15 U.S.C. 78q-1.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\27\ that the proposed rule change (File No. SR-ICEEU-2017-010) be, 
and hereby is, approved on an accelerated basis.\28\
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    \27\ 15 U.S.C. 78s(b)(2).
    \28\ 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).


[[Page 45342]]


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    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-20750 Filed 9-27-17; 8:45 am]
BILLING CODE 8011-01-P