Self-Regulatory Organizations; ICE Clear Europe Limited; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change, as Modified by Amendment No. 1, Relating to Intraday Margining, 51715-51720 [2018-22204]
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Federal Register / Vol. 83, No. 198 / Friday, October 12, 2018 / Notices
II. Docketed Proceeding(s)
I. Introduction
The Commission gives notice that the
Postal Service filed request(s) for the
Commission to consider matters related
to negotiated service agreement(s). The
request(s) may propose the addition or
removal of a negotiated service
agreement from the market dominant or
the competitive product list, or the
modification of an existing product
currently appearing on the market
dominant or the competitive product
list.
Section II identifies the docket
number(s) associated with each Postal
Service request, the title of each Postal
Service request, the request’s acceptance
date, and the authority cited by the
Postal Service for each request. For each
request, the Commission appoints an
officer of the Commission to represent
the interests of the general public in the
proceeding, pursuant to 39 U.S.C. 505
(Public Representative). Section II also
establishes comment deadline(s)
pertaining to each request.
The public portions of the Postal
Service’s request(s) can be accessed via
the Commission’s website (https://
www.prc.gov). Non-public portions of
the Postal Service’s request(s), if any,
can be accessed through compliance
with the requirements of 39 CFR
3007.301.1
The Commission invites comments on
whether the Postal Service’s request(s)
in the captioned docket(s) are consistent
with the policies of title 39. For
request(s) that the Postal Service states
concern market dominant product(s),
applicable statutory and regulatory
requirements include 39 U.S.C. 3622, 39
U.S.C. 3642, 39 CFR part 3010, and 39
CFR part 3020, subpart B. For request(s)
that the Postal Service states concern
competitive product(s), applicable
statutory and regulatory requirements
include 39 U.S.C. 3632, 39 U.S.C. 3633,
39 U.S.C. 3642, 39 CFR part 3015, and
39 CFR part 3020, subpart B. Comment
deadline(s) for each request appear in
section II.
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II. Docketed Proceeding(s)
1. Docket No(s).: MC2019–2 and
CP2019–2; Filing Title: USPS Request to
Add Priority Mail Contract 467 to
Competitive Product List and Notice of
Filing Materials Under Seal; Filing
Acceptance Date: October 5, 2018;
Filing Authority: 39 U.S.C. 3642, 39 CFR
3020.30 et seq., and 39 CFR 3015.5;
1 See Docket No. RM2018–3, Order Adopting
Final Rules Relating to Non-Public Information,
June 27, 2018, Attachment A at 19–22 (Order No.
4679).
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Public Representative: Curtis E. Kidd;
Comments Due: October 16, 2018.
This Notice will be published in the
Federal Register.
Stacy L. Ruble,
Secretary.
[FR Doc. 2018–22247 Filed 10–11–18; 8:45 am]
BILLING CODE 7710–FW–P
POSTAL SERVICE
Product Change—Priority Mail
Negotiated Service Agreement
Postal ServiceTM.
ACTION: Notice.
AGENCY:
The Postal Service gives
notice of filing a request with the Postal
Regulatory Commission to add a
domestic shipping services contract to
the list of Negotiated Service
Agreements in the Mail Classification
Schedule’s Competitive Products List.
DATES: Date of required notice: October
12, 2018.
FOR FURTHER INFORMATION CONTACT:
Elizabeth Reed, 202–268–3179.
SUPPLEMENTARY INFORMATION: The
United States Postal Service® hereby
gives notice that, pursuant to 39 U.S.C.
3642 and 3632(b)(3), on October 5, 2018,
it filed with the Postal Regulatory
Commission a USPS Request to Add
Priority Mail Contract 467 to
Competitive Product List. Documents
are available at www.prc.gov, Docket
Nos. MC2019–2, CP2019–2.
SUMMARY:
Elizabeth Reed,
Attorney, Corporate and Postal Business Law.
[FR Doc. 2018–22211 Filed 10–11–18; 8:45 am]
BILLING CODE 7710–12–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–84375; File No. SR–ICEEU–
2018–012)
Self-Regulatory Organizations; ICE
Clear Europe Limited; Notice of Filing
and Order Granting Accelerated
Approval of Proposed Rule Change, as
Modified by Amendment No. 1,
Relating to Intraday Margining
October 5, 2018.
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 24, 2018, ICE Clear Europe
Limited (‘‘ICE Clear Europe’’) filed with
1 15
2 17
PO 00000
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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51715
the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule changes described in
Items I and II below, which Items have
been prepared by ICE Clear Europe. On
October 4, 2018, ICE Clear Europe filed
Amendment No. 1 to the proposed rule
change.3 The Commission is publishing
this notice to solicit comments on the
proposed rule change, as modified by
Amendment No. 1, from interested
persons and to approve the proposed
rule change, as modified by Amendment
No. 1, on an accelerated basis.
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
ICE Clear Europe proposes to amend
its Finance Procedures and certain
related policies to expand the hours
covered by its intraday margining
process and make certain related
changes to the intraday margining
process and process for deposit of cash
balances.
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 is proposing to
amend its intraday risk management
processes for certain F&O client and
house accounts to extend the intraday
margining hours (which currently run
from 9:00 a.m.–6:00 p.m.) to 7:30 a.m.–
8:00 p.m. (with a payment deadline of
9:00 p.m.), London time, to cover the
active portions of the trading day in
relevant F&O contracts.4
ICE Clear Europe is adopting these
amendments to facilitate compliance
with margin requirements under
European Union regulations and related
implementing legislation and technical
3 Amendment No. 1 added an additional
confidential exhibit to the filing.
4 Capitalized terms used herein but not otherwise
defined have the meaning set forth in the ICE Clear
Europe Clearing Rules, which are available at
https://www.theice.com/publicdocs/clear_europe/
rulebooks/rules/Clearing_Rules.pdf.
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Federal Register / Vol. 83, No. 198 / Friday, October 12, 2018 / Notices
standards applicable to it as an
authorized central counterparty under
the European Market Infrastructure
Regulation (EMIR).5
These amendments will principally
affect F&O energy contracts cleared by
ICE Clear Europe. Specifically, the
extended margining hours and updated
materiality threshold changes will apply
to all gross margined client accounts
(i.e., those client accounts margined on
a ‘‘gross’’ basis using a minimum one
business day margin period of risk
(‘‘MPOR’’)) 6 and F&O house accounts.
ICE Clear Europe is also amending
certain policies relating to the deposit of
uninvested cash margin with banks in
light of potential increases in cash
balances arising from the above changes
in intraday margining, consistent with
requirements under EMIR. (These
amendments to the investment policies
may apply to all product categories.)
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Finance Procedures
As part of these changes, ICE Clear
Europe is proposing to amend Parts 5
and 6 of the Finance Procedures to
address intraday margining procedures
and certain other matters. Paragraph 5.5
is amended to clarify the circumstances
in which the Clearing House would
invoke a contingency method for
transfer of margin, which would occur
if an Approved Financial Institution or
the Clearing House itself experiences a
failure in its ability to send or receive
SWIFT messages. Paragraph 6.1(i) is
amended to provide that intraday
margin calls for F&O Contracts can be
made between 7:30 and 20:00 London
time. (The existing period for intraday
margin calls for other (i.e., CDS)
Contracts remains unchanged at from
9:00 to 19:00 London time.) Where a
contingency method applies under
paragraph 5.5, intraday margin calls can
be made up to 21:00 London time. The
5 The amendments principally address
requirements under Commission Delegated
Regulation (EU) No 153/2013 of 19 December 2012
supplementing Regulation (EU) No 648/2012 of the
European Parliament and of the Council with regard
to regulatory technical standards on requirements
for central counterparties, as amended by
Commission Delegated Regulation (EU) 2016/822 of
21 April 2016 as regards the time horizons for the
liquidation period to be considered for the different
classes of financial instruments (as so amended,
‘‘RTS 153/2013’’). Specifically, Article 26(1)(c) of
RTS 153/2013 requires ICE Clear Europe, among
other matters, to be in a position to issue and collect
margin calls on at least an hourly basis during the
active trading day for futures products that are
gross-margined using a one business day margin
period of risk.
6 Contracts using a one-day MPOR are generally
F&O energy contracts. Other F&O Contracts using
a 2 (or more) business day MPOR, and CDS
Contracts (using a 5 business day MPOR) are not
subject to the hourly intraday margin requirement
under Article 26(1)(c) of RTS 153/2013.
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amendments also clarify that all
intraday margin calls within these hours
must be met within 60 minutes of
notification by the Clearing House.
Margin calls made outside of these
hours must be met by the later of (x)
within 60 minutes after notification, if
any settlement system used by the
Clearing House for the relevant currency
is open at the time, or (y) within 60
minutes after the time at which such
settlement system becomes open for
business following the notification of
the margin call by the Clearing House.
Corresponding changes are also made
to the table following Part 5 of the
Finance Procedures. A row has been
inserted stating the timing for intraday
margin instructions, as discussed above.
Corresponding changes are also being
made to the existing rows relating to
routine end-of-day instructions, routine
end-of-day instructions for financials &
softs contracts that settle in JPY only
and the revised 21:00 London time cutoff time for intraday instructions in the
event of a contingency.
Cash Investment Policies
Because of the possibility that it will
hold additional cash balances as a result
of the extended margining hours
discussed above (since it may be
difficult to invest such balances if
received later in the day), ICE Clear
Europe is proposing to amend the
Investment Management Policy and
adopt a new set of Unsecured Credit
Limits Procedures. Certain other
updates and clarifications are being
made to the Investment Management
Policy as well.
In general, the changes to the
Investment Management Policy will
permit the Clearing House to hold
additional uninvested balances, by
eliminating the current fixed dollar
limits and replacing them with the new
Unsecured Credit Limits Procedures,
which provide more flexible allocation
guidelines based on the capital of the
deposit bank and other factors. The
amendments remain consistent with the
requirements under EMIR that the
Clearing House maintain at least 95% of
its cash in qualifying investments on
average during each calendar month,
such that deposits in banks will be
limited to the remaining 5% on
average.7
The Investment Management Policy
has also been revised to distinguish
more clearly between central bank
deposits and commercial bank deposits,
both of which are authorized for deposit
of cash. For commercial bank deposits,
the $50 million per counterparty bank
7 Article
PO 00000
45, RTS 153/2013.
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limit has been removed and replaced
with the Unsecured Credit Limits
Procedures, as discussed below. The 5%
limit on investments in bank obligations
in a 30-day period has been revised to
refer to an average level over a calendar
month, consistent with the EMIR
limitations.
Certain clarifications (unrelated to the
extended margin hours) are being made
to the limits on investments in
sovereign obligations and central bank
deposits. For sovereign obligations, for
EUR denominated investments, no more
than 15% of the total EUR balance of the
investment portfolio must be invested in
sovereign obligations of a single issuer;
and no more than 20% of the total
balance of the investment portfolio per
currency may be invested in a single
issue of a sovereign issuer. Pursuant to
the proposed amendments, there is no
limitation on maturity for central bank
obligations and central bank deposits.
The amended policy lists the Dutch
National Bank, Bank of England and
Federal Reserve as acceptable central
banks for this purpose.
The proposed amendments also
update the policy review section to
remove certain details, clarify the
procedures for escalation of defined risk
management thresholds triggers and
provide that the policy will be reviewed
in accordance with internal governance
processes and regulatory requirements.
ICE Clear Europe does not anticipate
that these amendments will
substantively change its process for
policy review at this time, but the
amendments will facilitate
consolidation and harmonization of
internal governance processes across
various Clearing House policies.
ICE Clear Europe is further proposing
various clarifications and updates
throughout the Investment Management
Policy including to the description of
the board risk policy and related
management thresholds and the
objectives of the counterparty rating
system. References to the Clearing Risk
and Finance departments have been
updated throughout the document.
The Clearing House is adopting the
new Unsecured Credit Limits
Procedures, which establish a limit
methodology for determining the
amount of cash that may be placed in
an unsecured deposit with a particular
bank. The procedures establish basic
requirements for any deposit bank as to
regulation and credit rating (with the
possibility of an exception where
determined appropriate by the executive
risk committee). For each qualifying
institution, a limit will be established at
3% of the entity’s capital minus other
exposures vis-a-vis ICE Clear Europe or
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if the entity relies on a parent guaranty,
80% of the amount guaranteed
thereunder. (The 3% limit is based on
the Clearing House’s credit judgment as
to the appropriate level of unsecured
risk to take from a bank counterparty.)
The limit is subject to a minimum level
of USD 50 million (or a lesser level
determined by the Clearing House) and
a maximum level of USD 200 million.
‘‘Other exposures’’ for this purpose
include uncollateralized stress losses or
exposures arising from other financial
services provided by ICE Clear Europe
to the institution.8 The methodology
also provides for ongoing monitoring of
deposit banks for purposes of updating
limits as necessary, and addresses
governance and exception handling.
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(b) Statutory Basis
ICE Clear Europe believes that the
proposed amendments are consistent
with the requirements of Section 17A of
the Act 9 and the regulations thereunder
applicable to it, including the standards
under Rule 17Ad–22.10 In particular,
Section 17A(b)(3)(F) of the Act 11
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 amendments will
facilitate the management of intraday
risk faced by the Clearing House for
certain F&O Contracts, by extending the
daily hours in which the Clearing House
may call for intraday margin. These
changes will in turn promote the
prompt and accurate clearance and
settlement of transactions through the
Clearing House. The changes will also
enhance the Clearing House’s
procedures for investment of cash
received by it, in recognition that it may
receive higher cash balances as a result
of additional intraday calls for
margining. The enhanced procedures
provide new guidelines for allocating
deposits across different banks based on
their capitalization and other factors. In
ICE Clear Europe’s view, these changes
8 ICE Clear Europe contemplates a specific
exception for Euroclear Bank SA/NV, in light of the
particular function of that entity as a central
securities depository and the accompanying
limitations on its business that would allow a limit
of USD 200 million notwithstanding that 3% of its
capital would be a lower figure.
9 15 U.S.C. 78q–1.
10 17 CFR 240.17Ad–22.
11 15 U.S.C. 78q–1(b)(3)(F).
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will enhance the safeguarding of funds
in the custody of the Clearing House or
over which it has control. ICE Clear
Europe also notes that the amendments
are intended to facilitate compliance
with certain specific requirements
under EMIR, and thereby are consistent
with the public interest as it applies to
the operation of the Clearing House as
an authorized central counterparty
under European Union regulations.
Further, the amendments are
consistent with requirements of Rule
17Ad–22 12 regarding margin and credit
risk management. Rule 17Ad–22(b)(1)
and (2) 13 in particular require that ICE
Clear Europe measure its credit
exposure at least once per day and use
margin requirements to limit its
exposures to participants under normal
market conditions. Consistent with
these requirements, the proposed
amendments require the Clearing House
to measure its intraday credit exposures
during additional hours and to collect
margin if appropriate, reducing its
credit risk to Clearing Members. The
proposed amendments are also
consistent with Rule 17Ad–22(e)(4)(i) 14,
as the additional ability to conduct
intraday margining will help the
Clearing House maintain sufficient
financial resources to cover its credit
exposures to Clearing Members. The
enhancements to the margin system are
further consistent with the requirements
to maintain margin levels to cover
potential losses from participants
pursuant to Rule 17Ad–22(e)(6)(i)–
(iii).15
12 17
CFR 240.17Ad–22.
CFR 240.17Ad–22(b)(1) and (2). The rule
states that: [a] Registered clearing agency that
performs central counterparty services shall
establish, implement, maintain and enforce written
policies and procedures reasonably designed to:
(1) Measure its credit exposures to its participants
at least once a day and limit its exposures to
potential losses from defaults by its participants
under normal market conditions so that the
operations of the clearing agency would not be
disrupted and non-defaulting participants would
not be exposed to losses that they cannot anticipate
or control.
(2) 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 and review
such margin requirements and the related riskbased models and parameters at least monthly.’’
14 17 CFR 240.17Ad–22(e)(4)(i). The rule states
that: ‘‘[e]ach covered clearing agency shall
establish, implement, maintain and enforce written
policies and procedures reasonably designed to, as
applicable: (4) Effectively identify, measure,
monitor, and manage its credit exposures to
participants and those arising from its payment,
clearing, and settlement processes, including by: (i)
Maintaining sufficient financial resources to cover
its credit exposure to each participant fully with a
high degree of confidence;’’
15 17 CFR 240.17Ad–22(e)(6)(i)–(iii). The rule
states that: ‘‘[e]ach covered clearing agency shall
establish, implement, maintain and enforce written
13 17
PO 00000
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51717
ICE Clear Europe’s amendments to the
Investment Management Policy and
adoption of the Unsecured Credit Limit
Procedures to tailor deposit limits to the
particular characteristics of deposit
banks is consistent with Rule 17Ad–
22(e)(9) 16, as it will mitigate the credit
and liquidity risk arising from
conducting its money settlements in
commercial bank money.
(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 amendments
are being adopted to facilitate
compliance with European Union
requirements applicable to intraday
margin requirements and to extend the
hours covered by its intraday risk
management process. The amendments
will affect all F&O Clearing Members
that trade contracts in the relevant
categories. Although the amendments
could impose certain additional costs on
Clearing Members, as a result of
additional intraday margin calls, which
may have financing and liquidity
implications for F&O Clearing Members,
these result from the requirements
imposed by EU regulations, and in any
case reflect the risks presented by the
trading activities of the F&O Clearing
Members. Furthermore, any such
increased margin requirements will
result in risk management benefits for
the Clearing House, through improved
ability to address risks throughout the
trading day, consistent with the goals of
the relevant EU regulations and also in
policies and procedures reasonably designed to, as
applicable: (6) Cover, if the covered clearing agency
provides central counterparty services, its credit
exposures to its participants by establishing a riskbased margin system that, at a minimum: (i)
Considers, and produces margin levels
commensurate with, the risks and particular
attributes of each relevant product, portfolio, and
market; (ii) Marks participant positions to market
and collects margin, including variation margin or
equivalent charges if relevant, at least daily and
includes the authority and operational capacity to
make intraday margin calls in defined
circumstances; (iii) Calculates margin sufficient to
cover its potential future exposure to participants
in the interval between the last margin collection
and the close out of positions following a
participant default;’’
16 17 CFR 240.17Ad–22(e)(9). The rule states that:
‘‘[e]ach covered clearing agency shall establish,
implement, maintain and enforce written policies
and procedures reasonably designed to, as
applicable: (9) Conduct its money settlements in
central bank money, where available and
determined to be practical by the board of directors
of the covered clearing agency, and minimize and
manage credit and liquidity risk arising from
conducting its money settlements in commercial
bank money if central bank money is not used by
the covered clearing agency.’’
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furtherance of the risk management
requirements of the Act. In light of these
considerations, ICE Clear Europe does
not believe the amendments will
adversely affect competition among
clearing members, the market for
clearing services generally or access to
clearing in cleared products by clearing
members or other market participants.
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, as modified by Amendment No.
1, is consistent with the Act. Comments
may be submitted by any of the
following methods:
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Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
ICEEU–2018–012 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549.
All submissions should refer to File
Number SR–ICEEU–2018–012. 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 (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change 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
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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
10:00 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 website at https://
www.theice.com/clear-europe/
regulation. All comments received will
be posted without change. Persons
submitting comments are cautioned that
we do not redact or edit personal
identifying information from comment
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–ICEEU–
2018–012 and should be submitted on
or before November 2, 2018.
IV. Commission’s Findings and Order
Granting Accelerated Approval of the
Proposed Rule Change, as Modified by
Amendment No. 1
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. 17 For
the reasons given below, the
Commission finds that the proposal is
consistent with Section 17A(b)(3)(F) of
the Act 18 and Rules 17Ad–22(e)(6)(ii)
and 17Ad–22(e)(16) thereunder.19
(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
promote the prompt and accurate
clearance and settlement of securities
transactions and, to the extent
applicable, derivative agreements,
contracts, and transactions, as well as to
assure the safeguarding of securities and
funds which are in the custody or
control of ICE Clear Europe or for which
it is responsible, and, in general, to
protect investors and the public interest.
(a) Finance Procedures
As discussed above, the proposed rule
change, as modified by Amendment No.
1, would amend ICE Clear Europe’s
Finance Procedures to extend the period
for intraday margin calls for F&O
Contracts to cover the active portions of
17 15
U.S.C. 78s(b)(2)(C).
U.S.C. 78q–1(b)(3)(F).
19 17 CFR 240.17Ad–22(e)(6)(ii) and (e)(16).
18 15
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the trading day for such F&O contracts
(i.e., from 7:30 and 20:00 London time)
and to require clearing participants to
satisfy margin calls during these hours
within 60 minutes of notification by ICE
Clear Europe.20 The Commission
believes that this aspect of the proposed
rule change should expand ICE Clear
Europe’s ability to call additional
intraday margin, as necessary, by
extending the window during which
ICE Clear Europe may call such margin.
In addition, as discussed above, the
proposed rule change would provide
that, for margin calls outside of these
hours, clearing participants would be
required to meet margin calls by the
later of (x) within 60 minutes after
notification, if any settlement system
used by ICE Clear Europe for the
relevant currency is open at the time, or
(y) within 60 minutes after the time at
which such settlement system becomes
open for business following the
notification of the margin call. The
Commission believes that these
provisions should help ensure that ICE
Clear Europe collects intraday margin
on a timely basis by setting standard
specified time periods in which clearing
participants must meet margin calls.
Thus, the Commission believes that
these aspects of the proposed rule
change should enable ICE Clear Europe
to collect additional intraday margin as
necessary to cover the risks related to
the relevant F&O contracts.
The Commission believes that the
ability of ICE Clear Europe to collect
intraday margin and have such margin
available to support ICE Clear Europe’s
ability to manage financial risk exposure
that may arise in the course of its
ongoing clearance and settlement
activities should, in turn, help promote
the prompt and accurate clearance and
settlement of securities transactions,
derivative agreements, contracts, and
transactions. Similarly, the proposed
rule change should enhance ICE Clear
Europe’s ability to help assure the
safeguarding of securities and funds
which are in the custody or control of
ICE Clear Europe or for which it is
responsible because intraday margin
collections will increase the overall
amount of financial resources ICE Clear
Europe maintains to address potential
loss exposures that could arise from a
Clearing Member default or other
stressed market conditions. Finally, for
both of these reasons, the Commission
20 The Commission understands that, pursuant to
EMIR requirements, ICE Clear Europe must be in a
position to issue and collect margin calls on at least
an hourly basis during the active trading day for
futures products that are gross-margined using a
one business day margin period of risk. See supra
note 5.
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believes the proposed rule change, as
modified by Amendment No. 1, is
consistent with protecting investors and
the public interest.
(b) Investment Management Policy
The proposed rule change, as
modified by Amendment No. 1, would
also amend the Investment Management
Policy to address potential additional
cash balances that could accrue as a
result of the additional margin collected
during the extended margining hours
discussed above. Specifically, these
changes include: (i) With respect to
sovereign obligations, providing that for
EUR denominated investments, no more
than 15% of the total EUR balance of the
investment portfolio must be invested in
sovereign obligations of a single issuer,
and no more than 20% of the total
balance of the investment portfolio per
currency may be invested in a single
issue of a sovereign issuer; (ii) with
respect to central bank deposits,
removing the limitation on maturity for
central bank obligations and central
bank deposits and identifying the Dutch
National Bank, Bank of England, and
Federal Reserve as acceptable central
banks for that purpose; and (iii) with
respect to commercial bank deposits,
removing the $50 million per
counterparty bank limit, replacing it
with the Unsecured Credit Limits
Procedures, including the regulation
and credit rating requirements for
deposit banks and the revised limits for
each qualifying institution, and revising
the 5% limit on investments in bank
obligations in a 30-day period to refer to
an average level over a calendar month.
With respect to the changes regarding
investments in sovereign obligations,
the Commission believes that these
changes provide reasonable limitations
on ICE Clear Europe’s investment
portfolio that should help ensure that it
is not overly concentrated in securities
of a single sovereign issuer or in a single
issue of a sovereign issuer. With respect
to the changes regarding central bank
deposits, the Commission believes that
the proposed rule change should
facilitate ICE Clear Europe’s use of
central bank deposits, which should, in
turn, have minimal credit, market, and
liquidity risks. With respect to the
changes regarding commercial bank
deposits, the Commission believes the
Unsecured Credit Limits Procedures as
they relate to the qualifications and
ongoing monitoring of deposit banks
should help ICE Clear Europe ensure
that the banks in which it holds
deposits are creditworthy and subject to
adequate regulatory oversight. The
Commission further believes that the
revised limitation methodology in the
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Jkt 247001
Unsecured Credit Limits Procedures
should help ICE Clear Europe to ensure
that its deposits do not present an
outsize risk to any particular deposit
bank.
Taken together, the Commission
believes that these changes to the
Investment Management Policy should
help assure the safeguarding of
securities and funds in ICE Clear
Europe’s custody and control, including
any additional cash collected as
intraday margin resulting from the
changes described above,21 which, in
turn, helps promote the prompt and
accurate clearance and settlement of
securities transactions by ICE Clear
Europe. Likewise, the safeguarding of
securities and funds in ICE Clear
Europe’s control would further the
protection of investors and the public
interest by ensuring that ICE Clear
Europe has appropriate funds available
to clear and settle transactions.
Therefore, the Commission finds that
the proposed rule change, as modified
by Amendment No. 1, would promote
the prompt and accurate clearance and
settlement of securities transactions,
assure the safeguarding of securities and
funds in ICE Clear Europe’s custody and
control, and, in general, protect
investors and the public interest,
consistent with Section 17A(b)(3)(F) of
the Act.22
(B) Consistency With Rule 17Ad–
22(e)(6)(ii)
Rule 17Ad–22(e)(6)(ii) requires that
ICE Clear Europe establish, implement,
maintain and enforce written policies
and procedures reasonably designed to
cover its credit exposures to its
participants by establishing a risk-based
margin system that marks participant
positions to market and collects margin,
including variation margin or equivalent
charges if relevant, at least daily and
includes the authority and operational
capacity to make intraday margin calls
in defined circumstances.23
As discussed above, the Commission
believes that the amendments to the
21 ICE Clear Europe also proposed to amend the
Investment Management Policy governance
processes, update the description of the board risk
policy and related risk management thresholds, and
update references to the Clearing Risk and Finance
departments. The Commission believes these
changes would help ensure that the Investment
Management Policy is maintained and that any
issues resulting in a breach of a risk management
threshold are appropriately addressed. The
Commission believes that this would help maintain
the efficacy of the Investment Management Policy
which, as discussed, the Commission believes is
necessary to help safeguard ICE Clear Europe’s
investments, including its investment of cash
associated with margin requirements.
22 15 U.S.C. 78q–1(b)(3)(F).
23 17 CFR 240.17Ad–22(e)(6)(ii).
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51719
Finance Procedures would allow ICE
Clear Europe to request additional
intraday margin, as necessary, by
extending the window during which
ICE Clear Europe may call such margin.
Moreover, the Commission believes that
the amendments to the Finance
Procedures regarding when participants
must satisfy margin calls should help
ensure that ICE Clear Europe collects
intraday margin on a timely basis. The
Commission believes that both of these
aspects of the proposed rule change
should therefore help ensure that ICE
Clear Europe’s risk-based margin system
includes the authority and operational
capacity to make intraday margin calls.
Therefore, for the above reasons the
Commission finds that these aspects of
the proposed rule change, as modified
by Amendment No. 1, are consistent
with Rule 17Ad–22(e)(6)(ii).24
(C) Consistency With Rule 17Ad–
22(e)(16)
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.25
As discussed above, the proposed rule
change would amend ICE Clear Europe’s
Investment Management Policy. For the
reasons discussed above in connection
with Section 17A(b)(3)(F), the
Commission believes that these aspects
of the proposed rule change would help
ensure that ICE Clear Europe safeguards
its own and its participants’ assets—
specifically, ICE Clear Europe’s deposits
of cash, which would include cash
posted by clearing participants to satisfy
their margin and Guaranty Fund
requirements—and minimize the risk of
loss or delay of such assets. For the
same reasons, the Commission believes
that the changes to the Investment
Management Policy would help ensure
that ICE Clear Europe invests such
assets in instruments with minimal
credit, market, and liquidity risks.
Therefore, for the above reasons the
Commission finds that these aspects of
the proposed rule change, as modified
by Amendment No. 1, are consistent
with Rule 17Ad–22(e)(16).26
V. Basis for Accelerated Approval
In its filing, ICE Clear Europe
requested that the Commission grant
24 Id.
25 17
CFR 240.17Ad–22(e)(16).
26 Id.
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Federal Register / Vol. 83, No. 198 / Friday, October 12, 2018 / Notices
accelerated approval of the proposed
rule change pursuant to Section
19(b)(2)(C)(iii) of the Exchange Act.27
Under Section 19(b)(2)(C)(iii) of the
Act,28 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, as modified by Amendment No.
1, is required to comply with
requirements under the European
Market Infrastructure Regulation that
ICE Clear Europe have the ability to call
for intraday margin for relevant F&O
contracts, and ICE Clear Europe is
seeking to comply with those
requirements as soon as possible.29
The Commission finds good cause,
pursuant to Section 19(b)(2)(C)(iii) of
the Act,30 for approving the proposed
rule change, as modified by Amendment
No. 1, 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 soon as possible
in order to facilitate ICE Clear Europe’s
efforts to comply with the
aforementioned requirements.31
Additionally, the Commission notes that
the proposed changes do not impede
compliance with relevant U.S. law,
including Section 17A(b)(3)(F) of the
Act.32
VI. 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(b)(3)(F) of
the Act 33 and Rules 17Ad–22(e)(6)(ii)
and 17Ad–22(e)(16) thereunder.34
It is therefore ordered pursuant to
Section 19(b)(2) of the Act 35 that the
proposed rule change (SR–ICEEU–2018–
012), as modified by Amendment No. 1,
be, and hereby is, approved on an
accelerated basis.36
27 15
U.S.C. 78s(b)(2)(C)(iii).
U.S.C. 78s(b)(2)(C)(iii).
29 See supra note 5.
30 15 U.S.C. 78s(b)(2)(C)(iii).
31 See id.
32 15 U.S.C. 78q–1(b)(3)(F).
33 Id.
34 17 CFR 240.17Ad–22(e)(6)(ii) and (e)(16).
35 15 U.S.C. 78s(b)(2).
36 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).
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28 15
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For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.37
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–22204 Filed 10–11–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–84376; File No. SR–FINRA–
2018–036]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Change Relating to Provision of Test
Result Information to Candidates Who
Pass a FINRA Qualification
Examination
October 5, 2018.
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 27, 2018, Financial Industry
Regulatory Authority, Inc. (‘‘FINRA’’)
filed with the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
the proposed rule change as described
in Items I, II, and III below, which Items
have been prepared by FINRA. FINRA
has designated the proposed rule change
as ‘‘constituting a stated policy,
practice, or interpretation with respect
to the meaning, administration, or
enforcement of an existing rule’’ under
Section 19(b)(3)(A)(i) of the Act 3 and
Rule 19b–4(f)(1) thereunder,4 which
renders the proposal effective upon
receipt of this filing by the Commission.
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
FINRA is proposing revisions relating
to test results information on the
content outlines of certain FINRA
representative- and principal-level
qualification examinations. FINRA is
not proposing any textual changes to the
By-Laws, Schedules to the By-Laws or
Rules of FINRA.
The text of the proposed rule change
[sic] is available on FINRA’s website at
https://www.finra.org, at the principal
37 17
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(i).
4 17 CFR 240.19b–4(f)(1).
PO 00000
Frm 00061
Fmt 4703
Sfmt 4703
office of FINRA 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,
FINRA 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. FINRA has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
Each FINRA representative- and
principal-level qualification
examination has a minimum score
threshold that is necessary for passing
the examination (also referred to as a
‘‘passing score’’). For instance, the
passing score for the current General
Securities Representative (Series 7)
examination is 72. FINRA determines
the passing score for each examination
based on a process known as standard
setting, which assesses a number of
factors, including industry trends,
historical examination performance and
evaluations of content difficulty by a
committee of industry professionals
who have passed the related
examination. The passing score for an
examination reflects the minimum level
of knowledge necessary to perform the
functions for which a candidate is
registering.
A candidate’s numerical score on an
examination is necessary to determine
whether the candidate has satisfied the
minimum score threshold for passing
the examination. In addition, if a
candidate fails to meet the minimum
score threshold for passing an
examination, the candidate’s numerical
score is relevant in evaluating the extent
to which the candidate needs additional
study time and training and whether the
candidate should retake the
examination.5
Currently, candidates who take a
FINRA qualification examination
receive a test results report of their
5 A candidate who fails an examination is eligible
to retake that examination after 30 calendar days.
However, if a candidate fails an examination three
or more times in succession within a two-year
period, the candidate is prohibited from retaking
that examination until 180 calendar days from the
date of the candidate’s last attempt to pass it.
E:\FR\FM\12OCN1.SGM
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]]>Agencies
[Federal Register Volume 83, Number 198 (Friday, October 12, 2018)]
[Notices]
[Pages 51715-51720]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-22204]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-84375; File No. SR-ICEEU-2018-012)
Self-Regulatory Organizations; ICE Clear Europe Limited; Notice
of Filing and Order Granting Accelerated Approval of Proposed Rule
Change, as Modified by Amendment No. 1, Relating to Intraday Margining
October 5, 2018.
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 24, 2018, ICE Clear Europe Limited (``ICE Clear Europe'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule changes described in Items I and II below, which Items
have been prepared by ICE Clear Europe. On October 4, 2018, ICE Clear
Europe filed Amendment No. 1 to the proposed rule change.\3\ The
Commission is publishing this notice to solicit comments on the
proposed rule change, as modified by Amendment No. 1, from interested
persons and to approve the proposed rule change, as modified by
Amendment No. 1, on an accelerated basis.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Amendment No. 1 added an additional confidential exhibit to
the filing.
---------------------------------------------------------------------------
I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
ICE Clear Europe proposes to amend its Finance Procedures and
certain related policies to expand the hours covered by its intraday
margining process and make certain related changes to the intraday
margining process and process for deposit of cash balances.
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 is proposing to amend its intraday risk management
processes for certain F&O client and house accounts to extend the
intraday margining hours (which currently run from 9:00 a.m.-6:00 p.m.)
to 7:30 a.m.-8:00 p.m. (with a payment deadline of 9:00 p.m.), London
time, to cover the active portions of the trading day in relevant F&O
contracts.\4\
---------------------------------------------------------------------------
\4\ Capitalized terms used herein but not otherwise defined have
the meaning set forth in the ICE Clear Europe Clearing Rules, which
are available at https://www.theice.com/publicdocs/clear_europe/rulebooks/rules/Clearing_Rules.pdf.
---------------------------------------------------------------------------
ICE Clear Europe is adopting these amendments to facilitate
compliance with margin requirements under European Union regulations
and related implementing legislation and technical
[[Page 51716]]
standards applicable to it as an authorized central counterparty under
the European Market Infrastructure Regulation (EMIR).\5\
---------------------------------------------------------------------------
\5\ The amendments principally address requirements under
Commission Delegated Regulation (EU) No 153/2013 of 19 December 2012
supplementing Regulation (EU) No 648/2012 of the European Parliament
and of the Council with regard to regulatory technical standards on
requirements for central counterparties, as amended by Commission
Delegated Regulation (EU) 2016/822 of 21 April 2016 as regards the
time horizons for the liquidation period to be considered for the
different classes of financial instruments (as so amended, ``RTS
153/2013''). Specifically, Article 26(1)(c) of RTS 153/2013 requires
ICE Clear Europe, among other matters, to be in a position to issue
and collect margin calls on at least an hourly basis during the
active trading day for futures products that are gross-margined
using a one business day margin period of risk.
---------------------------------------------------------------------------
These amendments will principally affect F&O energy contracts
cleared by ICE Clear Europe. Specifically, the extended margining hours
and updated materiality threshold changes will apply to all gross
margined client accounts (i.e., those client accounts margined on a
``gross'' basis using a minimum one business day margin period of risk
(``MPOR'')) \6\ and F&O house accounts.
---------------------------------------------------------------------------
\6\ Contracts using a one-day MPOR are generally F&O energy
contracts. Other F&O Contracts using a 2 (or more) business day
MPOR, and CDS Contracts (using a 5 business day MPOR) are not
subject to the hourly intraday margin requirement under Article
26(1)(c) of RTS 153/2013.
---------------------------------------------------------------------------
ICE Clear Europe is also amending certain policies relating to the
deposit of uninvested cash margin with banks in light of potential
increases in cash balances arising from the above changes in intraday
margining, consistent with requirements under EMIR. (These amendments
to the investment policies may apply to all product categories.)
Finance Procedures
As part of these changes, ICE Clear Europe is proposing to amend
Parts 5 and 6 of the Finance Procedures to address intraday margining
procedures and certain other matters. Paragraph 5.5 is amended to
clarify the circumstances in which the Clearing House would invoke a
contingency method for transfer of margin, which would occur if an
Approved Financial Institution or the Clearing House itself experiences
a failure in its ability to send or receive SWIFT messages. Paragraph
6.1(i) is amended to provide that intraday margin calls for F&O
Contracts can be made between 7:30 and 20:00 London time. (The existing
period for intraday margin calls for other (i.e., CDS) Contracts
remains unchanged at from 9:00 to 19:00 London time.) Where a
contingency method applies under paragraph 5.5, intraday margin calls
can be made up to 21:00 London time. The amendments also clarify that
all intraday margin calls within these hours must be met within 60
minutes of notification by the Clearing House. Margin calls made
outside of these hours must be met by the later of (x) within 60
minutes after notification, if any settlement system used by the
Clearing House for the relevant currency is open at the time, or (y)
within 60 minutes after the time at which such settlement system
becomes open for business following the notification of the margin call
by the Clearing House.
Corresponding changes are also made to the table following Part 5
of the Finance Procedures. A row has been inserted stating the timing
for intraday margin instructions, as discussed above. Corresponding
changes are also being made to the existing rows relating to routine
end-of-day instructions, routine end-of-day instructions for financials
& softs contracts that settle in JPY only and the revised 21:00 London
time cut-off time for intraday instructions in the event of a
contingency.
Cash Investment Policies
Because of the possibility that it will hold additional cash
balances as a result of the extended margining hours discussed above
(since it may be difficult to invest such balances if received later in
the day), ICE Clear Europe is proposing to amend the Investment
Management Policy and adopt a new set of Unsecured Credit Limits
Procedures. Certain other updates and clarifications are being made to
the Investment Management Policy as well.
In general, the changes to the Investment Management Policy will
permit the Clearing House to hold additional uninvested balances, by
eliminating the current fixed dollar limits and replacing them with the
new Unsecured Credit Limits Procedures, which provide more flexible
allocation guidelines based on the capital of the deposit bank and
other factors. The amendments remain consistent with the requirements
under EMIR that the Clearing House maintain at least 95% of its cash in
qualifying investments on average during each calendar month, such that
deposits in banks will be limited to the remaining 5% on average.\7\
---------------------------------------------------------------------------
\7\ Article 45, RTS 153/2013.
---------------------------------------------------------------------------
The Investment Management Policy has also been revised to
distinguish more clearly between central bank deposits and commercial
bank deposits, both of which are authorized for deposit of cash. For
commercial bank deposits, the $50 million per counterparty bank limit
has been removed and replaced with the Unsecured Credit Limits
Procedures, as discussed below. The 5% limit on investments in bank
obligations in a 30-day period has been revised to refer to an average
level over a calendar month, consistent with the EMIR limitations.
Certain clarifications (unrelated to the extended margin hours) are
being made to the limits on investments in sovereign obligations and
central bank deposits. For sovereign obligations, for EUR denominated
investments, no more than 15% of the total EUR balance of the
investment portfolio must be invested in sovereign obligations of a
single issuer; and no more than 20% of the total balance of the
investment portfolio per currency may be invested in a single issue of
a sovereign issuer. Pursuant to the proposed amendments, there is no
limitation on maturity for central bank obligations and central bank
deposits. The amended policy lists the Dutch National Bank, Bank of
England and Federal Reserve as acceptable central banks for this
purpose.
The proposed amendments also update the policy review section to
remove certain details, clarify the procedures for escalation of
defined risk management thresholds triggers and provide that the policy
will be reviewed in accordance with internal governance processes and
regulatory requirements. ICE Clear Europe does not anticipate that
these amendments will substantively change its process for policy
review at this time, but the amendments will facilitate consolidation
and harmonization of internal governance processes across various
Clearing House policies.
ICE Clear Europe is further proposing various clarifications and
updates throughout the Investment Management Policy including to the
description of the board risk policy and related management thresholds
and the objectives of the counterparty rating system. References to the
Clearing Risk and Finance departments have been updated throughout the
document.
The Clearing House is adopting the new Unsecured Credit Limits
Procedures, which establish a limit methodology for determining the
amount of cash that may be placed in an unsecured deposit with a
particular bank. The procedures establish basic requirements for any
deposit bank as to regulation and credit rating (with the possibility
of an exception where determined appropriate by the executive risk
committee). For each qualifying institution, a limit will be
established at 3% of the entity's capital minus other exposures vis-a-
vis ICE Clear Europe or
[[Page 51717]]
if the entity relies on a parent guaranty, 80% of the amount guaranteed
thereunder. (The 3% limit is based on the Clearing House's credit
judgment as to the appropriate level of unsecured risk to take from a
bank counterparty.) The limit is subject to a minimum level of USD 50
million (or a lesser level determined by the Clearing House) and a
maximum level of USD 200 million. ``Other exposures'' for this purpose
include uncollateralized stress losses or exposures arising from other
financial services provided by ICE Clear Europe to the institution.\8\
The methodology also provides for ongoing monitoring of deposit banks
for purposes of updating limits as necessary, and addresses governance
and exception handling.
---------------------------------------------------------------------------
\8\ ICE Clear Europe contemplates a specific exception for
Euroclear Bank SA/NV, in light of the particular function of that
entity as a central securities depository and the accompanying
limitations on its business that would allow a limit of USD 200
million notwithstanding that 3% of its capital would be a lower
figure.
---------------------------------------------------------------------------
(b) Statutory Basis
ICE Clear Europe believes that the proposed amendments are
consistent with the requirements of Section 17A of the Act \9\ and the
regulations thereunder applicable to it, including the standards under
Rule 17Ad-22.\10\ In particular, Section 17A(b)(3)(F) of the Act \11\
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 amendments will facilitate the management of intraday
risk faced by the Clearing House for certain F&O Contracts, by
extending the daily hours in which the Clearing House may call for
intraday margin. These changes will in turn promote the prompt and
accurate clearance and settlement of transactions through the Clearing
House. The changes will also enhance the Clearing House's procedures
for investment of cash received by it, in recognition that it may
receive higher cash balances as a result of additional intraday calls
for margining. The enhanced procedures provide new guidelines for
allocating deposits across different banks based on their
capitalization and other factors. In ICE Clear Europe's view, these
changes will enhance the safeguarding of funds in the custody of the
Clearing House or over which it has control. ICE Clear Europe also
notes that the amendments are intended to facilitate compliance with
certain specific requirements under EMIR, and thereby are consistent
with the public interest as it applies to the operation of the Clearing
House as an authorized central counterparty under European Union
regulations.
---------------------------------------------------------------------------
\9\ 15 U.S.C. 78q-1.
\10\ 17 CFR 240.17Ad-22.
\11\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
Further, the amendments are consistent with requirements of Rule
17Ad-22 \12\ regarding margin and credit risk management. Rule 17Ad-
22(b)(1) and (2) \13\ in particular require that ICE Clear Europe
measure its credit exposure at least once per day and use margin
requirements to limit its exposures to participants under normal market
conditions. Consistent with these requirements, the proposed amendments
require the Clearing House to measure its intraday credit exposures
during additional hours and to collect margin if appropriate, reducing
its credit risk to Clearing Members. The proposed amendments are also
consistent with Rule 17Ad-22(e)(4)(i) \14\, as the additional ability
to conduct intraday margining will help the Clearing House maintain
sufficient financial resources to cover its credit exposures to
Clearing Members. The enhancements to the margin system are further
consistent with the requirements to maintain margin levels to cover
potential losses from participants pursuant to Rule 17Ad-22(e)(6)(i)-
(iii).\15\
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\12\ 17 CFR 240.17Ad-22.
\13\ 17 CFR 240.17Ad-22(b)(1) and (2). The rule states that: [a]
Registered clearing agency that performs central counterparty
services shall establish, implement, maintain and enforce written
policies and procedures reasonably designed to:
(1) Measure its credit exposures to its participants at least
once a day and limit its exposures to potential losses from defaults
by its participants under normal market conditions so that the
operations of the clearing agency would not be disrupted and non-
defaulting participants would not be exposed to losses that they
cannot anticipate or control.
(2) 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 and review such
margin requirements and the related risk-based models and parameters
at least monthly.''
\14\ 17 CFR 240.17Ad-22(e)(4)(i). The rule states that: ``[e]ach
covered clearing agency shall establish, implement, maintain and
enforce written policies and procedures reasonably designed to, as
applicable: (4) Effectively identify, measure, monitor, and manage
its credit exposures to participants and those arising from its
payment, clearing, and settlement processes, including by: (i)
Maintaining sufficient financial resources to cover its credit
exposure to each participant fully with a high degree of
confidence;''
\15\ 17 CFR 240.17Ad-22(e)(6)(i)-(iii). The rule states that:
``[e]ach covered clearing agency shall establish, implement,
maintain and enforce written policies and procedures reasonably
designed to, as applicable: (6) 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: (i) Considers, and produces margin levels commensurate
with, the risks and particular attributes of each relevant product,
portfolio, and market; (ii) Marks participant positions to market
and collects margin, including variation margin or equivalent
charges if relevant, at least daily and includes the authority and
operational capacity to make intraday margin calls in defined
circumstances; (iii) Calculates margin sufficient to cover its
potential future exposure to participants in the interval between
the last margin collection and the close out of positions following
a participant default;''
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ICE Clear Europe's amendments to the Investment Management Policy
and adoption of the Unsecured Credit Limit Procedures to tailor deposit
limits to the particular characteristics of deposit banks is consistent
with Rule 17Ad-22(e)(9) \16\, as it will mitigate the credit and
liquidity risk arising from conducting its money settlements in
commercial bank money.
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\16\ 17 CFR 240.17Ad-22(e)(9). The rule states that: ``[e]ach
covered clearing agency shall establish, implement, maintain and
enforce written policies and procedures reasonably designed to, as
applicable: (9) Conduct its money settlements in central bank money,
where available and determined to be practical by the board of
directors of the covered clearing agency, and minimize and manage
credit and liquidity risk arising from conducting its money
settlements in commercial bank money if central bank money is not
used by the covered clearing agency.''
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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 amendments
are being adopted to facilitate compliance with European Union
requirements applicable to intraday margin requirements and to extend
the hours covered by its intraday risk management process. The
amendments will affect all F&O Clearing Members that trade contracts in
the relevant categories. Although the amendments could impose certain
additional costs on Clearing Members, as a result of additional
intraday margin calls, which may have financing and liquidity
implications for F&O Clearing Members, these result from the
requirements imposed by EU regulations, and in any case reflect the
risks presented by the trading activities of the F&O Clearing Members.
Furthermore, any such increased margin requirements will result in risk
management benefits for the Clearing House, through improved ability to
address risks throughout the trading day, consistent with the goals of
the relevant EU regulations and also in
[[Page 51718]]
furtherance of the risk management requirements of the Act. In light of
these considerations, ICE Clear Europe does not believe the amendments
will adversely affect competition among clearing members, the market
for clearing services generally or access to clearing in cleared
products by clearing members or other market participants. 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, as modified by Amendment No. 1, 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-2018-012 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549.
All submissions should refer to File Number SR-ICEEU-2018-012. 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 (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change 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 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 10:00 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 website at https://www.theice.com/clear-europe/regulation. All
comments received will be posted without change. Persons submitting
comments are cautioned that we do not redact or edit personal
identifying information from comment submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-ICEEU-2018-012 and should be
submitted on or before November 2, 2018.
IV. Commission's Findings and Order Granting Accelerated Approval of
the Proposed Rule Change, as Modified by Amendment No. 1
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. \17\ For the reasons given below, the Commission finds
that the proposal is consistent with Section 17A(b)(3)(F) of the Act
\18\ and Rules 17Ad-22(e)(6)(ii) and 17Ad-22(e)(16) thereunder.\19\
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\17\ 15 U.S.C. 78s(b)(2)(C).
\18\ 15 U.S.C. 78q-1(b)(3)(F).
\19\ 17 CFR 240.17Ad-22(e)(6)(ii) and (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 promote the prompt and
accurate clearance and settlement of securities transactions and, to
the extent applicable, derivative agreements, contracts, and
transactions, as well as to assure the safeguarding of securities and
funds which are in the custody or control of ICE Clear Europe or for
which it is responsible, and, in general, to protect investors and the
public interest.
(a) Finance Procedures
As discussed above, the proposed rule change, as modified by
Amendment No. 1, would amend ICE Clear Europe's Finance Procedures to
extend the period for intraday margin calls for F&O Contracts to cover
the active portions of the trading day for such F&O contracts (i.e.,
from 7:30 and 20:00 London time) and to require clearing participants
to satisfy margin calls during these hours within 60 minutes of
notification by ICE Clear Europe.\20\ The Commission believes that this
aspect of the proposed rule change should expand ICE Clear Europe's
ability to call additional intraday margin, as necessary, by extending
the window during which ICE Clear Europe may call such margin. In
addition, as discussed above, the proposed rule change would provide
that, for margin calls outside of these hours, clearing participants
would be required to meet margin calls by the later of (x) within 60
minutes after notification, if any settlement system used by ICE Clear
Europe for the relevant currency is open at the time, or (y) within 60
minutes after the time at which such settlement system becomes open for
business following the notification of the margin call. The Commission
believes that these provisions should help ensure that ICE Clear Europe
collects intraday margin on a timely basis by setting standard
specified time periods in which clearing participants must meet margin
calls. Thus, the Commission believes that these aspects of the proposed
rule change should enable ICE Clear Europe to collect additional
intraday margin as necessary to cover the risks related to the relevant
F&O contracts.
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\20\ The Commission understands that, pursuant to EMIR
requirements, ICE Clear Europe must be in a position to issue and
collect margin calls on at least an hourly basis during the active
trading day for futures products that are gross-margined using a one
business day margin period of risk. See supra note 5.
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The Commission believes that the ability of ICE Clear Europe to
collect intraday margin and have such margin available to support ICE
Clear Europe's ability to manage financial risk exposure that may arise
in the course of its ongoing clearance and settlement activities
should, in turn, help promote the prompt and accurate clearance and
settlement of securities transactions, derivative agreements,
contracts, and transactions. Similarly, the proposed rule change should
enhance ICE Clear Europe's ability to help assure the safeguarding of
securities and funds which are in the custody or control of ICE Clear
Europe or for which it is responsible because intraday margin
collections will increase the overall amount of financial resources ICE
Clear Europe maintains to address potential loss exposures that could
arise from a Clearing Member default or other stressed market
conditions. Finally, for both of these reasons, the Commission
[[Page 51719]]
believes the proposed rule change, as modified by Amendment No. 1, is
consistent with protecting investors and the public interest.
(b) Investment Management Policy
The proposed rule change, as modified by Amendment No. 1, would
also amend the Investment Management Policy to address potential
additional cash balances that could accrue as a result of the
additional margin collected during the extended margining hours
discussed above. Specifically, these changes include: (i) With respect
to sovereign obligations, providing that for EUR denominated
investments, no more than 15% of the total EUR balance of the
investment portfolio must be invested in sovereign obligations of a
single issuer, and no more than 20% of the total balance of the
investment portfolio per currency may be invested in a single issue of
a sovereign issuer; (ii) with respect to central bank deposits,
removing the limitation on maturity for central bank obligations and
central bank deposits and identifying the Dutch National Bank, Bank of
England, and Federal Reserve as acceptable central banks for that
purpose; and (iii) with respect to commercial bank deposits, removing
the $50 million per counterparty bank limit, replacing it with the
Unsecured Credit Limits Procedures, including the regulation and credit
rating requirements for deposit banks and the revised limits for each
qualifying institution, and revising the 5% limit on investments in
bank obligations in a 30-day period to refer to an average level over a
calendar month.
With respect to the changes regarding investments in sovereign
obligations, the Commission believes that these changes provide
reasonable limitations on ICE Clear Europe's investment portfolio that
should help ensure that it is not overly concentrated in securities of
a single sovereign issuer or in a single issue of a sovereign issuer.
With respect to the changes regarding central bank deposits, the
Commission believes that the proposed rule change should facilitate ICE
Clear Europe's use of central bank deposits, which should, in turn,
have minimal credit, market, and liquidity risks. With respect to the
changes regarding commercial bank deposits, the Commission believes the
Unsecured Credit Limits Procedures as they relate to the qualifications
and ongoing monitoring of deposit banks should help ICE Clear Europe
ensure that the banks in which it holds deposits are creditworthy and
subject to adequate regulatory oversight. The Commission further
believes that the revised limitation methodology in the Unsecured
Credit Limits Procedures should help ICE Clear Europe to ensure that
its deposits do not present an outsize risk to any particular deposit
bank.
Taken together, the Commission believes that these changes to the
Investment Management Policy should help assure the safeguarding of
securities and funds in ICE Clear Europe's custody and control,
including any additional cash collected as intraday margin resulting
from the changes described above,\21\ which, in turn, helps promote the
prompt and accurate clearance and settlement of securities transactions
by ICE Clear Europe. Likewise, the safeguarding of securities and funds
in ICE Clear Europe's control would further the protection of investors
and the public interest by ensuring that ICE Clear Europe has
appropriate funds available to clear and settle transactions.
Therefore, the Commission finds that the proposed rule change, as
modified by Amendment No. 1, would promote the prompt and accurate
clearance and settlement of securities transactions, assure the
safeguarding of securities and funds in ICE Clear Europe's custody and
control, and, in general, protect investors and the public interest,
consistent with Section 17A(b)(3)(F) of the Act.\22\
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\21\ ICE Clear Europe also proposed to amend the Investment
Management Policy governance processes, update the description of
the board risk policy and related risk management thresholds, and
update references to the Clearing Risk and Finance departments. The
Commission believes these changes would help ensure that the
Investment Management Policy is maintained and that any issues
resulting in a breach of a risk management threshold are
appropriately addressed. The Commission believes that this would
help maintain the efficacy of the Investment Management Policy
which, as discussed, the Commission believes is necessary to help
safeguard ICE Clear Europe's investments, including its investment
of cash associated with margin requirements.
\22\ 15 U.S.C. 78q-1(b)(3)(F).
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(B) Consistency With Rule 17Ad-22(e)(6)(ii)
Rule 17Ad-22(e)(6)(ii) requires that ICE Clear Europe establish,
implement, maintain and enforce written policies and procedures
reasonably designed to cover its credit exposures to its participants
by establishing a risk-based margin system that marks participant
positions to market and collects margin, including variation margin or
equivalent charges if relevant, at least daily and includes the
authority and operational capacity to make intraday margin calls in
defined circumstances.\23\
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\23\ 17 CFR 240.17Ad-22(e)(6)(ii).
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As discussed above, the Commission believes that the amendments to
the Finance Procedures would allow ICE Clear Europe to request
additional intraday margin, as necessary, by extending the window
during which ICE Clear Europe may call such margin. Moreover, the
Commission believes that the amendments to the Finance Procedures
regarding when participants must satisfy margin calls should help
ensure that ICE Clear Europe collects intraday margin on a timely
basis. The Commission believes that both of these aspects of the
proposed rule change should therefore help ensure that ICE Clear
Europe's risk-based margin system includes the authority and
operational capacity to make intraday margin calls.
Therefore, for the above reasons the Commission finds that these
aspects of the proposed rule change, as modified by Amendment No. 1,
are consistent with Rule 17Ad-22(e)(6)(ii).\24\
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\24\ Id.
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(C) Consistency With Rule 17Ad-22(e)(16)
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.\25\
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\25\ 17 CFR 240.17Ad-22(e)(16).
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As discussed above, the proposed rule change would amend ICE Clear
Europe's Investment Management Policy. For the reasons discussed above
in connection with Section 17A(b)(3)(F), the Commission believes that
these aspects of the proposed rule change would help ensure that ICE
Clear Europe safeguards its own and its participants' assets--
specifically, ICE Clear Europe's deposits of cash, which would include
cash posted by clearing participants to satisfy their margin and
Guaranty Fund requirements--and minimize the risk of loss or delay of
such assets. For the same reasons, the Commission believes that the
changes to the Investment Management Policy would help ensure that ICE
Clear Europe invests such assets in instruments with minimal credit,
market, and liquidity risks.
Therefore, for the above reasons the Commission finds that these
aspects of the proposed rule change, as modified by Amendment No. 1,
are consistent with Rule 17Ad-22(e)(16).\26\
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\26\ Id.
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V. Basis for Accelerated Approval
In its filing, ICE Clear Europe requested that the Commission grant
[[Page 51720]]
accelerated approval of the proposed rule change pursuant to Section
19(b)(2)(C)(iii) of the Exchange Act.\27\ Under Section
19(b)(2)(C)(iii) of the Act,\28\ 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, as modified by Amendment
No. 1, is required to comply with requirements under the European
Market Infrastructure Regulation that ICE Clear Europe have the ability
to call for intraday margin for relevant F&O contracts, and ICE Clear
Europe is seeking to comply with those requirements as soon as
possible.\29\
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\27\ 15 U.S.C. 78s(b)(2)(C)(iii).
\28\ 15 U.S.C. 78s(b)(2)(C)(iii).
\29\ See supra note 5.
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The Commission finds good cause, pursuant to Section
19(b)(2)(C)(iii) of the Act,\30\ for approving the proposed rule
change, as modified by Amendment No. 1, 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 soon as
possible in order to facilitate ICE Clear Europe's efforts to comply
with the aforementioned requirements.\31\ Additionally, the Commission
notes that the proposed changes do not impede compliance with relevant
U.S. law, including Section 17A(b)(3)(F) of the Act.\32\
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\30\ 15 U.S.C. 78s(b)(2)(C)(iii).
\31\ See id.
\32\ 15 U.S.C. 78q-1(b)(3)(F).
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VI. 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(b)(3)(F) of the Act
\33\ and Rules 17Ad-22(e)(6)(ii) and 17Ad-22(e)(16) thereunder.\34\
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\33\ Id.
\34\ 17 CFR 240.17Ad-22(e)(6)(ii) and (e)(16).
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It is therefore ordered pursuant to Section 19(b)(2) of the Act
\35\ that the proposed rule change (SR-ICEEU-2018-012), as modified by
Amendment No. 1, be, and hereby is, approved on an accelerated
basis.\36\
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\35\ 15 U.S.C. 78s(b)(2).
\36\ 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.\37\
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\37\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-22204 Filed 10-11-18; 8:45 am]
BILLING CODE 8011-01-P
