Self-Regulatory Organizations; ICE Clear Europe Limited; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change Relating to Clearing Member Termination, 3838-3842 [2019-02114]
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Federal Register / Vol. 84, No. 30 / Wednesday, February 13, 2019 / Notices
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8. Applicants request an exemption
from sections 17(a)(1) and 17(a)(2) of the
Act to permit persons that are Affiliated
Persons, or Second-Tier Affiliates, of the
Funds, solely by virtue of certain
ownership interests, to effectuate
purchases and redemptions in-kind. The
deposit procedures for in-kind
purchases of Creation Units and the
redemption procedures for in-kind
redemptions of Creation Units will be
the same for all purchases and
redemptions and Deposit Instruments
and Redemption Instruments will be
valued in the same manner as those
Portfolio Instruments currently held by
the Funds. Applicants also seek relief
from the prohibitions on affiliated
transactions in section 17(a) to permit a
Fund to sell its shares to and redeem its
shares from a Fund of Funds, and to
engage in the accompanying in-kind
transactions with the Fund of Funds.2
The purchase of Creation Units by a
Fund of Funds directly from a Fund will
be accomplished in accordance with the
policies of the Fund of Funds and will
be based on the NAVs of the Funds.
9. Applicants also request relief to
permit a Feeder Fund to acquire shares
of another registered investment
company managed by the Adviser
having substantially the same
investment objectives as the Feeder
Fund (‘‘Master Fund’’) beyond the
limitations in section 12(d)(1)(A) and
permit the Master Fund, and any
principal underwriter for the Master
Fund, to sell shares of the Master Fund
to the Feeder Fund beyond the
limitations in section 12(d)(1)(B).
10. Section 6(c) of the Act permits the
Commission to exempt any persons or
transactions from any provision of the
Act if such exemption is necessary or
appropriate in the public interest and
consistent with the protection of
investors and the purposes fairly
intended by the policy and provisions of
the Act. Section 12(d)(1)(J) of the Act
provides that the Commission may
exempt any person, security, or
transaction, or any class or classes of
persons, securities, or transactions, from
any provision of section 12(d)(1) if the
exemption is consistent with the public
interest and the protection of investors.
Section 17(b) of the Act authorizes the
Commission to grant an order
2 The requested relief would apply to direct sales
of shares in Creation Units by a Fund to a Fund of
Funds and redemptions of those shares. Applicants,
moreover, are not seeking relief from section 17(a)
for, and the requested relief will not apply to,
transactions where a Fund could be deemed an
Affiliated Person, or a Second-Tier Affiliate, of a
Fund of Funds because an Adviser or an entity
controlling, controlled by or under common control
with an Adviser provides investment advisory
services to that Fund of Funds.
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permitting a transaction otherwise
prohibited by section 17(a) if it finds
that (a) the terms of the proposed
transaction are fair and reasonable and
do not involve overreaching on the part
of any person concerned; (b) the
proposed transaction is consistent with
the policies of each registered
investment company involved; and (c)
the proposed transaction is consistent
with the general purposes of the Act.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019–02189 Filed 2–12–19; 8:45 am]
BILLING CODE 8011–01–P
II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
In its filing with the Commission, ICE
Clear Europe included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. ICE
Clear Europe has prepared summaries,
set forth in sections (A), (B), and (C)
below, of the most significant aspects of
such statements.
(A) Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
(a) Purpose
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–85072; File No. SR–ICEEU–
2019–001]
Self-Regulatory Organizations; ICE
Clear Europe Limited; Notice of Filing
and Order Granting Accelerated
Approval of Proposed Rule Change
Relating to Clearing Member
Termination
February 7, 2019.
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 January
30, 2019, ICE Clear Europe Limited
(‘‘ICE Clear Europe’’ or the ‘‘Clearing
House’’) filed with the Securities and
Exchange Commission (‘‘Commission’’)
the proposed rule change described in
Items I and II 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
ICE Clear Europe proposes to amend
certain provisions of its Clearing Rules 3
relating to termination by the Clearing
House of the membership of a CDS
Clearing Member.
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 Capitalized terms used but not defined herein
have the meanings specified in the ICE Clear
Europe Clearing Rules (the ‘‘Rules’’).
2 17
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ICE Clear Europe proposes to amend
certain provisions of its Rules (and
specifically its Continuing CDS Rule
Provisions as defined therein) relating to
termination by the Clearing House of the
membership of a CDS Clearing Member.
The Continuing CDS Rule Provisions
are certain provisions of the Rules as
they were in effect prior to the adoption
of rule amendments relating to recovery,
wind-down and default management for
the F&O Contract Category,4 and which
continued in effect with respect to the
CDS Contract Category, as provided in
ICE Clear Europe Circular C14/012 of 31
January 2014 and in the definition
thereof in the Rules.
The Continuing CDS Rule Provisions
include Rule 209 as it relates to the CDS
Contract Category and/or CDS Clearing
Members. Under Rule 209(b) under the
Continuing CDS Rule Provisions, the
Clearing House may terminate the
clearing membership of a CDS Clearing
Member on not less than three months’
notice.5 ICE Clear Europe proposes to
change the notice period for such a
termination to 30 Business Days. Such
change would be made through an
amendment to the definition of
4 ICE Clear Europe adopted these rules, relating to
Clearing House recovery and wind-down for the
F&O and FX Contract Categories, in 2014. Exchange
Act Release No. 34–71450 (SR–ICEEU–2014–013)
(Jan. 31, 2014), 79 FR 7250 (Feb. 6, 2014).
5 ICE Clear Europe may use this provision to
terminate the membership of a Clearing Member for
a variety of reasons. It may, for example, be used
in a scenario where such termination is required in
order for the Clearing House and its operations to
remain in compliance with applicable laws in
relevant jurisdictions.
The Clearing House has the right to terminate a
CDS Clearing Member without notice in a variety
of other circumstances, generally relating to the
conduct or circumstances of the Clearing Member,
as specified in Rule 209(a) of the Continuing CDS
Rule Provisions. Those provisions would be
unaffected by the proposed amendment.
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‘‘Continuing CDS Rule Provisions’’ in
the Rules, as set forth in Exhibit 5.
The change would make the notice
period for termination of a CDS Clearing
Member consistent with the notice
period for termination of an F&O
Clearing Member, which is also 30
Business Days under the Rules. The
current difference in treatment exists for
historical reasons relating the timing of
the adoption of recovery, wind-down
and default management related rules
for the F&O product category as
compared to the CDS product category.
At this time, ICE Clear Europe does not
believe that there is a substantive reason
to have a different notice period for CDS
Clearing Members. Furthermore, the
current provision creates a disparity
among F&O Clearing Members, as the
three-month notice period also applies
to F&O Clearing Members that are also
CDS Clearing Members, whereas the 30
Business Day notice period applies to
F&O Clearing Members that are not CDS
Clearing Members.
In particular, in a scenario where ICE
Clear Europe determined that it was
necessary or appropriate to terminate
the membership of a Clearing Member
or a group or category of Clearing
Members, ICE Clear Europe believes that
having the shorter, 30 Business Day
notice period apply to all Clearing
Members, both CDS and F&O (including
joint CDS and F&O Clearing Members),
will avoid the additional disruption that
would be caused by having different
notice periods for different categories of
Clearing Member.
ICE Clear Europe is proposing to
adopt the amendment now in
connection with the expected departure
of the United Kingdom (‘‘UK’’) from the
European Union (‘‘EU’’), which
pursuant to the European Union
(Withdrawal) Act 2018 will occur on
March 29, 2019. When the UK ceases to
be an EU member state, there may be
regulatory limitations on ICE Clear
Europe’s ability to provide clearing
services to persons located in the EU. As
a result, it may become necessary for
ICE Clear Europe to terminate the
membership of a Clearing Member or a
group or category of Clearing Members
in advance of March 29, 2019 in order
for the Clearing House to remain in
compliance with applicable laws in all
relevant jurisdictions. Failure to
terminate EU-based Clearing Members
in that scenario, in an orderly and
timely way, could, among other
consequences, result in legal
uncertainty as to the rights and
obligations of the Clearing House and its
Clearing Members, and thus cause
potential disruptions to clearing
operations generally, including for
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clearing members in non-EU
jurisdictions.
(b) Statutory Basis
ICE Clear Europe believes that the
changes described herein are consistent
with the requirements of Section 17A of
the Act 6 and the regulations thereunder
applicable to it. Section 17A(b)(3)(F) of
the Act 7 in particular requires, among
other things, that the rules of the
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,
to assure the safeguarding of securities
and funds in the custody or control of
the clearing agency or for which it is
responsible and, in general, protect
investors and the public interest. When
the UK ceases to be an EU member state,
there may be limitations on ICE Clear
Europe’s ability to provide clearing
services to persons located in the EU. As
a result, it may become necessary for
ICE Clear Europe to terminate the
membership of a Clearing Member or a
group or category of Clearing Members
in order to remain in compliance with
applicable laws and to avoid resulting
legal uncertainty and related potential
disruptions to the functioning of the
Clearing House, including with respect
to default management, use and
protection of margin and guaranty fund
contributions and other matters. As a
result, in ICE Clear Europe’s view, the
amendments will facilitate the
continued prompt and accurate
clearance and settlement of cleared
transactions, the safeguarding of
securities and funds in the custody or
control of ICE Clear Europe or for which
it is responsible, and the protection of
investors and the public interest, within
the meaning of Section 17A(b)(3)(F) of
the Act.8
Section 17A(b)(3)(F) further requires
that the rules of the clearing agency not
be designed to permit unfair
discrimination in the admission of
participants or among participants in
the use of the clearing agency.9 The
proposed amendments eliminate an
unnecessary distinction between the
termination notice period for CDS
Clearing Members and F&O Clearing
Members. In so doing, the amendments
will also better enable the Clearing
House to manage any scenario in which
it may determine to terminate Clearing
Members (or a category of Clearing
Members), in response to the UK’s
6 15
U.S.C. 78q–1.
U.S.C. 78q–1(b)(3)(F).
8 15 U.S.C. 78q–1(b)(3)(F).
9 15 U.S.C. 78q–1(b)(3)(F).
expected departure from the EU and the
resulting potential limitations on ICE
Clear Europe’s ability to provide
clearing services to persons located in
the EU. As a result, in ICE Clear
Europe’s view, the amendments will
facilitate the continued prompt and
accurate clearance and settlement of
cleared transactions and will avoid
unfair discrimination among Clearing
Members, within the meaning of Section
17A(b)(3)(F).10
The amendments are also consistent
with Rule 17Ad–22(e)(1), which
requires in relevant part that a covered
clearing agency have policies and
procedures reasonably designed to
‘‘provide for a well-founded, clear,
transparent and enforceable legal basis
for each aspect of its activities in all
relevant jurisdictions.’’ 11 As noted
above, the amendments will permit the
Clearing House to terminate the
membership of CDS Clearing Members,
on the same basis as F&O Clearing
Members, where the Clearing House
determines it is necessary or appropriate
to do so in order to remain in
compliance with applicable laws in all
relevant jurisdictions.
(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
purpose of the Act. The amendments
will provide for a uniform notice period
for termination of Clearing Members,
across the F&O and CDS product
categories. As such, ICE Clear Europe
does not believe the amendments will in
themselves materially affect the cost of,
or access to, clearing. Although the
market for cleared services may be
adversely affected if ICE Clear Europe
terminates the membership of Clearing
Members or categories of Clearing
Members, the amendments will, in ICE
Clear Europe’s view, assist with
Clearing House with mitigating and
managing any such adverse
consequences. As a result, ICE Clear
Europe does not believe the proposed
rule changes impose any burden on
competition that is inappropriate in
furtherance of the purposes of the Act.
(C) Clearing Agency’s Statement on
Comments on the Proposed Rule
Change Received From Members,
Participants or Others
Written comments relating to the
proposed rule changes have not been
7 15
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10 15
11 17
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U.S.C. 78q–1(b)(3)(F).
CFR 240.17Ad–22(e)(1).
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Federal Register / Vol. 84, No. 30 / Wednesday, February 13, 2019 / Notices
solicited or received. ICE Clear Europe
will notify the Commission of any
written comments received by ICE Clear
Europe.12
III. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml) or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
ICEEU–2019–001 on the subject line.
Paper Comments
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• 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–2019–001. 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 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
12 ICE Clear Europe has previously conducted
public consultations with respect to proposed rule
changes (not ultimately adopted) that included the
change in termination notice period addressed in
these amendments. See ICE Clear Europe Circular
C17107 (Sept. 22, 2017) and C13009 (Feb. 15, 2013),
available at https://www.theice.com/clear-europe/
circulars. No comments were received in those
consultations with respect to that proposed change.
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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–
2019–001 and should be submitted on
or before March 6, 2019.
IV. Commission’s Findings and Order
Granting Accelerated Approval of the
Proposed Rule Change
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.13 For
the reasons given below, the
Commission finds that the proposed
rule change is consistent with Section
17A(b)(3)(F) of the Act 14 and Rule
17Ad–22(e)(1) thereunder.15
(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, 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.16
As discussed above, when the UK
withdraws from the EU on March 29,
2019, ICE Clear Europe believes that, in
certain circumstances, there may be
regulatory limitations on its ability to
provide clearing services to persons
located in the EU. As a result, ICE Clear
Europe believes it may become
necessary to terminate the membership
of Clearing Members located in the EU
in advance of March 29, 2019 to remain
in compliance with applicable EU law.
In that event, the Commission believes
the proposed rule change would allow
ICE Clear Europe to terminate the
membership of such Clearing Members.
As discussed above, Rule 209 of the
Continuing CDS Rule Provisions
currently provides CDS Clearing
Members with three months’ notice
before ICE Clear Europe may terminate
13 15
U.S.C. 78s(b)(2)(C).
U.S.C. 78q–1(b)(3)(F).
15 17 CFR 240.17Ad–22(e)(1).
16 15 U.S.C. 78q–1(b)(3)(F).
14 15
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their membership (as opposed to 30
business days for F&O Clearing
Members). If, as a result of the UK
ceasing to be an EU member state on
March 29, 2019, it becomes unlawful
under applicable law for ICE Clear
Europe to continue providing clearing
services to persons located in the EU,
under current Rule 209 ICE Clear
Europe would not be able to terminate
the membership of such Clearing
Members because the deadline for
providing three months’ notice in
advance of March 29, 2019 has already
passed. By changing the notice required
for termination of CDS Clearing
Members from three months to thirty
business days, consistent with the
existing notice period for F&O Clearing
Members, the Commission believes that
the proposed rule change would allow
ICE Clear Europe to terminate the
membership of CDS Clearing Members
if it determines that doing so is
necessary to avoid providing clearing
services to persons located in the EU
without legal authorization.
The Commission further understands
that, in the event that it becomes
unlawful for ICE Clear Europe to
provide clearing services for persons
located in the EU as a result of the UK
withdrawing from the EU, ICE Clear
Europe could incur legal liability, and
its personnel could incur personal legal
liability. Potential sanctions for such
legal liability could include, among
other penalties, monetary penalties and
fines, potentially putting at risk funds
which are in the custody or control of
ICE Clear Europe or for which it is
responsible. Moreover, providing
clearing services to persons located in
the EU without legal authorization
could potentially put at risk ICE Clear
Europe’s ability to safeguard securities
and funds held on behalf of such
persons by negating the legal basis for
holding such securities and funds.
Thus, by allowing ICE Clear Europe to
terminate the membership of CDS
Clearing Members located in the EU if
necessary to avoid providing clearing
services to such Clearing Members in
contravention of applicable law after
March 29, 2019, the Commission
believes that the proposed rule change
would 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.
Conversely, the Commission believes
that, to help mitigate potential
disruption to the CDS markets that
could result from the termination of the
membership of EU-based CDS Clearing
Members, it would be beneficial for ICE
Clear Europe to have (i) sufficient time
prior to March 29, 2019 to determine
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whether it will be able to provide
clearing services to persons located in
the EU after the UK’s withdrawal from
the EU without violating applicable law,
and (ii) Rules that provide it with
sufficient flexibility to avoid
prematurely terminating the
membership of EU-based CDS Clearing
Members in the event that it makes such
a determination. Under the current Rule
requiring three months’ notice ICE Clear
Europe cannot terminate the
membership of EU-based CDS Clearing
Members prior to March 29, 2019. The
Commission believes that, by aligning
the termination notice period for CDS
Clearing Members with the thirty
business days’ notice period for F&O
Clearing Members, the proposed rule
change would allow ICE Clear Europe
additional time to determine whether it
will be able to provide clearing services
to persons located in the EU after the
UK’s withdrawal from the EU without
violating applicable law and, if no such
determination is made, still provide ICE
Clear Europe sufficient time to provide
notice of termination of membership to
EU-based CDS Clearing Members prior
to March 29, 2019. In allowing ICE Clear
Europe to avoid prematurely or
unnecessarily terminating the
membership of EU-based CDS Clearing
Members, the Commission believes that
the proposed rule change would help
ICE Clear Europe avoid the potential
disruptions that could result from
Clearing Members in the EU no longer
being able to clear at ICE Clear Europe.
For example, if a Clearing Member in
the EU is not able to clear CDS contracts
at ICE Clear Europe and is unable to
either reduce its positions or transfer
them to an alternative clearing house,
then the Clearing Member may need to
cease entering into CDS contracts with
its clients. Such a potential disruption
to the clearing of CDS contracts could
negatively affect the prompt and
accurate clearance and settlement of
such contracts, and, in general, the
protection of investors and the public
interest.
Section 17A(b)(3)(F) further requires
that the rules of ICE Clear Europe not be
designed to permit unfair
discrimination in the admission of
participants or among participants in
the use of the clearing agency.17 As
discussed above, the proposed rule
change would resolve a disparity in ICE
Clear Europe’s rules. Under the current
rules, Clearing Members that only clear
F&O products are provided thirty
business days’ notice before ICE Clear
Europe may terminate their
membership, while Clearing Members
that clear CDS contracts (including
those that also clear F&O products) are
provided three months’ notice. The
Commission understands that, as ICE
Clear Europe explains above, this
disparity is the result of ICE Clear
Europe adopting recovery, wind-down
and default management rules with
respect to the F&O product category but
not yet adopting similar rules with
respect to the CDS product category.
Further, the Commission agrees with
ICE Clear Europe that there is no
substantive reason for this difference in
notice periods and that allowing it to
continue could result in unfair
discrimination between those Clearing
Members that only clear F&O products
and those Clearing Members that also
clear CDS contracts. The Commission
finds that the proposed rule change
would resolve this disparity and help
avoid potential unfair discrimination
between F&O Clearing Members and
CDS Clearing Members.
For these reasons, the Commission
finds that the proposed rule change is
consistent with Section 17A(b)(3)(F) of
the Exchange Act.18
(B) Consistency With Rule 17Ad–
22(e)(1)
Rule 17Ad–22(e)(1) requires that ICE
Clear Europe establish, implement,
maintain and enforce written policies
and procedures reasonably designed to
provide for a well-founded, clear,
transparent, and enforceable legal basis
for each aspect of its activities in all
relevant jurisdictions.19
As discussed above, ICE Clear Europe
believes that, in certain circumstances,
it could become unlawful under
applicable law to continue providing
clearing services to EU-based Clearing
Members after the UK’s withdrawal
from the EU on March 29, 2019. In that
event, ICE Clear Europe may determine
that it must terminate the membership
of such Clearing Members prior to that
date in order to remain in compliance
with applicable law. However, because
Rule 209 of the Continuing CDS Rule
Provisions currently provides CDS
Clearing Members with three months’
notice before ICE Clear Europe may
terminate their membership, ICE Clear
Europe would not be able to terminate
the membership of EU-based CDS
Clearing Members by March 29, 2019
because the deadline for providing
notice by that time has already passed.
The Commission believes that the
proposed rule change would remedy
this issue by permitting ICE Clear
Europe to provide thirty business days’
17 15
U.S.C. 78q–1(b)(3)(F).
19 17 CFR 240.17Ad–22(e)(1).
U.S.C. 78q–1(b)(3)(F).
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notice rather than three months, which
would be consistent with the current
notice requirement for F&O Clearing
Members and allow ICE Clear Europe
sufficient time to determine whether it
must terminate the membership of EUbased Clearing Members and, if such a
determination is made, provide the
required notice. At the same time, if ICE
Clear Europe determines that it
continues to be able to comply with
applicable laws and still provide
clearing services to EU-based Clearing
Members after March 29, 2019, the
proposed rule change would allow ICE
Clear Europe to avoid prematurely
terminating the membership of such
Clearing Members. Thus, by permitting
ICE Clear Europe to remain in
compliance with applicable law and
with its own Rules, and by providing
ICE Clear Europe sufficient time to
determine whether it must terminate the
membership of EU-based CDS Clearing
Members to remain in compliance with
applicable law, the Commission
believes that the proposed rule change
would allow ICE Clear Europe to
provide for a well-founded, clear,
transparent, and enforceable legal basis
for its clearing services as required by
Rule 17Ad–22(e)(1).
For these reasons, the Commissions
finds that the proposed rule change is
consistent with Rule 17Ad–22(e)(1).20
(C) Accelerated Approval of the
Proposed Rule Change
In its filing, ICE Clear Europe requests
that the Commission grant accelerated
approval of the proposed rule change
pursuant to Section 19(b)(2)(C)(iii) of
the Exchange Act.21 Under Section
19(b)(2)(C)(iii) of the Act,22 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, in the event that ICE Clear
Europe determines that it must
terminate the membership of EU-based
Clearing Members to remain in
compliance with applicable law
following the UK’s withdrawal from the
EU on March 29, 2019, the thirty
business day notice period that would
be afforded by the proposed rule change
is necessary to provide ICE Clear Europe
with sufficient time prior to that date to
provide such Clearing Members with
the required notice of termination.
The Commission finds good cause,
pursuant to Section 19(b)(2)(C)(iii) of
20 17
18 15
PO 00000
Frm 00095
Fmt 4703
Sfmt 4703
3841
21 15
CFR 240.17Ad–22(e)(1).
U.S.C. 78s(b)(2)(C)(iii).
22 Id.
E:\FR\FM\13FEN1.SGM
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Federal Register / Vol. 84, No. 30 / Wednesday, February 13, 2019 / Notices
the Act,23 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 to permit ICE Clear
Europe to terminate the membership of
EU-based CDS Clearing Members prior
to the UK’s withdrawal from the EU on
March 29, 2019 should ICE Clear Europe
determine that such termination is
necessary to remain in compliance with
applicable law after that date.
Additionally, the Commission notes that
the proposed rule change would help
ICE Clear Europe to avoid prematurely
terminating the membership of EUbased CDS Clearing Members in the
event that ICE Clear Europe determines
that it can continue to provide clearing
services to such members after March
29, 2019 while remaining in compliance
with applicable law.
V. Conclusion
On the basis of the foregoing, the
Commission finds that the proposed
rule change is consistent with the
requirements of the Act and in
particular with the requirements of
Section 17A(b)(3)(F) of the Act 24 and
the Rule 17Ad–22(e)(1) 25 thereunder.
It is therefore ordered pursuant to
Section 19(b)(2) of the Act 26 that the
proposed rule change (SR–ICEEU–2019–
001) be, and hereby is, approved on an
accelerated basis.27
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.28
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019–02114 Filed 2–12–19; 8:45 am]
khammond on DSKBBV9HB2PROD with NOTICES
BILLING CODE 8011–01–P
23 15
U.S.C. 78s(b)(2)(C)(iii).
U.S.C. 78q–1(b)(3)(F).
25 17 CFR 240.17Ad–22(e)(1).
26 15 U.S.C. 78s(b)(2).
27 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).
28 17 CFR 200.30–3(a)(12).
24 15
VerDate Sep<11>2014
17:22 Feb 12, 2019
Jkt 247001
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–85073; File No. SR–FINRA–
2019–003]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing of a
Proposed Rule Change Relating to
FINRA Rule 6750 (Dissemination of
Transaction Information)
February 7, 2019.
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 January
29, 2019, the Financial Industry
Regulatory Authority, Inc. (‘‘FINRA’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by FINRA. 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 to amend FINRA
Rule 6750 to provide that FINRA may
publish or distribute aggregated
transaction information and statistics on
non-disseminated TRACE-Eligible
Securities at no charge.
The text of the proposed rule change
is available on FINRA’s website at
https://www.finra.org, at the principal
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 the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
Rule 6750 (Dissemination of
Transaction Information) (the ‘‘Rule’’)
1 15
2 17
PO 00000
U.S.C. 78s(b)(1).
CFR 240.19b–4.
Frm 00096
Fmt 4703
Sfmt 4703
generally provides for the dissemination
of information on all transactions in
TRACE-Eligible Securities 3
immediately upon receipt of the
transaction report,4 except as set forth in
the Rule. Rule 6750(c) (Transaction
Information Not Disseminated) specifies
the circumstances under which FINRA
will not disseminate information on a
transaction in a TRACE-Eligible
Security—i.e., non-member affiliate
trades; certain transfers of proprietary
interests; List or Fixed Offering Price or
Takedown Transactions; 5 certain
Securitized Products; 6 and U.S.
Treasury Securities.7
FINRA currently offers a number of
real-time and historic TRACE data
products on disseminated transactions
for a fee.8 FINRA also publishes and
distributes aggregated transaction
information and statistics on
disseminated transactions at no charge.
FINRA proposes to amend the Rule to
include supplementary material to
clarify that, notwithstanding Rule
6750(c), FINRA may, in its discretion,
publish or distribute aggregated
transaction information and statistics on
3 Rule 6710 generally defines a ‘‘TRACE-Eligible
Security’’ as: A debt security that is United States
(‘‘U.S.’’) dollar-denominated and is: (1) Issued by a
U.S. or foreign private issuer, and, if a ‘‘restricted
security’’ as defined in Securities Act Rule
144(a)(3), sold pursuant to Securities Act Rule
144A; (2) issued or guaranteed by an Agency as
defined in Rule 6710(k) or a Government-Sponsored
Enterprise as defined in Rule 6710(n); or (3) a U.S.
Treasury Security as defined in Rule 6710(p).
‘‘TRACE-Eligible Security’’ does not include a debt
security that is issued by a foreign sovereign or a
Money Market Instrument as defined in Rule
6710(o).
4 FINRA generally requires members to report
transactions in any security that meets the
definition of ‘‘TRACE-Eligible Security’’ to the
Trade Reporting and Compliance Engine
(‘‘TRACE’’), unless an exception applies. See Rule
6730 (Transaction Reporting).
5 List or Fixed Offering Price or Takedown
Transactions are primary market sale transactions
on the first day of trading, as set forth in Rule
6710(q) or 6710(r). Such transactions exclude all
Securitized Products (as defined in Rule 6710(m)
except Asset-Backed Securities (as defined in Rule
6710(cc)). See Rules 6710(q) and 6710(r).
6 Specifically, FINRA does not disseminate
information on transactions in collateralized
mortgage-backed securities (‘‘CMBSs’’) and
collateralized debt obligations (‘‘CDOs’’). FINRA
may disseminate information on transactions in
collateralized mortgage obligations (‘‘CMOs’’)
depending on the transaction size and level of
trading activity in the CMO. See Rule 6750(b).
7 ‘‘U.S. Treasury Security’’ means a security, other
than a savings bond, issued by the U.S. Department
of the Treasury to fund the operations of the federal
government or to retire such outstanding securities.
The term also includes separate principal and
interest components of a U.S. Treasury Security that
has been separated pursuant to the Separate
Trading of Registered Interest and Principal of
Securities (STRIPS) program operated by the U.S.
Department of Treasury. See Rule 6710(p).
8 See Rule 7730 (Trade Reporting and Compliance
Engine (TRACE)).
E:\FR\FM\13FEN1.SGM
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]]>Agencies
[Federal Register Volume 84, Number 30 (Wednesday, February 13, 2019)]
[Notices]
[Pages 3838-3842]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-02114]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85072; File No. SR-ICEEU-2019-001]
Self-Regulatory Organizations; ICE Clear Europe Limited; Notice
of Filing and Order Granting Accelerated Approval of Proposed Rule
Change Relating to Clearing Member Termination
February 7, 2019.
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 January 30, 2019, ICE Clear Europe Limited (``ICE Clear Europe'' or
the ``Clearing House'') filed with the Securities and Exchange
Commission (``Commission'') the proposed rule change described in Items
I and II 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
ICE Clear Europe proposes to amend certain provisions of its
Clearing Rules \3\ relating to termination by the Clearing House of the
membership of a CDS Clearing Member.
---------------------------------------------------------------------------
\3\ Capitalized terms used but not defined herein have the
meanings specified in the ICE Clear Europe Clearing Rules (the
``Rules'').
---------------------------------------------------------------------------
II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
In its filing with the Commission, ICE Clear Europe included
statements concerning the purpose of and basis for the proposed rule
change and discussed any comments it received on the proposed rule
change. The text of these statements may be examined at the places
specified in Item IV below. ICE Clear Europe has prepared summaries,
set forth in sections (A), (B), and (C) below, of the most significant
aspects of such statements.
(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
(a) Purpose
ICE Clear Europe proposes to amend certain provisions of its Rules
(and specifically its Continuing CDS Rule Provisions as defined
therein) relating to termination by the Clearing House of the
membership of a CDS Clearing Member.
The Continuing CDS Rule Provisions are certain provisions of the
Rules as they were in effect prior to the adoption of rule amendments
relating to recovery, wind-down and default management for the F&O
Contract Category,\4\ and which continued in effect with respect to the
CDS Contract Category, as provided in ICE Clear Europe Circular C14/012
of 31 January 2014 and in the definition thereof in the Rules.
---------------------------------------------------------------------------
\4\ ICE Clear Europe adopted these rules, relating to Clearing
House recovery and wind-down for the F&O and FX Contract Categories,
in 2014. Exchange Act Release No. 34-71450 (SR-ICEEU-2014-013) (Jan.
31, 2014), 79 FR 7250 (Feb. 6, 2014).
---------------------------------------------------------------------------
The Continuing CDS Rule Provisions include Rule 209 as it relates
to the CDS Contract Category and/or CDS Clearing Members. Under Rule
209(b) under the Continuing CDS Rule Provisions, the Clearing House may
terminate the clearing membership of a CDS Clearing Member on not less
than three months' notice.\5\ ICE Clear Europe proposes to change the
notice period for such a termination to 30 Business Days. Such change
would be made through an amendment to the definition of
[[Page 3839]]
``Continuing CDS Rule Provisions'' in the Rules, as set forth in
Exhibit 5.
---------------------------------------------------------------------------
\5\ ICE Clear Europe may use this provision to terminate the
membership of a Clearing Member for a variety of reasons. It may,
for example, be used in a scenario where such termination is
required in order for the Clearing House and its operations to
remain in compliance with applicable laws in relevant jurisdictions.
The Clearing House has the right to terminate a CDS Clearing
Member without notice in a variety of other circumstances, generally
relating to the conduct or circumstances of the Clearing Member, as
specified in Rule 209(a) of the Continuing CDS Rule Provisions.
Those provisions would be unaffected by the proposed amendment.
---------------------------------------------------------------------------
The change would make the notice period for termination of a CDS
Clearing Member consistent with the notice period for termination of an
F&O Clearing Member, which is also 30 Business Days under the Rules.
The current difference in treatment exists for historical reasons
relating the timing of the adoption of recovery, wind-down and default
management related rules for the F&O product category as compared to
the CDS product category. At this time, ICE Clear Europe does not
believe that there is a substantive reason to have a different notice
period for CDS Clearing Members. Furthermore, the current provision
creates a disparity among F&O Clearing Members, as the three-month
notice period also applies to F&O Clearing Members that are also CDS
Clearing Members, whereas the 30 Business Day notice period applies to
F&O Clearing Members that are not CDS Clearing Members.
In particular, in a scenario where ICE Clear Europe determined that
it was necessary or appropriate to terminate the membership of a
Clearing Member or a group or category of Clearing Members, ICE Clear
Europe believes that having the shorter, 30 Business Day notice period
apply to all Clearing Members, both CDS and F&O (including joint CDS
and F&O Clearing Members), will avoid the additional disruption that
would be caused by having different notice periods for different
categories of Clearing Member.
ICE Clear Europe is proposing to adopt the amendment now in
connection with the expected departure of the United Kingdom (``UK'')
from the European Union (``EU''), which pursuant to the European Union
(Withdrawal) Act 2018 will occur on March 29, 2019. When the UK ceases
to be an EU member state, there may be regulatory limitations on ICE
Clear Europe's ability to provide clearing services to persons located
in the EU. As a result, it may become necessary for ICE Clear Europe to
terminate the membership of a Clearing Member or a group or category of
Clearing Members in advance of March 29, 2019 in order for the Clearing
House to remain in compliance with applicable laws in all relevant
jurisdictions. Failure to terminate EU-based Clearing Members in that
scenario, in an orderly and timely way, could, among other
consequences, result in legal uncertainty as to the rights and
obligations of the Clearing House and its Clearing Members, and thus
cause potential disruptions to clearing operations generally, including
for clearing members in non-EU jurisdictions.
(b) Statutory Basis
ICE Clear Europe believes that the changes described herein are
consistent with the requirements of Section 17A of the Act \6\ and the
regulations thereunder applicable to it. Section 17A(b)(3)(F) of the
Act \7\ in particular requires, among other things, that the rules of
the 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, to
assure the safeguarding of securities and funds in the custody or
control of the clearing agency or for which it is responsible and, in
general, protect investors and the public interest. When the UK ceases
to be an EU member state, there may be limitations on ICE Clear
Europe's ability to provide clearing services to persons located in the
EU. As a result, it may become necessary for ICE Clear Europe to
terminate the membership of a Clearing Member or a group or category of
Clearing Members in order to remain in compliance with applicable laws
and to avoid resulting legal uncertainty and related potential
disruptions to the functioning of the Clearing House, including with
respect to default management, use and protection of margin and
guaranty fund contributions and other matters. As a result, in ICE
Clear Europe's view, the amendments will facilitate the continued
prompt and accurate clearance and settlement of cleared transactions,
the safeguarding of securities and funds in the custody or control of
ICE Clear Europe or for which it is responsible, and the protection of
investors and the public interest, within the meaning of Section
17A(b)(3)(F) of the Act.\8\
---------------------------------------------------------------------------
\6\ 15 U.S.C. 78q-1.
\7\ 15 U.S.C. 78q-1(b)(3)(F).
\8\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
Section 17A(b)(3)(F) further requires that the rules of the
clearing agency not be designed to permit unfair discrimination in the
admission of participants or among participants in the use of the
clearing agency.\9\ The proposed amendments eliminate an unnecessary
distinction between the termination notice period for CDS Clearing
Members and F&O Clearing Members. In so doing, the amendments will also
better enable the Clearing House to manage any scenario in which it may
determine to terminate Clearing Members (or a category of Clearing
Members), in response to the UK's expected departure from the EU and
the resulting potential limitations on ICE Clear Europe's ability to
provide clearing services to persons located in the EU. As a result, in
ICE Clear Europe's view, the amendments will facilitate the continued
prompt and accurate clearance and settlement of cleared transactions
and will avoid unfair discrimination among Clearing Members, within the
meaning of Section 17A(b)(3)(F).\10\
---------------------------------------------------------------------------
\9\ 15 U.S.C. 78q-1(b)(3)(F).
\10\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
The amendments are also consistent with Rule 17Ad-22(e)(1), which
requires in relevant part that a covered clearing agency have policies
and procedures reasonably designed to ``provide for a well-founded,
clear, transparent and enforceable legal basis for each aspect of its
activities in all relevant jurisdictions.'' \11\ As noted above, the
amendments will permit the Clearing House to terminate the membership
of CDS Clearing Members, on the same basis as F&O Clearing Members,
where the Clearing House determines it is necessary or appropriate to
do so in order to remain in compliance with applicable laws in all
relevant jurisdictions.
---------------------------------------------------------------------------
\11\ 17 CFR 240.17Ad-22(e)(1).
---------------------------------------------------------------------------
(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 purpose of the Act. The amendments
will provide for a uniform notice period for termination of Clearing
Members, across the F&O and CDS product categories. As such, ICE Clear
Europe does not believe the amendments will in themselves materially
affect the cost of, or access to, clearing. Although the market for
cleared services may be adversely affected if ICE Clear Europe
terminates the membership of Clearing Members or categories of Clearing
Members, the amendments will, in ICE Clear Europe's view, assist with
Clearing House with mitigating and managing any such adverse
consequences. As a result, ICE Clear Europe does not believe the
proposed rule changes impose any burden on competition that is
inappropriate in furtherance of the purposes of the Act.
(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants or Others
Written comments relating to the proposed rule changes have not
been
[[Page 3840]]
solicited or received. ICE Clear Europe will notify the Commission of
any written comments received by ICE Clear Europe.\12\
---------------------------------------------------------------------------
\12\ ICE Clear Europe has previously conducted public
consultations with respect to proposed rule changes (not ultimately
adopted) that included the change in termination notice period
addressed in these amendments. See ICE Clear Europe Circular C17107
(Sept. 22, 2017) and C13009 (Feb. 15, 2013), available at https://www.theice.com/clear-europe/circulars. No comments were received in
those consultations with respect to that proposed 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 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 rule-comments@sec.gov. Please include
File Number SR-ICEEU-2019-001 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-2019-001. 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 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-2019-001 and should be
submitted on or before March 6, 2019.
IV. Commission's Findings and Order Granting Accelerated Approval of
the Proposed Rule Change
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.\13\ For the reasons given below, the Commission finds
that the proposed rule change is consistent with Section 17A(b)(3)(F)
of the Act \14\ and Rule 17Ad-22(e)(1) thereunder.\15\
---------------------------------------------------------------------------
\13\ 15 U.S.C. 78s(b)(2)(C).
\14\ 15 U.S.C. 78q-1(b)(3)(F).
\15\ 17 CFR 240.17Ad-22(e)(1).
---------------------------------------------------------------------------
(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, 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.\16\
---------------------------------------------------------------------------
\16\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
As discussed above, when the UK withdraws from the EU on March 29,
2019, ICE Clear Europe believes that, in certain circumstances, there
may be regulatory limitations on its ability to provide clearing
services to persons located in the EU. As a result, ICE Clear Europe
believes it may become necessary to terminate the membership of
Clearing Members located in the EU in advance of March 29, 2019 to
remain in compliance with applicable EU law. In that event, the
Commission believes the proposed rule change would allow ICE Clear
Europe to terminate the membership of such Clearing Members. As
discussed above, Rule 209 of the Continuing CDS Rule Provisions
currently provides CDS Clearing Members with three months' notice
before ICE Clear Europe may terminate their membership (as opposed to
30 business days for F&O Clearing Members). If, as a result of the UK
ceasing to be an EU member state on March 29, 2019, it becomes unlawful
under applicable law for ICE Clear Europe to continue providing
clearing services to persons located in the EU, under current Rule 209
ICE Clear Europe would not be able to terminate the membership of such
Clearing Members because the deadline for providing three months'
notice in advance of March 29, 2019 has already passed. By changing the
notice required for termination of CDS Clearing Members from three
months to thirty business days, consistent with the existing notice
period for F&O Clearing Members, the Commission believes that the
proposed rule change would allow ICE Clear Europe to terminate the
membership of CDS Clearing Members if it determines that doing so is
necessary to avoid providing clearing services to persons located in
the EU without legal authorization.
The Commission further understands that, in the event that it
becomes unlawful for ICE Clear Europe to provide clearing services for
persons located in the EU as a result of the UK withdrawing from the
EU, ICE Clear Europe could incur legal liability, and its personnel
could incur personal legal liability. Potential sanctions for such
legal liability could include, among other penalties, monetary
penalties and fines, potentially putting at risk funds which are in the
custody or control of ICE Clear Europe or for which it is responsible.
Moreover, providing clearing services to persons located in the EU
without legal authorization could potentially put at risk ICE Clear
Europe's ability to safeguard securities and funds held on behalf of
such persons by negating the legal basis for holding such securities
and funds. Thus, by allowing ICE Clear Europe to terminate the
membership of CDS Clearing Members located in the EU if necessary to
avoid providing clearing services to such Clearing Members in
contravention of applicable law after March 29, 2019, the Commission
believes that the proposed rule change would 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.
Conversely, the Commission believes that, to help mitigate
potential disruption to the CDS markets that could result from the
termination of the membership of EU-based CDS Clearing Members, it
would be beneficial for ICE Clear Europe to have (i) sufficient time
prior to March 29, 2019 to determine
[[Page 3841]]
whether it will be able to provide clearing services to persons located
in the EU after the UK's withdrawal from the EU without violating
applicable law, and (ii) Rules that provide it with sufficient
flexibility to avoid prematurely terminating the membership of EU-based
CDS Clearing Members in the event that it makes such a determination.
Under the current Rule requiring three months' notice ICE Clear Europe
cannot terminate the membership of EU-based CDS Clearing Members prior
to March 29, 2019. The Commission believes that, by aligning the
termination notice period for CDS Clearing Members with the thirty
business days' notice period for F&O Clearing Members, the proposed
rule change would allow ICE Clear Europe additional time to determine
whether it will be able to provide clearing services to persons located
in the EU after the UK's withdrawal from the EU without violating
applicable law and, if no such determination is made, still provide ICE
Clear Europe sufficient time to provide notice of termination of
membership to EU-based CDS Clearing Members prior to March 29, 2019. In
allowing ICE Clear Europe to avoid prematurely or unnecessarily
terminating the membership of EU-based CDS Clearing Members, the
Commission believes that the proposed rule change would help ICE Clear
Europe avoid the potential disruptions that could result from Clearing
Members in the EU no longer being able to clear at ICE Clear Europe.
For example, if a Clearing Member in the EU is not able to clear CDS
contracts at ICE Clear Europe and is unable to either reduce its
positions or transfer them to an alternative clearing house, then the
Clearing Member may need to cease entering into CDS contracts with its
clients. Such a potential disruption to the clearing of CDS contracts
could negatively affect the prompt and accurate clearance and
settlement of such contracts, and, in general, the protection of
investors and the public interest.
Section 17A(b)(3)(F) further requires that the rules of ICE Clear
Europe not be designed to permit unfair discrimination in the admission
of participants or among participants in the use of the clearing
agency.\17\ As discussed above, the proposed rule change would resolve
a disparity in ICE Clear Europe's rules. Under the current rules,
Clearing Members that only clear F&O products are provided thirty
business days' notice before ICE Clear Europe may terminate their
membership, while Clearing Members that clear CDS contracts (including
those that also clear F&O products) are provided three months' notice.
The Commission understands that, as ICE Clear Europe explains above,
this disparity is the result of ICE Clear Europe adopting recovery,
wind-down and default management rules with respect to the F&O product
category but not yet adopting similar rules with respect to the CDS
product category. Further, the Commission agrees with ICE Clear Europe
that there is no substantive reason for this difference in notice
periods and that allowing it to continue could result in unfair
discrimination between those Clearing Members that only clear F&O
products and those Clearing Members that also clear CDS contracts. The
Commission finds that the proposed rule change would resolve this
disparity and help avoid potential unfair discrimination between F&O
Clearing Members and CDS Clearing Members.
---------------------------------------------------------------------------
\17\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
For these reasons, the Commission finds that the proposed rule
change is consistent with Section 17A(b)(3)(F) of the Exchange Act.\18\
---------------------------------------------------------------------------
\18\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
(B) Consistency With Rule 17Ad-22(e)(1)
Rule 17Ad-22(e)(1) requires that ICE Clear Europe establish,
implement, maintain and enforce written policies and procedures
reasonably designed to provide for a well-founded, clear, transparent,
and enforceable legal basis for each aspect of its activities in all
relevant jurisdictions.\19\
---------------------------------------------------------------------------
\19\ 17 CFR 240.17Ad-22(e)(1).
---------------------------------------------------------------------------
As discussed above, ICE Clear Europe believes that, in certain
circumstances, it could become unlawful under applicable law to
continue providing clearing services to EU-based Clearing Members after
the UK's withdrawal from the EU on March 29, 2019. In that event, ICE
Clear Europe may determine that it must terminate the membership of
such Clearing Members prior to that date in order to remain in
compliance with applicable law. However, because Rule 209 of the
Continuing CDS Rule Provisions currently provides CDS Clearing Members
with three months' notice before ICE Clear Europe may terminate their
membership, ICE Clear Europe would not be able to terminate the
membership of EU-based CDS Clearing Members by March 29, 2019 because
the deadline for providing notice by that time has already passed. The
Commission believes that the proposed rule change would remedy this
issue by permitting ICE Clear Europe to provide thirty business days'
notice rather than three months, which would be consistent with the
current notice requirement for F&O Clearing Members and allow ICE Clear
Europe sufficient time to determine whether it must terminate the
membership of EU-based Clearing Members and, if such a determination is
made, provide the required notice. At the same time, if ICE Clear
Europe determines that it continues to be able to comply with
applicable laws and still provide clearing services to EU-based
Clearing Members after March 29, 2019, the proposed rule change would
allow ICE Clear Europe to avoid prematurely terminating the membership
of such Clearing Members. Thus, by permitting ICE Clear Europe to
remain in compliance with applicable law and with its own Rules, and by
providing ICE Clear Europe sufficient time to determine whether it must
terminate the membership of EU-based CDS Clearing Members to remain in
compliance with applicable law, the Commission believes that the
proposed rule change would allow ICE Clear Europe to provide for a
well-founded, clear, transparent, and enforceable legal basis for its
clearing services as required by Rule 17Ad-22(e)(1).
For these reasons, the Commissions finds that the proposed rule
change is consistent with Rule 17Ad-22(e)(1).\20\
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\20\ 17 CFR 240.17Ad-22(e)(1).
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(C) Accelerated Approval of the Proposed Rule Change
In its filing, ICE Clear Europe requests that the Commission grant
accelerated approval of the proposed rule change pursuant to Section
19(b)(2)(C)(iii) of the Exchange Act.\21\ Under Section
19(b)(2)(C)(iii) of the Act,\22\ 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, in the event that ICE Clear Europe determines that
it must terminate the membership of EU-based Clearing Members to remain
in compliance with applicable law following the UK's withdrawal from
the EU on March 29, 2019, the thirty business day notice period that
would be afforded by the proposed rule change is necessary to provide
ICE Clear Europe with sufficient time prior to that date to provide
such Clearing Members with the required notice of termination.
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\21\ 15 U.S.C. 78s(b)(2)(C)(iii).
\22\ Id.
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The Commission finds good cause, pursuant to Section
19(b)(2)(C)(iii) of
[[Page 3842]]
the Act,\23\ 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 to
permit ICE Clear Europe to terminate the membership of EU-based CDS
Clearing Members prior to the UK's withdrawal from the EU on March 29,
2019 should ICE Clear Europe determine that such termination is
necessary to remain in compliance with applicable law after that date.
Additionally, the Commission notes that the proposed rule change would
help ICE Clear Europe to avoid prematurely terminating the membership
of EU-based CDS Clearing Members in the event that ICE Clear Europe
determines that it can continue to provide clearing services to such
members after March 29, 2019 while remaining in compliance with
applicable law.
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\23\ 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
proposed rule change is consistent with the requirements of the Act and
in particular with the requirements of Section 17A(b)(3)(F) of the Act
\24\ and the Rule 17Ad-22(e)(1) \25\ thereunder.
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\24\ 15 U.S.C. 78q-1(b)(3)(F).
\25\ 17 CFR 240.17Ad-22(e)(1).
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It is therefore ordered pursuant to Section 19(b)(2) of the Act
\26\ that the proposed rule change (SR-ICEEU-2019-001) be, and hereby
is, approved on an accelerated basis.\27\
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\26\ 15 U.S.C. 78s(b)(2).
\27\ 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).
\28\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-02114 Filed 2-12-19; 8:45 am]
BILLING CODE 8011-01-P
