Self-Regulatory Organizations; ICE Clear Europe Limited; Order Approving Proposed Rule Change Relating to Amendments to the CDS Risk Management Model Description, 20454-20456 [2019-09510]

Download as PDF 20454 Federal Register / Vol. 84, No. 90 / Thursday, May 9, 2019 / Notices the Commission shall either approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether the proposed rule change should be disapproved. The 45th day after publication of the notice for this proposed rule change is May 6, 2019. The Commission is extending this 45day time period. The Commission finds it appropriate to designate a longer period within which to take action on the proposed rule change so that it has sufficient time to consider the proposed rule change. Accordingly, the Commission, pursuant to Section 19(b)(2) of the Act,5 designates June 20, 2019 as the date by which the Commission shall either approve or disapprove, or institute proceedings to determine whether to disapprove, the proposed rule change (File No. SR–CboeBZX–2019–015). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.6 Eduardo A. Aleman, Deputy Secretary. [FR Doc. 2019–09509 Filed 5–8–19; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–85776; File No. SR–ICEEU– 2019–006] Self-Regulatory Organizations; ICE Clear Europe Limited; Order Approving Proposed Rule Change Relating to Amendments to the CDS Risk Management Model Description May 3, 2019. jbell on DSK3GLQ082PROD with NOTICES I. Introduction On March 13, 2019, ICE Clear Europe Limited (‘‘ICE Clear Europe’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 a proposed rule change to make certain amendments to its CDS Risk Model Description document to incorporate risk model enhancements related to the single name credit default swap (‘‘CDS’’) liquidity charge methodology. The proposed rule change was published for comment in the Federal Register on March 22, 2019.3 The Commission did 5 Id. 6 17 CFR 200.30–3(a)(31). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 Securities Exchange Act Release No. 85350 (March 18, 2019), 84 FR 10869 (March 22, 2019) (SR–ICEEU–2019–006) (‘‘Notice’’). 1 15 VerDate Sep<11>2014 19:39 May 08, 2019 Jkt 247001 not receive comments on the proposed rule change. For the reasons discussed below, the Commission is approving the proposed rule change. II. Description of the Proposed Rule Change ICE Clear Europe proposes a revised approach to computing single name CDS liquidity charges.4 ICE Clear Europe might incur additional costs to unwind positions in the event of a clearing member default. Therefore, the ICE Clear Europe CDS risk model includes a provision to account for the additional liquidation cost due to the exposure to Bid/Offer Width (‘‘BOW’’). This provision is called a liquidation charge and such charges are computed separately for single names and indices. ICE Clear Europe proposes to introduce minimum instrument liquidity requirements independent of instrument maturities.5 ICE Clear Europe’s current spread-based liquidity charge approach features instrument liquidity requirements that decay with time to maturity for fixed credit spread levels.6 The proposed rule change introduces minimum liquidity requirements for individual instruments, independent of time to maturity for the considered instruments, and thus establishes minimum liquidity charges that do not decay over time as contract maturity is approached.7 The proposed calculation for single name CDS liquidity charges at the instrument level incorporates a price-based bidoffer width floor component to provide stability and anti-procyclicality requirements, as well as a dynamic spread-based BOW component to reflect the additional risk associated with distressed market conditions.8 The values of such price-based BOW and spread-based BOW are fixed factors, which are subject to at least monthly reviews and updates by ICE Clear Europe Risk Management Department with consultation with the Risk Working Group.9 ICE Clear Europe proposes other enhancements to the liquidity charge calculation at the single name level.10 The current liquidity charge approach at the single name level accounts for the liquidation cost across the curve. All positions are aggregated and priced at each maturity interval separately as a 4 Capitalized terms not otherwise defined herein shall have the meanings given to them in the CDS Policies or ICE Clear Europe Rulebook. 5 Notice, 84 FR at 10869. 6 Id. 7 Id. 8 Id. 9 Id. 10 Id. PO 00000 Frm 00133 Fmt 4703 Sfmt 4703 synthetic forward CDS instrument. This current approach introduces potential sub-additivity at the single name level, as it may result in a higher liquidity charge than the sum of the single name instrument requirements.11 Under the proposed calculation, liquidity charges at the single name level will be computed by first calculating the liquidity requirements for each individual instrument position in the portfolio, and then summing all instrument liquidity requirements for positions with the same directionality, i.e., bought or sold protection.12 The liquidity charge requirements at the single name level will be the greatest liquidity requirement associated with either the sum of all bought protection position liquidity requirements, or the sum of all sold protection position liquidity requirements.13 Under this proposed approach, the portfolios’ liquidity charge cannot exceed the sum of the individual instrument’s requirements.14 There are no changes to the liquidity charge calculation at the portfolio level.15 ICE Clear Europe expects these enhancements will ensure more stable liquidity requirements for instruments across the curve and simplify ICE Clear Europe’s liquidity charge methodology.16 As stated above, the current single name level liquidity requirements are based on forward CDS spread levels and are, in general, more difficult to calculate as forward spread levels are not observable across the curve.17 ICE Clear Europe, as part of its end-of-day price discovery process, provides end-of-day pricing data for instruments in which clients have open positions, which will, under the proposed approach, allow for easier replication for clients who wish to estimate liquidity charges for hypothetical and current positions.18 III. Commission Findings 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.19 For the reasons given below, the Commission finds that the proposed 11 Id. 12 Id. 13 Id. 14 Id. 15 Id. 16 Id. 17 Id. 18 Id. 19 15 E:\FR\FM\09MYN1.SGM U.S.C. 78s(b)(2)(C). 09MYN1 Federal Register / Vol. 84, No. 90 / Thursday, May 9, 2019 / Notices rule change is consistent with Section 17A(b)(3)(F) of the Act 20 and Rules 17Ad–22(e)(4)(i) and (ii) and (e)(6)(i) and (v) thereunder.21 jbell on DSK3GLQ082PROD with NOTICES 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.22 As discussed above, the proposed rule change establishes minimum liquidity charges that do not decay over time as the contract maturity is approached. The Commission believes that this approach promotes a more conservative margin calculation approach by maintaining a minimum liquidity charge through an instrument’s maturity. The Commission believes that this ensures that ICEEU requires clearing members to maintain sufficient margin to cover losses through the entire contract life rather than reducing these requirements as maturity approaches. Further, as discussed above, under the proposed enhancements to the liquidity charge calculation, the portfolios’ liquidity charge cannot exceed the sum of the individual instrument’s requirements, which is a possibility under the current approach discussed above. The Commission believes that this proposal will in turn ensure more stable liquidity requirements for instruments across the curve and not require higher margins than necessary. Further, by summing all instrument liquidity requirements for positions with the same directionality rather than across the curve, the Commission believes that ICEEU is simplifying the process for clearing members as the approach is considered easier to calculate than the current approach, which is based on forward spread levels and hence more difficult to observe. Consequently, the Commission believes that this in turn will promote more accurate margin calculation by clearing members. 20 15 U.S.C. 78q–1(b)(3)(F). CFR 240.17Ad–22(e)(4)(i) and (ii) and (e)(6)(i) and (v). 22 15 U.S.C. 78q–1(b)(3)(F). 21 17 VerDate Sep<11>2014 19:39 May 08, 2019 Jkt 247001 The Commission believes that the simplified and more conservative approach to calculating the liquidity charge for single name CDS discussed above will allow ICE Clear Europe’s members to more easily calculate margin requirements in a way that promotes the prudent accumulation of financial resources. Therefore, the Commission finds that the proposed rule change would provide ICE Clear Europe with the financial resources to ensure the prompt and accurate clearance and settlement of securities transactions and to assure the safeguarding of securities and funds which are in their custody or control. For these same reasons, the Commission also finds that the proposed rule change would, in general, protect investors and the public interest. B. Consistency With Rule 17Ad– 22(e)(4)(i) and (ii) Rule 17Ad–22(e)(4)(i) and (ii) requires, in relevant part, that ICE Clear Europe establish, implement, maintain and enforce written policies and procedures reasonably designed to effectively identify, measure, monitor, and manage its credit exposures to participants and those arising from its payment, clearing, and settlement processes by maintaining sufficient financial resources to cover its credit exposure to each participant fully with a high degree of confidence and maintain financial resources to enable it to cover the default of the two participant families that would potentially cause the largest aggregate credit exposure for ICE Clear Europe in extreme but plausible market conditions.23 As discussed above, the Commission believes that the enhancements to the margin calculations related to single name CDS will help to maintain the soundness of ICE Clear Europe’s margin requirements by promoting conservative, simple, and stable margin requirements that better capture the portfolio risks of single name CDS. The Commission believes that this in turn will help to ensure that ICE Clear Europe can maintain sufficient financial resources to withstand, at a minimum, a default by the two participant families to which it has the largest exposures in extreme but plausible market conditions. C. Consistency With Rule 17Ad– 22(e)(6)(i) and (v) Rule 17Ad–22(e)(6)(i) requires, in relevant part, that ICE Clear Europe cover its credit exposures to its 23 17 PO 00000 CFR 240.17Ad–22(e)(4)(i) and (ii). Frm 00134 Fmt 4703 Sfmt 4703 20455 participants by establishing a risk-based margin system that, at a minimum considers, and produces margin levels commensurate with, the risks and particular attributes of each relevant product, portfolio, and market.24 Rule 17Ad–22(e)(6)(v) requires, in relevant part, that ICE Clear Europe cover its credit exposures to its participants by establishing a risk-based margin system that, at a minimum uses an appropriate method for measuring credit exposure that accounts for relevant product risk factors and portfolio effects across products.25 As discussed above, the Commission believes that the enhancements to the risk model related to calculating the liquidity charges for single name CDS improves ICE Clear Europe’s ability to avoid the losses that could result from the miscalculation of its credit exposures for particular products and thus produces margin levels more commensurate with the risks and particular attributes of each relevant product, portfolio, and market. In particular, by maintaining a minimum liquidity charge through an instrument’s maturity, the Commission believes that clearing members will be better able to maintain sufficient margin to cover losses over time rather than reducing these requirements as maturity approaches. Moreover, as discussed above, by changing the liquidity charge requirements at the single name level so that the portfolios’ liquidity charge cannot exceed the sum of the individual instrument’s requirements, the Commission believes that this proposal will ensure more stable liquidity requirements for instruments and not require higher margins than necessary and that are commensurate with, the risks and particular attributes of each relevant product. Therefore, for these reasons discussed above, the Commission finds that the proposed rule change is consistent with is consistent with Rule 17Ad–22(e)(6)(i) and (v).26 IV. 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 27 and Rules 17Ad–22(e)(4)(i) and (ii) and (e)(6)(i) and (v) thereunder.28 24 17 CFR 240.17Ad–22(e)(6)(i). CFR 240.17Ad–22(e)(6)(v). 26 17 CFR 240.17Ad–22(e)(6)(i) and (v). 27 15 U.S.C. 78q–1(b)(3)(F). 28 17 CFR 240.17Ad–22(e)(4)(i) and (ii) and (e)(6)(i) and (v). 25 17 E:\FR\FM\09MYN1.SGM 09MYN1 20456 Federal Register / Vol. 84, No. 90 / Thursday, May 9, 2019 / Notices It is therefore ordered pursuant to Section 19(b)(2) of the Act 29 that the proposed rule change (SR–ICEEU–2019– 006) be, and hereby is, approved.30 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.31 Eduardo A. Aleman, Deputy Secretary. James Rivera, Associate Administrator for Disaster Assistance. [FR Doc. 2019–09544 Filed 5–8–19; 8:45 am] BILLING CODE 8025–01–P SMALL BUSINESS ADMINISTRATION [FR Doc. 2019–09510 Filed 5–8–19; 8:45 am] BILLING CODE 8011–01–P [Disaster Declaration #15948 and #15949; California Disaster Number CA–00306] SMALL BUSINESS ADMINISTRATION Presidential Declaration of a Major Disaster for Public Assistance Only for the State of California [Disaster Declaration #15931 and #15932; Ohio Disaster Number OH–00056] AGENCY: Presidential Declaration Amendment of a Major Disaster for Public Assistance Only for the State of Ohio U.S. Small Business Administration. ACTION: Amendment 1. AGENCY: This is an amendment of the Presidential declaration of a major disaster for Public Assistance Only for the State of Ohio (FEMA–4424–DR), dated 04/08/2019. Incident: Severe Storms, Flooding, and Landslides. Incident Period: 02/05/2019 through 02/13/2019. DATES: Issued on April 30, 2019. Physical Loan Application Deadline Date: 06/07/2019. Economic Injury (EIDL) Loan Application Deadline Date: 01/08/2020. ADDRESSES: Submit completed loan applications to: U.S. Small Business Administration, Processing and Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155. FOR FURTHER INFORMATION CONTACT: A. Escobar, Office of Disaster Assistance, U.S. Small Business Administration, 409 3rd Street SW, Suite 6050, Washington, DC 20416, (202) 205–6734. SUPPLEMENTARY INFORMATION: The notice of the President’s major disaster declaration for Private Non-Profit organizations in the State of OHIO, dated 04/08/2019, is hereby amended to include the following areas as adversely affected by the disaster. Primary Counties: Belmont All other information in the original declaration remains unchanged. SUMMARY: jbell on DSK3GLQ082PROD with NOTICES (Catalog of Federal Domestic Assistance Number 59008) U.S.C. 78s(b)(2). approving the proposed rule change, the Commission considered the proposal’s impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 31 17 CFR 200.30–3(a)(12). U.S. Small Business Administration. ACTION: Notice. Jkt 247001 2.750 2.750 The number assigned to this disaster for physical damage is 159486 and for economic injury is 159490. (Catalog of Federal Domestic Assistance Number 59008) James Rivera, Associate Administrator for Disaster Assistance. [FR Doc. 2019–09533 Filed 5–8–19; 8:45 am] BILLING CODE 8025–01–P This is a Notice of the Presidential declaration of a major disaster for Public Assistance Only for the State of California (FEMA–4431– DR), dated 05/01/2019. Incident: Severe Winter Storms, Flooding, Landslides, and Mudslides. Incident Period: 02/13/2019 through 02/15/2019. DATES: Issued on May 1, 2019. Physical Loan Application Deadline Date: 07/01/2019. Economic Injury (EIDL) Loan Application Deadline Date: 02/03/2020. ADDRESSES: Submit completed loan applications to: U.S. Small Business Administration, Processing and Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155. FOR FURTHER INFORMATION CONTACT: A. Escobar, Office of Disaster Assistance, U.S. Small Business Administration, 409 3rd Street SW, Suite 6050, Washington, DC 20416, (202) 205–6734. SUPPLEMENTARY INFORMATION: Notice is hereby given that as a result of the President’s major disaster declaration on 05/01/2019, Private Non-Profit organizations that provide essential services of a governmental nature may file disaster loan applications at the address listed above or other locally announced locations. The following areas have been determined to be adversely affected by the disaster: Primary Counties: Calaveras, Colusa, Marin, Mariposa, Mendocino, Modoc, Napa, Riverside, Santa Barbara, Shasta, Trinity. The Interest Rates are: 30 In 19:39 May 08, 2019 Non-Profit Organizations without Credit Available Elsewhere ..................................... For Economic Injury: Non-Profit Organizations without Credit Available Elsewhere ..................................... SUMMARY: 29 15 VerDate Sep<11>2014 Percent For Physical Damage: Non-Profit Organizations with Credit Available Elsewhere ... PO 00000 Frm 00135 Fmt 4703 Sfmt 4703 SMALL BUSINESS ADMINISTRATION [Disaster Declaration #15950 and #15951; Oregon Disaster Number OR–00098] Presidential Declaration of a Major Disaster for Public Assistance Only for the State of Oregon U.S. Small Business Administration. ACTION: Notice. AGENCY: This is a Notice of the Presidential declaration of a major disaster for Public Assistance Only for the State of Oregon (FEMA–4432–DR), dated 05/02/2019. Incident: Severe Winter Storms, Flooding, Landslides, and Mudslides. Incident Period: 02/23/2019 through 02/26/2019. DATES: Issued on May 2, 2019. Physical Loan Application Deadline Date: 07/01/2019. Economic Injury (EIDL) Loan Application Deadline Date: 02/03/2020. ADDRESSES: Submit completed loan applications to: U.S. Small Business Administration, Processing and Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155. FOR FURTHER INFORMATION CONTACT: A. Escobar, Office of Disaster Assistance, U.S. Small Business Administration, 409 3rd Street SW, Suite 6050, Washington, DC 20416, (202) 205–6734. SUPPLEMENTARY INFORMATION: Notice is hereby given that as a result of the President’s major disaster declaration on 05/02/2019, Private Non-Profit organizations that provide essential Percent services of a governmental nature may file disaster loan applications at the address listed above or other locally 2.750 announced locations. SUMMARY: E:\FR\FM\09MYN1.SGM 09MYN1

Agencies

[Federal Register Volume 84, Number 90 (Thursday, May 9, 2019)]
[Notices]
[Pages 20454-20456]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-09510]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85776; File No. SR-ICEEU-2019-006]


Self-Regulatory Organizations; ICE Clear Europe Limited; Order 
Approving Proposed Rule Change Relating to Amendments to the CDS Risk 
Management Model Description

May 3, 2019.

I. Introduction

    On March 13, 2019, ICE Clear Europe Limited (``ICE Clear Europe'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
make certain amendments to its CDS Risk Model Description document to 
incorporate risk model enhancements related to the single name credit 
default swap (``CDS'') liquidity charge methodology. The proposed rule 
change was published for comment in the Federal Register on March 22, 
2019.\3\ The Commission did not receive comments on the proposed rule 
change. For the reasons discussed below, the Commission is approving 
the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 85350 (March 18, 2019), 
84 FR 10869 (March 22, 2019) (SR-ICEEU-2019-006) (``Notice'').
---------------------------------------------------------------------------

II. Description of the Proposed Rule Change

    ICE Clear Europe proposes a revised approach to computing single 
name CDS liquidity charges.\4\ ICE Clear Europe might incur additional 
costs to unwind positions in the event of a clearing member default. 
Therefore, the ICE Clear Europe CDS risk model includes a provision to 
account for the additional liquidation cost due to the exposure to Bid/
Offer Width (``BOW''). This provision is called a liquidation charge 
and such charges are computed separately for single names and indices.
---------------------------------------------------------------------------

    \4\ Capitalized terms not otherwise defined herein shall have 
the meanings given to them in the CDS Policies or ICE Clear Europe 
Rulebook.
---------------------------------------------------------------------------

    ICE Clear Europe proposes to introduce minimum instrument liquidity 
requirements independent of instrument maturities.\5\ ICE Clear 
Europe's current spread-based liquidity charge approach features 
instrument liquidity requirements that decay with time to maturity for 
fixed credit spread levels.\6\ The proposed rule change introduces 
minimum liquidity requirements for individual instruments, independent 
of time to maturity for the considered instruments, and thus 
establishes minimum liquidity charges that do not decay over time as 
contract maturity is approached.\7\ The proposed calculation for single 
name CDS liquidity charges at the instrument level incorporates a 
price-based bid-offer width floor component to provide stability and 
anti-procyclicality requirements, as well as a dynamic spread-based BOW 
component to reflect the additional risk associated with distressed 
market conditions.\8\ The values of such price-based BOW and spread-
based BOW are fixed factors, which are subject to at least monthly 
reviews and updates by ICE Clear Europe Risk Management Department with 
consultation with the Risk Working Group.\9\
---------------------------------------------------------------------------

    \5\ Notice, 84 FR at 10869.
    \6\ Id.
    \7\ Id.
    \8\ Id.
    \9\ Id.
---------------------------------------------------------------------------

    ICE Clear Europe proposes other enhancements to the liquidity 
charge calculation at the single name level.\10\ The current liquidity 
charge approach at the single name level accounts for the liquidation 
cost across the curve. All positions are aggregated and priced at each 
maturity interval separately as a synthetic forward CDS instrument. 
This current approach introduces potential sub-additivity at the single 
name level, as it may result in a higher liquidity charge than the sum 
of the single name instrument requirements.\11\
---------------------------------------------------------------------------

    \10\ Id.
    \11\ Id.
---------------------------------------------------------------------------

    Under the proposed calculation, liquidity charges at the single 
name level will be computed by first calculating the liquidity 
requirements for each individual instrument position in the portfolio, 
and then summing all instrument liquidity requirements for positions 
with the same directionality, i.e., bought or sold protection.\12\ The 
liquidity charge requirements at the single name level will be the 
greatest liquidity requirement associated with either the sum of all 
bought protection position liquidity requirements, or the sum of all 
sold protection position liquidity requirements.\13\ Under this 
proposed approach, the portfolios' liquidity charge cannot exceed the 
sum of the individual instrument's requirements.\14\ There are no 
changes to the liquidity charge calculation at the portfolio level.\15\
---------------------------------------------------------------------------

    \12\ Id.
    \13\ Id.
    \14\ Id.
    \15\ Id.
---------------------------------------------------------------------------

    ICE Clear Europe expects these enhancements will ensure more stable 
liquidity requirements for instruments across the curve and simplify 
ICE Clear Europe's liquidity charge methodology.\16\ As stated above, 
the current single name level liquidity requirements are based on 
forward CDS spread levels and are, in general, more difficult to 
calculate as forward spread levels are not observable across the 
curve.\17\ ICE Clear Europe, as part of its end-of-day price discovery 
process, provides end-of-day pricing data for instruments in which 
clients have open positions, which will, under the proposed approach, 
allow for easier replication for clients who wish to estimate liquidity 
charges for hypothetical and current positions.\18\
---------------------------------------------------------------------------

    \16\ Id.
    \17\ Id.
    \18\ Id.
---------------------------------------------------------------------------

III. Commission Findings

    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.\19\ For the reasons given below, the Commission finds 
that the proposed

[[Page 20455]]

rule change is consistent with Section 17A(b)(3)(F) of the Act \20\ and 
Rules 17Ad-22(e)(4)(i) and (ii) and (e)(6)(i) and (v) thereunder.\21\
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78s(b)(2)(C).
    \20\ 15 U.S.C. 78q-1(b)(3)(F).
    \21\ 17 CFR 240.17Ad-22(e)(4)(i) and (ii) and (e)(6)(i) and (v).
---------------------------------------------------------------------------

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.\22\
---------------------------------------------------------------------------

    \22\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    As discussed above, the proposed rule change establishes minimum 
liquidity charges that do not decay over time as the contract maturity 
is approached. The Commission believes that this approach promotes a 
more conservative margin calculation approach by maintaining a minimum 
liquidity charge through an instrument's maturity. The Commission 
believes that this ensures that ICEEU requires clearing members to 
maintain sufficient margin to cover losses through the entire contract 
life rather than reducing these requirements as maturity approaches.
    Further, as discussed above, under the proposed enhancements to the 
liquidity charge calculation, the portfolios' liquidity charge cannot 
exceed the sum of the individual instrument's requirements, which is a 
possibility under the current approach discussed above. The Commission 
believes that this proposal will in turn ensure more stable liquidity 
requirements for instruments across the curve and not require higher 
margins than necessary. Further, by summing all instrument liquidity 
requirements for positions with the same directionality rather than 
across the curve, the Commission believes that ICEEU is simplifying the 
process for clearing members as the approach is considered easier to 
calculate than the current approach, which is based on forward spread 
levels and hence more difficult to observe. Consequently, the 
Commission believes that this in turn will promote more accurate margin 
calculation by clearing members.
    The Commission believes that the simplified and more conservative 
approach to calculating the liquidity charge for single name CDS 
discussed above will allow ICE Clear Europe's members to more easily 
calculate margin requirements in a way that promotes the prudent 
accumulation of financial resources.
    Therefore, the Commission finds that the proposed rule change would 
provide ICE Clear Europe with the financial resources to ensure the 
prompt and accurate clearance and settlement of securities transactions 
and to assure the safeguarding of securities and funds which are in 
their custody or control. For these same reasons, the Commission also 
finds that the proposed rule change would, in general, protect 
investors and the public interest.

B. Consistency With Rule 17Ad-22(e)(4)(i) and (ii)

    Rule 17Ad-22(e)(4)(i) and (ii) requires, in relevant part, that ICE 
Clear Europe establish, implement, maintain and enforce written 
policies and procedures reasonably designed to effectively identify, 
measure, monitor, and manage its credit exposures to participants and 
those arising from its payment, clearing, and settlement processes by 
maintaining sufficient financial resources to cover its credit exposure 
to each participant fully with a high degree of confidence and maintain 
financial resources to enable it to cover the default of the two 
participant families that would potentially cause the largest aggregate 
credit exposure for ICE Clear Europe in extreme but plausible market 
conditions.\23\
---------------------------------------------------------------------------

    \23\ 17 CFR 240.17Ad-22(e)(4)(i) and (ii).
---------------------------------------------------------------------------

    As discussed above, the Commission believes that the enhancements 
to the margin calculations related to single name CDS will help to 
maintain the soundness of ICE Clear Europe's margin requirements by 
promoting conservative, simple, and stable margin requirements that 
better capture the portfolio risks of single name CDS. The Commission 
believes that this in turn will help to ensure that ICE Clear Europe 
can maintain sufficient financial resources to withstand, at a minimum, 
a default by the two participant families to which it has the largest 
exposures in extreme but plausible market conditions.

C. Consistency With Rule 17Ad-22(e)(6)(i) and (v)

    Rule 17Ad-22(e)(6)(i) requires, in relevant part, that ICE Clear 
Europe cover its credit exposures to its participants by establishing a 
risk-based margin system that, at a minimum considers, and produces 
margin levels commensurate with, the risks and particular attributes of 
each relevant product, portfolio, and market.\24\ Rule 17Ad-22(e)(6)(v) 
requires, in relevant part, that ICE Clear Europe cover its credit 
exposures to its participants by establishing a risk-based margin 
system that, at a minimum uses an appropriate method for measuring 
credit exposure that accounts for relevant product risk factors and 
portfolio effects across products.\25\
---------------------------------------------------------------------------

    \24\ 17 CFR 240.17Ad-22(e)(6)(i).
    \25\ 17 CFR 240.17Ad-22(e)(6)(v).
---------------------------------------------------------------------------

    As discussed above, the Commission believes that the enhancements 
to the risk model related to calculating the liquidity charges for 
single name CDS improves ICE Clear Europe's ability to avoid the losses 
that could result from the miscalculation of its credit exposures for 
particular products and thus produces margin levels more commensurate 
with the risks and particular attributes of each relevant product, 
portfolio, and market. In particular, by maintaining a minimum 
liquidity charge through an instrument's maturity, the Commission 
believes that clearing members will be better able to maintain 
sufficient margin to cover losses over time rather than reducing these 
requirements as maturity approaches. Moreover, as discussed above, by 
changing the liquidity charge requirements at the single name level so 
that the portfolios' liquidity charge cannot exceed the sum of the 
individual instrument's requirements, the Commission believes that this 
proposal will ensure more stable liquidity requirements for instruments 
and not require higher margins than necessary and that are commensurate 
with, the risks and particular attributes of each relevant product.
    Therefore, for these reasons discussed above, the Commission finds 
that the proposed rule change is consistent with is consistent with 
Rule 17Ad-22(e)(6)(i) and (v).\26\
---------------------------------------------------------------------------

    \26\ 17 CFR 240.17Ad-22(e)(6)(i) and (v).
---------------------------------------------------------------------------

IV. 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 \27\ and Rules 17Ad-22(e)(4)(i) and (ii) and (e)(6)(i) and (v) 
thereunder.\28\
---------------------------------------------------------------------------

    \27\ 15 U.S.C. 78q-1(b)(3)(F).
    \28\ 17 CFR 240.17Ad-22(e)(4)(i) and (ii) and (e)(6)(i) and (v).

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

[[Page 20456]]

    It is therefore ordered pursuant to Section 19(b)(2) of the Act 
\29\ that the proposed rule change (SR-ICEEU-2019-006) be, and hereby 
is, approved.\30\
---------------------------------------------------------------------------

    \29\ 15 U.S.C. 78s(b)(2).
    \30\ 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.\31\
---------------------------------------------------------------------------

    \31\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-09510 Filed 5-8-19; 8:45 am]
BILLING CODE 8011-01-P
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