Self-Regulatory Organizations; ICE Clear Europe Limited; Notice of Filing of Proposed Rule Change, as Modified by Partial Amendment No. 1, Relating to the ICE Clear Europe Auction Terms for CDS Default Auctions and CDS Default Management Policy (formerly the CDS Default Management Framework)., 32075-32082 [2020-11403]
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Federal Register / Vol. 85, No. 103 / Thursday, May 28, 2020 / Notices
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accurate clearance and settlement of
transactions in such products.
Moreover, the Commission believes
the Instrument On-boarding Policy, by
setting standards for instrument
selection, operational set up, risk and
pricing evaluation, and governance for
clearing new products would help to
mitigate potential risks created by
clearing new products, such as the risk
that ICC’s risk model would not
adequately manage the risks associated
with a new product. Similarly, the
Commission believes that the required
dress rehearsal would allow ICC to
identify potential issues with the endof-day pricing process before accepting
a new product for clearing. The
Commission believes that the risks
associated with clearing a new product,
including application of ICC’s existing
risk model and end-of-day pricing
process, could, if not adequately
managed, disrupt ICC’s ability to clear
and settle transactions in other products
and safeguard securities and funds in its
custody and control. Thus the
Commission believes that, in providing
ICC means for managing the risks
associated with clearing a new product,
the proposed rule change should help to
promote the prompt and accurate
clearance and settlement of securities
transactions and assure the safeguarding
of securities and funds in ICC’s custody
and control.
Therefore, the Commission finds that
the proposed rule change would
promote the prompt and accurate
clearance and settlement of securities
transactions and assure the safeguarding
of securities and funds in ICC’s custody
and control, consistent with the Section
17A(b)(3)(F) of the Act.9
B. Consistency With Rule 17Ad–22(d)(4)
Rule 17Ad–22(d)(4) requires that ICC
establish, implement, maintain and
enforce written policies and procedures
reasonably designed to identify sources
of operational risk and minimize them
through the development of appropriate
systems, controls, and procedures.10 As
discussed above, the Commission
believes that the Instrument Onboarding Policy would help to mitigate
potential risks associated with new
products. In particular, the Commission
believes that in requiring ICC to
complete an operational configuration
to evaluate and accept transactions,
process and net transactions, and price
the proposed new product, the
Instrument On-boarding Policy should
help ICC to identify potential
operational risks before clearing the new
9 15
U.S.C. 78q–1(b)(3)(F).
U.S.C. 17Ad–22(d)(4).
10 15
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32075
product. Similarly, the Commission
believes that the required dress
rehearsal should allow ICC to identify
potential operational issues with the
end-of-day pricing process and
settlement before accepting a new
product for clearing. Taken together, the
Commission believes the Instrument
On-boarding Policy should enable ICC
to identify the operational risks
associated with a new product and
minimize those risks prior to clearing a
new product. For these reasons, the
Commission finds that the proposed
rule change is consistent with Rule
17Ad–22(d)(4).11
2020, ICE Clear Europe Limited (‘‘ICE
Clear Europe’’ or the ‘‘Clearing House’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule changes described in
Items I, II and III below, which Items
have been prepared by ICE Clear
Europe. On May 20, 2020, ICE Clear
Europe filed Partial Amendment No. 1
to the proposed rule change.3 The
Commission is publishing this notice to
solicit comments on the proposed rule
change, as modified by Partial
Amendment No. 1 (hereinafter the
‘‘proposed rule change’’), from
interested persons.
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 12 and
Rule 17Ad–22(d)(4).13
It is therefore ordered pursuant to
Section 19(b)(2) of the Act 14 that the
proposed rule change (SR–ICC–2020–
004), be, and hereby is, approved.15
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
ICE Clear Europe Limited (‘‘ICE Clear
Europe’’ or the ‘‘Clearing House’’)
proposes to amend its Auction Terms
for CDS Default Auctions (the ‘‘CDS
Auction Terms’’) and CDS Default
Management Policy (the ‘‘Policy’’),
formerly the CDS Default Management
Framework. The revisions do not
involve any changes to the ICE Clear
Europe Clearing Rules (the ‘‘Rules’’) or
other Procedures.4
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.16
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–11401 Filed 5–27–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88928; File No. SR–ICEEU–
2020–007]
Self-Regulatory Organizations; ICE
Clear Europe Limited; Notice of Filing
of Proposed Rule Change, as Modified
by Partial Amendment No. 1, Relating
to the ICE Clear Europe Auction Terms
for CDS Default Auctions and CDS
Default Management Policy (formerly
the CDS Default Management
Framework).
May 21, 2020.
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 May 12,
11 15
U.S.C. 17Ad–22(d)(4).
U.S.C. 78q–1(b)(3)(F).
13 17 CFR 240.17Ad–22(d)(4).
14 15 U.S.C. 78s(b)(2).
15 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).
16 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
12 15
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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 is proposing to
amend its CDS Auction Terms and the
Policy. The proposed amendments to
the CDS Auction Terms would (1) add
a new ‘‘all or nothing’’ bidding type, (2)
clarify certain procedures regarding
determination of minimum bid
requirements, (3) provide for the use of
ICEU’s default management system, in
lieu of email or other manual forms of
communication, for submission of bids
3 Partial Amendment Number 1 amended Exhibit
5A of the filing to correct the paragraph numbering
in Part 2 of the CDS Auction Terms.
4 Capitalized terms used but not defined herein
have the meanings specified in the Rules.
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and provision of certain notices to
auction participants by the Clearing
House, (4) clarify certain regulatory and
compliance obligations of auction
participants, and (5) generally update
and clarify certain terms and provisions
and correct certain typographical errors.
The proposed amendments to the Policy
would make corresponding changes to
reference the new ‘‘all or nothing’’
bidding type and make general updates
and clarifications.
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I. CDS Auction Terms
1. All or Nothing Bid Type
The amendments would allow
auction participants to submit a new
type of bid for an Auction Lot, an ‘‘All
or Nothing Bid.’’ As provided in the
proposed new definition in paragraph
1.2 as well as paragraph 3.8 of Part 1
and paragraph 3.6 of Part 2, an All or
Nothing Bid would constitute a bid for
the entire Auction Lot which, if it is the
winning bid, would provide for the
bidder to receive 100% of the Auction
Lot without that award being split
among more competitively priced bids
(as may occur with bids under the
current bidding process (referred to as
‘‘Standard Bids’’)). Use of All or Nothing
Bids would be optional, and auction
participants could continue to use
Standard Bids as under the current
process. An auction participant may
also submit both Standard Bids and an
All or Nothing Bid. Revised paragraph
3.8 of Part 1 and paragraph 3.6 of Part
2 would also address the manner in
which an All or Nothing Bid may satisfy
the Minimum Bid Requirement for an
Auction Lot and the requirement to
identify an All or Nothing Bid as such.
The term ‘‘BP’’ would be similarly
amended to include the price of any
valid All or Nothing Bid made by a
Primary CDS Auction Participant or
Secondary CDS Auction Participant in
the Primary CDS Auction or Secondary
CDS Auction, in either case
proportionately scaled to a portfolio size
representing 100% of the relevant
Auction Lot. This definition would be
further amended to provide that where
the Standard Bids submitted by an
auction participant do not comply with
any applicable Minimum Bid
Requirement, the BP shall be only the
price of any All or Nothing Bid made by
such participant, should it have made
one. If a participant does not comply
with any applicable Minimum Bid
Requirement based on its Standard Bids,
and does not provide a valid All or
Nothing Bid, then the participant would
be considered a Non-Bidding CDS
Clearing Member. Where a participant
submitted only Standard Bids, or only
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an All or Nothing Bid, BP would be the
weighted average bid price of the
Standard Bids, or the price of the All or
Nothing Bid, respectively.
The definitions of Primary CDS
Auction Priority AC Sequence and
Primary CDS Auction Priority GF
Sequence (previously CDS Auction
Priority AC Sequence and CDS Auction
Priority GF Sequence) would be
amended to clarify that each amount in
the sequence would be applied pro rata
for the relevant Auction Lot of a Primary
CDS Auction by applying the Auction
Lot Guaranty Fund Weighting. As
discussed below, the terms CDS Auction
Priority AC Sequence and CDS Auction
Priority GF Sequence, would be
renamed to indicate more clearly that
these terms relate to the Primary CDS
Auction. A number of other terms
relating to the Primary CDS Auction
would be similarly renamed. The
clarification that the amount in the
sequence would be applied pro rata
would provide additional detail that is
consistent with existing practice. The
term Lot Guaranty Fund Weighting has
been renamed Auction Lot Guaranty
Fund Weighting, consistent with the
update from the term Lot to Auction
Lot. The definition of this term has been
clarified to refer to the aggregate of the
PRIs for all Auction Lots in a Defaulter’s
portfolio rather than all Lots in a CDS
Auction or Secondary CDS Auction,
which is a more precise definition, but
the change is not intended to result in
a substantive change in practice. The
definitions of Secondary CDS Auction
Priority AC Sequence, Secondary CDS
Auction Priority GF Sequence would be
amended generally to conform to the
corresponding Primary CDS Auction
definitions, including to cross-refer, for
clarity, to Rule 908(i) (which is the
relevant provision of the Rules relating
to the order of application of Guaranty
Fund Contributions) and to clarify that
each amount in the sequence would be
applied pro rata for the relevant Auction
Lot of a Secondary CDS Auction by
applying the Auction Lot Guaranty
Fund Weighting. The cross-reference
would be added to ensure clarity and
consistency between the relevant terms
used for Primary and Secondary
Auctions and between the CDS Auction
Terms and the Rules, but is not
intended to change the substance of
current practice. The definition of CDS
Auction Clearing Price would be
redefined as Primary CDS Auction
Clearing Price and a proviso would be
added to this defined term and to the
defined term Secondary CDS Auction
Clearing Price stating that in the event
that an All or Nothing Bid is included
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in such sum of the notional amount of
CDS Contracts, the term would mean
the price of the All or Nothing Bid in
accordance with paragraph 5.4 of Part 1
or paragraph 5.4 of Part 2, as applicable,
of the CDS Auction Terms. If an All or
Nothing Bid is not submitted to or
accepted by the Clearing House, then
consistent with the current CDS Auction
Terms, the Auction Lot will be allocated
in full to bids at or above the Primary
CDS Auction Clearing Price or
Secondary CDS Auction Clearing Price,
as applicable. If, however, an All or
Nothing Bid is included in the group of
bids with equal or higher bid prices,
then the price of such All or Nothing
Bid would be the Primary CDS Auction
Clearing Price. The examples in
Paragraph 5.4 of Part 1 would be
modified to take into account All or
Nothing Bids, including to show
information regarding a ‘‘price rank’’,
whether it is an All or Nothing Bid, the
bid size (as a percentage of auction lot),
bid price (payment per 100%), size
multiplied by price and the allocation
percentage of the auction lot. The
examples in Paragraph 5.4 of Part 2
would be removed, and cross-reference
to the examples in Paragraph 5.4 of Part
I would be added instead.
Paragraph 5.5 of Parts 1 and 2 would
clarify that All or Nothing Bids are
given precedence over Standard Bids, in
the sense that if an All or Nothing Bid
is accepted, a Standard Bid will not be
accepted even if it had a higher price
than the Primary CDS Auction Clearing
Price or Secondary CDS Auction
Clearing Price, as applicable. It would
also provide that if multiple All or
Nothing Bids are received at the Primary
CDS Auction Clearing Price or
Secondary CDS Auction Clearing Price,
as applicable, the Auction Lot will be
allocated equally among those bidders.
Paragraph 5.6 in Part 1 would be
amended to clarify that in the scenario
where the Clearing House elects to
determine the CDS Auction Clearing
Price for less than 100% of the contracts
in the lot and hold a further auction (a
‘‘Repeat CDS Auction’’) for the
remainder, any All or Nothing Bids
would be disregarded. Related examples
in paragraph 5.6 have been amended
accordingly.
2. Minimum Bid Requirement
The amendments would revise
Paragraph 2.2 of Parts 1 and 2 to reflect
that a Clearing Member could have a
zero Minimum Bid Requirement (in
which case it would not be required to
bid for the relevant lot) and to remove
a stated exception from the requirement
for each CDS Clearing Member to bid in
every Primary CDS Auction or
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Secondary CDS Auction (as such terms
are defined in the CDS Auction Terms),
as applicable, for those whose
membership privileges permit them not
to participate (as there are no such CDS
Clearing Members).
Paragraph 2.4 of Parts 1 and 2 would
be amended such that a CDS Clearing
Member’s Minimum Bid Requirement
would be communicated to it through
the DMS (or via such other means as
specified by the Clearing House), as
discussed below, as soon as practicable
prior to the relevant CDS Auction
instead of through the template
notification set out in an annex to the
CDS Auction Terms (which would
accordingly be removed). The
amendments to Paragraph 2.4 of Part 1
and Paragraphs 2.4 and 2.5 of Part 2
would also clarify the procedures for the
Clearing House to determine that a
Minimum Bid Requirement would be
inappropriate for a particular CDS
Clearing Member in particular
circumstances, which would permit the
Clearing House greater flexibility in
appropriate circumstances. A CDS
Clearing Member would be required to
notify the Clearing House promptly, but
in any event within one hour of the
Clearing House publishing details of the
CDS Contracts comprising the relevant
Auction Lot (instead of 12 hours prior
to the opening of the auction), in
writing, if it reasonably considers that
the Minimum Bid Requirement would
not apply to it. ICE Clear Europe does
not believe the current 12 hour period
is necessarily practicable as an
operational matter, as the Clearing
House may need to conduct an auction
with less than 12 hours’ notice. The
current requirement could thus either
create an undesirable delay in
conducting an auction or impose an
unnecessary limitation on the CDS
Clearing Member’s ability to request an
exception to the Minimum Bid
Requirement. The proposed change, to
allow notice within one hour after the
Clearing House publishes auction
details, will allow the Clearing House to
move more quickly to minimize losses
and preserve the CDS Clearing
Member’s ability to request an exception
where warranted. The amendments
would also clarify that CDS Clearing
Members could outsource the
operational processing of any of their
auction obligations under Rule 102(w)
(regarding outsourcing). CDS Clearing
Members could also transfer their
Minimum Bid Requirements to an
Affiliate that is also a CDS Clearing
Member, subject to notification to the
Clearing House prior to an auction and
execution of an agreement in an
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approved format. The amendments
would clarify that a CDS Clearing
Member that outsources any of its
obligations would remain liable for any
breach by any Affiliate or outsourcee of
the CDS Auction Terms or the Primary
CDS Auction Specifications, including
without limitation in respect of CDS
Guaranty Fund juniorization. This
amendment broadens the existing
requirement which only refers to
transfers or outsources of the Minimum
Bid Requirement rather than any
obligation, and makes specific reference
to the CDS Guaranty Fund juniorization,
and reflects the general principle that
outsourcing or transfer of an obligation
does not avoid responsibility for
complying with the obligation. The
amendments would further add that a
CDS Clearing Member that transfers or
outsources its Minimum Bid
Requirement to an Affiliate would, for
the purposes of determining its Senior
Guaranty Fund Contribution,
Subordinate Guaranty Fund
Contribution, Senior Assessment
Contribution and/or Subordinate
Assessment Contribution, and for
determining whether it should be
designated as a Non-Bidding CDS
Clearing Member, assume the same
position as a Senior Bidder, Split
Bidder, Subordinate Bidder or NonBidding CDS Clearing Member as the
Affiliate, as appropriate.
3. Default Management System
The amendments would provide for
the use of the DMS for a number of
communications between the Clearing
House and auction participants, in lieu
of the current manual notice process.
Pursuant to amended paragraph 2.1 of
Parts 1 and 2 and the revised definitions
of Primary CDS Auction Announcement
and Secondary CDS Auction
Announcement, the Clearing House
would notify CDS Clearing Members
electronically through the DMS (or other
means specified by the Clearing House)
of an auction taking place instead of by
Circular. Conforming changes would be
made throughout the CDS Auction
Terms to make reference to
communication through the DMS
instead of through existing means. For
example, as noted above, the Clearing
House would notify Clearing Members
of Minimum Bid Requirements through
the DMS, pursuant to revised paragraph
2.4 in Parts 1 and 2. Paragraph 2.5 of
Part 1 and Paragraph 2.7 of Part 2 would
be amended to state that Primary CDS
Auction Specifications or Secondary
CDS Auction Specifications, as
applicable would be provided through
the DMS instead of in the template
format currently attached to the CDS
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32077
Auction Terms. Further, in Paragraph
2.5 of Part 1 and Paragraph 2.7 of Part
2, the statement that the Clearing House
will provide each auction participant
(other than Defaulters) with information
about CDS Contracts to be auctioned
would be amended to remove the
exception for Defaulters because it is
clear that Defaulters would not be
auction participants and as such, the
exception was unnecessary. The
requirement that any minimum or
maximum reserve price be provided
would be deleted because, consistent
with Paragraph 5.2, any reserve price
would not necessarily be disclosed to
bidders.
Paragraph 2.9 and 2.10 of Part 1 and
Paragraphs 2.10 and 2.11 of Part 2
would be amended to state that all bids
must be submitted via DMS (or other
means specified by the Clearing House)
instead of through the existing bid form.
Former Paragraph 2.11 of Part 1 and
Paragraph 2.12 of Part 2 has been
correspondingly removed as no longer
relevant with electronic submission
through DMS. Paragraph 3.12 of Part 1
and Paragraph 3.10 of Part 2 (each as
renumbered) would be amended to
provide that modified or amended bids
may be submitted through DMS (or
another format specified by the Clearing
House). Pursuant to revised Paragraph
5.7 of Part 1, further Primary CDS
Auction Specifications for any repeat
CDS Auction would be notified by the
Clearing House through the Primary
CDS Auction Announcement and
through the DMS (or via such other
means and in such format as is specified
by the Clearing House). Pursuant to
revised Paragraph 5.8 of Part 1 and
Paragraph 5.9 of Part 2, winning bidders
could also be notified through the DMS.
References to submission of a bid form
would be removed from the definition
of ‘‘Bid’’ and the term ‘‘Bid Form’’
would be amended to ‘‘Bid Submission’’
and would mean submission of a bid via
DMS rather than via the ICE file transfer
server.
4. Clarification of Certain Regulatory
and Compliance Obligations
Paragraph 7.7 of Parts 1 and 2 would
be amended to clarify and state
explicitly certain obligations for auction
participants in respect of information
they may receive in connection with an
auction, including the contents of the
portfolio or the outcome or timing of an
auction. Specifically, the auction
participant would acknowledge that
such information may constitute inside
information for the purposes of the
Market Abuse Regulation (Regulation
(EU) No 596/2014) (‘‘MAR’’) or fall
within the definition of any similar term
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under Applicable Law (‘‘Market Abuse
Laws’’) in respect of any Contracts
cleared by the Clearing House or in
respect of securities of a Defaulter.
Under the revisions, each such
participant would be required to assess
whether such information is inside
information and, if so, agree to: (a)
Comply with applicable Market Abuse
Laws; (b) generally not disclose such
information to persons outside of its
organization; (c) prevent persons
engaged in client trading at such
organization from possessing such
information; (d) prevent those in
possession of such information from
trading on such information until it
ceases to be inside information; and (e)
where such information constitutes
inside information under Regulation
(EU) No. 596/2014, maintain an insider
list of persons with access to this
information.
5. Other Clarifications and Updates
The amendments would make a
number of other clarifications, drafting
improvements and corrections to the
CDS Auction Terms. Certain changes to
defined terms would be made
throughout the CDS Auction Terms,
including the use of the term ‘‘CDS
Default Auction Procedures’’ instead of
CDS Auction Procedures, the new
defined term ‘‘Bidding Close Time’’
instead of ‘‘Closing Time’’ (which ICE
Clear Europe views as a more precise
term in this context (as the concept of
closing time more generally has other
uses), but which would have the same
definition), and the defined term
‘‘Auction Lot’’ instead of ‘‘Lot’’ to better
distinguish the term from the generic
term, ‘‘lot’’. The definition of Auction
Lot would also be clarified to refer only
to CDS Contracts of the Defaulter (rather
than the generic term ‘‘portfolio’’ of a
Defaulter), and to all or any part of such
contracts as determined by the Clearing
House for a particular discrete auction.
ICE Clear Europe does not believe such
change would result in any change in
practice. Conforming changes would be
made to the defined terms for Lot
Assessment Contribution, Lot CDS
Direct Auction Participant Contribution,
Lot Guaranty Fund Contribution, Lot
Guaranty Fund Weighting, Lot
Resources and Lot Resource Shortfall.
A series of other changes is intended
to more clearly distinguish between
primary auctions under Part 1 and
secondary auctions under Part 2. Thus,
the term ‘‘CDS Auction’’ would be
amended to ‘‘Primary CDS Auction’’
with corresponding changes to CDS
Auction Announcement, CDS Auction
Clearing Price, CDS Auction Participant,
CDS Auction Priority, CDS Auction
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Priority AC Sequence, CDS Auction
Priority GF Sequence and CDS Auction
Specifications to refer to Primary CDS
Auction Announcement, Primary CDS
Auction Clearing Price, Primary CDS
Auction Participant, Primary CDS
Auction Priority, Primary CDS Auction
Priority AC Sequence, Primary CDS
Auction Priority GF Sequence and
Primary CDS Auction Specifications.
Conforming changes would be made
throughout the CDS Auction Terms. The
terms ‘‘Non-Bidding CDS Clearing
Member’’ and ‘‘Non-Bidding Direct
Participating Customer’’ would be
clarified to explicitly reference such
persons that do not submit or make (or
would not be deemed to submit or
make) a bid in the relevant Primary CDS
Auction or Secondary CDS Auction in
order to clarify that the terms capture
those persons who do not participate or
who are deemed not to participate (such
as where their bid has been declared
invalid under the CDS Auction Terms),
whether or not they can be said to have
‘‘chosen’’ not to participate. The term
‘‘Elective CDS Auction Participants’’
and references to this term would be
removed, as there are no CDS Clearing
Members in such category. The term
‘‘Second CDS Auction’’ would be
amended to ‘‘Repeat CDS Auction’’,
which term currently refers to a further
Primary CDS Auction under Part 1 after
an unsuccessful or partially
unsuccessful first CDS auction, with the
intention to more clearly distinguish
such an auction from a Secondary CDS
Auction under Part 2. The terms ‘‘Split
Bidder’’ and ‘‘Subordinate Bidder’’
would be amended to explicitly note
that this could be either a Primary CDS
Participant or a Secondary CDS Auction
Participant, as applicable for the
relevant auction. This does not reflect a
change in substance, but is intended to
make the drafting consistent with the
deletion of the term ‘‘CDS Auction
Participant’’ and addition of the more
specific terms, Primary CDS Auction
Participant and Secondary CDS Auction
Participant.
Proposed amendments to paragraph
1.64 would clarify that references to
CDS Contracts, for purposes of the CDS
Auction Terms, include (i) where
automatic early termination has taken
place under Part 9 of the Rules or
Contract Terms, a reference to the
terminated CDS Contracts or notional
amounts representing such terminated
CDS Contracts and (ii) where contracts
have arisen from hedging transactions
pursuant to Rule 903(c), a reference to
any such hedging contracts executed by
the Clearing House. These amendments
thus clarify that such contracts may be
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auctioned for purposes of establishing
replacement contracts with nondefaulting Clearing Members to balance
the Clearing House’s positions as part of
the default management process, and
thereby also establishing an auction
price to be used in determining the
Clearing House’s loss with respect to the
close out of the defaulter’s positions for
purposes of the Rules. Amendments to
this paragraph would also add a general
introductory note that the CDS Auction
Terms govern the auctioning of lots
representing one or more CDS Contracts
to which a Defaulter is or was a party,
where such auction is administered by
the Clearing House pursuant to Part 9 of
the Rules. In paragraph 1.65, the
amendments would clarify that nothing
in the CDS Auction Terms would
prevent the Clearing House from
administering a sale or entering into
offsetting transactions without holding
an auction to which the CDS Auction
Terms apply. This reflects the Clearing
House’s existing authority under the
Rules, and is intended to avoid any
potential confusion as to the scope of
the CDS Auction Terms.
Introductory provisions would be
added in paragraph 1.67 and following
paragraphs to address matters such as
governing law and dispute resolution
(including submission to arbitration and
jurisdiction). These are substantially
similar to existing provisions in the
Rules and the other Procedures, and ICE
Clear Europe is proposing to add them
here for consistency across its
documentation.
Paragraph 2.11 of Part 1 and
Paragraph 2.13 of Part 2 would be
amended to clarify that after the Bidding
Close Time, the Clearing House will
notify participants of the fact that the
CDS Auction took place, in addition to
the outcome.
Paragraph 3.3 of Parts 1 and 2 would
clarify that the specified order of
application of CDS Guaranty Fund
Contributions and Assessment
Contributions in the Primary CDS
Auction Priority or Secondary CDS
Auction Priority, as applicable, would
only apply to bids indicated or deemed
related to Minimum Bid Requirements
(i.e., those Standard Bids, or if
applicable the All or Nothing Bid, that
count toward the Minimum Bid
Requirement).
An additional clarification would be
made in Paragraph 3.8 of Part 1 and
Paragraph 3.6 of Part 2 that the
Minimum Bid Requirement could be
satisfied by submitting multiple bids
provided that any individual bid is
equal to (and not merely larger than)
any applicable minimum bid size.
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A clarification would be made in
Paragraph 3.11 of Part 1 and Paragraph
3.9 of Part 2 that a bidder making a
referential Bid (e.g. a Bid which
purports to be a Bid which is Ö1 higher
or lower than the highest or lowest
Bidder) would be treated as if it had not
made such bid. This change is
consistent with other changes to the
CDS Auction Terms to refer to a person
that does not bid in the auction (or is
deemed not to bid) as ‘‘Non-Bidding
CDS Clearing Member’’ or ‘‘NonBidding Direct Participating Customer’’,
without regard to whether the person
‘‘chose’’ not to participate. Similarly,
under revised Paragraph 3.12 of Part 1
and Paragraph 3.10 of Part 2, following
the bidding close time, upon request of
a CDS Auction Participant stating that a
mistake was made in the bid
submission, the Clearing House could
invalidate the bid and the participant
would be treated as if it had not made
such a bid. The Clearing House would
no longer provide for the submitter to
withdraw or correct the bid in this case.
This reflects the operation of DMS,
which does not permit submission of a
bid following the bidding close time,
and further reflects ICE Clear Europe’s
view that given the objective of ensuring
a fair and orderly auction, it is not
appropriate for Clearing Members to
modify bids following the bidding close
deadline.
Similar amendments changing
‘‘treated as if it had chosen not to
participate’’ to ‘‘as if it had not made
such Bid’’ would be made to Paragraphs
3.13, 3.14, 3.15, 4.4 and 5.5 of Part 1 and
Paragraphs 3.11, 3.12, 3.13, 4.4, 5.4 and
5.5 of Part 2 for similar reasons. An
additional amendment to Paragraph 5.4
of Parts 1 and 2 would provide that in
the event of invalid or void bid or no
CDS Contract being established, such
bid would not be accepted and the CDS
Auction Participant would be treated as
if it had not made such bid, instead of
chosen not to participate, for similar
reasons.
The amendments to Paragraph 4.1 of
Parts 1 and 2 would remove a statement
that a CDS Clearing Member may make
an unlimited number of separate bids
and clarify that the member may make
separate bids for Customers or
Sponsored Principals for whom it acts
as Sponsor in the same way as it may
make a bid for one of its Proprietary
Accounts and subject to the same
provisions of the relevant Part of the
CDS Auction Terms. This amendment
reflects that relevant systems do not
permit an infinite number of separate
bids, and in practice is intended to give
ICE Clear Europe flexibility to set a
maximum number of bids if it
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determines that is appropriate.
Amendments to Paragraph 4.3 of Parts
1 and 2 would require that each Direct
Participating Customer (as defined in
the CDS Auction Terms) enter into a
CDS Auction Participation Agreement
with its CDS Clearing Member prior to
participation in a Primary CDS Auction
or Secondary CDS Auction, as
applicable (rather than deeming them to
be bound by the CDS Auction Terms).
ICE Clear Europe believes it is
preferable to have a formal agreement
with the Direct Participating Customer
in this situation, as it provides a clearer
and stronger basis for enforcement of
the CDS Auction Terms against the
Direct Participating Customer.
Amendments to Paragraph 5.3 of Parts
1 and 2 would also permit the Clearing
House to at its discretion withdraw an
auction lot after (as well as prior to) the
bidding close time.
In Paragraph 5.5 of Parts 1 and 2, an
additional clarification would add that
bids invalidated pursuant to certain
Paragraph 3 (Bidding Process)
provisions could, at the Clearing
House’s discretion, be excluded for
purposes of calculating the auction
clearing price or allocating sizes at that
price.
Amendments to Paragraph 5.8 of Part
1 and Paragraph 5.9 of Part 2 would
clarify the mechanism under the Rules
through which CDS Contracts are
entered into as a result of an auction, by
providing that each bid constitutes an
offer by the CDS Clearing Member to the
Clearing House to enter into CDS
Contracts pursuant to a Transfer
governed by Rule 904(b) (but without
regard to any Customer or Customer-CM
Transactions of the Defaulter) and Part
4 of the Rules. The amendment is
intended as a clarification of the
existing process for entering into
contracts and is not a substantive
change in the CDS Auction Terms. Any
unnecessary reference to acceptance of
such offer by the Clearing House would
be removed (as the paragraph provides
for the relevant contracts to arise
between the Clearing House and the
winning bidder without need for any
further step). Other changes in this
paragraph would clarify that resulting
CDS Contracts would arise between the
Clearing House and the winning bidder,
in accordance with such a Transfer and
Part 4 of the Rules, but without regard
to any Customer or Customer-CM
Transactions of the Defaulter, on
economically identical terms to the CDS
Contracts that are the subject of the
auction lot in the relevant Primary CDS
Auction or Secondary CDS Auction, as
applicable.
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Clarifying amendments as to the
treatment of Individually Segregated
Sponsored Accounts as a form of
Customer Account, consistent with
other amendments discussed above,
would be made in Paragraph 7.1 of Parts
1 and 2.
Throughout the CDS Auction Terms,
various provisions would be
renumbered as a result of the changes
described above and related crossreferences would be corrected and
updated.
II. CDS Default Management Policy
ICE Clear Europe is also proposing to
make various amendments to its CDS
Default Management Framework, which
would be renamed the CDS Default
Management Policy. The amendments
would be consistent with the
amendments to the CDS Auction Terms
discussed above and make certain other
clarifications and updates. Conforming
changes would also be made throughout
the document to reflect the name
change.
In terms of the procedures for
declaring a default, the Policy would be
revised to remove a requirement that the
default management process be
implemented ‘‘immediately’’ after
approval by appropriate management of
the declaration of a default. Although
ICE Clear Europe expects that such
process would be implemented in a
timely manner under the circumstances,
it is not necessary (or necessarily
feasible) to specify that it do so
immediately. A similar change would be
made to the requirement that ICE Clear
Europe cease clearing trades for the
defaulting Clearing Member when it is
declared in default.
With respect to activation of the
clearing risk team, the Policy would be
amended to remove the statement that
in the event that the President/Chief
Operating Officer being absent, the Head
of Clearing Risk has the ability to
overrule any other head of department
(including Head of Treasury and Head
of Operations) where necessary, on
matters relating to default management.
The amendment reflects a change in the
Board’s delegation of authority to the
President (and not to the Chief
Operating Officer or Head of Clearing
Risk in the President’s absence).
With respect to liquidation of a
defaulting member’s collateral, the
amendments would remove a statement
that for all assets the Clearing House
ensures that it can sell the collateral,
subject to settlements terms, within a
single working day. This statement is
unnecessary and an oversimplification,
and the Clearing House in any event
relies on its existing and detailed
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collateral and liquidity policies to
ensure it has sufficient access to
liquidity in case of default. A related
statement that the Head of Clearing Risk
will have the discretion to postpone the
collateral sale would be removed as
unnecessary in light of the general
standard that the Clearing House will
take appropriate action to ensure an
orderly close out. Amendments would
also clarify that the Clearing House may
(but need not) convert any portion of the
defaulting Clearing Member’s non-cash
margin or collateral into cash, as the
Clearing House determines appropriate.
This is intended as a drafting
improvement that provides greater
clarity, but does not affect the Clearing
House’s rights with respect to such
margin or collateral.
The provisions of the Policy regarding
bidding mechanics would be amended
to address ‘‘All or Nothing’’ bids. A
paragraph would be added to this
section to provide that auction
participants may submit ‘‘All or
Nothing’’ bids for each auction. The
amendments provide explanation as to
the meaning of such a bid and an
example of how such bids work. The
amendments would also provide that
further information on the bidding types
utilized in any given auction would be
published as part of the CDS Default
Auction Terms Specifications.
The existing requirement that ICE
Clear Europe conduct quarterly reviews
of the Policy would be deleted as the
Policy would reviewed as part of the
ICE Clear Europe’s separate annual
documentation review process. The
Policy would continue to require ICE
Clear Europe, in coordination with its
Clearing Members, conduct an annual
mock Clearing Member default test with
the Clearing Risk Department,
appropriate Clearing House
management and CDS Default
Committee Members for each Clearing
Member.
The amendments to the Policy would
also update arrangements for breach
management, ongoing Policy reviews
and exception handling. The
amendments are intended to make the
Policy consistent in this regard with
other ICE Clear Europe policies and
governance processes. Pursuant to the
amendments, the document owner, as
specified in ICE Clear Europe policies,
would be responsible for reporting
report material breaches or unapproved
deviations from this document to the
Head of Department, the Chief Risk
Officer and the Head of Compliance (or
their delegates) who together would
determine if further escalation should
be made to relevant senior executives,
the Board and/or competent authorities.
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Exceptions to the Policy would
approved in accordance with ICE Clear
Europe’s governance process for the
approval of changes to the Policy.
(b) Statutory Basis
ICE Clear Europe believes that the
proposed amendments are consistent
with the requirements of Section 17A of
the Act 5 and the regulations thereunder
applicable to it. In particular, Section
17A(b)(3)(F) of the Act 6 requires, among
other things, that the rules of a clearing
agency be designed to promote the
prompt and accurate clearance and
settlement of securities transactions
and, to the extent applicable, derivative
agreements, contracts, and transactions,
the safeguarding of securities and funds
in the custody or control of the clearing
agency or for which it is responsible,
and the protection of investors and the
public interest. ICE Clear Europe
believes that the proposed rule change
is consistent with the requirements of
the Act and the rules and regulations
thereunder applicable to ICE Clear
Europe, in particular, to Section
17(A)(b)(3)(F),7 because ICE Clear
Europe believes that the proposed
changes to the CDS Auction Terms
enhance ICE Clear Europe’s ability to
manage the risk of defaults. The
proposed changes introduce All or
Nothing Bidding to ICE Clear Europe’s
existing auction methodology. This new
bid type is intended to reward auction
participants for bidding competitively
on both size and price, rather than just
price (as with a Standard Bid). If an All
or Nothing Bid sets the auction clearing
price, the revised CDS Auction Terms
award 100% to that bid, rather than
splitting the award with participants
bidding more competitively on price but
with smaller size. Such changes
incentivize competitive bidding by
rewarding auction participants for
bidding competitively on both price and
size and are designed to promote
effective and efficient auctions to
facilitate the close-out of the defaulter’s
portfolio.
The proposed amendments also
implement the use of the automated
DMS to replace certain manual
communication tasks in the auction
process, including announcing the
auction, communicating Minimum Bid
Requirements and auction
specifications, submitting bids and
notifying winning bidders. Such
changes allow ICE Clear Europe to more
efficiently and safely manage its auction
process and reduce the risk of
U.S.C. 78q–1.
U.S.C. 78q–1(b)(3)(F).
7 15 U.S.C. 78q–1(b)(3)(F).
miscommunication or error. The added
compliance requirements around
treatment of information concerning the
auction will help prevent market abuse,
enhance compliance with applicable
law and thus generally promote the
public interest. Finally, the clarification
and clean-up changes provide greater
specificity with respect to the CDS
Auction Terms such that auction
participants have greater certainty and
clarity regarding the auction process
and the requirements for their
participation. ICE Clear Europe believes
that the proposed amendments augment
ICE Clear Europe’s procedures relating
to default management and enhance ICE
Clear Europe’s ability to withstand
defaults and continue providing
clearing services, thereby promoting the
prompt and accurate clearance and
settlement of securities transactions,
derivatives agreements, contracts, and
transactions, the safeguarding of
securities and funds which are 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
In addition, the proposed rule change
is consistent with the relevant
requirements of Rule 17Ad–22.9 Rule
17Ad–22(e)(4)(ii) 10 requires ICE Clear
Europe to 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, including by maintaining
additional financial resources at the
minimum to enable it to cover a wide
range of foreseeable stress scenarios that
include, but are not limited to, the
default of the two participant families
that would potentially cause the largest
aggregate credit exposure for the
covered clearing agency in extreme but
plausible market conditions. ICE Clear
Europe believes that the proposed
revisions enhance its CDS Auction
Terms. As described above, the optional
All or Nothing Bid incentivizes
competitive bidding, promoting the goal
of reaching an efficient auction clearing
price that permits ICE Clear Europe to
close out the defaulter’s portfolio and
return ICE Clear Europe to a matched
book. Such new bid type rewards
auction participants for bidding
competitively on both size and price
and may increase the willingness and
ability of participants and their
5 15
8 15
6 15
9 17
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U.S.C. 78q–1(b)(3)(F).
CFR 240.17Ad–22.
10 17 CFR 240.17Ad–22(e)(4)(ii).
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customers to participate in an auction
and absorb the defaulter’s positions
through the default management
process. In ICE Clear Europe’s view,
these enhancements represent tools that
strengthen ICE Clear Europe’s ability to
maintain its financial resources and
withstand the pressures of defaults,
consistent with the requirements of Rule
17Ad–22(e)(4)(ii).11
In addition, ICE Clear Europe believes
the amendments satisfy Rule 17Ad–
22(e)(13),12 which requires a clearing
agency to ensure that it ‘‘has the
authority and operational capacity to
take timely action to contain losses and
liquidity demands’’ in the case of
default. As discussed above, the
proposed amendments would enhance
ICE Clear Europe’s default management
capabilities in CDS default auctions.
Specifically, ICE Clear Europe believes
the proposed addition of All or Nothing
Bidding and the automated DMS
enhance ICE Clear Europe’s ability to
withstand defaults and continue
providing clearing services, including
by incentivizing competitive bidding to
promote effective and efficient auctions
that facilitate the close-out of the
defaulter’s portfolio and maximizing
ICE Clear Europe’s ability to efficiently
and safely manage its auction process in
default events, to ensure that ICE Clear
Europe can take timely action to contain
losses and liquidity pressures and to
continue meeting its obligations in the
event of a participant default consistent
with the requirements of Rule 17Ad–
22(e)(13).13
Rule 17Ad–22(e)(1) 14 requires that
clearing agencies establish policies and
procedures that provide for a wellfounded, clear, transparent, and
enforceable legal basis for each aspect of
its activities in all relevant jurisdictions.
The amendment to Paragraph 7.7 of
Parts 1 and 2 are designed to enhance
compliance by CDS auction participants
with Market Abuse Laws to the extent
that they receive any inside information
relating to any Contracts cleared by the
Clearing House or in respect of
securities of a Defaulter. In ICE Clear
Europe’s view, the amendments are
therefore consistent with the
requirements of Rule 17Ad–22(e)(1). 15
Rule 17Ad–22(e)(3)(i) 16 requires
clearing agencies to maintain a sound
risk management framework that
identifies, measures, monitors and
manages the range of risks that it faces.
CFR 240.17Ad–22(e)(4)(ii).
CFR 240.17Ad–22(e)(13).
13 17 CFR 240.17Ad–22(e)(13).
14 17 CFR 240.17Ad–22(e)(1).
15 17 CFR 240.17Ad–22(e)(1).
16 17 CFR 240.17 Ad–22(e)(3)(i).
The amendments to the Policy are
intended to ensure that the Policy is
consistent with the CDS Auction Terms
and to ensure risks relating to defaults
continue to be well managed. In ICE
Clear Europe’s view, the amendments
are therefore consistent with the
requirements of Rule 17Ad–22(e)(3)(i).17
Rule 17Ad–22(e)(2) 18 requires
clearing agencies to establish reasonably
designed policies and procedures to
provide for governance arrangements
that are clear and transparent and
specify clear and direct lines of
responsibility. The proposed
amendments to the Policy more clearly
define the roles and responsibilities of
the document owner, the Head of
Department, the senior members of the
Risk Oversight Department and the
senior members of the Compliance
Department, and are therefore consistent
with the requirements of Rule 17Ad–
22(e)(2).19
(B) Clearing Agency’s Statement on
Burden on Competition
ICE Clear Europe does not believe the
proposed amendments would have any
impact, or impose any burden, on
competition not necessary or
appropriate in furtherance of the
purposes of the Act. The amendments
are being adopted further clarify and
update the CDS Auction Terms, with
the goal of enhancing default
management. The addition of All or
Nothing Bids would provide an
additional bidding option for Clearing
Members if they choose to use it. The
amendments will otherwise apply to all
CDS Clearing Members. ICE Clear
Europe does not expect that the
proposed changes will adversely affect
access to clearing or the ability of
Clearing Members, their customers or
other market participants to continue to
clear contracts. ICE Clear Europe also
does not believe the amendments would
materially affect the cost of clearing or
otherwise impact competition among
Clearing Members or other market
participants or limit market
participants’ choices for selecting
clearing services. Accordingly, ICE Clear
Europe does not believe the
amendments would impose any burden
on competition not necessary or
appropriate in furtherance of the
purpose of the Act.
11 17
12 17
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17 17
CFR 240.17 Ad–22(e)(3)(i).
CFR 240.17 Ad–22(e)(2).
19 17 CFR 240.17 Ad–22(e)(2).
18 17
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(C) Clearing Agency’s Statement on
Comments on the Proposed Rule
Change Received From Members,
Participants or Others
Written comments relating to the
proposed amendments have not been
solicited or received by ICE Clear
Europe. ICE Clear Europe will notify the
Commission of any written comments
received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) by order approve or disapprove
the proposed rule change or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
The proposal shall not take effect
until all regulatory actions required
with respect to the proposal are
completed.
IV. 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–2020–007 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–2020–007. 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
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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–
2020–007 and should be submitted on
or before June 18, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.20
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–11403 Filed 5–27–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88932; File No. SR–
NASDAQ–2020–019]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Make
Certain Amendments To Eliminate the
Requirement That the Intraday
Indicative Value Be Disseminated for
Certain Series of Index Fund Shares
and All Series of Managed Fund
Shares
jbell on DSKJLSW7X2PROD with NOTICES
May 22, 2020.
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 May 14,
2020, The Nasdaq Stock Market LLC
(‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I and
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
II below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to eliminate
the requirement that the Intraday
Indicative Value be disseminated as set
forth under Nasdaq Rule 5705(b)
(‘‘Index Fund Shares’’) for certain series
of Index Fund Shares and under Nasdaq
Rule 5735 (‘‘Managed Fund Shares’’) for
all series of Managed Fund Shares.
Additionally, the Exchange proposes to
define the term ‘‘Portfolio Holdings’’ as
it pertains to Index Fund Shares.
Finally, the Exchange proposes to
amend Nasdaq Rule 4120 (Limit UpLimit Down Plan and Trading Halts) as
it pertains to dissemination of the
Intraday Indicative Value.
The text of the proposed rule change
is available on the Exchange’s website at
https://nasdaq.cchwallstreet.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange 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. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
Nasdaq Rules 5705(b) and 5735 relate
to the listing and trading of Index Fund
Shares and Managed Fund Shares,
respectively, on the Exchange. Among a
number of other requirements,
numerous subparagraphs of each of
these rules require that an intraday
estimate of the value of a share of each
series (the ‘‘Intraday Indicative Value’’
or ‘‘IIV’’) of Index Fund Shares and
Managed Fund Shares be disseminated
and updated at least every 15 seconds.3
20 17
1 15
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3 See subparagraphs (3)(C), (6)(A), and (9)(B)(i)e.
of Nasdaq Rule 5705(b). See also subparagraphs
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The Exchange is proposing to eliminate
the requirement to disseminate an IIV
for all series of Managed Fund Shares 4
listed on the Exchange and for those
series of Index Fund Shares that also
publish their Portfolio Holdings (as
defined below) on a daily basis.
As part of this proposal, the Exchange
is also proposing to adopt proposed
Nasdaq Rule 5705(b)(1)(F) to define the
term ‘‘Portfolio Holdings’’ to mean the
holdings of a particular series of Index
Fund Shares that will form the basis for
the calculation of its net asset value
(‘‘NAV’’) at the end of the business day.5
Existing Nasdaq Rules require issuers of
Managed Fund Shares to provide IIV
and daily disclosure of the Disclosed
Portfolio.6 Similarly, existing Exchange
Rules require issuers of Index Fund
Shares to disseminate an IIV for each
fund, but do not universally require
daily disclosure of a fund’s underlying
holdings.
The dissemination of an IIV, together
with disclosure of the fund’s underlying
holdings, was designed to allow
investors to determine the value of the
underlying portfolio of such funds on a
daily basis and provide a close estimate
of that value throughout the trading day.
However, as consistently highlighted in
the adopting release of Rule 17 CFR
270.6c–11 (‘‘Rule 6c–11’’) 7 under the
Investment Company Act of 1940 8 (the
‘‘1940 Act’’), the Commission has
expressed concerns regarding the
(c)(3), (c)(4), (d)(2)(A), (d)(2)(C)(ii), and (d)(2)(D) of
Nasdaq Rule 5735.
4 The Exchange notes that Nasdaq Rule
5735(d)(2)(B)(i) requires that the Disclosed Portfolio
for a series of Managed Fund Shares be
disseminated at least once daily and be made
available to all market participants at the same time.
Further, Nasdaq 5735(d)(2)(C)(ii) requires that the
Exchange consider suspension of trading in and
commence delisting proceedings for a series of
Managed Fund Shares where the Disclosed
Portfolio is not made available to all market
participants at the same time. As such, the
Exchange is proposing to eliminate the IIV
dissemination requirements entirely from Nasdaq
Rule 5735.
5 For purposes of Nasdaq Rule 5705(b), Portfolio
Holdings would include various information, to the
extent applicable, as listed in proposed
subparagraphs (1)(F)(i) through (1)(F)(xi). The
proposed definition of Portfolio Holdings is
substantively identical to the definition of
‘‘Disclosed Portfolio’’ as set forth in Nasdaq Rule
5735(c)(2).
6 See subparagraphs (c)(2), (d)(1)(B), and
(d)(2)(B)(i) of Nasdaq Rule 5735. The term
‘‘Disclosed Portfolio’’ (as defined in Nasdaq Rule
5735(c)(2)) means the identities and quantities of
the securities and other assets held by the
Investment Company that will form the basis for the
Investment Company’s calculation of net asset
value at the end of the business day.
7 See Investment Company Act Release No. 10695
(September 25, 2019), 84 FR 57162 (October 24,
2019) (the ‘‘Adopting Release’’).
8 15 U.S.C. 80a–1.
E:\FR\FM\28MYN1.SGM
28MYN1
]]>Agencies
[Federal Register Volume 85, Number 103 (Thursday, May 28, 2020)]
[Notices]
[Pages 32075-32082]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-11403]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88928; File No. SR-ICEEU-2020-007]
Self-Regulatory Organizations; ICE Clear Europe Limited; Notice
of Filing of Proposed Rule Change, as Modified by Partial Amendment No.
1, Relating to the ICE Clear Europe Auction Terms for CDS Default
Auctions and CDS Default Management Policy (formerly the CDS Default
Management Framework).
May 21, 2020.
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 May 12, 2020, ICE Clear Europe Limited (``ICE Clear Europe'' or the
``Clearing House'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule changes described in Items I, II and
III below, which Items have been prepared by ICE Clear Europe. On May
20, 2020, ICE Clear Europe filed Partial Amendment No. 1 to the
proposed rule change.\3\ The Commission is publishing this notice to
solicit comments on the proposed rule change, as modified by Partial
Amendment No. 1 (hereinafter the ``proposed rule change''), from
interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Partial Amendment Number 1 amended Exhibit 5A of the filing
to correct the paragraph numbering in Part 2 of the CDS Auction
Terms.
---------------------------------------------------------------------------
I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
ICE Clear Europe Limited (``ICE Clear Europe'' or the ``Clearing
House'') proposes to amend its Auction Terms for CDS Default Auctions
(the ``CDS Auction Terms'') and CDS Default Management Policy (the
``Policy''), formerly the CDS Default Management Framework. The
revisions do not involve any changes to the ICE Clear Europe Clearing
Rules (the ``Rules'') or other Procedures.\4\
---------------------------------------------------------------------------
\4\ Capitalized terms used but not defined herein have the
meanings specified in 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 is proposing to amend its CDS Auction Terms and
the Policy. The proposed amendments to the CDS Auction Terms would (1)
add a new ``all or nothing'' bidding type, (2) clarify certain
procedures regarding determination of minimum bid requirements, (3)
provide for the use of ICEU's default management system, in lieu of
email or other manual forms of communication, for submission of bids
[[Page 32076]]
and provision of certain notices to auction participants by the
Clearing House, (4) clarify certain regulatory and compliance
obligations of auction participants, and (5) generally update and
clarify certain terms and provisions and correct certain typographical
errors. The proposed amendments to the Policy would make corresponding
changes to reference the new ``all or nothing'' bidding type and make
general updates and clarifications.
I. CDS Auction Terms
1. All or Nothing Bid Type
The amendments would allow auction participants to submit a new
type of bid for an Auction Lot, an ``All or Nothing Bid.'' As provided
in the proposed new definition in paragraph 1.2 as well as paragraph
3.8 of Part 1 and paragraph 3.6 of Part 2, an All or Nothing Bid would
constitute a bid for the entire Auction Lot which, if it is the winning
bid, would provide for the bidder to receive 100% of the Auction Lot
without that award being split among more competitively priced bids (as
may occur with bids under the current bidding process (referred to as
``Standard Bids'')). Use of All or Nothing Bids would be optional, and
auction participants could continue to use Standard Bids as under the
current process. An auction participant may also submit both Standard
Bids and an All or Nothing Bid. Revised paragraph 3.8 of Part 1 and
paragraph 3.6 of Part 2 would also address the manner in which an All
or Nothing Bid may satisfy the Minimum Bid Requirement for an Auction
Lot and the requirement to identify an All or Nothing Bid as such.
The term ``BP'' would be similarly amended to include the price of
any valid All or Nothing Bid made by a Primary CDS Auction Participant
or Secondary CDS Auction Participant in the Primary CDS Auction or
Secondary CDS Auction, in either case proportionately scaled to a
portfolio size representing 100% of the relevant Auction Lot. This
definition would be further amended to provide that where the Standard
Bids submitted by an auction participant do not comply with any
applicable Minimum Bid Requirement, the BP shall be only the price of
any All or Nothing Bid made by such participant, should it have made
one. If a participant does not comply with any applicable Minimum Bid
Requirement based on its Standard Bids, and does not provide a valid
All or Nothing Bid, then the participant would be considered a Non-
Bidding CDS Clearing Member. Where a participant submitted only
Standard Bids, or only an All or Nothing Bid, BP would be the weighted
average bid price of the Standard Bids, or the price of the All or
Nothing Bid, respectively.
The definitions of Primary CDS Auction Priority AC Sequence and
Primary CDS Auction Priority GF Sequence (previously CDS Auction
Priority AC Sequence and CDS Auction Priority GF Sequence) would be
amended to clarify that each amount in the sequence would be applied
pro rata for the relevant Auction Lot of a Primary CDS Auction by
applying the Auction Lot Guaranty Fund Weighting. As discussed below,
the terms CDS Auction Priority AC Sequence and CDS Auction Priority GF
Sequence, would be renamed to indicate more clearly that these terms
relate to the Primary CDS Auction. A number of other terms relating to
the Primary CDS Auction would be similarly renamed. The clarification
that the amount in the sequence would be applied pro rata would provide
additional detail that is consistent with existing practice. The term
Lot Guaranty Fund Weighting has been renamed Auction Lot Guaranty Fund
Weighting, consistent with the update from the term Lot to Auction Lot.
The definition of this term has been clarified to refer to the
aggregate of the PRIs for all Auction Lots in a Defaulter's portfolio
rather than all Lots in a CDS Auction or Secondary CDS Auction, which
is a more precise definition, but the change is not intended to result
in a substantive change in practice. The definitions of Secondary CDS
Auction Priority AC Sequence, Secondary CDS Auction Priority GF
Sequence would be amended generally to conform to the corresponding
Primary CDS Auction definitions, including to cross-refer, for clarity,
to Rule 908(i) (which is the relevant provision of the Rules relating
to the order of application of Guaranty Fund Contributions) and to
clarify that each amount in the sequence would be applied pro rata for
the relevant Auction Lot of a Secondary CDS Auction by applying the
Auction Lot Guaranty Fund Weighting. The cross-reference would be added
to ensure clarity and consistency between the relevant terms used for
Primary and Secondary Auctions and between the CDS Auction Terms and
the Rules, but is not intended to change the substance of current
practice. The definition of CDS Auction Clearing Price would be
redefined as Primary CDS Auction Clearing Price and a proviso would be
added to this defined term and to the defined term Secondary CDS
Auction Clearing Price stating that in the event that an All or Nothing
Bid is included in such sum of the notional amount of CDS Contracts,
the term would mean the price of the All or Nothing Bid in accordance
with paragraph 5.4 of Part 1 or paragraph 5.4 of Part 2, as applicable,
of the CDS Auction Terms. If an All or Nothing Bid is not submitted to
or accepted by the Clearing House, then consistent with the current CDS
Auction Terms, the Auction Lot will be allocated in full to bids at or
above the Primary CDS Auction Clearing Price or Secondary CDS Auction
Clearing Price, as applicable. If, however, an All or Nothing Bid is
included in the group of bids with equal or higher bid prices, then the
price of such All or Nothing Bid would be the Primary CDS Auction
Clearing Price. The examples in Paragraph 5.4 of Part 1 would be
modified to take into account All or Nothing Bids, including to show
information regarding a ``price rank'', whether it is an All or Nothing
Bid, the bid size (as a percentage of auction lot), bid price (payment
per 100%), size multiplied by price and the allocation percentage of
the auction lot. The examples in Paragraph 5.4 of Part 2 would be
removed, and cross-reference to the examples in Paragraph 5.4 of Part I
would be added instead.
Paragraph 5.5 of Parts 1 and 2 would clarify that All or Nothing
Bids are given precedence over Standard Bids, in the sense that if an
All or Nothing Bid is accepted, a Standard Bid will not be accepted
even if it had a higher price than the Primary CDS Auction Clearing
Price or Secondary CDS Auction Clearing Price, as applicable. It would
also provide that if multiple All or Nothing Bids are received at the
Primary CDS Auction Clearing Price or Secondary CDS Auction Clearing
Price, as applicable, the Auction Lot will be allocated equally among
those bidders.
Paragraph 5.6 in Part 1 would be amended to clarify that in the
scenario where the Clearing House elects to determine the CDS Auction
Clearing Price for less than 100% of the contracts in the lot and hold
a further auction (a ``Repeat CDS Auction'') for the remainder, any All
or Nothing Bids would be disregarded. Related examples in paragraph 5.6
have been amended accordingly.
2. Minimum Bid Requirement
The amendments would revise Paragraph 2.2 of Parts 1 and 2 to
reflect that a Clearing Member could have a zero Minimum Bid
Requirement (in which case it would not be required to bid for the
relevant lot) and to remove a stated exception from the requirement for
each CDS Clearing Member to bid in every Primary CDS Auction or
[[Page 32077]]
Secondary CDS Auction (as such terms are defined in the CDS Auction
Terms), as applicable, for those whose membership privileges permit
them not to participate (as there are no such CDS Clearing Members).
Paragraph 2.4 of Parts 1 and 2 would be amended such that a CDS
Clearing Member's Minimum Bid Requirement would be communicated to it
through the DMS (or via such other means as specified by the Clearing
House), as discussed below, as soon as practicable prior to the
relevant CDS Auction instead of through the template notification set
out in an annex to the CDS Auction Terms (which would accordingly be
removed). The amendments to Paragraph 2.4 of Part 1 and Paragraphs 2.4
and 2.5 of Part 2 would also clarify the procedures for the Clearing
House to determine that a Minimum Bid Requirement would be
inappropriate for a particular CDS Clearing Member in particular
circumstances, which would permit the Clearing House greater
flexibility in appropriate circumstances. A CDS Clearing Member would
be required to notify the Clearing House promptly, but in any event
within one hour of the Clearing House publishing details of the CDS
Contracts comprising the relevant Auction Lot (instead of 12 hours
prior to the opening of the auction), in writing, if it reasonably
considers that the Minimum Bid Requirement would not apply to it. ICE
Clear Europe does not believe the current 12 hour period is necessarily
practicable as an operational matter, as the Clearing House may need to
conduct an auction with less than 12 hours' notice. The current
requirement could thus either create an undesirable delay in conducting
an auction or impose an unnecessary limitation on the CDS Clearing
Member's ability to request an exception to the Minimum Bid
Requirement. The proposed change, to allow notice within one hour after
the Clearing House publishes auction details, will allow the Clearing
House to move more quickly to minimize losses and preserve the CDS
Clearing Member's ability to request an exception where warranted. The
amendments would also clarify that CDS Clearing Members could outsource
the operational processing of any of their auction obligations under
Rule 102(w) (regarding outsourcing). CDS Clearing Members could also
transfer their Minimum Bid Requirements to an Affiliate that is also a
CDS Clearing Member, subject to notification to the Clearing House
prior to an auction and execution of an agreement in an approved
format. The amendments would clarify that a CDS Clearing Member that
outsources any of its obligations would remain liable for any breach by
any Affiliate or outsourcee of the CDS Auction Terms or the Primary CDS
Auction Specifications, including without limitation in respect of CDS
Guaranty Fund juniorization. This amendment broadens the existing
requirement which only refers to transfers or outsources of the Minimum
Bid Requirement rather than any obligation, and makes specific
reference to the CDS Guaranty Fund juniorization, and reflects the
general principle that outsourcing or transfer of an obligation does
not avoid responsibility for complying with the obligation. The
amendments would further add that a CDS Clearing Member that transfers
or outsources its Minimum Bid Requirement to an Affiliate would, for
the purposes of determining its Senior Guaranty Fund Contribution,
Subordinate Guaranty Fund Contribution, Senior Assessment Contribution
and/or Subordinate Assessment Contribution, and for determining whether
it should be designated as a Non-Bidding CDS Clearing Member, assume
the same position as a Senior Bidder, Split Bidder, Subordinate Bidder
or Non-Bidding CDS Clearing Member as the Affiliate, as appropriate.
3. Default Management System
The amendments would provide for the use of the DMS for a number of
communications between the Clearing House and auction participants, in
lieu of the current manual notice process. Pursuant to amended
paragraph 2.1 of Parts 1 and 2 and the revised definitions of Primary
CDS Auction Announcement and Secondary CDS Auction Announcement, the
Clearing House would notify CDS Clearing Members electronically through
the DMS (or other means specified by the Clearing House) of an auction
taking place instead of by Circular. Conforming changes would be made
throughout the CDS Auction Terms to make reference to communication
through the DMS instead of through existing means. For example, as
noted above, the Clearing House would notify Clearing Members of
Minimum Bid Requirements through the DMS, pursuant to revised paragraph
2.4 in Parts 1 and 2. Paragraph 2.5 of Part 1 and Paragraph 2.7 of Part
2 would be amended to state that Primary CDS Auction Specifications or
Secondary CDS Auction Specifications, as applicable would be provided
through the DMS instead of in the template format currently attached to
the CDS Auction Terms. Further, in Paragraph 2.5 of Part 1 and
Paragraph 2.7 of Part 2, the statement that the Clearing House will
provide each auction participant (other than Defaulters) with
information about CDS Contracts to be auctioned would be amended to
remove the exception for Defaulters because it is clear that Defaulters
would not be auction participants and as such, the exception was
unnecessary. The requirement that any minimum or maximum reserve price
be provided would be deleted because, consistent with Paragraph 5.2,
any reserve price would not necessarily be disclosed to bidders.
Paragraph 2.9 and 2.10 of Part 1 and Paragraphs 2.10 and 2.11 of
Part 2 would be amended to state that all bids must be submitted via
DMS (or other means specified by the Clearing House) instead of through
the existing bid form. Former Paragraph 2.11 of Part 1 and Paragraph
2.12 of Part 2 has been correspondingly removed as no longer relevant
with electronic submission through DMS. Paragraph 3.12 of Part 1 and
Paragraph 3.10 of Part 2 (each as renumbered) would be amended to
provide that modified or amended bids may be submitted through DMS (or
another format specified by the Clearing House). Pursuant to revised
Paragraph 5.7 of Part 1, further Primary CDS Auction Specifications for
any repeat CDS Auction would be notified by the Clearing House through
the Primary CDS Auction Announcement and through the DMS (or via such
other means and in such format as is specified by the Clearing House).
Pursuant to revised Paragraph 5.8 of Part 1 and Paragraph 5.9 of Part
2, winning bidders could also be notified through the DMS. References
to submission of a bid form would be removed from the definition of
``Bid'' and the term ``Bid Form'' would be amended to ``Bid
Submission'' and would mean submission of a bid via DMS rather than via
the ICE file transfer server.
4. Clarification of Certain Regulatory and Compliance Obligations
Paragraph 7.7 of Parts 1 and 2 would be amended to clarify and
state explicitly certain obligations for auction participants in
respect of information they may receive in connection with an auction,
including the contents of the portfolio or the outcome or timing of an
auction. Specifically, the auction participant would acknowledge that
such information may constitute inside information for the purposes of
the Market Abuse Regulation (Regulation (EU) No 596/2014) (``MAR'') or
fall within the definition of any similar term
[[Page 32078]]
under Applicable Law (``Market Abuse Laws'') in respect of any
Contracts cleared by the Clearing House or in respect of securities of
a Defaulter. Under the revisions, each such participant would be
required to assess whether such information is inside information and,
if so, agree to: (a) Comply with applicable Market Abuse Laws; (b)
generally not disclose such information to persons outside of its
organization; (c) prevent persons engaged in client trading at such
organization from possessing such information; (d) prevent those in
possession of such information from trading on such information until
it ceases to be inside information; and (e) where such information
constitutes inside information under Regulation (EU) No. 596/2014,
maintain an insider list of persons with access to this information.
5. Other Clarifications and Updates
The amendments would make a number of other clarifications,
drafting improvements and corrections to the CDS Auction Terms. Certain
changes to defined terms would be made throughout the CDS Auction
Terms, including the use of the term ``CDS Default Auction Procedures''
instead of CDS Auction Procedures, the new defined term ``Bidding Close
Time'' instead of ``Closing Time'' (which ICE Clear Europe views as a
more precise term in this context (as the concept of closing time more
generally has other uses), but which would have the same definition),
and the defined term ``Auction Lot'' instead of ``Lot'' to better
distinguish the term from the generic term, ``lot''. The definition of
Auction Lot would also be clarified to refer only to CDS Contracts of
the Defaulter (rather than the generic term ``portfolio'' of a
Defaulter), and to all or any part of such contracts as determined by
the Clearing House for a particular discrete auction. ICE Clear Europe
does not believe such change would result in any change in practice.
Conforming changes would be made to the defined terms for Lot
Assessment Contribution, Lot CDS Direct Auction Participant
Contribution, Lot Guaranty Fund Contribution, Lot Guaranty Fund
Weighting, Lot Resources and Lot Resource Shortfall.
A series of other changes is intended to more clearly distinguish
between primary auctions under Part 1 and secondary auctions under Part
2. Thus, the term ``CDS Auction'' would be amended to ``Primary CDS
Auction'' with corresponding changes to CDS Auction Announcement, CDS
Auction Clearing Price, CDS Auction Participant, CDS Auction Priority,
CDS Auction Priority AC Sequence, CDS Auction Priority GF Sequence and
CDS Auction Specifications to refer to Primary CDS Auction
Announcement, Primary CDS Auction Clearing Price, Primary CDS Auction
Participant, Primary CDS Auction Priority, Primary CDS Auction Priority
AC Sequence, Primary CDS Auction Priority GF Sequence and Primary CDS
Auction Specifications. Conforming changes would be made throughout the
CDS Auction Terms. The terms ``Non-Bidding CDS Clearing Member'' and
``Non-Bidding Direct Participating Customer'' would be clarified to
explicitly reference such persons that do not submit or make (or would
not be deemed to submit or make) a bid in the relevant Primary CDS
Auction or Secondary CDS Auction in order to clarify that the terms
capture those persons who do not participate or who are deemed not to
participate (such as where their bid has been declared invalid under
the CDS Auction Terms), whether or not they can be said to have
``chosen'' not to participate. The term ``Elective CDS Auction
Participants'' and references to this term would be removed, as there
are no CDS Clearing Members in such category. The term ``Second CDS
Auction'' would be amended to ``Repeat CDS Auction'', which term
currently refers to a further Primary CDS Auction under Part 1 after an
unsuccessful or partially unsuccessful first CDS auction, with the
intention to more clearly distinguish such an auction from a Secondary
CDS Auction under Part 2. The terms ``Split Bidder'' and ``Subordinate
Bidder'' would be amended to explicitly note that this could be either
a Primary CDS Participant or a Secondary CDS Auction Participant, as
applicable for the relevant auction. This does not reflect a change in
substance, but is intended to make the drafting consistent with the
deletion of the term ``CDS Auction Participant'' and addition of the
more specific terms, Primary CDS Auction Participant and Secondary CDS
Auction Participant.
Proposed amendments to paragraph 1.64 would clarify that references
to CDS Contracts, for purposes of the CDS Auction Terms, include (i)
where automatic early termination has taken place under Part 9 of the
Rules or Contract Terms, a reference to the terminated CDS Contracts or
notional amounts representing such terminated CDS Contracts and (ii)
where contracts have arisen from hedging transactions pursuant to Rule
903(c), a reference to any such hedging contracts executed by the
Clearing House. These amendments thus clarify that such contracts may
be auctioned for purposes of establishing replacement contracts with
non-defaulting Clearing Members to balance the Clearing House's
positions as part of the default management process, and thereby also
establishing an auction price to be used in determining the Clearing
House's loss with respect to the close out of the defaulter's positions
for purposes of the Rules. Amendments to this paragraph would also add
a general introductory note that the CDS Auction Terms govern the
auctioning of lots representing one or more CDS Contracts to which a
Defaulter is or was a party, where such auction is administered by the
Clearing House pursuant to Part 9 of the Rules. In paragraph 1.65, the
amendments would clarify that nothing in the CDS Auction Terms would
prevent the Clearing House from administering a sale or entering into
offsetting transactions without holding an auction to which the CDS
Auction Terms apply. This reflects the Clearing House's existing
authority under the Rules, and is intended to avoid any potential
confusion as to the scope of the CDS Auction Terms.
Introductory provisions would be added in paragraph 1.67 and
following paragraphs to address matters such as governing law and
dispute resolution (including submission to arbitration and
jurisdiction). These are substantially similar to existing provisions
in the Rules and the other Procedures, and ICE Clear Europe is
proposing to add them here for consistency across its documentation.
Paragraph 2.11 of Part 1 and Paragraph 2.13 of Part 2 would be
amended to clarify that after the Bidding Close Time, the Clearing
House will notify participants of the fact that the CDS Auction took
place, in addition to the outcome.
Paragraph 3.3 of Parts 1 and 2 would clarify that the specified
order of application of CDS Guaranty Fund Contributions and Assessment
Contributions in the Primary CDS Auction Priority or Secondary CDS
Auction Priority, as applicable, would only apply to bids indicated or
deemed related to Minimum Bid Requirements (i.e., those Standard Bids,
or if applicable the All or Nothing Bid, that count toward the Minimum
Bid Requirement).
An additional clarification would be made in Paragraph 3.8 of Part
1 and Paragraph 3.6 of Part 2 that the Minimum Bid Requirement could be
satisfied by submitting multiple bids provided that any individual bid
is equal to (and not merely larger than) any applicable minimum bid
size.
[[Page 32079]]
A clarification would be made in Paragraph 3.11 of Part 1 and
Paragraph 3.9 of Part 2 that a bidder making a referential Bid (e.g. a
Bid which purports to be a Bid which is [euro]1 higher or lower than
the highest or lowest Bidder) would be treated as if it had not made
such bid. This change is consistent with other changes to the CDS
Auction Terms to refer to a person that does not bid in the auction (or
is deemed not to bid) as ``Non-Bidding CDS Clearing Member'' or ``Non-
Bidding Direct Participating Customer'', without regard to whether the
person ``chose'' not to participate. Similarly, under revised Paragraph
3.12 of Part 1 and Paragraph 3.10 of Part 2, following the bidding
close time, upon request of a CDS Auction Participant stating that a
mistake was made in the bid submission, the Clearing House could
invalidate the bid and the participant would be treated as if it had
not made such a bid. The Clearing House would no longer provide for the
submitter to withdraw or correct the bid in this case. This reflects
the operation of DMS, which does not permit submission of a bid
following the bidding close time, and further reflects ICE Clear
Europe's view that given the objective of ensuring a fair and orderly
auction, it is not appropriate for Clearing Members to modify bids
following the bidding close deadline.
Similar amendments changing ``treated as if it had chosen not to
participate'' to ``as if it had not made such Bid'' would be made to
Paragraphs 3.13, 3.14, 3.15, 4.4 and 5.5 of Part 1 and Paragraphs 3.11,
3.12, 3.13, 4.4, 5.4 and 5.5 of Part 2 for similar reasons. An
additional amendment to Paragraph 5.4 of Parts 1 and 2 would provide
that in the event of invalid or void bid or no CDS Contract being
established, such bid would not be accepted and the CDS Auction
Participant would be treated as if it had not made such bid, instead of
chosen not to participate, for similar reasons.
The amendments to Paragraph 4.1 of Parts 1 and 2 would remove a
statement that a CDS Clearing Member may make an unlimited number of
separate bids and clarify that the member may make separate bids for
Customers or Sponsored Principals for whom it acts as Sponsor in the
same way as it may make a bid for one of its Proprietary Accounts and
subject to the same provisions of the relevant Part of the CDS Auction
Terms. This amendment reflects that relevant systems do not permit an
infinite number of separate bids, and in practice is intended to give
ICE Clear Europe flexibility to set a maximum number of bids if it
determines that is appropriate. Amendments to Paragraph 4.3 of Parts 1
and 2 would require that each Direct Participating Customer (as defined
in the CDS Auction Terms) enter into a CDS Auction Participation
Agreement with its CDS Clearing Member prior to participation in a
Primary CDS Auction or Secondary CDS Auction, as applicable (rather
than deeming them to be bound by the CDS Auction Terms). ICE Clear
Europe believes it is preferable to have a formal agreement with the
Direct Participating Customer in this situation, as it provides a
clearer and stronger basis for enforcement of the CDS Auction Terms
against the Direct Participating Customer.
Amendments to Paragraph 5.3 of Parts 1 and 2 would also permit the
Clearing House to at its discretion withdraw an auction lot after (as
well as prior to) the bidding close time.
In Paragraph 5.5 of Parts 1 and 2, an additional clarification
would add that bids invalidated pursuant to certain Paragraph 3
(Bidding Process) provisions could, at the Clearing House's discretion,
be excluded for purposes of calculating the auction clearing price or
allocating sizes at that price.
Amendments to Paragraph 5.8 of Part 1 and Paragraph 5.9 of Part 2
would clarify the mechanism under the Rules through which CDS Contracts
are entered into as a result of an auction, by providing that each bid
constitutes an offer by the CDS Clearing Member to the Clearing House
to enter into CDS Contracts pursuant to a Transfer governed by Rule
904(b) (but without regard to any Customer or Customer-CM Transactions
of the Defaulter) and Part 4 of the Rules. The amendment is intended as
a clarification of the existing process for entering into contracts and
is not a substantive change in the CDS Auction Terms. Any unnecessary
reference to acceptance of such offer by the Clearing House would be
removed (as the paragraph provides for the relevant contracts to arise
between the Clearing House and the winning bidder without need for any
further step). Other changes in this paragraph would clarify that
resulting CDS Contracts would arise between the Clearing House and the
winning bidder, in accordance with such a Transfer and Part 4 of the
Rules, but without regard to any Customer or Customer-CM Transactions
of the Defaulter, on economically identical terms to the CDS Contracts
that are the subject of the auction lot in the relevant Primary CDS
Auction or Secondary CDS Auction, as applicable.
Clarifying amendments as to the treatment of Individually
Segregated Sponsored Accounts as a form of Customer Account, consistent
with other amendments discussed above, would be made in Paragraph 7.1
of Parts 1 and 2.
Throughout the CDS Auction Terms, various provisions would be
renumbered as a result of the changes described above and related
cross-references would be corrected and updated.
II. CDS Default Management Policy
ICE Clear Europe is also proposing to make various amendments to
its CDS Default Management Framework, which would be renamed the CDS
Default Management Policy. The amendments would be consistent with the
amendments to the CDS Auction Terms discussed above and make certain
other clarifications and updates. Conforming changes would also be made
throughout the document to reflect the name change.
In terms of the procedures for declaring a default, the Policy
would be revised to remove a requirement that the default management
process be implemented ``immediately'' after approval by appropriate
management of the declaration of a default. Although ICE Clear Europe
expects that such process would be implemented in a timely manner under
the circumstances, it is not necessary (or necessarily feasible) to
specify that it do so immediately. A similar change would be made to
the requirement that ICE Clear Europe cease clearing trades for the
defaulting Clearing Member when it is declared in default.
With respect to activation of the clearing risk team, the Policy
would be amended to remove the statement that in the event that the
President/Chief Operating Officer being absent, the Head of Clearing
Risk has the ability to overrule any other head of department
(including Head of Treasury and Head of Operations) where necessary, on
matters relating to default management. The amendment reflects a change
in the Board's delegation of authority to the President (and not to the
Chief Operating Officer or Head of Clearing Risk in the President's
absence).
With respect to liquidation of a defaulting member's collateral,
the amendments would remove a statement that for all assets the
Clearing House ensures that it can sell the collateral, subject to
settlements terms, within a single working day. This statement is
unnecessary and an oversimplification, and the Clearing House in any
event relies on its existing and detailed
[[Page 32080]]
collateral and liquidity policies to ensure it has sufficient access to
liquidity in case of default. A related statement that the Head of
Clearing Risk will have the discretion to postpone the collateral sale
would be removed as unnecessary in light of the general standard that
the Clearing House will take appropriate action to ensure an orderly
close out. Amendments would also clarify that the Clearing House may
(but need not) convert any portion of the defaulting Clearing Member's
non-cash margin or collateral into cash, as the Clearing House
determines appropriate. This is intended as a drafting improvement that
provides greater clarity, but does not affect the Clearing House's
rights with respect to such margin or collateral.
The provisions of the Policy regarding bidding mechanics would be
amended to address ``All or Nothing'' bids. A paragraph would be added
to this section to provide that auction participants may submit ``All
or Nothing'' bids for each auction. The amendments provide explanation
as to the meaning of such a bid and an example of how such bids work.
The amendments would also provide that further information on the
bidding types utilized in any given auction would be published as part
of the CDS Default Auction Terms Specifications.
The existing requirement that ICE Clear Europe conduct quarterly
reviews of the Policy would be deleted as the Policy would reviewed as
part of the ICE Clear Europe's separate annual documentation review
process. The Policy would continue to require ICE Clear Europe, in
coordination with its Clearing Members, conduct an annual mock Clearing
Member default test with the Clearing Risk Department, appropriate
Clearing House management and CDS Default Committee Members for each
Clearing Member.
The amendments to the Policy would also update arrangements for
breach management, ongoing Policy reviews and exception handling. The
amendments are intended to make the Policy consistent in this regard
with other ICE Clear Europe policies and governance processes. Pursuant
to the amendments, the document owner, as specified in ICE Clear Europe
policies, would be responsible for reporting report material breaches
or unapproved deviations from this document to the Head of Department,
the Chief Risk Officer and the Head of Compliance (or their delegates)
who together would determine if further escalation should be made to
relevant senior executives, the Board and/or competent authorities.
Exceptions to the Policy would approved in accordance with ICE Clear
Europe's governance process for the approval of changes to the Policy.
(b) Statutory Basis
ICE Clear Europe believes that the proposed amendments are
consistent with the requirements of Section 17A of the Act \5\ and the
regulations thereunder applicable to it. In particular, Section
17A(b)(3)(F) of the Act \6\ requires, among other things, that the
rules of a clearing agency be designed to promote the prompt and
accurate clearance and settlement of securities transactions and, to
the extent applicable, derivative agreements, contracts, and
transactions, the safeguarding of securities and funds in the custody
or control of the clearing agency or for which it is responsible, and
the protection of investors and the public interest. ICE Clear Europe
believes that the proposed rule change is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to ICE Clear Europe, in particular, to Section
17(A)(b)(3)(F),\7\ because ICE Clear Europe believes that the proposed
changes to the CDS Auction Terms enhance ICE Clear Europe's ability to
manage the risk of defaults. The proposed changes introduce All or
Nothing Bidding to ICE Clear Europe's existing auction methodology.
This new bid type is intended to reward auction participants for
bidding competitively on both size and price, rather than just price
(as with a Standard Bid). If an All or Nothing Bid sets the auction
clearing price, the revised CDS Auction Terms award 100% to that bid,
rather than splitting the award with participants bidding more
competitively on price but with smaller size. Such changes incentivize
competitive bidding by rewarding auction participants for bidding
competitively on both price and size and are designed to promote
effective and efficient auctions to facilitate the close-out of the
defaulter's portfolio.
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\5\ 15 U.S.C. 78q-1.
\6\ 15 U.S.C. 78q-1(b)(3)(F).
\7\ 15 U.S.C. 78q-1(b)(3)(F).
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The proposed amendments also implement the use of the automated DMS
to replace certain manual communication tasks in the auction process,
including announcing the auction, communicating Minimum Bid
Requirements and auction specifications, submitting bids and notifying
winning bidders. Such changes allow ICE Clear Europe to more
efficiently and safely manage its auction process and reduce the risk
of miscommunication or error. The added compliance requirements around
treatment of information concerning the auction will help prevent
market abuse, enhance compliance with applicable law and thus generally
promote the public interest. Finally, the clarification and clean-up
changes provide greater specificity with respect to the CDS Auction
Terms such that auction participants have greater certainty and clarity
regarding the auction process and the requirements for their
participation. ICE Clear Europe believes that the proposed amendments
augment ICE Clear Europe's procedures relating to default management
and enhance ICE Clear Europe's ability to withstand defaults and
continue providing clearing services, thereby promoting the prompt and
accurate clearance and settlement of securities transactions,
derivatives agreements, contracts, and transactions, the safeguarding
of securities and funds which are 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\
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\8\ 15 U.S.C. 78q-1(b)(3)(F).
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In addition, the proposed rule change is consistent with the
relevant requirements of Rule 17Ad-22.\9\ Rule 17Ad-22(e)(4)(ii) \10\
requires ICE Clear Europe to 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, including by maintaining additional financial
resources at the minimum to enable it to cover a wide range of
foreseeable stress scenarios that include, but are not limited to, the
default of the two participant families that would potentially cause
the largest aggregate credit exposure for the covered clearing agency
in extreme but plausible market conditions. ICE Clear Europe believes
that the proposed revisions enhance its CDS Auction Terms. As described
above, the optional All or Nothing Bid incentivizes competitive
bidding, promoting the goal of reaching an efficient auction clearing
price that permits ICE Clear Europe to close out the defaulter's
portfolio and return ICE Clear Europe to a matched book. Such new bid
type rewards auction participants for bidding competitively on both
size and price and may increase the willingness and ability of
participants and their
[[Page 32081]]
customers to participate in an auction and absorb the defaulter's
positions through the default management process. In ICE Clear Europe's
view, these enhancements represent tools that strengthen ICE Clear
Europe's ability to maintain its financial resources and withstand the
pressures of defaults, consistent with the requirements of Rule 17Ad-
22(e)(4)(ii).\11\
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\9\ 17 CFR 240.17Ad-22.
\10\ 17 CFR 240.17Ad-22(e)(4)(ii).
\11\ 17 CFR 240.17Ad-22(e)(4)(ii).
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In addition, ICE Clear Europe believes the amendments satisfy Rule
17Ad-22(e)(13),\12\ which requires a clearing agency to ensure that it
``has the authority and operational capacity to take timely action to
contain losses and liquidity demands'' in the case of default. As
discussed above, the proposed amendments would enhance ICE Clear
Europe's default management capabilities in CDS default auctions.
Specifically, ICE Clear Europe believes the proposed addition of All or
Nothing Bidding and the automated DMS enhance ICE Clear Europe's
ability to withstand defaults and continue providing clearing services,
including by incentivizing competitive bidding to promote effective and
efficient auctions that facilitate the close-out of the defaulter's
portfolio and maximizing ICE Clear Europe's ability to efficiently and
safely manage its auction process in default events, to ensure that ICE
Clear Europe can take timely action to contain losses and liquidity
pressures and to continue meeting its obligations in the event of a
participant default consistent with the requirements of Rule 17Ad-
22(e)(13).\13\
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\12\ 17 CFR 240.17Ad-22(e)(13).
\13\ 17 CFR 240.17Ad-22(e)(13).
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Rule 17Ad-22(e)(1) \14\ requires that clearing agencies establish
policies and procedures that provide for a well-founded, clear,
transparent, and enforceable legal basis for each aspect of its
activities in all relevant jurisdictions. The amendment to Paragraph
7.7 of Parts 1 and 2 are designed to enhance compliance by CDS auction
participants with Market Abuse Laws to the extent that they receive any
inside information relating to any Contracts cleared by the Clearing
House or in respect of securities of a Defaulter. In ICE Clear Europe's
view, the amendments are therefore consistent with the requirements of
Rule 17Ad-22(e)(1). \15\
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\14\ 17 CFR 240.17Ad-22(e)(1).
\15\ 17 CFR 240.17Ad-22(e)(1).
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Rule 17Ad-22(e)(3)(i) \16\ requires clearing agencies to maintain a
sound risk management framework that identifies, measures, monitors and
manages the range of risks that it faces. The amendments to the Policy
are intended to ensure that the Policy is consistent with the CDS
Auction Terms and to ensure risks relating to defaults continue to be
well managed. In ICE Clear Europe's view, the amendments are therefore
consistent with the requirements of Rule 17Ad-22(e)(3)(i).\17\
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\16\ 17 CFR 240.17 Ad-22(e)(3)(i).
\17\ 17 CFR 240.17 Ad-22(e)(3)(i).
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Rule 17Ad-22(e)(2) \18\ requires clearing agencies to establish
reasonably designed policies and procedures to provide for governance
arrangements that are clear and transparent and specify clear and
direct lines of responsibility. The proposed amendments to the Policy
more clearly define the roles and responsibilities of the document
owner, the Head of Department, the senior members of the Risk Oversight
Department and the senior members of the Compliance Department, and are
therefore consistent with the requirements of Rule 17Ad-22(e)(2).\19\
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\18\ 17 CFR 240.17 Ad-22(e)(2).
\19\ 17 CFR 240.17 Ad-22(e)(2).
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(B) Clearing Agency's Statement on Burden on Competition
ICE Clear Europe does not believe the proposed amendments would
have any impact, or impose any burden, on competition not necessary or
appropriate in furtherance of the purposes of the Act. The amendments
are being adopted further clarify and update the CDS Auction Terms,
with the goal of enhancing default management. The addition of All or
Nothing Bids would provide an additional bidding option for Clearing
Members if they choose to use it. The amendments will otherwise apply
to all CDS Clearing Members. ICE Clear Europe does not expect that the
proposed changes will adversely affect access to clearing or the
ability of Clearing Members, their customers or other market
participants to continue to clear contracts. ICE Clear Europe also does
not believe the amendments would materially affect the cost of clearing
or otherwise impact competition among Clearing Members or other market
participants or limit market participants' choices for selecting
clearing services. Accordingly, ICE Clear Europe does not believe the
amendments would impose any burden on competition not necessary or
appropriate in furtherance of the purpose of the Act.
(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants or Others
Written comments relating to the proposed amendments have not been
solicited or received by ICE Clear Europe. ICE Clear Europe will notify
the Commission of any written comments received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve or disapprove the proposed rule change or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
The proposal shall not take effect until all regulatory actions
required with respect to the proposal are completed.
IV. 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 [email protected]. Please include
File Number SR-ICEEU-2020-007 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-2020-007. 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
[[Page 32082]]
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-2020-007 and should be submitted
on or before June 18, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-11403 Filed 5-27-20; 8:45 am]
BILLING CODE 8011-01-P
