Self-Regulatory Organizations; ICE Clear Europe Limited; Notice of Filing of Proposed Rule Change Relating to Amendments to the ICE Clear Europe Clearing Rules, 36904-36906 [2020-13120]
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36904
Federal Register / Vol. 85, No. 118 / Thursday, June 18, 2020 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–89060; File No. SR–ICEEU–
2020–005]
Self-Regulatory Organizations; ICE
Clear Europe Limited; Notice of Filing
of Proposed Rule Change Relating to
Amendments to the ICE Clear Europe
Clearing Rules
June 12, 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 June 2,
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 primarily by ICE
Clear Europe. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
ICE Clear Europe is proposing to make
certain changes to its Clearing Rules (the
‘‘Rules’’) 3 to address the receipt of
proceeds from default insurance.
II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
In its filing with the Commission, ICE
Clear Europe included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. ICE
Clear Europe has prepared summaries,
set forth in sections (A), (B), and (C)
below, of the most significant aspects of
such statements.
(A) Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
(a) Purpose
ICE Clear Europe proposes
amendments to Parts 9 and 11 of the
Rules relating to default insurance that
is intended to cover losses resulting
from a Clearing Member default. Among
other changes, the proposed
amendments address the potential
receipt of proceeds from default
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 Capitalized terms used but not defined herein
have the meanings specified in the Rules.
2 17
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insurance. Although ICE Clear Europe is
not, and would not be, required to
obtain or maintain default insurance,
the proceeds of any such insurance
would, under the Rules as proposed to
be revised, be applied as part of the
resources available to ICE Clear Europe
in the event of a Clearing Member
default. Such default insurance would
provide additional default resources to
cover losses from Clearing Member
defaults, prior to the need to use
guaranty fund resources from nondefaulting Clearing Members. This
would provide a potential extra layer of
protection for the non-defaulting
Clearing Members’ guaranty fund
contributions and assessments. ICE
Clear Europe is also proposing certain
additional conforming amendments to
the Rules. The proposed revisions are
described in detail below.
ICE Clear Europe proposes to amend
the default waterfalls in Rules 908(b)
(for F&O-only Clearing Members or
Sponsored Principals), (c) (for CDS-only
Clearing Members or Sponsored
Principals), (d) (for FX-only Clearing
Members or Sponsored Principals) and
(g) (for Clearing Members or Sponsored
Principals in multiple membership
categories) such that default insurance
proceeds would be placed third in the
waterfall of assets used to meet the
obligations and liabilities of a Defaulter
and any shortfall, loss or liability to the
Clearing House upon an Event of
Default. (In the case of a defaulter with
multiple membership categories, the
proceeds of default insurance would be
applied to each Default Amount on a
pro rata basis, as provided in Rule
908(g)(iii) as proposed to be revised.)
Default insurance proceeds would thus
be applied following the Clearing House
initial contribution and before the
Clearing Member guaranty fund
contributions and assessment
contributions. Conforming amendments
would be made to the Rule 101
definitions of ‘‘Clearing House CDS GF
Contribution’’, ‘‘Clearing House F&O GF
Contribution’’ and ‘‘Clearing House FX
GF Contribution’’ as well as to Rule
909(a), reflecting the placement of
default insurance proceeds in the
applicable waterfalls under Rule 908.
Rule 1103(e) (which states certain
limitations with respect to the benefits
of default insurance) would be amended
to provide that the Clearing House is not
obliged to obtain or maintain any
default insurance policy or make or
receive the proceeds under any claim
prior to processing to the next levels of
assets in the applicable waterfall in Rule
908, and subject to the payment order
specified in Rule 1102(k). The
amendments would further reflect that
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there could be a delay in receiving
insurance proceeds such that other
assets applicable under Rule 908 may be
called prior to insurance proceeds being
received and proceeds of any claim may
need to be applied to meet losses across
more than one Event of Default if there
are multiple defaulters. The
amendments would further set out the
order in which proceeds of default
insurance claims would be paid out if
there are multiple defaulters within a
certain period, such that insurance
proceeds would not be applied to a
default in respect of which there were
no further losses after applying default
resources up to and including the
Clearing House contribution, and would
be applied to remaining losses based on
which default occurred first in time, and
to losses from defaults occurring
simultaneously (including defaults
occurring on the same day) on a pro rata
basis.
Rule 1102(k) (which addresses
allocation of amounts recovered from a
Defaulter) would be amended to address
application of recoveries to pay amounts
owed to default insurers in respect of
default insurance, as well as
reimbursements to Clearing Members
and the Clearing House in respect of
their contributions that have been used,
in the reverse order in which assets
were applied under Rule 908 (i.e., to
non-defaulting Clearing Members in
respect of their Guaranty Fund
Contributions that had been applied,
then to the default insurance provider in
respect of amounts owed to it, and then
to the Clearing House in respect of its
default contribution). Rule 1102(k)
would also be revised to clarify that
application of such amounts would be
subject to (i) retaining or repaying
amounts applied by the Clearing House
(which would no longer include claims
under insurance policies) or other third
parties applied to meet shortfalls; (ii) if
applicable, reimbursing payments to
Persons that made Assessment
Contributions in the reverse order
specified in Rule 908; and (iii) if
applicable, meeting certain repayment
obligations under Rules 909(j), 914(j) or
916(n).
Rule 909(j) (which addresses
reimbursement of Assessment
Contributions) would also be amended
to reflect the application of default
insurance. The amendments would
expand the existing provision to provide
that if, after any Assessment
Contribution has been paid in relation
to an Event of Default, the Clearing
House collects on the defaulted
obligation, loss or shortfall in whole or
in part from an insurer, the Clearing
House would refund the collected
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Federal Register / Vol. 85, No. 118 / Thursday, June 18, 2020 / Notices
amount, less expenses, to nondefaulting Clearing Members in respect
of their paid Assessment Contributions.
The amendment would also add a
drafting clarification that such
reimbursements are subject to the
Clearing House retaining or repaying
amounts applied to meet any shortfall
and certain repayment obligations, if
applicable, under Rules 914(j)
(addressing payment of recoveries to
persons that were subject to reduced
gains distributions under Rule 914) and
916(n) (addressing payments of
recoveries to persons that received
reduced amounts in the case of product
termination under Rule 916), which is
consistent with the existing language of
Rule 914(j) and 916(n).
The term ‘‘Available Non-Defaulter
Resources’’ in Rule 913 would be
amended to include claims under
default insurance policies available to
be applied pursuant to Rule 908,
provided that they were received in
cleared funds at the time the Clearing
House performs a calculation of
Available Non-Defaulter Resources.
Rule 914(j) (which addresses
application of recoveries in the context
of reduced gains distribution) would be
extended such that it would also apply
where the Clearing House receives
insurance proceeds. Existing Rule 914(j)
provides that if the Clearing House
receives an amount that would, had it
been paid on time, have increased the
Clearing House’s available resources on
a day on which a Margin Account
Adjustment was made in connection
with Reduced Gains Distributions, the
Clearing House would distribute the
amounts received first to non-defaulting
Contributors who were liable to pay an
adjustment on a pro rata basis and
second in accordance with Rule 1102(k)
(as described above). The amendment
would include default insurance
proceeds in the type of received
amounts subject to the rule.
Similarly, Rule 916(n) (which
addresses application of recoveries in
the context of product termination)
would be amended such that it also
applies to insurance proceeds. Existing
Rule 916 in general permits the Clearing
House to terminate the open contracts in
a relevant contract category (e.g., F&O or
CDS) under specified circumstances,
including in certain cases following an
Under-priced Auction or where the
Clearing House determines there are not
sufficient Clearing Members to support
continued clearing of the relevant
contract category. In the case of such a
termination of a contract category,
under existing Rule 916(n), where ICE
Clear Europe receives an amount that
would, had it been paid on time, have
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increased the amount owed to (or
decreased the amount owed by) Clearing
Members or Sponsored Principals upon
termination of a contract category, ICE
Clear Europe would distribute the
amount received first to non-defaulting
Clearing Members or Sponsored
Principals who received less in respect
of product termination than they were
otherwise owed, then in accordance
with Rule 914(j) (as discussed above),
and then in accordance with Rule
1102(k) (as discussed above). The
amendment would include default
insurance proceeds in the type of
received amounts subject to distribution
under Rule 916(n).
(b) Statutory Basis
ICE Clear Europe believes that the
proposed rule changes are consistent
with the requirements of Section 17A of
the Act 4 and the regulations thereunder
applicable to it, including the applicable
standards under Rule 17Ad–22.5 In
particular, Section 17A(b)(3)(F) of the
Act requires that the rule change be
consistent with the prompt and accurate
clearance and settlement of securities
transactions and derivative agreements,
contracts and transactions cleared by
ICE Clear Europe, the safeguarding of
securities and funds in the custody or
control of ICE Clear Europe or for which
it is responsible, and the protection of
investors and the public interest.6 The
proposed changes amend the default
waterfalls in Rule 908 to apply the
proceeds of default insurance, if any, as
an additional default resource after the
application of ICE Clear Europe’s own
initial contributions and prior to the
application of guaranty fund
contributions or assessment
contributions of non-defaulting Clearing
Members. Placing the proceeds from any
default insurance that ICE Clear Europe
may receive before the guaranty fund
resources of non-defaulting Clearing
Members in the default waterfall is
generally favorable to non-defaulting
Clearing Members and enhances ICE
Clear Europe’s procedures that are
designed to protect and ensure the
safety of Clearing Member funds and
assets. Although ICE Clear Europe is not
relying on the additional default
resources from default insurance to
meet regulatory minimum financial
requirements, in ICE Clear Europe’s
view, the proposed changes to the Rules
nonetheless enhance ICE Clear Europe’s
ability to manage the risk of defaults by
providing resources to cover losses from
Clearing Member defaults, prior to the
need to use guaranty fund resources
from non-defaulting Clearing Members,
thereby promoting the prompt and
accurate clearance and settlement of
securities transactions, derivatives
agreements, contracts, and transactions
and the safeguarding of securities and
funds which are in the custody or
control of ICE Clear Europe or for which
it is responsible within the meaning of
Section 17A(b)(3)(F) of the Act.7
The amendments will also satisfy
relevant requirements of Rule 17Ad–
22,8 as set forth in the following
discussion.
Rule 17Ad–22(e)(4) 9 requires ICE
Clear Europe to maintain financial
resources at a minimum sufficient 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 in extreme but plausible
market conditions. ICE Clear Europe is
not relying on default insurance to meet
its regulatory financial resource
requirements, including for purposes of
Rule 17Ad–22(e)(4), and is not reducing
the amount of its other relevant
financial resources. ICE Clear Europe
believes that the proposed revisions will
nonetheless enhance its default
waterfall and default management
procedures. As described above, the
proposed amendments contemplate the
possibility of ICE Clear Europe receiving
proceeds from default insurance, which
would provide additional default
resources to cover losses from Clearing
Member defaults, prior to the need to
use guaranty fund resources from nondefaulting Clearing Members.
Conforming changes proposed to Rule
1103(e) would permit the use of
Guaranty Fund Contributions to occur
prior to receipt of any default insurance
proceeds and the application of default
insurance proceeds to meet losses across
multiple Events of Default. As such,
default insurance would, in ICE Clear
Europe’s view, represents a tool that
strengthens ICE Clear Europe’s ability to
manage its financial resources and
withstand the pressures of defaults,
consistent with the requirements of Rule
17Ad–22(b)(3).10
Rule 17Ad–22(e)(13) 11 requires ICE
Clear Europe to establish, implement,
maintain and enforce written policies
and procedures reasonably designed to
ensure it has the authority and
operational capacity to take timely
7 15
U.S.C. 78q–1(b)(3)(F).
CFR 240.17Ad–22.
9 17 CFR 240.17Ad–22(e)(r).
10 17 CFR 240.17Ad–22(e)(4).
11 17 CFR 240.17Ad–22(e)(13).
8 17
4 15
U.S.C. 78q–1.
CFR 240.17Ad–22.
6 15 U.S.C. 78q–1(b)(3)(F).
5 17
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36906
Federal Register / Vol. 85, No. 118 / Thursday, June 18, 2020 / Notices
action to contain losses and liquidity
demands and continue to meet its
obligations in the case of participant
default. The proposed changes to the
Rules integrate default insurance into
the default waterfall, providing
additional potential default resources to
cover losses from Clearing Member
defaults, prior to the need to use
guaranty fund resources from nondefaulting Clearing Members. Amended
Rule 1103(e) provides that ICE Clear
Europe may use the contributions of
non-defaulting Clearing Members to the
guaranty fund prior to the receipt of
proceeds owed under the default
insurance provided that those Clearing
Members are reimbursed from the
insurance proceeds when received.
Given that there may be delays in
making and processing an insurance
claim, this provision ensures that the
existence and use of default insurance
does not interfere with ICE Clear
Europe’s default management and
allows ICE Clear Europe to continue its
default management process without
having to wait for the payment of
insurance proceeds. The proposed
amendments thus 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).12
(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
purpose of the Act. The amendments
will apply consistently across all
Clearing Members or across all Clearing
Members in a particular product
category, their customers and other
market participants. Furthermore, as the
amendments would place the
application of proceeds from default
insurance above Clearing Member
guaranty fund contributions and
contemplates certain repayments to
Clearing Members upon collection from
default insurers, the amendments are
generally consistent with the interests of
Clearing Members. As a result, 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
12 17
CFR 240.17Ad–22(e)(13).
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otherwise 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
ICE Clear Europe has conducted a
public consultation the proposed
amendments 13 and received one written
response. The commenter inquired into
whether the total default insurance
coverage covers both F&O and CDS
clearing together and, if both, how the
insurance policy will be applied if the
defaulting clearing member was active
in both clearing segments. ICE Clear
Europe noted that these points were
addressed in the consultation Circular,
which states that the coverage includes
both F&O and CDS Contract Categories,
and proposed Rule 908(g)(iii), which
states that proceeds of any insurance
policy claim shall be applied to each
segment on a basis pro rata to the
shortfall, loss or liability of each Default
Amount (as defined in Rule 908(g)) less
Clearing House Contributions applied to
such amount. No changes were made as
a result of the comments.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
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.
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–2020–005 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–2020–005. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filings will also be available for
inspection and copying at the principal
office of ICE Clear Europe and on ICE
Clear Europe’s website at https://
www.theice.com/clear-europe/
regulation.
All comments received will be posted
without change. Persons submitting
comments are cautioned that we do not
redact or edit personal identifying
information from comment submissions.
You should submit only information
that you wish to make available
publicly. All submissions should refer
to File Number SR–ICEEU–2020–005
and should be submitted on or before
July 9, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.14
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–13120 Filed 6–17–20; 8:45 am]
13 ICE
Clear Europe Circular C20/037 (March 24,
2020), available at https://www.theice.com/
publicdocs/clear_europe/circulars/C20037.pdf (the
‘‘Circular’’).
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CFR 200.30–3(a)(12).
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]]>Agencies
[Federal Register Volume 85, Number 118 (Thursday, June 18, 2020)]
[Notices]
[Pages 36904-36906]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-13120]
[[Page 36904]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89060; File No. SR-ICEEU-2020-005]
Self-Regulatory Organizations; ICE Clear Europe Limited; Notice
of Filing of Proposed Rule Change Relating to Amendments to the ICE
Clear Europe Clearing Rules
June 12, 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 June 2, 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 primarily by ICE Clear
Europe. The Commission is publishing this notice to solicit comments on
the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
ICE Clear Europe is proposing to make certain changes to its
Clearing Rules (the ``Rules'') \3\ to address the receipt of proceeds
from default insurance.
---------------------------------------------------------------------------
\3\ 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 proposes amendments to Parts 9 and 11 of the Rules
relating to default insurance that is intended to cover losses
resulting from a Clearing Member default. Among other changes, the
proposed amendments address the potential receipt of proceeds from
default insurance. Although ICE Clear Europe is not, and would not be,
required to obtain or maintain default insurance, the proceeds of any
such insurance would, under the Rules as proposed to be revised, be
applied as part of the resources available to ICE Clear Europe in the
event of a Clearing Member default. Such default insurance would
provide additional default resources to cover losses from Clearing
Member defaults, prior to the need to use guaranty fund resources from
non-defaulting Clearing Members. This would provide a potential extra
layer of protection for the non-defaulting Clearing Members' guaranty
fund contributions and assessments. ICE Clear Europe is also proposing
certain additional conforming amendments to the Rules. The proposed
revisions are described in detail below.
ICE Clear Europe proposes to amend the default waterfalls in Rules
908(b) (for F&O-only Clearing Members or Sponsored Principals), (c)
(for CDS-only Clearing Members or Sponsored Principals), (d) (for FX-
only Clearing Members or Sponsored Principals) and (g) (for Clearing
Members or Sponsored Principals in multiple membership categories) such
that default insurance proceeds would be placed third in the waterfall
of assets used to meet the obligations and liabilities of a Defaulter
and any shortfall, loss or liability to the Clearing House upon an
Event of Default. (In the case of a defaulter with multiple membership
categories, the proceeds of default insurance would be applied to each
Default Amount on a pro rata basis, as provided in Rule 908(g)(iii) as
proposed to be revised.) Default insurance proceeds would thus be
applied following the Clearing House initial contribution and before
the Clearing Member guaranty fund contributions and assessment
contributions. Conforming amendments would be made to the Rule 101
definitions of ``Clearing House CDS GF Contribution'', ``Clearing House
F&O GF Contribution'' and ``Clearing House FX GF Contribution'' as well
as to Rule 909(a), reflecting the placement of default insurance
proceeds in the applicable waterfalls under Rule 908.
Rule 1103(e) (which states certain limitations with respect to the
benefits of default insurance) would be amended to provide that the
Clearing House is not obliged to obtain or maintain any default
insurance policy or make or receive the proceeds under any claim prior
to processing to the next levels of assets in the applicable waterfall
in Rule 908, and subject to the payment order specified in Rule
1102(k). The amendments would further reflect that there could be a
delay in receiving insurance proceeds such that other assets applicable
under Rule 908 may be called prior to insurance proceeds being received
and proceeds of any claim may need to be applied to meet losses across
more than one Event of Default if there are multiple defaulters. The
amendments would further set out the order in which proceeds of default
insurance claims would be paid out if there are multiple defaulters
within a certain period, such that insurance proceeds would not be
applied to a default in respect of which there were no further losses
after applying default resources up to and including the Clearing House
contribution, and would be applied to remaining losses based on which
default occurred first in time, and to losses from defaults occurring
simultaneously (including defaults occurring on the same day) on a pro
rata basis.
Rule 1102(k) (which addresses allocation of amounts recovered from
a Defaulter) would be amended to address application of recoveries to
pay amounts owed to default insurers in respect of default insurance,
as well as reimbursements to Clearing Members and the Clearing House in
respect of their contributions that have been used, in the reverse
order in which assets were applied under Rule 908 (i.e., to non-
defaulting Clearing Members in respect of their Guaranty Fund
Contributions that had been applied, then to the default insurance
provider in respect of amounts owed to it, and then to the Clearing
House in respect of its default contribution). Rule 1102(k) would also
be revised to clarify that application of such amounts would be subject
to (i) retaining or repaying amounts applied by the Clearing House
(which would no longer include claims under insurance policies) or
other third parties applied to meet shortfalls; (ii) if applicable,
reimbursing payments to Persons that made Assessment Contributions in
the reverse order specified in Rule 908; and (iii) if applicable,
meeting certain repayment obligations under Rules 909(j), 914(j) or
916(n).
Rule 909(j) (which addresses reimbursement of Assessment
Contributions) would also be amended to reflect the application of
default insurance. The amendments would expand the existing provision
to provide that if, after any Assessment Contribution has been paid in
relation to an Event of Default, the Clearing House collects on the
defaulted obligation, loss or shortfall in whole or in part from an
insurer, the Clearing House would refund the collected
[[Page 36905]]
amount, less expenses, to non-defaulting Clearing Members in respect of
their paid Assessment Contributions. The amendment would also add a
drafting clarification that such reimbursements are subject to the
Clearing House retaining or repaying amounts applied to meet any
shortfall and certain repayment obligations, if applicable, under Rules
914(j) (addressing payment of recoveries to persons that were subject
to reduced gains distributions under Rule 914) and 916(n) (addressing
payments of recoveries to persons that received reduced amounts in the
case of product termination under Rule 916), which is consistent with
the existing language of Rule 914(j) and 916(n).
The term ``Available Non-Defaulter Resources'' in Rule 913 would be
amended to include claims under default insurance policies available to
be applied pursuant to Rule 908, provided that they were received in
cleared funds at the time the Clearing House performs a calculation of
Available Non-Defaulter Resources.
Rule 914(j) (which addresses application of recoveries in the
context of reduced gains distribution) would be extended such that it
would also apply where the Clearing House receives insurance proceeds.
Existing Rule 914(j) provides that if the Clearing House receives an
amount that would, had it been paid on time, have increased the
Clearing House's available resources on a day on which a Margin Account
Adjustment was made in connection with Reduced Gains Distributions, the
Clearing House would distribute the amounts received first to non-
defaulting Contributors who were liable to pay an adjustment on a pro
rata basis and second in accordance with Rule 1102(k) (as described
above). The amendment would include default insurance proceeds in the
type of received amounts subject to the rule.
Similarly, Rule 916(n) (which addresses application of recoveries
in the context of product termination) would be amended such that it
also applies to insurance proceeds. Existing Rule 916 in general
permits the Clearing House to terminate the open contracts in a
relevant contract category (e.g., F&O or CDS) under specified
circumstances, including in certain cases following an Under-priced
Auction or where the Clearing House determines there are not sufficient
Clearing Members to support continued clearing of the relevant contract
category. In the case of such a termination of a contract category,
under existing Rule 916(n), where ICE Clear Europe receives an amount
that would, had it been paid on time, have increased the amount owed to
(or decreased the amount owed by) Clearing Members or Sponsored
Principals upon termination of a contract category, ICE Clear Europe
would distribute the amount received first to non-defaulting Clearing
Members or Sponsored Principals who received less in respect of product
termination than they were otherwise owed, then in accordance with Rule
914(j) (as discussed above), and then in accordance with Rule 1102(k)
(as discussed above). The amendment would include default insurance
proceeds in the type of received amounts subject to distribution under
Rule 916(n).
(b) Statutory Basis
ICE Clear Europe believes that the proposed rule changes are
consistent with the requirements of Section 17A of the Act \4\ and the
regulations thereunder applicable to it, including the applicable
standards under Rule 17Ad-22.\5\ In particular, Section 17A(b)(3)(F) of
the Act requires that the rule change be consistent with the prompt and
accurate clearance and settlement of securities transactions and
derivative agreements, contracts and transactions cleared by ICE Clear
Europe, the safeguarding of securities and funds in the custody or
control of ICE Clear Europe or for which it is responsible, and the
protection of investors and the public interest.\6\ The proposed
changes amend the default waterfalls in Rule 908 to apply the proceeds
of default insurance, if any, as an additional default resource after
the application of ICE Clear Europe's own initial contributions and
prior to the application of guaranty fund contributions or assessment
contributions of non-defaulting Clearing Members. Placing the proceeds
from any default insurance that ICE Clear Europe may receive before the
guaranty fund resources of non-defaulting Clearing Members in the
default waterfall is generally favorable to non-defaulting Clearing
Members and enhances ICE Clear Europe's procedures that are designed to
protect and ensure the safety of Clearing Member funds and assets.
Although ICE Clear Europe is not relying on the additional default
resources from default insurance to meet regulatory minimum financial
requirements, in ICE Clear Europe's view, the proposed changes to the
Rules nonetheless enhance ICE Clear Europe's ability to manage the risk
of defaults by providing resources to cover losses from Clearing Member
defaults, prior to the need to use guaranty fund resources from non-
defaulting Clearing Members, thereby promoting the prompt and accurate
clearance and settlement of securities transactions, derivatives
agreements, contracts, and transactions and the safeguarding of
securities and funds which are in the custody or control of ICE Clear
Europe or for which it is responsible within the meaning of Section
17A(b)(3)(F) of the Act.\7\
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\4\ 15 U.S.C. 78q-1.
\5\ 17 CFR 240.17Ad-22.
\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 amendments will also satisfy relevant requirements of Rule
17Ad-22,\8\ as set forth in the following discussion.
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\8\ 17 CFR 240.17Ad-22.
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Rule 17Ad-22(e)(4) \9\ requires ICE Clear Europe to maintain
financial resources at a minimum sufficient 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 in extreme but
plausible market conditions. ICE Clear Europe is not relying on default
insurance to meet its regulatory financial resource requirements,
including for purposes of Rule 17Ad-22(e)(4), and is not reducing the
amount of its other relevant financial resources. ICE Clear Europe
believes that the proposed revisions will nonetheless enhance its
default waterfall and default management procedures. As described
above, the proposed amendments contemplate the possibility of ICE Clear
Europe receiving proceeds from default insurance, which would provide
additional default resources to cover losses from Clearing Member
defaults, prior to the need to use guaranty fund resources from non-
defaulting Clearing Members. Conforming changes proposed to Rule
1103(e) would permit the use of Guaranty Fund Contributions to occur
prior to receipt of any default insurance proceeds and the application
of default insurance proceeds to meet losses across multiple Events of
Default. As such, default insurance would, in ICE Clear Europe's view,
represents a tool that strengthens ICE Clear Europe's ability to manage
its financial resources and withstand the pressures of defaults,
consistent with the requirements of Rule 17Ad-22(b)(3).\10\
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\9\ 17 CFR 240.17Ad-22(e)(r).
\10\ 17 CFR 240.17Ad-22(e)(4).
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Rule 17Ad-22(e)(13) \11\ requires ICE Clear Europe to establish,
implement, maintain and enforce written policies and procedures
reasonably designed to ensure it has the authority and operational
capacity to take timely
[[Page 36906]]
action to contain losses and liquidity demands and continue to meet its
obligations in the case of participant default. The proposed changes to
the Rules integrate default insurance into the default waterfall,
providing additional potential default resources to cover losses from
Clearing Member defaults, prior to the need to use guaranty fund
resources from non-defaulting Clearing Members. Amended Rule 1103(e)
provides that ICE Clear Europe may use the contributions of non-
defaulting Clearing Members to the guaranty fund prior to the receipt
of proceeds owed under the default insurance provided that those
Clearing Members are reimbursed from the insurance proceeds when
received. Given that there may be delays in making and processing an
insurance claim, this provision ensures that the existence and use of
default insurance does not interfere with ICE Clear Europe's default
management and allows ICE Clear Europe to continue its default
management process without having to wait for the payment of insurance
proceeds. The proposed amendments thus 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).\12\
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\11\ 17 CFR 240.17Ad-22(e)(13).
\12\ 17 CFR 240.17Ad-22(e)(13).
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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 purpose of the Act. The amendments
will apply consistently across all Clearing Members or across all
Clearing Members in a particular product category, their customers and
other market participants. Furthermore, as the amendments would place
the application of proceeds from default insurance above Clearing
Member guaranty fund contributions and contemplates certain repayments
to Clearing Members upon collection from default insurers, the
amendments are generally consistent with the interests of Clearing
Members. As a result, 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 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
ICE Clear Europe has conducted a public consultation the proposed
amendments \13\ and received one written response. The commenter
inquired into whether the total default insurance coverage covers both
F&O and CDS clearing together and, if both, how the insurance policy
will be applied if the defaulting clearing member was active in both
clearing segments. ICE Clear Europe noted that these points were
addressed in the consultation Circular, which states that the coverage
includes both F&O and CDS Contract Categories, and proposed Rule
908(g)(iii), which states that proceeds of any insurance policy claim
shall be applied to each segment on a basis pro rata to the shortfall,
loss or liability of each Default Amount (as defined in Rule 908(g))
less Clearing House Contributions applied to such amount. No changes
were made as a result of the comments.
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\13\ ICE Clear Europe Circular C20/037 (March 24, 2020),
available at https://www.theice.com/publicdocs/clear_europe/circulars/C20037.pdf (the ``Circular'').
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III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
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.
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-2020-005 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-2020-005. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of such filings will also be available for inspection
and copying at the principal office of ICE Clear Europe and on ICE
Clear Europe's website at https://www.theice.com/clear-europe/regulation.
All comments received will be posted without change. Persons
submitting comments are cautioned that we do not redact or edit
personal identifying information from comment submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-ICEEU-2020-005 and should be
submitted on or before July 9, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-13120 Filed 6-17-20; 8:45 am]
BILLING CODE 8011-01-P
