Self-Regulatory Organizations; ICE Clear Europe Limited; Notice of Filing of Partial Amendment No. 1 and Order Granting Accelerated Approval of Proposed Rule Change, as Modified by Partial Amendment No. 1, Relating to the ICE Clear Europe Investment Management Procedures and Treasury and Banking Services Policy, 41082-41087 [2020-14627]
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41082
Federal Register / Vol. 85, No. 131 / Wednesday, July 8, 2020 / Notices
of the Act 28 and Rule 19b–4(f)(6) 29
thereunder.
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or 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
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–MIAX–2020–19. 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
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28 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
29 17
17:17 Jul 07, 2020
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.30
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–14629 Filed 7–7–20; 8:45 am]
BILLING CODE 8011–01–P
• 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–
MIAX–2020–19 on the subject line.
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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 the
filing also will be available for
inspection and copying at the principal
office of the Exchange. 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–MIAX–2020–19 and should
be submitted on or before July 29, 2020.
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–89211; File No. SR–ICEEU–
2020–002]
Self-Regulatory Organizations; ICE
Clear Europe Limited; Notice of Filing
of Partial Amendment No. 1 and Order
Granting Accelerated Approval of
Proposed Rule Change, as Modified by
Partial Amendment No. 1, Relating to
the ICE Clear Europe Investment
Management Procedures and Treasury
and Banking Services Policy
July 1, 2020.
I. Introduction
On May 13, 2020, ICE Clear Europe
Limited (‘‘ICE Clear Europe’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (the ‘‘Act’’),1 and
Rule 19b–4,2 a proposed rule change to
amend its Investment Management
Procedures (the ‘‘Procedures’’) and its
Treasury and Banking Services Policy,
which would be renamed the Liquidity
and Investment Management Policy (the
‘‘Policy’’). The proposed rule change
was published for comment in the
Federal Register on May 26, 2020.3 The
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Self-Regulatory Organizations; ICE Clear Europe
Limited; Notice of Filing of Proposed Rule Change,
Security-Based Swap Submission or Advance
Notice Relating to the ICE Clear Europe Investment
Management Procedures and Treasury and Banking
Services Policy (to be renamed Liquidity and
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Commission did not receive comments
regarding the proposed rule change. On
June 9, 2020, ICE Clear Europe filed
Partial Amendment No. 1 to the
proposed rule change.4 The Commission
is publishing this notice to solicit
comments on Partial Amendment No. 1
from interested persons and, for the
reasons discussed below, is approving
the proposed rule change, as modified
by Partial Amendment No. 1
(hereinafter the ‘‘proposed rule change’’)
on an accelerated basis.
II. Description of the Proposed Rule
Change
As discussed below, the proposed
rule change would amend the
Procedures and the Policy following
findings of an annual review conducted
by ICE Clear Europe.5 The Procedures
explain ICE Clear Europe’s permitted
investments and related concentration
limits when investing ICE Clear
Europe’s cash, while the Policy set outs
the overall principles that ICE Clear
Europe applies to investing its cash.
Broadly speaking, the amendments
would expand the Procedures and the
Policy to: (i) Apply them to investments
of ICE Clear Europe’s contributions to
default resources (referred to below as
‘‘skin in the game’’) and capital that ICE
Clear Europe maintains pursuant to
applicable regulatory requirements
(referred to below as ‘‘regulatory
capital’’); (ii) facilitate ICE Clear
Europe’s use of central bank deposits;
(iii) allow ICE Clear Europe to invest in
additional types of instruments and rely
on ICE Clear Europe’s authorized
investments in periods of insufficient
market supply; (iv) permit ICE Clear
Europe to use additional the types of
collateral in reverse repurchase
agreements; and (v) revise the process
for monitoring, escalating, and
remediating breaches, as well as the
description of ICE Clear Europe’s
investment activities and board risk
appetites.
In addition, the proposed rule change
would make two minor changes to the
Policy. As mentioned above, the
proposed rule change would rename it
the Liquidity and Investment
Management Policy. The proposed rule
Investment Management Policy), Exchange Act
Release No. 88907 (May 19, 2020); 85 FR 31571
(May 26, 2020) (SR–ICEEU–2020–002).
4 Partial Amendment No.1 amended the
Procedures, which are confidential Exhibit 5A to
the filing, to specify that the ICE Clear Europe
Treasury and Finance teams would conduct daily
monitoring of investments against concentration
limits and investment criteria.
5 Capitalized terms not otherwise defined herein
have the meanings assigned to them in the
Procedures, the Policy, or the ICE Clear Europe
rulebook, as applicable.
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change would also delete the statement
that the Policy constitutes ICE Clear
Europe’s liquidity risk management
framework for purposes of EMIR. ICE
Clear Europe is making this change
because, for purposes of EMIR, its
liquidity risk management framework
also includes ICE Clear Europe’s
Liquidity Risk Management Procedures.
Thus, this statement is incorrect.
A. Applying the Procedures and the
Policy to Investments of ICE Clear
Europe’s Skin in the Game and
Regulatory Capital
The proposed rule change would
amend the Procedures and the Policy so
that both documents cover investment
of ICE Clear Europe’s skin in the game
and regulatory capital. Currently, the
Procedures state that their overall
purpose is to set out the investments
that are permitted when investing or
securing cash received from Clearing
Members and to set out constraints on
those investments such as concentration
limits, credit ratings, and maturity
limits, as well as any additional
considerations in times of insufficient
market supply of approved investments.
The proposed rule change would amend
this slightly to state that the Procedures
address permitted investments and
related concentration limits when
investing or securing cash received from
Clearing Members as well as when
investing or securing ICE Clear Europe’s
skin in the game and regulatory capital.
Next, the proposed rule change would
rename Subsection 2.1 of the Procedures
from Investment Management
Objectives to Investment Management
Objective and further amend this
section to state that ICE Clear Europe’s
investment management objective is to
safeguard the principal of the cash
(which would include ICE Clear
Europe’s skin in the game and
regulatory capital) rather than Clearing
Members’ cash, as currently stated.
Consistent with expanding the scope of
the Procedures to cover investments of
ICE Clear Europe’s skin in the game and
regulatory capital, ICE Clear Europe is
making this change so the Procedures as
amended would not be limited to
safeguarding Clearing Members’ cash.
Next, the proposed rule change would
specify in the Procedures the
instruments in which ICE Clear Europe
would be permitted to invest its skin in
the game and regulatory capital. With
respect to skin in the game, the
proposed rule change would specify
that the table of authorized investments
applicable to investments of Clearing
Member cash would also apply to skin
in the game, and thus ICE Clear Europe
would be allowed to invest its skin in
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the game in the same manner as it
invests Clearing Member cash, as
discussed further below.
With respect to regulatory capital, the
proposed rule change would add a table
of authorized investments to the
Procedures that would apply to
investments of ICE Clear Europe’s
regulatory capital. This table would list
the instruments in which ICE Clear
Europe may invest its regulatory capital.
For each instrument, the table would
further specify: (i) The maximum issuer
or counterparty concentration limits; (ii)
the maximum portfolio concentration
limits; (iii) the maximum maturity; and
(iv) the minimum credit ratings of the
instrument or allowed issuers of the
instrument. Under this proposed new
table, ICE Clear Europe would be able to
invest its regulatory capital in direct
purchases of US, UK, and EU sovereign
bonds and US, UK, and EU government
agency bonds, each with a maximum
maturity of 90 days. The US and UK
sovereign and government agency bonds
would have no issuer concentration
limit and a portfolio concentration limit
of 20% (for sovereign bonds) and 25%
(for government agency bonds) of the
total USD or GBP balance, as applicable,
in a single issue. The EU sovereign and
government agency bonds would have a
maximum counterparty concentration
limit of 25% of the Euro balance in a
single issuer. The proposed new table
would further require that US sovereign
bonds issued by the US government, UK
sovereign bonds be issued by the UK
government, and EU sovereign bonds be
issued by the German, French, Belgian
or Dutch governments. The minimum
credit ratings for all government agency
bonds would be AA¥from at least two
rating organizations.
Finally, the proposed rule change
would amend the Policy consistent with
these changes to the Procedures.
Specifically, in Section 1 of the Policy,
the proposed rule change would amend
the statement that the Policy sets out the
principles applied to the cash and
collateral management functions of ICE
Clear Europe for Clearing Member assets
by deleting the specific reference to
Clearing Member assets. As amended,
the purpose of the Policy would be to
set out the principles applied to the
cash and collateral management
functions of ICE Clear Europe. The
proposed rule change is thus amending
the scope of the policy so that it is not
limited to Clearing Member assets,
which is necessary given that the
Procedures, as amended, would apply to
ICE Clear Europe’s investment of its
skin in the game and regulatory capital.
Similarly, the proposed rule change
would amend Section 2 of the Policy to
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clarify that ICE Clear Europe’s
investment management functions
include investing ICE Clear Europe’s
skin in the game and regulatory capital,
consistent with the change to the
Procedures described above. Finally, the
proposed rule change would amend
Section 3.3.1 of the Policy, which
currently refers to ICE Clear Europe’s
investment management objective of
safeguarding the principal of Clearing
Members’ cash, to refer to safeguarding
the principal of the cash, because use of
the general term ‘‘cash’’ would include
ICE Clear Europe’s skin in the game and
regulatory capital.
B. Facilitating Use of Central Bank
Deposits and Other Amendments to
Investment Considerations
The proposed rule change would
amend the list of overall investment
considerations found in Section 2 of the
Procedures to facilitate ICE Clear
Europe’s use of central bank deposits
and make other updates. The overall
investment considerations are a list of
criteria that ICE Clear Europe considers
when making investments. Currently,
the overall investment considerations
are that investments may only be made
with Approved Financial Institutions
(including investment agents and
investment counterparties); at least 50%
of the investable portfolio in each
currency should be invested in
overnight reverse repurchase
agreements; the portfolio of nonovernight investments should have a
variety of maturity dates; funds from
customers of Futures Commission
Merchant (‘‘FCM’’) Clearing Members
must be segregated from those of other
Clearing Members, be held in Permitted
Depositories, and only invested in
overnight reverse repos and direct
purchases of US sovereign obligations;
and purchased securities are intended to
be held until maturity in order to
minimize the impact of market risk. The
proposed rule change would amend this
list of investment considerations to add
a statement that investments must be
denominated in Euros, Great British
Pounds, or Dollars, which currencies
would match the investments permitted
under the Procedures. The proposed
rule change would also delete the
requirement that at least 50% of the
investable portfolio in each currency
should be invested in overnight reverse
repurchase agreements and replace it
with a requirement that no more than
5% of the investible funds should be
held as unsecured cash each calendar
month. ICE Clear Europe is making this
change to facilitate its use of central
bank accounts to hold cash, which
would be considered secured and thus
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outside of the 5% limit. Moreover, the
proposed rule change would amend the
requirement regarding investment of
funds from customers of FCM Clearing
Members to change the wording slightly
by, for example, changing ‘‘O/N’’ to
‘‘overnight’’ and changing ‘‘Obligations’’
to ‘‘Bonds.’’ Finally, the proposed rule
change would shorten the wording of
the requirement regarding holding
purchased securities but would retain
the substance that ICE Clear Europe
intends to hold purchased securities
until maturity.
C. Allowing ICE Clear Europe to Invest
in Additional Types of Instruments and
Relying on ICE Clear Europe’s
Authorized Investments in Periods of
Insufficient Market Supply
The proposed rule change would
amend the Procedures to expand the
investments in which ICE Clear Europe
may invest Clearing Member cash and
would, as discussed above, allow ICE
Clear Europe to invest its skin in the
game in these same instruments.
Currently the Procedures contain a table
that lists each instrument in which ICE
Clear Europe may invest Clearing
Member cash. This table then describes,
for each instrument for investment: (i)
The maximum issuer or counterparty
concentration limits; (ii) the maximum
portfolio concentration limits; (iii) the
maximum maturity; and (iv) the
minimum credit ratings of the
instrument or allowed issuers of the
instrument. The proposed rule change
would retain this table and the
permitted investments currently listed
there: Reverse repurchase agreements;
US, UK, and EU sovereign obligations;
central bank obligations; and
commercial bank obligations. The
proposed rule change would revise the
table by expanding it to cover
investments of skin in the game and
adding US, UK, and EU government
agency bonds as instruments for
investment. The proposed rule change
would specify the maximum issuer or
counterparty concentration limits, the
maximum portfolio concentration
limits, the maximum maturity, and the
minimum credit ratings for these
government agency bonds. The
proposed rule change also would
change sovereign ‘‘obligations’’ to
sovereign ‘‘bonds’’; change central bank
‘‘obligations’’ to central bank
‘‘deposits’’; and specify that the
concentration limits for reverse repos
apply per counterparty family.
Similarly, the proposed rule change
would specify for purchases of EU
sovereign bonds that the maximum
issuer limits apply per EU government
issuer and would eliminate the
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minimum credit rating and instead
require that the German, French,
Belgian, or Dutch governments issue the
bonds. Similarly, the proposed rule
change would eliminate the minimum
credit rating for US and UK sovereign
bonds and instead only require that the
US or UK government issue the bonds.
Finally, with respect to commercial
bank obligations the proposed rule
change would also change ‘‘obligations’’
to ‘‘deposits’’ and would revise the
entry for maximum issuer or
counterparty concentration limits to
note that for commercial banks, these
limits are set separately as unsecured
cash limits for financial service
providers (which are set out in ICE Clear
Europe’s Unsecured Credit Limits
Procedures).
The proposed rule change also would
amend the Glossary section of the
Procedures to make changes consistent
with those described above.
Specifically, the proposed rule change
would remove the terms Central Bank
Obligations and Commercial Bank
Obligations as no longer necessary
because the amended Procedures would
refer to central bank deposits and
commercial bank deposits instead. The
proposed rule change would revise the
term EU Sovereign Obligations to the
more general defined term, Government
Agency Bonds, which would be defined
as bonds issued by or that have their
principal and interest fully guaranteed
by their government. The proposed rule
change also would clarify the wording
of the definition for the term Permitted
Investment Counterparties for FCM
Customer Funds. Similar to the changes
described above, the proposed rule
change would revise references to UK
Sovereign Obligations and US Sovereign
Obligations to UK Sovereign Bonds and
US Sovereign Bonds. Finally, the
proposed rule change would add a
definition for Supranational
Obligations, which, as described above,
the proposed rule change would add to
the list of permitted collateral for
repurchase transactions.
Finally, the Procedures currently
contain a section that describes the
investments that ICE Clear Europe could
make in periods where the market
supply of authorized investments is not
sufficient to meet ICE Clear Europe’s
investment needs. The proposed rule
change would delete this section from
the Procedures. ICE Clear Europe no
longer considers this section necessary
because it believes that the amended
table of authorized investments and
associated limits, as described above,
would provide sufficient flexibility to
permit ICE Clear Europe to manage
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changes in supply of particular types of
investments.
D. Permitting ICE Clear Europe To Use
Additional Types of Collateral in
Reverse Repurchase Agreements
The Procedures currently set out a
table that describes the collateral
acceptable for a reverse repurchase
agreement, which specifies the currency
of the agreement, the currency of the
collateral, the credit rating, the
securities used as collateral, and the
haircut applied by ICE Clear Europe.
The proposed rule change would amend
this table to allow ICE Clear Europe to
use additional collateral in repurchase
agreements. Currently, the Procedures
permit the use of EU, UK, and US
sovereign obligations as collateral. As
amended, the Procedures would
continue to permit the use of EU, UK,
and US sovereign bonds, as well as EU,
UK, and US supranational obligations
and US government agency bonds. The
proposed rule change would keep the
current required credit rating of AA¥/
Aa3 and the current required 2%
haircut. The proposed rule change also
would expand the scope of permitted
collateral to allow cross-currency repo
agreements, such as an agreement
denominated in Euros with collateral in
UK pounds or dollars. For these crosscurrency repurchase agreements, and
transactions involving supranational
obligations and US government agency
bonds, the haircut would be 4%.
While expanding the collateral
permitted under repurchase agreements,
the proposed rule change also would
amend the Procedures to specify that
ICE Clear Europe’s preferred form of
collateral is sovereign bonds in the same
currency as the reverse repurchase
transaction. The proposed rule change
also would amend the Procedures to
require that ICE Clear Europe’s Head of
Treasury and Chief Risk Officer review
the use of non-preferred collateral
monthly.
Finally, in the section describing
additional considerations for reverse
repurchase agreements, the proposed
rule change would revise some of the
wording by changing the reference to
ICE Clear Europe’s Treasury and
Banking Services group to Treasury and
simplifying the description of maturity
definitions.
E. Monitoring, Escalating, and
Remediating Breaches, Investment
Activities, and Board Risk Appetites
Finally, the proposed rule change
would revise the process for monitoring,
escalating, and remediating breaches of
investment criteria and concentration
limits, revise the description of ICE
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Clear Europe’s investment activities,
and revise the description of board risk
appetites.
Currently, the Procedures require that
breaches of the concentration limits be
escalated to the Risk Oversight
Department and Compliance team and
that the investment portfolio be
rebalanced to return within the
concentration limits. The proposed rule
change would amend this slightly to
require that both breaches of the
concentration limits and investment
criteria be escalated and further to
require that the investment portfolio be
rebalanced to comply with the
concentration limits and investment
criteria. Moreover, the proposed rule
change would add a requirement that
ICE Clear Europe’s Treasury and
Finance teams, on a daily basis, monitor
investments against the concentration
limits and investment criteria.
Similarly, in both the background
section of the Policy and Section 6, the
proposed rule change would replace
specific references to ICE Clear Europe’s
Treasury and Banking Services team
and their activities to refer generally to
ICE Clear Europe and its liquidity and
investment management activities. ICE
Clear Europe is making this change to
reflect the fact that other groups at ICE
Clear Europe, such as Finance, perform
the liquidity and investment
management activities that are within
the scope of the Policy.
Finally, the proposed rule change
would delete a statement in the
background section of the Policy that
ICE Clear Europe’s Treasury and
Banking Services team operates within
the risk appetites set by the board and
in compliance with applicable
regulations. As discussed, the Policy
would apply to other groups at ICE
Clear Europe and not just the Treasury
Banking Services Team. Moreover, ICE
Clear Europe believes this specific
statement is unnecessary because boardadopted risk appetites apply to all
activities of ICE Clear Europe anyway.
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III. Discussion and Commission
Findings
Section 19(b)(2)(C) of the Act directs
the Commission to approve a proposed
rule change of a self-regulatory
organization if it finds that such
proposed rule change is consistent with
the requirements of the Act and the
rules and regulations thereunder
applicable to such organization.6 For the
reasons given below, the Commission
finds that the proposed rule change is
consistent with Section 17A(b)(3)(F) of
6 15
the Act 7 and Rule 17Ad–22(e)(1),
(e)(2)(v), and (e)(16).8
A. Consistency With Section
17A(b)(3)(F) of the Act
Section 17A(b)(3)(F) of the Act
requires, among other things, that the
rules of ICE Clear Europe be designed to
promote the prompt and accurate
clearance and settlement of securities
transactions and, to the extent
applicable, derivative agreements,
contracts, and transactions, as well as to
assure the safeguarding of securities and
funds which are in the custody or
control of ICE Clear Europe or for which
it is responsible.9
The Commission believes that, by
applying the Procedures and the Policy
to investments of ICE Clear Europe’s
skin in the game and regulatory capital,
the proposed rule change should help to
ensure that such skin in the game and
regulatory capital are invested in
accordance with the principles and
processes specified in the Procedures
and the Policy. Because these principles
and processes generally should help to
ensure that cash is invested reasonably,
conservatively, and in a manner that
protects against loss, the Commission
believes that application of the
Procedures and the Policy to ICE Clear
Europe’s skin in the game and
regulatory capital should help to
safeguard the skin in the game and
regulatory capital against loss. Further,
because the loss of ICE Clear Europe’s
skin in the game and regulatory capital
could impair its ability to operate and
therefore clear and settle transactions
and safeguard securities and funds, the
Commission believes that this aspect of
the proposed rule change should help to
facilitate the prompt the prompt and
accurate clearance and settlement of
securities transactions and assure the
safeguarding of securities and funds
which are in the custody or control of
ICE Clear Europe or for which it is
responsible, and, therefore, is consistent
with Section 17A(b)(3)(F) of the Act.10
Similarly, the Commission believes
that by facilitating the use of central
bank deposits; the investment in US,
UK, and EU government agency bonds,
and the use of additional collateral in
reverse repurchase agreements and
cross-currency transactions, the
proposed rule change should expand
ICE Clear Europe’s permitted
investments to include investments that
should be generally reasonable and
conservative and have minimal credit,
U.S.C. 78s(b)(2)(C).
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7 15
U.S.C. 78q–1(b)(3)(F).
CFR 240.17Ad–22(e)(1), (e)(2)(v), (e)(16).
9 15 U.S.C. 78q–1(b)(3)(F).
10 15 U.S.C. 78q–1(b)(3)(F).
market, and liquidity risks. Moreover,
the Commission believes that the other
changes to the authorized investments
discussed above, i.e., changing the
wording from ‘‘obligations’’ to ‘‘bonds’’
and ‘‘deposits’’, specifying for purchases
of EU sovereign bonds that the
maximum issuer limits apply per EU
government issuer, eliminating the
minimum credit rating for US, UK, and
EU sovereign bonds, and relying on ICE
Clear Europe’s authorized investments
and associated limits in periods of
insufficient market supply, should not
reduce the reasonableness or
conservativeness of ICE Clear Europe’s
permitted investments. Thus, the
Commission believes these aspects of
the proposed rule change should
provide ICE Clear Europe additional
investment options that should help to
safeguard skin in the game, regulatory
capital, and clearing member cash
against loss. Because the loss of skin in
the game, regulatory capital, and
clearing member cash could impair ICE
Clear Europe’s ability to operate and
therefore clear and settle transactions
and safeguard securities and funds, the
Commission believes that these aspects
of the proposed rule change should be
consistent with Section 17A(b)(3)(F) of
the Act.11
The Commission further believes the
changes described above regarding
breaches and the personnel involved in
ICE Clear Europe’s investment activities
should help to ensure compliance with
the Procedures consistent Section
17A(b)(3)(F) of the Act.12 Specifically,
in requiring that both breaches of
concentration limits and investment
criteria be escalated and that the
investment portfolio be rebalanced in
remediation of a breach, the
Commission believes that the proposed
rule change should help to ensure
adherence to the limits and criteria as
well as remediation when they are
breached. Moreover, in requiring that
ICE Clear Europe’s Treasury and
Finance teams monitor the
concentration limits and investment
criteria daily, and that ICE Clear
Europe’s Head of Treasury and Chief
Risk Officer review the use of nonpreferred collateral monthly, the
Commission believes the proposed rule
change should help to facilitate
adherence to the Procedures, the
remediation of breaches, and monitoring
to prevent breaches from happening in
the first place. Because, as discussed
above, the Commission believes that the
Procedures should help to ensure that
ICE Clear Europe’s investments of
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11 15
12 15
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U.S.C. 78q–1(b)(3)(F).
U.S.C. 78q–1(b)(3)(F).
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regulatory capital, skin in the game, and
Clearing Member cash are conservative
and subject to reasonable protections,
and therefore ICE Clear Europe is able
to clear and settle transactions and
safeguard funds, the Commission
believes that these aspects of the
proposed rule change, in facilitating
compliance with the Procedures, are
consistent with Section 17A(b)(3)(F) of
the Act.13
Finally, the Commission believes the
other changes to the Policy described
above should help to ensure the
accuracy of the Policy consistent
Section 17A(b)(3)(F) of the Act.14
Amending the Policy to replace specific
references to ICE Clear Europe’s
Treasury and Banking Services team
and their activities to refer generally to
ICE Clear Europe and its liquidity and
investment management activities and
to delete a statement that ICE Clear
Europe’s Treasury and Banking Services
team operates within the risk appetites
set by the board and in compliance with
applicable regulations should help to
ensure the Policy accurately reflects the
operations of ICE Clear Europe.
Similarly, by renaming the Policy and
deleting an inaccurate statement that the
Policy constitutes ICE Clear Europe’s
liquidity risk management framework
for purposes of EMIR, the Commission
believes that the proposed rule change
should help to ensure that the Policy is
accurate and up-to-date. Because, as
discussed above, the Policy should help
to ensure that ICE Clear Europe’s
investments of regulatory capital, skin
in the game, and Clearing Member cash
are subject to reasonable protections,
and therefore ICE Clear Europe is able
to clear and settle transactions and
safeguard funds, the Commission
believes that these aspects of the
proposed rule change, in ensuring the
accuracy of the Policy, are consistent
with Section 17A(b)(3)(F) of the Act.15
Therefore, for these reasons, the
Commission finds that the proposed
rule change should promote the prompt
and accurate clearance and settlement of
securities transactions and assure the
safeguarding of securities and funds in
ICE Clear Europe’s custody and control,
consistent with the Section 17A(b)(3)(F)
of the Act.16
B. Consistency With Rule 17Ad–22(e)(1)
Rule 17Ad–22(e)(1) requires that ICE
Clear Europe establish, implement,
maintain and enforce written policies
and procedures reasonably designed to
provide for a well-founded, clear,
transparent, and enforceable legal basis
for each aspect of its activities in a
relevant jurisdictions.17 As discussed
above, the proposed rule change would
delete an inaccurate statement in the
Policy that the Policy constitutes ICE
Clear Europe’s liquidity risk
management framework for purposes of
EMIR. This statement is inaccurate
because, for purposes of EMIR, ICE
Clear Europe’s liquidity risk
management framework is not limited to
the Policy. Thus, in making this change,
the Commission believes that the
proposed rule change should help to
ensure that ICE Clear Europe has an
enforceable legal basis for its activities
under EMIR. For this reason, the
Commission finds that the proposed
rule change is consistent with Rule
17Ad–22(e)(1).18
C. Consistency With Rule 17Ad–
22(e)(2)(v)
Rule 17Ad–22(e)(2)(v) requires that
ICE Clear Europe establish, implement,
maintain and enforce written policies
and procedures reasonably designed to
provide governance arrangements that,
among other things, specify clear and
direct lines of responsibility.19 As
discussed above, the proposed rule
change would require that ICE Clear
Europe’s Treasury and Finance teams
monitor the concentration limits and
investment criteria daily. The
Commission believes that this aspect of
the proposed rule change should help to
establish a clear and direct line of
responsibility, in assigning the Treasury
and Finance teams the responsibility for
daily monitoring. Similarly, the
proposed rule change would require
that ICE Clear Europe’s Head of
Treasury and Chief Risk Officer review
the use of non-preferred collateral
monthly. The Commission believes this
proposed change should help to place
clear and direct responsibility on ICE
Clear Europe’s Head of Treasury and
Chief Risk Officer. For these reasons, the
Commission finds that the proposed
rule change is consistent with Rule
17Ad–22(e)(2)(v).20
D. Consistency With Rule 17Ad–
22(e)(16)
Rule 17Ad–22(e)(16) requires that ICE
Clear Europe establish, implement,
maintain and enforce written policies
and procedures reasonably designed to,
among other things, safeguard its own
and its Clearing Members’ assets and
13 15
U.S.C. 78q–1(b)(3)(F).
14 15 U.S.C. 78q–1(b)(3)(F).
15 15 U.S.C. 78q–1(b)(3)(F).
16 15 U.S.C. 78q–1(b)(3)(F).
VerDate Sep<11>2014
18:27 Jul 07, 2020
17 17
CFR 240.17Ad–22(e)(1).
18 17 CFR 240.17Ad–22(e)(1).
19 17 CFR 240.17Ad–22(e)(2)(v).
20 17 CFR 240.17Ad–22(e)(2)(v).
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invest such assets in instruments with
minimal credit, market, and liquidity
risks.21 As discussed above, the
proposed rule change, by applying the
Procedures and the Policy to
investments of ICE Clear Europe’s skin
in the game and regulatory capital,
should help to ensure that such skin in
the game and regulatory capital are
invested in accordance with the
principles and processes specified in
the Procedures and the Policy. In
addition, the Commission believes that
these principles and processes generally
should help to ensure that cash is
invested reasonably and in a manner
that protects against loss. In addition,
the proposed rule change would expand
the investments permitted to ICE Clear
Europe by amending the Procedures to
facilitate the use of central bank
deposits; US, UK, and EU government
agency bonds; and additional collateral
in reverse repurchase agreements as
well as cross-currency transactions. The
Commission believes these investments,
as well as the investments currently
permitted under the Procedures,
constitute instruments with minimal
credit, market, and liquidity risks.
Therefore, in applying the Procedures
and Policy to ICE Clear Europe’s
regulatory capital and skin in the game
and expanding the permitted
investments, the Commission believes
the proposed rule change should help
ICE Clear Europe to safeguard its own
and its Clearing Members’ assets and
invest such assets in instruments with
minimal credit, market, and liquidity
risks. For these reasons, the Commission
finds that the proposed rule change is
consistent with Rule 17Ad–22(e)(16).22
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change, as modified by Partial
Amendment No. 1, is consistent with
the Act. Comments may be submitted by
any of the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml) or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
ICEEU–2020–002 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
21 17
22 17
E:\FR\FM\08JYN1.SGM
CFR 240.17Ad–22(e)(16).
CFR 240.17Ad–22(e)(16).
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Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–ICEEU–2020–002. 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, as modified by Partial
Amendment No. 1, that are filed with
the Commission, and all written
communications relating to the
proposed rule change, as modified by
Partial Amendment No. 1, 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–
2020–002 and should be submitted on
or before July 29, 2020.
V. Accelerated Approval of the
Proposed Rule Change as Modified by
Partial Amendment No. 1
The Commission finds good cause,
pursuant to Section 19(b)(2) of the
Act,23 to approve the proposed rule
change, as modified by Partial
Amendment No. 1, prior to the 30th day
after the date of publication of Partial
Amendment No. 1 in the Federal
Register. As discussed above, Partial
Amendment No. 1 updates the
Procedures to assign ICE Clear Europe’s
Treasury and Finance teams
responsibility for daily monitoring
against the concentration limits and
investment criteria. By so updating the
Procedures, Partial Amendment No. 1
provides for a more clear and
23 15
U.S.C. 78s(b)(2).
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17:17 Jul 07, 2020
Jkt 250001
comprehensive understanding of how
ICE Clear Europe would monitor its
adherence to the concentration limits
and investment criteria, which helps to
improve the Commission’s review of the
proposed rule change for consistency
with the Act.
For the reasons discussed above, the
Commission finds that the proposed
rule change, as modified by Partial
Amendment No. 1, is consistent with
the Act and the applicable rules
thereunder. Accordingly, the
Commission finds good cause for
approving the proposed rule change, as
modified by Partial Amendment No. 1,
on an accelerated basis, pursuant to
Section 19(b)(2) of the Exchange Act.24
VI. 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 25 and
Rules 17Ad–22(e)(1), (e)(2)(v), and
(e)(16).26
IT IS THEREFORE ORDERED
pursuant to Section 19(b)(2) of the Act 27
that the proposed rule change, as
modified by Partial Amendment No. 1
(SR–ICEEU–2020–002), be, and hereby
is, approved on an accelerated basis.28
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.29
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–14627 Filed 7–7–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Investment Company Act of 1940
Release no. 33916/July 1, 2020; In the
Matter of Allianz Life Insurance Co. of
North America, et al. File No. 812–
14722
Order Granting Hearing and
Scheduling Filing of Statements
On December 20, 2019, the Securities
and Exchange Commission
(‘‘Commission’’) issued a notice of
application (the ‘‘Notice’’) for an order
approving the substitution of certain
securities pursuant to section 26(c) of
U.S.C. 78s(b)(2).
U.S.C. 78q–1(b)(3)(F).
26 17 CFR 240.17Ad–22(e)(1), (e)(2)(v), (e)(16).
27 15 U.S.C. 78s(b)(2).
28 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).
29 17 CFR 200.30–3(a)(12).
PO 00000
24 15
25 15
Frm 00126
Fmt 4703
Sfmt 4703
41087
the Investment Company Act of 1940, as
amended (‘‘Act’’) and an order of
exemption pursuant to section 17(b) of
the Act from section 17(a) of the Act,
submitted by Allianz Life Insurance
Company of North America and other
Applicants as defined in the Notice
(collectively, ‘‘Allianz’’).1 On January
14, 2020, Franklin Advisers, Inc.,
Franklin Mutual Advisers, LLC, and
Templeton Global Advisors Limited
(collectively, ‘‘Franklin’’) submitted a
request for a hearing (the ‘‘Hearing
Request’’).2
The Commission finds that a hearing
is appropriate pursuant to Investment
Company Act Rule 0–5.3 Accordingly,
the Commission hereby establishes that
Allianz and Franklin may each file an
additional written statement regarding
the Allianz Application. Any such
written statements shall be prepared in
a proportionally spaced typeface of 12
points or larger and shall not exceed
10,000 words, exclusive of pages
containing the table of contents, table of
authorities, and any addendum that
consists solely of copies of applicable
cases, pertinent legislative provisions or
rules, and exhibits. The scope of the
written statements shall be limited to
those issues that were raised in
Franklin’s Hearing Request.
Incorporation of any document by
reference into a written statement is not
permitted. Written statements shall be
submitted to the Commission by
sending an email to the Commission’s
Secretary at Secretarys-Office@sec.gov,
and serving the opposing party with a
copy of the written statement by email.
Written statements should be received
by the Commission on or before July 31,
2020, at 5:30 p.m., and should be
accompanied by proof of service on the
opposing party.
The Commission further establishes
that Allianz and Franklin then each may
file a responsive written statement,
which also shall be prepared in a
proportionally spaced typeface of 12
points or larger and shall not exceed
5,000 words, exclusive of the items
listed above. The scope of any such
responsive statement shall be limited to
1 Allianz Life Insurance Company of North
America, et al., Investment Company Act Release
No. 33721 (Dec. 20, 2019), available at https://
www.sec.gov/rules/ic/2019/ic-33721.pdf.
2 Letter from Franklin to Vanessa Countryman,
dated January 14, 2020, submitted by Morgan,
Lewis & Bockius LLP, available at https://
www.sec.gov/comments/812-14722/812-147229.pdf.
3 17 CFR 275.0–5(c). Rule 0–5(c) provides that the
Commission will order a hearing on a matter, upon
the request of an interested person or upon its own
motion, if it appears that a hearing is ‘‘necessary or
appropriate in the public interest or for the
protection of investors.’’
E:\FR\FM\08JYN1.SGM
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]]>Agencies
[Federal Register Volume 85, Number 131 (Wednesday, July 8, 2020)]
[Notices]
[Pages 41082-41087]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-14627]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89211; File No. SR-ICEEU-2020-002]
Self-Regulatory Organizations; ICE Clear Europe Limited; Notice
of Filing of Partial Amendment No. 1 and Order Granting Accelerated
Approval of Proposed Rule Change, as Modified by Partial Amendment No.
1, Relating to the ICE Clear Europe Investment Management Procedures
and Treasury and Banking Services Policy
July 1, 2020.
I. Introduction
On May 13, 2020, ICE Clear Europe Limited (``ICE Clear Europe'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4,\2\ a proposed rule change to amend
its Investment Management Procedures (the ``Procedures'') and its
Treasury and Banking Services Policy, which would be renamed the
Liquidity and Investment Management Policy (the ``Policy''). The
proposed rule change was published for comment in the Federal Register
on May 26, 2020.\3\ The Commission did not receive comments regarding
the proposed rule change. On June 9, 2020, ICE Clear Europe filed
Partial Amendment No. 1 to the proposed rule change.\4\ The Commission
is publishing this notice to solicit comments on Partial Amendment No.
1 from interested persons and, for the reasons discussed below, is
approving the proposed rule change, as modified by Partial Amendment
No. 1 (hereinafter the ``proposed rule change'') on an accelerated
basis.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Self-Regulatory Organizations; ICE Clear Europe Limited;
Notice of Filing of Proposed Rule Change, Security-Based Swap
Submission or Advance Notice Relating to the ICE Clear Europe
Investment Management Procedures and Treasury and Banking Services
Policy (to be renamed Liquidity and Investment Management Policy),
Exchange Act Release No. 88907 (May 19, 2020); 85 FR 31571 (May 26,
2020) (SR-ICEEU-2020-002).
\4\ Partial Amendment No.1 amended the Procedures, which are
confidential Exhibit 5A to the filing, to specify that the ICE Clear
Europe Treasury and Finance teams would conduct daily monitoring of
investments against concentration limits and investment criteria.
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
As discussed below, the proposed rule change would amend the
Procedures and the Policy following findings of an annual review
conducted by ICE Clear Europe.\5\ The Procedures explain ICE Clear
Europe's permitted investments and related concentration limits when
investing ICE Clear Europe's cash, while the Policy set outs the
overall principles that ICE Clear Europe applies to investing its cash.
Broadly speaking, the amendments would expand the Procedures and the
Policy to: (i) Apply them to investments of ICE Clear Europe's
contributions to default resources (referred to below as ``skin in the
game'') and capital that ICE Clear Europe maintains pursuant to
applicable regulatory requirements (referred to below as ``regulatory
capital''); (ii) facilitate ICE Clear Europe's use of central bank
deposits; (iii) allow ICE Clear Europe to invest in additional types of
instruments and rely on ICE Clear Europe's authorized investments in
periods of insufficient market supply; (iv) permit ICE Clear Europe to
use additional the types of collateral in reverse repurchase
agreements; and (v) revise the process for monitoring, escalating, and
remediating breaches, as well as the description of ICE Clear Europe's
investment activities and board risk appetites.
---------------------------------------------------------------------------
\5\ Capitalized terms not otherwise defined herein have the
meanings assigned to them in the Procedures, the Policy, or the ICE
Clear Europe rulebook, as applicable.
---------------------------------------------------------------------------
In addition, the proposed rule change would make two minor changes
to the Policy. As mentioned above, the proposed rule change would
rename it the Liquidity and Investment Management Policy. The proposed
rule
[[Page 41083]]
change would also delete the statement that the Policy constitutes ICE
Clear Europe's liquidity risk management framework for purposes of
EMIR. ICE Clear Europe is making this change because, for purposes of
EMIR, its liquidity risk management framework also includes ICE Clear
Europe's Liquidity Risk Management Procedures. Thus, this statement is
incorrect.
A. Applying the Procedures and the Policy to Investments of ICE Clear
Europe's Skin in the Game and Regulatory Capital
The proposed rule change would amend the Procedures and the Policy
so that both documents cover investment of ICE Clear Europe's skin in
the game and regulatory capital. Currently, the Procedures state that
their overall purpose is to set out the investments that are permitted
when investing or securing cash received from Clearing Members and to
set out constraints on those investments such as concentration limits,
credit ratings, and maturity limits, as well as any additional
considerations in times of insufficient market supply of approved
investments. The proposed rule change would amend this slightly to
state that the Procedures address permitted investments and related
concentration limits when investing or securing cash received from
Clearing Members as well as when investing or securing ICE Clear
Europe's skin in the game and regulatory capital.
Next, the proposed rule change would rename Subsection 2.1 of the
Procedures from Investment Management Objectives to Investment
Management Objective and further amend this section to state that ICE
Clear Europe's investment management objective is to safeguard the
principal of the cash (which would include ICE Clear Europe's skin in
the game and regulatory capital) rather than Clearing Members' cash, as
currently stated. Consistent with expanding the scope of the Procedures
to cover investments of ICE Clear Europe's skin in the game and
regulatory capital, ICE Clear Europe is making this change so the
Procedures as amended would not be limited to safeguarding Clearing
Members' cash.
Next, the proposed rule change would specify in the Procedures the
instruments in which ICE Clear Europe would be permitted to invest its
skin in the game and regulatory capital. With respect to skin in the
game, the proposed rule change would specify that the table of
authorized investments applicable to investments of Clearing Member
cash would also apply to skin in the game, and thus ICE Clear Europe
would be allowed to invest its skin in the game in the same manner as
it invests Clearing Member cash, as discussed further below.
With respect to regulatory capital, the proposed rule change would
add a table of authorized investments to the Procedures that would
apply to investments of ICE Clear Europe's regulatory capital. This
table would list the instruments in which ICE Clear Europe may invest
its regulatory capital. For each instrument, the table would further
specify: (i) The maximum issuer or counterparty concentration limits;
(ii) the maximum portfolio concentration limits; (iii) the maximum
maturity; and (iv) the minimum credit ratings of the instrument or
allowed issuers of the instrument. Under this proposed new table, ICE
Clear Europe would be able to invest its regulatory capital in direct
purchases of US, UK, and EU sovereign bonds and US, UK, and EU
government agency bonds, each with a maximum maturity of 90 days. The
US and UK sovereign and government agency bonds would have no issuer
concentration limit and a portfolio concentration limit of 20% (for
sovereign bonds) and 25% (for government agency bonds) of the total USD
or GBP balance, as applicable, in a single issue. The EU sovereign and
government agency bonds would have a maximum counterparty concentration
limit of 25% of the Euro balance in a single issuer. The proposed new
table would further require that US sovereign bonds issued by the US
government, UK sovereign bonds be issued by the UK government, and EU
sovereign bonds be issued by the German, French, Belgian or Dutch
governments. The minimum credit ratings for all government agency bonds
would be AA-from at least two rating organizations.
Finally, the proposed rule change would amend the Policy consistent
with these changes to the Procedures. Specifically, in Section 1 of the
Policy, the proposed rule change would amend the statement that the
Policy sets out the principles applied to the cash and collateral
management functions of ICE Clear Europe for Clearing Member assets by
deleting the specific reference to Clearing Member assets. As amended,
the purpose of the Policy would be to set out the principles applied to
the cash and collateral management functions of ICE Clear Europe. The
proposed rule change is thus amending the scope of the policy so that
it is not limited to Clearing Member assets, which is necessary given
that the Procedures, as amended, would apply to ICE Clear Europe's
investment of its skin in the game and regulatory capital. Similarly,
the proposed rule change would amend Section 2 of the Policy to clarify
that ICE Clear Europe's investment management functions include
investing ICE Clear Europe's skin in the game and regulatory capital,
consistent with the change to the Procedures described above. Finally,
the proposed rule change would amend Section 3.3.1 of the Policy, which
currently refers to ICE Clear Europe's investment management objective
of safeguarding the principal of Clearing Members' cash, to refer to
safeguarding the principal of the cash, because use of the general term
``cash'' would include ICE Clear Europe's skin in the game and
regulatory capital.
B. Facilitating Use of Central Bank Deposits and Other Amendments to
Investment Considerations
The proposed rule change would amend the list of overall investment
considerations found in Section 2 of the Procedures to facilitate ICE
Clear Europe's use of central bank deposits and make other updates. The
overall investment considerations are a list of criteria that ICE Clear
Europe considers when making investments. Currently, the overall
investment considerations are that investments may only be made with
Approved Financial Institutions (including investment agents and
investment counterparties); at least 50% of the investable portfolio in
each currency should be invested in overnight reverse repurchase
agreements; the portfolio of non-overnight investments should have a
variety of maturity dates; funds from customers of Futures Commission
Merchant (``FCM'') Clearing Members must be segregated from those of
other Clearing Members, be held in Permitted Depositories, and only
invested in overnight reverse repos and direct purchases of US
sovereign obligations; and purchased securities are intended to be held
until maturity in order to minimize the impact of market risk. The
proposed rule change would amend this list of investment considerations
to add a statement that investments must be denominated in Euros, Great
British Pounds, or Dollars, which currencies would match the
investments permitted under the Procedures. The proposed rule change
would also delete the requirement that at least 50% of the investable
portfolio in each currency should be invested in overnight reverse
repurchase agreements and replace it with a requirement that no more
than 5% of the investible funds should be held as unsecured cash each
calendar month. ICE Clear Europe is making this change to facilitate
its use of central bank accounts to hold cash, which would be
considered secured and thus
[[Page 41084]]
outside of the 5% limit. Moreover, the proposed rule change would amend
the requirement regarding investment of funds from customers of FCM
Clearing Members to change the wording slightly by, for example,
changing ``O/N'' to ``overnight'' and changing ``Obligations'' to
``Bonds.'' Finally, the proposed rule change would shorten the wording
of the requirement regarding holding purchased securities but would
retain the substance that ICE Clear Europe intends to hold purchased
securities until maturity.
C. Allowing ICE Clear Europe to Invest in Additional Types of
Instruments and Relying on ICE Clear Europe's Authorized Investments in
Periods of Insufficient Market Supply
The proposed rule change would amend the Procedures to expand the
investments in which ICE Clear Europe may invest Clearing Member cash
and would, as discussed above, allow ICE Clear Europe to invest its
skin in the game in these same instruments. Currently the Procedures
contain a table that lists each instrument in which ICE Clear Europe
may invest Clearing Member cash. This table then describes, for each
instrument for investment: (i) The maximum issuer or counterparty
concentration limits; (ii) the maximum portfolio concentration limits;
(iii) the maximum maturity; and (iv) the minimum credit ratings of the
instrument or allowed issuers of the instrument. The proposed rule
change would retain this table and the permitted investments currently
listed there: Reverse repurchase agreements; US, UK, and EU sovereign
obligations; central bank obligations; and commercial bank obligations.
The proposed rule change would revise the table by expanding it to
cover investments of skin in the game and adding US, UK, and EU
government agency bonds as instruments for investment. The proposed
rule change would specify the maximum issuer or counterparty
concentration limits, the maximum portfolio concentration limits, the
maximum maturity, and the minimum credit ratings for these government
agency bonds. The proposed rule change also would change sovereign
``obligations'' to sovereign ``bonds''; change central bank
``obligations'' to central bank ``deposits''; and specify that the
concentration limits for reverse repos apply per counterparty family.
Similarly, the proposed rule change would specify for purchases of EU
sovereign bonds that the maximum issuer limits apply per EU government
issuer and would eliminate the minimum credit rating and instead
require that the German, French, Belgian, or Dutch governments issue
the bonds. Similarly, the proposed rule change would eliminate the
minimum credit rating for US and UK sovereign bonds and instead only
require that the US or UK government issue the bonds. Finally, with
respect to commercial bank obligations the proposed rule change would
also change ``obligations'' to ``deposits'' and would revise the entry
for maximum issuer or counterparty concentration limits to note that
for commercial banks, these limits are set separately as unsecured cash
limits for financial service providers (which are set out in ICE Clear
Europe's Unsecured Credit Limits Procedures).
The proposed rule change also would amend the Glossary section of
the Procedures to make changes consistent with those described above.
Specifically, the proposed rule change would remove the terms Central
Bank Obligations and Commercial Bank Obligations as no longer necessary
because the amended Procedures would refer to central bank deposits and
commercial bank deposits instead. The proposed rule change would revise
the term EU Sovereign Obligations to the more general defined term,
Government Agency Bonds, which would be defined as bonds issued by or
that have their principal and interest fully guaranteed by their
government. The proposed rule change also would clarify the wording of
the definition for the term Permitted Investment Counterparties for FCM
Customer Funds. Similar to the changes described above, the proposed
rule change would revise references to UK Sovereign Obligations and US
Sovereign Obligations to UK Sovereign Bonds and US Sovereign Bonds.
Finally, the proposed rule change would add a definition for
Supranational Obligations, which, as described above, the proposed rule
change would add to the list of permitted collateral for repurchase
transactions.
Finally, the Procedures currently contain a section that describes
the investments that ICE Clear Europe could make in periods where the
market supply of authorized investments is not sufficient to meet ICE
Clear Europe's investment needs. The proposed rule change would delete
this section from the Procedures. ICE Clear Europe no longer considers
this section necessary because it believes that the amended table of
authorized investments and associated limits, as described above, would
provide sufficient flexibility to permit ICE Clear Europe to manage
changes in supply of particular types of investments.
D. Permitting ICE Clear Europe To Use Additional Types of Collateral in
Reverse Repurchase Agreements
The Procedures currently set out a table that describes the
collateral acceptable for a reverse repurchase agreement, which
specifies the currency of the agreement, the currency of the
collateral, the credit rating, the securities used as collateral, and
the haircut applied by ICE Clear Europe. The proposed rule change would
amend this table to allow ICE Clear Europe to use additional collateral
in repurchase agreements. Currently, the Procedures permit the use of
EU, UK, and US sovereign obligations as collateral. As amended, the
Procedures would continue to permit the use of EU, UK, and US sovereign
bonds, as well as EU, UK, and US supranational obligations and US
government agency bonds. The proposed rule change would keep the
current required credit rating of AA-/Aa3 and the current required 2%
haircut. The proposed rule change also would expand the scope of
permitted collateral to allow cross-currency repo agreements, such as
an agreement denominated in Euros with collateral in UK pounds or
dollars. For these cross-currency repurchase agreements, and
transactions involving supranational obligations and US government
agency bonds, the haircut would be 4%.
While expanding the collateral permitted under repurchase
agreements, the proposed rule change also would amend the Procedures to
specify that ICE Clear Europe's preferred form of collateral is
sovereign bonds in the same currency as the reverse repurchase
transaction. The proposed rule change also would amend the Procedures
to require that ICE Clear Europe's Head of Treasury and Chief Risk
Officer review the use of non-preferred collateral monthly.
Finally, in the section describing additional considerations for
reverse repurchase agreements, the proposed rule change would revise
some of the wording by changing the reference to ICE Clear Europe's
Treasury and Banking Services group to Treasury and simplifying the
description of maturity definitions.
E. Monitoring, Escalating, and Remediating Breaches, Investment
Activities, and Board Risk Appetites
Finally, the proposed rule change would revise the process for
monitoring, escalating, and remediating breaches of investment criteria
and concentration limits, revise the description of ICE
[[Page 41085]]
Clear Europe's investment activities, and revise the description of
board risk appetites.
Currently, the Procedures require that breaches of the
concentration limits be escalated to the Risk Oversight Department and
Compliance team and that the investment portfolio be rebalanced to
return within the concentration limits. The proposed rule change would
amend this slightly to require that both breaches of the concentration
limits and investment criteria be escalated and further to require that
the investment portfolio be rebalanced to comply with the concentration
limits and investment criteria. Moreover, the proposed rule change
would add a requirement that ICE Clear Europe's Treasury and Finance
teams, on a daily basis, monitor investments against the concentration
limits and investment criteria.
Similarly, in both the background section of the Policy and Section
6, the proposed rule change would replace specific references to ICE
Clear Europe's Treasury and Banking Services team and their activities
to refer generally to ICE Clear Europe and its liquidity and investment
management activities. ICE Clear Europe is making this change to
reflect the fact that other groups at ICE Clear Europe, such as
Finance, perform the liquidity and investment management activities
that are within the scope of the Policy.
Finally, the proposed rule change would delete a statement in the
background section of the Policy that ICE Clear Europe's Treasury and
Banking Services team operates within the risk appetites set by the
board and in compliance with applicable regulations. As discussed, the
Policy would apply to other groups at ICE Clear Europe and not just the
Treasury Banking Services Team. Moreover, ICE Clear Europe believes
this specific statement is unnecessary because board-adopted risk
appetites apply to all activities of ICE Clear Europe anyway.
III. Discussion and Commission Findings
Section 19(b)(2)(C) of the Act directs the Commission to approve a
proposed rule change of a self-regulatory organization if it finds that
such proposed rule change is consistent with the requirements of the
Act and the rules and regulations thereunder applicable to such
organization.\6\ For the reasons given below, the Commission finds that
the proposed rule change is consistent with Section 17A(b)(3)(F) of the
Act \7\ and Rule 17Ad-22(e)(1), (e)(2)(v), and (e)(16).\8\
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\6\ 15 U.S.C. 78s(b)(2)(C).
\7\ 15 U.S.C. 78q-1(b)(3)(F).
\8\ 17 CFR 240.17Ad-22(e)(1), (e)(2)(v), (e)(16).
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A. Consistency With Section 17A(b)(3)(F) of the Act
Section 17A(b)(3)(F) of the Act requires, among other things, that
the rules of ICE Clear Europe be designed to promote the prompt and
accurate clearance and settlement of securities transactions and, to
the extent applicable, derivative agreements, contracts, and
transactions, as well as to assure the safeguarding of securities and
funds which are in the custody or control of ICE Clear Europe or for
which it is responsible.\9\
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\9\ 15 U.S.C. 78q-1(b)(3)(F).
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The Commission believes that, by applying the Procedures and the
Policy to investments of ICE Clear Europe's skin in the game and
regulatory capital, the proposed rule change should help to ensure that
such skin in the game and regulatory capital are invested in accordance
with the principles and processes specified in the Procedures and the
Policy. Because these principles and processes generally should help to
ensure that cash is invested reasonably, conservatively, and in a
manner that protects against loss, the Commission believes that
application of the Procedures and the Policy to ICE Clear Europe's skin
in the game and regulatory capital should help to safeguard the skin in
the game and regulatory capital against loss. Further, because the loss
of ICE Clear Europe's skin in the game and regulatory capital could
impair its ability to operate and therefore clear and settle
transactions and safeguard securities and funds, the Commission
believes that this aspect of the proposed rule change should help to
facilitate the prompt the prompt and accurate clearance and settlement
of securities transactions and assure the safeguarding of securities
and funds which are in the custody or control of ICE Clear Europe or
for which it is responsible, and, therefore, is consistent with Section
17A(b)(3)(F) of the Act.\10\
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\10\ 15 U.S.C. 78q-1(b)(3)(F).
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Similarly, the Commission believes that by facilitating the use of
central bank deposits; the investment in US, UK, and EU government
agency bonds, and the use of additional collateral in reverse
repurchase agreements and cross-currency transactions, the proposed
rule change should expand ICE Clear Europe's permitted investments to
include investments that should be generally reasonable and
conservative and have minimal credit, market, and liquidity risks.
Moreover, the Commission believes that the other changes to the
authorized investments discussed above, i.e., changing the wording from
``obligations'' to ``bonds'' and ``deposits'', specifying for purchases
of EU sovereign bonds that the maximum issuer limits apply per EU
government issuer, eliminating the minimum credit rating for US, UK,
and EU sovereign bonds, and relying on ICE Clear Europe's authorized
investments and associated limits in periods of insufficient market
supply, should not reduce the reasonableness or conservativeness of ICE
Clear Europe's permitted investments. Thus, the Commission believes
these aspects of the proposed rule change should provide ICE Clear
Europe additional investment options that should help to safeguard skin
in the game, regulatory capital, and clearing member cash against loss.
Because the loss of skin in the game, regulatory capital, and clearing
member cash could impair ICE Clear Europe's ability to operate and
therefore clear and settle transactions and safeguard securities and
funds, the Commission believes that these aspects of the proposed rule
change should be consistent with Section 17A(b)(3)(F) of the Act.\11\
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\11\ 15 U.S.C. 78q-1(b)(3)(F).
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The Commission further believes the changes described above
regarding breaches and the personnel involved in ICE Clear Europe's
investment activities should help to ensure compliance with the
Procedures consistent Section 17A(b)(3)(F) of the Act.\12\
Specifically, in requiring that both breaches of concentration limits
and investment criteria be escalated and that the investment portfolio
be rebalanced in remediation of a breach, the Commission believes that
the proposed rule change should help to ensure adherence to the limits
and criteria as well as remediation when they are breached. Moreover,
in requiring that ICE Clear Europe's Treasury and Finance teams monitor
the concentration limits and investment criteria daily, and that ICE
Clear Europe's Head of Treasury and Chief Risk Officer review the use
of non-preferred collateral monthly, the Commission believes the
proposed rule change should help to facilitate adherence to the
Procedures, the remediation of breaches, and monitoring to prevent
breaches from happening in the first place. Because, as discussed
above, the Commission believes that the Procedures should help to
ensure that ICE Clear Europe's investments of
[[Page 41086]]
regulatory capital, skin in the game, and Clearing Member cash are
conservative and subject to reasonable protections, and therefore ICE
Clear Europe is able to clear and settle transactions and safeguard
funds, the Commission believes that these aspects of the proposed rule
change, in facilitating compliance with the Procedures, are consistent
with Section 17A(b)(3)(F) of the Act.\13\
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\12\ 15 U.S.C. 78q-1(b)(3)(F).
\13\ 15 U.S.C. 78q-1(b)(3)(F).
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Finally, the Commission believes the other changes to the Policy
described above should help to ensure the accuracy of the Policy
consistent Section 17A(b)(3)(F) of the Act.\14\ Amending the Policy to
replace specific references to ICE Clear Europe's Treasury and Banking
Services team and their activities to refer generally to ICE Clear
Europe and its liquidity and investment management activities and to
delete a statement that ICE Clear Europe's Treasury and Banking
Services team operates within the risk appetites set by the board and
in compliance with applicable regulations should help to ensure the
Policy accurately reflects the operations of ICE Clear Europe.
Similarly, by renaming the Policy and deleting an inaccurate statement
that the Policy constitutes ICE Clear Europe's liquidity risk
management framework for purposes of EMIR, the Commission believes that
the proposed rule change should help to ensure that the Policy is
accurate and up-to-date. Because, as discussed above, the Policy should
help to ensure that ICE Clear Europe's investments of regulatory
capital, skin in the game, and Clearing Member cash are subject to
reasonable protections, and therefore ICE Clear Europe is able to clear
and settle transactions and safeguard funds, the Commission believes
that these aspects of the proposed rule change, in ensuring the
accuracy of the Policy, are consistent with Section 17A(b)(3)(F) of the
Act.\15\
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\14\ 15 U.S.C. 78q-1(b)(3)(F).
\15\ 15 U.S.C. 78q-1(b)(3)(F).
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Therefore, for these reasons, the Commission finds that the
proposed rule change should promote the prompt and accurate clearance
and settlement of securities transactions and assure the safeguarding
of securities and funds in ICE Clear Europe's custody and control,
consistent with the Section 17A(b)(3)(F) of the Act.\16\
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\16\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rule 17Ad-22(e)(1)
Rule 17Ad-22(e)(1) requires that ICE Clear Europe establish,
implement, maintain and enforce written policies and procedures
reasonably designed to provide for a well-founded, clear, transparent,
and enforceable legal basis for each aspect of its activities in a
relevant jurisdictions.\17\ As discussed above, the proposed rule
change would delete an inaccurate statement in the Policy that the
Policy constitutes ICE Clear Europe's liquidity risk management
framework for purposes of EMIR. This statement is inaccurate because,
for purposes of EMIR, ICE Clear Europe's liquidity risk management
framework is not limited to the Policy. Thus, in making this change,
the Commission believes that the proposed rule change should help to
ensure that ICE Clear Europe has an enforceable legal basis for its
activities under EMIR. For this reason, the Commission finds that the
proposed rule change is consistent with Rule 17Ad-22(e)(1).\18\
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\17\ 17 CFR 240.17Ad-22(e)(1).
\18\ 17 CFR 240.17Ad-22(e)(1).
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C. Consistency With Rule 17Ad-22(e)(2)(v)
Rule 17Ad-22(e)(2)(v) requires that ICE Clear Europe establish,
implement, maintain and enforce written policies and procedures
reasonably designed to provide governance arrangements that, among
other things, specify clear and direct lines of responsibility.\19\ As
discussed above, the proposed rule change would require that ICE Clear
Europe's Treasury and Finance teams monitor the concentration limits
and investment criteria daily. The Commission believes that this aspect
of the proposed rule change should help to establish a clear and direct
line of responsibility, in assigning the Treasury and Finance teams the
responsibility for daily monitoring. Similarly, the proposed rule
change would require that ICE Clear Europe's Head of Treasury and Chief
Risk Officer review the use of non-preferred collateral monthly. The
Commission believes this proposed change should help to place clear and
direct responsibility on ICE Clear Europe's Head of Treasury and Chief
Risk Officer. For these reasons, the Commission finds that the proposed
rule change is consistent with Rule 17Ad-22(e)(2)(v).\20\
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\19\ 17 CFR 240.17Ad-22(e)(2)(v).
\20\ 17 CFR 240.17Ad-22(e)(2)(v).
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D. Consistency With Rule 17Ad-22(e)(16)
Rule 17Ad-22(e)(16) requires that ICE Clear Europe establish,
implement, maintain and enforce written policies and procedures
reasonably designed to, among other things, safeguard its own and its
Clearing Members' assets and invest such assets in instruments with
minimal credit, market, and liquidity risks.\21\ As discussed above,
the proposed rule change, by applying the Procedures and the Policy to
investments of ICE Clear Europe's skin in the game and regulatory
capital, should help to ensure that such skin in the game and
regulatory capital are invested in accordance with the principles and
processes specified in the Procedures and the Policy. In addition, the
Commission believes that these principles and processes generally
should help to ensure that cash is invested reasonably and in a manner
that protects against loss. In addition, the proposed rule change would
expand the investments permitted to ICE Clear Europe by amending the
Procedures to facilitate the use of central bank deposits; US, UK, and
EU government agency bonds; and additional collateral in reverse
repurchase agreements as well as cross-currency transactions. The
Commission believes these investments, as well as the investments
currently permitted under the Procedures, constitute instruments with
minimal credit, market, and liquidity risks. Therefore, in applying the
Procedures and Policy to ICE Clear Europe's regulatory capital and skin
in the game and expanding the permitted investments, the Commission
believes the proposed rule change should help ICE Clear Europe to
safeguard its own and its Clearing Members' assets and invest such
assets in instruments with minimal credit, market, and liquidity risks.
For these reasons, the Commission finds that the proposed rule change
is consistent with Rule 17Ad-22(e)(16).\22\
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\21\ 17 CFR 240.17Ad-22(e)(16).
\22\ 17 CFR 240.17Ad-22(e)(16).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change, as modified by Partial Amendment No. 1, is consistent with the
Act. Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml) or
Send an email to [email protected]. Please include
File Number SR-ICEEU-2020-002 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange
[[Page 41087]]
Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-ICEEU-2020-002. 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, as modified by
Partial Amendment No. 1, that are filed with the Commission, and all
written communications relating to the proposed rule change, as
modified by Partial Amendment No. 1, 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-2020-002 and should be submitted on or before July 29, 2020.
V. Accelerated Approval of the Proposed Rule Change as Modified by
Partial Amendment No. 1
The Commission finds good cause, pursuant to Section 19(b)(2) of
the Act,\23\ to approve the proposed rule change, as modified by
Partial Amendment No. 1, prior to the 30th day after the date of
publication of Partial Amendment No. 1 in the Federal Register. As
discussed above, Partial Amendment No. 1 updates the Procedures to
assign ICE Clear Europe's Treasury and Finance teams responsibility for
daily monitoring against the concentration limits and investment
criteria. By so updating the Procedures, Partial Amendment No. 1
provides for a more clear and comprehensive understanding of how ICE
Clear Europe would monitor its adherence to the concentration limits
and investment criteria, which helps to improve the Commission's review
of the proposed rule change for consistency with the Act.
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\23\ 15 U.S.C. 78s(b)(2).
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For the reasons discussed above, the Commission finds that the
proposed rule change, as modified by Partial Amendment No. 1, is
consistent with the Act and the applicable rules thereunder.
Accordingly, the Commission finds good cause for approving the proposed
rule change, as modified by Partial Amendment No. 1, on an accelerated
basis, pursuant to Section 19(b)(2) of the Exchange Act.\24\
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\24\ 15 U.S.C. 78s(b)(2).
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VI. 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 \25\ and Rules 17Ad-22(e)(1), (e)(2)(v), and (e)(16).\26\
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\25\ 15 U.S.C. 78q-1(b)(3)(F).
\26\ 17 CFR 240.17Ad-22(e)(1), (e)(2)(v), (e)(16).
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IT IS THEREFORE ORDERED pursuant to Section 19(b)(2) of the Act
\27\ that the proposed rule change, as modified by Partial Amendment
No. 1 (SR-ICEEU-2020-002), be, and hereby is, approved on an
accelerated basis.\28\
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\27\ 15 U.S.C. 78s(b)(2).
\28\ In approving the proposed rule change, the Commission
considered the proposal's impact on efficiency, competition, and
capital formation. 15 U.S.C. 78c(f).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
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\29\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-14627 Filed 7-7-20; 8:45 am]
BILLING CODE 8011-01-P
