Self-Regulatory Organizations; ICEEU Limited; Order Approving Proposed Rule Change Relating to Amendments to the ICEEU Clearing Rules, 46763-46766 [2020-16705]
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Federal Register / Vol. 85, No. 149 / Monday, August 3, 2020 / Notices
amendment to the Plan to add MEMX as
a Participant have been satisfied.
II. Effectiveness of the Proposed
Amendment
The foregoing Plan amendment has
become effective pursuant to Rule
608(b)(3)(iii) 7 because it involves solely
technical or ministerial matters. At any
time within sixty days of the filing of
this amendment, the Commission may
summarily abrogate the amendment and
require that it be refiled pursuant to
paragraph (a)(1) of Rule 608,8 if it
appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or the maintenance of fair and
orderly markets, to remove impediments
to, and perfect the mechanisms of, a
national market system or otherwise in
furtherance of the purposes of the Act.
III. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the amendment is
consistent with the Act. Comments may
be submitted by any of the following
methods:
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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 4–
631 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 4–631. 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
plan amendment that are filed with the
Commission, and all written
communications relating to the
proposed plan amendment 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
7 17
8 17
CFR 242.608(b)(3)(iii).
CFR 242.608(a)(1).
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printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549–1090 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 4–631 and should be submitted
on or before August 24, 2020.
By the Commission.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–16808 Filed 7–31–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–89409; File No. SR–ICEEU–
2020–005]
Self-Regulatory Organizations; ICEEU
Limited; Order Approving Proposed
Rule Change Relating to Amendments
to the ICEEU Clearing Rules
July 28, 2020.
I. Introduction
On June 2, 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 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to revise its Clearing Rules (the
‘‘Rules’’) 3 to account for default
insurance proceeds. The proposed rule
change was published for comment in
the Federal Register on June 18, 2020.4
The Commission did not receive
comments on the proposed rule change.
For the reasons discussed below, the
Commission is approving the proposed
rule change.
II. Description of the Proposed Rule
Change
ICE Clear Europe proposes
amendments to Parts 9 and 11 of the
Rules relating to its use of default
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Capitalized terms used but not defined herein
have the meanings specified in the Rules.
4 Securities Exchange Act Release No. 89060
(June 12, 2020), 85 FR 36904 (June 18, 2020) (SR–
ICEEU–2020–005) (‘‘Notice’’).
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insurance that is intended to cover
losses resulting from a Clearing Member
default.5 Currently, ICE Clear Europe
includes proceeds from default
insurance among the resources available
to meet the obligations and liabilities
arising from a default for the F&O
contract category, but not for the CDS or
FX contract categories. Such default
insurance provides an additional default
resource to cover losses from Clearing
Member defaults, prior to the need to
use guaranty fund resources or
assessment contributions from nondefaulting Clearing Members.
As noted further below, the proposed
rule change would add insurance
proceeds to the assets available for
defaults for the CDS and FX contract
categories, and would alter the
placement of insurance proceeds in the
default waterfall for the F&O contract
category. However, ICE Clear Europe is
not, and would not be, required to
obtain or maintain default insurance.
Specifically, the proposal would
amend the default waterfalls in Rules
908(b) (for F&O-only Clearing Members
or Sponsored Principals), (c) (for CDSonly 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 each
of these default waterfalls, after first
applying the Defaulter’s resources and
then ICE Clear Europe’s initial
contribution (often referred to as its
‘‘skin in the game’’) in the waterfall of
assets used to meet the obligations and
liabilities of a Defaulter and any
shortfall, loss or liability to ICE Clear
Europe 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).) Default
insurance proceeds would thus be
applied before guaranty fund
contributions and assessment
contributions from non-defaulting
Clearing Members.6
Rule 1103(e) sets forth certain
limitations with respect to the benefits
of default insurance. The proposed rule
change would amend this rule to clarify
that ICE Clear Europe is not obligated to
5 The following description of the proposed rule
change is excerpted from the Notice, 85 FR 36904.
6 Conforming amendments would be made to the
Rule 101 definitions of ‘‘ICE Clear Europe CDS GF
Contribution,’’ ‘‘ICE Clear Europe F&O GF
Contribution,’’ and ‘‘ICE Clear Europe FX GF
Contribution’’ as well as to Rule 909(a), reflecting
the placement of default insurance proceeds in the
applicable waterfalls under Rule 908.
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obtain or keep in place or make any
claim under any default insurance
policy, or to make or receive the
proceeds under any claim prior to
moving to the next levels of assets in the
applicable waterfalls 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
that proceeds of any insurance claim
may need to be applied to meet losses
across more than one Event of Default
if there are multiple Defaulters.
In addition, the proposed rule change
would amend the Rules to set out the
order in which proceeds of default
insurance claims would be paid out if
there are multiple Defaulters within a
certain period. Specifically, insurance
proceeds would not be applied to
defaults for which there were no further
losses after applying default resources
up to and including the ICE Clear
Europe initial contribution. If there are
further losses, then insurance proceeds
would be applied to remaining losses
based on which default occurred first in
time, and to losses from defaults
occurring simultaneously (which
incldues defaults occurring on the same
day) on a pro rata basis.
Rule 1102(k) currently addresses the
allocation of amounts recovered from a
Defaulter to Guaranty Fund
Contributions of non-defaulting Clearing
Members. The proposed rule change
would amend this rule to address
application of these recoveries to pay
amounts owed to default insurers, as
well as reimbursements to other
Clearing Members and ICE Clear Europe
with respect to their contributions and
assessments. Specifically, these
recoveries would be paid in the reverse
order of 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 ICE
Clear Europe in respect of its initial
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 ICE Clear Europe (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
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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, ICE Clear Europe
collects on the defaulted obligation, loss
or shortfall in whole or in part from an
insurer, ICE Clear Europe would refund
the collected 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 ICE
Clear Europe 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 cash proceeds from
claims under default insurance policies
available to be applied pursuant to Rule
908, provided that such proceeds were
received at the time ICE Clear Europe
performs a calculation of Available NonDefaulter Resources.
The proposed rule change would also
amend Rule 914(j) with respect to the
application of recoveries in the context
of reduced gains distribution. Currently,
this Rule provides that if ICE Clear
Europe receives an amount from a
Defaulter or another Clearing Member or
Sponsored Principal that would, had it
been paid on time, have increased ICE
Clear Europe’s Available Resources on a
day on which a Margin Account
Adjustment was made in connection
with Reduced Gains Distributions, ICE
Clear Europe would distribute the
amounts received first, to nondefaulting Contributors who were liable
to pay an adjustment on a pro rata basis,
and second, in accordance with Rule
1102(k) (as described above). Under the
amendment, default insurance proceeds
would be included in the type of
received amounts subject to the rule.
Similarly, the proposed rule change
would amend Rule 916(n), which
addresses application of recoveries in
the context of product termination.
Currently, Rule 916, in general, permits
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ICE Clear Europe 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 ICE Clear Europe
determines there are not sufficient
Clearing Members to support continued
clearing of the relevant contract
category. Currently, pursuant to Rule
916(n), in the event that ICE Clear
Europe terminates a contract category
and 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).
III. Commission Findings
Section 19(b)(2)(C) of the Act directs
the Commission to approve a proposed
rule change of a self-regulatory
organization if it finds that the proposed
rule change is consistent with the
requirements of the Act and the rules
and regulations thereunder applicable to
the organization presenting it.7 For the
reasons given below, the Commission
finds that the proposed rule change is
consistent with Section 17A(b)(3)(F) of
the Act 8 and Rules 17Ad–22(e)(4) 9 and
17Ad–22(e)(13) 10 thereunder.
A. Consistency With Section
17A(b)(3)(F) of the Act
Section 17A(b)(3)(F) of the Act
requires, among other things, that the
rules of ICE Clear Europe be designed to
promote the prompt and accurate
clearance and settlement of securities
transactions and, to the extent
applicable, derivative agreements,
contracts, and transactions, to assure the
safeguarding of securities and funds
which are in the custody or control of
ICE Clear Europe or for which it is
responsible, and, in general, to protect
investors and the public interest.11
7 15
U.S.C. 78s(b)(2)(C).
U.S.C. 78q–1(b)(3)(F).
9 17 CFR 240.17Ad–22(e)(4).
10 17 CFR 240.17Ad–22(e)(13).
11 15 U.S.C. 78q–1(b)(3)(F).
8 15
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As discussed above, the proposed rule
change would amend the default
waterfalls for the CDS and FX categories
to include the proceeds of default
insurance, if any, as an additional
default resource after the application of
the Defaulter’s own resources and ICE
Clear Europe’s own initial contributions
and prior to the application of guaranty
fund contributions or assessments from
non-defaulting Clearing Members. In
addition, the proposed rule change
would alter the order of the resources
identified in the default waterfall for the
F&O category, such that proceeds from
default insurance would come third,
after the application the Defaulter’s own
resources and ICE Clear Europe’s initial
contribution and prior to the application
of Guaranty Fund contributions or
assessments from non-defaulting
Clearing Members. The Commission
believes that by including additional
financial resources in its default
management system, ICE Clear Europe
would enhance the financial resources
used to manage defaults. Specifically,
the Commission believes that the ability
to use the proceeds of default insurance
in this manner would provide ICE Clear
Europe with an additional potential
source of default liquidity with respect
to the CDS and FX product categories.
In addition, the placement of the default
insurance proceeds in the default
waterfalls for all three categories could
allow ICE Clear Europe to avoid
utilizing the resources of non-defaulting
Clearing Members, which, in turn could
reduce the risk of loss contagion (i.e.,
the risk of losses arising at nondefaulting Clearing Members if ICE
Clear Europe has to utilize the guaranty
fund, which would then be subject to
replenishment). In addition, these
financial resources would be more
likely to remain available for subsequent
defaults and also provide additional
financial resources necessary to ensure
ICE Clear Europe’s ability to safeguard
securities and funds.
For these reasons, the Commission
finds that the proposed rule change
would promote the prompt and accurate
clearance and settlement of securities
transactions and to assure the
safeguarding of securities and funds in
ICE Clear Europe’s custody and control.
Therefore, the Commission finds the
proposed rule change is consistent with
section 17A(b)(3)(F) of the Act.12
B. Consistency With Rule 17Ad–22(e)(4)
Rule 17Ad–22(e)(4) 13 requires ICE
Clear Europe to establish, implement,
maintain, and enforce written policies
and procedures reasonably designed to,
as applicable, effectively identify,
measure, monitor, and manage its credit
exposures to participants and those
arising from its payment, clearing, and
settlement processes, including by
maintaining additional financial
resources at a minimum to enable it to
cover a wide range of foreseeable stress
scenarios that include, but are not
limited to, the default of the two
participant families that would
potentially cause the largest aggregate
credit exposure in extreme but plausible
market conditions.14
As noted above, the proposed rule
change would revise ICE Clear Europe’s
rules to account for the receipt of
default insurance proceeds for all
product categories prior to the need to
use guaranty fund contributions and
assessments from non-defaulting
Clearing Members, such that default
insurance proceeds would be placed
third in the waterfall of assets after
Defaulter resources and ICE Clear
Europe’s initial contribution used to
meet the obligations and liabilities of a
Defaulter. Further, in the event
insurance proceeds are received after
mutualized default or other resources
are used, the proposed rule change
would allow the proceeds to repay nondefaulting Clearing Members, including
for such things as assessments or
reduced gains distributions that
otherwise would not have been made
had the insurance proceeds been
received at the time. The Commission
believes that by adding insurance
proceeds to its financial resources in
this way, the proposal should help ICE
Clear Europe to preserve mutualized
default resources and the resources of
individual non-defaulting Clearing
Members, which in turn would give it
the ability to manage its credit
exposures and cover a wide range of
foreseeable stress scenarios with
additional financial resources.
As noted above, the proposed rule
change would also allow for the use of
insurance proceeds in circumstances
when ICE Clear Europe terminates open
contracts. Specifically, 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. The
proposal would include default
12 15
U.S.C. 78q–1(b)(3)(F).
13 17 CFR 240.17Ad–22(e)(4).
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insurance proceeds in the type of
received amounts subject to
distribution. The Commission believes
that the application of additional
financial resources in this way would
strengthen its overall ability to deal with
a variety of stress scenarios by lessening
the burden on Clearing Members during
contract termination.
For these reasons, the Commission
finds that the proposed rule change is
consistent with Rule 17Ad–
22(e)(4)(ii).15
C. Consistency With Rule 17Ad–
22(e)(13)
Rule 17Ad–22(e)(13) requires ICE
Clear Europe to establish, implement,
maintain and enforce written policies
and procedures reasonably designed to,
as applicable, ensure it has the authority
and operational capacity to take timely
action to contain losses and liquidity
demands and continue to meet its
obligations.16
As noted above, the proposed rule
change would provide that ICE Clear
Europe would not be obligated to obtain
or keep in place or make any claim
under any default insurance policy or
make, or receive the proceeds under,
any claim prior to processing to the next
levels of assets in the event of a default.
Further, the proposed rule change
would specify how ICE Clear Europe
would apply the proceeds of any default
insurance after other resources, such as
non-defaulting Clearing Members’
guaranty fund contributions or
assessments, had been used to address
losses arising from a default. The
Commission believes that these aspects
of the proposed rule change will enable
ICE Clear Europe to, if necessary, 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, which in turn ensures
that ICE Clear Europe can take timely
action to contain losses and meet
liquidity demands even if there are
delays in making and processing an
insurance claim and that the existence
and use of default insurance does not
interfere with meeting such obligations.
For the reasons stated above, the
Commission believes that the proposed
rule change is consistent with Rule
17Ad–22(e)(13).17
15 17
CFR 240.17Ad–22(e)(4)(ii).
CFR 240.17Ad–22(e)(13).
17 17 CFR 240.17Ad–22(e)(13).
16 17
14 17
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CFR 240.17Ad–22(e)(4)(ii).
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IV. Conclusion
On the basis of the foregoing, the
Commission finds that the proposed
rule change is consistent with the
requirements of the Act, and in
particular, with the requirements of
Section 17A(b)(3)(F) of the Act 18 and
Rules 17Ad–22(e)(4) and 17Ad–
22(e)(13) thereunder.19
It is therefore ordered pursuant to
Section 19(b)(2) of the Act 20 that the
proposed rule change (SR–ICEEU–2020–
005) be, and hereby is, approved.21
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.22
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–16705 Filed 7–31–20; 8:45 am]
2. The Commission will consider
whether to provide additional
transparency regarding the appointment
of candidates to the Investor Advisory
Committee (IAC) by publishing
procedures governing the nomination of
candidates for appointment to the IAC.
CONTACT PERSON FOR MORE INFORMATION:
For further information and to ascertain
what, if any, matters have been added,
deleted or postponed, please contact
Vanessa A. Countryman, Office of the
Secretary, at (202) 551–5400.
Dated: July 29, 2020.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2020–16903 Filed 7–30–20; 11:15 am]
BILLING CODE 8011–01–P
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
SECURITIES AND EXCHANGE
COMMISSION
I. Rule 608(a)
[Release No. 34–89416; File No. SR–CTA/
CQ–2020–01]
Sunshine Act Meetings
Notice is hereby given,
pursuant to the provisions of the
Government in the Sunshine Act, Public
Law 94–409, the Securities and
Exchange Commission will hold an
Open Meeting on Wednesday, August 5,
2020 at 10:00 a.m.
PLACE: The meeting will be held via
remote means and/or at the
Commission’s headquarters, 100 F
Street NE, Washington, DC 20549.
STATUS: This meeting will begin at 10:00
a.m. (ET) and will be open to the public
via audio webcast only on the
Commission’s website at www.sec.gov.
MATTERS TO BE CONSIDERED: 1. The
Commission will consider whether to
propose rule and form amendments that
would modernize the disclosure
framework for open-end investment
companies. The disclosure framework
would feature concise and visually
engaging shareholder reports that would
highlight information that is particularly
important for retail investors to assess
and monitor their fund investments.
The Commission also will consider
whether to propose amendments to the
advertising rules for registered
investment companies and business
development companies.
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TIME AND DATE:
18 15
U.S.C. 78q–1(b)(3)(F).
CFR 240.17Ad–22(e)(4) and 17 CFR
240.17Ad–22(e)(13).
20 15 U.S.C. 78s(b)(2).
21 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).
22 17 CFR 200.30–3(a)(12).
19 17
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propose to add MEMX LLC (‘‘MEMX’’)
as a Participant to the Plans.
The proposed Amendments have been
filed by the Participants pursuant to
Rule 608(b)(3)(ii) under Regulation
NMS 5 as concerned solely with the
administration of the Plans and as
‘‘Ministerial Amendments’’ under both
Section IV(b) of the CTA Plan and
Section IV(c) of the CQ Plan. As a result,
the Amendments become effective upon
filing and can be submitted by the Chair
of the Plan’s Operating Committee. The
Commission is publishing this notice to
solicit comments on the Amendments
from interested persons. Set forth in
Sections I and II is the statement of the
purpose and summary of the
Amendments, along with the
information required by Rules 608(a)
and 601(a) under the Act, prepared and
submitted by the Participants to the
Commission.
Consolidated Tape Association; Notice
of Filing and Immediate Effectiveness
of the Thirty-Fourth Substantive
Amendment to the Second
Restatement of the CTA Plan and
Twenty-Fifth Substantive Amendment
to the Restated CQ Plan
July 29, 2020.
Pursuant to Section 11A of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 608 thereunder,2
notice is hereby given that on June 29,
2020,3 the Participants 4 in the Second
Restatement of the Consolidated Tape
Association (‘‘CTA’’) Plan and the
Restated Consolidated Quotation (‘‘CQ’’)
Plan (‘‘CTA/CQ Plans’’ or ‘‘Plans’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) a proposal
to amend the Plans. The amendments
represent the Thirty-Fourth Substantive
Amendment to the CTA Plan and
Twenty-Fifth Substantive Amendment
to the CQ Plan (‘‘Amendments’’). Under
the Amendments, the Participants
U.S.C 78k–1(a)(3).
CFR 242.608.
3 See Letter from Robert Books, Chairman,
Operating Committee, CTA/CQ Plans, to Vanessa A.
Countryman, Secretary, Commission, dated June 26,
2020.
4 The Participants are: Cboe BYX Exchange, Inc.,
Cboe BZX Exchange, Inc., Cboe EDGA Exchange,
Inc., Cboe EDGX Exchange, Inc., Cboe Exchange,
Inc., Financial Industry Regulatory Authority, Inc.,
The Investors’ Exchange LLC, Long-Term Stock
Exchange, Inc., MEMX LLC, Nasdaq BX, Inc.,
Nasdaq ISE, LLC, Nasdaq PHLX, Inc., The Nasdaq
Stock Market LLC, New York Stock Exchange LLC,
NYSE American LLC, NYSE Arca, Inc., NYSE
Chicago, Inc., and NYSE National, Inc. (collectively,
the ‘‘Participants’’).
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1 15
2 17
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A. Purpose of the Amendment
The above-captioned Amendments
add MEMX as a Participant to the Plans.
B. Governing or Constituent Documents
Not applicable.
C. Implementation of Amendment
Because the Amendments constitute
‘‘Ministerial Amendments’’ under both
Section IV(b) of the CTA Plan and
Section IV(c) under the CQ Plan, the
Chairman of the Plan’s Operating
Committee may submit the
Amendments to the Commission on
behalf of the Participants in the Plans.
Because the Participants designate the
Amendments as concerned solely with
the administration of the Plans, the
Amendments become effective upon
filing with the Commission.
D. Development and Implementation
Phases
Not applicable.
E. Analysis of Impact on Competition
The Amendments do not impose any
burden on competition because they
simply add MEMX as a Participant to
the Plans. MEMX has completed the
required steps to be added to the Plans.
F. Written Understanding or Agreement
Relating to Interpretation of, or
Participation in Plan
Not applicable.
G. Approval by Sponsors in Accordance
With Plan
See Item I.C. above.
5 17
E:\FR\FM\03AUN1.SGM
CFR 242.608(b)(2).
03AUN1
]]>Agencies
[Federal Register Volume 85, Number 149 (Monday, August 3, 2020)]
[Notices]
[Pages 46763-46766]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-16705]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89409; File No. SR-ICEEU-2020-005]
Self-Regulatory Organizations; ICEEU Limited; Order Approving
Proposed Rule Change Relating to Amendments to the ICEEU Clearing Rules
July 28, 2020.
I. Introduction
On June 2, 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
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to
revise its Clearing Rules (the ``Rules'') \3\ to account for default
insurance proceeds. The proposed rule change was published for comment
in the Federal Register on June 18, 2020.\4\ The Commission did not
receive comments on the proposed rule change. For the reasons discussed
below, the Commission is approving the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Capitalized terms used but not defined herein have the
meanings specified in the Rules.
\4\ Securities Exchange Act Release No. 89060 (June 12, 2020),
85 FR 36904 (June 18, 2020) (SR-ICEEU-2020-005) (``Notice'').
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II. Description of the Proposed Rule Change
ICE Clear Europe proposes amendments to Parts 9 and 11 of the Rules
relating to its use of default insurance that is intended to cover
losses resulting from a Clearing Member default.\5\ Currently, ICE
Clear Europe includes proceeds from default insurance among the
resources available to meet the obligations and liabilities arising
from a default for the F&O contract category, but not for the CDS or FX
contract categories. Such default insurance provides an additional
default resource to cover losses from Clearing Member defaults, prior
to the need to use guaranty fund resources or assessment contributions
from non-defaulting Clearing Members.
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\5\ The following description of the proposed rule change is
excerpted from the Notice, 85 FR 36904.
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As noted further below, the proposed rule change would add
insurance proceeds to the assets available for defaults for the CDS and
FX contract categories, and would alter the placement of insurance
proceeds in the default waterfall for the F&O contract category.
However, ICE Clear Europe is not, and would not be, required to obtain
or maintain default insurance.
Specifically, the proposal would 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 each of
these default waterfalls, after first applying the Defaulter's
resources and then ICE Clear Europe's initial contribution (often
referred to as its ``skin in the game'') in the waterfall of assets
used to meet the obligations and liabilities of a Defaulter and any
shortfall, loss or liability to ICE Clear Europe 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).)
Default insurance proceeds would thus be applied before guaranty fund
contributions and assessment contributions from non-defaulting Clearing
Members.\6\
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\6\ Conforming amendments would be made to the Rule 101
definitions of ``ICE Clear Europe CDS GF Contribution,'' ``ICE Clear
Europe F&O GF Contribution,'' and ``ICE Clear Europe FX GF
Contribution'' as well as to Rule 909(a), reflecting the placement
of default insurance proceeds in the applicable waterfalls under
Rule 908.
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Rule 1103(e) sets forth certain limitations with respect to the
benefits of default insurance. The proposed rule change would amend
this rule to clarify that ICE Clear Europe is not obligated to
[[Page 46764]]
obtain or keep in place or make any claim under any default insurance
policy, or to make or receive the proceeds under any claim prior to
moving to the next levels of assets in the applicable waterfalls 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
that proceeds of any insurance claim may need to be applied to meet
losses across more than one Event of Default if there are multiple
Defaulters.
In addition, the proposed rule change would amend the Rules to set
out the order in which proceeds of default insurance claims would be
paid out if there are multiple Defaulters within a certain period.
Specifically, insurance proceeds would not be applied to defaults for
which there were no further losses after applying default resources up
to and including the ICE Clear Europe initial contribution. If there
are further losses, then insurance proceeds would be applied to
remaining losses based on which default occurred first in time, and to
losses from defaults occurring simultaneously (which incldues defaults
occurring on the same day) on a pro rata basis.
Rule 1102(k) currently addresses the allocation of amounts
recovered from a Defaulter to Guaranty Fund Contributions of non-
defaulting Clearing Members. The proposed rule change would amend this
rule to address application of these recoveries to pay amounts owed to
default insurers, as well as reimbursements to other Clearing Members
and ICE Clear Europe with respect to their contributions and
assessments. Specifically, these recoveries would be paid in the
reverse order of 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 ICE Clear Europe
in respect of its initial 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 ICE Clear Europe (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, ICE Clear Europe collects on the
defaulted obligation, loss or shortfall in whole or in part from an
insurer, ICE Clear Europe would refund the collected 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 ICE Clear Europe
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 cash proceeds from claims under default insurance
policies available to be applied pursuant to Rule 908, provided that
such proceeds were received at the time ICE Clear Europe performs a
calculation of Available Non-Defaulter Resources.
The proposed rule change would also amend Rule 914(j) with respect
to the application of recoveries in the context of reduced gains
distribution. Currently, this Rule provides that if ICE Clear Europe
receives an amount from a Defaulter or another Clearing Member or
Sponsored Principal that would, had it been paid on time, have
increased ICE Clear Europe's Available Resources on a day on which a
Margin Account Adjustment was made in connection with Reduced Gains
Distributions, ICE Clear Europe 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). Under the amendment, default insurance
proceeds would be included in the type of received amounts subject to
the rule.
Similarly, the proposed rule change would amend Rule 916(n), which
addresses application of recoveries in the context of product
termination. Currently, Rule 916, in general, permits ICE Clear Europe
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 ICE Clear Europe determines
there are not sufficient Clearing Members to support continued clearing
of the relevant contract category. Currently, pursuant to Rule 916(n),
in the event that ICE Clear Europe terminates a contract category and
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).
III. Commission Findings
Section 19(b)(2)(C) of the Act directs the Commission to approve a
proposed rule change of a self-regulatory organization if it finds that
the proposed rule change is consistent with the requirements of the Act
and the rules and regulations thereunder applicable to the organization
presenting it.\7\ For the reasons given below, the Commission finds
that the proposed rule change is consistent with Section 17A(b)(3)(F)
of the Act \8\ and Rules 17Ad-22(e)(4) \9\ and 17Ad-22(e)(13) \10\
thereunder.
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\7\ 15 U.S.C. 78s(b)(2)(C).
\8\ 15 U.S.C. 78q-1(b)(3)(F).
\9\ 17 CFR 240.17Ad-22(e)(4).
\10\ 17 CFR 240.17Ad-22(e)(13).
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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, to assure the safeguarding of securities and funds which
are in the custody or control of ICE Clear Europe or for which it is
responsible, and, in general, to protect investors and the public
interest.\11\
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\11\ 15 U.S.C. 78q-1(b)(3)(F).
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[[Page 46765]]
As discussed above, the proposed rule change would amend the
default waterfalls for the CDS and FX categories to include the
proceeds of default insurance, if any, as an additional default
resource after the application of the Defaulter's own resources and ICE
Clear Europe's own initial contributions and prior to the application
of guaranty fund contributions or assessments from non-defaulting
Clearing Members. In addition, the proposed rule change would alter the
order of the resources identified in the default waterfall for the F&O
category, such that proceeds from default insurance would come third,
after the application the Defaulter's own resources and ICE Clear
Europe's initial contribution and prior to the application of Guaranty
Fund contributions or assessments from non-defaulting Clearing Members.
The Commission believes that by including additional financial
resources in its default management system, ICE Clear Europe would
enhance the financial resources used to manage defaults. Specifically,
the Commission believes that the ability to use the proceeds of default
insurance in this manner would provide ICE Clear Europe with an
additional potential source of default liquidity with respect to the
CDS and FX product categories. In addition, the placement of the
default insurance proceeds in the default waterfalls for all three
categories could allow ICE Clear Europe to avoid utilizing the
resources of non-defaulting Clearing Members, which, in turn could
reduce the risk of loss contagion (i.e., the risk of losses arising at
non-defaulting Clearing Members if ICE Clear Europe has to utilize the
guaranty fund, which would then be subject to replenishment). In
addition, these financial resources would be more likely to remain
available for subsequent defaults and also provide additional financial
resources necessary to ensure ICE Clear Europe's ability to safeguard
securities and funds.
For these reasons, the Commission finds that the proposed rule
change would promote the prompt and accurate clearance and settlement
of securities transactions and to assure the safeguarding of securities
and funds in ICE Clear Europe's custody and control. Therefore, the
Commission finds the proposed rule change is consistent with section
17A(b)(3)(F) of the Act.\12\
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\12\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rule 17Ad-22(e)(4)
Rule 17Ad-22(e)(4) \13\ requires ICE Clear Europe to establish,
implement, maintain, and enforce written policies and procedures
reasonably designed to, as applicable, effectively identify, measure,
monitor, and manage its credit exposures to participants and those
arising from its payment, clearing, and settlement processes, including
by maintaining additional financial resources at a minimum to enable it
to cover a wide range of foreseeable stress scenarios that include, but
are not limited to, the default of the two participant families that
would potentially cause the largest aggregate credit exposure in
extreme but plausible market conditions.\14\
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\13\ 17 CFR 240.17Ad-22(e)(4).
\14\ 17 CFR 240.17Ad-22(e)(4)(ii).
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As noted above, the proposed rule change would revise ICE Clear
Europe's rules to account for the receipt of default insurance proceeds
for all product categories prior to the need to use guaranty fund
contributions and assessments from non-defaulting Clearing Members,
such that default insurance proceeds would be placed third in the
waterfall of assets after Defaulter resources and ICE Clear Europe's
initial contribution used to meet the obligations and liabilities of a
Defaulter. Further, in the event insurance proceeds are received after
mutualized default or other resources are used, the proposed rule
change would allow the proceeds to repay non-defaulting Clearing
Members, including for such things as assessments or reduced gains
distributions that otherwise would not have been made had the insurance
proceeds been received at the time. The Commission believes that by
adding insurance proceeds to its financial resources in this way, the
proposal should help ICE Clear Europe to preserve mutualized default
resources and the resources of individual non-defaulting Clearing
Members, which in turn would give it the ability to manage its credit
exposures and cover a wide range of foreseeable stress scenarios with
additional financial resources.
As noted above, the proposed rule change would also allow for the
use of insurance proceeds in circumstances when ICE Clear Europe
terminates open contracts. Specifically, 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. The
proposal would include default insurance proceeds in the type of
received amounts subject to distribution. The Commission believes that
the application of additional financial resources in this way would
strengthen its overall ability to deal with a variety of stress
scenarios by lessening the burden on Clearing Members during contract
termination.
For these reasons, the Commission finds that the proposed rule
change is consistent with Rule 17Ad-22(e)(4)(ii).\15\
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\15\ 17 CFR 240.17Ad-22(e)(4)(ii).
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C. Consistency With Rule 17Ad-22(e)(13)
Rule 17Ad-22(e)(13) requires ICE Clear Europe to establish,
implement, maintain and enforce written policies and procedures
reasonably designed to, as applicable, ensure it has the authority and
operational capacity to take timely action to contain losses and
liquidity demands and continue to meet its obligations.\16\
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\16\ 17 CFR 240.17Ad-22(e)(13).
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As noted above, the proposed rule change would provide that ICE
Clear Europe would not be obligated to obtain or keep in place or make
any claim under any default insurance policy or make, or receive the
proceeds under, any claim prior to processing to the next levels of
assets in the event of a default. Further, the proposed rule change
would specify how ICE Clear Europe would apply the proceeds of any
default insurance after other resources, such as non-defaulting
Clearing Members' guaranty fund contributions or assessments, had been
used to address losses arising from a default. The Commission believes
that these aspects of the proposed rule change will enable ICE Clear
Europe to, if necessary, 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, which in turn
ensures that ICE Clear Europe can take timely action to contain losses
and meet liquidity demands even if there are delays in making and
processing an insurance claim and that the existence and use of default
insurance does not interfere with meeting such obligations.
For the reasons stated above, the Commission believes that the
proposed rule change is consistent with Rule 17Ad-22(e)(13).\17\
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\17\ 17 CFR 240.17Ad-22(e)(13).
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[[Page 46766]]
IV. Conclusion
On the basis of the foregoing, the Commission finds that the
proposed rule change is consistent with the requirements of the Act,
and in particular, with the requirements of Section 17A(b)(3)(F) of the
Act \18\ and Rules 17Ad-22(e)(4) and 17Ad-22(e)(13) thereunder.\19\
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\18\ 15 U.S.C. 78q-1(b)(3)(F).
\19\ 17 CFR 240.17Ad-22(e)(4) and 17 CFR 240.17Ad-22(e)(13).
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It is therefore ordered pursuant to Section 19(b)(2) of the Act
\20\ that the proposed rule change (SR-ICEEU-2020-005) be, and hereby
is, approved.\21\
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\20\ 15 U.S.C. 78s(b)(2).
\21\ 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.\22\
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\22\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-16705 Filed 7-31-20; 8:45 am]
BILLING CODE 8011-01-P
