Self-Regulatory Organizations; ICE Clear Europe Limited; Order Approving Proposed Rule Change Relating to the ICE Clear Europe Investment Management Procedures, 81548-81551 [2020-27597]

Download as PDF 81548 Federal Register / Vol. 85, No. 242 / Wednesday, December 16, 2020 / Notices khammond on DSKJM1Z7X2PROD with NOTICES complaints.86 The commenter suggested, among other things, that FINRA’s reports used data (i.e., violative events) to measure the likelihood of recidivist behavior that would not be the subject of a disciplinary action under the proposed rule change. Accordingly, the commenter did not believe FINRA’s statistical evidence justified the proposed rule change, including the additional costs and loss of rights that would result from approving the proposed rule change.87 In response, FINRA reiterated its concern about the potential risks posed by broker-dealers that persistently employ associated persons who engage in misconduct, as well as its findings that past disciplinary and other regulatory events, such as repeated disciplinary actions, arbitrations and complaints associated with a member broker-dealer or individual can be predictive of similar future events.88 Moreover, FINRA believes the estimated number of disclosure events associated with persons who appeal disciplinary decisions reflects a specific potential risk to investors.89 FINRA asserted that the proposed rule change would adopt processes directly tailored to target this specific misconduct and minimize further investor harm.90 The Commission believes that the commenter’s challenge to FINRA’s statistical justification for the proposed rule change obfuscates the point of the FINRA Study. In its study, FINRA uses a model that predicts investor harm based on information publicly released in BrokerCheck and non-public Central Registration Depository data and found that 20% of the 181,133 brokers in their sample with the highest ex ante predicted probability of investor harm are associated with more than 55% of the investor harm events and more than 55% of total dollar harm. Accordingly, FINRA concluded that the risk of future harm is predictable.91 The Commission believes that the methodology used in 86 Id. (stating that in the FINRA Study, the rate of new disclosure events by associated persons during the pendency of their appeals is less than 30%). 87 Id. (arguing that the FINRA Study continued its analysis through the year-end after the year in which the appeal reached a decision thus skewing its results). 88 See FINRA October 7 Letter; see also Notice at 20745–46, 20755 and note 5. 89 See FINRA October 7 Letter; see also Notice at 20748. 90 See FINRA October 7 Letter; see also Notice at 20750, 20754. 91 See FINRA Study at 17. Additional academic research suggests that a higher rate of new disciplinary and other disclosure events is highly correlated with past disciplinary and other disclosure events, as far back as nine years prior. See Notice at note 5. VerDate Sep<11>2014 17:32 Dec 15, 2020 Jkt 253001 the FINRA Study had a sound statistical basis. The Commission understands the commenter’s point that the FINRA Study measured the likelihood of recidivist behavior using data (i.e., violative acts) that would not be captured under the proposed rule change; however, the Commission believes FINRA shows its result is not sensitive to a particular threshold value. In addition, while the Commission understands the commenter’s point that FINRA continues the analysis through the year-end after the year in which the appeal reached a decision, the FINRA Study states that the complaint system tracks the date the complaint was filed but not the date of the actual occurrence of investor harm. The study makes a conservative assumption that the harm occurred the year before the filing so that when running a regression to predict an occurrence of harm, FINRA would not be predicting an event with data that was only available concurrently with or subsequent to the event.92 Accordingly, the Commission believes that the methodology FINRA used to conduct its study had a sound statistical basis and that FINRA had a sound basis upon which to base the proposed rule change. In sum, for the above reasons, the Commission believes that the proposed rule change would strengthen the tools available to FINRA in responding to associated persons who have a significant history of misconduct. In addition, the Commission believes that the proposed rule change has sufficiently tailored the proposed processes to target the specific misconduct it seeks to address, which would minimize the potential costs to broker-dealers. Moreover, the proposed rules would establish processes by which an associated person or brokerdealer would have adequate opportunities to challenge the imposed conditions and restrictions and seek further review. Accordingly, the Commission finds the proposed rule change would result in greater investor protections by helping address the concerns raised by associated persons with a significant history of misconduct and the brokerdealers that employ them while narrowly tailoring the review process to mitigate the potential burdens on those individuals and broker-dealers. IV. Conclusion It Is Therefore Ordered pursuant to Section 19(b)(2) of the Exchange Act 93 that the proposed rule change (SR– 92 See 93 15 PO 00000 FINRA Study at 9–10. U.S.C. 78s(b)(2). Frm 00107 Fmt 4703 Sfmt 4703 FINRA–2020–011), as modified by Amendment No. 1, be, and hereby is, approved. Jill M. Peterson, Assistant Secretary. [FR Doc. 2020–27626 Filed 12–15–20; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–90627; File No. SR–ICEEU– 2020–013] Self-Regulatory Organizations; ICE Clear Europe Limited; Order Approving Proposed Rule Change Relating to the ICE Clear Europe Investment Management Procedures December 10, 2020. I. Introduction On October 23, 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 thereunder,2 a proposed rule change to amend its Investment Management Procedures (the ‘‘Procedures’’) to make certain clarifications and updates with respect to permissible investments.3 The proposed rule change was published for comment in the Federal Register on November 5, 2020.4 The Commission did not receive comments regarding the proposed rule change. For the reasons discussed below, the Commission is approving the proposed rule change. II. Description of the Proposed Rule Change The proposed rule change would amend the Procedures to clarify the requirements for investment of customer funds by FCM/BD Clearing Members 5 resulting from the expansion of permitted investments to include qualifying Euro-denominated non-U.S. sovereign debt pursuant to an exemptive order issued by the U.S. Commodity 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 Self-Regulatory Organizations; ICE Clear Europe Limited; Notice of Filing of Proposed Rule Change Relating to the ICE Clear Europe Investment Management Procedures, Exchange Act Release No. 90290 (October 30, 2020), 85 FR 70697 (November 5, 2020) (SR–ICEEU–2020–013) (‘‘Notice’’). 4 See Notice supra note 3. 5 Capitalized terms used but not defined herein have the meanings specified in the Procedures or the ICE Clear Europe Clearing Rules (the ‘‘Rules’’), as applicable. 2 17 E:\FR\FM\16DEN1.SGM 16DEN1 Federal Register / Vol. 85, No. 242 / Wednesday, December 16, 2020 / Notices khammond on DSKJM1Z7X2PROD with NOTICES Futures Trading Commission (the ‘‘CFTC Order’’).6 In Section 1 of the Procedures, ICE Clear Europe proposes to amend its investment management objective to clarify that the cash subject to investment excludes its corporate cash held for operating purposes, but would include cash held for the purposes of meeting ICE Clear Europe’s contributions to the guaranty fund (referred to below as ‘‘skin in the game’’), maintaining its capital pursuant to applicable regulatory requirements (referred to below as ‘‘regulatory capital’’), or for any other purpose in connection with its daily treasury activities for the management of Clearing Members’ margin or guaranty fund contributions. ICE Clear Europe represented that this clarification is consistent with current practice.7 In Section 2 of the Procedures, ICE Clear Europe proposes three main changes to its overall investment considerations, which are a list of criteria that ICE Clear Europe considers when making investments. First, it would clarify that the goal for nonovernight investments to have a variety of maturity dates only applies where applicable and thus not necessarily in all cases, such as investments in bank deposits. Second, it would amend the description of how futures commission merchant (‘‘FCM’’) customer funds may be invested by permitting investments in cash deposits, clarifying that direct purchases with U.S. dollar cash are limited to U.S. sovereign bonds, and providing that direct purchases with Euro cash may be made in French and German sovereign bonds as permitted in the CFTC Order. Third, it would clarify that ICE Clear Europe calculates the requirement of no more than 5% of the investible funds should be held as unsecured cash over an average period of one calendar month. In addition, ICE Clear Europe would make certain other typographical and similar corrections to this section of the Procedures. ICE Clear Europe would also amend its table of authorized investments and concentration limits for cash from Clearing Members and from skin in the game to expand the investments in which ICE Clear Europe may invest 6 Order Granting Exemption From Certain Provisions of the Commodity Exchange Act Regarding Investment of Customer Funds and From Certain Related Commission Regulations, 83 FR 35241, 35245 (July 25, 2018) (permitting the investment of futures and swap customer funds in euro-denominated debt issued by the French Republic and the Federal Republic of Germany under specified conditions, and granting other related limited exemptions to CFTC-registered derivatives clearing organizations or ‘‘DCOs’’). 7 See Notice, 85 FR at 70697. VerDate Sep<11>2014 17:32 Dec 15, 2020 Jkt 253001 such cash and skin in the game. This table identifies the permitted instruments for investment and then identifies, for each instrument: (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 the permitted investments currently listed in this table (i.e., reverse repurchase agreements, US, UK, and EU sovereign obligations, US, UK, and EU government agency bonds, central bank obligations, and commercial bank obligations) and make four main changes with respect to the currently permitted instruments. First, it would apply the existing maximum issuer/ counterparty concentration limit of 15% of the total EUR balance in a single government issuer only to government bonds issued by Belgium and the Netherlands, and provide no limit for French and German government bonds. Second, it would remove the current reference to the issuer limit and impose new maximum portfolio concentration limits for EU government bonds at 20% of the total EUR balance in a single issue for German or French government bonds, and 10% of the total EUR balance in a single issue for Belgian or Dutch government bonds. Third, for investments of FCM customer funds in EU government bonds, it would apply additional criteria as required in the CFTC Order, as described further below in the new defined term ‘‘Permitted Purchases of Euro denominated debt for FCM Customer Funds’’ in the Glossary section of the Procedures. Fourth, with respect to central bank deposits, it would add the Federal Reserve and the European Central Bank (ECB) to the list of allowed central banks. While ICE Clear Europe represented that it does not necessarily have access to deposits at such central banks at this time, the amendment would allow for possible future developments.8 The proposed rule change would also add a new instrument category of commercial bank deposits to ICE Clear Europe’s table of authorized investments and concentration limits for its regulatory capital. This table currently lists US, UK, and EU sovereign obligations, and US, UK, and EU government agency bonds as the only permitted investments for ICE Clear Europe’s regulatory capital. The addition of commercial bank deposits thus expands this list. For this instrument category, ICE Clear Europe 8 See PO 00000 Notice, 85 FR at 70697. Frm 00108 Fmt 4703 Sfmt 4703 81549 would set unsecured cash limits separately for financial service providers; impose a maximum portfolio concentration limit at no more than 5% of the total investible funds in unsecured cash on average each calendar month; set the maximum maturity at overnight; and require minimum credit ratings of A–1/P–1. The Procedures currently contain an additional table that describes the collateral acceptable for reverse repurchase agreements (also referred to below as ‘‘reverse repo’’). This table 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 expand the scope of acceptable collateral for reverse repurchase agreements to allow ICE Clear Europe to use GBP and EUR agency bonds with AA–/Aa3 credit ratings and a 2% haircut. The proposed rule change would also remove the current credit rating requirement of AA–/Aa3 for UK and US sovereign bonds. For FCM customer funds invested in EUR reverse repurchase agreements, the proposed rule change would specify that only collateral meeting the CFTC Order requirements will be accepted. ICE Clear Europe would also update the Glossary section of the Procedures to add central banks to the definition of ‘‘Permitted Depositories for FCM Customer Funds’’ where the CFTC has provided the relevant exemption to ICE Clear Europe. In addition, the proposed rule change would include a definition of the term ‘‘Permitted Purchases of Euro denominated debt for FCM Customer Funds.’’ This new definition would set forth the conditions under the CFTC Order for investment of FCM customer funds in euro-denominated sovereign debt issued by the French Republic and the Federal Republic of Germany.9 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.10 For the reasons given below, the Commission finds that the proposed 9 Specifically, the proposed definition of ‘‘Permitted Purchases of Euro denominated debt for FCM Customer Funds’’ would include the conditions listed in section (3)(a) through (d) in the CFTC Order. See supra note 6 at 35245. 10 15 U.S.C. 78s(b)(2)(C). E:\FR\FM\16DEN1.SGM 16DEN1 81550 Federal Register / Vol. 85, No. 242 / Wednesday, December 16, 2020 / Notices khammond on DSKJM1Z7X2PROD with NOTICES rule change is consistent with Section 17A(b)(3)(F) of the Act 11 and Rule 17Ad–22(e)(16).12 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.13 The Commission believes that, by clarifying ICE Clear Europe’s criteria for investments of cash received from Clearing Members and certain other cash it holds for skin in the game and regulatory capital, and updating the requirements for investment of customer funds by FCM/BD Clearing Members resulting from the CFTC’s authorized expansion of permitted investments to include qualifying Euro-denominated sovereign debt, the proposed rule change generally should provide ICE Clear Europe with enhanced efficiency and flexibility in how it manages and invests customer funds and cash balances, in a manner consistent with applicable regulatory requirements. The Commission believes that these aspects of the proposed rule change would help to diversify permissible investments for such cash in a conservative manner that protects against loss. Thus, the Commission believes these aspects of the proposed rule change should ensure that ICE Clear Europe will have sufficient resources to promptly and accurately clear and settle securities transactions and, therefore, are consistent with Section 17A(b)(3)(F) of the Act.14 Further, the Commission believes that the proposed amendments to add a new category of commercial bank deposits as an authorized investment for ICE Clear Europe’s regulatory capital, to facilitate investments in bank deposits or other non-overnight investments by only requiring a variety of maturity dates where applicable, and to add GBP and EUR agency bonds with AA–/Aa3 credit ratings and a 2% haircut as acceptable collateral for reverse repo, should also enhance ICE Clear Europe’s efficiency in meeting its investment management objective to safeguard the principal of 11 15 U.S.C. 78q–1(b)(3)(F). CFR 240.17Ad–22(e)(16). 13 15 U.S.C. 78q–1(b)(3)(F). 14 15 U.S.C. 78q–1(b)(3)(F). cash and maintain sufficient liquidity for its payment obligations. By having defined investment criteria and conservative investment management procedures, the Commission believes that these aspects of the proposed rule change should also help to ensure that cash is invested reasonably, conservatively, and in a manner that protects against loss, which, in turn, should help to thereby assuring 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, are consistent with Section 17A(b)(3)(F) of the Act.15 Similarly, the Commission believes that by facilitating ICE Clear Europe’s use of central bank deposits, including by expanding the list of allowed central banks; updating certain concentration and similar limits for investment in US, UK, and EU government bonds; and adding acceptable collateral for reverse repo, the proposed rule change would 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., eliminating the maximum issuer/counterparty concentration limit for French and German sovereign bonds, removing the credit rating requirement for UK and US sovereign bonds as acceptable collateral for reverse repo, and specifying that only collateral that meets the CFTC Order requirements is acceptable for FCM customer funds invested in EUR reverse repo, 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.16 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.17 B. 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, minimize the risk of loss of loss and delay in access to these assets, and invest such assets in instruments with minimal credit, market, and liquidity risks.18 The Commission believes that by clarifying ICE Clear Europe’s criteria for investments of cash, updating investment concentration limits and similar requirements for EU, US, and UK government bonds, and generally expanding permitted investment options to facilitate ICE Clear Europe’s flexibility to diversify investments, the proposed rule change should help to ensure that ICE Clear Europe safeguards its own and its participants’ assets— specifically, ICE Clear Europe’s deposits of cash, which would include cash posted by Clearing Members to satisfy their margin and guaranty fund requirements—in a manner that should appropriately minimize the risk of loss or delay of such assets. In addition, the proposed rule change would facilitate ICE Clear Europe’s use of commercial and central bank deposits, in particular by adding the Federal Reserve and ECB to the list of allowed central banks to facilitate access to these deposits. Further, the proposed rule change would expand the scope of acceptable collateral in reverse repurchase agreements subject to appropriate limitations. 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, the Commission believes the proposed rule change generally should help to ensure that ICE Clear Europe invests cash reasonably and in a manner that protects against loss which, in turn, 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 12 17 VerDate Sep<11>2014 17:32 Dec 15, 2020 15 15 16 15 Jkt 253001 PO 00000 U.S.C. 78q–1(b)(3)(F). U.S.C. 78q–1(b)(3)(F). Frm 00109 Fmt 4703 Sfmt 4703 17 15 18 17 E:\FR\FM\16DEN1.SGM U.S.C. 78q–1(b)(3)(F). CFR 240.17Ad–22(e)(16). 16DEN1 Federal Register / Vol. 85, No. 242 / Wednesday, December 16, 2020 / Notices proposed rule change is consistent with Rule 17Ad–22(e)(16).19 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 20 and Rule 17Ad–22(e)(16).21 It is therefore ordered pursuant to Section 19(b)(2) of the Act 22 that the proposed rule change (SR–ICEEU–2020– 013), be, and hereby is, approved.23 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.24 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–27597 Filed 12–15–20; 8:45 am] BILLING CODE 8011–01–P DEPARTMENT OF STATE [Public Notice 11278] 30-Day Notice of Proposed Information Collection: Generic Clearance for the Collection of Qualitative Feedback on Agency Service Delivery Notice of request for public comment and submission to OMB of proposed collection of information. ACTION: The Department of State has submitted the information collection described below to the Office of Management and Budget (OMB) for approval. In accordance with the Paperwork Reduction Act of 1995 we are requesting comments on this collection from all interested individuals and organizations. The purpose of this Notice is to allow 30 days for public comment. DATES: Submit comments up to January 15, 2021. ADDRESSES: Written comments and recommendations for the proposed information collection should be sent within 30 days of publication of this notice to www.reginfo.gov/public/do/ PRAMain. Find this particular information collection by selecting ‘‘Currently under 30-day Review—Open for Public Comments’’ or by using the search function. khammond on DSKJM1Z7X2PROD with NOTICES SUMMARY: 19 17 CFR 240.17Ad–22(e)(16). U.S.C. 78q–1(b)(3)(F). 21 17 CFR 240.17Ad–22(e)(16). 22 15 U.S.C. 78s(b)(2). 23 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). 24 17 CFR 200.30–3(a)(12). 20 15 VerDate Sep<11>2014 17:32 Dec 15, 2020 Jkt 253001 FOR FURTHER INFORMATION CONTACT: Direct requests for additional information regarding the collection listed in this notice, including requests for copies of the proposed collection instrument and supporting documents to Pamela Watkins, Department of State, Office of Directives Management, who may be reached at watkinspk@state.gov or 202–485–2159. SUPPLEMENTARY INFORMATION: • Title of Information Collection: Generic Clearance for the Collection of Qualitative Feedback on Agency Service Delivery. • OMB Control Number: 1405–0193. • Type of Request: Extension of a Currently Approved Collection. • Originating Office: Office of Directives Management, A/GIS/DIR. • Form Number: Various public surveys. • Respondents: Individuals responding to Department of State customer service evaluation requests. • Estimated Number of Respondents: 2,000,000. • Estimated Number of Responses: 2,000,000. • Average Time per Response: 3.5 minutes. • Total Estimated Burden Time: 116,667 annual hours. • Frequency: Once per request. • Obligation to Respond: Voluntary. We are soliciting public comments to permit the Department to: • Evaluate whether the proposed information collection is necessary for the proper functions of the Department. • Evaluate the accuracy of our estimate of the time and cost burden for this proposed collection, including the validity of the methodology and assumptions used. • Enhance the quality, utility, and clarity of the information to be collected. • Minimize the reporting burden on those who are to respond, including the use of automated collection techniques or other forms of information technology. Please note that comments submitted in response to this Notice are public record. Before including any detailed personal information, you should be aware that your comments as submitted, including your personal information, will be available for public review. Abstract of Proposed Collection perceptions, experiences and expectations, provide an early warning of issues with service, or focus attention on areas where communication, training or changes in operations might improve delivery of products or services. These collections will allow for ongoing, collaborative and actionable communications between the Agency and its customers. It will also allow feedback to contribute directly to the improvement of program management. Feedback collected under this generic clearance will provide useful information, but it will not yield data that can be used for quantitative information collections that are designed to yield reliably actionable results, such as monitoring trends over time or documenting program performance. Such data uses require more rigorous designs that address: the target population to which generalizations will be made, the sampling frame, the sample design (including stratification and clustering), the precision requirements or power calculations that justify the proposed sample size, the expected response rate, methods for assessing potential nonresponse bias, the protocols for data collection, and any testing procedures that were or will be undertaken prior fielding the study. Depending on the degree of influence the results are likely to have, such collections may still be eligible for submission for other generic mechanisms that are designed to yield quantitative results. The 60-day Notice was published on July 15, 2020 (85 FR 42966). The annual burden was increased to 116,667 from 58,333 in this 30-day Notice to capture the impact of COVID–19 on Department services. Methodology Respondents will fill out a brief customer survey after completing their interaction with a Department Program Office or Embassy. Surveys are designed to gather feedback on the customer’s experiences. Zachary Parker, Director. [FR Doc. 2020–27636 Filed 12–15–20; 8:45 am] BILLING CODE 4710–24–P The information collection activity will garner qualitative customer feedback in an efficient, timely manner, in accordance with the Administration’s commitment to improving service delivery. This qualitative feedback will provide insights into customer PO 00000 Frm 00110 Fmt 4703 Sfmt 9990 81551 E:\FR\FM\16DEN1.SGM 16DEN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 85, Number 242 (Wednesday, December 16, 2020)]
[Notices]
[Pages 81548-81551]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-27597]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90627; File No. SR-ICEEU-2020-013]


Self-Regulatory Organizations; ICE Clear Europe Limited; Order 
Approving Proposed Rule Change Relating to the ICE Clear Europe 
Investment Management Procedures

December 10, 2020.

I. Introduction

    On October 23, 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 thereunder,\2\ a 
proposed rule change to amend its Investment Management Procedures (the 
``Procedures'') to make certain clarifications and updates with respect 
to permissible investments.\3\ The proposed rule change was published 
for comment in the Federal Register on November 5, 2020.\4\ The 
Commission did not receive comments regarding the proposed rule change. 
For the reasons discussed below, the Commission is approving the 
proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Self-Regulatory Organizations; ICE Clear Europe Limited; 
Notice of Filing of Proposed Rule Change Relating to the ICE Clear 
Europe Investment Management Procedures, Exchange Act Release No. 
90290 (October 30, 2020), 85 FR 70697 (November 5, 2020) (SR-ICEEU-
2020-013) (``Notice'').
    \4\ See Notice supra note 3.
---------------------------------------------------------------------------

II. Description of the Proposed Rule Change

    The proposed rule change would amend the Procedures to clarify the 
requirements for investment of customer funds by FCM/BD Clearing 
Members \5\ resulting from the expansion of permitted investments to 
include qualifying Euro-denominated non-U.S. sovereign debt pursuant to 
an exemptive order issued by the U.S. Commodity

[[Page 81549]]

Futures Trading Commission (the ``CFTC Order'').\6\
---------------------------------------------------------------------------

    \5\ Capitalized terms used but not defined herein have the 
meanings specified in the Procedures or the ICE Clear Europe 
Clearing Rules (the ``Rules''), as applicable.
    \6\ Order Granting Exemption From Certain Provisions of the 
Commodity Exchange Act Regarding Investment of Customer Funds and 
From Certain Related Commission Regulations, 83 FR 35241, 35245 
(July 25, 2018) (permitting the investment of futures and swap 
customer funds in euro-denominated debt issued by the French 
Republic and the Federal Republic of Germany under specified 
conditions, and granting other related limited exemptions to CFTC-
registered derivatives clearing organizations or ``DCOs'').
---------------------------------------------------------------------------

    In Section 1 of the Procedures, ICE Clear Europe proposes to amend 
its investment management objective to clarify that the cash subject to 
investment excludes its corporate cash held for operating purposes, but 
would include cash held for the purposes of meeting ICE Clear Europe's 
contributions to the guaranty fund (referred to below as ``skin in the 
game''), maintaining its capital pursuant to applicable regulatory 
requirements (referred to below as ``regulatory capital''), or for any 
other purpose in connection with its daily treasury activities for the 
management of Clearing Members' margin or guaranty fund contributions. 
ICE Clear Europe represented that this clarification is consistent with 
current practice.\7\
---------------------------------------------------------------------------

    \7\ See Notice, 85 FR at 70697.
---------------------------------------------------------------------------

    In Section 2 of the Procedures, ICE Clear Europe proposes three 
main changes to its overall investment considerations, which are a list 
of criteria that ICE Clear Europe considers when making investments. 
First, it would clarify that the goal for non-overnight investments to 
have a variety of maturity dates only applies where applicable and thus 
not necessarily in all cases, such as investments in bank deposits. 
Second, it would amend the description of how futures commission 
merchant (``FCM'') customer funds may be invested by permitting 
investments in cash deposits, clarifying that direct purchases with 
U.S. dollar cash are limited to U.S. sovereign bonds, and providing 
that direct purchases with Euro cash may be made in French and German 
sovereign bonds as permitted in the CFTC Order. Third, it would clarify 
that ICE Clear Europe calculates the requirement of no more than 5% of 
the investible funds should be held as unsecured cash over an average 
period of one calendar month. In addition, ICE Clear Europe would make 
certain other typographical and similar corrections to this section of 
the Procedures.
    ICE Clear Europe would also amend its table of authorized 
investments and concentration limits for cash from Clearing Members and 
from skin in the game to expand the investments in which ICE Clear 
Europe may invest such cash and skin in the game. This table identifies 
the permitted instruments for investment and then identifies, for each 
instrument: (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 the permitted investments currently listed in this table (i.e., 
reverse repurchase agreements, US, UK, and EU sovereign obligations, 
US, UK, and EU government agency bonds, central bank obligations, and 
commercial bank obligations) and make four main changes with respect to 
the currently permitted instruments. First, it would apply the existing 
maximum issuer/counterparty concentration limit of 15% of the total EUR 
balance in a single government issuer only to government bonds issued 
by Belgium and the Netherlands, and provide no limit for French and 
German government bonds. Second, it would remove the current reference 
to the issuer limit and impose new maximum portfolio concentration 
limits for EU government bonds at 20% of the total EUR balance in a 
single issue for German or French government bonds, and 10% of the 
total EUR balance in a single issue for Belgian or Dutch government 
bonds. Third, for investments of FCM customer funds in EU government 
bonds, it would apply additional criteria as required in the CFTC 
Order, as described further below in the new defined term ``Permitted 
Purchases of Euro denominated debt for FCM Customer Funds'' in the 
Glossary section of the Procedures. Fourth, with respect to central 
bank deposits, it would add the Federal Reserve and the European 
Central Bank (ECB) to the list of allowed central banks. While ICE 
Clear Europe represented that it does not necessarily have access to 
deposits at such central banks at this time, the amendment would allow 
for possible future developments.\8\
---------------------------------------------------------------------------

    \8\ See Notice, 85 FR at 70697.
---------------------------------------------------------------------------

    The proposed rule change would also add a new instrument category 
of commercial bank deposits to ICE Clear Europe's table of authorized 
investments and concentration limits for its regulatory capital. This 
table currently lists US, UK, and EU sovereign obligations, and US, UK, 
and EU government agency bonds as the only permitted investments for 
ICE Clear Europe's regulatory capital. The addition of commercial bank 
deposits thus expands this list. For this instrument category, ICE 
Clear Europe would set unsecured cash limits separately for financial 
service providers; impose a maximum portfolio concentration limit at no 
more than 5% of the total investible funds in unsecured cash on average 
each calendar month; set the maximum maturity at overnight; and require 
minimum credit ratings of A-1/P-1.
    The Procedures currently contain an additional table that describes 
the collateral acceptable for reverse repurchase agreements (also 
referred to below as ``reverse repo''). This table 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 expand the scope of 
acceptable collateral for reverse repurchase agreements to allow ICE 
Clear Europe to use GBP and EUR agency bonds with AA-/Aa3 credit 
ratings and a 2% haircut. The proposed rule change would also remove 
the current credit rating requirement of AA-/Aa3 for UK and US 
sovereign bonds. For FCM customer funds invested in EUR reverse 
repurchase agreements, the proposed rule change would specify that only 
collateral meeting the CFTC Order requirements will be accepted.
    ICE Clear Europe would also update the Glossary section of the 
Procedures to add central banks to the definition of ``Permitted 
Depositories for FCM Customer Funds'' where the CFTC has provided the 
relevant exemption to ICE Clear Europe. In addition, the proposed rule 
change would include a definition of the term ``Permitted Purchases of 
Euro denominated debt for FCM Customer Funds.'' This new definition 
would set forth the conditions under the CFTC Order for investment of 
FCM customer funds in euro-denominated sovereign debt issued by the 
French Republic and the Federal Republic of Germany.\9\
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    \9\ Specifically, the proposed definition of ``Permitted 
Purchases of Euro denominated debt for FCM Customer Funds'' would 
include the conditions listed in section (3)(a) through (d) in the 
CFTC Order. See supra note 6 at 35245.
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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.\10\ For the reasons given below, the Commission finds 
that the proposed

[[Page 81550]]

rule change is consistent with Section 17A(b)(3)(F) of the Act \11\ and 
Rule 17Ad-22(e)(16).\12\
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    \10\ 15 U.S.C. 78s(b)(2)(C).
    \11\ 15 U.S.C. 78q-1(b)(3)(F).
    \12\ 17 CFR 240.17Ad-22(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.\13\
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    \13\ 15 U.S.C. 78q-1(b)(3)(F).
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    The Commission believes that, by clarifying ICE Clear Europe's 
criteria for investments of cash received from Clearing Members and 
certain other cash it holds for skin in the game and regulatory 
capital, and updating the requirements for investment of customer funds 
by FCM/BD Clearing Members resulting from the CFTC's authorized 
expansion of permitted investments to include qualifying Euro-
denominated sovereign debt, the proposed rule change generally should 
provide ICE Clear Europe with enhanced efficiency and flexibility in 
how it manages and invests customer funds and cash balances, in a 
manner consistent with applicable regulatory requirements. The 
Commission believes that these aspects of the proposed rule change 
would help to diversify permissible investments for such cash in a 
conservative manner that protects against loss. Thus, the Commission 
believes these aspects of the proposed rule change should ensure that 
ICE Clear Europe will have sufficient resources to promptly and 
accurately clear and settle securities transactions and, therefore, are 
consistent with Section 17A(b)(3)(F) of the Act.\14\ Further, the 
Commission believes that the proposed amendments to add a new category 
of commercial bank deposits as an authorized investment for ICE Clear 
Europe's regulatory capital, to facilitate investments in bank deposits 
or other non-overnight investments by only requiring a variety of 
maturity dates where applicable, and to add GBP and EUR agency bonds 
with AA-/Aa3 credit ratings and a 2% haircut as acceptable collateral 
for reverse repo, should also enhance ICE Clear Europe's efficiency in 
meeting its investment management objective to safeguard the principal 
of cash and maintain sufficient liquidity for its payment obligations. 
By having defined investment criteria and conservative investment 
management procedures, the Commission believes that these aspects of 
the proposed rule change should also help to ensure that cash is 
invested reasonably, conservatively, and in a manner that protects 
against loss, which, in turn, should help to thereby assuring 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, 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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    Similarly, the Commission believes that by facilitating ICE Clear 
Europe's use of central bank deposits, including by expanding the list 
of allowed central banks; updating certain concentration and similar 
limits for investment in US, UK, and EU government bonds; and adding 
acceptable collateral for reverse repo, the proposed rule change would 
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., eliminating the maximum issuer/counterparty concentration limit 
for French and German sovereign bonds, removing the credit rating 
requirement for UK and US sovereign bonds as acceptable collateral for 
reverse repo, and specifying that only collateral that meets the CFTC 
Order requirements is acceptable for FCM customer funds invested in EUR 
reverse repo, 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.\16\
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    \16\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    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.\17\
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    \17\ 15 U.S.C. 78q-1(b)(3)(F).
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B. 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, minimize the risk of loss of loss and delay 
in access to these assets, and invest such assets in instruments with 
minimal credit, market, and liquidity risks.\18\ The Commission 
believes that by clarifying ICE Clear Europe's criteria for investments 
of cash, updating investment concentration limits and similar 
requirements for EU, US, and UK government bonds, and generally 
expanding permitted investment options to facilitate ICE Clear Europe's 
flexibility to diversify investments, the proposed rule change should 
help to ensure that ICE Clear Europe safeguards its own and its 
participants' assets--specifically, ICE Clear Europe's deposits of 
cash, which would include cash posted by Clearing Members to satisfy 
their margin and guaranty fund requirements--in a manner that should 
appropriately minimize the risk of loss or delay of such assets.
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    \18\ 17 CFR 240.17Ad-22(e)(16).
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    In addition, the proposed rule change would facilitate ICE Clear 
Europe's use of commercial and central bank deposits, in particular by 
adding the Federal Reserve and ECB to the list of allowed central banks 
to facilitate access to these deposits. Further, the proposed rule 
change would expand the scope of acceptable collateral in reverse 
repurchase agreements subject to appropriate limitations. 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, the Commission 
believes the proposed rule change generally should help to ensure that 
ICE Clear Europe invests cash reasonably and in a manner that protects 
against loss which, in turn, 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

[[Page 81551]]

proposed rule change is consistent with Rule 17Ad-22(e)(16).\19\
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    \19\ 17 CFR 240.17Ad-22(e)(16).
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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 \20\ and Rule 17Ad-22(e)(16).\21\
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    \20\ 15 U.S.C. 78q-1(b)(3)(F).
    \21\ 17 CFR 240.17Ad-22(e)(16).
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    It is therefore ordered pursuant to Section 19(b)(2) of the Act 
\22\ that the proposed rule change (SR-ICEEU-2020-013), be, and hereby 
is, approved.\23\
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    \22\ 15 U.S.C. 78s(b)(2).
    \23\ 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.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-27597 Filed 12-15-20; 8:45 am]
BILLING CODE 8011-01-P

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