Self-Regulatory Organizations; ICE Clear Europe Limited; Notice of Filing of Proposed Rule Change Relating to Amendments to the ICE Clear Europe CDS Procedures and CDS Default Management Policy, 169-172 [2020-29023]
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Federal Register / Vol. 86, No. 1 / Monday, January 4, 2021 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–90806; File No. SR–ICEEU–
2020–018)]
Self-Regulatory Organizations; ICE
Clear Europe Limited; Notice of Filing
of Proposed Rule Change Relating to
Amendments to the ICE Clear Europe
CDS Procedures and CDS Default
Management Policy
December 28, 2020.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on December
14, 2020, ICE Clear Europe Limited
(‘‘ICE Clear Europe’’ or the ‘‘Clearing
House’’) filed with the Securities and
Exchange Commission (‘‘Commission’’)
the proposed rule changes described in
Items I, II, and III below, which Items
have been prepared primarily by ICE
Clear Europe. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
The principal purpose of the
proposed amendments is for ICE Clear
Europe to modify its CDS Procedures
(the ‘‘CDS Procedures’’ or the
‘‘Procedures’’) to update the
requirements for a Clearing Member to
be approved to be a CDS CommitteeEligible Clearing Member for purposes
of the CDS Default Committee, as well
as certain other updates and
clarifications, and to modify its CDS
Default Management Policy (the ‘‘CDS
Default Management Policy’’ or
‘‘Policy’’) to make corresponding
updates to the requirements for a
Clearing Member to be eligible to serve
on the CDS Default Committee, as well
as to provide more detail with respect
to review and testing of its default
procedures, remove appendices and
make certain other updates and
clarifications to be consistent with other
ICE Clear Europe policies.
II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
In its filing with the Commission, ICE
Clear Europe included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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places specified in Item IV below. ICE
Clear Europe has prepared summaries,
set forth in sections (A), (B), and (C)
below, of the most significant aspects of
such statements.
(A) Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change, Security-Based
Swap Submission or Advance Notice
(a) Purpose
ICE Clear Europe is proposing to
amend its CDS Procedures as to the
following: (i) The requirements for a
Clearing Member to be approved to be
a CDS Committee-Eligible Clearing
Member, (ii) the courses of action for the
Clearing House if a CDS CommitteeEligible Clearing Member is unable to
take part in the CDS Default Committee
for the Relevant CDS Default Committee
Period for which it is due to take part,
(iii) the confidentiality obligations of
CDS Default Committee Members and
CDS Default Committee Participants and
the limitations on liability applicable to
such persons, (iv) timing requirements
with respect to the submission of CDS
Trade Particulars and (v) various
drafting clarifications and
improvements. ICE Clear Europe is also
proposing to update the CDS Default
Management Policy which would
provide further detail with respect to
the requirements for a Clearing Member
to be Committee-Eligible for purposes of
serving on the CDS Default Committee,
and to make various drafting
clarifications and improvements, as
consistent with the proposed updates to
the Procedures.
I. CDS Procedures
General Drafting Clarifications and
Improvements
The amendments to the Procedures
would clarify that the term ‘‘CDS
Committee-Eligible Clearing Members’’
must be approved in accordance with
paragraph 5.2 of the Procedures and
continue to meet the criteria of such
Paragraph. As described below,
paragraph 5.2, as proposed to be
amended, would specify in detail the
requirements for a Clearing Member to
be approved to be a CDS CommitteeEligible Clearing Member.
Submission and Acceptance of CDS
Contracts
The amendments would revise
paragraph 4.4 of the Procedures, which
describes the timing requirements for
submitting CDS Trade Particulars, to
clarify that with respect to CDS Trade
Particulars submitted after 6:00 p.m. on
a Business Day or on a day that is not
a Business Day, unless a revocation
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169
right exists and is exercised or unless
otherwise stated in circular, among
other existing exceptions, such CDS
Trade Particulars would be deemed to
have been submitted at 8:00 a.m. on the
following Business Day. Furthermore,
the Procedures would provide that if the
Trade Date specified in the CDS Trade
Particulars is not a Business Day, then
the relevant CDS Trade Particulars
would be rejected. This reflects current
Clearing House practice.
CDS Default Committee
The amendments to the Procedures in
paragraph 5 would update the
requirements for a Clearing Member to
be approved to be a CDS CommitteeEligible Clearing Member. Pursuant to
paragraph 5.2, as proposed to be
amended, the Clearing Member would
need to meet the following conditions in
order to be eligible: (a) In the event that
it has one or more Affiliates that are
CDS Clearing Members, it has the
longest period of membership of the
Clearing House among such Affiliates;
(b) it has a London-based CDS trading
desk; and (c) it is deemed appropriate to
be a CDS Default Committee Member by
the Clearing House at its discretion. The
Clearing House would maintain a list of
all CDS Committee-Eligible Clearing
Members. The procedure for
maintaining the CDS Default Committee
Participant List (including adding CDS
Clearing Members to, removing CDS
Clearing Members from or changing the
order of Clearing Members on the CDS
Default Committee Participant List)
would be determined from time to time
by the Clearing House at its discretion.
(Certain such matters would be
addressed in further detail in the Policy,
as discussed below.) CDS Clearing
Members would be able to provide
information of relevance to the Clearing
House with respect to their own
inclusion or omission or order on the
list, but such information would not be
binding on the Clearing House.
Additionally, the Procedures would
state that ICE Clear Europe may also
share the CDS Default Committee
Participant List with any other clearing
organization.
Amendments to paragraph 5.3 would
add that if a CDS Committee-Eligible
Clearing Member considers that it is
unable to take part in the CDS Default
Committee for the Relevant CDS Default
Committee Period for which it is due to
take part, it may request to postpone its
participation for that period. ICE Clear
Europe could, at its discretion, approve
such request and, if so, the following
events would take place: (a) That CDS
Committee-Eligible Clearing Member
would be listed so as to take part in the
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CDS Default Committee for the next
Relevant CDS Default Committee Period
as one of the three CDS Default
Committee Participants; and (b) one of
the next three CDS Committee-Eligible
Clearing Members on the CDS Default
Committee Participant List would be
selected by the Clearing House at its
discretion to take part in the CDS
Default Committee during that Relevant
CDS Default Committee Period. The
CDS Default Committee Participant List
would be amended accordingly. Certain
other drafting clarifications are made to
paragraph 5.3.
Paragraph 5.4 would be amended to
add that if a CDS Clearing Member
becomes a defaulter or is suspended or
receives a termination notice with
respect to its Clearing Membership, it
would be removed from the CDS Default
Committee Participant List. Paragraphs
5.4 and 5.5 would be amended to clarify
that the CDS Default Committee
Participant List would be amended to
take into account any Clearing Member
that becomes (or resumes being) a CDS
Committee-Eligible Clearing Member or
is removed from being a CDS Default
Committee Participant because the
Clearing House determines that such
Clearing Member has a conflict or lacks
impartiality.
The amendments in paragraph 5.6
would also provide that the Clearing
House would give notice that, since CDS
Default Committee Members and CDS
Default Committee Participants act as
part of the governance of ICE Clear
Europe, such CDS Default Committee
Members and CDS Default Committee
Participants would take the benefit of all
exclusions and limitations of liability
available to the Clearing House under
the Rules or Applicable Laws. The
change is intended to make the
exclusions and limitations on liability
for such persons consistent with those
generally applicable to Clearing House
governance process.
The amendments in paragraph 5.8
would provide that CDS Clearing
Members agree and acknowledge that
each CDS Default Committee Members
and CDS Default Committee Participant
(each a ‘‘Covered Party’’) would be
subject to the provisions of Rule 106
(regarding confidentiality of information
received and permitted disclosures) as if
it were the Clearing House.
Furthermore, each CDS Clearing
Member would be required to ensure
that each such Covered Party nominated
by it would not use any Confidential
Material for its own benefit or the
benefit of any of its Affiliates and, if so
requested by the Clearing House, would
execute any documentation specified by
the Clearing House acknowledging the
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same. The procedures that would apply
in the event a Covered Party is served
with or otherwise subject to legal
process have been removed as
unnecessary in light of the referenced
provisions of Rule 106. Paragraph 5.9
would be amended to clarify that each
CDS Clearing Member agrees that each
Covered Party would be responsible for
its own costs associated with its service
in such position.
II. CDS Default Management Policy
General Drafting Clarifications and
Improvements
By way of general drafting
clarifications and improvements, the
amendments to the Policy would
remove Appendices A and B, which
contain various forms of notice and
examples, as well as references thereto.
In ICE Clear Europe’s view, these
appendices do not need to be included
in the Policy and, to the extent they
remain relevant, forms of notice can be
maintained by the Clearing House
separately. Certain terminology would
be updated throughout the Policy as
follows: (i) The term, Employee, would
be updated to Eligible Employee; and
(ii) the terms, Defaulting Clearing
Member or Defaulting Member, would
be updated to defaulter in certain
instances in order to avoid repetition
and aid with readability. Certain
provisions relating to the Clearing
House ceasing to clear new trades for a
Defaulting Clearing Member would be
moved and reorganized.
CDS Default Committee Activation
Consistent with the changes described
above to the CDS Procedures, the Policy
would be amended to provide that a
Clearing Member would only be defined
as Committee-Eligible, hereby
permitting such Clearing Member to be
a CDS Default Committee Participant, if
such Clearing Member (i) is deemed
appropriate by the Clearing House, (ii)
is the primary clearing entity of an
affiliate group, and (iii) has a London
based trading desk. The Policy would
also clarify that the Clearing House
maintains a list of all CDS CommitteeEligible Clearing Members and that the
relevant term for the committee
(‘‘Relevant CDS Default Committee
Period’’) is six calendar months or until
the end of any active Default event.
In addition, the Policy would provide
that in the event that a CDS Default
Committee Participant is unable to
fulfill its upcoming rotation obligation
for any reason including serving in the
CDS Default Committee of another
clearing house, such CDS Default
Committee Participant would have the
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option to request to postpone their
Relevant CDS Default Committee for a
Relevant CDS Default Committee
Period. If the Clearing House finds the
reason for postponement satisfactory,
the CDS Default Committee Participant
would be substituted for a CDS
Committee-Eligible Clearing Member
from the next three members on the CDS
Default Committee Participant List.
Prior to commencement of a rotation,
CDS Default Committee Members would
be required to have signed all
documentation required by the Clearing
House (including but not limited to a
Seconded Trader Agreement), and the
Clearing House would use reasonable
efforts to ensure that such requirement
is enforced.
The amendments would also clarify
that CDS Default Committee Members
would be responsible for assisting in
executing any CDS transactions (with
respect to Rules 902 or 903 in CDS only)
on behalf of the Clearing House only if
needed. Under the Committee
Activation Procedures section, the
procedure for use of an alternate CDS
Default Committee Member contact
would be revised to refer generally to a
situation where the designated primary
representative cannot be reached in a
reasonable amount of time, and remove
specific examples of reasons a member
could not be reached.
Secondment Facilities
The amendments would clarify that
upon arrival at the ICE Clear Europe
offices, each CDS Default Committee
Member would be assigned a PC with
the ICE Clear Europe risk reports
concerning the defaulter’s portfolio and
a third-party data provider application.
References to how the CDS Default
Committee Member would be able to
login to the PC and view certain
information sent to ICE Clear Europe by
the non-defaulting Clearing Members
would be removed as unnecessary. The
amendments would also clarify that
CDS Default Committee Members would
only execute the hedging and
liquidating transactions that the Head of
Clearing Risk and the team deem
necessary.
Confidentiality
The amendments would remove the
requirement that seconded traders sign
an additional confidentiality agreement
pertaining to their role within a given
member default (as ICE Clear Europe
believes the existing single secondment
agreement is sufficient). Instead, the
Policy would provide that CDS Default
Committee Members would be
reminded of ongoing confidentiality
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obligations by the ICE Clear Europe
Compliance department.
Auction Process and Results
The amendments would provide that
details of the auction and relevant
position data will be made available
through the ICE Default Management
System, consistent with the ICE Clear
Europe auction procedures. The
amendments would also clarify that
following the close of an auction for
sub-portfolio, the Clearing House would
publish the new trades to be booked to
the winning bidders through the ICE
Default Management System. The
Clearing House would no longer notify
the point of contact for the winning
bidders verbally. The change is
intended to conform to the ICE Clear
Europe auction procedures.
Default Management Testing
The amendments would provide
additional detail with respect to default
management testing. Specifically,
pursuant to the amendments, the Policy
would state that the Clearing House
would test and review its default
procedures at least quarterly and
perform simulation exercises at least
annually. The default test would be
conducted in coordination with
Clearing Members by engaging all the
internal and external stakeholders that
would be involved in the default
management process (for example, the
Clearing Risk Department, ICE Clear
Europe Senior Management Team, CDS
Default Committee Members, regulators,
etc.). Each default test would be
planned in accordance with the ICE
Clear Europe Multi-Years Default Plan,
which would list several different
default scenarios that would need to be
tested by the Clearing House on a
regular basis. The ICE Clear Europe
Senior Management Team would be
responsible for approving the scope of
the annual default test by choosing
different scenarios outlined in the Plan.
The Plan and changes to it would need
to be approved by the Executive Risk
Committee.
(b) Statutory Basis
ICE Clear Europe believes that the
proposed amendments to the CDS
Default Management Policy and the CDS
Procedures are consistent with the
requirements of Section 17A of the Act 3
and the regulations thereunder
applicable to it. In particular, Section
17A(b)(3)(F) of the Act 4 requires, among
other things, that the rules of a clearing
agency be designed to promote the
prompt and accurate clearance and
settlement of securities transactions
and, to the extent applicable, derivative
agreements, contracts, and transactions,
the safeguarding of securities and funds
in the custody or control of the clearing
agency or for which it is responsible,
and the protection of investors and the
public interest.
The proposed changes to the CDS
Procedures and CDS Default
Management Policy are designed to
strengthen ICE Clear Europe’s tools to
manage Clearing Member defaults with
respect to CDS contracts. The CDS
Default Committee, which relies on
seconded representatives of Clearing
Members, is a key aspect of the Clearing
House’s procedures for addressing
Clearing Member defaults, including by
facilitating the ability of the Clearing
House to hedge or liquidate positions of
the defaulter. The amendments would
update and clarify the requirements for
a Clearing Member to be eligible to serve
on the CDS Default Committee as well
as clarify the procedures to be used by
the CDS Default Committee if such
Clearing Member is unable to fulfill its
upcoming rotation obligation. The
clarifications and other changes to the
Policy and Procedures enhance
readability and ensure that the Policy
and Procedures remain clear and up-todate. Through better managing risks in
default scenarios and promoting market
stability, the proposed amendments
promote the stability of the clearing
house and the prompt and accurate
clearance and settlement of cleared
contracts. The enhanced risk
management is therefore also generally
consistent with the protection of
investors and the public interest in the
safe operation of the Clearing House.
(ICE Clear Europe would not expect the
amendments to affect the safeguarding
of securities and funds in ICE Clear
Europe’s custody or control or for which
it is responsible.) Accordingly, the
amendments satisfy the requirements of
Section 17A(b)(3)(F).5
In addition, ICE Clear Europe believes
the amendments satisfy Rule 17Ad–
22(e)(13),6 which requires the covered
clearing agency to ensure that it ‘‘has
the authority and operational capacity
to take timely action to contain losses
and liquidity demands and continue to
meet its obligations by, at a minimum,
requiring the covered clearing agency’s
participants and, when practicable,
other stakeholders to participate in the
testing and review of its default
procedures, including any close-out
procedures, at least annually.’’ As
discussed above, the proposed
amendments would enhance ICE Clear
Europe’s default management
capabilities. Specifically, ICE Clear
Europe believes that the updated, and
more clearly defined requirements for
Clearing Members to become eligible to
participate in the CDS Default
Committee will better ensure that the
committee is staffed with appropriate
representatives. The other amendments
better ensure that such members have
appropriate resources for their role on
the committee working and that there is
a process in place should a member
need to delay the start of its tenure on
the committee for permissible reasons.
Amendments to the Policy would also
ensure that the Clearing House review
its default procedures at least quarterly
and perform simulation exercises at
least annually and that such tests would
be conducted in coordination with
Clearing Members as well as the internal
and external stakeholders involved in
the default management process. The
amendments overall strengthen ICE
Clear Europe’s ability to contain losses
in a manner consistent with the
requirements of Rule 17Ad–22(e)(13).7
Rule 17Ad–22(e)(3)(i) 8 requires
clearing agencies to maintain a sound
risk management framework that
identifies, measures, monitors and
manages the range of risks that it faces.
The amendments to the CDS Default
Management Policy and the CDS
Procedures are intended to update and
state more clearly the criteria for
representation on the CDS Default
Committee and provide for enhanced
review and testing of the default
management processes. The
amendments will thus strengthen the
management of default risks, and risk
management more generally. In ICE
Clear Europe’s view, the amendments
are therefore consistent with the
requirements of Rule 17Ad–22(e)(3)(i).9
(B) Clearing Agency’s Statement on
Burden on Competition
ICE Clear Europe does not believe the
proposed amendments would have any
impact, or impose any burden, on
competition not necessary or
appropriate in furtherance of the
purposes of the Act. The amendments
are being adopted to update and clarify
the ICE Clear Europe CDS Default
Management Policy and ICE Clear
Europe CDS Procedures and will apply
to all CDS Clearing Members. ICE Clear
Europe does not expect that the
proposed changes will adversely affect
7 17
3 15
U.S.C. 78q–1.
4 15 U.S.C. 78q–1(b)(3)(F).
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5 15
U.S.C. 78q–1(b)(3)(F).
6 17 CFR 240.17Ad–22(e)(13).
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171
CFR 240.17Ad–22(e)(13).
CFR 240.17 Ad–22(e)(3)(i).
9 17 CFR 240.17 Ad–22(e)(3)(i).
8 17
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access to clearing or the ability of
Clearing Members, their customers or
other market participants to continue to
clear contracts. ICE Clear Europe also
does not believe the amendments would
materially affect the cost of clearing or
otherwise impact competition among
CDS Clearing Members or other market
participants or limit market
participants’ choices for selecting
clearing services. Accordingly, ICE Clear
Europe does not believe the
amendments would impose any burden
on competition not necessary or
appropriate in furtherance of the
purpose of the Act.
(C) Clearing Agency’s Statement on
Comments on the Proposed Rule
Change Received From Members,
Participants or Others
Written comments relating to the
proposed amendments have not been
solicited or received by ICE Clear
Europe. ICE Clear Europe will notify the
Commission of any written comments
received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) By order approve or disapprove
the proposed rule change or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
The proposal shall not take effect
until all regulatory actions required
with respect to the proposal are
completed.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml) or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
ICEEU–2020–018 on the subject line.
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17:28 Dec 31, 2020
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Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–ICEEU–2020–018. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filings will also be available for
inspection and copying at the principal
office of ICE Clear Europe and on ICE
Clear Europe’s website at https://
www.theice.com/notices/
Notices.shtml?regulatoryFilings.
All comments received will be posted
without change. Persons submitting
comments are cautioned that we do not
redact or edit personal identifying
information from comment submissions.
You should submit only information
that you wish to make available
publicly. All submissions should refer
to File Number SR–ICEEU–2020–018
and should be submitted on or before
January 25, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.10
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–29023 Filed 12–31–20; 8:45 am]
BILLING CODE 8011–01–P
SMALL BUSINESS ADMINISTRATION
Information Collection Available for
Public Comment; Paycheck Protection
Program
U.S. Small Business
Administration.
AGENCY:
10 17
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CFR 200.30–3(a)(12).
Frm 00124
Fmt 4703
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60-Day notice; request for
comments
ACTION:
The Small Business
Administration (SBA) is publishing this
notice to solicit additional public
comments on the information collection
described below, particularly SBA Form
3509 ‘‘Loan Necessity Questionnaire
(For-Profit Borrowers)’’ and SBA Form
3510, ‘‘Loan Necessity Questionnaire
(Non-Profit Borrowers).’’ Comments in
response to this second public comment
notice will be evaluated in conjunction
with comments received in response to
previous notices published on July 14,
2020, and October 26, 2020. After such
evaluation, SBA will submit any
resulting amendments to the
information collection to the Office of
Management and Budget (OMB) for
approval.
DATES: Submit comments on or before
March 5, 2021.
ADDRESSES: Comments should refer to
the information collection by title or
OMB Control Number (3245–0407) and
must be submitted by the deadline
above to: PPP_Info_Collections@sba.gov.
FOR FURTHER INFORMATION CONTACT:
Adrienne Grierson, Program Manager,
Office of Financial Program Operations,
202–205–6573 adrienne.grierson@
sba.gov.
Copies: You may obtain a copy of the
information collection and supporting
documents from the Agency Clearance
Officer, Curtis Rich, at (202) 205–7030,
or curtis.rich@sba.gov.
SUPPLEMENTARY INFORMATION:
SUMMARY:
Background
Section 1102 of the Coronavirus Aid,
Relief, and Economic Security (CARES)
Act, Public Law 116–136, authorized
SBA to guarantee loans made by banks
or other financial institutions under a
temporary program titled the ‘‘Paycheck
Protection Program’’ (PPP). These loans
are available to eligible small
businesses, certain non-profit
organizations, veterans’ organizations,
Tribal business concerns, independent
contractors, and self-employed
individuals adversely impacted by the
COVID–19 Emergency. Subject to
certain limitations, proceeds of a PPP
loan may be used for payroll costs, costs
related to the continuation of group
health care benefits during periods of
paid sick, medical or family leave, and
insurance premiums, mortgage interest
payments, rent payments, utility
payments, interest payments on other
debt incurred prior to February 15,
2020, and to refinance an eligible SBA
Economic Injury Disaster Loan. Under
section 1106(b) of the CARES Act, a PPP
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]]>Agencies
[Federal Register Volume 86, Number 1 (Monday, January 4, 2021)]
[Notices]
[Pages 169-172]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-29023]
[[Page 169]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-90806; File No. SR-ICEEU-2020-018)]
Self-Regulatory Organizations; ICE Clear Europe Limited; Notice
of Filing of Proposed Rule Change Relating to Amendments to the ICE
Clear Europe CDS Procedures and CDS Default Management Policy
December 28, 2020.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on December 14, 2020, ICE Clear Europe Limited (``ICE Clear Europe'' or
the ``Clearing House'') filed with the Securities and Exchange
Commission (``Commission'') the proposed rule changes described in
Items I, II, and III below, which Items have been prepared primarily by
ICE Clear Europe. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
The principal purpose of the proposed amendments is for ICE Clear
Europe to modify its CDS Procedures (the ``CDS Procedures'' or the
``Procedures'') to update the requirements for a Clearing Member to be
approved to be a CDS Committee-Eligible Clearing Member for purposes of
the CDS Default Committee, as well as certain other updates and
clarifications, and to modify its CDS Default Management Policy (the
``CDS Default Management Policy'' or ``Policy'') to make corresponding
updates to the requirements for a Clearing Member to be eligible to
serve on the CDS Default Committee, as well as to provide more detail
with respect to review and testing of its default procedures, remove
appendices and make certain other updates and clarifications to be
consistent with other ICE Clear Europe policies.
II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
In its filing with the Commission, ICE Clear Europe included
statements concerning the purpose of and basis for the proposed rule
change and discussed any comments it received on the proposed rule
change. The text of these statements may be examined at the places
specified in Item IV below. ICE Clear Europe has prepared summaries,
set forth in sections (A), (B), and (C) below, of the most significant
aspects of such statements.
(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change, Security-Based Swap Submission or
Advance Notice
(a) Purpose
ICE Clear Europe is proposing to amend its CDS Procedures as to the
following: (i) The requirements for a Clearing Member to be approved to
be a CDS Committee-Eligible Clearing Member, (ii) the courses of action
for the Clearing House if a CDS Committee-Eligible Clearing Member is
unable to take part in the CDS Default Committee for the Relevant CDS
Default Committee Period for which it is due to take part, (iii) the
confidentiality obligations of CDS Default Committee Members and CDS
Default Committee Participants and the limitations on liability
applicable to such persons, (iv) timing requirements with respect to
the submission of CDS Trade Particulars and (v) various drafting
clarifications and improvements. ICE Clear Europe is also proposing to
update the CDS Default Management Policy which would provide further
detail with respect to the requirements for a Clearing Member to be
Committee-Eligible for purposes of serving on the CDS Default
Committee, and to make various drafting clarifications and
improvements, as consistent with the proposed updates to the
Procedures.
I. CDS Procedures
General Drafting Clarifications and Improvements
The amendments to the Procedures would clarify that the term ``CDS
Committee-Eligible Clearing Members'' must be approved in accordance
with paragraph 5.2 of the Procedures and continue to meet the criteria
of such Paragraph. As described below, paragraph 5.2, as proposed to be
amended, would specify in detail the requirements for a Clearing Member
to be approved to be a CDS Committee-Eligible Clearing Member.
Submission and Acceptance of CDS Contracts
The amendments would revise paragraph 4.4 of the Procedures, which
describes the timing requirements for submitting CDS Trade Particulars,
to clarify that with respect to CDS Trade Particulars submitted after
6:00 p.m. on a Business Day or on a day that is not a Business Day,
unless a revocation right exists and is exercised or unless otherwise
stated in circular, among other existing exceptions, such CDS Trade
Particulars would be deemed to have been submitted at 8:00 a.m. on the
following Business Day. Furthermore, the Procedures would provide that
if the Trade Date specified in the CDS Trade Particulars is not a
Business Day, then the relevant CDS Trade Particulars would be
rejected. This reflects current Clearing House practice.
CDS Default Committee
The amendments to the Procedures in paragraph 5 would update the
requirements for a Clearing Member to be approved to be a CDS
Committee-Eligible Clearing Member. Pursuant to paragraph 5.2, as
proposed to be amended, the Clearing Member would need to meet the
following conditions in order to be eligible: (a) In the event that it
has one or more Affiliates that are CDS Clearing Members, it has the
longest period of membership of the Clearing House among such
Affiliates; (b) it has a London-based CDS trading desk; and (c) it is
deemed appropriate to be a CDS Default Committee Member by the Clearing
House at its discretion. The Clearing House would maintain a list of
all CDS Committee-Eligible Clearing Members. The procedure for
maintaining the CDS Default Committee Participant List (including
adding CDS Clearing Members to, removing CDS Clearing Members from or
changing the order of Clearing Members on the CDS Default Committee
Participant List) would be determined from time to time by the Clearing
House at its discretion. (Certain such matters would be addressed in
further detail in the Policy, as discussed below.) CDS Clearing Members
would be able to provide information of relevance to the Clearing House
with respect to their own inclusion or omission or order on the list,
but such information would not be binding on the Clearing House.
Additionally, the Procedures would state that ICE Clear Europe may also
share the CDS Default Committee Participant List with any other
clearing organization.
Amendments to paragraph 5.3 would add that if a CDS Committee-
Eligible Clearing Member considers that it is unable to take part in
the CDS Default Committee for the Relevant CDS Default Committee Period
for which it is due to take part, it may request to postpone its
participation for that period. ICE Clear Europe could, at its
discretion, approve such request and, if so, the following events would
take place: (a) That CDS Committee-Eligible Clearing Member would be
listed so as to take part in the
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CDS Default Committee for the next Relevant CDS Default Committee
Period as one of the three CDS Default Committee Participants; and (b)
one of the next three CDS Committee-Eligible Clearing Members on the
CDS Default Committee Participant List would be selected by the
Clearing House at its discretion to take part in the CDS Default
Committee during that Relevant CDS Default Committee Period. The CDS
Default Committee Participant List would be amended accordingly.
Certain other drafting clarifications are made to paragraph 5.3.
Paragraph 5.4 would be amended to add that if a CDS Clearing Member
becomes a defaulter or is suspended or receives a termination notice
with respect to its Clearing Membership, it would be removed from the
CDS Default Committee Participant List. Paragraphs 5.4 and 5.5 would be
amended to clarify that the CDS Default Committee Participant List
would be amended to take into account any Clearing Member that becomes
(or resumes being) a CDS Committee-Eligible Clearing Member or is
removed from being a CDS Default Committee Participant because the
Clearing House determines that such Clearing Member has a conflict or
lacks impartiality.
The amendments in paragraph 5.6 would also provide that the
Clearing House would give notice that, since CDS Default Committee
Members and CDS Default Committee Participants act as part of the
governance of ICE Clear Europe, such CDS Default Committee Members and
CDS Default Committee Participants would take the benefit of all
exclusions and limitations of liability available to the Clearing House
under the Rules or Applicable Laws. The change is intended to make the
exclusions and limitations on liability for such persons consistent
with those generally applicable to Clearing House governance process.
The amendments in paragraph 5.8 would provide that CDS Clearing
Members agree and acknowledge that each CDS Default Committee Members
and CDS Default Committee Participant (each a ``Covered Party'') would
be subject to the provisions of Rule 106 (regarding confidentiality of
information received and permitted disclosures) as if it were the
Clearing House. Furthermore, each CDS Clearing Member would be required
to ensure that each such Covered Party nominated by it would not use
any Confidential Material for its own benefit or the benefit of any of
its Affiliates and, if so requested by the Clearing House, would
execute any documentation specified by the Clearing House acknowledging
the same. The procedures that would apply in the event a Covered Party
is served with or otherwise subject to legal process have been removed
as unnecessary in light of the referenced provisions of Rule 106.
Paragraph 5.9 would be amended to clarify that each CDS Clearing Member
agrees that each Covered Party would be responsible for its own costs
associated with its service in such position.
II. CDS Default Management Policy
General Drafting Clarifications and Improvements
By way of general drafting clarifications and improvements, the
amendments to the Policy would remove Appendices A and B, which contain
various forms of notice and examples, as well as references thereto. In
ICE Clear Europe's view, these appendices do not need to be included in
the Policy and, to the extent they remain relevant, forms of notice can
be maintained by the Clearing House separately. Certain terminology
would be updated throughout the Policy as follows: (i) The term,
Employee, would be updated to Eligible Employee; and (ii) the terms,
Defaulting Clearing Member or Defaulting Member, would be updated to
defaulter in certain instances in order to avoid repetition and aid
with readability. Certain provisions relating to the Clearing House
ceasing to clear new trades for a Defaulting Clearing Member would be
moved and reorganized.
CDS Default Committee Activation
Consistent with the changes described above to the CDS Procedures,
the Policy would be amended to provide that a Clearing Member would
only be defined as Committee-Eligible, hereby permitting such Clearing
Member to be a CDS Default Committee Participant, if such Clearing
Member (i) is deemed appropriate by the Clearing House, (ii) is the
primary clearing entity of an affiliate group, and (iii) has a London
based trading desk. The Policy would also clarify that the Clearing
House maintains a list of all CDS Committee-Eligible Clearing Members
and that the relevant term for the committee (``Relevant CDS Default
Committee Period'') is six calendar months or until the end of any
active Default event.
In addition, the Policy would provide that in the event that a CDS
Default Committee Participant is unable to fulfill its upcoming
rotation obligation for any reason including serving in the CDS Default
Committee of another clearing house, such CDS Default Committee
Participant would have the option to request to postpone their Relevant
CDS Default Committee for a Relevant CDS Default Committee Period. If
the Clearing House finds the reason for postponement satisfactory, the
CDS Default Committee Participant would be substituted for a CDS
Committee-Eligible Clearing Member from the next three members on the
CDS Default Committee Participant List. Prior to commencement of a
rotation, CDS Default Committee Members would be required to have
signed all documentation required by the Clearing House (including but
not limited to a Seconded Trader Agreement), and the Clearing House
would use reasonable efforts to ensure that such requirement is
enforced.
The amendments would also clarify that CDS Default Committee
Members would be responsible for assisting in executing any CDS
transactions (with respect to Rules 902 or 903 in CDS only) on behalf
of the Clearing House only if needed. Under the Committee Activation
Procedures section, the procedure for use of an alternate CDS Default
Committee Member contact would be revised to refer generally to a
situation where the designated primary representative cannot be reached
in a reasonable amount of time, and remove specific examples of reasons
a member could not be reached.
Secondment Facilities
The amendments would clarify that upon arrival at the ICE Clear
Europe offices, each CDS Default Committee Member would be assigned a
PC with the ICE Clear Europe risk reports concerning the defaulter's
portfolio and a third-party data provider application. References to
how the CDS Default Committee Member would be able to login to the PC
and view certain information sent to ICE Clear Europe by the non-
defaulting Clearing Members would be removed as unnecessary. The
amendments would also clarify that CDS Default Committee Members would
only execute the hedging and liquidating transactions that the Head of
Clearing Risk and the team deem necessary.
Confidentiality
The amendments would remove the requirement that seconded traders
sign an additional confidentiality agreement pertaining to their role
within a given member default (as ICE Clear Europe believes the
existing single secondment agreement is sufficient). Instead, the
Policy would provide that CDS Default Committee Members would be
reminded of ongoing confidentiality
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obligations by the ICE Clear Europe Compliance department.
Auction Process and Results
The amendments would provide that details of the auction and
relevant position data will be made available through the ICE Default
Management System, consistent with the ICE Clear Europe auction
procedures. The amendments would also clarify that following the close
of an auction for sub-portfolio, the Clearing House would publish the
new trades to be booked to the winning bidders through the ICE Default
Management System. The Clearing House would no longer notify the point
of contact for the winning bidders verbally. The change is intended to
conform to the ICE Clear Europe auction procedures.
Default Management Testing
The amendments would provide additional detail with respect to
default management testing. Specifically, pursuant to the amendments,
the Policy would state that the Clearing House would test and review
its default procedures at least quarterly and perform simulation
exercises at least annually. The default test would be conducted in
coordination with Clearing Members by engaging all the internal and
external stakeholders that would be involved in the default management
process (for example, the Clearing Risk Department, ICE Clear Europe
Senior Management Team, CDS Default Committee Members, regulators,
etc.). Each default test would be planned in accordance with the ICE
Clear Europe Multi-Years Default Plan, which would list several
different default scenarios that would need to be tested by the
Clearing House on a regular basis. The ICE Clear Europe Senior
Management Team would be responsible for approving the scope of the
annual default test by choosing different scenarios outlined in the
Plan. The Plan and changes to it would need to be approved by the
Executive Risk Committee.
(b) Statutory Basis
ICE Clear Europe believes that the proposed amendments to the CDS
Default Management Policy and the CDS Procedures are consistent with
the requirements of Section 17A of the Act \3\ and the regulations
thereunder applicable to it. In particular, Section 17A(b)(3)(F) of the
Act \4\ requires, among other things, that the rules of a clearing
agency be designed to promote the prompt and accurate clearance and
settlement of securities transactions and, to the extent applicable,
derivative agreements, contracts, and transactions, the safeguarding of
securities and funds in the custody or control of the clearing agency
or for which it is responsible, and the protection of investors and the
public interest.
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\3\ 15 U.S.C. 78q-1.
\4\ 15 U.S.C. 78q-1(b)(3)(F).
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The proposed changes to the CDS Procedures and CDS Default
Management Policy are designed to strengthen ICE Clear Europe's tools
to manage Clearing Member defaults with respect to CDS contracts. The
CDS Default Committee, which relies on seconded representatives of
Clearing Members, is a key aspect of the Clearing House's procedures
for addressing Clearing Member defaults, including by facilitating the
ability of the Clearing House to hedge or liquidate positions of the
defaulter. The amendments would update and clarify the requirements for
a Clearing Member to be eligible to serve on the CDS Default Committee
as well as clarify the procedures to be used by the CDS Default
Committee if such Clearing Member is unable to fulfill its upcoming
rotation obligation. The clarifications and other changes to the Policy
and Procedures enhance readability and ensure that the Policy and
Procedures remain clear and up-to-date. Through better managing risks
in default scenarios and promoting market stability, the proposed
amendments promote the stability of the clearing house and the prompt
and accurate clearance and settlement of cleared contracts. The
enhanced risk management is therefore also generally consistent with
the protection of investors and the public interest in the safe
operation of the Clearing House. (ICE Clear Europe would not expect the
amendments to affect the safeguarding of securities and funds in ICE
Clear Europe's custody or control or for which it is responsible.)
Accordingly, the amendments satisfy the requirements of Section
17A(b)(3)(F).\5\
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\5\ 15 U.S.C. 78q-1(b)(3)(F).
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In addition, ICE Clear Europe believes the amendments satisfy Rule
17Ad-22(e)(13),\6\ which requires the covered clearing agency to ensure
that it ``has the authority and operational capacity to take timely
action to contain losses and liquidity demands and continue to meet its
obligations by, at a minimum, requiring the covered clearing agency's
participants and, when practicable, other stakeholders to participate
in the testing and review of its default procedures, including any
close-out procedures, at least annually.'' As discussed above, the
proposed amendments would enhance ICE Clear Europe's default management
capabilities. Specifically, ICE Clear Europe believes that the updated,
and more clearly defined requirements for Clearing Members to become
eligible to participate in the CDS Default Committee will better ensure
that the committee is staffed with appropriate representatives. The
other amendments better ensure that such members have appropriate
resources for their role on the committee working and that there is a
process in place should a member need to delay the start of its tenure
on the committee for permissible reasons. Amendments to the Policy
would also ensure that the Clearing House review its default procedures
at least quarterly and perform simulation exercises at least annually
and that such tests would be conducted in coordination with Clearing
Members as well as the internal and external stakeholders involved in
the default management process. The amendments overall strengthen ICE
Clear Europe's ability to contain losses in a manner consistent with
the requirements of Rule 17Ad-22(e)(13).\7\
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\6\ 17 CFR 240.17Ad-22(e)(13).
\7\ 17 CFR 240.17Ad-22(e)(13).
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Rule 17Ad-22(e)(3)(i) \8\ requires clearing agencies to maintain a
sound risk management framework that identifies, measures, monitors and
manages the range of risks that it faces. The amendments to the CDS
Default Management Policy and the CDS Procedures are intended to update
and state more clearly the criteria for representation on the CDS
Default Committee and provide for enhanced review and testing of the
default management processes. The amendments will thus strengthen the
management of default risks, and risk management more generally. In ICE
Clear Europe's view, the amendments are therefore consistent with the
requirements of Rule 17Ad-22(e)(3)(i).\9\
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\8\ 17 CFR 240.17 Ad-22(e)(3)(i).
\9\ 17 CFR 240.17 Ad-22(e)(3)(i).
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(B) Clearing Agency's Statement on Burden on Competition
ICE Clear Europe does not believe the proposed amendments would
have any impact, or impose any burden, on competition not necessary or
appropriate in furtherance of the purposes of the Act. The amendments
are being adopted to update and clarify the ICE Clear Europe CDS
Default Management Policy and ICE Clear Europe CDS Procedures and will
apply to all CDS Clearing Members. ICE Clear Europe does not expect
that the proposed changes will adversely affect
[[Page 172]]
access to clearing or the ability of Clearing Members, their customers
or other market participants to continue to clear contracts. ICE Clear
Europe also does not believe the amendments would materially affect the
cost of clearing or otherwise impact competition among CDS Clearing
Members or other market participants or limit market participants'
choices for selecting clearing services. Accordingly, ICE Clear Europe
does not believe the amendments would impose any burden on competition
not necessary or appropriate in furtherance of the purpose of the Act.
(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants or Others
Written comments relating to the proposed amendments have not been
solicited or received by ICE Clear Europe. ICE Clear Europe will notify
the Commission of any written comments received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
The proposal shall not take effect until all regulatory actions
required with respect to the proposal are completed.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml) or
Send an email to [email protected]. Please include
File Number SR-ICEEU-2020-018 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-ICEEU-2020-018. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of such filings will also be available for inspection
and copying at the principal office of ICE Clear Europe and on ICE
Clear Europe's website at https://www.theice.com/notices/Notices.shtml?regulatoryFilings.
All comments received will be posted without change. Persons
submitting comments are cautioned that we do not redact or edit
personal identifying information from comment submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-ICEEU-2020-018 and should be
submitted on or before January 25, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-29023 Filed 12-31-20; 8:45 am]
BILLING CODE 8011-01-P
