Self-Regulatory Organizations; ICE Clear Europe Limited; Order Approving Proposed Rule Change Relating to Amendments to the ICE Clear Europe Collateral and Haircut Procedures, 66607-66609 [2021-25479]
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Federal Register / Vol. 86, No. 223 / Tuesday, November 23, 2021 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–93603; File No. SR–ICEEU–
2021–018]
Self-Regulatory Organizations; ICE
Clear Europe Limited; Order Approving
Proposed Rule Change Relating to
Amendments to the ICE Clear Europe
Collateral and Haircut Procedures
November 17, 2021.
I. Introduction
On September 20, 2021, ICE Clear
Europe Limited (‘‘ICE Clear Europe’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’),1 and
Rule 19b–4 thereunder,2 a proposed rule
change to make certain changes to its
existing Collateral and Haircut
Procedures (the ‘‘Collateral
Procedures’’). The proposed rule change
was published for comment in the
Federal Register on October 7, 2021.3
The Commission did not receive
comments on the proposed rule change.
For the reasons discussed below, the
Commission is approving the proposed
rule change.
II. Description of the Proposed Rule
Change
ICE Clear Europe is proposing to
revise the Collateral Procedures to (i)
state explicitly its formula for
calculating the value of its published
list of acceptable collateral (‘‘Permitted
Cover’’) provided by Clearing Members
(‘‘Members’’) for covering their margin
and guaranty fund requirements and (ii)
update its processes for monitoring data
related to collateral valuations, and
specify the roles and responsibilities of
its various internal teams in performing
such monitoring processes.4 The
proposed revisions are described in
more detail below.5
To ensure that the collateral ICE Clear
Europe holds is highly liquid with low
credit and market risk, ICE Clear Europe
only accepts assets that meet the criteria
set forth in the Collateral Procedures,
which ICE Clear Europe refers to as
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 Amendments to the ICE Clear Europe
Collateral and Haircut Procedures, Exchange Act
Release No. 93236 (Oct. 1, 2021), 86 FR 55879 (Oct.
7, 2021) (SR–ICEEU–2021–018) (‘‘Notice’’).
4 Capitalized terms used not defined herein have
the meanings specified in the Collateral Procedures
or the ICE Clear Europe Clearing Rules (the
‘‘Rules’’), as applicable.
5 The following description of the proposed rule
change is substantially excerpted from the Notice.
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Permitted Cover. To facilitate Permitted
Cover valuations, ICE Clear Europe is
proposing an explicit formula to
calculate the Permitted Cover value in
new Section 2.2 of the Collateral
Procedures. As proposed, cover value is
equal to Nominal * Price/
100 * (1¥Haircut) 6 +
Nominal * Accrued, where price is clean
(i.e., without accrued interest) and
accrued is expressed in %. Proposed
Section 2.2 also would state that as a
matter of standard practice at ICE Clear
Europe, Treasuries are given no cover
value two business days prior to
maturity and a cash call would be
issued if a Member’s account is in
deficit. Additionally, proposed Section
2.2 would state that accrued interest
will lose value one day prior to the
coupon pay date. ICE Clear Europe
represents that these changes reflect its
existing practice for the valuation of
Permitted Cover and are intended to
document such practice more clearly.7
The proposed rule change also would
update ICE Clear Europe’s processes for
monitoring data related to collateral
pricing and would describe the roles of
various teams tasked with such
monitoring. Specifically, the proposed
changes to Section 5.1 (Data Monitoring)
would add a new sentence stating that
the System Operations team checks end
of day collateral pricing. The proposed
changes to Section 5.1 would then state
that the Credit team has controls to
monitor end of day market data that the
ECS System Operations team uses to
value collateral against thresholds to
ensure that the data is not ‘‘stale,’’ and
also would remove intraday market data
from the scope of such monitoring.
Currently, Section 5.1 does not specify
the responsibilities of any internal
teams, stating that ICE Clear Europe
monitors end of day and intraday
market data it uses to value collateral
thresholds to ensure that the data is not
‘‘stale.’’ Additionally, the proposed
changes would add a new sentence at
the end of Section 5.1 which states that
the Treasury team reconciles and
confirms the daily bilateral collateral
positions (nominal amounts).
Finally, the proposed rule change
would update the scope of the Collateral
Procedures in Section 1.2 to include
intraday and end of day valuation of
collateral, which is consistent with ICE
Clear Europe’s existing practice.
Currently, Section 1.2 excludes intraday
and end of day valuation of collateral
6 The term ‘‘Haircut’’ refers to the risk-based
haircut or reduction percentage that ICE Clear
Europe sets and applies to the value of certain
collateral.
7 See Notice at 55879.
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Fmt 4703
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66607
and any associated margin processes
from the scope of the Collateral
Procedures.
III. Commission Findings
Section 19(b)(2)(C) of the Act directs
the Commission to approve a proposed
rule change of a self-regulatory
organization if it finds that such
proposed rule change is consistent with
the requirements of the Act and the
rules and regulations thereunder
applicable to such organization. For the
reasons given below, the Commission
finds that the proposed rule change is
consistent with Section 17A(b)(3)(F) of
the Act 8 and Rules 17Ad–22(e)(2)(i) and
(v), and (e)(5) thereunder.9
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, and 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.10
As described above, the proposed rule
change would revise the Collateral
Procedures to state explicitly ICE Clear
Europe’s formula for calculating the
value of Permitted Cover and to update
ICE Clear Europe’s processes for
monitoring data related to collateral
valuations, which would also specify
the roles and responsibilities of its
various internal teams in performing
such monitoring processes. For the
specific reasons discussed below, the
Commission believes that, in general,
the proposed rule change would
facilitate the sound operation of ICE
Clear Europe’s margin framework and
overall risk management and financial
stability of ICE Clear Europe, and
thereby promote ICE Clear Europe’s
prompt and accurate clearance and
settlement of cleared contracts, and help
assure the safeguarding of securities and
funds which are in ICE Clear Europe’s
custody or control or for which ICE
Clear Europe is responsible.
First, the Commission believes that
proposed new Section 2.2, in clearly
documenting ICE Clear Europe’s
formula for calculating the value of
Permitted Cover; its standard practice of
giving no cover value two business days
prior to maturity of Treasuries and
8 15
U.S.C. 78q–1(b)(3)(F).
CFR 240.17Ad–22(e)(2)(i) and (v), and (e)(5).
10 15 U.S.C. 78q–1(b)(3)(F).
9 17
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issuing a cash call if a Member’s
account is in deficit; and also its
standard practice for accrued interest to
lose value one day prior to the coupon
pay date, would help ensure that
Members and internal personnel at ICE
Clear Europe make accurate and
consistent cover value calculations that
adequately cover Members’ margin and
guaranty fund requirements. These
aspects of the proposed rule change
would, in turn, enhance ICE Clear
Europe’s ability to reduce the risk of
loss mutualization among its Members
when closing out a defaulting Member’s
portfolio and liquidating collateral
under potentially stressed market
conditions, thereby safeguarding the
financial resources of non-defaulting
Members.
Second, the Commission believes that
the proposed changes to Section 5.1
(Data Monitoring), in documenting that
the System Operations team checks end
of day collateral pricing; that the Credit
team has controls to monitor end of day
market data that the ECS System
Operations team uses to value collateral
against thresholds to ensure that the
data is not ‘‘stale,’’ and thus more timely
and accurate; that monitoring of
intraday market data is removed from
the scope of such monitoring, and that
the Treasury team reconciles and
confirms the daily bilateral collateral
positions (or nominal amounts), would,
taken together, enhance the accuracy,
clarity, and transparency of ICE Clear
Europe’s collateral valuation data
monitoring procedures and help
internal teams focus procedurally on
their monitoring responsibilities. For
example, the proposed removal of
monitoring intraday market data would
help focus the ECS System Operations
team on monitoring end of day pricing,
but not intraday pricing. The
Commission believes that these aspects
of the proposed rule change would
support the ongoing accuracy of
Permitted Cover valuations that inform
and facilitate the adequacy of ICE Clear
Europe’s calculations of its Members’
margin and guaranty fund requirements
and, in turn, would further enhance ICE
Clear Europe’s ability to mitigate the
risk of loss mutualization in the event
of a Member’s default, thereby
safeguarding the financial resources of
non-defaulting Members.
Third, the Commission believes that
the proposed changes in Section 1.2 to
include intraday and end of day
valuation of collateral would ensure that
the Collateral Procedures clearly
document ICE Clear Europe’s existing
collateral valuation practice and also
clarify that such practice is conducted
under the Collateral Procedures.
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Clarifying the scope of the Collateral
Procedures document would enhance
its completeness and
comprehensiveness, and help ICE Clear
Europe’s personnel efficiently
implement the associated operational
activities, thereby contributing to the
prompt and accurate clearance and
settlement of cleared contracts.
The Commission also notes that it has
previously found the Collateral
Procedures consistent with the Act 11
and because there are no proposed
material changes, believes that the
Collateral Procedures continue to be
consistent with the Act.
Therefore, for the reasons discussed
above, the Commission finds that the
proposed rule change would 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
or control, consistent with the Section
17A(b)(3)(F) of the Act.12
B. Consistency With Rules 17Ad–
22(e)(2)(i) and (v) Under the Act
Rules 17Ad–22(e)(2)(i) and (v) require
that ICE Clear Europe establish,
implement, maintain, and enforce
written policies and procedures
reasonably designed to provide for
governance arrangements that are clear
and transparent and specify clear and
direct lines of responsibility,
respectively.13
With respect to Rule 17Ad–22(e)(2)(i),
the Commission believes that the
proposed changes in Section 1.2, by
including intraday and end of day
valuation of collateral within the scope
of the Collateral Procedures, would
clearly and transparently document that
such collateral valuation activities are
conducted under the Collateral
Procedures and thus subject to the
governance process currently set forth
in the Collateral Procedures document.
With respect to Rule 17Ad–
22(e)(2)(v), the Commission believes
that the proposed changes to Section 5.1
(Data Monitoring), in documenting that
the System Operations team checks end
of day collateral pricing, that the Credit
team has controls to monitor end of day
market data that the ECS System
Operations team uses to value collateral
against thresholds to ensure that the
data is not ‘‘stale,’’ and that the Treasury
11 Self-Regulatory Organizations; ICE Clear
Europe Limited; Order Approving Proposed Rule
Change Relating to the ICE Clear Europe Collateral
and Haircut Policy and Collateral and Haircut
Procedures, Exchange Act Release No. 88136 (Feb.
6, 2020), 85 FR 8075 (Feb. 12, 2020) (SR–ICEEU–
2019–019).
12 15 U.S.C. 78q–(b)(3)(F).
13 17 CFR 240.17Ad–22(e)(2)(i) and (v).
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team reconciles and confirms the daily
bilateral collateral positions (or nominal
amounts), would specify clear and
direct roles and responsibilities of the
internal teams involved in ICE Clear
Europe’s data monitoring processes.
The Commission therefore believes
the proposed changes in Section 1.2
provide for governance arrangements
that are clear and transparent, and the
proposed changes to Section 5.1 specify
clear and direct lines of responsibility.
For these reasons, the Commission
finds that the proposed rule change is
consistent with Rules 17Ad–22(e)(2)(i)
and (v).14
C. Consistency With Rule 17Ad–22(e)(5)
Under the Act
Rule 17Ad–22(e)(5) requires that ICE
Clear Europe establish, implement,
maintain, and enforce written policies
and procedures reasonably designed to,
as applicable, limit the assets it accepts
as collateral to those with low credit,
liquidity, and market risks, and set and
enforce appropriately conservative
haircuts and concentration limits if the
covered clearing agency requires
collateral to manage its or its
participants’ credit exposure; and
require a review of the sufficiency of its
collateral haircuts and concentration
limits to be performed not less than
annually.15
The Commission believes that the
proposed rule change, by documenting
ICE Clear Europe’s formula for
calculating the value of Permitted Cover
and related standard practices for
valuing Treasuries and accrued interest,
and also by documenting that the ECS
System Operations team uses end of day
market data to value collateral against
thresholds to ensure that the data is not
stale, would enhance the accuracy of
ICE Clear Europe’s collateral valuation
practices and help ensure that ICE Clear
Europe continues to manage prudently
its and its Members’ credit exposure by
adequately covering Members’ margin
and guaranty fund requirements.
For these reasons, the Commission
finds that the proposed rule change is
consistent with Rule 17Ad–22(e)(5).16
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 17 and
14 17
CFR 240.17Ad–22(e)(2)(i) and (v).
CFR 240.17Ad–22(e)(5).
16 17 CFR 240.17Ad–22(e)(5).
17 15 U.S.C. 78q–1(b)(3)(F).
15 17
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Federal Register / Vol. 86, No. 223 / Tuesday, November 23, 2021 / Notices
Rules 17Ad–22(e)(2)(i) and (v), and
(e)(5) thereunder.18
It is therefore ordered pursuant to
Section 19(b)(2) of the Act 19 that the
proposed rule change (SR–ICEEU–2021–
018) be, and hereby is, approved.20
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.21
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–25479 Filed 11–22–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–93598; File No. SR–CBOE–
2021–066]
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange 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. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend Rule 5.34
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
November 17, 2021.
1. Purpose
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on November
5, 2021, Cboe Exchange, Inc. (the
‘‘Exchange’’ or ‘‘Cboe Options’’) filed
with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the Exchange. The
Exchange filed the proposal as a ‘‘noncontroversial’’ proposed rule change
pursuant to Section 19(b)(3)(A)(iii) of
the Act 3 and Rule 19b–4(f)(6)
thereunder.4 The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe Exchange, Inc. (the ‘‘Exchange’’
or ‘‘Cboe Options’’) proposes to amend
Rule 5.34. The text of the proposed rule
change is provided in Exhibit 5.
The text of the proposed rule change
is also available on the Exchange’s
website (https://www.cboe.com/
AboutCBOE/CBOELegal
RegulatoryHome.aspx), at the
18 17
CFR 240.17Ad–22(e)(2)(i) and (v), and (e)(5).
U.S.C. 78s(b)(2).
20 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).
21 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b–4(f)(6).
19 15
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at the Commission’s Public Reference
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The Exchange proposes to modify the
optional duplicate order protection risk
limit setting for Users in Rule 5.34(c)(9).
Duplicate order protection is voluntary
functionality, which was designed to
protect Users against execution of
multiple identical orders that may have
been erroneously entered. Specifically,
pursuant to current Rule 5.34(c)(9), if a
User enables this functionality for a
port, then after the System receives a
specified number of duplicate orders
with the same EFID,5 side, price,
quantity, and class within a specified
time period (the User determines the
number and length of the time period),
the System will (A) reject additional
duplicate orders until it receives
instructions from the User to reset this
control or (B) reject all incoming orders
submitted through that port for that
EFID until the User contacts the Trade
Desk to request it reset this control. The
User may continue to submit cancel
requests prior to reset.
The Exchange proposes to amend this
risk setting to eliminate the time
parameter. Particularly, as amended, the
System will continue to check for a
specified number of duplicate orders
(which will continue to be determined
by the User), but no longer check to see
if any such duplicative orders were
received over a specified period of time.
Instead, the system will compare each
submitted order against the immediately
5 The term ‘‘EFID’’ means an Executing Firm ID.
The Exchange assigns an EFID to a Trading Permit
Holder, which the System uses to identify the
Trading Permit Holder and the clearing number for
the execution of orders and quotes submitted to the
System with that EFID.
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66609
preceding order that was submitted with
respect to the orders’ EFID, side, price,
quantity, and class. For example,
suppose a User sets the duplicative
order count to 10 orders. When the
System receives an incoming order, the
System checks if the immediately
preceding order it received had the
same EFID, side, price, quantity and
class. If the order does not, then the
System keeps the count at ‘‘0’’ (and
performs the same process for the next
incoming order). If the order does, the
System will count that order as ‘‘1’’. If
the following 9 incoming orders through
that port are also duplicates (i.e., same
EFID, side, price, quantity and class),
then regardless of how long it takes for
such orders to come into the System, the
System will (i) reject any additional
duplicate orders until it receives a reset
instruction from the User or (ii) reject all
incoming orders submitted through that
port for that EFID until the User
contacts the Trade Desk to request it
reset this control, as it does today.
The Exchange has observed that the
time parameter check under the current
duplicate order protection feature can
potentially create a (albeit minor)
latency impact for Users who opt to use
the functionality. More specifically,
minor latency can arise in connection
with the specified time parameter
because the System must store and
conduct a check across all orders sent
during the specified time period when
this risk check is enabled. The Exchange
believes removing the time parameter
check will eliminate this latency for
Users that opt to use the duplicate order
protection. The Exchange does not
believe that the proposed rule change
will impact the effectiveness of the
duplicate order protection feature for
those Users that opt to enable such
functionality. Also, as noted above, the
use of the risk limit is voluntary. The
Exchange will continue to offer Users a
full suite of additional price protection
mechanisms and risk controls which the
Exchange believes sufficiently mitigate
risks associated with Users entering
orders and quotes at unintended prices,
and risks associated with orders and
quotes trading at prices that are extreme
and potentially erroneous, as a likely
result of human or operational error.
Lastly, the Exchange proposes to
correct an erroneous rule number.
Particularly, the Exchange proposes to
update Rule 5.34(c)(12) to Rule
5.34(c)(11), which follows the
immediately preceding subparagraph
(10) of Rule 5.34(c).
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the
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]]>Agencies
[Federal Register Volume 86, Number 223 (Tuesday, November 23, 2021)]
[Notices]
[Pages 66607-66609]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-25479]
[[Page 66607]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93603; File No. SR-ICEEU-2021-018]
Self-Regulatory Organizations; ICE Clear Europe Limited; Order
Approving Proposed Rule Change Relating to Amendments to the ICE Clear
Europe Collateral and Haircut Procedures
November 17, 2021.
I. Introduction
On September 20, 2021, ICE Clear Europe Limited (``ICE Clear
Europe'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to make certain changes to its existing Collateral
and Haircut Procedures (the ``Collateral Procedures''). The proposed
rule change was published for comment in the Federal Register on
October 7, 2021.\3\ The Commission did not receive comments on 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 Amendments to
the ICE Clear Europe Collateral and Haircut Procedures, Exchange Act
Release No. 93236 (Oct. 1, 2021), 86 FR 55879 (Oct. 7, 2021) (SR-
ICEEU-2021-018) (``Notice'').
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
ICE Clear Europe is proposing to revise the Collateral Procedures
to (i) state explicitly its formula for calculating the value of its
published list of acceptable collateral (``Permitted Cover'') provided
by Clearing Members (``Members'') for covering their margin and
guaranty fund requirements and (ii) update its processes for monitoring
data related to collateral valuations, and specify the roles and
responsibilities of its various internal teams in performing such
monitoring processes.\4\ The proposed revisions are described in more
detail below.\5\
---------------------------------------------------------------------------
\4\ Capitalized terms used not defined herein have the meanings
specified in the Collateral Procedures or the ICE Clear Europe
Clearing Rules (the ``Rules''), as applicable.
\5\ The following description of the proposed rule change is
substantially excerpted from the Notice.
---------------------------------------------------------------------------
To ensure that the collateral ICE Clear Europe holds is highly
liquid with low credit and market risk, ICE Clear Europe only accepts
assets that meet the criteria set forth in the Collateral Procedures,
which ICE Clear Europe refers to as Permitted Cover. To facilitate
Permitted Cover valuations, ICE Clear Europe is proposing an explicit
formula to calculate the Permitted Cover value in new Section 2.2 of
the Collateral Procedures. As proposed, cover value is equal to Nominal
* Price/100 * (1-Haircut) \6\ + Nominal * Accrued, where price is clean
(i.e., without accrued interest) and accrued is expressed in %.
Proposed Section 2.2 also would state that as a matter of standard
practice at ICE Clear Europe, Treasuries are given no cover value two
business days prior to maturity and a cash call would be issued if a
Member's account is in deficit. Additionally, proposed Section 2.2
would state that accrued interest will lose value one day prior to the
coupon pay date. ICE Clear Europe represents that these changes reflect
its existing practice for the valuation of Permitted Cover and are
intended to document such practice more clearly.\7\
---------------------------------------------------------------------------
\6\ The term ``Haircut'' refers to the risk-based haircut or
reduction percentage that ICE Clear Europe sets and applies to the
value of certain collateral.
\7\ See Notice at 55879.
---------------------------------------------------------------------------
The proposed rule change also would update ICE Clear Europe's
processes for monitoring data related to collateral pricing and would
describe the roles of various teams tasked with such monitoring.
Specifically, the proposed changes to Section 5.1 (Data Monitoring)
would add a new sentence stating that the System Operations team checks
end of day collateral pricing. The proposed changes to Section 5.1
would then state that the Credit team has controls to monitor end of
day market data that the ECS System Operations team uses to value
collateral against thresholds to ensure that the data is not ``stale,''
and also would remove intraday market data from the scope of such
monitoring. Currently, Section 5.1 does not specify the
responsibilities of any internal teams, stating that ICE Clear Europe
monitors end of day and intraday market data it uses to value
collateral thresholds to ensure that the data is not ``stale.''
Additionally, the proposed changes would add a new sentence at the end
of Section 5.1 which states that the Treasury team reconciles and
confirms the daily bilateral collateral positions (nominal amounts).
Finally, the proposed rule change would update the scope of the
Collateral Procedures in Section 1.2 to include intraday and end of day
valuation of collateral, which is consistent with ICE Clear Europe's
existing practice. Currently, Section 1.2 excludes intraday and end of
day valuation of collateral and any associated margin processes from
the scope of the Collateral Procedures.
III. Commission Findings
Section 19(b)(2)(C) of the Act directs the Commission to approve a
proposed rule change of a self-regulatory organization if it finds that
such proposed rule change is consistent with the requirements of the
Act and the rules and regulations thereunder applicable to such
organization. For the reasons given below, the Commission finds that
the proposed rule change is consistent with Section 17A(b)(3)(F) of the
Act \8\ and Rules 17Ad-22(e)(2)(i) and (v), and (e)(5) thereunder.\9\
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\8\ 15 U.S.C. 78q-1(b)(3)(F).
\9\ 17 CFR 240.17Ad-22(e)(2)(i) and (v), and (e)(5).
---------------------------------------------------------------------------
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, and 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.\10\
---------------------------------------------------------------------------
\10\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
As described above, the proposed rule change would revise the
Collateral Procedures to state explicitly ICE Clear Europe's formula
for calculating the value of Permitted Cover and to update ICE Clear
Europe's processes for monitoring data related to collateral
valuations, which would also specify the roles and responsibilities of
its various internal teams in performing such monitoring processes. For
the specific reasons discussed below, the Commission believes that, in
general, the proposed rule change would facilitate the sound operation
of ICE Clear Europe's margin framework and overall risk management and
financial stability of ICE Clear Europe, and thereby promote ICE Clear
Europe's prompt and accurate clearance and settlement of cleared
contracts, and help assure the safeguarding of securities and funds
which are in ICE Clear Europe's custody or control or for which ICE
Clear Europe is responsible.
First, the Commission believes that proposed new Section 2.2, in
clearly documenting ICE Clear Europe's formula for calculating the
value of Permitted Cover; its standard practice of giving no cover
value two business days prior to maturity of Treasuries and
[[Page 66608]]
issuing a cash call if a Member's account is in deficit; and also its
standard practice for accrued interest to lose value one day prior to
the coupon pay date, would help ensure that Members and internal
personnel at ICE Clear Europe make accurate and consistent cover value
calculations that adequately cover Members' margin and guaranty fund
requirements. These aspects of the proposed rule change would, in turn,
enhance ICE Clear Europe's ability to reduce the risk of loss
mutualization among its Members when closing out a defaulting Member's
portfolio and liquidating collateral under potentially stressed market
conditions, thereby safeguarding the financial resources of non-
defaulting Members.
Second, the Commission believes that the proposed changes to
Section 5.1 (Data Monitoring), in documenting that the System
Operations team checks end of day collateral pricing; that the Credit
team has controls to monitor end of day market data that the ECS System
Operations team uses to value collateral against thresholds to ensure
that the data is not ``stale,'' and thus more timely and accurate; that
monitoring of intraday market data is removed from the scope of such
monitoring, and that the Treasury team reconciles and confirms the
daily bilateral collateral positions (or nominal amounts), would, taken
together, enhance the accuracy, clarity, and transparency of ICE Clear
Europe's collateral valuation data monitoring procedures and help
internal teams focus procedurally on their monitoring responsibilities.
For example, the proposed removal of monitoring intraday market data
would help focus the ECS System Operations team on monitoring end of
day pricing, but not intraday pricing. The Commission believes that
these aspects of the proposed rule change would support the ongoing
accuracy of Permitted Cover valuations that inform and facilitate the
adequacy of ICE Clear Europe's calculations of its Members' margin and
guaranty fund requirements and, in turn, would further enhance ICE
Clear Europe's ability to mitigate the risk of loss mutualization in
the event of a Member's default, thereby safeguarding the financial
resources of non-defaulting Members.
Third, the Commission believes that the proposed changes in Section
1.2 to include intraday and end of day valuation of collateral would
ensure that the Collateral Procedures clearly document ICE Clear
Europe's existing collateral valuation practice and also clarify that
such practice is conducted under the Collateral Procedures. Clarifying
the scope of the Collateral Procedures document would enhance its
completeness and comprehensiveness, and help ICE Clear Europe's
personnel efficiently implement the associated operational activities,
thereby contributing to the prompt and accurate clearance and
settlement of cleared contracts.
The Commission also notes that it has previously found the
Collateral Procedures consistent with the Act \11\ and because there
are no proposed material changes, believes that the Collateral
Procedures continue to be consistent with the Act.
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\11\ Self-Regulatory Organizations; ICE Clear Europe Limited;
Order Approving Proposed Rule Change Relating to the ICE Clear
Europe Collateral and Haircut Policy and Collateral and Haircut
Procedures, Exchange Act Release No. 88136 (Feb. 6, 2020), 85 FR
8075 (Feb. 12, 2020) (SR-ICEEU-2019-019).
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Therefore, for the reasons discussed above, the Commission finds
that the proposed rule change would 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 or
control, consistent with the Section 17A(b)(3)(F) of the Act.\12\
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\12\ 15 U.S.C. 78q-(b)(3)(F).
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B. Consistency With Rules 17Ad-22(e)(2)(i) and (v) Under the Act
Rules 17Ad-22(e)(2)(i) and (v) require that ICE Clear Europe
establish, implement, maintain, and enforce written policies and
procedures reasonably designed to provide for governance arrangements
that are clear and transparent and specify clear and direct lines of
responsibility, respectively.\13\
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\13\ 17 CFR 240.17Ad-22(e)(2)(i) and (v).
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With respect to Rule 17Ad-22(e)(2)(i), the Commission believes that
the proposed changes in Section 1.2, by including intraday and end of
day valuation of collateral within the scope of the Collateral
Procedures, would clearly and transparently document that such
collateral valuation activities are conducted under the Collateral
Procedures and thus subject to the governance process currently set
forth in the Collateral Procedures document.
With respect to Rule 17Ad-22(e)(2)(v), the Commission believes that
the proposed changes to Section 5.1 (Data Monitoring), in documenting
that the System Operations team checks end of day collateral pricing,
that the Credit team has controls to monitor end of day market data
that the ECS System Operations team uses to value collateral against
thresholds to ensure that the data is not ``stale,'' and that the
Treasury team reconciles and confirms the daily bilateral collateral
positions (or nominal amounts), would specify clear and direct roles
and responsibilities of the internal teams involved in ICE Clear
Europe's data monitoring processes.
The Commission therefore believes the proposed changes in Section
1.2 provide for governance arrangements that are clear and transparent,
and the proposed changes to Section 5.1 specify clear and direct lines
of responsibility.
For these reasons, the Commission finds that the proposed rule
change is consistent with Rules 17Ad-22(e)(2)(i) and (v).\14\
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\14\ 17 CFR 240.17Ad-22(e)(2)(i) and (v).
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C. Consistency With Rule 17Ad-22(e)(5) Under the Act
Rule 17Ad-22(e)(5) requires that ICE Clear Europe establish,
implement, maintain, and enforce written policies and procedures
reasonably designed to, as applicable, limit the assets it accepts as
collateral to those with low credit, liquidity, and market risks, and
set and enforce appropriately conservative haircuts and concentration
limits if the covered clearing agency requires collateral to manage its
or its participants' credit exposure; and require a review of the
sufficiency of its collateral haircuts and concentration limits to be
performed not less than annually.\15\
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\15\ 17 CFR 240.17Ad-22(e)(5).
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The Commission believes that the proposed rule change, by
documenting ICE Clear Europe's formula for calculating the value of
Permitted Cover and related standard practices for valuing Treasuries
and accrued interest, and also by documenting that the ECS System
Operations team uses end of day market data to value collateral against
thresholds to ensure that the data is not stale, would enhance the
accuracy of ICE Clear Europe's collateral valuation practices and help
ensure that ICE Clear Europe continues to manage prudently its and its
Members' credit exposure by adequately covering Members' margin and
guaranty fund requirements.
For these reasons, the Commission finds that the proposed rule
change is consistent with Rule 17Ad-22(e)(5).\16\
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\16\ 17 CFR 240.17Ad-22(e)(5).
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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 \17\ and
[[Page 66609]]
Rules 17Ad-22(e)(2)(i) and (v), and (e)(5) thereunder.\18\
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\17\ 15 U.S.C. 78q-1(b)(3)(F).
\18\ 17 CFR 240.17Ad-22(e)(2)(i) and (v), and (e)(5).
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It is therefore ordered pursuant to Section 19(b)(2) of the Act
\19\ that the proposed rule change (SR-ICEEU-2021-018) be, and hereby
is, approved.\20\
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\19\ 15 U.S.C. 78s(b)(2).
\20\ 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.\21\
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\21\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-25479 Filed 11-22-21; 8:45 am]
BILLING CODE 8011-01-P
