Self-Regulatory Organizations; ICE Clear Europe Limited; Notice of Filing of Proposed Rule Change Relating to Amendments to Recovery Plan, 48273-48276 [2023-15758]
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Federal Register / Vol. 88, No. 142 / Wednesday, July 26, 2023 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–97955; File No. SR–ICEEU–
2023–020]
Self-Regulatory Organizations; ICE
Clear Europe Limited; Notice of Filing
of Proposed Rule Change Relating to
Amendments to Recovery Plan
July 20, 2023
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934,1 and
Rule 19b–4 thereunder,2 notice is
hereby given that on July 10, 2023, ICE
Clear Europe Limited filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change 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
ICE Clear Europe Limited (‘‘ICE Clear
Europe’’ or the ‘‘Clearing House’’)
proposes to amend its Recovery Plan
(‘‘Plan’’) 3 to update certain aspects of
recovery planning and operations and
testing procedures and make certain
other clarifications.
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
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(a) Purpose
ICE Clear Europe is proposing to
amend its Recovery Plan to make
various enhancements, updates and
clarifications. In the discussion of the
scale of coverage of the Clearing House’s
recovery options, the amendments
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 Capitalized terms used but not defined herein
have the meanings specified in the Recovery Plan
or, if not defined therein, the ICE Clear Europe
Clearing Rules.
2 17
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would revise the description of the
Significant Coverage from Powers of
Assessment (‘‘PoA’’) to remove
references to the specific expected
coverage of defaults by PoA for the F&O
and CDS clearing service. ICE Clear
Europe is not proposing to change
through these amendments the amount
of the relevant guaranty funds and
related PoA under the Rules and related
policies, but does not believe it is
necessary to specify expected coverage
in this way in the Recovery Plan. As
revised, the discussion of coverage from
PoA would reflect that losses from
defaults of the largest clearing members
under extreme but plausible stress
scenarios can be immediately covered
through PoA, as resources can be
collected from non-defaulting Clearing
Members intraday and in cash under the
existing Rules and Procedures. The
amendments would also state that the
assessment of the PoA’s capacity to
offset losses can be performed by
reverse stress testing.
In the discussion of the Clearing
House’s ability to fully cover default
losses using partial tear-ups, a statement
that default losses can be fully covered
would be removed as unnecessary and
repetitive. In terms of the discussion of
the Clearing House’s ability to fully
cover investment losses, the
amendments would remove a reference
to the specific amount to be covered by
Clearing House contributions (as such
amount is set under the Rules and is
subject to change from time to time
under the Rules). Certain nonsubstantive drafting clarifications would
also be made in this section.
The amendments would also update
the discussion of certain decisionmaking requirements. In circumstances
where the Board cannot be convened in
advance of making a material decision
under the Plan, the amendments would
clarify that the Board would be
convened afterwards as soon as
reasonably possible and updated on the
steps taken. Additionally, the
amendments would clarify that
although exercising recovery options
would not need the approval of Clearing
Members, exchanges or other external
stakeholders, ICE Clear Europe would
seek to communicate its plans and
intentions to such stakeholders where
possible, and as soon as reasonably
practicable.
The procedures for testing of the Plan
would be revised to provide that testing
would be conducted at least annually
(rather than only annually). The
amendments would further specify that
given the number of recovery options
available, one default and one nondefault scenario would be tested each
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48273
year, and all the recovery options would
be tested over a three year cycle. The
testing schedule (and changes to it)
would be approved by, and the results
of testing would be reported to, ICEU’s
Executive Risk Committee. The
proposed changes would also more fully
describe the testing strategy, which
includes both physical elements (such
as processing of operational aspects of
the Plan in a non-production
environment and governance aspects
such as Board engagement) and
simulated tabletop exercises. Testing of
default-related recovery scenarios may
also be included in default fire drills,
including coordination with other
relevant clearing agencies. Additionally,
the Recovery Plan test would add to the
list of issues examined as part of testing
whether all services continue to be
provided, including those to affiliates,
and what governance pathways would
be used. The amendment would clarify
that any changes resulting from the
review of the Plan after each test would
be addressed as part of the defined
governance process included in the
Plan.
The proposed amendments would
make certain clarifications relating to
the critical services provided by the
Clearing House. Certain updates and
corrections are made to the products
currently cleared, including to reference
option contracts generally instead of
only options on futures and to reference
the IFAD exchange for which clearing
services are provided in the F&O
product category. The amendments also
would add an explanatory footnote to
distinguish critical services from certain
similar concepts use in the Clearing
House’s other policies and frameworks.
In the discussion of impacts of recovery
options of market participants, a
clarification would be added that capital
and liquidity impacts on market
participants would be taken into
account as far as reasonably possible (to
reflect certain practical limitations on
the Clearing House’s ability to address
such matters).
The service providers supporting the
critical services would now include
repo counterparties in addition to
investment agents, to reflect the
Clearing House’s use of repurchase
transactions with such counterparties.
The amendments would also add to the
list of such service providers default
brokers, which may be used to execute
market transaction in order to hedge a
defaulter’s book and/or liquidate noncash collateral. Amendments would also
reflect that inter-affiliate arrangements
may be documented under
intercompany service agreements rather
than outsourcing agreements.
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The amendments would make certain
enhancements to the discussion of how
the Clearing House mitigates
dependencies on service providers. In
the context of situations where ICE
Clear Europe relies on the existence of
multiple, substitutable providers, the
amendments would reflect that ICE
Clear Europe regularly tests its
assumptions that this is an effective
strategy, as part of its operational
resilience framework. Similarly, where
the Clearing House relies on resilience
and redundancy with respect to a
provider, it would regularly test these
assumptions under the operational
resilience framework. In terms of
contractual protections under
arrangements with service providers,
the amendments would state that the
Clearing House ensures contracts do not
permit service providers to unduly alter
or terminate the contracts (as opposed to
the more limited analysis under the
current Plan of whether alteration or
termination would be permitted if ICE
Clear Europe were under financial
stress). The updates would also provide
for periodic ongoing analyses of these
contracts in the context of the Plan. The
amendments would remove a specific
determination that investment agents,
APS banks, central banks and data
providers are excluded from being
dependencies on the basis of
substitutability; under the revised Plan
such service providers may be subject to
the mitigation arrangements discussed,
as appropriate.
The proposed changes would remove
certain statements that the Clearing
House does not have a dependency on
physical delivery agents, other ICE
exchange or ICE Clearing Houses.
Although there are applicable mitigants
in many cases, such relationships may
nonetheless be regarded as
dependencies. The amendments would
add a provision that ICE Clear Europe
for certain markets regularly tests its
ability to perform the functions of
delivery agents under certain disruption
scenarios. The amendments would also
clarify certain other testing practices,
including as part of the operational
resilience framework, applicable to
relationships with ICE Exchanges and
ICE Technology and Operations Group.
For dependencies on other ICE clearing
houses, the revised Plan would note that
the relevant processes that ICE Clear
Europe could use in the event of a
failure by the other clearing house are
generally already performed by ICE
Clear Europe.
In the discussion of technology
infrastructure, clarifying references to
CDS and F&O are added to the
descriptions of the various systems to
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reflect the specific systems currently
used for those businesses. Additionally,
the proposed rules would update the list
of certain ways in which risks are
mitigated to address periodic testing,
operational resilience, the role of ICE
Clear Europe as a participant in defining
requirements in the development of new
capabilities, notice periods under
service agreements (not merely
outsourcing arrangements), and other
nonsubstantive changes. The revised
Plan would also address certain services
that ICE Clear Europe provides to other
ICE affiliates, noting that ICE Clear
Europe assumes that such services will
continue to be provided during the
execution of the Plan. ICE Clear Europe
believes that in the event of a Plan
execution, there will be relevant
resources in place that will allow those
services to continue, particularly for
those that are operational in nature or
almost fully automated. Those not fully
automated would have backup
arrangements that are periodically
tested.
For recovery scenarios and triggers,
the amendments would clarify the
trigger for the non-default losses
scenario involving the Clearing House’s
base capital by defining a breach based
on referring to insufficient EMIR eligible
capital. The amendments would clarify
that each stress scenario listed in the
appendix would be mapped to key risks
contained in the Clearing House’s risk
appetite statements, to ensure that each
key risk is covered.
The amendments would reference the
Clearing House’s existing operational
resilience framework, which
encompasses (and supersedes previous)
business continuity and disaster
recovery plans and includes incident
management processes. Various
references throughout the Plan to
business continuity, disaster recovery or
similar matters have been replaced by
references to the operational resilience
framework and related incident
management processes.
Additional explanatory language with
regards to early warnings for default and
non-default loss scenarios to make
consistent with the Rules. Throughout
the Plan, the language has changed to
reflect the name update of the Capital
Replenishment Plan to be consistent.
The amendments would also remove
from the explanations of the Plan’s
design and development certain
duplicative information about coverage
of various types of losses that is
addressed in other parts of the Plan.
Additionally, the Clearing House would
clarify certain references to the Crisis
Communications and Management Plan
(which would be renamed the
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Communications Plan). Members of
each communications group would be
updated to reference relevant personnel,
including adding the President to most
communication groups and adjusting
certain other referenced personnel to
reflect current Clearing House
operations. In addition, the Plan would
address a contingency in a recovery
situation where the President is not
available. Similarly, the references to
the Major Incident Response Plan would
be updated to reflect that the plan has
been renamed the Crisis Management
Plan. Regarding the scenario steps in a
default and non-default loss, the
proposed changes will also make certain
minor changes to timing and
notification processes.
The proposed changes would add a
new Document Governance and
Exception Handling section that is
consistent with other Clearing House
policies. This section would describe
the responsibilities for the document
owners in accordance with ICEU’s
governance processes, as well as breach
management, exception handling, and
document governance.
The description of the ICE Clear
Europe committee structure in
Appendix A would be removed. ICE
Clear Europe believes the structure is
fully defined in other documentation
and does not need to be included in the
Plan.
In addition, amendments throughout
the Plan would make other minor nonsubstantive drafting and conforming
changes and typographical corrections.
(b) Statutory Basis
ICE Clear Europe believes that the
proposed amendments to the Plan are
consistent with the requirements of
Section 17A of the Securities Exchange
Act of 1934 4 (‘‘Act’’) and the regulations
thereunder applicable to it. In
particular, Section 17A(b)(3)(F) of the
Act 5 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 Plan are intended to make various
updates, enhancements and
clarifications to the Plan, including with
regard to the critical service providers
and other dependencies of the Clearing
4 15
5 15
E:\FR\FM\26JYN1.SGM
U.S.C. 78q–1.
U.S.C. 78q–1(b)(3)(F).
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Federal Register / Vol. 88, No. 142 / Wednesday, July 26, 2023 / Notices
House, as well as mitigants for such
dependencies. The amendments would
also enhance procedures around testing
of the Plan and related default and nondefault scenarios that could lead to the
need to implement the Plan. Other
amendments are intended to conform to
changes in other ICE Clear Europe
policies and procedures. The
amendments would also clarify certain
aspects of the recovery scenarios and
procedures as well as potentially
triggering or warning events for losses.
Overall, the amendments would help
the Clearing House facilitate an orderly
recovery of its clearing businesses in the
event of a severe financial stress or loss.
As a result, in ICE Clear Europe’s view,
the amendments would be consistent
with the prompt and accurate clearance
and settlement of the contracts, the
safeguarding of funds or securities in
the custody or control of the clearing
agency or for which it is responsible,
and the protection of investors and the
public interest, consistent with the
requirements of Section 17A(b)(3)(F) of
the Act.6
Rule 17Ad–22(e)(2) provides that
‘‘[e]ach covered clearing agency shall
establish, implement, maintain and
enforce written policies and procedures
reasonably designed to, as applicable
[. . .] provide for governance
arrangements that are clear and
transparent’’ 7 and ‘‘[s]pecify clear and
direct lines of responsibility.’’ 8 The
amendments to the Plan would enhance
various aspects of the governance
surrounding the implementation, testing
and modification of the Plan.
Amendments would more clearly state
the procedures for communications
with relevant groups of stakeholders in
connection with the Plan, and take into
account the Clearing House’s broader
Communications Plan and Crisis
Management Plan. They would also
clarify certain aspects of the role of the
President and key personnel. In
addition, the amendments would
address document governance, breach
management and exception handling, in
a manner generally consistent with
other ICE Clear Europe policies. In ICE
Clear Europe’s view, the amendments
are therefore consistent with the
requirements of Rule 17Ad–22(e)(2).9
The proposed amendments are also
consistent with Rule 17Ad–22(e)(3)(ii),
which provides that ‘‘[e]ach covered
clearing agency shall establish,
implement, maintain and enforce
written policies and procedures
6 15
U.S.C. 78q–1(b)(3)(F).
CFR 240.17 Ad–22(e)(2)(i).
8 17 CFR 240.17 Ad–22(e)(2)(v).
9 17 CFR 240.17Ad–22(e)(2).
reasonably designed to, as applicable
[. . .] maintain a sound risk
management framework for
comprehensively managing legal, credit,
liquidity, operational, general business,
investment, custody, and other risks
that arise in or are borne by the covered
clearing agency, which [. . .] includes
plans for the recovery and orderly winddown of the covered clearing agency
necessitated by credit losses, liquidity
shortfalls, losses from general business
risk, or any other losses . . . .’’ 10 As
discussed above, the amendments to the
Plan would update and clarify various
aspects of the Recovery Plan, including
to enhance the assessment of critical
services and dependencies in the
context of a recovery situation. The
amendments would also clarify various
aspects of the triggers for potential
implementation of recovery and
recovery options to be used under the
Plan. The amendments would also
clarify testing procedures. The
amendments are thus intended to
enhance the effectiveness of the Plan as
a means of preparing for the potential of
losses, whether from Clearing Member
default or failure or for various other
causes, that could otherwise threaten
the continued operation of the Clearing
House. As such, in ICE Clear Europe’s
view, the amendments are consistent
with the requirements of Rule 17Ad–
22(e)(3)(ii).11
(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 proposed
amendments are being adopted to
update and clarify the Plan, all of which
relate to the Clearing House’s processes
for the recovery of the Clearing House
in the unlikely occurrence of significant
loss events that may negatively harm the
Clearing House. The amendments do
not involve a change in the Clearing
House’s Rules or Procedures and will
not affect the rights or obligations of
Clearing Members, but instead address
the means in which the Clearing House
may use the tools set forth in its Rules
and Procedures in a recovery scenario.
ICE Clear Europe does not believe the
amendments would affect in the
ordinary course of business the costs of
clearing, the ability of market
participants to access clearing, or the
market for clearing services generally.
Therefore, ICE Clear Europe does not
7 17
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11 17
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CFR 270.17Ad–22(e)(3)(ii).
CFR 240.17Ad–22(e)(3)(ii).
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48275
believe the proposed rule change
imposes any burden on competition that
is inappropriate in furtherance of the
purposes 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
such proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• 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–2023–020 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–2023–020. 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
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Federal Register / Vol. 88, No. 142 / Wednesday, July 26, 2023 / Notices
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
a.m. and 3 p.m. Copies of such filings
will also be available for inspection and
copying at the principal office of ICE
Clear Europe and on ICE Clear Europe’s
website at https://www.theice.com/
clear-europe/regulation.
Do not include personal identifiable
information in submissions; you should
submit only information that you wish
to make available publicly. We may
redact in part or withhold entirely from
publication submitted material that is
obscene or subject to copyright
protection. All submissions should refer
to file number SR–ICEEU–2023–020 and
should be submitted on or before
August 16, 2023.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.12
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–15758 Filed 7–25–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[SEC File No. 270–636, OMB Control No.
3235–0679]
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Proposed Collection; Comment
Request; Extension: Form PF and Rule
and Rule 204(b)–1
Upon Written Request, Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services,
100 F Street NE, Washington, DC
20549–2736
Notice is hereby given that pursuant
to the Paperwork Reduction Act of 1995
(44 U.S.C. 3501 et seq.), the Securities
and Exchange Commission
(‘‘Commission’’) has submitted to the
Office of Management and Budget a
request for extension of the previously
approved collection of information
discussed below.
Rule 204(b)–1 (17 CFR 275.204(b)–1)
under the Investment Advisers Act of
1940 (15 U.S.C. 80b–1 et seq.)
12 17
CFR 200.30–3(a)(12).
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implements sections 404 and 406 of the
Dodd-Frank Wall Street Reform and
Consumer Protection Act (the ‘‘DoddFrank Act’’) by requiring private fund
advisers that have at least $150 million
in private fund assets under
management to report certain
information regarding the private funds
they advise on Form PF. These advisers
are the respondents to the collection of
information. Form PF is designed to
facilitate the Financial Stability
Oversight Council’s (‘‘FSOC’’)
monitoring of systemic risk in the
private fund industry and to assist
FSOC in determining whether and how
to deploy its regulatory tools with
respect to nonbank financial companies.
The Commission and the Commodity
Futures Trading Commission may also
use information collected on Form PF in
their regulatory programs, including
examinations, investigations and
investor protection efforts relating to
private fund advisers.
Form PF divides respondents into two
broad groups, Large Private Fund
Advisers and smaller private fund
advisers. ‘‘Large Private Fund Advisers’’
are advisers with at least $1.5 billion in
assets under management attributable to
hedge funds (‘‘large hedge fund
advisers’’), advisers that manage
‘‘liquidity funds’’ and have at least $1
billion in combined assets under
management attributable to liquidity
funds and registered money market
funds (‘‘large liquidity fund advisers’’),
and advisers with at least $2 billion in
assets under management attributable to
private equity funds (‘‘large private
equity fund advisers’’). All other
respondents are considered smaller
private fund advisers. The Commission
estimates that most filers of Form PF
have already made their first filing, and
so the burden hours applicable to those
filers will reflect only ongoing burdens,
and not start-up burdens. Accordingly,
the Commission estimates the total
annual reporting and recordkeeping
burden of the collection of information
for each respondent is as follows: (a) For
smaller private fund advisers making
their first Form PF filing, an estimated
amortized average annual burden of 13
hours for each of the first three years; (b)
for smaller private fund advisers that
already make Form PF filings, an
estimated amortized average annual
burden of 15 hours for each of the next
three years; (c) for smaller private funds,
an estimated average annual burden of
5 hours for event reporting for smaller
private equity fund advisers for each of
the next three years; (d) for large hedge
fund advisers making their first Form PF
filing, an estimated amortized average
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annual burden of 108 hours for each of
the first three years; (e) for large hedge
fund advisers that already make Form
PF filings, an estimated amortized
average annual burden of 600 hours for
each of the next three years; (f) for large
hedge fund advisers, an estimated
average annual burden of 10 hours for
current reporting for each of the next
three years; (g) for large liquidity fund
advisers making their first Form PF
filing, an estimated amortized average
annual burden of 67 hours for each of
the first three years; (h) for large
liquidity fund advisers that already
make Form PF filings, an estimated
amortized average annual burden of 280
hours for each of the next three years;
(i) for large private equity fund advisers
making their first Form PF filing, an
estimated amortized average annual
burden of 84 hours for each of the first
three years; (j) for large private equity
fund advisers that already make Form
PF filings, an estimated amortized
average annual burden of 128 hours for
each of the next three years; and (k) for
large private equity fund advisers, an
estimated average annual burden of 5
hours for event reporting for each of the
next three years.
With respect to annual internal costs,
the Commission estimates the collection
of information will result in 122.86
burden hours per year on average for
each respondent. With respect to
external cost burdens, the Commission
estimates a range from $0 to $50,000 per
adviser.
Estimates of average burden hours
and costs are made solely for the
purposes of the Paperwork Reduction
Act and are not derived from a
comprehensive or even representative
survey or study of the costs of
Commission rules and forms. The
changes in burden hours are due to the
staff’s estimates of the time costs and
external costs that result from the
adopted amendments, the use of
updated data, and the use of different
methodologies to calculate certain
estimates. Compliance with the
collection of information requirements
of Form PF is mandatory for advisers
that satisfy the criteria described in
Instruction 1 to the Form. Responses to
the collection of information will be
kept confidential to the extent permitted
by law. The Commission does not
intend to make public information
reported on Form PF that is identifiable
to any particular adviser or private fund,
although the Commission may use Form
PF information in an enforcement
action. An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
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]]>Agencies
[Federal Register Volume 88, Number 142 (Wednesday, July 26, 2023)]
[Notices]
[Pages 48273-48276]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-15758]
[[Page 48273]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97955; File No. SR-ICEEU-2023-020]
Self-Regulatory Organizations; ICE Clear Europe Limited; Notice
of Filing of Proposed Rule Change Relating to Amendments to Recovery
Plan
July 20, 2023
Pursuant to Section 19(b)(1) of the Securities Exchange Act of
1934,\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on
July 10, 2023, ICE Clear Europe Limited filed with the Securities and
Exchange Commission (``Commission'') the proposed rule change 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
ICE Clear Europe Limited (``ICE Clear Europe'' or the ``Clearing
House'') proposes to amend its Recovery Plan (``Plan'') \3\ to update
certain aspects of recovery planning and operations and testing
procedures and make certain other clarifications.
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\3\ Capitalized terms used but not defined herein have the
meanings specified in the Recovery Plan or, if not defined therein,
the ICE Clear Europe Clearing Rules.
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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
(a) Purpose
ICE Clear Europe is proposing to amend its Recovery Plan to make
various enhancements, updates and clarifications. In the discussion of
the scale of coverage of the Clearing House's recovery options, the
amendments would revise the description of the Significant Coverage
from Powers of Assessment (``PoA'') to remove references to the
specific expected coverage of defaults by PoA for the F&O and CDS
clearing service. ICE Clear Europe is not proposing to change through
these amendments the amount of the relevant guaranty funds and related
PoA under the Rules and related policies, but does not believe it is
necessary to specify expected coverage in this way in the Recovery
Plan. As revised, the discussion of coverage from PoA would reflect
that losses from defaults of the largest clearing members under extreme
but plausible stress scenarios can be immediately covered through PoA,
as resources can be collected from non-defaulting Clearing Members
intraday and in cash under the existing Rules and Procedures. The
amendments would also state that the assessment of the PoA's capacity
to offset losses can be performed by reverse stress testing.
In the discussion of the Clearing House's ability to fully cover
default losses using partial tear-ups, a statement that default losses
can be fully covered would be removed as unnecessary and repetitive. In
terms of the discussion of the Clearing House's ability to fully cover
investment losses, the amendments would remove a reference to the
specific amount to be covered by Clearing House contributions (as such
amount is set under the Rules and is subject to change from time to
time under the Rules). Certain non-substantive drafting clarifications
would also be made in this section.
The amendments would also update the discussion of certain
decision-making requirements. In circumstances where the Board cannot
be convened in advance of making a material decision under the Plan,
the amendments would clarify that the Board would be convened
afterwards as soon as reasonably possible and updated on the steps
taken. Additionally, the amendments would clarify that although
exercising recovery options would not need the approval of Clearing
Members, exchanges or other external stakeholders, ICE Clear Europe
would seek to communicate its plans and intentions to such stakeholders
where possible, and as soon as reasonably practicable.
The procedures for testing of the Plan would be revised to provide
that testing would be conducted at least annually (rather than only
annually). The amendments would further specify that given the number
of recovery options available, one default and one non-default scenario
would be tested each year, and all the recovery options would be tested
over a three year cycle. The testing schedule (and changes to it) would
be approved by, and the results of testing would be reported to, ICEU's
Executive Risk Committee. The proposed changes would also more fully
describe the testing strategy, which includes both physical elements
(such as processing of operational aspects of the Plan in a non-
production environment and governance aspects such as Board engagement)
and simulated tabletop exercises. Testing of default-related recovery
scenarios may also be included in default fire drills, including
coordination with other relevant clearing agencies. Additionally, the
Recovery Plan test would add to the list of issues examined as part of
testing whether all services continue to be provided, including those
to affiliates, and what governance pathways would be used. The
amendment would clarify that any changes resulting from the review of
the Plan after each test would be addressed as part of the defined
governance process included in the Plan.
The proposed amendments would make certain clarifications relating
to the critical services provided by the Clearing House. Certain
updates and corrections are made to the products currently cleared,
including to reference option contracts generally instead of only
options on futures and to reference the IFAD exchange for which
clearing services are provided in the F&O product category. The
amendments also would add an explanatory footnote to distinguish
critical services from certain similar concepts use in the Clearing
House's other policies and frameworks. In the discussion of impacts of
recovery options of market participants, a clarification would be added
that capital and liquidity impacts on market participants would be
taken into account as far as reasonably possible (to reflect certain
practical limitations on the Clearing House's ability to address such
matters).
The service providers supporting the critical services would now
include repo counterparties in addition to investment agents, to
reflect the Clearing House's use of repurchase transactions with such
counterparties. The amendments would also add to the list of such
service providers default brokers, which may be used to execute market
transaction in order to hedge a defaulter's book and/or liquidate non-
cash collateral. Amendments would also reflect that inter-affiliate
arrangements may be documented under intercompany service agreements
rather than outsourcing agreements.
[[Page 48274]]
The amendments would make certain enhancements to the discussion of
how the Clearing House mitigates dependencies on service providers. In
the context of situations where ICE Clear Europe relies on the
existence of multiple, substitutable providers, the amendments would
reflect that ICE Clear Europe regularly tests its assumptions that this
is an effective strategy, as part of its operational resilience
framework. Similarly, where the Clearing House relies on resilience and
redundancy with respect to a provider, it would regularly test these
assumptions under the operational resilience framework. In terms of
contractual protections under arrangements with service providers, the
amendments would state that the Clearing House ensures contracts do not
permit service providers to unduly alter or terminate the contracts (as
opposed to the more limited analysis under the current Plan of whether
alteration or termination would be permitted if ICE Clear Europe were
under financial stress). The updates would also provide for periodic
ongoing analyses of these contracts in the context of the Plan. The
amendments would remove a specific determination that investment
agents, APS banks, central banks and data providers are excluded from
being dependencies on the basis of substitutability; under the revised
Plan such service providers may be subject to the mitigation
arrangements discussed, as appropriate.
The proposed changes would remove certain statements that the
Clearing House does not have a dependency on physical delivery agents,
other ICE exchange or ICE Clearing Houses. Although there are
applicable mitigants in many cases, such relationships may nonetheless
be regarded as dependencies. The amendments would add a provision that
ICE Clear Europe for certain markets regularly tests its ability to
perform the functions of delivery agents under certain disruption
scenarios. The amendments would also clarify certain other testing
practices, including as part of the operational resilience framework,
applicable to relationships with ICE Exchanges and ICE Technology and
Operations Group. For dependencies on other ICE clearing houses, the
revised Plan would note that the relevant processes that ICE Clear
Europe could use in the event of a failure by the other clearing house
are generally already performed by ICE Clear Europe.
In the discussion of technology infrastructure, clarifying
references to CDS and F&O are added to the descriptions of the various
systems to reflect the specific systems currently used for those
businesses. Additionally, the proposed rules would update the list of
certain ways in which risks are mitigated to address periodic testing,
operational resilience, the role of ICE Clear Europe as a participant
in defining requirements in the development of new capabilities, notice
periods under service agreements (not merely outsourcing arrangements),
and other nonsubstantive changes. The revised Plan would also address
certain services that ICE Clear Europe provides to other ICE
affiliates, noting that ICE Clear Europe assumes that such services
will continue to be provided during the execution of the Plan. ICE
Clear Europe believes that in the event of a Plan execution, there will
be relevant resources in place that will allow those services to
continue, particularly for those that are operational in nature or
almost fully automated. Those not fully automated would have backup
arrangements that are periodically tested.
For recovery scenarios and triggers, the amendments would clarify
the trigger for the non-default losses scenario involving the Clearing
House's base capital by defining a breach based on referring to
insufficient EMIR eligible capital. The amendments would clarify that
each stress scenario listed in the appendix would be mapped to key
risks contained in the Clearing House's risk appetite statements, to
ensure that each key risk is covered.
The amendments would reference the Clearing House's existing
operational resilience framework, which encompasses (and supersedes
previous) business continuity and disaster recovery plans and includes
incident management processes. Various references throughout the Plan
to business continuity, disaster recovery or similar matters have been
replaced by references to the operational resilience framework and
related incident management processes.
Additional explanatory language with regards to early warnings for
default and non-default loss scenarios to make consistent with the
Rules. Throughout the Plan, the language has changed to reflect the
name update of the Capital Replenishment Plan to be consistent.
The amendments would also remove from the explanations of the
Plan's design and development certain duplicative information about
coverage of various types of losses that is addressed in other parts of
the Plan. Additionally, the Clearing House would clarify certain
references to the Crisis Communications and Management Plan (which
would be renamed the Communications Plan). Members of each
communications group would be updated to reference relevant personnel,
including adding the President to most communication groups and
adjusting certain other referenced personnel to reflect current
Clearing House operations. In addition, the Plan would address a
contingency in a recovery situation where the President is not
available. Similarly, the references to the Major Incident Response
Plan would be updated to reflect that the plan has been renamed the
Crisis Management Plan. Regarding the scenario steps in a default and
non-default loss, the proposed changes will also make certain minor
changes to timing and notification processes.
The proposed changes would add a new Document Governance and
Exception Handling section that is consistent with other Clearing House
policies. This section would describe the responsibilities for the
document owners in accordance with ICEU's governance processes, as well
as breach management, exception handling, and document governance.
The description of the ICE Clear Europe committee structure in
Appendix A would be removed. ICE Clear Europe believes the structure is
fully defined in other documentation and does not need to be included
in the Plan.
In addition, amendments throughout the Plan would make other minor
non-substantive drafting and conforming changes and typographical
corrections.
(b) Statutory Basis
ICE Clear Europe believes that the proposed amendments to the Plan
are consistent with the requirements of Section 17A of the Securities
Exchange Act of 1934 \4\ (``Act'') and the regulations thereunder
applicable to it. In particular, Section 17A(b)(3)(F) of the Act \5\
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 Plan are intended to make various
updates, enhancements and clarifications to the Plan, including with
regard to the critical service providers and other dependencies of the
Clearing
[[Page 48275]]
House, as well as mitigants for such dependencies. The amendments would
also enhance procedures around testing of the Plan and related default
and non-default scenarios that could lead to the need to implement the
Plan. Other amendments are intended to conform to changes in other ICE
Clear Europe policies and procedures. The amendments would also clarify
certain aspects of the recovery scenarios and procedures as well as
potentially triggering or warning events for losses. Overall, the
amendments would help the Clearing House facilitate an orderly recovery
of its clearing businesses in the event of a severe financial stress or
loss. As a result, in ICE Clear Europe's view, the amendments would be
consistent with the prompt and accurate clearance and settlement of the
contracts, the safeguarding of funds or securities in the custody or
control of the clearing agency or for which it is responsible, and the
protection of investors and the public interest, consistent with the
requirements of Section 17A(b)(3)(F) of the Act.\6\
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\4\ 15 U.S.C. 78q-1.
\5\ 15 U.S.C. 78q-1(b)(3)(F).
\6\ 15 U.S.C. 78q-1(b)(3)(F).
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Rule 17Ad-22(e)(2) provides that ``[e]ach covered clearing agency
shall establish, implement, maintain and enforce written policies and
procedures reasonably designed to, as applicable [. . .] provide for
governance arrangements that are clear and transparent'' \7\ and
``[s]pecify clear and direct lines of responsibility.'' \8\ The
amendments to the Plan would enhance various aspects of the governance
surrounding the implementation, testing and modification of the Plan.
Amendments would more clearly state the procedures for communications
with relevant groups of stakeholders in connection with the Plan, and
take into account the Clearing House's broader Communications Plan and
Crisis Management Plan. They would also clarify certain aspects of the
role of the President and key personnel. In addition, the amendments
would address document governance, breach management and exception
handling, in a manner generally consistent with other ICE Clear Europe
policies. In ICE Clear Europe's view, the amendments are therefore
consistent with the requirements of Rule 17Ad-22(e)(2).\9\
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\7\ 17 CFR 240.17 Ad-22(e)(2)(i).
\8\ 17 CFR 240.17 Ad-22(e)(2)(v).
\9\ 17 CFR 240.17Ad-22(e)(2).
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The proposed amendments are also consistent with Rule 17Ad-
22(e)(3)(ii), which provides that ``[e]ach covered clearing agency
shall establish, implement, maintain and enforce written policies and
procedures reasonably designed to, as applicable [. . .] maintain a
sound risk management framework for comprehensively managing legal,
credit, liquidity, operational, general business, investment, custody,
and other risks that arise in or are borne by the covered clearing
agency, which [. . .] includes plans for the recovery and orderly wind-
down of the covered clearing agency necessitated by credit losses,
liquidity shortfalls, losses from general business risk, or any other
losses . . . .'' \10\ As discussed above, the amendments to the Plan
would update and clarify various aspects of the Recovery Plan,
including to enhance the assessment of critical services and
dependencies in the context of a recovery situation. The amendments
would also clarify various aspects of the triggers for potential
implementation of recovery and recovery options to be used under the
Plan. The amendments would also clarify testing procedures. The
amendments are thus intended to enhance the effectiveness of the Plan
as a means of preparing for the potential of losses, whether from
Clearing Member default or failure or for various other causes, that
could otherwise threaten the continued operation of the Clearing House.
As such, in ICE Clear Europe's view, the amendments are consistent with
the requirements of Rule 17Ad-22(e)(3)(ii).\11\
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\10\ 17 CFR 270.17Ad-22(e)(3)(ii).
\11\ 17 CFR 240.17Ad-22(e)(3)(ii).
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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 proposed
amendments are being adopted to update and clarify the Plan, all of
which relate to the Clearing House's processes for the recovery of the
Clearing House in the unlikely occurrence of significant loss events
that may negatively harm the Clearing House. The amendments do not
involve a change in the Clearing House's Rules or Procedures and will
not affect the rights or obligations of Clearing Members, but instead
address the means in which the Clearing House may use the tools set
forth in its Rules and Procedures in a recovery scenario. ICE Clear
Europe does not believe the amendments would affect in the ordinary
course of business the costs of clearing, the ability of market
participants to access clearing, or the market for clearing services
generally. Therefore, ICE Clear Europe does not believe the proposed
rule change imposes any burden on competition that is inappropriate in
furtherance of the purposes 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 such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
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-2023-020 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-2023-020. 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
[[Page 48276]]
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 a.m. and 3
p.m. Copies of such filings will also be available for inspection and
copying at the principal office of ICE Clear Europe and on ICE Clear
Europe's website at https://www.theice.com/clear-europe/regulation.
Do not include personal identifiable information in submissions;
you should submit only information that you wish to make available
publicly. We may redact in part or withhold entirely from publication
submitted material that is obscene or subject to copyright protection.
All submissions should refer to file number SR-ICEEU-2023-020 and
should be submitted on or before August 16, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\12\
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\12\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-15758 Filed 7-25-23; 8:45 am]
BILLING CODE 8011-01-P
