[Federal Register Volume 86, Number 1 (Monday, January 4, 2021)]
[Notices]
[Pages 169-172]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-29023]



[[Page 169]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90806; File No. SR-ICEEU-2020-018)]


Self-Regulatory Organizations; ICE Clear Europe Limited; Notice 
of Filing of Proposed Rule Change Relating to Amendments to the ICE 
Clear Europe CDS Procedures and CDS Default Management Policy

December 28, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on December 14, 2020, ICE Clear Europe Limited (``ICE Clear Europe'' or 
the ``Clearing House'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule changes described in 
Items I, II, and III below, which Items have been prepared primarily by 
ICE Clear Europe. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The principal purpose of the proposed amendments is for ICE Clear 
Europe to modify its CDS Procedures (the ``CDS Procedures'' or the 
``Procedures'') to update the requirements for a Clearing Member to be 
approved to be a CDS Committee-Eligible Clearing Member for purposes of 
the CDS Default Committee, as well as certain other updates and 
clarifications, and to modify its CDS Default Management Policy (the 
``CDS Default Management Policy'' or ``Policy'') to make corresponding 
updates to the requirements for a Clearing Member to be eligible to 
serve on the CDS Default Committee, as well as to provide more detail 
with respect to review and testing of its default procedures, remove 
appendices and make certain other updates and clarifications to be 
consistent with other ICE Clear Europe policies.

II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    In its filing with the Commission, ICE Clear Europe included 
statements concerning the purpose of and basis for the proposed rule 
change and discussed any comments it received on the proposed rule 
change. The text of these statements may be examined at the places 
specified in Item IV below. ICE Clear Europe has prepared summaries, 
set forth in sections (A), (B), and (C) below, of the most significant 
aspects of such statements.

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change, Security-Based Swap Submission or 
Advance Notice

(a) Purpose
    ICE Clear Europe is proposing to amend its CDS Procedures as to the 
following: (i) The requirements for a Clearing Member to be approved to 
be a CDS Committee-Eligible Clearing Member, (ii) the courses of action 
for the Clearing House if a CDS Committee-Eligible Clearing Member is 
unable to take part in the CDS Default Committee for the Relevant CDS 
Default Committee Period for which it is due to take part, (iii) the 
confidentiality obligations of CDS Default Committee Members and CDS 
Default Committee Participants and the limitations on liability 
applicable to such persons, (iv) timing requirements with respect to 
the submission of CDS Trade Particulars and (v) various drafting 
clarifications and improvements. ICE Clear Europe is also proposing to 
update the CDS Default Management Policy which would provide further 
detail with respect to the requirements for a Clearing Member to be 
Committee-Eligible for purposes of serving on the CDS Default 
Committee, and to make various drafting clarifications and 
improvements, as consistent with the proposed updates to the 
Procedures.
I. CDS Procedures
General Drafting Clarifications and Improvements
    The amendments to the Procedures would clarify that the term ``CDS 
Committee-Eligible Clearing Members'' must be approved in accordance 
with paragraph 5.2 of the Procedures and continue to meet the criteria 
of such Paragraph. As described below, paragraph 5.2, as proposed to be 
amended, would specify in detail the requirements for a Clearing Member 
to be approved to be a CDS Committee-Eligible Clearing Member.
Submission and Acceptance of CDS Contracts
    The amendments would revise paragraph 4.4 of the Procedures, which 
describes the timing requirements for submitting CDS Trade Particulars, 
to clarify that with respect to CDS Trade Particulars submitted after 
6:00 p.m. on a Business Day or on a day that is not a Business Day, 
unless a revocation right exists and is exercised or unless otherwise 
stated in circular, among other existing exceptions, such CDS Trade 
Particulars would be deemed to have been submitted at 8:00 a.m. on the 
following Business Day. Furthermore, the Procedures would provide that 
if the Trade Date specified in the CDS Trade Particulars is not a 
Business Day, then the relevant CDS Trade Particulars would be 
rejected. This reflects current Clearing House practice.
CDS Default Committee
    The amendments to the Procedures in paragraph 5 would update the 
requirements for a Clearing Member to be approved to be a CDS 
Committee-Eligible Clearing Member. Pursuant to paragraph 5.2, as 
proposed to be amended, the Clearing Member would need to meet the 
following conditions in order to be eligible: (a) In the event that it 
has one or more Affiliates that are CDS Clearing Members, it has the 
longest period of membership of the Clearing House among such 
Affiliates; (b) it has a London-based CDS trading desk; and (c) it is 
deemed appropriate to be a CDS Default Committee Member by the Clearing 
House at its discretion. The Clearing House would maintain a list of 
all CDS Committee-Eligible Clearing Members. The procedure for 
maintaining the CDS Default Committee Participant List (including 
adding CDS Clearing Members to, removing CDS Clearing Members from or 
changing the order of Clearing Members on the CDS Default Committee 
Participant List) would be determined from time to time by the Clearing 
House at its discretion. (Certain such matters would be addressed in 
further detail in the Policy, as discussed below.) CDS Clearing Members 
would be able to provide information of relevance to the Clearing House 
with respect to their own inclusion or omission or order on the list, 
but such information would not be binding on the Clearing House. 
Additionally, the Procedures would state that ICE Clear Europe may also 
share the CDS Default Committee Participant List with any other 
clearing organization.
    Amendments to paragraph 5.3 would add that if a CDS Committee-
Eligible Clearing Member considers that it is unable to take part in 
the CDS Default Committee for the Relevant CDS Default Committee Period 
for which it is due to take part, it may request to postpone its 
participation for that period. ICE Clear Europe could, at its 
discretion, approve such request and, if so, the following events would 
take place: (a) That CDS Committee-Eligible Clearing Member would be 
listed so as to take part in the

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CDS Default Committee for the next Relevant CDS Default Committee 
Period as one of the three CDS Default Committee Participants; and (b) 
one of the next three CDS Committee-Eligible Clearing Members on the 
CDS Default Committee Participant List would be selected by the 
Clearing House at its discretion to take part in the CDS Default 
Committee during that Relevant CDS Default Committee Period. The CDS 
Default Committee Participant List would be amended accordingly. 
Certain other drafting clarifications are made to paragraph 5.3.
    Paragraph 5.4 would be amended to add that if a CDS Clearing Member 
becomes a defaulter or is suspended or receives a termination notice 
with respect to its Clearing Membership, it would be removed from the 
CDS Default Committee Participant List. Paragraphs 5.4 and 5.5 would be 
amended to clarify that the CDS Default Committee Participant List 
would be amended to take into account any Clearing Member that becomes 
(or resumes being) a CDS Committee-Eligible Clearing Member or is 
removed from being a CDS Default Committee Participant because the 
Clearing House determines that such Clearing Member has a conflict or 
lacks impartiality.
    The amendments in paragraph 5.6 would also provide that the 
Clearing House would give notice that, since CDS Default Committee 
Members and CDS Default Committee Participants act as part of the 
governance of ICE Clear Europe, such CDS Default Committee Members and 
CDS Default Committee Participants would take the benefit of all 
exclusions and limitations of liability available to the Clearing House 
under the Rules or Applicable Laws. The change is intended to make the 
exclusions and limitations on liability for such persons consistent 
with those generally applicable to Clearing House governance process.
    The amendments in paragraph 5.8 would provide that CDS Clearing 
Members agree and acknowledge that each CDS Default Committee Members 
and CDS Default Committee Participant (each a ``Covered Party'') would 
be subject to the provisions of Rule 106 (regarding confidentiality of 
information received and permitted disclosures) as if it were the 
Clearing House. Furthermore, each CDS Clearing Member would be required 
to ensure that each such Covered Party nominated by it would not use 
any Confidential Material for its own benefit or the benefit of any of 
its Affiliates and, if so requested by the Clearing House, would 
execute any documentation specified by the Clearing House acknowledging 
the same. The procedures that would apply in the event a Covered Party 
is served with or otherwise subject to legal process have been removed 
as unnecessary in light of the referenced provisions of Rule 106. 
Paragraph 5.9 would be amended to clarify that each CDS Clearing Member 
agrees that each Covered Party would be responsible for its own costs 
associated with its service in such position.
II. CDS Default Management Policy
General Drafting Clarifications and Improvements
    By way of general drafting clarifications and improvements, the 
amendments to the Policy would remove Appendices A and B, which contain 
various forms of notice and examples, as well as references thereto. In 
ICE Clear Europe's view, these appendices do not need to be included in 
the Policy and, to the extent they remain relevant, forms of notice can 
be maintained by the Clearing House separately. Certain terminology 
would be updated throughout the Policy as follows: (i) The term, 
Employee, would be updated to Eligible Employee; and (ii) the terms, 
Defaulting Clearing Member or Defaulting Member, would be updated to 
defaulter in certain instances in order to avoid repetition and aid 
with readability. Certain provisions relating to the Clearing House 
ceasing to clear new trades for a Defaulting Clearing Member would be 
moved and reorganized.
CDS Default Committee Activation
    Consistent with the changes described above to the CDS Procedures, 
the Policy would be amended to provide that a Clearing Member would 
only be defined as Committee-Eligible, hereby permitting such Clearing 
Member to be a CDS Default Committee Participant, if such Clearing 
Member (i) is deemed appropriate by the Clearing House, (ii) is the 
primary clearing entity of an affiliate group, and (iii) has a London 
based trading desk. The Policy would also clarify that the Clearing 
House maintains a list of all CDS Committee-Eligible Clearing Members 
and that the relevant term for the committee (``Relevant CDS Default 
Committee Period'') is six calendar months or until the end of any 
active Default event.
    In addition, the Policy would provide that in the event that a CDS 
Default Committee Participant is unable to fulfill its upcoming 
rotation obligation for any reason including serving in the CDS Default 
Committee of another clearing house, such CDS Default Committee 
Participant would have the option to request to postpone their Relevant 
CDS Default Committee for a Relevant CDS Default Committee Period. If 
the Clearing House finds the reason for postponement satisfactory, the 
CDS Default Committee Participant would be substituted for a CDS 
Committee-Eligible Clearing Member from the next three members on the 
CDS Default Committee Participant List. Prior to commencement of a 
rotation, CDS Default Committee Members would be required to have 
signed all documentation required by the Clearing House (including but 
not limited to a Seconded Trader Agreement), and the Clearing House 
would use reasonable efforts to ensure that such requirement is 
enforced.
    The amendments would also clarify that CDS Default Committee 
Members would be responsible for assisting in executing any CDS 
transactions (with respect to Rules 902 or 903 in CDS only) on behalf 
of the Clearing House only if needed. Under the Committee Activation 
Procedures section, the procedure for use of an alternate CDS Default 
Committee Member contact would be revised to refer generally to a 
situation where the designated primary representative cannot be reached 
in a reasonable amount of time, and remove specific examples of reasons 
a member could not be reached.
Secondment Facilities
    The amendments would clarify that upon arrival at the ICE Clear 
Europe offices, each CDS Default Committee Member would be assigned a 
PC with the ICE Clear Europe risk reports concerning the defaulter's 
portfolio and a third-party data provider application. References to 
how the CDS Default Committee Member would be able to login to the PC 
and view certain information sent to ICE Clear Europe by the non-
defaulting Clearing Members would be removed as unnecessary. The 
amendments would also clarify that CDS Default Committee Members would 
only execute the hedging and liquidating transactions that the Head of 
Clearing Risk and the team deem necessary.
Confidentiality
    The amendments would remove the requirement that seconded traders 
sign an additional confidentiality agreement pertaining to their role 
within a given member default (as ICE Clear Europe believes the 
existing single secondment agreement is sufficient). Instead, the 
Policy would provide that CDS Default Committee Members would be 
reminded of ongoing confidentiality

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obligations by the ICE Clear Europe Compliance department.
Auction Process and Results
    The amendments would provide that details of the auction and 
relevant position data will be made available through the ICE Default 
Management System, consistent with the ICE Clear Europe auction 
procedures. The amendments would also clarify that following the close 
of an auction for sub-portfolio, the Clearing House would publish the 
new trades to be booked to the winning bidders through the ICE Default 
Management System. The Clearing House would no longer notify the point 
of contact for the winning bidders verbally. The change is intended to 
conform to the ICE Clear Europe auction procedures.
Default Management Testing
    The amendments would provide additional detail with respect to 
default management testing. Specifically, pursuant to the amendments, 
the Policy would state that the Clearing House would test and review 
its default procedures at least quarterly and perform simulation 
exercises at least annually. The default test would be conducted in 
coordination with Clearing Members by engaging all the internal and 
external stakeholders that would be involved in the default management 
process (for example, the Clearing Risk Department, ICE Clear Europe 
Senior Management Team, CDS Default Committee Members, regulators, 
etc.). Each default test would be planned in accordance with the ICE 
Clear Europe Multi-Years Default Plan, which would list several 
different default scenarios that would need to be tested by the 
Clearing House on a regular basis. The ICE Clear Europe Senior 
Management Team would be responsible for approving the scope of the 
annual default test by choosing different scenarios outlined in the 
Plan. The Plan and changes to it would need to be approved by the 
Executive Risk Committee.
(b) Statutory Basis
    ICE Clear Europe believes that the proposed amendments to the CDS 
Default Management Policy and the CDS Procedures are consistent with 
the requirements of Section 17A of the Act \3\ and the regulations 
thereunder applicable to it. In particular, Section 17A(b)(3)(F) of the 
Act \4\ requires, among other things, that the rules of a clearing 
agency be designed to promote the prompt and accurate clearance and 
settlement of securities transactions and, to the extent applicable, 
derivative agreements, contracts, and transactions, the safeguarding of 
securities and funds in the custody or control of the clearing agency 
or for which it is responsible, and the protection of investors and the 
public interest.
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    \3\ 15 U.S.C. 78q-1.
    \4\ 15 U.S.C. 78q-1(b)(3)(F).
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    The proposed changes to the CDS Procedures and CDS Default 
Management Policy are designed to strengthen ICE Clear Europe's tools 
to manage Clearing Member defaults with respect to CDS contracts. The 
CDS Default Committee, which relies on seconded representatives of 
Clearing Members, is a key aspect of the Clearing House's procedures 
for addressing Clearing Member defaults, including by facilitating the 
ability of the Clearing House to hedge or liquidate positions of the 
defaulter. The amendments would update and clarify the requirements for 
a Clearing Member to be eligible to serve on the CDS Default Committee 
as well as clarify the procedures to be used by the CDS Default 
Committee if such Clearing Member is unable to fulfill its upcoming 
rotation obligation. The clarifications and other changes to the Policy 
and Procedures enhance readability and ensure that the Policy and 
Procedures remain clear and up-to-date. Through better managing risks 
in default scenarios and promoting market stability, the proposed 
amendments promote the stability of the clearing house and the prompt 
and accurate clearance and settlement of cleared contracts. The 
enhanced risk management is therefore also generally consistent with 
the protection of investors and the public interest in the safe 
operation of the Clearing House. (ICE Clear Europe would not expect the 
amendments to affect the safeguarding of securities and funds in ICE 
Clear Europe's custody or control or for which it is responsible.) 
Accordingly, the amendments satisfy the requirements of Section 
17A(b)(3)(F).\5\
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    \5\ 15 U.S.C. 78q-1(b)(3)(F).
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    In addition, ICE Clear Europe believes the amendments satisfy Rule 
17Ad-22(e)(13),\6\ which requires the covered clearing agency to ensure 
that it ``has the authority and operational capacity to take timely 
action to contain losses and liquidity demands and continue to meet its 
obligations by, at a minimum, requiring the covered clearing agency's 
participants and, when practicable, other stakeholders to participate 
in the testing and review of its default procedures, including any 
close-out procedures, at least annually.'' As discussed above, the 
proposed amendments would enhance ICE Clear Europe's default management 
capabilities. Specifically, ICE Clear Europe believes that the updated, 
and more clearly defined requirements for Clearing Members to become 
eligible to participate in the CDS Default Committee will better ensure 
that the committee is staffed with appropriate representatives. The 
other amendments better ensure that such members have appropriate 
resources for their role on the committee working and that there is a 
process in place should a member need to delay the start of its tenure 
on the committee for permissible reasons. Amendments to the Policy 
would also ensure that the Clearing House review its default procedures 
at least quarterly and perform simulation exercises at least annually 
and that such tests would be conducted in coordination with Clearing 
Members as well as the internal and external stakeholders involved in 
the default management process. The amendments overall strengthen ICE 
Clear Europe's ability to contain losses in a manner consistent with 
the requirements of Rule 17Ad-22(e)(13).\7\
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    \6\ 17 CFR 240.17Ad-22(e)(13).
    \7\ 17 CFR 240.17Ad-22(e)(13).
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    Rule 17Ad-22(e)(3)(i) \8\ requires clearing agencies to maintain a 
sound risk management framework that identifies, measures, monitors and 
manages the range of risks that it faces. The amendments to the CDS 
Default Management Policy and the CDS Procedures are intended to update 
and state more clearly the criteria for representation on the CDS 
Default Committee and provide for enhanced review and testing of the 
default management processes. The amendments will thus strengthen the 
management of default risks, and risk management more generally. In ICE 
Clear Europe's view, the amendments are therefore consistent with the 
requirements of Rule 17Ad-22(e)(3)(i).\9\
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    \8\ 17 CFR 240.17 Ad-22(e)(3)(i).
    \9\ 17 CFR 240.17 Ad-22(e)(3)(i).
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(B) Clearing Agency's Statement on Burden on Competition

    ICE Clear Europe does not believe the proposed amendments would 
have any impact, or impose any burden, on competition not necessary or 
appropriate in furtherance of the purposes of the Act. The amendments 
are being adopted to update and clarify the ICE Clear Europe CDS 
Default Management Policy and ICE Clear Europe CDS Procedures and will 
apply to all CDS Clearing Members. ICE Clear Europe does not expect 
that the proposed changes will adversely affect

[[Page 172]]

access to clearing or the ability of Clearing Members, their customers 
or other market participants to continue to clear contracts. ICE Clear 
Europe also does not believe the amendments would materially affect the 
cost of clearing or otherwise impact competition among CDS Clearing 
Members or other market participants or limit market participants' 
choices for selecting clearing services. Accordingly, ICE Clear Europe 
does not believe the amendments would impose any burden on competition 
not necessary or appropriate in furtherance of the purpose of the Act.

(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants or Others

    Written comments relating to the proposed amendments have not been 
solicited or received by ICE Clear Europe. ICE Clear Europe will notify 
the Commission of any written comments received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.
    The proposal shall not take effect until all regulatory actions 
required with respect to the proposal are completed.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

    <bullet> Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml) or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#5022253c357d333f3d3d353e2423102335337e373f26"><span class="__cf_email__" data-cfemail="c6b4b3aaa3eba5a9ababa3a8b2b586b5a3a5e8a1a9b0">[email protected]</span></a>. Please include 
File Number SR-ICEEU-2020-018 on the subject line.

Paper Comments

    <bullet> Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-ICEEU-2020-018. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of such filings will also be available for inspection 
and copying at the principal office of ICE Clear Europe and on ICE 
Clear Europe's website at https://www.theice.com/notices/Notices.shtml?regulatoryFilings.
    All comments received will be posted without change. Persons 
submitting comments are cautioned that we do not redact or edit 
personal identifying information from comment submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-ICEEU-2020-018 and should be 
submitted on or before January 25, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-29023 Filed 12-31-20; 8:45 am]
BILLING CODE 8011-01-P


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