[Federal Register Volume 82, Number 187 (Thursday, September 28, 2017)]
[Notices]
[Pages 45339-45342]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-20750]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81680; File No. SR-ICEEU-2017-010]


Self-Regulatory Organizations; ICE Clear Europe Limited; Notice 
of Filing and Order Granting Accelerated Approval of a Proposed Rule 
Change Relating to Amendments to the ICE Clear Europe CDS Risk Policy

September 22, 2017.
    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 September 15, 2017, ICE Clear Europe Limited (``ICE Clear Europe'') 
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 by ICE Clear Europe. The Commission is 
publishing this notice and order to solicit comments on the proposed 
rule change from interested persons and to approve the proposed rule 
change on an accelerated basis.
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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 rule change is to amend ICE 
Clear Europe's CDS Risk Policy relating to portfolio margining, as 
described below, to comply with Article 27 of Commission Delegated 
Regulation (EU) No. 153/2013 \3\ (the ``Portfolio Margining 
Limitation'').
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    \3\ Commission Delegated Regulation (EU) No. 153/2013 dated 23 
February 2013.
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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 III 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 proposes to adopt amendments to the CDS Risk 
Policy relating to portfolio margining. The changes discussed herein 
apply to all cleared credit default swap (``CDS'') products.
    The amendments are intended to comply with the Portfolio Margining 
Limitation implementing the European Market Infrastructure Regulation 
(``EMIR''),\4\ which requires that where portfolio margining covers 
multiple different instruments, the amount of margin reduction that the 
clearing house may offer can be no greater than 80% of the difference 
between the sum of the margins for each product calculated on an 
individual basis and the margin calculated based on a estimation of the 
exposure for the combined portfolio. By contrast, where the margin 
reduction relates to positions in the same instrument, the clearing 
house may apply a margin reduction of up to 100% of that difference. 
The European Securities and Markets Authority (``ESMA''), the competent 
authority with respect to this requirement under EMIR, has issued an 
opinion interpreting this requirement in the context of CDS to provide 
\5\ that (i) credit derivatives on different underlying names or 
indexes (including two series of the same index) should be considered 
different products; and (ii) credit derivatives on the same underlying 
name or index with different maturities or coupons may be considered as 
the same product. According to ICE Clear Europe, the effect of this is 
to require that credit derivatives on different index series of the 
same index family be considered different instruments under the 
Portfolio Margining Limitation and that therefore portfolio margining 
for such instruments must be limited to 80% of the gross margins.
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    \4\ Regulation (EU) No. 648/2012 of the European Parliament and 
of the Council of 4 July 2012 on OTC derivatives, central 
counterparties and trade repositories.
    \5\ Section 3.1.2.C of the ESMA Opinion On Portfolio Margining 
Requirements under Article 27 of Commission Delegated Regulation 
(EU) No. 153/2013 dated 10 April 2017 (the ``ESMA Opinion'').
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    To implement the Portfolio Margining Limitation, ICE Clear Europe 
is amending its CDS Risk Policy such that when calculating the spread 
response charge (which provides portfolio margin

[[Page 45340]]

reductions across a variety of correlated positions, including 
positions in different series of the same index), the 99.5% Value-at-
Risk (``VaR'') Monte Carlo (``MC'') benchmark \6\ used in the 
calculation will have a minimum amount equal to 20% of the portfolio 
gross 99.5% MC VaR requirements. The gross requirement is defined for 
this purpose as the sum of the requirements at risk factor level for 
single names (for single-name CDS) and index series level (for index 
CDS) (i.e., without portfolio margin offsets across such products). ICE 
Clear Europe is required to implement the Portfolio Margining 
Limitation by September 30, 2017.
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    \6\ The 99.5% VaR MC benchmark serves as a minimum initial 
margin level.
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(b) Statutory Basis
    ICE Clear Europe believes that the proposed amendments are 
consistent with the requirements of Section 17A of the Act \7\ and the 
regulations thereunder applicable to it, including the standards under 
Rule 17Ad-22.\8\ Section 17A(b)(3)(F) of the Act \9\ 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. 
In addition, Rule 17Ad-22(b)(2) \10\ requires that a registered 
clearing agency that performs central counterparty services establish, 
implement, maintain and enforce written policies and procedures 
reasonably designed to use margin requirements to limit its credit 
exposures to participants under normal market conditions and use risk-
based models and parameters to set margin requirements. Furthermore, 
Rule 17Ad-22(e)(6)(v) \11\ requires that each covered clearing agency 
establish, implement, maintain and enforce written policies and 
procedures reasonably designed to cover, if the covered clearing agency 
provides central counterparty services, its credit exposures to its 
participants by establishing a risk-based margin system that, at a 
minimum uses an appropriate method for measuring credit exposure that 
accounts for relevant product risk factors and portfolio effects across 
products.
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    \7\ 15 U.S.C. 78q-1.
    \8\ 17 CFR 240.17Ad-22.
    \9\ 15 U.S.C. 78q-1(b)(3)(F).
    \10\ 17 CFR 240.17Ad-22(b)(2).
    \11\ 17 CFR 240.17Ad-22(e)(6)(v).
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    The proposed amendments to the CDS Risk Policy would apply a 20% 
floor to the 99.5% VaR MC aspect of ICE Clear Credit's spread response 
margin component calculation, based on the gross margin requirement 
without portfolio offsets. The amendments are being made in order to 
comply with the Portfolio Margin Limitation imposed under EMIR, as set 
out in the ESMA Opinion, and may in some cases result in higher initial 
margin requirements for market participants. ICE Clear Europe believes 
that the amended requirement (as with the current methodology) 
represents an appropriate risk-based margin framework to take into 
account portfolio risk reduction and related portfolio effects in a 
manner that will continue to enable the clearing house to mitigate the 
risk of clearing member default. In ICE Clear Europe's view, the 
amendments are therefore consistent with the requirements of the Act 
and Commission regulations set forth above.

(B) Clearing Agency's Statement on Burden on Competition

    ICE Clear Europe does not believe the proposed rule changes would 
have any impact, or impose any burden, on competition not necessary or 
appropriate in furtherance of the purposes of the Act. The changes are 
being proposed in order to implement that Portfolio Margining 
Limitation under EMIR. The amendments will affect all CDS Clearing 
Members and CDS market participants. ICE Clear Europe does not believe 
the amendments will impact competition among CDS Clearing Members or 
other market participants, or affect the ability of market participants 
to access clearing generally. As noted above, the amendments may 
increase initial margin requirements with respect to some portfolios, 
because of the limitation on margin reductions as compared to the 
current methodology. Although this may affect the cost of clearing for 
some market participants, any increased costs will reflect the 
requirements imposed under the EMIR Portfolio Margining Limitation and 
the risk management benefits for the clearing house that are designed 
to be obtained through the Portfolio Margining Limitation. As a result, 
ICE Clear Europe believes that any impact on competition is appropriate 
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 comments received with respect to the proposed 
rule change.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, security-based swap submission or advance notice 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#354740595018565a5858505b4146754650561b525a43"><span class="__cf_email__" data-cfemail="146661787139777b7979717a6067546771773a737b62">[email protected]</span></a>. Please include 
File Number SR-ICEEU-2017-010 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-2017-010. 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 Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change, security-
based swap submission or advance notice that are filed with the 
Commission, and all written communications relating to the proposed 
rule change, security-based swap submission or advance notice 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 Web site 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 Web site at https://www.theice.com/notices/Notices.shtml?regulatoryFilings.
    All comments received will be posted without change; the Commission 
does not edit personal identifying information from submissions. You 
should submit only information that

[[Page 45341]]

you wish to make available publicly. All submissions should refer to 
File Number SR-ICEEU-2017-010 and should be submitted on or before 
October 19, 2017.

IV. Commission's Findings and Order Granting Accelerated Approval of 
the Proposed Rule Change

    Section 19(b)(2)(C) of the Act \12\ 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 Exchange Act and the rules and regulations 
thereunder applicable to such organization. Section 17A(b)(3)(F) of the 
Act \13\ requires, among other things, that the rules of a clearing 
agency be designed to assure the safeguarding of securities and funds 
which are in the custody or control of the clearing agency or for which 
it is responsible and, in general, to protect investors and the public 
interest. Rule 17Ad-22(b)(2) \14\ requires that a registered clearing 
agency that performs central counterparty services establish, 
implement, maintain and enforce written policies and procedures 
reasonably designed to use margin requirements to limit its credit 
exposures to participants under normal market conditions and use risk-
based models and parameters to set margin requirements. Furthermore, 
Rule 17Ad-22(e)(6)(v) \15\ requires that each covered clearing agency 
establish, implement, maintain and enforce written policies and 
procedures reasonably designed to cover, if the covered clearing agency 
provides central counterparty services, its credit exposures to its 
participants by establishing a risk-based margin system that, at a 
minimum uses an appropriate method for measuring credit exposure that 
accounts for relevant product risk factors and portfolio effects across 
products.
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    \12\ 15 U.S.C. 78s(b)(2)(C).
    \13\ 15 U.S.C. 78q-1(b)(3)(F).
    \14\ 17 CFR 240.17Ad-22(b)(2).
    \15\ 17 CFR 240.17Ad-22(e)(6)(v).
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    The Commission finds that the proposed rule change is consistent 
with Section 17A of the Act and the relevant rules thereunder.\16\ The 
proposed rule change is designed to comply with the Portfolio Margining 
Limitation of Article 27 of Commission Delegated Regulation (EU) No. 
153/2013.\17\ As interpreted by ESMA, this limitation will not permit 
complete margin offsets between different cleared instruments, which in 
the CDS context means CDS with different reference entities, including 
different versions of the same index. Instead, any margin reductions 
resulting from the portfolio margining of different CDS instruments 
must be limited to 80% of the difference between the sum of the margins 
for each instrument calculated on an individual basis and the margin 
calculated based on a combined estimation of the exposure for the 
combined portfolio. Margin reductions from portfolio margining of the 
same CDS instruments, i.e. on the same underlying name or index, even 
with different maturities or coupons, can be applied without 
limitation. ICE Clear Europe has chosen to implement this requirement 
by limiting the margin reductions calculated from the 99.5% VaR MC 
aspect of its spread response methodology to 20% of the gross margin 
requirement without portfolio offsets.
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    \16\ 15 U.S.C. 78q-1.
    \17\ Commission Delegated Regulation (EU) No. 153/2013 dated 23 
February 2013.
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    The Commission has reviewed the proposed rule change, including the 
changes to ICE Clear Europe's policies and procedures, as well as data 
on the estimated impact of the proposed rule change on margin 
requirements. Based on this review, the Commission finds that the 
proposed rule change is designed to implement a more conservative 
approach to portfolio margining reductions than under ICE Clear 
Europe's existing spread response calculation methodology and is 
therefore consistent with assuring the safeguarding of securities and 
funds which are in the custody or control of the clearing agency or for 
which it is responsible. The approach is risk-based and does not impose 
unduly conservative margin requirements that would impose a burden on 
competition not necessary or appropriate in furtherance of the purposes 
of the Exchange Act.\18\
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    \18\ See 15 U.S.C. 78q-1(b)(3)(I).
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    For the same reasons, the Commission further finds that the 
proposed rule change is consistent with Rule 17Ad-22(b)(2),\19\ in that 
any additional margin collected based on this more conservative 
approach should support ICE Clear Europe's risk management functions 
and ability to limit its credit exposures, consistent with Rule 17Ad-
22(b)(2).\20\
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    \19\ 17 CFR 240.17Ad-22(b)(2).
    \20\ 17 CFR 240.17Ad-22(b)(2).
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    Similarly, the Commission further finds that the proposed rule 
change is consistent with Rule 17Ad-22(e)(6)(v).\21\ The proposed rule 
change does not eliminate portfolio margin reductions. The proposed 
rule change allows for portfolio margin reductions of 100% where the 
margin reduction relates to positions in the same instrument. Where the 
portfolio margining covers multiple different instruments, the proposed 
rule change limits the margin reduction to no greater than 80%, 
consistent with EMIR. The Commission finds that this is a reasonably 
designed method for measuring credit exposure that accounts for 
relevant product risk factors and portfolio effects across different 
products consistent with Rule 17Ad-22(e)(6)(v).\22\
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    \21\ 17 CFR 240.17Ad-22(e)(6)(v).
    \22\ 17 CFR 240.17Ad-22(e)(6)(v).
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    In its filing, ICE Clear Europe requested that the Commission grant 
accelerated approval of the proposed rule change pursuant to Section 
19(b)(2)(C)(iii) of the Exchange Act.\23\ Under Section 
19(b)(2)(C)(iii) of the Act,\24\ the Commission may grant accelerated 
approval of a proposed rule change if the Commission finds good cause 
for doing so. ICE Clear Europe believes that accelerated approval is 
warranted because the proposed rule change is required as of September 
30, 2017 in order to comply with the Portfolio Margin Limitation under 
EMIR, as interpreted by ESMA.
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    \23\ 15 U.S.C. 78s(b)(2)(C)(iii).
    \24\ 15 U.S.C. 78s(b)(2)(C)(iii).
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    The Commission finds good cause, pursuant to Section 
19(b)(2)(C)(iii) of the Act,\25\ for approving the proposed rule change 
on an accelerated basis, prior to the 30th day after the date of 
publication of notice in the Federal Register, because the proposed 
rule change is required as of September 30, 2017 in order to comply 
with EMIR.
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    \25\ 15 U.S.C. 78s(b)(2)(C)(iii).
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V. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposal is consistent with the requirements of the Act and in 
particular with the requirements of Section 17A of the Act \26\ and the 
rules and regulations thereunder.
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    \26\ 15 U.S.C. 78q-1.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\27\ that the proposed rule change (File No. SR-ICEEU-2017-010) be, 
and hereby is, approved on an accelerated basis.\28\
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    \27\ 15 U.S.C. 78s(b)(2).
    \28\ 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).


[[Page 45342]]


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    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-20750 Filed 9-27-17; 8:45 am]
BILLING CODE 8011-01-P


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