Document ID: SEC-2022-0168-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: ICE Clear Europe, Ltd.
Posted Date: 2022-02-02T05:00Z

[Federal Register Volume 87, Number 22 (Wednesday, February 2, 2022)]
[Notices]
[Pages 5878-5881]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-02078]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94079; File No. SR-ICEEU-2022-002]

Self-Regulatory Organizations; ICE Clear Europe Limited; Notice 
of Filing and Immediate Effectiveness of Proposed Rule Change Relating 
to Amendments to the ICE Clear Europe Delivery Procedures

January 27, 2022.
    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 January 18, 2022, 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. ICE Clear Europe filed the proposed rule change 
pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(4)(ii) 
thereunder,\4\ such that the proposed rule change was immediately 
effective upon filing with the Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(4)(ii).
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    (a) The principal purpose of the proposed amendments is for ICE 
Clear Europe to amend its Delivery Procedures (``Delivery Procedures'') 
on the basis of certain settlement discipline requirements under the 
European Union's Central Securities Depositories Regulation \5\ (the 
``CSDR'') and Settlement Discipline Regulatory Technical Standards \6\ 
(the ``RTS''). These requirements are set to come into force on 1 
February 2022.\7\ A copy of the proposed amendments to the Delivery 
Procedures is attached [sic] as Exhibit 5.
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    \5\ Regulation (EU) 909/2014 of the European Parliament and of 
the Council of 23 July 2014 on improving securities settlement in 
the European Union and on central securities depositories and 
amending Directives 98/26/EC and 2014/65/EU and Regulation (EU) No 
236/2012.
    \6\ Commission Delegated Regulation (EU) 2018/1229 of 25 May 
2018 supplementing Regulation (EU) No 909/2014 of the European 
Parliament and of the Council with regard to regulatory technical 
standards on settlement discipline.
    \7\ Capitalized terms used but not defined herein have the 
meanings specified in the Delivery Procedures 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 Delivery Procedures due 
to new settlement discipline requirements contained in the CSDR and 
RTS, which take effect on 1 February 2022. The settlement discipline 
requirements, which include settlement failure reporting and cash 
penalties for settlement failures, would impose certain requirements on 
ICE Clear Europe as a central counterparty and market participant in 
its interaction with EU-based settlement facilities. Specifically, the 
requirements apply to securities that the Clearing House settles on a 
European Union (``EU'') central securities depository (``CSD'') under 
F&O Contracts that are equity or bond futures and options, where the 
underlying is traded on an EU trading venue or cleared by another EU-
based CCP.
    The settlement discipline requirements that will come into effect

[[Page 5879]]

on 1 February 2022 will include settlement failure reporting and cash 
penalties for settlement failures.\8\ In the context of ICE Clear 
Europe, the requirements will apply with respect to Euro-Denominated 
Government Bond Futures and Options Contracts (covered in Part W of the 
Delivery Procedures) and Financials & Softs Equity Futures and Options 
(covered in Part Z of the Delivery Procedures), where the underlying 
deliverable is listed on an EU exchange or cleared via an EU CCP and 
settlement occurs through an EU settlement system.\9\
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    \8\ Although the CSDR and RTS provide for additional settlement 
discipline measures, including certain mandatory buy-in 
requirements, relevant EU authorities have indicated that the entry 
into force of such provisions will be delayed. See press statement 
from the European Commission dated 25 November 2021, available here: 
https://ec.europa.eu/commission/presscorner/detail/en/mex_21_6293.
    The European Securities and Markets Authorities (``ESMA'') 
issued a public statement which notes that although the legislators 
have agreed upon an amendment to the CSDR that could give effect to 
the delay described in the foregoing paragraph, it is anticipated 
that this will not enter into force prior to the settlement 
discipline rules becoming applicable on 1 February 2022. Given this 
situation, ESMA has indicated that it expects national regulators to 
not prioritize supervisory actions in relation to the buy-in regime. 
ESMA, Public Statement, Supervisory approach on the implementation 
of the CSDR buy-in provisions, 17 December 2021, ESMA70-156-5153.
     A number of major trade associations have also issued a public 
statement confirming that in their view EU legislators do not expect 
market participants to take further action towards implementation of 
the mandatory buy-in requirements, but that other CSDR settlement 
discipline measures will be implemented by 1 February 2022. Joint 
Statement, Industry Approach to CSDR Settlement Discipline Regime 
dated 22 December 2021, available here: https://www.afme.eu/Portals/0/DispatchFeaturedImages/Industry%20Approach%20to%20CSDR%20Settlement%20Discipline%20Regime%20FINAL%2022122021.pdf.
     Accordingly, ICE Clear Europe is not proposing to make 
amendments to its Delivery Procedures with respect to the CSDR buy-
in regime at this time.
    \9\ Although the UK has adopted some aspects of the CSDR under 
the European Union (Withdrawal) Act 2018, none of the EU settlement 
discipline provisions that were meant to come into force by 1 
February 2022 will be implemented in the UK. Financial Services 
Update, Statement made on 23 June 2020, available here: https://questions-statements.parliament.uk/written-statements/detail/2020-06-23/HCWS309.
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    A change would also be introduced as regards the holding accounts 
for deliveries of deliverable EU emissions allowances pursuant to 
futures contracts on such allowances, to ensure that the CSDR regime 
does not inadvertently interfere with emissions deliveries.
    Given the anticipated entry into force and application of elements 
of the CSDR and the RTS, ICE Clear Europe proposes to update its 
Delivery Procedures as described below.
General Provisions of Delivery Procedures
    The General Provisions section of the Delivery Procedures would be 
amended to add new Paragraphs 22 and 23. Paragraph 22 would address the 
liabilities for penalties or costs assessed under the CSDR because of a 
delay or failure in matching for settlement. Specifically, it would 
provide that the Buyer and Seller would each indemnify the Clearing 
House in accordance with Rule 111 in respect of costs or penalties for 
any delay or failure in matching arising under the CSDR or otherwise, 
save to the extent that the Clearing House or its settlement agent is 
at fault for such failure or delay. The amount of such cost or penalty 
would be charged to such Clearing Member. Paragraph 23 would address 
penalties or costs assessed under CSDR in respect of late settlement. 
Specifically, it would provide that the Seller would indemnify the 
Clearing House in accordance with Rule 111 in respect of costs or 
penalties for any delay or failure in settlement arising under the CSDR 
or otherwise, save to the extent that the Clearing House or its 
settlement agent is at fault in respect of such failure or delay. The 
amount of such costs or penalties would be charged to such Clearing 
Member.
    The CSDR and RTS feature a two-tier scheme for penalty collection 
and distribution in respect of settlement fails, which is as follows: 
(1) Where the failing or receiving participant is a CCP, CCPs are to 
collect and distribute penalties using information provided by CSDs; 
and (2) in all other circumstances, CSDs collect and distribute the 
penalties. ICE Clear Europe holds securities at EU CSDs through 
nominees, rather than as a direct participant. As such, ICE Clear 
Europe is not necessarily known by or identified to the CSDs as a CCP. 
Therefore, CSDs would collect penalties in respect of securities to be 
delivered under F&O Contracts that ICE Clear Europe clears in 
accordance with scenario 2. It is possible that when Buyers or Sellers 
are late to match or Sellers are late to settle (as applicable); this 
would have run-on impacts on the Clearing House's ability to onwards 
deliver securities. If the Clearing House does not deliver in a timely 
fashion because of this late matching, it could be subject to a cash 
penalty under CSDR. In these circumstances, the late Clearing Member 
would be required to indemnify ICE Clear Europe. These amendments 
reflect the existing position under the general indemnity in Rule 111, 
but provide clarity that such indemnity will be applicable in the 
particular circumstances described in these paragraphs.
Part A: ICE Endex Deliverable EU Emissions Contracts
    Amendments would be made to Part A of the Delivery Procedures to 
ensure that the new settlement discipline procedures under the CSDR and 
RTS will not apply to the physical delivery of Carbon Emissions 
Allowances (``EUA'') or Aviation Emissions Allowances (``EUAA''). The 
amendments are intended to preserve the Clearing House's current 
approach with respect to settlement of emissions futures contracts and 
ensure that CSDR will not interfere with deliveries under such 
contracts.
    The definition of ``Registry Account'' would be amended, to set 
down the national administrators of registry accounts that may be used, 
and to confirm that no registry account may be held by or through a CSD 
as intermediary or account holder. Paragraph 9 of Part A of the 
Delivery Procedures would be added to provide that no Clearing Member, 
Customer, Transferor or Transferee to whom or from whom delivery is to 
be made of an EUA or EUAA may be registered as a CSD under the CSDR. 
Additionally, Paragraph 9 would provide that pursuant to the definition 
of ``Registry Account'', no EUAs or EUAAs may be settled by or through 
a CSD. Accordingly, Buyers and Sellers would not be bound by the 
settlement discipline provisions set out in the CSDR and, accordingly, 
the Clearing House would not administer buy-ins, cash penalties, cash 
compensation or other requirements under the CSDR and its delegated 
regulations in respect of EUAs or EUAAs. The amendments would provide 
that Buyers and Sellers acknowledge that neither the Clearing House nor 
any other Person would offer them the protections related to settlement 
set forth under CSDR and their sole remedies in the case of settlement 
failure would be as set forth in the Delivery Procedures. In connection 
with these changes, ICE Clear Europe would also add new definitions of 
``CSD'' and ``CSDR''.
Part W: Euro-Denominated Government Bonds Contracts
    The Delivery Timetable in Part W of the Delivery Procedures would 
be amended to provide that Clearing Members who have failed to deliver 
(including those whose Customer or Transferor has failed to deliver) by 
8:00 on the Delivery Day would be required to contact the Clearing 
House to provide reasons for such failures and confirm

[[Page 5880]]

any measures taken to facilitate delivery. Such information would 
notify the Clearing House of such delivery failure and allow it to take 
any action it deems necessary under the Rules and Procedures.
    A new Paragraph 1.9 would be added to Part W which would empower 
ICE Clear Europe to debit cash penalties imposed by the relevant 
settlement system from Clearing Members in delivery default and to 
credit cash penalties to the account of the Clearing Member that is 
affected by the settlement fail. Although, as described above, it is 
anticipated that CSDs will administer cash penalties for ICE Clear 
Europe-cleared trades, the Clearing House will retain this power in 
case its account structure changes and it would be required to 
administer penalties under the CSDR.
Part Z: Financials and Softs Equity Futures/Options
    Part Z of the Delivery Procedures would be amended to add a similar 
new provision to Paragraph 3.3 which empowers ICE Clear Europe to debit 
cash penalties imposed by a relevant settlement system from Clearing 
Members in delivery default and to credit cash penalties to the account 
of the Clearing Member that is affected by the settlement fail. 
Although, as described above, it is anticipated that CSDs will 
administer cash penalties for ICE Clear Europe-cleared trades, ICE 
Clear Europe will retain this power in case its account structure 
changes and it would be required to administer penalties under the 
CSDR.
    Paragraph 5 of Part Z would also be amended to expand the 
categories of information that would be made available by the Clearing 
House upon Clearing members' early exercise or expiry of a physically 
delivered Equity Future or Option Contract, or the execution of a stock 
contingent trade. Specifically, the amendments would add the following 
information to the report for early exercise or expiry: (i) Cash 
consideration to be delivered or received, (ii) stock identifying ISIN 
code to be delivered and (iii) CSD settlement location. For stock 
contingent trades, the relevant report would be expanded to include 
certain information about the associated option. These amendments are 
intended to reflect what is generally included in the report already in 
practice.
(b) Statutory Basis
    ICE Clear Europe believes that the proposed amendments to the 
Delivery Procedures are consistent with the requirements of Section 17A 
of the Act \10\ and the regulations thereunder applicable to it. In 
particular, Section 17A(b)(3)(F) of the Act \11\ 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 Delivery Procedures are designed to address and 
accommodate certain settlement discipline provisions under the CSDR and 
RTS that will come into effect on 1 February 2022. Principally, the 
proposed amendments would address potential fines that may be imposed 
under the CSDR and RTS in connection with settlement failures relating 
to deliveries of certain securities underlying F&O Contracts, and 
enhance reporting to the Clearing House in the case of certain 
settlement failures under such contracts. In particular, the proposed 
amendments explicitly address the possibility of fines for settlement 
failures in the context of settlement of government bond futures and 
options and equity futures and options cleared by the Clearing House, 
where the underlying is listed or cleared on an EU facility and 
settlement occurs through an EU settlement facility. The proposed 
amendments also clarify that the CSDR settlement discipline provisions 
would not apply to settlement of certain emissions futures contracts. 
The proposed amendments will thus clarify the role, responsibilities 
and liabilities of the Clearing House, Clearing Members and designated 
transferors and transferees in the context of settlement failures that 
may occur with respect to securities delivered in settlement of 
specified F&O Contracts. The proposed amendments would not otherwise 
change the manner in which such contracts are cleared and settled. As a 
result, in ICE Clear Europe's view, the proposed amendments would be 
consistent with the prompt and accurate clearance and settlement of the 
contracts and the protection of investors, consistent with the 
requirements of Section 17A(b)(3)(F) of the Act.\12\ The proposed 
amendments are also consistent with the public interest, including as 
reflected in the policies of the CSDR and RTS. (In ICE Clear Europe's 
view, the proposed amendments would not affect the safeguarding of 
funds or securities in the custody or control of the clearing agency or 
for which it is responsible, within the meaning of Section 
17A(b)(3)(F).\13\)
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    \10\ 15 U.S.C. 78q-1.
    \11\ 15 U.S.C. 78q-1(b)(3)(F).
    \12\ 15 U.S.C. 78q-1(b)(3)(F).
    \13\ 15 U.S.C. 78q-1(b)(3)(F).
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    Rule 17Ad-22(e)(1) requires that a clearing agency ``establish, 
implement, maintain and enforce written policies and procedures 
reasonably designed to, as applicable, provide for a well-founded, 
clear, transparent and enforceable legal basis for each aspect of its 
activities in all relevant jurisdictions.'' \14\ The proposed 
amendments are intended to address new requirements under EU law 
applicable to settlement activity conducted by the Clearing House with 
EU settlement facilities relating to underlying securities traded or 
cleared on EU facilities. As such, the proposed amendments support the 
Clearing House's legal framework for operation in the EU, consistent 
with the requirements of Rule 17Ad-22(e)(1).\15\
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    \14\ 17 CFR 240.17Ad-22(e)(1).
    \15\ 17 CFR 240.17Ad-22(e)(1).
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    In addition, Rule 17Ad-22(e)(10) \16\ provides that ``[e]ach 
covered clearing agency shall establish, implement, maintain and 
enforce written policies and procedures reasonably designed to, as 
applicable [. . .] establish and maintain transparent written standards 
that state its obligations with respect to the delivery of physical 
instruments, and establish and maintain operational practices that 
identify, monitor and manage the risks associated with such physical 
deliveries.'' As discussed above, the proposed amendments would revise 
the Delivery Procedures for affected F&O Contracts as a result of the 
applicable CSDR and RTS settlement discipline provisions, particularly 
as they relate to fines for settlement failures and provision of 
additional information regarding settlement failures. The proposed 
amendments thus clarify the obligations of the Clearing House, Clearing 
Members and others with respect to settlement failures under such 
contracts. The proposed amendments also clarify that the CSDR 
settlement discipline provisions will not affect settlement under 
certain emissions contracts. The proposed amendments do not otherwise 
affect the procedures for delivery under such contracts. As a result, 
ICE Clear Europe believes the amendments are consistent with the 
requirements of Rule 17Ad-22(e)(10).\17\
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    \16\ 17 CFR 240.17Ad-22(e)(10).
    \17\ 17 CFR 240.17Ad-22(e)(10).

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[[Page 5881]]

(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 to the Delivery Procedures are intended to address new 
settlement discipline procedures applicable to certain contracts as 
provided in the CSDR and RTS. Although the procedures could result in 
certain additional costs to Clearing Members, if certain fines were 
imposed as a result of a settlement failure, those additional costs 
result from the requirements of relevant EU legislation applicable to 
settlements in the affected underlying securities which would be 
applicable to all market participants for the relevant contracts and it 
would be inappropriate for the Clearing House to bear the cost of late 
delivery fines, which should reasonably be passed on to the Clearing 
Members responsible for delivery failures. Furthermore, any such 
additional costs would result from a failure by the relevant Clearing 
Member or its customer to comply in a timely manner with its settlement 
obligations as specified under EU legislation. Accordingly, ICE Clear 
Europe does not believe the amendments would adversely affect 
competition among Clearing Members, materially affect the cost of 
clearing, adversely affect access to clearing for Clearing Members or 
their customers, or otherwise adversely affect competition in clearing 
services. Accordingly, ICE Clear Europe does not believe that the 
amendments would impose any impact or burden on competition that is not 
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 comments received with respect to the proposed 
rule change.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \18\ and paragraph (f) of Rule 19b-4 \19\ 
thereunder. At any time within 60 days of the filing of the proposed 
rule change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.
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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 17 CFR 240.19b-4(f).
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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 (http://www.sec.gov/rules/sro.shtml) or
     Send an email to [email protected]. Please include 
File Number SR-ICEEU-2022-002 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-2022-002. 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-2022-002 and should be 
submitted on or before February 23, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-02078 Filed 2-1-22; 8:45 am]
BILLING CODE 8011-01-P