Document ID: SEC-2023-0958-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: ICE Clear Europe Ltd.
Posted Date: 2023-09-05T04:00Z

[Federal Register Volume 88, Number 170 (Tuesday, September 5, 2023)]
[Notices]
[Pages 60727-60730]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-19011]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98237; File No. SR-ICEEU-2023-021]

Self-Regulatory Organizations; ICE Clear Europe Limited; Notice 
of Filing of Proposed Rule Change, as Modified by Amendment No. 1, 
Relating to Amendments to Its Operational Risk and Resilience Policy

August 29, 2023.
    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 August 15, 2023, 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. On August 24, 2023, ICE Clear Europe filed Amendment 
No. 1 to the proposed rule change to make certain changes to the 
Exhibit 5.\3\ The Commission is publishing this notice to solicit 
comments on the proposed rule change, as modified by Amendment No. 1 
(hereafter ``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\ Amendment No. 1 corrects the presentation of changes in 
Exhibit 5 by reflecting the deletion of the prior ``Oversight of the 
Policy'' section as part of the updated governance and oversight 
provisions.
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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 modify its Operational Risk and Resilience Policy 
(the ``Operational Risk and Resilience Policy'' or ``Policy'').\4\ The 
amendments would modify the Policy to enhance scenario analysis and 
testing relating to operational risk and resilience, introduce an 
element for emerging risks, and update the review process for the 
document, among other changes discussed herein.
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    \4\ Capitalized terms used but not defined herein have the 
meanings specified in the ICE Clear Europe Clearing Rules and the 
Operational Risk and Resilience Policy.
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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 Operational Risk and 
Resilience Policy to incorporate enhanced procedures for analysis and 
testing of operational risk and resilience scenarios into the policy, 
among other amendments discussed herein. The description of the 
Clearing House's overall operational risk and resilience framework 
would update a reference to the Outsourcing Policy to reflect its new 
name, the Outsourcing and Third Party Risk Management Policy (and 
reflect that the updated policy has been approved by the Board and is 
pending regulatory approval).
    With respect to scenario analysis and testing relating to 
operational risk and resilience, the amendments would add that the 
Clearing House must maintain an inventory of scenarios for the purposes 
of scenario analysis and testing. The amendments would clarify that 
testing must include scenarios that take into account both internal and 
external dependencies. The amendments would also state that a

[[Page 60728]]

portion of the scenarios should be identified and selected for reverse 
stress testing (through a practical test where possible or desk top 
exercise). Over a three year cycle all scenarios would have to be 
tested at least once by a practical test or a desk top exercise. The 
inventory would also be reviewed on at least an annual basis in order 
to determine if the scenarios are still fit for purpose and if updates 
are required. The annual review of the inventory would be the 
responsibility of the First Line with Second Line review and would be 
approved by the Executive Risk Committee (ERC). The Executive Risk 
Committee would also be responsible for approving any changes to the 
list of scenarios outside of the annual review cycle. The detailed 
scope of the testing based on the scenarios in the inventory and the 
results of testing and assessment against the risk register would be 
shared with the Second Line for review. The amendments would also 
specify that the scenario analysis and testing results would be 
submitted to the ERC or relevant Board sub-committee (instead of the 
ERC and Board), which ICE Clear Europe believes is the most appropriate 
governance level for review of such matters.
    A new section on Control Validation and Assessment would be added, 
outlining that upon entry to the risk register or when a material 
change is made to a Key Control, Enterprise Risk Management (ERM) will 
confirm that validation of Key Controls is carried out. Additionally, 
the amendments would state that Validation may be verified directly by 
ERM or through ERM's oversight of validations performed by the First 
Line. The amendments would also replace references to control testing 
with control validation throughout the Policy to be consistent with the 
new section.
    In the Risk Assessment section, the amendments would address 
Emerging Risks. The amendments would specify that there should be an 
assessment of the Velocity for Emerging Risks. Velocity would be 
defined as an estimate of the time frame within which impact of a risk 
may be realized. Velocity would be considered as an additional factor 
utilized in prioritizing Emerging Risks, as further detailed in the 
Appendix G. Certain other non-substantive drafting clarifications would 
be made in this section.
    In the Government and Oversight section, the amendments would add 
provisions relating to Reviews of the Policy that are consistent with 
other Clearing House policies. The amendments would provide that the 
document owner identified by the Clearing House would be responsible 
for ensuring that the Policy remains up-to-date and reviewed in 
accordance with the Clearing House's governance processes. Generally, 
review of the Policy would be conducted by the document owner and/or 
relevant staff as appropriate, with sign off being provided by the head 
of the department and the CRO (or their delegates). The amendments 
would detail the key aspects of document reviews, including at minimum, 
regulatory compliance, documentation and purpose, implementation, use, 
and open items from previous validations or reviews (where 
appropriate). The results of the review, including priority of 
findings, proposed remediations and target due date to remediate the 
findings would be reported to the ERC and in certain cases to the Model 
Oversight Committee. The amendments would add the Head of Regulation 
and Compliance (or their respective delegates) to the parties to whom 
the document owner would report any material breaches or deviations 
from the Policy.
    The amendments would modify and update the table on Assessment of 
Expected Level of Risk (Appendix D). The column labeled Mitigation 
would be renamed to Rating. The updated chart would also add examples 
for each level of rating.
    The amendments would slightly modify and update the table on 
Control Effectiveness Ratings (Appendix E). The column labeled 
Effectiveness would be renamed to Rating and the column labeled 
Guidelines would be renamed to the more specific Control Assessment 
Guidelines. Moreover, an additional bullet point would be added to the 
guidelines under Unsatisfactory, specifying that this rating would 
apply where the control validation and/or assessment and audit programs 
result in major findings.
    The amendments would update the table on Control Remediation 
Recommendation & Timelines (Appendix F). The heading labeled Control 
Effectiveness would be renamed to Control Effectiveness Rating and, 
likewise the heading labeled Mitigation would be renamed to Level of 
Risk Mitigation. In the scenario with a Control Effectiveness Rating of 
Needs Improvement and a High Level of Risk Mitigation, the recommended 
would be changed from Medium to High.
    A new appendix, labeled Appendix G--Velocity Assessment Guidance 
would be added to the Policy in connection with the amendments 
discussed above relating to Velocity of emerging risks. This section 
would include a chart separating the Velocity Rating into categories of 
Immediate (<6 months), Short Term (>6 months <18 months), and Medium 
Term (>18 months). The chart would also include a description for each 
Velocity Rating.
    Finally, the amendments would remove the section labeled Control 
Testing Scope following the chart on Risk Mitigation (Appendix H), to 
conform to the change in the Policy to refer to control validation 
rather than control testing.
    Various provisions would be renumbered or relabeled throughout the 
Policy.
(b) Statutory Basis
    ICE Clear Europe believes that the amendments to the Operational 
Risk and Resilience Policy are consistent with the requirements of 
Section 17A of the Securities Exchange Act of 1934 (the ``Act'') \5\ 
and the regulations thereunder applicable to it. In particular, Section 
17A(b)(3)(F) of the Act \6\ 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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    \5\ 15 U.S.C. 78q-1.
    \6\ 15 U.S.C. 78q-1(b)(3)(F).
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    The proposed changes to the Policy are designed to strengthen ICE 
Clear Europe's policies and procedures to manage operational risk and 
enhance resilience. The amendments in particular would enhance scenario 
analysis and testing relating to operational risk and resilience, 
including through a framework for maintaining an inventory of relevant 
scenarios and ongoing review and testing of those scenarios. The 
amendments would provide for validation of key controls, and also 
introduce velocity as an additional factor when analyzing and 
prioritizing Emerging Risks. Various other drafting clarifications and 
similar enhancements would be made in the Policy and related 
appendices. As proposed to be revised, the Policy will facilitate the 
Clearing House's ability to manage operational risk and enhance its 
operational resilience. The proposed amendments would thus promote the 
stability of the Clearing House and the prompt and accurate clearance 
and settlement of cleared contracts and the safeguarding of securities 
and funds in ICE Clear Europe's custody or control or for which

[[Page 60729]]

it is responsible. 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. Accordingly, the 
amendments satisfy the requirements of Section 17A(b)(3)(F).\7\
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    \7\ 15 U.S.C. 78q-1(b)(3)(F).
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    The amendments to the Policy are also consistent with relevant 
provisions of Rule 17Ad-22.\8\ Rule 17Ad-22(e)(3) provides that 
``[e]ach covered clearing agency shall establish, implement, maintain 
and enforce written policies and procedures reasonably designed to, as 
applicable [. . .] [m]aintain a sound risk management framework for 
comprehensively managing . . . operational . . . and other risks that 
arise in or are borne by the covered clearing agency''.\9\ As set forth 
above, the amendments are intended to enhance the Clearing House's risk 
management framework as it relates to operational risks. Among other 
changes, the amendments would add an additional factor for assessing 
emerging risks and provide for inventory, review and testing of 
relevant scenarios used in evaluating operational risk and resilience. 
The amendments would thus strengthen the management of operational 
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).\10\
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    \8\ 17 CFR 240.17 Ad-22.
    \9\ 17 CFR 240.17 Ad-22(e)(3).
    \10\ 17 CFR 240.17 Ad-22(e)(3).
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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 [. . .] [p]rovide for 
governance arrangements that are clear and transparent'' \11\ and 
``[s]pecify clear and direct lines of responsibility''.\12\ The 
amendments to the Policy would add a more detailed review process for 
updating and reviewing the Policy, in a manner generally consistent 
with other Clearing House policies and procedures. The amendments would 
also clarify the reporting of material breaches or unapproved 
deviations. In ICE Clear Europe's view, the amendments are therefore 
consistent with the requirements of Rule 17Ad-22(e)(2).\13\
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    \11\ 17 CFR 240.17 Ad-22(e)(2)(i).
    \12\ 17 CFR 240.17 Ad-22(e)(2)(v).
    \13\ 17 CFR 240.17 Ad-22(e)(2).
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    The proposed amendments are also consistent with Rule 17Ad-
22(e)(17)(i), which provides that ``[e]ach covered clearing agency 
shall establish, implement, maintain and enforce written policies and 
procedures reasonably designed to, as applicable [. . .] [m]anage the 
clearing agency's operational risks by identifying the plausible 
sources of operational risk, both internal and external, and mitigating 
their impact through the use of appropriate systems, policies, 
procedures, and controls''.\14\ The amendments to the Policy enhance 
scenario analysis and testing relating to operational risk and 
resilience, including through inventory and review of relevant 
scenarios. The amendments would also expand the factors used in 
evaluating emerging risks with the addition of Velocity as a factor, 
and provide for validation of key controls. In ICE Clear Europe's view, 
the amendments are therefore consistent with the requirements of Rule 
17Ad-22(e)(17)(i).\15\
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    \14\ 17 CFR 240.17 Ad-22(e)(17)(i).
    \15\ 17 CFR 240.17 Ad-22(e)(17)(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 enhance the Clearing House's 
Operational Risk and Resilience Policy, which relates to the Clearing 
House's internal processes for operational risk management. The 
amendments would not change the Rules or Procedures, or the rights or 
obligations of Clearing Members or the Clearing House. ICE Clear Europe 
does not believe the amendments would affect 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-2023-021 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-2023-021. 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 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

[[Page 60730]]

copying at the principal office of ICE Clear Europe and on ICE Clear 
Europe's website at https://www.ice.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-2023-021 and 
should be submitted on or before September 26, 2023.
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    \16\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-19011 Filed 9-1-23; 8:45 am]
BILLING CODE 8011-01-P