Document ID: SEC-2023-1041-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: ICE Clear Europe, Ltd.
Posted Date: 2023-09-21T04:00Z

[Federal Register Volume 88, Number 182 (Thursday, September 21, 2023)]
[Notices]
[Pages 65210-65218]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-20424]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98407; File No. SR-ICEEU-2023-023]

Self-Regulatory Organizations; ICE Clear Europe Limited; Notice 
of Filing and Immediate Effectiveness of Proposed Rule Change, as 
Modified by Amendment No. 1, Relating to the Amendments the Futures and 
Options Risk Procedures

September 15, 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 31, 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 primarily prepared by 
ICE Clear Europe. ICE Clear Europe filed the proposed rule change 
pursuant to section 19(b)(3)(A) \3\ of the Act and Rule

[[Page 65211]]

19b-4(f)(4)(ii) thereunder,\4\ such that the proposed rule change was 
immediately effective upon filing with the Commission. On September 14, 
2023, ICE Clear Europe filed Amendment No. 1 which amends and restates 
in its entirety the Form 19b-4 Information and Exhibit 1A.\5\ 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\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(4)(ii).
    \5\ Amendment No. 1 updates the 19b-4 Information and the 
Exhibit 1A to more fully describe changes outlined in the Exhibit 5. 
ICEEU represents that it did not make any changes to its Exhibit 5.
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    ICE Clear Europe Limited (``ICE Clear Europe'' or the ``Clearing 
House'') proposes to amend the Futures and Options Risk Procedures (the 
``F&O Risk Procedures'' or ``Procedures'') \6\ to make certain updates 
and clarifications relating to risk management for the F&O product 
category, including to reference the Clearing House's Model Risk Policy 
and update the Document Governance and Exception Handling provisions.
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    \6\ Capitalized terms used but not defined herein have the 
meanings specified in the F&O Risk 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 Futures and Options Risk 
Procedures to make various updates and clarifications, including to add 
a section describing the existing F&O Guaranty Fund, make reference to 
the recently revised Model Risk Policy,\7\ and update the Document 
Governance and Exception Handling language. Various non-substantive 
drafting changes and improvements would also be made throughout the 
document. The amendments generally do not represent a change in the 
Clearing House's practices, but rather are intended to improve and 
clarify the documentation of existing risk management practices.
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    \7\ See, The Model Risk Policy as described in Exchange Act 
Release No. 34-98138, SR ICEEU-2023-019 (August 15, 2023), 88 Fed 
Reg. 56901 (Aug. 21, 2023).
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    In the purpose section of the document, the amendments would 
clarify that details of models described in the Procedures (in addition 
to processes) are included in the relevant model methodology and 
procedure documentation. The amendments would further provide that any 
changes to the risk parameters would be subject to the governance set 
out in the Model Risk Policy. The amendments would also make non-
substantive clarifications to the description of the role of ICE Clear 
Europe as a central counterparty.
    The revised Procedures would simplify the description of Clearing 
Member groups and clarify that Clearing Members in the same Member 
Group may be based in various jurisdictions rather than specifically 
referencing a Clearing Member in Europe and another part of the world. 
The amendments would also make clear that in order to perform exposure 
analysis at appropriate levels of aggregation, the Clearing House 
associates its Clearing Members in Member Groups. Additional language 
regarding how Member Groups are identified and the internal groups 
responsible for the membership onboarding process would be removed as 
unnecessary.
    The amendments would also simplify and clarify the discussion of 
the various types of proprietary and client margin accounts made 
available to its Clearing Members (which are established pursuant to 
the published Rules and Clearing Procedures and are not being changed 
by virtue of these amendments). The amendments would state more simply 
that the Core IM is calculated on either a ``Gross'' or ``Net'' basis 
dependent upon the type of margin account. (As an exception, the chart 
detailing the margin accounts would change the Core IM Method for the 
Individual Client (ISOC) accounts (I) and (J) from Net to N/A, as the 
net/gross distinction is not applicable for such accounts). Various 
conforming changes would be made to the summary of the accounts, 
including to reflect that the house account (H) is margined on a net 
basis, as was already reflected in the chart. Additional clarifications 
would be made that accounts are margined on a net or gross basis 
(rather than a net and gross basis). The amendments would also explain 
more concisely that information as to Money Rules and FCM/BD customer 
applicability is included in the table to distinguish account types. A 
footnote would also be added to provide an ICEU EMIR Disclosure 
Statement that supplies further details on the margin account types.
    The amendments further clarify the distinction between the net and 
gross calculations of initial margin in light of CFTC and Bank of 
England/EU requirements. The amendments note that EU rules treat the 
one-day MPOR gross margin calculation under CFTC rules as equivalent to 
the two-day MPOR net margin calculation. The amendments also make non-
substantive drafting clarifications to the discussion of net and gross 
margin methods. The amendments also add a statement that house and 
proprietary affiliate positions of a clearing member are calculated 
using a minimum two-day MPOR. The amendments reflect existing practice 
and would not change the manner of calculation of initial margin for 
any accounts. The amendments would remove as unnecessary language 
referencing ICE Clear Europe setting up multiple customer accounts to 
cater for ESMA and CFTC requirements.
    The amendments would clarify that ICE Clear Europe performs 
position keeping of all positions belonging to each account of both 
clearing members and non-clearing members (defined as members of ICE 
exchanges that are not clearing members). The changes would also 
clarify that for gross margined accounts, the Clearing House will rely 
on a gross client margin file provided by the clearing member for 
purposes of position management and calculation of gross initial 
margin. The changes also address reconciliation of the gross client 
margin file against actual positions in the relevant account and 
margining of any inconsistencies. These amendments do not represent a 
change in current practice by the Clearing House.
    The amendments would specify that the Clearing Risk Department is 
the owner of the Procedures document and remove references to the F&O 
Market Risk team.
    The discussion of initial margin would be revised for greater 
simplicity and clarity and are not intended to change the substance of 
the calculation of initial margin, which is set forth in the existing 
applicable model documentation for the ICE Risk Model. The amendments 
would clarify that initial margin consists of Core IM and Additional IM 
to mitigate the risk it is exposed to on all Futures and Options 
positions. The amendments would also

[[Page 65212]]

clarify that the Procedures provide detail to each of the IM components 
(removing unnecessary references to frequency, limits and thresholds, 
exceptions and escalation).
    The amendments would clarify that the ICE Risk Model uses margin 
rates in computing Core IM and these margin rates would be the 
responsibility of the Clearing Risk Department. A reference to a 
specific version of the IRM Margin Rate Calibration Model Documentation 
would be deleted as unnecessary and computation of the model margin 
rates, as opposed to calibrated margin rate, would be inserted above 
the table detailing the computation. The table of standard settings for 
the computation of model margin rates (referred to as the ``Autopilot 
rates'') would be simplified, removing rows labeled ``System/Process'', 
``Test/Frequency'', and ``Exceptions'' as unnecessary, and removing 
references to specific Energy and Financial & Softs sectors. Likewise, 
the Margin Period of Risk would be summarized as 1 day or 2 days 
depending on the product, consistent with the discussion above. The 
summary of the lookback period would be revised from at least 100 days 
to VaR that is at least as conservative as that based on a 250-day 
lookback. The Anti-Procyclicality would be amended to be at least 25 
percent stressed volatility (rather than exactly 25%). The row on Risk 
Parameters would be replaced with a summary of the output of the risk 
model, which is the ICE Risk Model margin rates including those 
previously specified.
    The amendments would clarify the process for review and promotion 
of production margin rates. The amendments are intended to correctly 
reflect the existing practice that the review of the production margin 
rate is performed versus trigger criteria daily (as opposed to 
quarterly). As a result of the daily review, references to ad hoc 
updates in addition to quarterly reviews would be deleted as they are 
no longer required. This would include the deletion of the governance 
procedures related to review of the exceptions driving ad hoc review 
and related effectiveness without notice. The amendments would address 
that that production margin rates are set to the Autopilot model rates 
at a specific point in time after each review through a process called 
promotion. It would further state that the production rates are the 
margin rates used in the calculation of Clearing Member's Core IM 
requirements. The steps to review and the promotion of the proposed 
production margin rates would include mention of their promotion. The 
steps would also be simplified to state that first the update to the 
production margin rates would be proposed and reviewed by the Clearing 
Risk Department, then the Clearing Risk Department would seek approval 
for the margin update. Then once approved, the Clearing Risk Department 
would promote the margin rates into the Risk System, followed by 
informing the Clearing Members and wider market of the new margin rates 
by means of the Clearing House's website. The amendments would add that 
typically one business day's notice would be given to the market from 
the date of the circular, and the Clearing Risk Department would then 
upload the approved margin rates to the ICE Clear Europe website upon 
publication of the circular. A table summarizing the review and 
promotion process would be deleted as duplicative and unnecessary.
    A cross-reference to documentation relating to ICE Risk Model 
parameters would be updated to include a general reference to the ICE 
Risk Model documentation instead of an outdated version. Details on 
certain parameters relating to EWMA volatility and APC stress 
volatility would be removed as they are addressed in the ICE Risk Model 
documentation. The amendments would add another new sub-section on the 
ICE Risk Model Daily Requirements that would outline the process for 
computing Core IM as part of the End of Day process. This would include 
computation of the ICE Risk Model daily margin requirements and EMIR 
Add-on for each Clearing Member margin account. The amendments would 
also delete outdated references to the IRM V1.0 Model Documentation, 
related risk array files and inputs, and the ECS system. The related 
table with the summary of products eligible under each margin account 
would change the I and J Accounts to N/A as opposed to Net margining 
type. The footnote would explain that for these accounts the sub-
clients within the client account are individually (rather than net) 
margined. Any material change in Core IM would be escalated to 
Operations, instead of the previous plus or minus 5 percent (or more 
depending on known margin change) escalation threshold. This section 
would also reference a summary of the IRM Margin Rate Promotion and 
Core IM processes that would be added in the Appendix to the 
Procedures. These changes are consistent with existing margin practice 
but are intended to document the current process more clearly.
    In terms of additional IM, the amendments would specify that such 
amounts are to collateralize risks not captured by the Core IM amount. 
Clarifications would be made to the descriptions of various types of 
additional IM, as discussed herein. For example, amendments would 
clarify that the additional risk from concentrated positions would be 
covered through a Concentration Charge add-on, and that the additional 
margin is called on a t+1 basis to be met the following day. The 
requirement would clarify the notice process for additional IM through 
the MFT system, remove an outdated reference to EoD reporting and 
remove unnecessary distinctions between concentration charges for 
different product segments. The summary table of the Concentration 
Charge process would be deleted, and relevant terms moved to the added 
Appendix. In the Parameter Calibration section, the amendments would 
remove the existing discussion and add instead that the details of the 
Concentration Charge model or risk parameters would be described in the 
relevant Concentration Charge model documentation.
    In the Stress Margin section, the amendments would add a general 
description of the stress loss charge as ensuring that sufficient pre-
funded resources to ensure regulatory compliance are held at all times. 
The amendments would also clarify that any Stress Loss Charge top-up 
requirements would be called via an intraday call on a t+1 basis so 
that, for example, positions as of the end of day on Monday could incur 
additional margin called on Tuesday for receipt on Tuesday. The 
amendments would clarify that the total Stress Loss Charge would be 
posted in the end of day additional margin requirement so that any 
surplus or deficit is part of the end of day margining. The summary of 
the Stress Loss Charge process would be deleted, and relevant terms 
moved to the added Appendix. Additional details of the Stress Loss 
Charge model and risk parameters would be removed, and a cross-
reference added to the Futures and Options Guaranty Fund model 
documentation (which addresses such parameters). An incorrect cross-
reference to the F&O Stress Testing Policy would be removed.
    In the Shortfall Margin section, the amendments would specify that 
Shortfall Margin would be called to cover uncollateralized stress loss 
(as calculated at the margin account level). The amendments would also 
state that Shortfall Margin would be called on a t+1 basis to be met on 
the following day, so that, for example, positions on Monday EOD can 
incur additional margin called on Tuesday for receipt on

[[Page 65213]]

Wednesday morning. The amendments would delete unnecessary provisions 
relating to the posting of the requirement against a specific ledger 
type in daily reports and EOD reporting through ECS. The summary of the 
Shortfall Margin process would be removed, and relevant details moved 
to the Appendix.
    In the Specific Wrong-Way Risk section, the amendments would 
explain that the Wrong Way Risk additional margin requirements are 
called on a t+1 basis to be met the following day, so that, for 
example, positions as of Monday EOD can incur additional margin called 
on Tuesday for receipt on Wednesday morning. As with other categories 
of additional IM, the amendments would delete unnecessary provisions 
relating to the posting of the requirement against a specific ledger 
type in daily reports and EOD reporting of the additional amount 
through ECS. A table summarizing the Wrong Way Risk process would be 
removed and relevant details moved to the Appendix.
    In the EMIR Add-on section, the amendments would clarify various 
aspects of this add-on, which is collected for house and affiliate 
accounts for products for which Core IM is otherwise calculated using a 
1-day MPOR. The add-on covers the amount, if any, by which Core IM 
would exceed that amount if calculated on a 2-day MPOR basis, in order 
to ensure that house and affiliate positions are margined using a 
minimum 2-day MPOR as required under EMIR. The amendments would further 
clarify that the EMIR Add-on is called at the same time as Core IM 
requirements, so that, for example, House and Affiliate account 
positions as of Monday EOD can incur EMIR add-on called on Monday night 
for receipt on Tuesday morning. A table summarizing the EMIR add-on 
process would be removed and relevant provisions moved to the Appendix. 
The amendments would delete language concerning the review and 
subsequent parameter recalibration as unnecessary as it is covered in 
the relevant model documentation.
    In the Delivery Margins section, the amendments would revise the 
Procedures to state explicitly that the delivery margin is designed to 
cover potential price moves at a 99th percentile level for the product 
in delivery. The amendments would further state that the Delivery 
Margin is typically set to the front month scanning margin rate for the 
product and held by the CCP until buyer security is paid by the buyer. 
The description of the calculation of Buyer Security would be clarified 
to be the notional value of bought positions that are deliverable 
within the following 2 business days. Similarly, the description of the 
calculation of Seller Security would be modified to be an additional 
requirement posted by the seller, calculated to cover any applicable 
costs and charges, should they be unable to deliver the agreed product. 
The definition of Contingent Variation Margin would be clarified to be 
the difference between the Exchange Delivery Settlement Price and a 
representative market price for the remaining portion of the given 
underlying that is yet to be delivered (analogous to Variation Margin). 
Tables summarizing the Delivery Margin, Buyer/Seller Security and the 
Contingent Variation Margin would be removed with relevant details 
moved to the Appendix.
    In the Net Liquidating Value (``NLV'') section, certain non-
substantive drafting improvements would be made. In addition, the 
description of the top up for NLV credit/debit would be revised to 
state that it be called for at the end of the day (call time t) and not 
the following day. A table summarizing the NLV would be removed with 
relevant details moved to the Appendix.
    In the Intraday and Overnight Buffer section, the amendment would 
add a statement of the use of mandatory buffer, which is called when 
trading out of intraday margining hours is observed that increases Core 
IM requirements above thresholds. For these positions traded outside 
the hours covered by the intraday margin process, the IM requirements 
are calculated using IRM. In cases where the resultant increase to an 
account's IM exceeds the limit set, an overnight buffer equal to the 
largest exceedance is requested and held for the following 30 days. The 
amendments would add that this process would be introduced to achieve 
compliance with relevant requirements of EMIR \8\ and would only be 
applicable to 1-day gross client omnibus margined accounts. The 
amendments would further clarify that voluntary buffer could be posted 
to reduce the Clearing Members' operational burden of managing intraday 
margin calls. A table summarizing the intraday and overnight buffer 
process would be removed and relevant details moved to the Appendix.
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    \8\ Article 26 of EMIR RTS Regulation (EU) No 153/2013 (ESMA/
2016/429).
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    In the Ad-Hoc Buffer section, the amendments would clarify that 
Clearing Members may be requested to post additional buffers for any 
risks not covered by the requirements detailed in the Procedures. The 
amendments would specify that the requirements would be set by the 
Clearing Risk Department. A table summarizing the ad hoc buffer process 
would be removed and relevant details moved to the Appendix.
    In the discussion of intraday margining, the amendments would 
provide a clearer statement of the basis for such margining: that 
although the Clearing House collateralizes risk through IM and 
Variation Margin as part of the overnight process, the Clearing House 
may be exposed to uncollateralized exposures, or Intraday Shortfalls, 
due to adverse market price movements causing a change in the value of 
members positions, new trading activities resulting in an increased IM 
requirement on Clearing Members' accounts and the value of securities 
held as collateral being reduced. The amendments would clarify that the 
Clearing Risk Department could calculate any additional IM that it may 
require on a near real-time basis intraday.
    In respect to Intraday Risk Monitoring the amendments would specify 
that the Clearing Risk Department monitors changes in Core IM in 
addition to Variation Margin on an ongoing basis. The Intraday Margin 
requirement of an account would be the sum of the Intraday IM and 
Intraday Variation Margin of the account.
    The section on Core Intraday IM Calculation would be updated and 
moved to Section 4.2. The amendments would accordingly delete previous 
language under Section 4.3 that was titled ``Intraday Core IM 
Calculation''. The revised section would state that the Core Intraday 
IM would be calculated and, when above thresholds, called on a near-
real time basis intraday. For gross margined accounts, the amendments 
would reflect that because gross positions are only received at end of 
day, the Clearing House will not have near-real-time data for purposes 
of intraday margining. As a result, the Clearing House uses the 
previous end of day gross margin plus the change in net 2-day margin 
for the account between the start of day and the current point in time 
to determine intraday Gross IM. The amendments would detail the step by 
step process in the calculation and the formula that would be employed 
(these steps would replace an existing summary of steps to update 
references and terminology used in the amended Procedures). The 
amendment would note that ICE Clear Europe utilizes 2D MPOR for 
calculating Intraday Net IM and Start of Day Net IM, and that only the 
Intraday Net IM changes throughout the day (neither the End of Day 
Gross IM nor Start of Day Net IM change

[[Page 65214]]

throughout the day). The amendments would specify that for net margined 
accounts, the current real time net position is used to calculate Core 
Intraday IM in the same way as End of Day IM for those accounts.
    In reference to Intraday Shortfall, the amendments would clarify 
that the calculation for the current collateral on account would 
include both collateral used to meet end of the day IM requirements and 
additional collateral available to cover intraday calls. The amendments 
would remove a statement that at a minimum, prices are refreshed hourly 
(as the Clearing House expects prices to be refreshed more frequently) 
but retain the general principle that the Clearing Risk Department 
monitors the prices utilized to value securities deposited as 
collateral throughout the day. The amendments would make various non-
substantive drafting clarifications to the intraday limits. In 
addition, for Clearing Member Limit 2, the amendments would specify 
that the total value of collateral on deposit would be that of the 
loss-making accounts and collateral in the House account. The 
amendments would add that for Clearing Limit 1 (in addition to Clearing 
Limit 2), the Clearing House would permit use of excess collateral 
present on the House account to offset Intraday Shortfalls arising on 
all other accounts in deficit. The amendments also make clear that the 
Clearing house can at its discretion alter, rather than only reduce, 
the limits applicable to individual accounts as this more accurately 
reflects the current practice of the Clearing House.
    For Intraday Margin Call Triggers, the amendments would remove a 
duplicative statement of the minimum shortfall for an intraday call. 
The amendments would also clarify that ICE Clear Europe may call for 
additional collateral at any time to mitigate any (not just material) 
risk, consistent with the existing Rules and current practice.
    The Intraday Margin Call Procedure would be revised to state that 
the 30-minute warning of a trigger breach is at the Clearing House's 
discretion. The amendments would also remove, as a means of limiting 
intraday risk and satisfying a margin call, improving the profit and 
loss of the account (as that is likely impractical in the relevant 
timeframe). The amendments would also remove a concept that the 
Clearing Risk Department would make recommendations to clearing members 
to avoid receiving intraday calls; rather, the goal would be to provide 
warnings prior to 19:30 London time so that all intraday calls are 
issued prior to 20:00 London time. The amendments would state that more 
than one intraday call may be made during the same day as required 
(without necessarily being based on market conditions). Certain 
references to the use of the APS system in connection with providing 
cash or collateral would be deleted in this section and throughout the 
Procedures as unnecessary (and would not reflect a change in current 
practice). A diagram presenting the procedure for an Intraday Margin 
Call would be deleted as unnecessary.
    In the Overnight Window Monitoring section, the amendments would 
clarify the specific gross margined and ISOC accounts to which 
overnight monitoring applies. The amendments would also state that the 
Clearing Risk Department (rather than a senior Clearing Risk Department 
person), would issue a margin call or require the Clearing Member to 
take other risk reducing action, when appropriate. (ICE Clear Europe 
believes it is appropriate for the responsibility to be on the 
department rather than a senior individual.) An escalation process 
where a Member cannot be contacted or does not reduce positions would 
be deleted along with notification of regulators, as this information 
is contained in separate Clearing House default management procedures.
    In the Intraday Buffer section, the amendments would clarify that 
if a Clearing Member wishes to reduce the operational burden of 
frequent intraday calls or Overnight Buffer, then the Clearing Member 
may choose to lodge excess collateral as Intraday Buffer. The 
amendments would also clarify that where a Clearing Member notifies ICE 
Clear Europe that it no longer wants to lodge Intraday Buffer, the 
buffer will be available to be returned after the next overnight margin 
run. The amendments remove unnecessary specifications of the means of 
providing such a notice. The amendments would also delete as 
unnecessary a statement that the Clearing Member would be able to 
choose to fund the requirement with the type of collateral of their 
choosing.
    In the Overnight Buffer section, the amendments would specify the 
particular gross margining and ISOC accounts to which it applies. The 
amendments would also correct that the amount will be called as part of 
the End of Day process (rather than intraday).
    In the Returning of Margin Call Collateral section, the amendments 
would provide that margin posted intraday in respect of an intraday 
margin call may, in extraordinary circumstances at the discretion of 
the Treasury Department and Clearing Risk Department, be returned in 
cases where the Clearing Member has unrealized gains (i.e., positive 
intraday variation margin). The amendments would also correct a 
reference to the End of Day process (as opposed to the End of Day 
margining process).
    The amendments would replace the existing discussion of the F&O 
Guaranty Fund with a new section describing generally the sizing of the 
F&O Guaranty Fund, as established pursuant to the published Rules and 
Finance Procedures and the existing F&O Guaranty Fund model 
documentation. The amendments would describe the required size of the 
F&O Guaranty Fund, as being adequate to cover the first and second 
largest, non mutually exclusive, uncollateralized losses from Member 
Groups resulting from agreed stress testing scenarios. The size also 
has to be sufficient to enable the Clearing House to withstand a 
Clearing Member default to which the Clearing House has the largest 
stress testing exposure, or the second and third largest if the sum of 
those are greater. The size has to be sufficient to cover the larger of 
the sum of the individually calculated segments for Energy and 
Financials & Softs (``F&S'') member portfolios or the largest 
contemporaneous scenario. If the Energy and F&S segment fund is smaller 
than the largest contemporaneous losses scenario, then an additional 
guaranty fund apportionment amount would be calculated and would be 
allocated to both Energy and F&S Fund segments in accordance with the 
Clearing Rules. In establishing the size of the F&O Guaranty Fund the 
ICE Initial Contribution is not included and must be met by Clearing 
Member contributions only.
    The amendments would add that review of the size of the F&O 
Guaranty Fund would occur at least every two months and would be based 
on historical stress testing results and other factors ICE considers 
relevant. The added section would describe the steps taken in the 
periodic review process, and the role of relevant ICE Clear Europe 
committees. Ad hoc assessments could be triggered by the Clearing House 
in addition to the periodic review. Extraordinary reviews may also be 
necessary based on stress testing results.
    The amendments would state that Clearing Members will normally have 
five UK business days (from the date of the notice) to lodge sufficient 
funds with the Clearing House if the overall level of the F&O Guaranty 
Fund or a specific Clearing Member's allocation must increase, 
consistent with the requirements of the Rules and Finance Procedures. 
Under extreme circumstances, the Clearing House can

[[Page 65215]]

accelerate the call of the F&O Guaranty Fund requirements to a one 
day's notice or otherwise reasonably change the notice period. A 
failure to meet these payments would be considered a breach of Clearing 
House Clearing Rules. Clearing Members would also have the ability to 
withdraw excess funds that result from a decrease in their fund 
contributions following a review of the level of the F&O Guaranty Fund.
    The amendments would add that ICE Clear Europe's recommendations on 
the level of the F&O Guaranty Fund would be based on several factors 
including the level of the largest member's uncollateralized losses 
historically and how it compares against the associated segment fund 
level or the total F&O Guaranty Fund, the level of the second and third 
largest members uncollateralized losses historically and how it 
compares against the associated segment fund level or the total F&O 
Guaranty Fund, the amount and number of stress loss charges called 
across memberships and any other relevant factors ICE Clear Europe 
deems appropriate. The size of the F&O Guaranty Fund would also be 
subject to a floor in accordance with regulations, as described in 
further detail in the existing Futures and Options Guaranty Fund model 
documentation.
    The amendments would detail that a particular Clearing Member's 
contribution to each of the Fund segments should reflect its relative 
share of clearing activity and relative share of uncollateralized loss. 
The amendments described the two factor model used in allocating the 
F&O Guaranty Fund, based on IM and Uncollateralized Stress Loss, as 
provided in the existing Futures and Options Guaranty Fund model 
documentation. The amendments would also state that additional rules 
that may apply to the F&O Guaranty Fund are specified in the Clearing 
Rules and a summary of the F&O Guaranty Fund sizing and contribution 
processes would be found in the Appendix.
    Various revisions would be made in the section on Model Performance 
to improve clarity. The amendments would clarify the drafting of a 
general statement regarding the calculation of core initial margin to 
reflect that the calculation is used to derive core initial margin at 
the member account level. The amendments are intended to clarify the 
top day margin coverage calculation performed by the Clearing House to 
assess whether the Core IM covers market price movements over the 
relevant MPOR at the 99th percentile level. The assessment is made at 
both the margin account level (the ``macro'' or ``portfolio'' level) 
and product level (the ``micro'' level). An outdated reference to the 
previous IRM v.1.0 model documentation would also be deleted. In the 
revised discussion of margin Coverage, scope and definitions, 
references to certain EMIR requirements would be removed (as the 
relevant definitions incorporating regulatory requirements are part of 
the Procedures). At the macro level, the amendments would clarify that 
the margin coverage is calculated by comparing Clearing Member 
account's Core IM requirement to the clean P&L. (Provisions addressing 
frequency of back-testing are removed in this section as the topic is 
addressed elsewhere in the Procedures.) Another reference to the CRD 
database and the results being stored in the database would be deleted 
as unnecessary detail for the Procedures. Non-substantive 
clarifications would be made to the calculation of Margin Coverage.
    In the section for Back Test Statistics the amendments would 
clarify that back testing involves consideration of a number of 
historical observations. The amendments would delete language stating 
that statistics based on less than 200 days cannot be considered 
statistically significant and note that statistical back-testing is 
usually performed considering at least 250 business days. Although the 
Clearing Risk Department would retain the discretion to use other back-
testing statistics in addition to the Basel Traffic Light System, the 
amendments would remove unnecessary references to specific examples of 
such statistics. A detailed escalation process based on the results of 
the statistics handled by the Risk Manager would also be deleted. As 
revised, the Clearing Risk Department would determine the appropriate 
action to address any breaches.
    The amendments would specify that for macro level margin coverage, 
breaches would be monitored daily (but an unclear reference to such 
breaches being ``controlled'' daily would be removed). A breach would 
be reported, investigated and signed off by the Clearing Risk 
Department, not a specific risk manager as previously stated. The 
examples of appropriate action would be modified for concision to 
include reviewing the margin model and/or increasing the relevant 
production margin rates based on the Autopilot model.
    The amendments would specify that for the micro level, coverage of 
F&O margins rates would be reported daily. Any breaches driving a 
breach at margin account level would be investigated and reviewed by 
the Clearing Risk Department, in efforts to provide information on the 
drivers of the breach and assess whether the breach was driven by 
erroneous prices. The amendments would clarify that actions required as 
a result of a breach would no longer be escalated to the risk manager 
but would be at the discretion of the Clearing Risk Department. Such 
mitigation actions could include reviewing and updating the relevant 
margin rates. Prior language relating to specific monitoring of 
outright and spread F&O parameters has been removed as unnecessary in 
light of the more general provisions of the revised draft.
    The amendments would specify that back testing results that fall in 
the red or yellow zones under the Basel Traffic Light system would be 
reviewed and investigated by the Clearing Risk Department. Specifically 
for the micro level, the amendments would recognize that the large 
amount of margin parameters would make it difficult to review and 
action all back test statistic results. The amendments would make 
clarifying adjustments to the list of priorities when reviewing a 
statistical back test. The products driving red or yellow back test 
statistics would be identified and their back test performance would be 
reviewed. Micro back test statistics in the standard Basel redzone not 
driving macro back test breach results would be reviewed and the 
mitigation action would be considered at the discretion of the Clearing 
Risk Department. Micro back test statistics in the standard Basel 
yellow zone not driving macro back test breach results would be 
considered part of the regular margin update proposals.
    The amendments would also make changes in the Monitoring and 
Reporting section. For Margin Coverage at the macro level, the 
amendments would state that the Clearing Risk Department would report 
the top day macro breaches daily (deleting the lengthier manual process 
previously included) and the breach statistics would be presented 
monthly at the Model Oversight Committee and bi-monthly at the F&O 
Product Risk Committee. Accordingly, changes such as deleting 
references to manual reports being generated would be deleted from the 
macro back testing section. The process would also be more streamlined 
with the committee pack sent to the F&O Product Risk Committee, that is 
sent bi-monthly, including the macro back-test statistics.
    Similar amendments would be made to the Margin Coverage section for 
the micro level. The amendments would broadly state that the Clearing 
Risk Department would report the top day

[[Page 65216]]

micro breaches daily (deleting the lengthier process previously 
included). The Clearing Risk Department would on a monthly basis 
generate reporting displaying the statistics of a large selection of 
products across all parameter types. The detailed micro back testing 
results would be reported and reviewed monthly by the Clearing Risk 
Department. The Clearing Risk Department would produce a monthly 
summary of micro back testing results for material products and margin 
rates for the Model Oversight Committee. Micro back-testing results 
would be reviewed on a bimonthly basis at the F&O Product Risk 
Committee for material products. Certain definitions of materiality for 
these reviews in the existing Procedures would be removed, as ICE Clear 
Europe believes a more flexible approach to materiality is appropriate. 
The amendments would state that any proposed model or parameter 
remediation actions due to product back testing results would be 
governed by the Model Risk Policy (specific language regarding the 
flagging of these remediation actions to senior management and various 
committees would be deleted as relevant notifications are addressed in 
the Model Risk Policy). A section and table summarizing the Margin 
Coverage and Backtest Statistics would be deleted as unnecessary.
    The amendments would make changes to the Sensitivity Testing 
section to add that the daily tests would undergo a monthly review at 
the material product or account level. They would also add that the 
Model parameters are described in detail in the relevant ICE Risk Model 
documentation.
    A section on Stress Testing Methodology would be shortened to 
discuss Stress Testing more generally, in light of the fact that stress 
testing is addressed in detail in other Clearing House policies and 
procedures. The amendments would add that the objective of stress 
testing is to ensure that the F&O Guaranty Fund is adequate to cover 
the uncollateralized losses arising from the two largest Clearing 
Member Groups. In addition, the results are used in Stress Margin, 
Shortfall Margin, and Guaranty Fund sizing and allocation. The 
amendments would state that the stress tests are performed under 
extreme but plausible market price moves. The amendments reference the 
two types of stress scenarios applied by the Clearing House--historical 
scenarios and theoretical scenarios. The Clearing House conducts daily 
stress testing on the Clearing Member portfolios, and results are 
reviewed by the Clearing Risk Department and escalated as necessary.
    The amendments would make revisions to the section on data quality 
checks and exclusions for dynamic data. A sentence on revisions to 
EDSPs would be moved to the new section on Revisions and Remediations 
discussed below. In the historical prices discussion, a sentence 
stating that use of external data would usually be based on a 
materiality assessment where a product's IM reaches a significant 
portion of the overall Clearing House IM would be deleted. ICE Clear 
Europe does not believe it is necessary to specify this particular 
scenario given its general authority to use external data to run ad hoc 
analysis.
    The amendments would add a new section on Revisions and 
Remediations in relation to Data Management.
    The Remediations section would address what was previously referred 
to as exclusions and corrections and would outline other factors that 
could imply that remediation may be necessary. These would include 
corrections to market prices as a result of corporate actions. Certain 
other examples (including a footnote related to large moves from M&A 
announcements) would be removed as unnecessary given the more general 
authority to engage in remediation of data. Data that is remediated 
would have to be approved by the Clearing Risk Department (rather than 
a senior Clearing Risk Department person). In addition, the 
remediations with related justifications would be reviewed monthly by 
the Model Monitoring Group.
    The amendments would make changes to the Procedure's document 
governance, breach management and exception handling, to make it 
generally consistent with other ICE Clear Europe policies. The document 
owner identified by the Clearing House would be responsible for 
ensuring that the Procedures remains up-to-date and reviewed in 
accordance with the Clearing House's governance processes. The document 
owner would also be responsible for reporting any material breaches or 
deviations to the Head of Department, Chief Risk Officer and Head of 
Regulation and Compliance in order to determine if further escalation 
is required. Exceptions to the Procedures would also be approved in 
accordance with the governance processes for approvals of changes to 
the Procedures. The amendments would state explicitly that changes to 
the Procedures would also have to be approved in accordance with the 
Clearing House's governance process and would take effect following 
completion of required internal and regulatory approvals.
    The amendments would also add the aforementioned Appendix 
summarizing the processes detailed in other parts of the Procedures.
    A number of other drafting clarifications and conforming changes 
such as updating names of relevant persons, committees and departments, 
replacing and conforming defined terms, and deleting outdated 
references would also be made throughout the document. Various 
provisions would also be renumbered or relabeled throughout the 
Procedures.
(b) Statutory Basis
    ICE Clear Europe believes that the proposed amendments to the F&O 
Risk Procedures are consistent with the requirements of section 17A of 
the Securities Exchange Act of 1934 (the ``Act'') \9\ and the 
regulations thereunder applicable to it. In particular, section 
17A(b)(3)(F) of the Act \10\ 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.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78q-1.
    \10\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    The proposed changes are intended to update the Procedures to make 
them consistent with other Clearing House policies and to describe 
current Clearing House practices around margin and guaranty fund 
determination more accurately. The updates would reflect recent 
amendments to the Clearing House's Model Risk Policy, which governs key 
aspects of risk management with respect to models, including margin 
models. The amendments would also clarify various aspects of the 
calculation of Core IM and Additional IM (and the components thereof), 
as well as the process for monitoring intraday changes in conditions 
and making intraday margin calls when additional margin is required. In 
general, these amendments will not result in a change of the margin 
methodology but are intended to more clearly describe and document the 
methodology. Additionally, a new section would be added to describe, 
for completeness, key aspects of the sizing of the F&O Guaranty Fund 
(which is more fully defined in other Clearing

[[Page 65217]]

House documentation). The clarifications to the Procedures will thus 
further overall risk management at the Clearing House with respect to 
the Futures and Options product category, which would in turn promote 
the stability of the Clearing House and the prompt and accurate 
clearance and settlement of cleared contracts. The enhanced Procedures 
are 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).\11\
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    The amendments to the Procedures are also consistent with relevant 
provisions of Rule 17Ad-22.\12\ Specifically, Rule 17Ad-22(e)(4)(i) 
provides that ``[e]ach covered clearing agency shall establish, 
implement, maintain and enforce written policies and procedures 
reasonable designed to, as applicable [. . .] [e]ffectively identify, 
measure, monitor, and manage its credit exposures to participants and 
those arising from its payment, clearing, and settlement process, 
including by [. . .] [m]aintaining sufficient financial resources to 
cover its credit exposure to each participant fully with a high degree 
of confidence''.\13\ As discussed, the amendments would make certain 
clarifications to the descriptions of the Clearing House's margin 
methodology and Guaranty Fund sizing process (including the process for 
reviewing and adjusting the size of the F&O Guaranty Fund from time to 
time and the basis for allocating the F&O Guaranty Fund across clearing 
members). The amendments are not intended to result in changes in those 
practices or in margin or guaranty fund levels. As such, the amendments 
are consistent with maintaining sufficient financial resources to cover 
the Clearing House's credit exposures, within the meaning of Rule 17Ad-
22(e)(4)(i).\14\
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    \12\ 17 CFR 240.17 Ad-22.
    \13\ 17 CFR 240.17 Ad-22(e)(4)(i).
    \14\ 17 CFR 240.17 Ad-22(e)(4)(i).
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(6)(i) and (ii) provides that ``[e]ach covered 
clearing agency shall establish, implement, maintain and enforce 
written policies and procedures reasonable designed to, as applicable 
[. . .] [c]over, if the covered clearing agency provides central 
counterparty services, its credit exposures to its participants by 
establishing a risk-based margin system that, at minimum [. . .] 
[c]onsiders, and produces margin levels commensurate with, the risks 
and particular attributes of each relevant product, portfolio, and 
market'' \15\ and ``[m]arks participant positions to market and 
collects margin, including variation margin or equivalent charges if 
relevant, at least daily and includes the authority and operational 
capacity to make intraday margin calls in defined circumstances''.\16\ 
As set forth above, the amendments to the Procedures would make 
clarifying changes to the descriptions of practices for collection of 
both Core IM and Additional IM (and the relevant components thereof). 
For instance, the amendment clarifies the procedures for determining 
and promoting production margin rates based on the autopilot rates 
resulting from standard application of the ICE Risk Model. The 
amendments would also clarify the process for calculating Additional 
IM, as well as monitoring intraday change and making intraday margin 
calls as a result of those calculations. In ICE Clear Europe's view, 
the amendments are therefore consistent with the requirements of Rule 
17Ad-22(e)(6)(i) and (ii).\17\
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    \15\ 17 CFR 240.17 Ad-22(e)(6)(i).
    \16\ 17 CFR 240.17 Ad-22(e)(6)(ii).
    \17\ 17 CFR 240.17 Ad-22(e)(6)(i) and (ii).
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    Rule 17Ad-22(e)(6)(vi)(A) and (B) requires that a clearing agency 
cover its credit exposures to its participants by establishing a risk-
based margin system that is monitored by management and regularly 
reviewed by ``(A) [c]onducting backtests of its margin model at least 
once each day using standard predetermined parameters and assumptions'' 
\18\ and ``(B) [c]onducting a sensitivity analysis of its margin model 
and a review of its parameters and assumptions for backtesting on at 
least a monthly basis, and considering modifications to ensure the 
backtesting practices are appropriate for determining the adequacy of 
the covered clearing agency's margin resources''.\19\ As previously 
stated, the amendments would make various clarifications and drafting 
improvements to the description of the review process for back testing 
at both the micro and macro level for margin coverage. The changes also 
clarify the periodic review process by the Clearing Risk Department, 
relevant committees and other relevant personnel. In ICE Clear Europe's 
view, these amendments are therefore consistent with the requirements 
of Rule 17Ad-22(e)(6)(vi)(A) and (B).\20\
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    \18\ 17 CFR 240.17 Ad-22(e)(6)(vi)(A).
    \19\ 17 CFR 240.17 Ad-22(e)(6)(vi)(B).
    \20\ 17 CFR 240.17 Ad-22(e)(6)(vi)(A) and (B).
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(3)(i) provides that ``[e]ach covered clearing 
agency shall establish, implement, maintain and enforce written 
policies and procedures reasonable designed to, as applicable [. . .] 
identify, measure, monitor, and manage the range of risks that arise in 
or are borne by the covered clearing agency''.\21\ The amendments to 
the Procedures are intended to assist the Clearing House in accurately 
monitoring and evaluating its credit risk and collecting appropriate 
margin from its Clearing Members accordingly. Moreover, the amendments 
would specify the process in reviewing, testing and resizing of the F&O 
Guaranty Fund. As a result, the Clearing House would be better able to 
manage the risk of losses that may arise from default by F&O Clearing 
Members. In ICE Clear Europe's view, the amendments are therefore 
consistent with the requirements of Rule 17Ad-22(e)(3)(i).\22\
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    \21\ 17 CFR 240.17 Ad-22(e)(3)(i).
    \22\ 17 CFR 240.17 Ad-22(e)(3)(i).
---------------------------------------------------------------------------

    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 [c]lear and transparent'' \23\ and 
``[s]pecify clear and direct lines of responsibility''.\24\ As 
discussed, the Procedures would clearly state certain responsibilities 
of the Clearing Risk Department and Model Oversight Committee, among 
others, in relation to oversight of the Clearing House's practices 
regarding margin for F&O products and the F&O Guaranty Fund. In line 
with the Clearing House's other policies and procedures, the Procedures 
would also describe the responsibilities of the document owner and 
appropriate escalation and notification requirements for responding to 
exceptions and deviations from the Procedures. In ICE Clear Europe's 
view, the amendments to the Procedures are therefore consistent with 
the requirements of Rule 17Ad-22(e)(2).\25\
---------------------------------------------------------------------------

    \23\ 17 CFR 240.17 Ad-22(e)(2)(i).
    \24\ 17 CFR 240.17 Ad-22(e)(2)(v).
    \25\ 17 CFR 240.17 Ad-22(e)(2).
---------------------------------------------------------------------------

(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 F&O Risk Procedures and 
will apply to all F&O Clearing Members. The

[[Page 65218]]

proposed amendments are not expected to materially change the margin 
methodology or the resulting margin levels or requirements for F&O 
Clearing Members. Similarly, the amendments are not expected to 
materially change the F&O Guaranty Fund requirements. Accordingly, ICE 
Clear Europe does not believe the amendments would affect the costs of 
clearing, the ability to 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

    The foregoing rule change has become effective pursuant to section 
19(b)(3)(A) of the Act \26\ and paragraph (f) of Rule 19b-4 \27\ 
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.
---------------------------------------------------------------------------

    \26\ 15 U.S.C. 78s(b)(3)(A).
    \27\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------

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-2023-023 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-2023-023. 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 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 website 
viewing and printing in the Commission's Public Reference Room, 100 F 
Street NE, Washington, DC 20549, on official business days between the 
hours of 10 a.m. and 3 p.m. Copies of such filings will also be 
available for inspection and copying at the principal office of ICE 
Clear Europe and on ICE Clear Europe's website at https://www.theice.com/clear-europe/regulation.
    Do not include personal identifiable information in submissions; 
you should submit only information that you wish to make available 
publicly. We may redact in part or withhold entirely from publication 
submitted material that is obscene or subject to copyright protection. 
All submissions should refer to File Number SR-ICEEU-2023-023 and 
should be submitted on or before October 12, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
---------------------------------------------------------------------------

    \28\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2023-20424 Filed 9-20-23; 8:45 am]
BILLING CODE 8011-01-P