[Federal Register Volume 84, Number 226 (Friday, November 22, 2019)]
[Notices]
[Pages 64602-64605]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-25315]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87558; File No. SR-ICEEU-2019-025]
Self-Regulatory Organizations; ICE Clear Europe Limited; Notice
of Filing and Immediate Effectiveness of Proposed Rule Change,
Security-Based Swap Submission or Advance Notice Relating to Amendments
to the ICE Clear Europe Clearing Rules and General Contract Terms
November 18, 2019.
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 November 12, 2019, 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 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, Security-Based Swap Submission, or Advance Notice
The principal purpose of the proposed amendments is for ICE Clear
Europe to amend its Clearing Rules (the ``Rules'') \5\ and General
Contact Terms in connection with the clearing of F&O contracts for a
new market, ICE Futures Abu Dhabi (``IFAD'').
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\5\ Capitalized terms used but not defined herein have the
meanings specified in the ICE Clear Europe Clearing Rules (the
``Rules'').
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change, Security-Based Swap Submission or
Advance Notice
In its filing with the Commission, ICE Clear Europe included
statements concerning the purpose of and basis for the proposed rule
change and discussed any comments it received on the proposed rule
change. The text of these statements may be examined at the places
specified in Item IV below. ICE Clear Europe has prepared summaries,
set forth in sections (A), (B), and (C) below, of the most significant
aspects of such statements.
(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change, Security-Based Swap Submission or
Advance Notice
(a) Purpose
ICE Clear Europe is proposing to amend its Rules in order to
provide clearing services to IFAD, an affiliated newly established
futures exchange which will form part of the Intercontinental Exchange,
Inc. global network of exchanges.\6\ IFAD will operate an energy
futures and options market and intends to initially launch a physically
delivered futures contract whose underlying is Murban crude oil.\7\
[[Page 64603]]
The proposed amendments to the Rules reflect the addition of IFAD as a
trading market cleared by ICE Clear Europe and include relevant
references to applicable ADGM laws and regulations. Contracts traded on
IFAD and cleared at ICE Clear Europe will be F&O Contracts for purposes
of the Rules.
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\6\ Intercontinental Exchange, Inc. has announced the planned
launch of IFAD, which will be a recognized investment exchange under
the laws of the Abu Dhabi Global Market (``ADGM'').
\7\ The initial launch of IFAD trading is expected to be in the
first half of 2020, subject to completion of all regulatory
approvals and other conditions. ICE Clear Europe expects that prior
to the launch, it will adopt amendments to its Delivery Procedures
relating to settlement of the launched contracts, which will be
filed with the Commission under Rule 19b-4.
IFAD has stated that it may in the future list other crude oil
and crude-oil related products and other financial futures or
options contracts on such futures contracts, subject to applicable
regulatory authorizations.
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In Rule 101, new defined terms would be added to reference IFAD
itself, its rules and the various types of IFAD transactions, in a
manner generally consistent with the defined terms applicable to other
F&O energy markets (and transactions thereon) cleared by ICE Clear
Europe. These defined terms include ``IFAD,'' ``IFAD Block Contract,''
``IFAD Block Trade Facility,'' ``IFAD Block Transaction,'' ``IFAD
Contract,'' ``IFAD Matched Contract,'' ``IFAD Matched Transaction,''
``IFAD Rules'' and ``IFAD Transaction''. In addition, defined terms
would be added for relevant regulatory matters, including ``FSMR'' (the
Financial Services and Markets Regulations 2015 of the Abu Dhabi Global
Market), ``FSRA'' (the Abu Dhabi Global Market's Financial Services
Regulatory Authority) and ``FSRA Rules'' (the rules and similar
materials of the FSRA).
Certain existing definitions would be updated to reference IFAD and
the new defined terms (consistent with existing references to other
cleared markets), including: ``Applicable Law'' to include references
to the FSMR and the FSRA Rules; ``Regulatory Authority'' to include the
FSRA; ``Energy'' to also refer to the clearing of IFAD Markets;
``Energy Transaction'' to include IFAD Transactions; ``Market'' to
include IFAD; and ``Non-DCM/Swap'' to include an IFAD Transaction and
an IFAD Contract.
The introductions to Part 9 (Default Rules) and Part 12 (Settlement
Finality Regulations and Companies Act 1989) of the Rules would also be
amended to reference the FSMR among other relevant Applicable Laws on
which the Clearing House may rely for purposes of default management.
A new Rule 1208 would be added to address specifically settlement
finality under ADGM laws. Pursuant to the proposed rule, Clearing
Members and other Participants would acknowledge that modifications to
Applicable Laws in the Abu Dhabi Global Market related to insolvency,
which may affect Clearing Members, the Clearing House and other
Participants, may apply pursuant to the FSMR as a matter of ADGM law.
The rule would give notice to Clearing Members and other Participants
that these modifications may apply in relation to a broader range of
circumstances than those set out in Part 12 itself, and may provide
expanded settlement finality protections as a matter of ADGM law
compared to those which are available under English and European law,
particularly as regards the settlement finality upon delivery of non-
securities products such as oil.
ICE Clear Europe would also make a conforming change to its General
Contact Terms to include a reference to the IFAD rules, which set out
certain contract terms for IFAD contracts.
(b) Statutory Basis
Section 17A(b)(3)(F) of the Act \8\ 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
amendments are designed to facilitate the clearing of F&O Contracts,
including physically delivered crude oil futures contracts, that are
expected to be launched for trading on the IFAD exchange and that will
be cleared by ICE Clear Europe. The amendments would supplement the
Rules to include references to IFAD and related transactional and
regulatory definitions, on a similar basis to the other F&O markets
that ICE Clear Europe currently clears. ICE Clear Europe believes that
its existing financial resources, account infrastructure, risk
management, systems and operational arrangements would be sufficient to
support clearing of such Contracts and to manage the risks associated
with such Contracts in compliance with applicable law. As a result, in
ICE Clear Europe's view, the amendments would be consistent with the
prompt and accurate clearance and settlement of IFAD contracts under
the Rules, the safeguarding of funds or securities in the custody or
control of the clearing agency or for which it is responsible, and the
protection of investors and the public interest, consistent with the
requirements of Section 17A(b)(3)(F) of the Act.\9\
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\8\ 15 U.S.C. 78q-1(b)(3)(F).
\9\ 15 U.S.C. 78q-1(b)(3)(F).
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The amendments are also consistent with relevant requirements under
Rule 17Ad-22.\10\
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\10\ 17 CFR 270.17Ad-22.
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Legal Framework. Consistent with the requirement that clearing
agencies provide a well-founded, clear, transparent, and enforceable
legal basis for their activities pursuant to Rule 17Ad-22(e)(1),\11\
the amendments add references to ADGM regulations and regulatory
authorities into relevant provisions of the Rules, such as the defined
term Applicable Laws, as well as generally incorporate IFAD
transactions into the framework of the Rules. Other amendments would
further clarify the Clearing House's ability to rely on rights under
the FSMR in managing a default, where applicable.
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\11\ 17 CFR 240.17Ad-22(e)(1), which requires that ``[e]ach
covered clearing agency shall establish, implement, maintain and
enforce written policies and procedures reasonably designed to, as
applicable: (1) Provide for a well-founded, clear, transparent, and
enforceable legal basis for each aspect of its activities in all
relevant jurisdictions.''
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Financial Resources. ICE Clear Europe will apply its existing
energy margin methodology to IFAD contracts. ICE Clear Europe believes
that this methodology will provide sufficient margin to cover the risks
from clearing such contracts, which are similar to other energy
contracts cleared by ICE Clear Europe. In addition, for similar
reasons, ICE Clear Europe will apply its existing F&O Guaranty Fund
methodology in connection with the IFAD contracts. In ICE Clear
Europe's view, the existing methodology will be sufficient to support
clearing of the IFAD contracts in addition to other F&O Contracts. As a
result, ICE Clear Europe believes that its financial resources will be
sufficient to support clearing of IFAD contracts, consistent with the
requirements of Rule 17Ad-22(b)(2-3) \12\ and (e)(4).\13\
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\12\ 17 CFR 240.17Ad-22(b)(2-3), which requires that ``[a]
registered clearing agency that performs central counterparty
services shall establish, implement, maintain and enforce written
policies and procedures reasonably designed to:
(2) Use margin requirements to limit its credit exposures to
participants under normal market conditions and use risk-based
models and parameters to set margin requirements and review such
margin requirements and the related risk-based models and parameters
at least monthly.
(3) Maintain sufficient financial resources to withstand, at a
minimum, a default by the participant family to which it has the
largest exposure in extreme but plausible market conditions;
provided that a registered clearing agency acting as a central
counterparty for security-based swaps shall maintain additional
financial resources sufficient to withstand, at a minimum, a default
by the two participant families to which it has the largest
exposures in extreme but plausible market conditions, in its
capacity as a central counterparty for security-based swaps. Such
policies and procedures may provide that the additional financial
resources may be maintained by the security-based swap clearing
agency generally or in separately maintained funds.
\13\ 17 CFR 240.17Ad-22(e)(4), which requires that ``[e]ach
covered clearing agency shall establish, implement, maintain and
enforce written policies and procedures reasonably designed to, as
applicable: (4) [e]ffectively identify, measure, monitor, and manage
its credit exposures to participants and those arising from its
payment, clearing, and settlement processes, including by:
(i) Maintaining sufficient financial resources to cover its
credit exposure to each participant fully with a high degree of
confidence;
(ii) To the extent not already maintained pursuant to paragraph
(e)(4)(i) of this section, for a covered clearing agency providing
central counterparty services that is either systemically important
in multiple jurisdictions or a clearing agency involved in
activities with a more complex risk profile, maintaining additional
financial resources at the minimum to enable it to cover a wide
range of foreseeable stress scenarios that include, but are not
limited to, the default of the two participant families that would
potentially cause the largest aggregate credit exposure for the
covered clearing agency in extreme but plausible market conditions;
(iii) To the extent not already maintained pursuant to paragraph
(e)(4)(i) of this section, for a covered clearing agency not subject
to paragraph (e)(4)(ii) of this section, maintaining additional
financial resources at the minimum to enable it to cover a wide
range of foreseeable stress scenarios that include, but are not
limited to, the default of the participant family that would
potentially cause the largest aggregate credit exposure for the
covered clearing agency in extreme but plausible market conditions;
(iv) Including prefunded financial resources, exclusive of
assessments for additional guaranty fund contributions or other
resources that are not prefunded, when calculating the financial
resources available to meet the standards under paragraphs (e)(4)(i)
through (iii) of this section, as applicable;
(v) Maintaining the financial resources required under
paragraphs (e)(4)(ii) and (iii) of this section, as applicable, in
combined or separately maintained clearing or guaranty funds; . .
.''
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[[Page 64604]]
Operational Resources. ICE Clear Europe will have sufficient
operational and managerial capacity to clear the IFAD contracts.
Specifically, ICE Clear Europe believes that is existing systems and
procedures are appropriately scalable to handle the additional IFAD
contracts, which will be generally similar to other energy contracts
currently cleared by ICE Clear Europe. As a result, in ICE Clear
Europe's view, the amendments are consistent with the requirements of
Rule 17Ad-22(e)(17).\14\
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\14\ 17 CFR 240.17Ad-22(e)(4), which requires that ``[e]ach
covered clearing agency shall establish, implement, maintain and
enforce written policies and procedures reasonably designed to, as
applicable: (17) Manage the covered clearing agency's operational
risks by:
(i) 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;
(ii) Ensuring that systems have a high degree of security,
resiliency, operational reliability, and adequate, scalable
capacity; and
(iii) Establishing and maintaining a business continuity plan
that addresses events posing a significant risk of disrupting
operations.
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Default Management. These amendments make clarifications to the
default management provisions in Parts 9 and 12 of the Rules to reflect
relevant rights under ADGM regulations. As such, the amendments are
consistent with the Clearing House's ability to take timely action to
continue to meet its obligations in the case of default, as required
under Rule 17Ad-22(e)(13).\15\
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\15\ 17 CFR 240.17Ad-22(e)(13), which requires that ``[e]ach
covered clearing agency shall establish, implement, maintain and
enforce written policies and procedures reasonably designed to, as
applicable: (13) ensure the covered clearing agency has the
authority and operational capacity to take timely action to contain
losses and liquidity demands and continue to meet its obligations
by, at a minimum requiring the covered clearing agency's
participants and, when practicable, other stakeholders to
participate in the testing and review of its default procedures,
including any close-out procedures. . . .''
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(B) Clearing Agency's Statement on Burden on Competition
ICE Clear Europe does not believe the proposed rule changes would
have any impact, or impose any burden, on competition not necessary or
appropriate in furtherance of the purposes of the Act. The changes are
being proposed in connection with the addition of clearing services for
contracts traded on IFAD, a new energy futures and options market. ICE
Clear Europe believes that its clearing of IFAD contracts would provide
additional opportunities for interested market participants to engage
in cleared trading activity in the energy derivatives markets market,
and will not adversely affect its existing cleared markets or
participants in them. Specifically, 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 in Contracts 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
ICE Clear Europe has conducted a public consultation with respect
to the proposed amendments.\16\ ICE Clear Europe received one question
from a Clearing Member with respect to the launch of clearing of IFAD
contracts which has been addressed and did not require changes to the
proposed rules.
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\16\ Circular C19/164 (25 October 2019), available at https://www.theice.com/publicdocs/clear_europe/circulars/C19164.pdf.
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III. Date of Effectiveness of the Proposed Rule Change, Security-Based
Swap Submission and Advance Notice and Timing for Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \17\ and paragraph (f) of Rule 19b-4 \18\
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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\17\ 15 U.S.C. 78s(b)(3)(A).
\18\ 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, security-based swap submission or advance notice 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-2019-025 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-2019-025. 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, security-based
swap submission or advance notice that are filed with the Commission,
and all written communications relating to the proposed rule change,
security-based swap submission or advance notice between the Commission
and any person, other than those that may be withheld from the public
in accordance with the provisions of 5 U.S.C. 552, will be available
for website viewing and printing in the Commission's Public Reference
Room, 100 F Street NE,
[[Page 64605]]
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/clear-europe/regulation.
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-2019-025 and should be
submitted on or before December 13, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-25315 Filed 11-21-19; 8:45 am]
BILLING CODE 8011-01-P