[Federal Register Volume 84, Number 201 (Thursday, October 17, 2019)]
[Notices]
[Pages 55649-55656]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-22593]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87275; File No. SR-ICEEU-2019-020]
Self-Regulatory Organizations; ICE Clear Europe Limited; Notice
of Filing and Immediate Effectiveness of Proposed Rule Change Relating
to the ICE Clear Europe Clearing Rules and Procedures
October 10, 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 September 30, 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 primarily 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)(6) \4\
thereunder, such that the proposed rule change was immediately
effective upon filing with the Commission. The Commission is publishing
this notice to solicit
[[Page 55650]]
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)(6).
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
ICE Clear Europe proposes to amend its Clearing Rules (the
``Rules'') and Procedures to make various drafting updates,
clarifications and corrections, including to remove obsolete
provisions, to reflect changes to the names of trading venues cleared
by the Clearing House and facilities and systems used by the Clearing
House, and to better reflect certain current operational practices.\5\
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\5\ Capitalized terms used but not defined herein have the
meaning specified in 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 proposes to amend its Rules and Procedures to make
various drafting updates, clarifications and corrections, including to
various references throughout the Rules and Procedures to the names of
trading venues for which ICE Clear Europe provides clearing services,
to delivery facilities and information systems used by the Clearing
House, and to certain contracts cleared by the Clearing House. Certain
changes are also being made to use more generic references to trading
facilities and contracts to limit the need for future changes to the
ICE Clear Europe Rules as a result of non-substantive changes to names
and other corporate events.
Specifically, ICE Clear Europe proposes to make amendments to Parts
1, 2, 4, 5, 8, 9, 11, 12, 15, 16, 19, 20 and 22 of the Rules, the
Standard Terms annexes contained in the Exhibits to the Rules, and to
the Clearing Procedures, Finance Procedures, Delivery Procedures, CDS
Procedures, FX Procedures, Business Continuity Procedures, Contract
Terms Procedures and Membership Procedures. The text of the proposed
amendments to the Rules and Procedures is attached in Exhibit 5, with
additions underlined and deletions in strikethrough text. The proposed
amendments are described in detail as follows.
1. Removal of References to LIFFE
The amendments would remove throughout the Rules unused references
to the LIFFE market (and related terms referencing LIFFE or LIFFE
contracts). Trading in all LIFFE contracts was transitioned to ICE
Futures Europe in 2014,\6\ and LIFFE is no longer an operational
exchange. The LIFFE exchange has since been de-recognized as a
recognized investment exchange under UK law and the corporate vehicle
has been wound up. The Rules and Procedures nonetheless retain certain
outdated references to LIFFE and related terms that would now be
deleted. These include the definitions of ``LIFFE'', ``LIFFE Block
Contract'', ``LIFFE Block Trade Facility'', ``LIFFE Block
Transaction'', ``LIFFE Clearing Member'', ``LIFFE Contract'', ``LIFFE
Matched Contract'', ``LIFFE Matched Transaction'' and ``LIFFE Rules''
in Rule 101 (and related uses of such definitions throughout the Rules,
including in the definitions of ``Financials & Softs'', ``Financials &
Softs Clearing Member'', ``Financials & Softs Transaction'' and
``Market''). Corresponding changes have also been proposed to the
Delivery Procedures to remove references to ``LIFFE'' and the ``LIFFE
Rules'' in relation to Financials & Softs Contracts that are now traded
on ICE Futures Europe. These changes have been made in paragraphs 8 and
15 of the general provisions of the Delivery Procedures and in the
product-specific sections as follows: Part O, paragraphs 1.1-1.3; Part
O, Delivery Timetable; Part Q, paragraphs 1.1-1.3; Part Q, Delivery
Timetable; Part R, paragraphs 1.1-1.3; Part R, Delivery Timetable; Part
T, paragraphs 1.3 and 1.11; Part U, paragraphs 1.2, 1.4 and 1.5; and
Part U, Delivery Timetables.
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\6\ See Exchange Act Release No. 34-73348 (SR-ICEEU-2014-017)
(Oct. 14, 2014); 79 FR 62688 (Oct. 20, 2014); see also ICE Futures
Europe's `LIFFE to ICE Futures Europe Transition Notice' dated
September 2014, available at https://www.theice.com/publicdocs/circulars/14108_attach.pdf.
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2. Corporate Reorganization of Endex Markets
A number of changes to the Rules are proposed to reflect changes in
the corporate structure of the ICE Endex markets cleared by ICE Clear
Europe. Specifically, ICE Endex Gas B.V. (which operated the spot
market, and was referred to in the Rules as ``ICE Endex Continental'')
was merged into ICE Endex Derivatives B.V. (which operated the
regulated market, and was referred to in the Rules as ``ICE Endex''),
with the surviving entity renamed ICE Endex Markets B.V.\7\
Accordingly, the defined term ``ICE Endex'' in the Rules would be
revised to refer to ICE Endex Markets B.V. As a result of the
transaction, ICE Endex now operates two markets, its regulated market
and the ICE Endex Spot Market (formerly the ICE Endex Continental
market). In Rule 101 the following definitions would be revised
accordingly: ``Energy'', ``Energy Transaction'', ``ICE Endex'', ``ICE
Endex Block Transaction'', ``ICE Endex Matched Transaction'', ``ICE
Endex Rules'' and ``Market''. In addition, the defined terms ``ICE
Endex Continental'' and ``ICE Endex Continental Rules'' are to be
replaced with ``ICE Endex Spot Market'' and ``ICE Endex Spot Market
Rules''. The definitions of ``ICE Natural Gas Continental Spot'', ``ICE
Natural Gas Continental Spot Contract'', ``ICE Natural Gas Continental
Spot Matched Contract'', ``ICE Natural Gas Continental Spot Matched
Transaction'' and ``ICE Natural Gas Continental Spot Transaction'' are
to be replaced with ``ICE Endex Spot Market Transaction'' and ``ICE
Endex Spot Market Contract.'' Corresponding changes would be made
throughout the Rules and Procedures, including in Rules 201, 404 and
1906 and in the Delivery Procedures in paragraph 5.1 and Part J. A new
Rule 401(r) would be added to clarify that a Contract will only arise
in relation to an ICE Endex Spot Market Transaction where the product
is designated by ICE Endex Spot Market as a cleared product. This
clarification is needed because not all products traded on the ICE
Endex Spot Market are cleared by ICE Clear Europe; some are held on an
over-the-counter basis Parts 20 and 22 of the Rules would be deleted as
no longer necessary, as those Parts provided transitional rules
relating to various ICE Endex contracts at the time of the transition
of these contracts to the Clearing House from another clearing house in
2013. All affected contracts have now expired.
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\7\ This merger is described in more detail in ICE Endex
Circular E16/045 of 30 November 2016, available at https://www.theice.com/publicdocs/endex/circulars/E16045.pdf.
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3. Removal of Unused Participating Exchange Link Provisions
The Rules currently contain a number of defined terms and other
provisions
[[Page 55651]]
relating to linkages between ICE exchanges and non-ICE exchanges
(referred to in the Rules as ``Participating Exchanges''), principally
set out in current Rule 410. Although such linkages at one time existed
between LIFFE and two Japanese exchanges, and were briefly on-boarded
by the Clearing House after the LIFFE transition in 2014, they have
been terminated, there are no such linkages currently in effect, and
none are contemplated at this time. As a result, ICE Clear Europe
proposes to delete Rule 410. ICE Clear Europe further proposes to
delete references to Participating Exchanges, and related terms and
provisions, throughout the Rules, including in Rules 102(j)(ii),
106(a)(iv), 401(a)(xiv), 405(b), 408(a)(vi), 905(a)(iii), 905(b)(xix),
1201(f)(xii), 1201(l), 1201(n), 1202(b)(ix)-(x), 1202(m), 1202(n),
1202(o)(xi) (which will become 1202(m)(xi)), 1203(k), 1204(a)(v),
1204(j) and 1205(d).
4. References to Delivery Facilities
The definition of ``Delivery Facility'' in Rule 101 would be
amended to reflect the full range of delivery mechanisms and providers
used in connection with various cleared Contracts, including balancing
systems, gas networks, securities settlement systems, custodians,
vessels, terminals, ports and emissions registries. The broader
definition reflects current practice for the facilities used for
delivery under the diversity of contracts cleared by the Clearing
House, and is intended to reduce the need to change the rules for the
launch of new deliverable contracts. Relatedly, Rule 106(a)(xiv) would
be amended to delete the references to obligations under the specific
rules of each particular delivery facility and replace these with a
generic reference to obligations under ``the rules or terms of a
Delivery Facility or as [are] needed to comply with any obligation or
to exercise any right under these Rules''. This would make use of the
broadened ``Delivery Facility'' definition. A similar change is
proposed to Rule 404(a)(x) to use the generic ``Delivery Facility''
defined term.
5. General References to Markets
Related to the amendments discussed above relating to LIFFE and ICE
Endex, ICE Clear Europe proposes to replace other individual references
to specific markets for which it clears, throughout the Rules and
Procedures, with the more general term ``Market.'' The definition of
``Market'' in Rule 101 would be amended so that it covers the specified
ICE trading venues for which arrangements already exist ``and any other
Exchange for which the Clearing House provides or may provide Clearing
services''. These changes would simplify various references throughout
the Rules to exchanges, trading facilities and markets generally
(without need to identify each such facility), and in particular will
allow for certain references to ``Exchange'' to be amended to
``Market'' throughout the Rules and Procedures, resulting in greater
consistency. This will also reduce documentation risks associated with
corporate reorganizations at exchange level, as occurred for LIFFE and
ICE Endex (discussed above). The proposed changes also remove the
various references to market-specific rules (for example, to the rules
of ICE Futures Europe) and replace these with a more generic definition
of ``Market Rules'' where possible. The definition of ``Market Rules''
in Rule 101 would be amended to refer more generically to ``the rules,
regulations, procedures of, and agreements governing, a Market''. New
definitions of ``EFRP'', ``Energy Block Trade Facility'', ``Energy
Block Transaction'', ``F&O Block Contract'', ``F&O Block Transaction'',
F&O Matched Contract'' and ``F&O Matched Transaction'' would be added
to remove the need to refer to trading venue-specific contracts and
transactions throughout the Rules. For example, the definition of ``F&O
Matched Transaction'' would cover all F&O Transactions occurring on a
Market (without need to use separate defined terms to refer to F&O
Transactions occurring on each of ICE Endex, ICE Endex UK, ICE Futures
Europe and ICE Futures US). Similarly, the proposed ``F&O Block
Transaction'' defined term covers all Financials & Softs Block
Transactions and Energy Block Transactions. Corresponding changes will
be made to the definitions of ``Basis Trades'', ``Bclear'', ``Business
Day'', ``Contract Terms'', ``EFPs'', ``EFSs'', ``Financials & Softs
Block Trade Facility'', ``Financials & Softs Block Transaction'' and
``Soft Commodity EFRP'' in Rule 101 and also at Rules 102(f),
111(c)(ii), 201(a)(ii)-(iv), 401(a)(i)-(v), 401(n), 405(b)(i),
1201(f)(x), 1202(b)(iii), 1202(h) and 1202(m)(vi). Similar changes are
also proposed to paragraphs 2.4(c), 6.2(b)(iii) and 6.4(b) of the
Clearing Procedures and paragraph 1.1(c) of the Delivery Procedures. It
will still be necessary to list the Markets cleared by the Clearing
House in Rule 101; these changes merely reduce the complexity of any
future changes in those Markets.
6. Changes to Delivery Procedures
In the Delivery Procedures, various drafting changes are proposed
to ensure that the Delivery Procedures are consistent with the Rules
and with the current operational practices of ICE Clear Europe. The
proposed changes would include replacing outdated references to the
``Market Delivery Settlement Price'' (MDSP) with references to the
``Exchange Delivery Settlement Price'' (EDSP), which is the term now
used in the Rules to refer to the settlement price for F&O Contracts.
In addition, a small change is proposed to remove a requirement to mark
delivery documentation as ``urgent'' (as this is not done, and is not
necessary, in operational practice). A number of drafting improvements
have also been proposed to address inconsistencies and errata from
previous changes to the Delivery Procedures and to align the document
with current operational models, system functionality and system names.
The relevant changes are to be made to paragraph 2 of the general
provisions of the Delivery Procedures and to the following product-
specific sections: Part A, paragraphs 2.2, 7.3 and 8; Part B,
paragraphs 1.2, 5.1, 5.2 and 5.5; Part C, paragraph 2.3; Part D,
paragraph 7.1; Part N, paragraph 2.3; Part O, paragraph 1.2; Part P,
paragraphs 1.1-1.3 and Delivery Timetable; Part Q, paragraph 1.2; Part
R, paragraph 1.2; Part T, paragraph 1.3; Part U, paragraphs 1.3 and
1.6; and Part BB, paragraph 1.2. In addition, changes to paragraph 1.2
of the general provisions of the Delivery Procedures are proposed to
refer to the ``clearing operations department'' of ICE Clear Europe,
which is the correct name of the relevant department.
In paragraph 5.4 of the general provisions of the Delivery
Procedures, the words ``of such Transferor/Transferee'' are to be added
at the end of the last sentence to clarify that the relevant form must
be signed by an authorized signatory of the Transferor or Transferee
(as applicable). Changes are also proposed to paragraph 17.5 of the
Delivery Procedures to refer more generally to the provisions of
``Contract Terms'' and ``Market Rules'' that apply following non-
performance of contractual obligations, rather than just the ICE
Futures Europe Rules (since ICE Clear Europe provides clearing services
to various Markets). In addition, the reference to the specific
provisions of the ICE Futures Rules would be updated to refer to the
correct provisions.
Various changes have also been proposed to the Delivery Procedures
to remove references to certain products that are no longer cleared by
ICE Clear
[[Page 55652]]
Europe following de-listings by the relevant exchange. These include
ICE Futures ERU Futures Contracts, ICE UK Base Electricity Futures
Contracts (EFA), ICE UK Peak Electricity Futures Contracts (EFA), ICE
Endex TTF Natural Gas Working Days Next Week (WDNW) Futures Contracts,
ICE Endex GASPOOL Natural Gas Daily Futures Contracts, ICE Endex NCG
Natural Gas Daily Futures Contracts, ICE Endex ZTP Natural Gas Daily
Futures Contracts and Japanese Government Bond Contracts. In addition,
for Equity Futures/Options Contracts changes have been proposed to
reflect the fact that Turkish securities are not available as an
underlying. In the case of the ICE Futures ERU Futures Contracts, the
changes proposed involve not only deleting references to the contracts
but also removing all defined terms relating to Emission Reduction
Units (``ERUs''), for example ``Emission Reduction Unit'', ``ERU
Contract'', ``ERU Delivery Amount'' and ``ERU Transfer Request'', and
the instances in which these appear, because such units are no longer
valid deliverables for the relevant contracts. The relevant changes are
to be made to paragraphs 5.1, 6.1 and 11 of the general provisions of
the Delivery Procedures and to the following product-specific sections:
Part A, heading and preamble; Part A, paragraphs 1.1, 2.1-2.4, 3.2,
5.1, 6.1, 8 and 9.1; Part F, heading and paragraphs 1.1(j), 3.3,
3.5(a), 3.6, 6.1, 7.1 and 9.1; Part G, heading and paragraphs 1.1(j),
2.2, 2.4-2.5, 5.2, 6.2 and 8.2; Part H, heading and paragraphs 1.1(f),
2.3, 2.5-2.6, 5.2, 6.2 and 8.2; Part I, heading and paragraphs 1.1(n),
3.3, 3.5-3.6, 6.2, 7.2 and 9.2; Part V (proposed deletion); and Part Z,
paragraphs 1.2 and 2.1. The table of contents is also to be updated
accordingly.
It is proposed that the Delivery Procedures be amended to reflect
the current systems used by ICE Clear Europe to communicate with
Clearing Members and facilitate delivery. There are a number of
references to obsolete systems in the current published version of the
Delivery Procedures. In some cases, there is no reference at all to the
appropriate system used by ICE Clear Europe to communicate a particular
piece of information to Clearing Members (or vice versa). The proposed
changes involve removing references to systems that are no longer used
for the relevant purpose, for example the Universal Clearing Platform
(UCP), Trade Registration System (TRS) and Crystal, and adding new
references to the current systems such as the Extensible Clearing
System (ECS) and Managed File Transfer System (MFT). The changes are to
be made to paragraph 16 of the general provisions of the Delivery
Procedures and to the following product-specific sections: Part A,
paragraph 5.3; Part B, sections 2 and 4; Part K, section 4; Part L,
section 4; Part O, section 1 (Delivery Timetable); Part P, section 1
(Delivery Timetable); Part Q, section 1 (Delivery Timetable); Part R,
sections 1 (Delivery Timetable) and 2 (Delivery Documentation Summary);
Part S, paragraph 1.1; Part T, paragraph 1.3; Part U, paragraphs 1.6
and 1.9; Part W, paragraph 1.8; and Part X, paragraph 1.8.
7. Other Updates to Definitions
The amendments would include a number of other drafting
clarifications, typographical corrections and drafting improvements to
the definitions in Rule 101. In particular, the definition of
``Portfolio Risk Margin'' is being removed as unnecessary in the Rules
(as it is part of the concept of Initial Margin) and other references
in the Rules to Portfolio Risk Margin will be removed or replaced with
Initial Margin, as applicable. The definitions of ``Transferor'' and
``Transferee'' would be amended to include an explicit reference to
Part 7 of the Rules and the Delivery Procedures, in order to clarify
that the terms are intended to refer to persons nominated by Buyers or
Sellers to make or receive delivery of products in the course of the
delivery process under the Rules and the Delivery Procedures. The
definition of ``Person'' in clauses (a) and (b) thereof would be
revised to refer to ``any similar structure in any other
jurisdiction,'' a clarification requested by market participants to
clearly cover funds and similar structures that exist in civil law
jurisdictions in Europe such as Germany. The definition of ``Force
Majeure Event'' would be amended to include a missing word to clarify
the application of the term to Sponsored Principals and ensure
consistency with other aspects of the definition. The definition of
``Future'' would be clarified such that it does not include Options
(which are covered by a separate defined term). The definition of
``Mark-to-Market Margin'' would be clarified by addition of a reference
to cover such margin transferred to a Sponsored Principal as well as a
Clearing Member. Clause (b) of the definition of ``Set'' would be
amended to use the defined term ``Strike Price'' instead of an
undefined term. In the definition of ``Settlement and Notices Terms,''
a reference to FCM/BD Clearing Members that are CDS Clearing Members
would be corrected.
In addition, with respect to certain other definitions,
typographical corrections, updates to cross-references to various Rules
and Procedures and corrections to alphabetical ordering would be made.
8. Additional Clarifications and Updates
ICE Clear Europe is proposing to make a number of additional
clarifications, drafting updates and similar corrections to other
provisions of the Rules.
In Rule 102(i), a change is proposed to clarify, for completeness,
that social security contributions also fall within the meaning of the
term ``tax'' throughout the Rules. In the UK, as well as income tax,
there are ``national insurance contributions'' payable by employers and
employees, and similar concepts apply in several other countries. This
amendment would ensure that all taxes would be covered when
representations and indemnities exist under the rules. In several
places throughout the Rules and Procedures, amendments are proposed to
replace undefined terms with defined terms, for greater clarity and
drafting precision. In this regard, a drafting change has been proposed
to Rule 106(a)(vii) to use the defined term ``Person'' in place of the
undefined term ``body''. In Rules 106(e)(i) and 113(e), paragraph
6.1(i)(v) of the Finance Procedures and paragraph 17.6 of the Delivery
Procedures, similar changes have been proposed to use the defined term
``Applicable Law'' instead of undefined terms such as ``applicable
law'' or ``law''. In the net sum calculation in Rule 906(a), the word
``margin'' in the explanation of the variable ``M'' has been replaced
with the defined term ``Margin''. Similarly, Rule 913(a)(xiv) is
proposed to be amended to remove the terms ``strike price'' and
``exercise price'' and replace these with the defined term ``Strike
Price.'' In Rule 1604(b), the lower case term ``transfer'' is to be
replaced with the defined term ``Transfer,'' which is given a
particular meaning by Rule 904(a) in the context of the default
management steps that ICE Clear Europe is permitted to take under the
Rules and Procedures. In paragraph 2.2(e) of the Clearing Procedures,
it is proposed that ``commodities'' be replaced with the defined term
``Deliverables'', which is the defined term that includes commodities
in addition to other types of deliverable. In the Finance Procedures,
at paragraph 4.2, references to ``accounts'' are to be replaced with
the defined term ``Nominated Bank Accounts''. These changes are
generally intended to clarify the Rules but are not intended to change
the substantive
[[Page 55653]]
rights or obligations of the Clearing House or Clearing Members.
In Rule 106(b), an amendment would be made to clarify that Clearing
Members and Customers are deemed to consent to disclosure of
information by ICE Clear Europe where made pursuant to Applicable Law
generally, rather than just pursuant to the provisions of the Financial
Services and Markets Act 2000, which may not be the only applicable law
for non-UK Clearing Members.
Various changes have been proposed throughout the Rules and
Procedures in order to be consistent in the use of such terms as
``section'' and ``paragraph,'' including to Rule 109(j), Rule 904(g),
Sections 3(n), 3(o), 10, 13(a) and 13(c) of the Standard Terms,
paragraphs 2.2, 4.5 6.1(i) and 13.3 of the Finance Procedures,
paragraphs 3.1 and 10.2 of the FX Procedures and paragraph 8.2(h)(ii)
of the CDS Procedures.
In Rule 110(b), a drafting clarification is proposed to highlight
that this provision is also subject to Rule 110(g) (in addition to Rule
110(c)). Rule 110(g) (which by its terms overrides Rule 110(b))
provides that ICE Clear Europe does not have the right to extend the
time at which a payment is due to a Clearing Member beyond the time
immediately prior to the commencement of the daily payment cycle for
the relevant payment currency.
Changes at Rule 117(a) have been proposed to remove the words
``Subject to Rule 1518'' and provide that any Dispute not subject to
the procedures of Part 10 of the Rules or the Complaint Resolution
Procedures shall be subject to arbitration. This change is intended to
reduce the risk of procedural questions as to the dispute resolution
process which is applicable in a given scenario. Rule 1518 by its terms
overrides Rule 117 in the relevant circumstances stated thereunder and
so the deleted language is not needed.
The words ``and the deposit of securities'' and ``and securities''
are proposed to be deleted in Rule 202(a)(xi). This reflects current
operational processes, under which amounts transferred to and from ICE
Clear Europe by Clearing Members for the purposes of Margin, Guaranty
Fund Contributions, fees and amounts due under contracts pursuant to a
margin call will only be in the form of cash (and not securities or
other financial instruments). Securities may be substituted for cash
margin pursuant to a separate process.
Changes at Rule 206(a) are proposed to include Clearing Member
Capital requirements in the Membership Procedures, in addition to under
the CDS Procedures and Finance Procedures. The Capital requirements
themselves would not be changed.
A clarification is proposed to Rule 401(b) to improve the current
drafting by providing that new contracts arising at the moment that
alternative delivery is agreed are ``Contracts reversing the existing
Contract or Contracts.'' An alternative delivery agreement results in
the cancellation of the existing cleared contract through an offsetting
contract. The change reflects current practice and is not intended to
have any effect on the way in which the offsetting process operates.
In Rule 401(n), changes would be made to clarify the application of
the Rule to Customer-CM Transactions that arise when an F&O Contract
arises pursuant to Rule 401. (In such case, an offsetting Customer-CM
F&O Transaction arises simultaneously between the Customer and Clearing
Member.) The Customer-CM Transaction would be subject to the same
conditions as to when contracts can be voided as other contracts under
Part 4 of the Rules.
Changes are proposed to Rule 405(b)(i) to correctly refer to the
execution venues which can submit contracts to ICE Clear Europe for
clearing, namely CDS or FX trade execution processing platforms and
venues falling within the definition of ``Market''. These changes
clarify that the deemed representations given by counterparties to
contracts as to the accuracy of transaction data equally arise in a
scenario where the transaction was originally executed through one of
these alternative venues, and not solely in relation to transactions
that take place on Exchanges.
It is proposed that the word ``day'' in Rule 406(a) be replaced
with ``Business Day'' to reflect the fact that Open Contract Positions
are not calculated on non-Business Days. Changes are proposed to refer
to ``Contracts that are Futures'' and ``Contracts that are Options'',
to replace the current references ``Futures that are F&O Contracts''
and ``Options that are F&O Contracts'', which are redundant.
A minor drafting change is proposed to Rule 502(c) to clarify that
the particular set of Procedures referred to here are the Finance
Procedures. Relatedly, a clarification is proposed in Rule 502(d) to
confirm that the ability of the Clearing House to ``specify proportions
or maximum proportions of asset classes'' extends to cash and relates
solely to cash or assets ``to be provided as Margin.''
Changes in Rule 502(k) (which relates to certain considerations in
making certain changes in eligible assets for Margin and Permitted
Cover and related haircuts) would clarify the application of this
provision to all Contract types and not just F&O Contracts, consistent
with existing practice. Rule 503(d) would be amended to clarify the
calculation of intra-day margin in the context of certain customer
positions carried on a gross basis. The new drafting clarifies that
Margin is calculated based on the Open Contract Position plus ``the net
additional exposure relating to any Contracts held gross which have not
been contractually netted or aggregated in accordance with Rule 406''.
The amendment is not intended to change margin calculations, but avoid
uncertainty as to the treatment of gross positions under the current
drafting of the Rules consistent with provisions used by other ICE
clearing houses.
In Rule 803(c), drafting changes have been proposed to clarify that
only ``Long'' Option Contracts can be abandoned by notice to ICE Clear
Europe, consistent with the rights applicable to options under the
existing Contract Terms and existing operational processes. Minor
drafting improvements have also been made in Rules 803(a), 804 and
808(a).
Rules 908(b), (c) and (d) would be revised to make certain non-
substantive drafting clarifications. Further, in those subsections,
with regard to amounts falling within ``N'' (the post-default net sum
calculation), which form the first layer of the default waterfall
(subparagraph (i) in Rules 908(b), (c) and (d)), amendments would
provide that such amounts must be applied ``subject to the restrictions
set out in Rule 906(c)''. Rule 906(c) imposes restrictions on the
setting off of assets recorded in different Customer Accounts of a
Defaulter against shortfalls on Proprietary Accounts or other Customer
Accounts of the same Defaulter, promoting segregation under the
European Market Infrastructure Regulation and U.S. laws. The proposed
drafting would not affect the operation of Rule 906(c), but would make
the Rules easier to follow by directing readers to Rule 906(c) in the
context of the default waterfall provisions in Rule 908. Finally,
changes are proposed to subparagraph (iii) to clarify that this layer
of the waterfall would not include guaranty fund contributions of a
Sponsor of a Defaulter (that is a Sponsored Principal).
Minor drafting changes have been proposed to Rule 908(g)(i)(A)-(D)
to add the words ``in question'' after the second instance of
``Defaulter''. These changes are intended to resolve any ambiguity as
[[Page 55654]]
to which guaranty fund contributions are to be used in the situation
where more than one default takes place simultaneously.
It is proposed that the exclusion of ICE Clear Europe's liability
in Rule 919(r) be amended to remove the reference to requirements of
``law'' generally and replace this with a reference to requirements of
``Applicable Laws or this Rule 919''. The amendments also clarify that
the exclusion of liability does not apply to the extent that Rule 919
itself provides that a particular sum is payable by ICE Clear Europe.
This is consistent with ICE Clear Europe's interpretation of the
existing effect of this provisions, but adds clarity for users.
An amendment is proposed to Rule 1103(f) to add a reference to Part
9 of the Rules in the provision setting out that Clearing House
Contributions will be used ``only for the purposes of meeting
shortfalls arising directly or indirect from Defaults'' in accordance
with specified provisions of the Rules and existing requirements of
Applicable Laws. The added reference to Part 9 is appropriate as it
contains the majority of the provisions governing Clearing Member
defaults, after some provisions were moved out of Part 11 several years
ago.
A drafting change is proposed in Rule 1202(b)(vii) to reflect the
fact that Financials & Softs Contracts are already contemplated within
the definition of a ``Future'' and accordingly the reference to
Financials & Softs Contracts can be deleted. (``Future'' refers to ``an
F&O Contract or FX Contract''; ``F&O Contracts'' include Financials &
Softs Contracts (in addition to Energy Contracts).) A similar change is
to be made in Rule 1202(k) to refer to ``Contracts'' rather than
``Financials & Softs Contracts'' specifically (which would fall within
the more general ``Contracts'' definition).
In the Clearing Procedures, in paragraphs 2.3(b)(xxv), (xxvii),
(xxxix) and (xli), changes are proposed to remove references to the
``Standard Omnibus Indirect Account For CDS'' and the ``Standard TTFCA
Omnibus Indirect Account For CDS'' in account codes ``X'' and ``Y''.
These net margin omnibus accounts for indirect clearing are not
actually used for CDS Contracts.
A drafting clarification would be made in paragraph 4.2(a) of the
Clearing Procedures to provide that that initial margin calculations
will be ``based on'' the net positions for each Contract Set in a
Proprietary Account. (This does not entail any change in the way margin
is currently calculated.) In paragraph 4.2(b), the reference to the
``Risk Committee'' is to be replaced with a reference to the relevant
``product risk committee,'' which is the correct name of the relevant
committee that reviews the policy for setting initial margin
parameters.
References to ``Buyer's Security'' and ``Seller's Security'' in
paragraphs 4.6(c)(i) and 4.8 the Clearing Procedures are to be amended
to replace ``Security'' with ``security'' (reflecting that ``Security''
is not a defined term in the Rules or Procedures). Changes are also
proposed to paragraphs 4.6(c) and 4.8 to refer to particular items that
may be specified in the Delivery Procedures.
In paragraph 6.1(a)(i) of the Clearing Procedures, an incorrect
reference to ``Proprietary Account Position'' would be corrected. The
capitalized term ``Collateral'' in paragraph 6.3(b) of the Clearing
Procedures is to be replaced with the lower case term ``collateral'',
as there is no definition of the former term in the Rules or
Procedures. It is also proposed that the word ``Initial'' be deleted
before the words ``Margin requirement'' in the same provision since the
relevant requirement concerns all kinds of Margin (including Variation
Margin or Mark-to-Market Margin).
In the Finance Procedures, a new paragraph 1.11 is proposed to be
added to provide definitions for the various currencies referenced the
Finance Procedures which are not defined in the Rules. Related to this,
the reference to Canadian Dollars, Swiss Francs and Swedish Kroner in
paragraph 2.1 is to be deleted and replaced by the words ``Other
currencies'' to reflect the fact that a broader range of currencies are
actually received as income on non-cash collateral. Changes are
proposed to paragraph 4.1(a)(vi) to clarify that Clearing Members that
transfer non-cash assets to ICE Clear Europe as collateral must have an
account in the currency of the income payable on the non-cash asset. A
non-substantive drafting clarification would be made in paragraph 4.2
to address Clearing Members that act in more than one product category.
In paragraph 6.1(i) of the Finance Procedures, the current
reference to ``bank holidays'' would be amended to refer also to
``public holidays,'' because ``bank holiday'' is a UK-specific term
that is not necessarily used in other jurisdictions. Certain other
changers would clarify that relevant actions must be taken ``by'' a
specified date, rather than ``on'' that date. Paragraph 8.2 of the
Finance Procedures would be amended to refer to the ``risk
department'', since ``Risk'' is an undefined term.
Changes are proposed to paragraph 10.9 of the Finance Procedures to
reflect the fact that the London Gold Fixing has been replaced as the
relevant global benchmark for gold prices by the London Bullion Market
Association Gold Price, which is administered by ICE Benchmark
Administration Limited.
In the Contract Terms Procedures, the term ``Clearing
Counterparty'' (which is not used or defined in the Rules or other
Procedures) would be changed to ``Clearing Member'' for consistency.
In the Membership Procedures, in paragraph 1.3, the full name of
the relevant committee, the ``Executive Risk Committee'', would be
used. Various drafting changes have also been proposed to the table at
paragraph 4.2. These updates reflect the relevant defined terms used in
the Rules (as proposed to be amended hereby).
In addition to the foregoing, certain corrections and updates to
cross-references and numbering, as well as minor and non-substantive
corrections to capitalization and other typographical corrections, have
been made throughout the Rules and Procedures.
(b) Statutory Basis
ICE Clear Europe believes that the proposed amendments are
consistent with the requirements of Section 17A of the Act \8\ and the
regulations thereunder applicable to it, including the standards under
Rule 17Ad-22.\9\ 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.
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\8\ 15 U.S.C. 78q-1.
\9\ 17 CFR 240.17Ad-22.
\10\ 15 U.S.C. 78q-1(b)(3)(F).
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The proposed amendments are intended principally to update and
clarify certain references in the Rules and Procedures to reflect more
clearly current practices, remove outdated references and provisions,
simplify and harmonize references to the different Markets cleared by
ICE Clear Europe and to the different delivery facilities used by ICE
Clear Europe. The changes would also remove references to contracts no
longer cleared, and make various other drafting improvements and
modifications that would generally not affect the terms of contracts,
or the rights or obligations of Clearing
[[Page 55655]]
Members. In ICE Clear Europe's view, these changes will generally help
clarify and simplify the Rules and Procedures, and make it easier for
ICE Clear Europe to keep such documents up to date notwithstanding
potential future changes in the Markets cleared and similar events. In
ICE Clear Europe's view, these changes are therefore generally
consistent with the prompt and accurate clearance and settlement of
cleared transactions. For similar reasons, the amendments will also
help ensure that the Rules and Procedures are aligned with operational
procedures concerning the holding of funds and securities, and are
therefore consistent with safeguarding of securities and funds in the
custody or control of the Clearing House or which it is responsible.
Overall, in ICE Clear Europe's view, the amendments are for these
reasons also consistent with the protection of investors and the public
interest, within the meaning of Section 17A(b)(3)(F) of the Act.\11\
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\11\ Id.
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The proposed Rule changes are also consistent with the relevant
requirements of Rule 17Ad-22. In particular, Rule 17Ad-22(e)(1) \12\
requires that each covered clearing agency establish, implement,
maintain and enforce written policies and procedures reasonably
designed to provide for a well-founded, clear, transparent, and
enforceable legal basis for each aspect of its activities in all
relevant jurisdictions. As discussed herein, the amendments are
designed to clarify, simplify and harmonize various aspects of the
Rules and Procedures, to be consistent with current operations, remove
outdated references, address changes in Markets served and delivery
facilities used, and similar matters. Taken together, these amendments
will enhance the clarity of the legal framework provided by the Rules
and Procedures under which the Clearing House operates, and are
therefore consistent with Rule 17Ad-22(e)(1).\13\
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\12\ 17 CFR 240.17Ad-22(e)(1).
\13\ 17 CFR 240.17Ad-22(e)(1).
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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 purpose of the Act. The amendments do
not change the legal rights of members or users in any material way and
are being adopted to update and clarify various references in the Rules
and Procedures and to remove obsolete provisions and covered errors.
ICE Clear Europe does not believe such amendments will result in
material changes in its current operations or practices, or the rights
or obligations of Clearing Members. Such amendments will apply to all
Clearing Members. ICE Clear Europe does not believe such amendments
would in themselves materially affect the cost of, or access to
clearing. Legal costs of users should be reduced by correcting errors
and removing ambiguity which might otherwise require legal advice. As a
result, ICE Clear Europe does not believe such amendments would
adversely affect competition among Clearing Members or the market for
clearing services generally.
(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 on amendments
to its Rules that included the proposed rule changes set forth
herein.\14\ It should be noted that this consultation included not only
the changes discussed herein, but also a number of other changes which
ICE Clear Europe has addressed in prior filings and intends to address
in future filings. ICE Clear Europe received three detailed and written
responses to the overall consultation, which included four specific
comments relating to the amendments described in this filing. It has
discussed aspects of the proposed Rule changes, as were presented in
such consultation, with those interested Clearing Members who
responded. Based on feedback received by ICE Clear Europe, those
Clearing Members who responded supported all the changes proposed
herein. Clearing Members' comments were generally concentrated on other
matters arising in the consultation which have been or will be
addressed in other rule filings (it being important to stress that all
Clearing Member comments on the set as a whole have been addressed to
consultation respondents' satisfaction). With respect to the amendments
that are subject to this filing, one Clearing Member in each case asked
certain questions concerning the rationale for proposed amendments to
the definition of ``Person'', Rule 401(b), Rule 503(d) and Rule
503(f)(i), the rationale for each of which is presented above. The
rationale for these changes was clarified in a call with the relevant
Clearing Members. ICE Clear Europe determined that the questions were
adequately addressed by oral explanations and discussions with Clearing
Members and that no material changes to the consulted-upon Rules were
required. ICE Clear Europe will notify the Commission of any further
written comments with respect to the proposed rules received by ICE
Clear Europe.
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\14\ ICE Clear Europe Circular C19/046 (March 8, 2019),
available at https://www.theice.com/publicdocs/clear_europe/circulars/C19046.pdf.
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III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not:
(i) Significantly affect the protection of investors or the public
interest;
(ii) impose any significant burden on competition; and
(iii) become operative for 30 days from the date on which it was
filed, or such shorter time as the Commission may designate, it has
become effective pursuant to Section 19(b)(3)(A) of the Act and Rule
19b-4(f)(6) 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.
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-2019-020 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-2019-020. 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
[[Page 55656]]
amendments, all written statements with respect to the proposed rule
change that are filed with the Commission, and all written
communications relating to the proposed rule change between the
Commission and any person, other than those that may be withheld from
the public in accordance with the provisions of 5 U.S.C. 552, will be
available for website viewing and printing in the Commission's Public
Reference Room, 100 F Street NE, Washington, DC 20549, on official
business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of
such filings will also be available for inspection and copying at the
principal office of ICE Clear Europe and on ICE Clear Europe's website
at https://www.theice.com/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-2019-020 and
should be submitted on or before November 7, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-22593 Filed 10-16-19; 8:45 am]
BILLING CODE 8011-01-P