[Federal Register Volume 79, Number 154 (Monday, August 11, 2014)]
[Notices]
[Pages 46894-46896]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-18877]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72761; File No. SR-ICEEU-2014-12]
Self-Regulatory Organizations; ICE Clear Europe Limited; Notice
of Filing of Proposed Rule Change to Liquidity Policies Relating to
EMIR
August 5, 2014.
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 July 25, 2014, ICE Clear Europe Limited (``ICE Clear Europe'') filed
with the Securities and Exchange Commission (``Commission'') the
proposed rule change described in Items I, II and III below, which
Items have been prepared primarily by ICE Clear Europe. The Commission
is publishing this notice to solicit comments on the proposed rule
change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The principal purpose of the proposed change is to amend and
formalize certain ICE Clear Europe liquidity policies and procedures
(the ``Liquidity Policy Amendments''), including to facilitate
compliance with requirements under the European Market Infrastructure
Regulation (including regulations thereunder, ``EMIR'') \3\ that will
apply to ICE Clear Europe as an authorized central counterparty.
---------------------------------------------------------------------------
\3\ Regulation (EU) No. 648/2012 of the European Parliament and
of the Council of 4 July 2012 on OTC derivatives, central
counterparties and trade repositories.
---------------------------------------------------------------------------
II. Self-Regulatory Organization'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 these statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
ICE Clear Europe proposes to amend its existing Liquidity Risk
Management Framework (``LRMF'') and to adopt a separate Liquidity Plan
that formalizes certain procedures and internal processes relating to
liquidity objectives and monitoring, testing and decision-making
relating to sufficiency of liquidity resources. In ICE Clear Europe's
view, the creation of the Liquidity Plan does not materially change
existing procedures and processes but is intended to formalize them, in
order to be consistent with requirements under EMIR.
The Liquidity Plan has been drafted in accordance with Article 32
of the Regulatory Technical Standards implementing EMIR.\4\ Consistent
with Article 32, the stated objectives of the Liquidity Plan are to:
(i) Identify sources of liquidity risk; (ii) manage and monitor
liquidity needs across a range of stressed market scenarios; (iii)
maintain sufficient and distinct financial resources to cover liquidity
needs; (iv) assess and value the liquid assets available to the
clearing house and its liquidity needs; (v) assess timescales over
which liquid financial resources should be available; (vi) manage a
liquidity shortfall event; (vi) replace financial resources used in a
liquidity shortfall event; and (vii) assess potential liquidity needs
stemming from Clearing Members ability to swap cash for non-cash
collateral. The Liquidity
[[Page 46895]]
Plan also reflects requirements and guidance of the Bank of England.
---------------------------------------------------------------------------
\4\ Commission Delegated Regulation (EU) No. 153/2013 of 9
December 2012 Supplementing Regulation (EU) No. 648/2012 of the
European Parliament and of the Council with regard to Regulatory
Technical Standards on Requirements for Central Counterparties (the
``Regulatory Technical Standards'').
---------------------------------------------------------------------------
The Liquidity Plan contains details about ICE Clear Europe's
liquidity monitoring, stress testing, reporting and management
procedures. With respect to monitoring, various systems and processes
are used by ICE Clear Europe to ascertain the status of settlements at
the start of the day, intra-day and at the end of day, as well as the
status of related investment activity during the day. Any deviation
from established tolerance levels will be escalated in accordance with
the Liquidity Plan. The Liquidity Plan also uses certain Key Risk &
Performance Indicators (``KRPIs'') to ensure the investment policies
are respected in light of ICE Clear Europe's credit and liquidity
requirements, based on a number of investment categories (such as
secured investments, unsecured investments, sovereign investors) and
tenor categories.
The Liquidity Plan identifies various sources of liquidity risks,
including exposure to settlement banks, custodian banks, liquidity
providers, investment counterparties, payment systems, clearing members
and other service providers, and provides for regular stress testing
based on those risks. The Liquidity Plan also addresses liquidity risk
tolerances and appetite limits established by the Board in connection
with stress testing. Stress testing is conducted using a range of
scenarios, including both historical scenarios and forward-looking
scenarios involving extreme but plausible market events and conditions.
Both types of scenarios simulate extreme but plausible losses arising
from the default of the clearing members with the two largest liquidity
exposures, consistent with EMIR requirements. Scenarios also address
the required level of liquidity resources in a range of other
conditions in the relevant currencies used by ICE Clear Europe,
including defaults of investment counterparties, settlement banks,
Nostro agents, intraday liquidity providers and other service
providers, market infrastructure failures and other systemic events
(and combinations thereof). Historical scenarios are run on a single
day, and a historical trend is kept. Forward-looking scenarios project
these cash flows over the coming eight-day period.
ICE Clear Europe's Liquidity Plan also specifies procedures for
liquidity management in cases of potential liquidity stress. ICE Clear
Europe has defined a series of liquidity events and stress situations,
ordered by severity, which trigger a notification to the relevant level
of management and, if further escalation is required, the Board. The
Liquidity Plan also outlines actions that may be taken in each
situation to address the liquidity event or stress.
The Liquidity Plan provides for daily, weekly and monthly reporting
requirements to relevant levels of clearing house management, Board
risk committee, the Board and regulators, as appropriate. In addition,
the Liquidity Plan establishes a protocol for breaches and liquidity
events, which includes reporting and escalation based on the severity
of the event, mitigating actions and replenishment of liquidity. The
Liquidity Plan also provides for periodic testing of liquidity
resources to ensure that they are ``highly reliable'' within the
meaning of Article 44 of EMIR.
As part of the specified governance process, the Liquidity Plan
will be reviewed by management and must be approved by the Board
annually following consultation with the Board risk committee.
Deviations and interim changes similarly require Board approval
following consultation with the Board risk committee.
ICE Clear Europe has also revised its LRMF to reflect the adoption
of the new, separate Liquidity Plan (and the two documents together are
intended to reflect the clearing house's approach to liquidity
management). Various sections of the LRMF have also been modified to
improve clarity and readability. As revised, the LRMF specifies the
objectives of liquidity management, and references relevant policies,
including investment policies, collateral management and haircut
policies, stress testing policies and operational risk management
policies. The LRMF also addresses the policies for establishing
liquidity risk tolerances and appetites, the range of relevant stress
scenarios (which are derived from the CPSS-IOSCO Principles for
Financial Market Infrastructures and Regulatory Technical Standards
Article 32.4), reverse stress testing requirements in accordance with
Regulatory Technical Standards Article 49, and the resources the
clearing house will treat as available for liquidity management
purposes. The LRMF specifies further procedures concerning liquidity
shortfalls and replenishment, complementing the provisions set forth in
the Liquidity Plan. The LRMF also specifies procedures for internal
review and governance over the liquidity policies, as well as
procedures for exceptions and breaches of risk tolerance or risk
appetite levels.
2. Statutory Basis
ICE Clear Europe believes that the proposed rule change is
consistent with the requirements of Section 17A of the Act \5\ and the
regulations thereunder applicable to it, including the standards under
Rule 17Ad-22.\6\ Section 17A(b)(3)(F) of the Act \7\ 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 and to comply with the provisions of the Act
and the rules and regulations thereunder. The proposed rules are
designed to formalize the clearing house's policies and procedures
relating to liquidity risk management. In particular, the revised
policies address ICE Clear Europe's liquidity resources and procedures
for testing the adequacy of those resources in a range of scenarios,
including extreme but plausible scenarios involving, among other
things, the default of a clearing member, settlement bank, liquidity
provider and other service providers. They also provide further clarity
as to the steps ICE Clear Europe may take when confronted with a
potential liquidity shortfall or similar event. In ICE Clear Europe's
view, the amendments thereby enhance the ability of the clearing house
to assess potential liquidity events that may impact its ability to
conduct settlements for cleared transactions and its ability to avoid
or manage such events and continue clearing house operations. As such,
ICE Clear Europe believes that the changes will promote the prompt and
accurate settlement of securities and derivatives transactions, and
therefore are consistent with the requirements of the Act and the rules
and regulations thereunder applicable to ICE Clear Europe, in
particular, to Section 17(A)(b)(3)(F).
---------------------------------------------------------------------------
\5\ 15 U.S.C. 78q-1.
\6\ 17 CFR 240.17Ad-22.
\7\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
ICE Clear Europe does not believe the Liquidity Policy 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 formalize certain liquidity management policies and
procedures. ICE Clear Europe does not believe that the revised policies
will materially affect the cost of clearing for clearing members or
their customers, impose additional requirements on clearing members, or
otherwise affect access to clearing. The amendments will promote
liquidity risk
[[Page 46896]]
management and thereby enhance the stability of the clearing house and
its ability to continue to provide clearing services in the case of
liquidity stresses.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
Written comments relating to the proposed change to the rules have
not been solicited or received. ICE Clear Europe will notify the
Commission of any written comments received by ICE Clear Europe.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml) or
Send an email to [email protected]. Please include
File Number SR-ICEEU-2014-12 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-2014-12. 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 Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site 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 also will be available
for inspection and copying at the principal office of ICE Clear Europe
and on ICE Clear Europe's Web site at https://www.theice.com/clear-europe/regulation.
All comments received will be posted without change; the Commission
does not edit personal identifying information from submissions. You
should submit only information that you wish to make available
publicly. All submissions should refer to File Number SR-ICEEU-2014-12
and should be submitted on or before September 2, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\8\
---------------------------------------------------------------------------
\8\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-18877 Filed 8-8-14; 8:45 am]
BILLING CODE 8011-01-P