[Federal Register Volume 80, Number 10 (Thursday, January 15, 2015)]
[Notices]
[Pages 2160-2161]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-00529]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-74026; File No. SR-ICEEU-2014-22]
Self-Regulatory Organizations; ICE Clear Europe Limited; Order
Approving Proposed Rule Change Relating to ICE Clear Europe Board Risk
Committee
January 9, 2015.
I. Introduction
On November 10, 2014, ICE Clear Europe Limited (``ICE Clear
Europe'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change SR-ICEEU-2014-22 pursuant to
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\
and Rule 19b-4 thereunder.\2\ The proposed rule change was published
for comment in the Federal Register on November 25, 2014.\3\ The
Commission did not receive comments on the proposed rule change. For
the reasons discussed below, the Commission is approving the proposed
rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 34-73645 (Nov. 18,
2014), 79 FR 70251 (Nov. 25, 2014) (SR-ICEEU-2014-22).
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
ICE Clear Europe is proposing this change to establish a risk
committee (the ``Board Risk Committee''), as described in the ICE Clear
Europe Board Risk Committee Composition and Terms of Reference (``Terms
of Reference''), which will advise the ICE Clear Europe Board (the
``Board'') on certain clearing house-wide risk management matters. The
establishment of the Board Risk Committee is required under Article 28
of the European Market Infrastructure Regulation (``EMIR''),\4\ which
will apply to ICE Clear Europe as an authorized central counterparty.
---------------------------------------------------------------------------
\4\ 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.
---------------------------------------------------------------------------
Pursuant to the Terms of Reference, the role of the Board Risk
Committee, which will meet at least quarterly and report directly to
the Board, will be to advise the Board so the Board can ensure that ICE
Clear Europe (i) implements and maintains agreed risk management
procedures, processes, and controls, (ii) provides appropriate access
to its clearing services, and (iii) appropriately considers the
interests of non-clearing members, including with respect to account
segregation and collateral protection. ICE Clear Europe states that the
Board Risk Committee's activities will relate to all product categories
cleared at ICE Clear Europe, and that they are in addition to ICE Clear
Europe's existing product-specific risk committees (F&O, CDS and FX).
Pursuant to its Terms of Reference, the Board Risk Committee's
responsibilities will include receiving and reviewing all
recommendations from each of the product-specific risk committees,
reviewing business risk mitigation procedures and controls at least
annually, and overseeing all risks facing ICE Clear Europe, including
counterparty credit risk and non-counterparty credit risks, such as
operational and liquidity risks. In addition, the Terms of Reference
provide that the Board Risk Committee will advise the Board regarding
any arrangements that may materially impact the risk management of ICE
Clear Europe, such as a significant change in its criteria for
accepting clearing members, clearing in new markets, or outsourcing of
certain functions.
In accordance with its Terms of Reference, the Board Risk Committee
will be provided with results and analysis of back-testing, sensitivity
testing, stress testing, and reverse stress testing for any review of
margin models, methodologies, and/or the liquidity risk management
framework. The Board Risk Committee's Terms of Reference also provide
that the Board Risk Committee will consider other issues that may be
referred to it by the Board and/or executive, including the exercise of
discretion regarding recovery arrangements under the Rules. Further,
the Terms of Reference provide that the Board Risk Committee may obtain
external legal or other independent advice and secure the attendance of
third parties with relevant experience and expertise. The Terms of
Reference, however, clarify that the Board Risk Committee's advice is
not required for the daily operations of ICE Clear Europe.
The Terms of Reference provide that the Board Risk Committee will
be composed of at least two, and up to four, Clearing Member
representatives and at least two, and up to four, customer
representatives, in each case appointed by the Board Risk Committee
Chairman following consideration by the ICE Clear Europe Nominations
Committee. Pursuant to the Board Risk Committee composition
requirements as described in the Terms of Reference, the Board Risk
Committee Chairman will be an independent non-executive director of ICE
Clear Europe appointed by the Board and will be a full voting member of
the committee. In addition, the Terms of Reference provide that any
member of the Board Risk Committee may be removed by the Board without
cause, and that the Board Risk Committee composition will be reviewed
annually to determine whether the committee has appropriate
representation of Clearing Members, customers and independent non-
executive directors, and appropriate representation of expertise and
experience in relevant risk disciplines, including market, credit and
operational risk. Based on this review, the Chairman may, pursuant to
the Terms of Reference, request the resignation of one or more
committee members and/or appoint one or more committee members to
achieve such appropriate representation.
Pursuant to the Terms of Reference, ICE Clear Europe's Chief Risk
Officer, President, and other appropriate staff members will attend
Board Risk Committee meetings in a non-voting capacity. Additionally,
the Terms of Reference provide that the chairs of any groups or
committees involved in developing risk policies and a representative
from each of the markets cleared by ICE Clear Europe will have a right
to attend, but not vote, at Board Risk Committee meetings, and that the
Board Risk Committee may invite external independent experts to attend
meetings in a non-voting capacity. The Terms of Reference requires that
a quorum will be a minimum of four members, one of whom must be a
customer representative and one of whom must be a Clearing Member
representative, and that the Board Risk Committee Chairman will count
toward the quorum. The Terms of Reference stipulates that each Board
Risk Committee member will have one vote and Board Risk Committee
decisions will be made by a simple majority, provided that if the
committee is evenly divided, the Chairman may cast a deciding vote (in
addition to the
[[Page 2161]]
Chairman's normal vote as a committee member).
III. Discussion and Commission Findings
Section 19(b)(2)(C) of the Act \5\ directs the Commission to
approve a proposed rule change of a self-regulatory organization if the
Commission finds that such proposed rule change is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to such self-regulatory organization. Section 17A(b)(3)(F)
of the Act \6\ requires, among other things, that the rules of a
clearing agency are designed, in general, to protect investors and the
public interest. In addition, Rule 17Ad-22(d)(8) requires registered
clearing agencies to establish, implement, maintain and enforce written
policies and procedures reasonably designed to have governance
arrangements that are clear and transparent to fulfill the public
interest requirements in Section 17A of the Act applicable to clearing
agencies, to support the objectives of owners and participants, and to
promote the effectiveness of the clearing agency's risk management
procedures.\7\
---------------------------------------------------------------------------
\5\ 15 U.S.C. 78s(b)(2)(C).
\6\ 15 U.S.C. 78q-1(b)(3)(F).
\7\ 17 CFR 240.17Ad-22(d)(8).
---------------------------------------------------------------------------
The Commission finds that the proposed rule change is consistent
with Section 17A of the Act \8\ and the rules thereunder applicable to
ICE Clear Europe. As described above, the Board Risk Committee's Terms
of Reference provide specific information regarding, among other
things, the Board Risk Committee's objectives, responsibilities,
composition, and governance, as well as its relationship with the Board
and other ICE Clear Europe committees. Specifically, the Terms of
Reference state that the Board Risk Committee's role is to advise the
Board with respect to various firm-wide risk management matters, while
helping the Board to ensure that ICE Clear Europe (i) implements and
maintains agreed risk management procedures, processes and controls,
(ii) provides appropriate access to its clearing services, and (iii)
appropriately considers the interests of non-clearing member users of
cleared products, including with respect to account segregation and
collateral protection. In this role, the Terms of Reference provide
that the Board Risk Committee will, among other things, advise the
Board regarding any arrangements that may materially impact ICE Clear
Europe's risk management (such as a significant change in its criteria
for accepting clearing members, clearing in new markets, or outsourcing
of certain functions).
---------------------------------------------------------------------------
\8\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------
Moreover, the Terms of Reference provide that the Board Risk
Committee will oversee all risks facing ICE Clear Europe (including
counterparty credit risk, operational risk, and liquidity risk). ICE
Clear Europe states that the Board Risk Committee's activities will
relate to all categories of products cleared at ICE Clear Europe, and
will be in addition to the activities of its existing product-specific
risk committees (i.e., the F&O, CDS and FX risk committees). The Terms
of Reference also require the Board Risk Committee to report directly
to the Board and receive and review all recommendations from each of
the product-specific risk committees. The Commission believes that
these arrangements are reasonably designed to protect investors and the
public interest and to promote the effectiveness of ICE Clear Europe's
risk management procedures. In addition, the Commission believes that
the composition of the Board Risk Committee, as described in the Terms
of Reference, is reasonably designed to represent the interests of
owners, clearing participants, and customers, and, therefore, support
owner and participant objectives.
Accordingly, the Commission believes that the proposed rule change
is consistent with Section 17A(b)(3)(F) of the Act,\9\ and the
requirements of Rule 17Ad-22(d)(8) \10\ applicable to registered
clearing agencies.
---------------------------------------------------------------------------
\9\ 15 U.S.C. 78q-1(b)(3)(F).
\10\ 17 CFR 240.17Ad-22(d)(8).
---------------------------------------------------------------------------
IV. Conclusion
On the basis of the foregoing, the Commission finds that the
proposal is consistent with the requirements of the Act and in
particular with the requirements of Section 17A of the Act \11\ and the
rules and regulations thereunder.
---------------------------------------------------------------------------
\11\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\12\ that the proposed rule change (SR-ICEEU-2014-22) be, and
hereby is, approved.\13\
---------------------------------------------------------------------------
\12\ 15 U.S.C. 78s(b)(2).
\13\ In approving the proposed rule change, the Commission
considered the proposal's impact on efficiency, competition and
capital formation. 15 U.S.C. 78c(f).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
---------------------------------------------------------------------------
\14\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Brent J. Fields,
Secretary.
[FR Doc. 2015-00529 Filed 1-14-15; 8:45 am]
BILLING CODE 8011-01-P