[Federal Register Volume 83, Number 31 (Wednesday, February 14, 2018)]
[Notices]
[Pages 6660-6662]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-02974]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-82659; File No. SR-ICEEU-2017-011]
Self-Regulatory Organizations; ICE Clear Europe Limited; Order
Approving Proposed Rule Change Relating to Amendments to the ICE Clear
Europe Collateral and Haircut Policy
February 8, 2018.
I. Introduction
On November 2, 2017, ICE Clear Europe Limited (``ICE Clear
Europe'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to modify the ICE Clear Europe Collateral and
Haircut Policy to incorporate certain changes to the calculation of
absolute collateral limits for bonds provided as Permitted Cover by
Clearing Members and make certain clarifications and updates and add
certain general provisions.\3\ The proposed rule change was published
for comment in the Federal Register on November 17, 2017.\4\ The
Commission did not receive comments regarding the proposed rule change.
On December 27, 2017, the Commission designated a longer period for
Commission action on the proposed rule change.\5\ For the reasons
discussed below, the Commission is approving the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Capitalized terms used in this order but not defined herein
have the same meanings specified in the ICE Clear Europe Clearing
Rules.
\4\ Securities Exchange Act Release No. 82063 (Nov. 13, 2017),
82 FR 54423 (Nov. 17, 2017) (SR-ICEEU-2017-011) (``Notice'').
\5\ Securities Exchange Act Release No. 82405 (Dec. 27, 2017),
83 FR 181 (Jan. 2, 2018).
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II. Description of the Proposed Rule Change
The proposed rule change would amend ICE Clear Europe's Collateral
and Haircut Policy to set the absolute collateral limits for bonds
provided as Permitted Cover by Clearing Members so as to more
accurately capture the trading liquidity of each bond. The proposal
would also take into account ICE Clear Europe's committed repo
facilities to permit Clearing Members to maintain collateral in excess
of normal absolute limits.\6\ In addition, the proposed rule change
would revise the haircut calculation. Finally, the proposed rule change
would update the Collateral and Haircut Policy to add certain general
provisions designed to enhance ICE Clear Europe's governance. These
changes are further described below.
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\6\ As used herein, the term ``absolute limit'' refers to the
maximum amount of bonds from an individual issuer that ICE Clear
Europe will accept from a Member Group. See Notice, 82 FR at 54424.
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With respect to setting absolute collateral limits for bonds
provided as Permitted Cover by Clearing Members, ICE Clear Europe
proposed to set limits for each bond issuer and collateral type at 10%
of the average daily volume over the past three months, rounded to the
nearest million.\7\ The proposed rule change would also change the
underlying data used in the calculation of the absolute limit from a
repo survey of market participants to actual secondary market trading
volume data provided by ICE Data Services, except where official
trading volume data is
[[Page 6661]]
available from a primary source, such as a governmental agency or
central bank.\8\
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\7\ Id.
\8\ Id.
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To complement the changes to the absolute collateral limits
described above, ICE Clear Europe proposed changes to its haircut
methodology. In particular, the proposed rule change would amend the
haircut methodology to include a two-sided VaR estimation based on the
largest absolute returns.\9\ The proposed rule change would also amend
the Collateral and Haircut Policy to note scenarios in which the ICE
Clear Europe Clearing Risk Department may consider other factors in
setting haircuts, such as the effects caused by changes in the
different underlying bonds used to build bond price time-series or the
impact of unexpected currency events on the calculation of cross-
currency FX haircuts.\10\
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\9\ Id.
\10\ Id.
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In addition, the proposed rule change would also amend the
Collateral and Haircut Policy to account for ICE Clear Europe's
committed repo facilities. For example, in certain circumstances, ICE
Clear Europe permits a Clearing Member to maintain a collateral bond
position that otherwise exceeds the applicable absolute collateral
limits if ICE Clear Europe is able to determine that it would be able
to use its committed repo facility to convert the excess collateral
securities into cash. In addition, to permit the use of repo facilities
in this way, the proposed rule change also clarifies that the repo
facilities are available at any time there is an intra-day liquidity
need and not just in case of Clearing Member default.\11\
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\11\ Id.
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Finally, the proposed rule change would amend the Collateral and
Haircut Policy to update references to internal ICE Clear Europe
personnel, departments and committees and to explain the process for
validation and oversight of the models used to support the Collateral
and Haircut Policy.
III. Discussion and Commission Findings
Section 19(b)(2)(C) of the Act directs the Commission to approve a
proposed rule change of a self-regulatory organization if it finds that
such proposed rule change is consistent with the requirements of the
Act and the rules and regulations thereunder applicable to such
organization.\12\ For the reasons given below, the Commission finds
that the proposal is consistent with Section 17A(b)(3)(F) of the Act
\13\ and Rules 17Ad-22(e)(2) and (5) thereunder.\14\
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\12\ 15 U.S.C. 78s(b)(2)(C).
\13\ 15 U.S.C. 78q-1(b)(3)(F).
\14\ 17 CFR 240.17Ad-22(e)(2), (5).
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A. Consistency With Section 17A(b)(3)(F) of the Act
Section 17A(b)(3)(F) of the Act requires, among other things, that
the rules of a registered clearing agency be designed to assure the
safeguarding of securities and funds which are in the custody or
control of the clearing agency or for which it is responsible and, in
general, to protect investors and the public interest.\15\ The proposed
rule change will enhance ICE Clear Europe's ability to control the
credit, liquidity, and market risks stemming from the collateral it
accepts by establishing a maximum amount of bonds from an individual
issuer that ICE Clear Europe will accept from a Member Group as
collateral. These new maximum amounts will be derived from actual
secondary market trading volume data, and therefore should be more
reliable than the prior absolute limits, which as noted above, were
based on a repo survey of market participants as a proxy for trading
liquidity. Therefore, these limits should be more accurate, and
consequently, enhance ICE Clear Europe's ability to liquidate the bond
collateral in a timely manner. Further, the proposed rule change also
proposes to incorporate a two-sided VaR estimation based on the largest
absolute returns for purposes of setting haircuts. Taken together these
two changes should enhance ICE Clear Europe's ability to manage the
credit, liquidity, and market risks it faces from posted collateral,
and therefore enhance ICE Clear Europe's ability to safeguard
securities and funds which are in its custody or control or for which
it is responsible. Therefore, the Commission finds that the proposed
rule change is designed to assure the safeguarding of securities and
funds which are in the custody or control of ICE Clear Europe or for
which it is responsible and, in general, protects investors and the
public interest, and is therefore consistent with Section 17A(b)(3)(F)
of the Act.\16\
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\15\ 15 U.S.C. 78q-1(b)(3)(F).
\16\ Id.
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B. Consistency With Rule 17Ad-22(e)(5)
The Commission further finds that the proposed rule change is
consistent with Rule 17Ad-22(e)(5). Rule 17Ad-22(e)(5) requires that a
covered clearing agency establish, implement, maintain and enforce
written policies and procedures reasonably designed to limit the assets
it accepts as collateral to those with low credit, liquidity, and
market risks, and set and enforce appropriately conservative haircuts
and concentration limits if the covered clearing agency requires
collateral to manage its or its participants' credit exposure; and
require a review of the sufficiency of its collateral haircuts and
concentration limits to be performed not less than annually.\17\
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\17\ 17 CFR 240.17Ad-22(e)(5).
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The proposed rule change will enhance ICE Clear Europe's ability to
control the liquidity and market risks stemming from the posting of
collateral by establishing a maximum amount of bonds from an individual
issuer that ICE Clear Europe will accept from a Member Group as
collateral. The proposed rule change will improve the accuracy of the
Collateral and Haircut Policy by taking into account the trading
liquidity of the bond using secondary market trading volume data
provided by ICE Data Services. Moreover, by updating the Collateral and
Haircut Policy to incorporate a two-sided VaR estimation based on the
largest absolute returns, the proposed rule change will capture a
broader range of price volatility information, thereby enhancing ICE
Clear Europe's ability to liquidate the bond collateral in a timely
manner without losses beyond the given haircuts. The Commission finds
that these aspects of the proposed rule change are intended to limit
the assets ICE Clear Europe accepts as collateral to those with low
credit, liquidity, and market risks, and to set and enforce
appropriately conservative haircuts. Therefore, the proposed rule
change is consistent with Rule 17Ad-22(e)(5).\18\
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\18\ Id.
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C. Consistency with Rule 17Ad-22(e)(2)
Rule 17Ad-22(e)(2) requires that a covered clearing agency
establish, implement, maintain and enforce written policies and
procedures reasonably designed to provide for governance arrangements
that are clear and transparent and support the public interest
requirements in Section 17A of the Act applicable to clearing agencies,
and the objectives of owners and participants.\19\ The proposed rule
change will update references to internal ICE Clear Europe personnel,
departments and committees and will explain the process for validation
and oversight of the models used to support the Collateral and Haircut
Policy. Therefore, the Commission finds that the proposed rule change
is consistent with the requirement in Rule 17Ad-
[[Page 6662]]
22(e)(2) concerning governance arrangements that are clear and
transparent and that support the public interest requirements of
Section 17A of the Act applicable to clearing agencies and the
objectives of participants.\20\
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\19\ 17 CFR 240.17Ad-22(e)(2)(i) and (iii).
\20\ Id.
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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 \21\ and
Rules 17Ad-22(e)(2) and (5) thereunder.
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\21\ 15 U.S.C. 78q-1.
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It is therefore ordered pursuant to Section 19(b)(2) of the Act
\22\ that the proposed rule change (SR-ICEEU-2017-011) be, and hereby
is, approved.\23\
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\22\ 15 U.S.C. 78s(b)(2).
\23\ 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).
\24\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-02974 Filed 2-13-18; 8:45 am]
BILLING CODE 8011-01-P