82 FR 10848 - Self-Regulatory Organizations; ICE Clear Europe Limited; Notice of Filing of Proposed Rule Change To Revise the ICE Clear Europe Clearing Rules Relating to the Application of Default Provisions in the Event of a Resolution Proceeding

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 30 (February 15, 2017)

[Federal Register Volume 82, Number 30 (Wednesday, February 15, 2017)]
[Notices]
[Pages 10848-10850]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-02995]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79999; File No. SR-ICEEU-2017-002]


Self-Regulatory Organizations; ICE Clear Europe Limited; Notice 
of Filing of Proposed Rule Change To Revise the ICE Clear Europe 
Clearing Rules Relating to the Application of Default Provisions in the 
Event of a Resolution Proceeding

February 9, 2017.
    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 January 25, 2017, ICE Clear Europe Limited (``ICE Clear Europe'' or 
``Clearing House'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been primarily prepared by ICE Clear 
Europe. 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.
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The principal purpose of the proposed rule change is to modify the 
ICE Clear Europe Clearing Rules (``Clearing Rules'') to clarify the 
application of certain default provisions in the event of a resolution 
proceeding with respect to the Clearing House or a Clearing Member.

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

1. Purpose
    The purpose of the rule amendments is to modify the ICE Clear 
Europe Clearing Rules to clarify the application of certain default-
related provisions in the context of resolution proceedings with 
respect to the Clearing House or a Clearing Member. Such proceedings 
can arise under so-called special resolution regimes that may apply 
under applicable law to the Clearing House or a Clearing Member in the 
event of either's failure or insolvency, as an alternative to 
traditional bankruptcy or insolvency proceedings in the relevant 
jurisdiction. Such regimes include the UK Banking Act 2009 and the EU 
Bank Recovery and Resolution Directive (the ``BRRD'').\3\
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    \3\ Directive 2014/59/EU of the European Parliament and of the 
Council of 15 May 2014 establishing a framework for the recovery and 
resolution of credit institutions and investment firms.
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    In Rule 101, ICE Clear Europe proposes amendments to the definition 
of ``Insolvency'' and addition of new defined terms ``Resolution Step'' 
and ``Unprotected Resolution Step.'' These amendments are designed to 
distinguish between insolvency and resolution proceedings, and reflect 
and incorporate certain limitations on the termination of Contracts and 
exercise of default remedies that apply under the terms of an 
applicable special resolution regime. (Under the current Rules, an 
Insolvency in turn constitutes an Event of Default that permits the 
exercise of the default rights and remedies specified in the Rules.)
    The definition of Insolvency has been amended to exclude certain 
resolution proceedings. Specifically, the amendment removes the 
existing provision that a Governmental Authority exercising one or more 
of its stabilization powers under the UK Banking Act 2009 will 
constitute an Insolvency. In addition, the appointment of an Insolvency 
Practitioner, which normally is an Insolvency, will not constitute an 
Insolvency if it is made in connection with a Resolution Step that is 
not an Unprotected Resolution Step, as defined below. A Resolution Step 
involving a Governmental Authority making an order to transfer a 
person's securities, property, rights or liabilities (which may be a 
feature of a resolution proceeding) will also not constitute an 
Insolvency.

[[Page 10849]]

    A new definition of ``Resolution Step'' has been added, which can 
apply to persons other than the Clearing House. A Resolution Step means 
a Government Authority exercising stabilization powers under the UK 
Banking Act 2009 or certain resolution authorities under national 
legislation implementing the BRRD. A resolution proceeding of this type 
involving the Clearing House itself will not constitute a Resolution 
Step. The amendments do not address other types of resolution 
proceedings (including resolution proceedings under laws other than the 
UK Banking Act 2009 or national laws implementing the BRRD).
    A new definition of ``Unprotected Resolution Step'' has been added, 
which means a Resolution Step with respect to a person (other than the 
Clearing House) in which either (i) the substantive obligations of the 
person to the Clearing House under the Rules are not being performed or 
(ii) the Clearing House is not prohibited or otherwise prevented from 
declaring an event of default or exercising termination and close out 
rights under the Rules with respect to that person.
    In Section 901(a)(vii), the definition of Event of Default has been 
modified to include an Unprotected Resolution Step with respect to a 
Clearing Member or any of its Group Companies.
    As a result of these changes, a resolution proceeding under the UK 
Banking Act or national laws implementing the BRRD, with respect to 
either the Clearing House itself or a Clearing Member, will not 
constitute an Insolvency. Such a resolution proceeding that involves a 
Clearing Member will constitute a Resolution Step, but a Resolution 
Step will not itself constitute an Event of Default under the Rules, 
unless it is an Unprotected Resolution Step. In light of the definition 
of Unprotected Resolution Step, this approach thus takes into account 
limitations imposed by the relevant resolution regime on the 
declaration of a default and exercise of default remedies in the 
context of a resolution proceeding.
    A variety of conforming and other clarifying changes have been made 
throughout the Rules. In the definition of ``Insolvency Practitioner'' 
in Rule 101, a reference to a temporary administrator has been added. 
The definition of ``Applicable Law'' has been revised to use the 
defined term ``Insolvency.'' Rule 201(a)(xxi) has been revised to 
provide that in order to become or remain a Clearing Member, a person 
must not be subject to an Unprotected Resolution Step (in addition to 
the existing provision that a person must not be subject to an 
Insolvency). In Rule 202(b), reference to various types of insolvency 
laws have been replaced using the term Insolvency and Applicable Laws. 
Rule 201(a)(xxxv) has been revised to refer to applicable laws 
involving Resolution Steps as well as Insolvency. Similarly, Rule 
204(a)(viii) requires a Clearing Member to notify the Clearing House of 
any Resolution Step involving it or its Group Companies. In Rule 
405(a)(ii) and (f), references to various types of insolvency 
proceedings have been replaced with the defined term Insolvency.
    Rule 903(d)(i), which addresses certain automatic termination 
events, has been revised to include a reference to an Unprotected 
Resolution Step, in addition to the current reference to Insolvency. In 
Rule 904(m), which requires the Clearing House to commit to trigger the 
procedures for transfer of customer positions following a Clearing 
Member default, a requirement has been added that the relevant customer 
is not subject to an Unprotected Resolution Step (in parallel to the 
existing requirement that the customer not be subject to an 
Insolvency). Similar changes are made in Rule 904(p) with respect to 
Sponsored Principals and Rule 904(u) with respect to Customers using 
Individually Segregated Margin-flow Co-mingled Accounts.
    In Rule 1901(b)(x), a requirement that Sponsored Principals not be 
subject to an Unprotected Resolution Step has been added (similar to 
the requirement discussed above for Clearing Members in revised Rule 
201(a)). Rule 1901(b)(xiv) has also been revised to refer to the 
defined term Insolvency. In addition, in each of the forms of Standard 
Terms Annex, paragraph 10 has been revised to use the defined term 
Insolvency in place of certain references to various types of 
insolvency proceedings.
2. Statutory Basis
    ICE Clear Europe believes that the changes described herein are 
consistent with the requirements of Section 17A of the Act \4\ and the 
regulations thereunder applicable to it, and are consistent with the 
prompt and accurate clearance of 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 ICE Clear Europe or for which it is 
responsible and the protection of investors and the public interest, 
within the meaning of Section 17A(b)(3)(F) of the Act.\5\ The changes 
to the Rules are intended to clarify the applicability of certain 
default rights and remedies in the context of a resolution proceeding 
with respect to the Clearing House or a Clearing Member, in light of 
limitations that may exist under the UK Banking Act 2009 and BRRD (and 
relevant national implementing legislation) on the exercise of such 
rights and remedies. As such, ICE Clear Europe believes that the 
changes will promote the prompt and accurate clearance and settlement 
of securities and derivatives transactions, and further the public 
interest in the safe and effective clearing of such transactions. ICE 
Clear Europe also does not believe the amendments will adversely affect 
the safeguarding of securities and funds in its custody or control or 
for which it is responsible. In addition, the amendments are not 
intended to increase risk to ICE Clear Europe, and will not impact ICE 
Clear Europe's ability to take risk management measures under its Rules 
with respect to non-defaulting Clearing Members (including Clearing 
Members that may be subject to a Resolution Step that is not an 
Unprotected Resolution Step). The changes are thus consistent with the 
requirements of Section 17A of the Act.\6\
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    \4\ 15 U.S.C. 78q-1.
    \5\ 15 U.S.C. 78q-1(b)(3)(F).
    \6\ 15 U.S.C. 78q-1.
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B. Clearing Agency's Statement on Burden on Competition

    ICE Clear Europe does not believe the proposed changes to the rules 
would have any impact, or impose any burden, on competition not 
necessary or appropriate in furtherance of the purpose of the Act. ICE 
Clear Europe is adopting amendments to the Clearing Rules intended to 
conform the Rules to the requirements of certain special resolution 
regimes. ICE Clear Europe does not believe that these changes will 
impose any significant additional costs on Clearing Members or other 
market participants, and further believes that any incremental costs 
that result reflect the limitations imposed on the exercise of remedies 
as a matter of law under certain special resolution regimes. ICE Clear 
Europe does not believe the amendments will adversely affect access to 
clearing by Clearing Members or their customers or otherwise adversely 
affect Clearing Members or market participants. In this regard, the 
changes will apply to all Clearing Members that may be subject to the 
covered types of resolution proceedings, and accordingly are not 
expected to affect competition among Clearing Members or in the market 
for clearing services generally.

[[Page 10850]]

C. Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants or Others

    ICE Clear Europe published a prior version of the proposed 
amendments for consultation with its Clearing Members. In response to 
that consultation, two Clearing Members inquired about the regulatory 
process surrounding the proposed changes. In addition, one Clearing 
Member suggested that certain additional clarifications be made to 
limit the application of other aspects of the Insolvency definition. In 
the context of the current version of the proposed amendments, which 
has been revised from the original consultation, ICE Clear Europe does 
not believe that such additional clarifications are necessary or 
appropriate, and has determined not to make any such clarifications. 
ICE Clear Europe will notify the Commission of any written comments 
with respect to the proposed rule change 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-2017-002 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-2017-002. 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 will also 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-2017-002 
and should be submitted on or before March 2, 2017.
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    \7\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\7\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-02995 Filed 2-14-17; 8:45 am]
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