83 FR 6660 - Self-Regulatory Organizations; ICE Clear Europe Limited; Order Approving Proposed Rule Change Relating to Amendments to the ICE Clear Europe Collateral and Haircut Policy
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 83, Issue 31 (February 14, 2018)
Federal Register Volume 83, Issue 31 (February 14, 2018)
| Page Range | 6660-6662 | |
| FR Document | 2018-02974 |
[Federal Register Volume 83, Number 31 (Wednesday, February 14, 2018)] [Notices] [Pages 6660-6662] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2018-02974] ----------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \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). --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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\ --------------------------------------------------------------------------- \7\ Id. \8\ Id. --------------------------------------------------------------------------- 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\ --------------------------------------------------------------------------- \9\ Id. \10\ Id. --------------------------------------------------------------------------- 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\ --------------------------------------------------------------------------- \11\ Id. --------------------------------------------------------------------------- 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\ --------------------------------------------------------------------------- \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). --------------------------------------------------------------------------- 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\ --------------------------------------------------------------------------- \15\ 15 U.S.C. 78q-1(b)(3)(F). \16\ Id. --------------------------------------------------------------------------- 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\ --------------------------------------------------------------------------- \17\ 17 CFR 240.17Ad-22(e)(5). --------------------------------------------------------------------------- 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\ --------------------------------------------------------------------------- \18\ Id. --------------------------------------------------------------------------- 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\ --------------------------------------------------------------------------- \19\ 17 CFR 240.17Ad-22(e)(2)(i) and (iii). \20\ Id. --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \21\ 15 U.S.C. 78q-1. --------------------------------------------------------------------------- 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\ --------------------------------------------------------------------------- \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
![6660 Federal Register / Vol. 83, No. 31 / Wednesday, February 14, 2018 / Notices
organizational documents would be internet website (http://www.sec.gov/ Collateral and Haircut Policy to
expressly identified in the GSD Rules rules/sro.shtml). Copies of the incorporate certain changes to the
and the MBSD Rules to which members submission, all subsequent calculation of absolute collateral limits
are subject. FICC does not believe that amendments, all written statements for bonds provided as Permitted Cover
this proposal would affect any of its with respect to the proposed rule by Clearing Members and make certain
current practices regarding the rights or change that are filed with the clarifications and updates and add
obligations of its members. Therefore, Commission, and all written certain general provisions.3 The
FICC believes that the proposal would communications relating to the proposed rule change was published for
not have any effect on its members and proposed rule change between the comment in the Federal Register on
thus, would not have any impact or Commission and any person, other than November 17, 2017.4 The Commission
burden on competition. those that may be withheld from the did not receive comments regarding the
public in accordance with the proposed rule change. On December 27,
(C) Clearing Agency’s Statement on provisions of 5 U.S.C. 552, will be 2017, the Commission designated a
Comments on the Proposed Rule available for website viewing and longer period for Commission action on
Change Received From Members, printing in the Commission’s Public the proposed rule change.5 For the
Participants, or Others Reference Room, 100 F Street NE, reasons discussed below, the
FICC has not received any written Washington, DC 20549 on official Commission is approving the proposed
comments relating to this proposal. business days between the hours of rule change.
FICC will notify the Commission of any 10:00 a.m. and 3:00 p.m. Copies of the
written comments received by it. filing also will be available for II. Description of the Proposed Rule
inspection and copying at the principal Change
III. Date of Effectiveness of the
office of FICC and on DTCC’s website The proposed rule change would
Proposed Rule Change, and Timing for
(http://dtcc.com/legal/sec-rule- amend ICE Clear Europe’s Collateral and
Commission Action
filings.aspx). All comments received Haircut Policy to set the absolute
Within 45 days of the date of will be posted without change. Persons collateral limits for bonds provided as
publication of this notice in the Federal submitting comments are cautioned that Permitted Cover by Clearing Members
Register or within such longer period we do not redact or edit personal so as to more accurately capture the
up to 90 days (i) as the Commission may identifying information from comment trading liquidity of each bond. The
designate if it finds such longer period submissions. You should submit only proposal would also take into account
to be appropriate and publishes its information that you wish to make ICE Clear Europe’s committed repo
reasons for so finding or (ii) as to which available publicly. All submissions facilities to permit Clearing Members to
the self- regulatory organization should refer to File Number SR–FICC– maintain collateral in excess of normal
consents, the Commission will: 2018–002 and should be submitted on absolute limits.6 In addition, the
(A) by order approve or disapprove or before March 7, 2018. proposed rule change would revise the
such proposed rule change, or haircut calculation. Finally, the
For the Commission, by the Division of
(B) institute proceedings to determine
Trading and Markets, pursuant to delegated proposed rule change would update the
whether the proposed rule change authority.13 Collateral and Haircut Policy to add
should be disapproved. Eduardo A. Aleman, certain general provisions designed to
IV. Solicitation of Comments Assistant Secretary. enhance ICE Clear Europe’s governance.
Interested persons are invited to [FR Doc. 2018–02985 Filed 2–13–18; 8:45 am] These changes are further described
submit written data, views and BILLING CODE 8011–01–P below.
arguments concerning the foregoing, With respect to setting absolute
including whether the proposed rule collateral limits for bonds provided as
change is consistent with the Act. SECURITIES AND EXCHANGE Permitted Cover by Clearing Members,
Comments may be submitted by any of COMMISSION ICE Clear Europe proposed to set limits
the following methods: [Release No. 34–82659; File No. SR–ICEEU– for each bond issuer and collateral type
2017–011] at 10% of the average daily volume over
Electronic Comments the past three months, rounded to the
• Use the Commission’s internet Self-Regulatory Organizations; ICE nearest million.7 The proposed rule
comment form (http://www.sec.gov/ Clear Europe Limited; Order Approving change would also change the
rules/sro.shtml); or Proposed Rule Change Relating to underlying data used in the calculation
• Send an email to rule-comments@ Amendments to the ICE Clear Europe of the absolute limit from a repo survey
sec.gov. Please include File Number SR– Collateral and Haircut Policy of market participants to actual
FICC–2018–002 on the subject line. secondary market trading volume data
February 8, 2018.
provided by ICE Data Services, except
Paper Comments I. Introduction where official trading volume data is
• Send paper comments in triplicate On November 2, 2017, ICE Clear
to Secretary, Securities and Exchange Europe Limited (‘‘ICE Clear Europe’’) 3 Capitalized terms used in this order but not
Commission, 100 F Street NE, filed with the Securities and Exchange
defined herein have the same meanings specified in
Washington, DC 20549. the ICE Clear Europe Clearing Rules.
Commission (‘‘Commission’’), pursuant 4 Securities Exchange Act Release No. 82063
All submissions should refer to File to Section 19(b)(1) of the Securities (Nov. 13, 2017), 82 FR 54423 (Nov. 17, 2017) (SR–
daltland on DSKBBV9HB2PROD with NOTICES
Number SR–FICC–2018–002. This file Exchange Act of 1934 (‘‘Act’’),1 and ICEEU–2017–011) (‘‘Notice’’).
number should be included on the Rule 19b–4 thereunder,2 a proposed rule 5 Securities Exchange Act Release No. 82405 (Dec.
subject line if email is used. To help the 27, 2017), 83 FR 181 (Jan. 2, 2018).
change to modify the ICE Clear Europe 6 As used herein, the term ‘‘absolute limit’’ refers
Commission process and review your
to the maximum amount of bonds from an
comments more efficiently, please use 13 17 CFR 200.30–3(a)(12). individual issuer that ICE Clear Europe will accept
only one method. The Commission will 1 15 U.S.C. 78s(b)(1). from a Member Group. See Notice, 82 FR at 54424.
post all comments on the Commission’s 2 17 CFR 240.19b–4. 7 Id.
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![6662 Federal Register / Vol. 83, No. 31 / Wednesday, February 14, 2018 / Notices
22(e)(2) concerning governance I. Self-Regulatory Organization’s regulatory fees it incurs in connection
arrangements that are clear and Statement of the Terms of Substance of with the Routing Services it provides.
transparent and that support the public the Proposed Rule Change Revenue generated from ORF, when
interest requirements of Section 17A of combined with all of the Exchange’s
The Exchange seeks to amend its Fees
the Act applicable to clearing agencies other regulatory fees and fines, is
Schedule. The text of the proposed rule
and the objectives of participants.20 designed to recover a material portion of
change is available on the Exchange’s
the regulatory costs to the Exchange of
IV. Conclusion website (http://www.cboe.com/
the supervision and regulation of TPH
AboutCBOE/CBOELegalRegulatory
customer options business. Regulatory
On the basis of the foregoing, the Home.aspx), at the Exchange’s Office of costs include direct regulatory expenses
Commission finds that the proposal is the Secretary, and at the Commission’s and certain indirect expenses for work
consistent with the requirements of the Public Reference Room. allocated in support of the regulatory
Act and in particular with the II. Self-Regulatory Organization’s function. The direct expenses include
requirements of Section 17A of the Statement of the Purpose of, and in-house and third party service
Act 21 and Rules 17Ad–22(e)(2) and (5) Statutory Basis for, the Proposed Rule provider costs to support the day to day
thereunder. Change regulatory work such as surveillances,
It is therefore ordered pursuant to investigations and examinations. The
In its filing with the Commission, the
Section 19(b)(2) of the Act 22 that the indirect expenses include support from
Exchange included statements
proposed rule change (SR–ICEEU–2017– such areas as human resources, legal,
concerning the purpose of and basis for
011) be, and hereby is, approved.23 information technology and accounting.
the proposed rule change and discussed
These indirect expenses are estimated to
For the Commission, by the Division of any comments it received on the
be approximately 10% of Cboe Options’
Trading and Markets, pursuant to delegated proposed rule change. The text of these
total regulatory costs for 2018. Thus,
authority.24 statements may be examined at the
direct expenses are estimated to be
Eduardo A. Aleman, places specified in Item IV below. The
approximately 90% of total regulatory
Assistant Secretary. Exchange has prepared summaries, set
costs for 2018. In addition, it is Cboe
forth in sections A, B, and C below, of
[FR Doc. 2018–02974 Filed 2–13–18; 8:45 am] Options’ practice that revenue generated
the most significant aspects of such
BILLING CODE 8011–01–P from ORF not exceed more than 75% of
statements.
total annual regulatory costs. These
A. Self-Regulatory Organization’s expectations are estimated, preliminary
SECURITIES AND EXCHANGE Statement of the Purpose of, and the and may change. These expectations are
COMMISSION Statutory Basis for, the Proposed Rule estimated, preliminary and may change.
Change [sic] There can be no assurance that our
[Release No. 34–82664; File No. SR–CBOE– final costs for 2018 will not differ
1. Purpose
2018–014] materially from these expectations and
The Exchange proposes to decrease prior practice; however, the Exchange
Self-Regulatory Organizations; Cboe the Options Regulatory Fee (‘‘ORF’’) believes that revenue generated from the
Exchange, Inc.; Notice of Filing and from $.0081 per contract to $.0049 per ORF, when combined with all of the
Immediate Effectiveness of a Proposed contract in order to help ensure that Exchange’s other regulatory fees and
Rule Change Relating to the Options revenue collected from the ORF, in fines, will cover a material portion, but
Regulatory Fee combination with other regulatory fees not all, of the Exchange’s regulatory
and fines, meets the Exchange’s total costs.
February 8, 2018. regulatory costs. The proposed fee The Exchange also notes that its
Pursuant to Section 19(b)(1) of the change will be operative on February 1, regulatory responsibilities with respect
Securities Exchange Act of 1934 (the 2018. to TPH compliance with options sales
‘‘Act’’),1 and Rule 19b–4 thereunder,2 The ORF is assessed by Cboe Options practice rules have largely been
to each Trading Permit Holder (‘‘TPH’’) allocated to FINRA under a 17d–2
notice is hereby given that on January
for options transactions cleared by the agreement.4 The ORF is not designed to
31, 2018, Cboe Exchange, Inc. (the
TPH that are cleared by the Options cover the cost of that options sales
‘‘Exchange’’ or ‘‘Cboe Options’’) filed
Clearing Corporation (‘‘OCC’’) in the practice regulation.
with the Securities and Exchange The Exchange will continue to
customer range, regardless of the
Commission (the ‘‘Commission’’) the monitor the amount of revenue
exchange on which the transaction
proposed rule change as described in collected from the ORF to ensure that it,
occurs.3 In other words, the Exchange
Items I, II, and III below, which Items in combination with its other regulatory
imposes the ORF on all customer-range
have been prepared by the Exchange. transactions cleared by a TPH, even if fees and fines, does not exceed the
The Commission is publishing this the transactions do not take place on the Exchange’s total regulatory costs. The
notice to solicit comments on the Exchange. The ORF is collected by OCC Exchange monitors its regulatory costs
proposed rule change from interested on behalf of the Exchange from the and revenues at a minimum on a semi-
persons. Clearing Trading Permit Holder annual basis. If the Exchange
(‘‘CTPH’’) or non-CTPH that ultimately determines regulatory revenues exceed
20 Id.
clears the transaction. With respect to or are insufficient to cover a material
21 15 U.S.C. 78q–1.
portion of its regulatory costs, the
daltland on DSKBBV9HB2PROD with NOTICES
22 15
linkage transactions, Cboe Options
U.S.C. 78s(b)(2).
23 In approving the proposed rule change, the reimburses its routing broker providing Exchange will adjust the ORF by
Commission considered the proposal’s impact on Routing Services pursuant to Cboe submitting a fee change filing to the
efficiency, competition, and capital formation. 15 Options Rule 6.14B for options Commission. The Exchange notifies
U.S.C. 78c(f).
24 17 CFR 200.30–3(a)(12). 3 The ORF also applies to customer-range 4 See Securities Exchange Act Release No. 76309
1 15 U.S.C. 78s(b)(1).
transactions executed during Extended Trading (October 29, 2015), 80 FR 68361 (November 4,
2 17 CFR 240.19b–4. Hours. 2015).
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Document Created: 2018-02-14 03:59:28
Document Modified: 2018-02-14 03:59:28
| Category | Regulatory Information | |
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| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
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| Section | Notices | |
| FR Citation | 83 FR 6660 |
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