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Federal Register / Vol. 86, No. 168 / Thursday, September 2, 2021 / Notices
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Contracts and for managing their associated risks.
The proposed rule change also would amend Part Z of the Delivery Procedures to make various updates to reference the correct settlement facilities and relevant settlement details and settlement procedures for Equity Futures/Options Contracts. Amended paragraph 2.3
Partialling and paragraph 3 Failed Settlements and Non-Delivery of Stock would clarify the processes for dealing with partial deliveries and failed deliveries, including the steps that ICE
Clear Europe may take to facilitate delivery, the rights and responsibilities of the buying clearing member with respect to onward deliveries under other contracts, and the allocation of costs to clearing members. Similar to the changes in Part U, the Commission believes these changes in Part Z would establish transparent written standards and procedures for handling partial deliveries and failed deliveries of Equity Futures/Options Contracts and for managing their associated risks.
Throughout the Delivery Procedures, the proposed rule change would also update and clarify operational processes and ICE Clear Europe systems, delivery documentation summaries, timetables, and other relevant provisions. The Commission believes these changes would help ICE Clear Europe establish and maintain transparent and up-to-date operational practices to help manage the risks associated with physical deliveries and settlement.
For these reasons, the Commission finds the proposed rule change is consistent with Rule 17Ad22e10.59
H. Consistency With Rule 17Ad 22e13
Rule 17Ad22e13 requires that ICE
Clear Europe establish, implement, maintain, and enforce written policies and procedures reasonably designed to ensure it has the authority and operational capacity to take timely action to contain losses and liquidity demands and continue to meet its obligations by, at a minimum, requiring its Clearing Members and, when practicable, other stakeholders to participate in the testing and review of its default procedures, including any close-out procedures, at least annually and following material changes thereto.60 As discussed above, the proposed rule change would amend ICE
Clear Europes default planning process by removing the current pre-default porting preference structure, and replacing it with a post-default porting 59 17
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preference structure using Porting Notices which refers to a post-default notification of a porting preference that require written consent by the designated Transferee Clearing Member.
The proposed rule change also would amend Rule 907b to clarify that ICE
Clear Europe has no obligation to inquire of any person as to any Porting Notice. In the interest of further enhancing efficiencies in default scenarios, the proposed rule change would amend Rule 907d to authorize ICE Clear Europes ability to rely on relevant information concerning Contracts, Customer-CM Transactions, Margin, and customer accounts that a defaulting Clearing Member provided to ICE Clear Europe prior to declaration of default. The Commission believes that these aspects of the proposed rule change would help ICE Clear Europe continue to take timely action to contain losses and liquidity demands in the case of a Clearing Member default.
As discussed above, the proposed rule change would amend Rule 903c to clarify that ICE Clear Europes right to authorize hedging transactions in a default scenario would include transactions on a Market, any other Exchange, or over the counter, and that hedging transactions need not be cleared if transacted on an exchange which is not a Market, or as requested or directed otherwise by ICE Clear Europe. The Commission believes such changes would enhance ICE Clear Europes authority to use hedging to help contain losses and liquidity demands following an Event of Default.
As discussed above, the proposed rule change would amend Rule 901 Events of Default affecting Clearing Members or Sponsored Principals to clarify that the declaration of a Clearing Members Event of Default would authorize ICE
Clear Europe to declare an Event of Default in respect of another Clearing Member that is a Group Company, i.e., a parent or subsidiary of such defaulting Clearing Member. The Commission believes that this change would enhance ICE Clear Europes authority to declare cross-defaults of affiliated Clearing Members to help contain losses and liquidity demands in a default scenario.
Finally, as discussed above, the proposed rule change would make a number of drafting improvements to Rule 904b Transfer of Contracts and Margin on a Clearing Member Default, Rule 905g Termination and close out of Contracts on a Clearing Member Event of Default, and Rule 908i Application of Assets upon an Event of Default, that would enhance the clarity of ICE Clear Europes default management procedures and support
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ICE Clear Europes operational capacity to take timely action to contain losses and liquidity demands.
For these reasons, the Commission finds the proposed rule change is consistent with Rule 17Ad22e13.61
I. Consistency With Rule 17Ad22e14
Rule 17Ad22e14 requires that ICE
Clear Europe establish, implement, maintain, and enforce written policies and procedures reasonably designed to enable the segregation and portability of positions of a Clearing Members customers and the collateral provided to ICE Clear Europe with respect to those positions and effectively protect such positions and related collateral from the default or insolvency of that Clearing Member.62 As discussed above, the proposed rule change would remove the current Default Portability Preference process by which Non-FCM/BD Clearing Members may deliver porting information to ICE Clear Europe in advance of a Clearing Member default, which was rarely used in practice, and replace such process with a post-default portability preference notification process using Porting Notices to designate a customers preferred Transferee Clearing Member. This change is consistent with the EMIR
requirement for post-default notices to be served as a pre-condition to porting.
The proposed rule change would make conforming amendments to Rules 904
and 907 to reflect this change and would clarify the process for providing post-default Porting Notices. In particular, amended Rule 904g would require that the Transferee Clearing Member must consent in writing to the customers designation of such Transferee Clearing Member in a Porting Notice. The Commission believes these aspects of the proposed rule change would clarify and facilitate the process of post-default porting that is consistent with EMIR, and effectively protects customer positions and collateral in the event of a Clearing Member default.
As discussed above, the proposed rule change would amend Rule 209d to facilitate membership terminations in the context of a corporate group reorganization where a new Clearing Member that is an Affiliate will be receiving the terminating Clearing Members Open Contract Positions, which include Customer Account Positions. The Commission believes these amendments would help to enable the portability of a customers contracts in the specific context of a Clearing Member termination.
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