Federal Register, Volume 77 Issue 79 (Tuesday, April 24, 2012)

[Federal Register Volume 77, Number 79 (Tuesday, April 24, 2012)]
[Notices]
[Pages 24546-24547]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-9769]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66825; File No. SR-ICC-2012-01]

Self-Regulatory Organizations; ICE Clear Credit LLC; Order
Approving Proposed Rule To Provide That One Hundred Percent (100%) of
the Initial Margin Requirement for Client-Related Positions Cleared in
a Clearing Participant's Customer Account Origin May Be Satisfied by a
Clearing Participant Utilizing US Treasuries

April 18, 2012.

I. Introduction

On February 17, 2012, ICE Clear Credit LLC (``ICC'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change SR-ICC-2012-01 pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'').\1\ The proposed rule change was
published for comment in the Federal Register on March 7, 2012.\2\ The
Commission received no comment letters. For the reasons discussed
below, the Commission is granting approval of the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ Securities Exchange Act Release No. 34-66500 (March 1,
2012), 77 FR 13678 (March 7, 2012).
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II. Description

This rule change will allow clearing participants to satisfy the
initial margin-related liquidity requirements for client-related
positions cleared in a clearing participant's customer account origin
by posting US Treasuries.
The proposed rule changes provide that one hundred percent (100%)
of the initial margin requirement for client-related positions cleared
in a clearing participant's customer account origin may be satisfied by
the clearing participant utilizing US Treasuries.\3\
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\3\ ICC applies haircuts to US Treasuries to mitigate liquidity
risk. The haircuts as of April 1, 2012 are: 1.25% for US Treasuries
maturing in less than one year, 2.5% for US Treasuries maturing in
one to five years, 5.0% for US Treasuries maturing in five to ten
years, and 10.0% for US Treasuries maturing in more than ten years
(available at: https://www.theice.com/publicdocs/clear_credit/ICE_Clear_Credit_Collateral_Management.pdf).
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The ICC rules currently provide that for all accounts at least
forty-five percent (45%) of initial margin must be posted in US dollar
cash. The next twenty percent (20%) must be posted in US dollar cash or
US Treasuries. The remaining thirty-five percent (35%) must be posted
in US dollar cash or US Treasuries or G7 cash.
The proposed rules provide that at least sixty-five percent (65%)
of the initial margin requirement for client-related positions cleared
in a clearing participant's customer account origin must be posted in
US dollar denominated assets (US dollar cash and/or US Treasuries) and
the remaining thirty-five percent (35%) must be posted in US dollar
cash, US Treasuries, or G7 cash. The proposed changes will apply only
to the initial margin liquidity requirements associated with the
initial margin requirement for client-related positions cleared in a
clearing participant's customer account origin. The proposed changes
will not apply to the ICC liquidity requirements for house initial
margin and the guaranty fund.
The proposed rule changes are intended to facilitate client-related
clearing. Customers of ICC's clearing participants have indicated that
the current US dollar cash liquidity requirement is too restrictive and
serves as a barrier to clearing. The proposed rule changes are
consistent with the recently promulgated CFTC regulation 39.11(e)(1)
that provides that the CFTC's ``cash'' liquidity requirement includes
US Treasury obligations. ICC routinely monitors its potential liquidity
needs and reevaluates its liquidity requirements to ensure that it has
sufficient intraday liquidity to manage cash payments in the event of a
member default.\4\
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\4\ Currently at least 45% of house initial margin and the
guaranty fund requirements must be posted in US dollar cash and the
ICC contribution to the guaranty fund is in US dollar cash.
Additionally, ICC requires all members to meet and maintain their
minimum guaranty fund requirement deposit of $20 million in US
dollar cash regardless of the amount of each member's total guaranty
fund requirement. In addition, in the event of immediate liquidity
needs in the event of a member's default, ICC may borrow (through
IntercontinentalExchange, Inc.) up to an aggregate principal amount
of $100 million against IntercontinentalExchange, Inc.'s senior
unsecured revolving credit facility.

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[[Page 24547]]

III. Discussion

Section 19(b)(2)(B) of the Act \5\ 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. Section 17A(b)(3)(F) of the Act \6\
requires, among other things, that the rules of a clearing agency be
designed to promote the prompt and accurate clearance and settlement of
securities transactions and, to the extent applicable, derivative
agreements, contracts, and transactions.
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\5\ 15 U.S.C. 78s(b)(2)(B).
\6\ 15 U.S.C. 78q-1(b)(3)(F).
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The proposed rule change is intended to facilitate client-related
clearing. Because the proposed rule change will expand the use of US
Treasuries for the initial margin requirement for client-related
positions cleared in a clearing participant's customer account origin,
it will help remove certain barriers to client-related clearing,
thereby promoting the prompt and accurate clearance and settlement of
derivative agreements, contracts, and transactions, and therefore is
consistent with the requirements of Section 17A(b)(3)(F) of the Act.

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 \7\ and the
rules and regulations thereunder.
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\7\ 15 U.S.C. 78q-1.
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\8\ that the proposed rule change (File No. SR-ICC-2012-01) be, and
hereby is, approved.\9\
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\8\ 15 U.S.C. 78s(b)(2).
\9\ 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.\10\
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\10\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-9769 Filed 4-23-12; 8:45 am]
BILLING CODE 8011-01-P