[Federal Register Volume 77, Number 129 (Thursday, July 5, 2012)]
[Notices]
[Pages 39760-39761]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-16371]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-67289; File No. SR-ICC-2012-04]
Self-Regulatory Organizations; ICE Clear Credit LLC; Order
Approving Proposed Rule Change To Add Rules Related to the Clearing of
Emerging Markets Sovereign Index CDS
June 28, 2012.
I. Introduction
On April 3, 2012, ICE Clear Credit LLC (``ICC'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change (SR-ICC-2012-04) pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder.\2\ The
proposed rule change was published for comment in the Federal Register
on April 16, 2012.\3\ On May 29, 2012, the Commission extended the time
within which to take action of the proposed rule change to July 13,
2012.\4\ The Commission received no comment letters regarding the
proposal. For the reasons discussed
[[Page 39761]]
below, the Commission is granting approval of the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 66777 (April 10, 2012),
77 FR 22623 (April 16, 2012).
\4\ Securities Exchange Act Release No. 67070 (May 29, 2012), 77
FR 33013 (June 4, 2012).
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II. Description
This rule change will amend Chapter 26 of ICC's rules to add
Section 26C to provide for the clearance of the CDX Emerging Markets
CDS contracts (``CDX.EM Contracts''), which reference an emerging
market sovereign index. ICC will list the five year tenor of Series 14,
15, 16 and 17 of the CDX.EM Contracts.
CDX.EM Contracts have similar terms to the CDX North American Index
CDS contracts (``CDX.NA Contracts'') currently cleared by ICC and
governed by Section 26A of the ICC rules. Accordingly, the proposed
rules found in Section 26C largely mirror the ICC rules for CDX.NA
Contracts in Section 26A, with certain modifications that reflect the
underlying reference entities (sovereign reference entities instead of
corporate reference entities) and differences in terms and market
conventions between CDX.EM Contracts and CDX.NA Contracts. The CDX.EM
Contracts reference the CDX.EM index, the current series of which
consists of 15 emerging market sovereign entities: Argentina,
Venezuela, Brazil, Malaysia, Colombia, Hungary, Indonesia, Panama,
Peru, South Africa, the Philippines, Turkey, Russia, Ukraine, and
Mexico. CDX.EM Contracts, consistent with market convention and widely
used standard terms documentation, can be triggered by credit events
for failure to pay, restructuring, and repudiation/moratorium (by
contrast to the credit events of failure to pay and bankruptcy
applicable to the CDX.NA Contracts). CDX.EM Contracts will only be
denominated in U.S. dollars.
ICC Rule 26C-102 (Definitions) sets forth the definition ICC uses
for its CDX.EM Contract rules. An ``Eligible CDX.EM Untranched Index''
is defined as ``each particular series and version of a CDX.EM index or
sub-index, as published by the CDX.EM Untranched Publisher, included
from time to time in the List of Eligible CDX.EM Untranched Indexes,''
which is a list maintained, updated, and published from time to time by
the ICC board of directors or its designee, containing certain
specified information with respect to each index. ``CDX.EM Untranched
Terms Supplement'' refers to the market standard form of documentation
used for credit default swaps on the CDX.EM index, which is
incorporated by reference into the contract specifications in Section
26C. The remaining definitions are substantially the same as the
definitions found in Section 26A of the ICC rules, other than certain
conforming changes.
Rules 26C-309 (Acceptance of CDX.EM Untranched Contract), 26C-315
(Terms of the Cleared CDX.EM Untranched Contract), and 26C-316
(Updating Index Version of Fungible Contracts After a Credit Event or a
Succession Event; Updating Relevant Untranched Standard Terms
Supplement) reflect or incorporate the basic contract specifications
for CDX.EM Contracts and are substantially the same as under Section
26A of the ICC rulebook for CDX.NA Contracts. In addition to various
non-substantive conforming changes, proposed Rule 26C-317 (Terms of
CDX.EM Untranched Contracts) differs from the corresponding Rule 26A-
317 to reflect the fact that restructuring and repudiation/moratorium
are credit events for the CDX.EM Contract.
In addition, a conforming change is being made to the definition of
``Restructuring CDS Contract'' in Section 26E (CDS Restructuring Rules)
to address components of CDX.EM Contracts that become subject to a
restructuring credit event. The treatment of such restructuring credit
events for CDX.EM Contracts will thus be as set forth in existing
Section 26E of the ICC rules.
III. Discussion
Section 19(b)(2)(B) 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.\5\ After careful review, the Commission finds that the
proposed rule change is consistent with the requirements of the Act and
the rules and regulations thereunder applicable to a registered
clearing agency. Given the particular characteristics of the products
proposed to be cleared, the Commission carefully considered ICC's
ability to clear the CDX.EM Contracts in a manner that assures the
safeguarding of securities and funds which are in the custody and
control of ICC or for which ICC is responsible. After considering the
representations made by ICC regarding its belief that it would clear
CDX.EM Contracts in a manner that assures the safeguarding of
securities and funds, the Commission finds that the proposed rule
change is consistent with the requirements of the Act and the rules and
regulations thereunder.
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\5\ 15 U.S.C. 78s(b)(2)(B). For example, Section 17A(b)(3)(F) of
the Act requires, among other things, that the rules of a clearing
agency be designed to assure the safeguarding of securities and
funds in the custody or control of the clearing agency or for which
the clearing agency is responsible. 15 U.S.C. 78q-1(b)(3)(F). Though
the CDX.EM Contracts are not themselves securities, the safety and
soundness of the product directly impacts ICC's ability to safeguard
securities and funds in its custody or control or for which it is
responsible.
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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 \6\ and the
rules and regulations thereunder.
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\6\ 15 U.S.C. 78q-1.
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\7\ that the proposed rule change (File No. SR-ICC-2012-04) be, and
hereby is, approved.\8\
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\7\ 15 U.S.C. 78s(b)(2).
\8\ 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.\9\
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\9\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-16371 Filed 7-3-12; 8:45 am]
BILLING CODE 8011-01-P