[Federal Register Volume 78, Number 30 (Wednesday, February 13, 2013)]
[Notices]
[Pages 10220-10222]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-03277]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68867; File No. SR-ICEEU-2013-02]


Self-Regulatory Organizations; ICE Clear Europe Limited; Notice 
of Filing and Order Granting Accelerated Approval of Proposed Rule 
Change To Revise Rules Related to Legal Segregation With Operational 
Commingling

February 7, 2013.
    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 February 6, 2013, ICE Clear Europe Limited (``ICE Clear Europe'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule changes as described in Items I and II below, which Items 
have been prepared primarily by ICE Clear Europe. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons and to approve the proposed rule change on an 
accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The purpose of the proposed rule changes is to implement the 
enhanced margin segregation model for cleared swaps that the Commodity 
Futures Trading Commission (``CFTC'') adopted in Part 22 of the CFTC 
regulations (generally referred to as ``legal segregation with 
operational commingling'' or ``LSOC''). As result of the LSOC 
requirements, ICE Clear Europe principally proposes to (i) introduce 
new procedures for allocating initial margin to the positions carried 
for each customer of an FCM/BD Clearing Member on a customer-by-
customer basis, (ii) introduce new procedures for calling for, holding 
and returning customer margin in light of the requirement to allocate 
initial margin on a customer-by-customer basis, and (iii) change the 
net sum calculation for defaulting Clearing Members to limit ICE Clear 
Europe's ability to use customer margin in the event that an FCM/BD 
Clearing Member defaults, consistent with the requirements of LSOC. The 
LSOC requirements are intended to mitigate the risk that one customer 
of an FCM/BD Clearing Member would suffer a loss because of a default 
by another customer. ICE Clear Europe also will be removing existing 
provisions of the ICE Clear Europe Rules (``Rules'') that addressed the 
holding of excess margin for customers of such Clearing Members and 
will not be necessary in ICE Clear Europe's initial implementation of 
LSOC.
    Specifically, ICE Clear Europe proposes to amend Parts 9 and 16 of 
the Rules, as well as related definitions, to incorporate Part 22 of 
the CFTC Regulations. The amendments to Part 9 of the Rules change the 
net sum calculation for defaulting FCM/BD Clearing Members. The 
amendments to Part 16 of the Rules contain the procedures for 
allocating initial margin on a customer-by-customer basis and related 
procedures for calling for, holding and returning such margin. The 
other proposed changes in the Rules reflect conforming changes and 
drafting clarifications, and do not affect the substance of the ICE 
Clear Europe Rules or forms of cleared products.
    Another purpose of the proposed rule changes is to adopt a set of 
settlement and notices terms (``Settlement and Notices Terms'') that 
will apply to all Customer-CM CDS Transactions and, where specified, to 
the clearing arrangements between an FCM/BD CDS Clearing Member and its 
FCM/BD Customers and, in each case, to the related CDS Contracts. The 
Settlement and Notices Terms will be published by ICE Clear Europe as 
an exhibit to the Rules but will not form part of ICE Clear Europe's 
Rules, Procedures or Standard Terms. The Settlement and Notices Terms 
adopt certain notice and related procedures for the customer clearing 
model for CDS products (in which customers of ICE Clear Europe Clearing 
Members will have the ability to clear CDS products through ICE Clear 
Europe Clearing Members).

II. Self-Regulatory Organization'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 proposing the LSOC 
changes to the Rules and the Settlement and Notices Terms exhibit. The 
text of these statements may be examined at the places specified in 
Item III below. ICE Clear Europe has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of these 
statements.\3\
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    \3\ The Commission has modified the text of the summaries 
prepared by ICE Clear Europe.

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[[Page 10221]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    The proposed rule amendments in connection with the LSOC model are 
intended to update the particular characteristics of the Rules 
applicable to the segregation of customer margin. Specifically, the 
proposed rule changes affect Parts 9 and 16 of the ICE Clear Europe 
Rules, and related definitions, by providing, in summary, that initial 
margin allocated to a particular customer's positions may not be used 
to cover losses arising from another customer's positions. Each of 
these changes is described in detail as follows.
    Under Rules 905(f) and 906(a), the net sum calculation with respect 
to ``L'' has been revised to clarify that certain expenses resulting 
from a defaulting Clearing Member are allocated to the House Account of 
the defaulting Clearing Member rather than a Customer Account. Further, 
in Rule 906(a) of the Rules, the net sum calculation with respect to 
``M'' has been revised to state that for a Swap Customer Account of an 
FCM/BD Clearing Member, any property provided by or on behalf of the 
Defaulter as initial or original margin (or similar margin) allocated 
to a particular Customer Swap Portfolio (i.e., the positions of a 
particular customer) and proceeds thereof can only be included in the 
net sum calculation to the extent of obligations to ICE Clear Europe in 
respect of Open Contract Positions in such Customer Swap Portfolio in 
accordance with CFTC Rule 22.15.
    A new definition for ``Customer Swap Portfolio'' has been added 
under Rule 1602(f) to accommodate the LSOC model, including the 
customer-by-customer tracking of positions. Under the proposed new Rule 
1604(e), ICE Clear Europe has incorporated new CFTC Rule 22.15, which 
limits ICE Clear Europe's use of the initial margin provided in respect 
of customer swap positions. Revisions to Rule 1605(d) eliminate various 
provisions that are now covered by CFTC regulations and are no longer 
necessary with the implementation of the LSOC framework. To comply with 
LSOC, under new Rule 1605(h), ICE Clear Europe will calculate the 
initial margin requirement separately for each Customer Swap Portfolio 
and compare it to the value of initial margin provided by the FCM/BD 
Clearing Member and allocated by ICE Clear Europe under CFTC Rules to 
that portfolio. In each margin cycle, ICE Clear Europe will call for 
additional initial margin for each Customer Swap Portfolio for which 
there is a shortfall. ICE Clear Europe will separately make available 
for return to the FCM/BD Clearing Member any excess initial margin held 
with respect to a Customer Swap Portfolio. Further, under the proposed 
new Rule 1605(i), ICE Clear Europe states that it will not accept the 
deposit of Margin from a FCM/BD Clearing Member in respect of Contracts 
or Open Contract Positions recorded in a Swap Customer Account in 
excess of the amount required by ICE Clear Europe, within the meaning 
of CFTC Rule 22.13(c).
    The Settlement and Notices Terms are an exhibit to the Rules that 
is intended to complement the customer clearing model for CDS products 
whereby customers of ICE Clear Europe Clearing Members have the ability 
to clear CDS products through ICE Clear Europe Clearing Members.
    The Settlement and Notices Terms establish the processes for 
dealing with certain aspects of Physical Notices in the limited 
circumstances under the Rules and CDS Procedures in which physical, as 
opposed to electronic, notices may be delivered. ``Physical Notices'' 
mean those notices that may be delivered in connection with CDS 
Contracts and, where applicable, Customer-CM CDS Transactions (other 
than Electronic Notices and other equivalent electronic notices under 
Customer-CM CDS Transactions which are or are required pursuant to the 
Rules or CDS Procedures to be given through Deriv/SERV). Physical 
Notices include Manual MP Notices (and equivalent notices under 
Customer-CM CDS Transactions) and notices relating to physical 
settlement delivered pursuant to or in connection with a CDS Contract 
or Customer-CM CDS Transaction, including all notices in connection 
with the physical settlement processes to which the Settlement and 
Notices Terms apply. Further, for restructuring credit events, there is 
an electronic notice facility provided by DTCC which is of mandatory 
use under ICE Clear Europe's rules. Physical Notices relating to 
restructuring credit events may only be used in the unlikely event of a 
DTCC or clearing house technology failure or a self-certified clearing 
member technology failure, as a back-up methodology. Other physical 
notices are only relevant to physical settlement of CDS, which is 
nowadays considered a highly unlikely eventuality, following the 
introduction of ISDA protocols aimed at ensuring that CDS contracts are 
auction settled where there is sufficient interest in a particular 
name. The Settlement and Notice Terms also specify certain procedures 
for fall back settlement of CDS Contracts in the limited circumstances 
where normal settlement under the Rules and CDS Procedures does not 
apply.
    ICE Clear Europe believes that the proposed LSOC rule amendments 
and the Settlement and Notices Terms are consistent with the 
requirements of Section 17A of the Act and the regulations thereunder 
applicable to ICE Clear Europe. The LSOC rule amendments are intended 
to adopt a more comprehensive segregation model for the protection of 
customer property, and thus further the protection of investors and the 
public interest. ICE Clear Europe believes such segregation also will 
facilitate the prompt and accurate clearance of transactions. ICE Clear 
Europe believes the Settlement and Notices Terms also are designed to 
improve the operational procedures for cleared trades, and thereby 
promote the prompt and accurate clearance of transactions.

B. Self-Regulatory Organization's Statement on Burden on Competition

    ICE Clear Europe does not believe the proposed Settlement and 
Notices Terms and the proposed rule changes to implement the CFTC's 
Part 22 regulations would have any impact, or impose any burden, on 
competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    Written comments relating to the LSOC proposed amendments and 
Settlement and Notices Terms have not been solicited or received. ICE 
Clear Europe will notify the Commission of any written comments 
received by ICE Clear Europe.

III. 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 rule-comments@sec.gov. Please include 
File Number SR-ICEEU-2013-02 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission,

[[Page 10222]]

100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-ICEEU-2013-02. 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 also will 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/notices/Notices.shtml?regulatoryFilings.
    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-2013-02 
and should be submitted on or before March 6, 2013.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    Section 19(b) of the Act \4\ 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. The Commission finds that the proposed rule changes are 
consistent with the requirements of the Act, in particular the 
requirements of Section 17A of the Act, and the rules and regulations 
thereunder applicable to ICE Clear Europe.\5\ Specifically, the 
Commission finds that the proposed LSOC rule amendments are consistent 
with Section 17A(b)(3)(F) of the Act, which 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 to protect investors and the public interest.\6\ 
Additionally, the Commission finds that the proposed Settlement and 
Notices Terms also are consistent with Section 17A(b)(3)(F) of the Act, 
which further requires that the rules of a registered 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.\7\
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    \4\ 15 U.S.C. 78s(b).
    \5\ 15 U.S.C. 78q-1. In approving this proposed rule change, the 
Commission has considered the proposed rule's impact on efficiency, 
competition, and capital formation. 15 U.S.C. 78c(f).
    \6\ 15 U.S.C. 78q-1(b)(3)(F).
    \7\ 15 U.S.C. 78q-1(b)(3)(F).
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    In its filing, ICE Clear Europe requested that the Commission 
approve the proposed rule changes on an accelerated basis for good 
cause shown. ICE Clear Europe believes there is good cause for 
accelerated approval because the LSOC rule changes are required in 
order to be in compliance with Part 22 of the CFTC Regulations in 
connection with clearing of customer positions in swaps. ICE Clear 
Europe will not be able to commence customer clearing in CDS or other 
swaps (including those CDS subject to mandatory clearing under the 
CFTC's rules) without implementing the LSOC rule amendments. 
Furthermore, ICE Clear Europe has stated that the changes relating to 
the Settlement and Notices Terms are part of the implementation of ICE 
Clear Europe's CDS customer clearing framework recently approved by the 
Commission and are therefore also important to the commencement of 
customer clearing in CDS.
    The Commission finds good cause, pursuant to Section 19(b)(2) of 
the Act,\8\ for approving the proposed rule changes prior to the 30th 
day after the date of publication of notice in the Federal Register 
because, as a derivatives clearing organization registered with the 
CFTC, ICE Clear Europe must amend certain of its rules to comply with 
CFTC's Part 22 Regulations, and the Settlement and Notices Terms are an 
important part of its implementation of customer clearing in CDS.
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    \8\ 15 U.S.C. 78s(b)(2).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (SR-ICEEU-2013-02) be, and hereby is, 
approved on an accelerated basis.

    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. 2013-03277 Filed 2-12-13; 8:45 am]
BILLING CODE 8011-01-P