[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