[Federal Register Volume 78, Number 220 (Thursday, November 14, 2013)]
[Notices]
[Pages 68480-68482]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-27201]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70826; File No. SR-ICC-2013-08]
Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of
Filing of Proposed Rule Change to Add Rules Related to the Clearing of
MCDX Index CDS Contracts and Make Conforming Changes to Existing Rules
November 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 October 25, 2013, ICE Clear Credit LLC (``ICC'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change as described in Items I, II, and III below, which Items have
been prepared primarily by ICC. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
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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 change is to adopt new rules that
will provide the basis for ICC to clear additional credit default swap
contracts. Specifically, ICC is proposing to amend Chapter 26 of its
rules to add Section 26H to provide for the clearance of the MCDX
Untranched Contracts (``MCDX Contracts''). MCDX Contracts are credit
default swap (``CDS'') contracts that reference an index of municipal
issuers.
As discussed in more detail in Item II.A below, Section 26H (MCDX
Untranched Contracts) provides for the definitions and certain specific
contract terms for cleared MCDX Contracts. Conforming changes are also
made to the definition of ``CDS Restructuring Rules'' in Chapter 20
(Credit Default Swaps) and to Rule 2101-02(a)(iii) (Role of the
Regional CDS Committees) to clarify cross-references to the CDS
Restructuring Rules set forth in Section 26E of the Rules. Section 26E
(CDS Restructuring Rules) is modified to provide that it will not apply
to MCDX Contracts (as such contracts are automatically triggered in the
event of a restructuring credit event, as discussed below).
[[Page 68481]]
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, ICC included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. ICC has prepared summaries, set forth in sections A, B,
and C below, of the most significant aspects of these statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
ICC has identified MCDX Contracts as a product that has become
increasingly important for market participants to manage risk and
express views with respect to municipal issuer credit. ICC's clearance
of MCDX Contracts will facilitate the prompt and accurate settlement of
swaps and contribute to the safeguarding of securities and funds
associated with swap transactions.
MCDX 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 26H largely mirror the ICC rules for CDX.NA
Contracts in Section 26A, with certain modifications that reflect the
underlying reference entities (municipal issuer reference entities
instead of corporate reference entities) and differences in terms and
market conventions between MCDX Contracts and CDX.NA Contracts.
The MCDX Contracts reference the MCDX Index, the current series of
which consists of 50 municipal issuers. MCDX Contracts, consistent with
market convention and widely used standard terms documentation, can be
triggered by credit events for failure to pay or restructuring (by
contrast to the credit events of failure to pay and bankruptcy
applicable to the CDX.NA Contracts). In the event of a restructuring,
all outstanding positions are automatically triggered. Thus, from a
clearing perspective, restructuring credit events would be handled in
the same way as a failure to pay credit event (and would not require
the additional restructuring triggering procedures that are used for
certain corporate and sovereign CDS contracts). MCDX Contracts will
only be denominated in U.S. dollars.
Rule 26H-102 (Definitions) sets forth the definitions used for the
MCDX Contract Rules. An ``Eligible MCDX Untranched Index'' is defined
as ``each particular series and version of a MCDX index or sub-index,
as published by the MCDX Untranched Publisher, determined by ICE Clear
Credit to be eligible and included in the List of Eligible MCDX
Untranched Indexes.'' ``MCDX Untranched Terms Supplement'' refers to
the market standard form of documentation used for credit default swaps
on the MCDX index, which is incorporated by reference into the contract
specifications in Section 26H. The remaining definitions are
substantially the same as the definitions found in ICC Section 26A,
other than certain conforming changes.
Rules 26H-309 (Acceptance of MCDX Untranched Contracts by ICE Clear
Credit), 26H-315 (Terms of the Cleared MCDX Untranched Contract), and
26H-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 MCDX Contracts and are substantially the same as
under ICC Section 26A for CDX.NA Contracts. In addition to various non-
substantive conforming changes, proposed Rule 26H-317 (Terms of MCDX
Untranched Contracts) differs from the corresponding Rule 26A-317 to
reflect the fact that restructuring is a credit event for the MCDX
Contract. (CDX.NA Contracts currently cleared by ICC do not use the
restructuring credit event. However, unlike the case with other
corporate and sovereign CDS, in the event of a restructuring for an
MCDX reference entity, all outstanding positions are automatically
triggered. Thus, from a clearing perspective MCDX restructuring events
would be handled in the same way as a failure to pay.)
Because of the automatic triggering following a restructuring
credit event, the provisions of Section 26E of the Rules are not
necessary for MCDX Contracts, and Section 26E is amended to provide
that it does not apply to MCDX Contracts. A conforming change is made
to the definition of ``CDS Restructuring Rules'' in Chapter 20 (Credit
Default Swaps) to make reference to the rules set forth in Section 26E
(CDS Restructuring Rules) of the Rules. In addition, Rule 2101-
02(a)(iii) (Role of the Regional CDS Committees) is modified to make
reference to the CDS Restructuring Rules set forth in Section 26E of
the Rules.
Section 17(A)(b)(3)(F) of the Act \3\ 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. ICC believes that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to ICC, in particular, to Section 17(A)(b)(3)(F),
because ICC believes that the clearance of MCDX Contracts will
facilitate the prompt and accurate settlement of securities and
contribute to the safeguarding of securities and funds associated with
swap transactions in ICC's custody or control, or for which ICC is
responsible.
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\3\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Self-Regulatory Organization's Statement on Burden on Competition
MCDX Contracts will be available to all ICC Participants for
clearing. The clearing of MCDX Contracts by ICC does not preclude the
offering of MCDX Contracts for clearing by other market participants.
In addition, ICC does not anticipate that accepting MCDX Contracts for
clearing will have any adverse effect on the trading market for the
contract. Therefore, ICC does not believe the proposed rule change
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
ICC has consulted with its Participants and non-member market
participants concerning the proposed rule change. Written comments
relating to the proposed rule change have not been solicited or
received. ICC will notify the Commission of any written comments
received by ICC.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve or disapprove the proposed rule change or
[[Page 68482]]
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. 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 [email protected]. Please include
File Number SR-ICC-2013-08 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-ICC-2013-08. 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 Credit and on ICE Clear
Credit'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-ICC-2013-08
and should be submitted on or before December 5, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\4\
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\4\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-27201 Filed 11-13-13; 8:45 am]
BILLING CODE 8011-01-P