[Federal Register Volume 79, Number 153 (Friday, August 8, 2014)]
[Notices]
[Pages 46481-46484]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-18751]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72755; File No. SR-ICEEU-2014-09]
Self-Regulatory Organizations; ICE Clear Europe Limited; Order
Granting Accelerated Approval of Proposed Rule Change Relating to EMIR
Requirements
August 4, 2014.
I. Introduction
On June 30, 2014, ICE Clear Europe Limited (``ICE Clear Europe'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change SR-ICEEU-2014-09 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 July 10, 2014.\3\ The Commission did not
receive any comments on the proposed rule change. For the reasons
discussed below, the Commission is granting approval of 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.
\3\ Securities Exchange Act Release No. 34-72540 (July 3, 2014),
79 FR 39429 (July 10, 2014) (SR-ICEEU-2014-09).
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II. Description of the Proposed Rule Change
The principal purpose of the proposed change is to amend the ICE
Clear Europe Clearing Rules in order to comply with requirements under
the European Market Infrastructure Regulation (including regulations
and implementing technical standards thereunder, ``EMIR'') \4\ that
will apply to ICE Clear Europe as an authorized central
counterparty,\5\ and to make certain other amendments to harmonize its
rules across different products and make improvements to its rules.
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\4\ Regulation (EU) No 648/2012 of the European Parliament and
of the Council of 4 July 2012 on OTC derivatives, central
counterparties and trade repositories, as well as various
implementing regulations and technical standards.
\5\ ICE Clear Europe has separately filed certain related
changes to its policies and procedures, including risk management
policies. See Securities Exchange Act Release No. 34-72544 (July 3,
2014), 79 FR 39421 (July 10, 2014) (SR-ICEEU-2014-10) and Securities
Exchange Act Release No. 34-72582 (July 10, 2014), 79 FR 41320 (July
15, 2014) (SR-ICEEU-2014-11).
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ICE Clear Europe states that the principal change will be to
implement changes to the structure of customer accounts for cleared
transactions to enhance segregation options for customers of Clearing
Members. According to ICE Clear Europe, pursuant to EMIR,\6\ ICE Clear
Europe will be required to keep separate records and accounts that will
enable it to distinguish the assets and positions of: (i) One Clearing
Member from those of any other Clearing Member, and (ii) either (A) a
Clearing Member from those of its clients (``omnibus segregation'') or
(B) a client of a Clearing Member from any other client of that
Clearing Member (``individual segregation''). In addition, each of ICE
Clear Europe's Clearing Members will be required (i) to keep separate
records and accounts that enable them to distinguish in both accounts
held with the Clearing House and their own accounts Clearing Member
assets and positions from those of its clients; and (ii) to offer
clients a choice of individual or omnibus segregation at the Clearing
House. ICE Clear Europe has proposed revisions to its segregation
models to implement this requirement to provide both individual
[[Page 46482]]
segregation and omnibus segregation options.
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\6\ EMIR Article 39(1)-(3).
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The proposed rule change will establish two new types of
individually segregated accounts for Clearing Members that are not
registered as a futures commission merchant with the Commodity Futures
Trading Commission (``CFTC'') and/or as a broker-dealer with the
Commission (``Non-FCM/BD Clearing Members''): Individually Segregated
Margin-flow Co-mingled Accounts and Individually Segregated Sponsored
Accounts. With respect to an Individually Segregated Sponsored Account,
ICE Clear Europe proposes the concept of treating a customer as a
Sponsored Principal, capable of entering into contracts with ICE Clear
Europe directly, with a Clearing Member serving as Sponsor to be
jointly and severally liable with the Sponsored Principal for the
Sponsored Principal's obligations to ICE Clear Europe. ICE Clear Europe
has proposed extensive revisions to its Clearing Rules designed to
implement the Sponsored Principal model.
The proposed rule change will also establish multiple new types of
omnibus accounts: Segregated Customer Omnibus Accounts (separately for
each product: FX, F&O and CDS) and Segregated TTFCA Customer Omnibus
Accounts (separately for each product: FX, F&O and CDS), as well as
Omnibus Margin-flow Co-mingled Accounts.
ICE Clear Europe proposes making these new individually segregated
and omnibus accounts available only to Non-FCM/BD Clearing Members and
their customers. For Clearing Members registered as a futures
commission merchant with the CFTC and/or as a broker-dealer with the
Commission, as applicable (``FCM/BD Clearing Members'') and their
customers, ICE Clear Europe proposes that it will not offer individual
client segregation at this time, and the existing account types and
segregation requirements for client assets (which are required under
applicable law) would be maintained.\7\
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\7\ ICE Clear Europe has confirmed in the filing that the Bank
of England has advised ICE Clear Europe that the requirement under
EMIR for the Clearing House to offer an individual segregation model
to Clearing Members (and in turn for Clearing Members to offer
individual segregation to their customers) may be satisfied, in the
case of an FCM/BD Clearing Member, if the Clearing Member introduces
such customers to another Clearing Member (including an affiliate)
that can offer an individually segregated account, to the extent
permitted by applicable law. ICE Clear Europe is not at this time
offering its Sponsored Principal model to U.S. Clearing Members or
potential U.S. Sponsored Principals, and therefore provisions
regarding U.S. Sponsored Principals (e.g., Rule 1905) and other
references in the Clearing Rules to U.S. Sponsored Principals will
not apply at this time. ICE Clear Europe confirmed in its rule
filing that it will submit another rule filing if it determines to
offer the Sponsored Principal model to U.S. Clearing Members or U.S.
Sponsored Principals.
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ICE Clear Europe further proposes changes relating to the
parameters for determining the relevant guaranty funds for the F&O, CDS
and FX businesses to meet the requirements under EMIR.\8\ ICE Clear
Europe states that the proposed changes do not affect the Clearing
House's obligation to comply with other financial resources
requirements under applicable laws, including the Act and Commission
rules. Accordingly, ICE Clear Europe states that the parameters for
determining the guaranty funds will also take into account such other
requirements under applicable laws. Additionally, pursuant to EMIR,\9\
ICE Clear Europe proposes to revise rules to address the use of
guaranty fund contributions to support borrowings under liquidity
facilities for the purpose of making payments on cleared contracts,
subject to certain limitations for each product category.
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\8\ EMIR Article 42(3).
\9\ Articles 44-45 of Commission Delegated Regulation (EU) 153/
2013 of 19 December 2012.
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Pursuant to EMIR,\10\ ICE Clear Europe also proposes changes
relating to porting customer positions and margin, changes relating to
direct payments to customers following a Clearing Member's default, and
changes relating to default management in the event of a customer's
breach or default. These changes include the requirement for the
Clearing House to transfer customer positions and margin after a
Clearing Member's default, subject to certain conditions (including
transfer being subject to applicable insolvency laws); the requirement
that any transfer of customer positions and margin be fair to clients
and indirect clients of the defaulting Clearing Member; the provision
that would authorize ICE Clear Europe, upon a Clearing Member's
default, to make any net sum payment relating to a customer directly to
that customer, if known; and the provision that would permit ICE Clear
Europe, at the request of a Clearing Member, to transfer positions in a
customer account to the Clearing Member's proprietary account to
facilitate the Clearing Member's management of a breach of that
customer, or default of that customer, under a Customer-Clearing Member
Agreement.
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\10\ EMIR Article 48(5) and (6).
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In addition, ICE Clear Europe proposes changes relating to
membership criteria, including requirements as to operational and
financial capacity, compliance with sanctions regimes, and having a
well-founded legal framework to support clearing operations. The
proposed rule change also imposes a requirement that additional
conditions imposed on Clearing Membership be proportional to the risk
brought by the applicant and additional requirements around rejection
or denial of applications. ICE Clear Europe also proposes changes that
contain additional obligations on Clearing Members that are driven by
EMIR requirements.
ICE Clear Europe further proposes changes to implement EMIR
requirements related to trade repository reporting.\11\ These include a
rule change that requires a Clearing Member be a user of a designated
repository for purposes of swap data reporting; a rule change to
require that each Clearing Member, Sponsored Principal, customer and
the Clearing House, as applicable, shall ensure reporting of cleared
contracts and any modification or termination thereof to a trade
repository within one working day following the conclusion,
modification or termination of the contracts; and a rule change to
authorize ICE Clear Europe to submit reporting data to reflect any
transfer on behalf of a defaulting Clearing Member and its customers as
a result of porting customer positions and collateral.
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\11\ EMIR Article 9.
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Finally, ICE Clear Europe also proposes certain other changes to
its Clearing Rules that implement the foregoing, update various
definitions, conform to new defined terms and other provisions of the
updated Clearing Rules, incorporate the Sponsored Principal model and
other new account structures, and make various other conforming and
clarifying revisions that constitute drafting improvements, as more
fully described in its filing with the Commission.\12\
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\12\ See supra note 3.
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III. Discussion and Commission Findings
Section 19(b)(2)(C) of the Act \13\ 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 \14\
requires, among other things, that the rules of a clearing agency are
designed to promote the prompt and accurate clearance and settlement of
securities transactions
[[Page 46483]]
and, to the extent applicable, derivative agreements, contracts, and
transactions, 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, to foster cooperation and coordination with persons
engaged in the clearance and settlement of securities transactions and
in general, to protect investors and the public interest, and are not
designed to permit unfair discrimination in the admission of
participants or among participants in the use of the clearing agency.
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\13\ 15 U.S.C. 78s(b)(2)(C).
\14\ 15 U.S.C. 78q-1(b)(3)(F).
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The Commission finds that the proposed rule change is consistent
with the Act and the rules and regulations thereunder applicable to ICE
Clear Europe. With respect to the proposed rule change intended to
implement the new individual and omnibus segregation accounts, ICEEU
contends that these changes provide strengthened options for the
segregation and safeguarding of customer funds to customers of Non-FCM/
BD Clearing Members. The existing, non-individually segregated models
will also generally remain available for those customers that want
them. In addition, the customer account structures and segregation
requirements for FCM/BD Clearing Members are not being changed.
Accordingly, ICEEU states that the proposed rule changes will enhance,
and not reduce, the level of customer protection available under the
current ICE Clear Europe rules. The Commission finds that the proposed
rule changes implementing the new individual and omnibus segregation
accounts reduce the risk of loss to the Clearing House and market
participants associated with a default by a Clearing Member or its
customer and therefore, contribute to the safeguarding of securities
and funds associated with derivative transactions that are in the
custody or control of the Clearing House or for which it is
responsible, consistent with Section 17(A)(b)(3)(F) of the Act.\15\
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\15\ 15 U.S.C. 78q-1(b)(3)(F).
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With respect to the proposed rule change regarding guaranty fund,
ICEEU contends that the proposed changes do not themselves change ICE
Clear Europe's methodology with respect to its margin or guaranty fund
requirements. ICE Clear Europe currently implements risk management
methodology that takes into account the parameters required to comply
with all applicable laws and intends to continue maintaining risk
management methodology with respect to margin and the guaranty fund
that will comply with all applicable laws. Therefore, the Commission
finds that the proposed rule change will not adversely affect ICE Clear
Europe's maintenance of financial resources that support its clearing
operations and is consistent with the requirement of safeguarding
securities and funds in the custody or control of the clearing
agency,\16\ and the requirements of Rule 17Ad-22(b)(3) \17\ regarding
the maintenance of sufficient financial resources.
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\16\ 15 U.S.C. 78q-1(b)(3)(F).
\17\ 17 CFR 240.17Ad-22(b)(3).
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With respect to customer portability, direct payment to customers,
and the option for a Clearing Member to request that ICE Clear Europe
transfer a customer's positions and margin to the Clearing Member's
proprietary account, the Commission finds that the proposed rule change
enhances ICE Clear Europe's ability to manage defaults and is
consistent with the Act, and rules and regulations thereunder
applicable to ICE Clear Europe, in particular the requirement of
safeguarding securities and funds in the custody or control of the
clearing agency and the requirement that a clearing agency establishes
default procedures that ensure timely action to contain losses and
liquidity pressures and to continue meeting its obligations in the
event of a participant default.\18\
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\18\ 15 U.S.C. 78q-1(b)(3)(F) and 17 CFR 240.17Ad-22(d)(11).
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Further, the Commission finds the proposed changes relating to
membership criteria and obligations improves the financial and
operational requirements for Clearing Membership and clarifies the
Clearing House's ability to impose additional conditions on Clearing
Membership and to reject or deny Clearing Membership applications,
which is consistent with the Act, in particular the requirements that
the rules of a clearing agency are designed to promote the prompt and
accurate clearance and settlement, to foster cooperation and
coordination with persons engaged in the clearance and settlement, and
not designed to permit unfair discrimination in the admission of
participants or among participants in the use of the clearing
agency.\19\
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\19\ 15 U.S.C. 78q-1(b)(3)(F).
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With respect to the proposed rule change to implement the reporting
requirements under EMIR, the Commission finds that the proposed rule
change only requires ICE Clear Europe or its counterparties to ensure
that contract data are reported and leaves flexibility for ICE Clear
Europe and its counterparties to determine who would be the reporting
party undertaking the reporting obligations. The Commission finds that
the proposed rule change is consistent with the Act, in particular the
requirement that the rules of a clearing agency are designed to remove
impediments to and perfect the mechanism of a national system for
prompt and accurate clearance and settlement, and to protect investors
and the public interest.\20\
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\20\ 15 U.S.C. 78q-1(b)(3)(F).
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Finally, the Commission finds that the other proposed changes to
ICE Clear Europe's Clearing Rules are consistent with Section 17A of
the Act, and rules and regulations thereunder applicable to ICE Clear
Europe. In particular, the Commission believes that these proposed
changes are principally designed to further implement the other changes
to the Clearing Rules described above that are consistent with the Act
by updating various definitions, conforming to new defined terms and
other provisions of the updated Clearing Rules, and making various
other conforming and clarifying revisions that constitute drafting
improvements, and therefore are designed to promote prompt and accurate
clearance and settlement of securities transactions and, to the extent
applicable, derivative agreements, contracts, and transactions, and 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, consistent with Section 17A(b)(3)(F) of the Act.\21\
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\21\ 15 U.S.C. 78q-1(b)(3)(F).
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Section 19(b)(2)(C)(iii) of the Act \22\ allows the Commission to
approve a proposed rule change earlier than 30 days after the date of
publication of the notice of the proposed rule change in the Federal
Register where the Commission finds good cause for so doing and
publishes the reason for the finding. In its filing, ICE Clear Europe
requested that the Commission approve the proposed rule change on an
accelerated basis for good cause shown. ICE Clear Europe has
represented that the proposed changes to its Clearing Rules are
necessary to comply with requirements under EMIR in connection with its
authorization as a central counterparty under EMIR. ICE Clear Europe
further notes that failure to have the amendments in effect, and to be
in compliance with the EMIR requirements, may adversely affect the
approval of its authorization application and therefore its ability to
do business as a recognized central counterparty. Accordingly, the
Commission finds that good cause exists to approve the proposed rule
change on an accelerated
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basis pursuant to Section 19(b)(2)(C)(iii) of the Act.\23\
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\22\ 15 U.S.C. 78s(b)(2)(C)(iii).
\23\ 15 U.S.C. 78s(b)(2)(C)(iii).
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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 \24\ and the
rules and regulations thereunder.
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\24\ 15 U.S.C. 78q-1.
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\25\ that the proposed rule change (SR-ICEEU-2014-09) be, and
hereby is, approved on an accelerated basis.\26\
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\25\ 15 U.S.C. 78s(b)(2).
\26\ 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.\27\
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\27\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-18751 Filed 8-7-14; 8:45 am]
BILLING CODE 8011-01-P