[Federal Register Volume 80, Number 28 (Wednesday, February 11, 2015)]
[Notices]
[Pages 7661-7663]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-02751]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 74213; File No. SR-ICEEU-2015-004]
Self-Regulatory Organizations; ICE Clear Europe Limited; Notice
of Filing of Proposed Rule Change Relating to Additional European
Sovereign CDS Contracts
February 5, 2015.
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 January 27, 2015, ICE Clear Europe Limited (``ICE Clear Europe'')
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 ICE Clear Europe. 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 principal purpose of the change is to provide for the clearance
of additional CDS contracts that are Western European sovereign CDS
contracts referencing the Kingdom of the Netherlands, the Republic of
Finland, the Kingdom of Sweden and the Kingdom of Denmark (the
``Additional WE Sovereign Contracts'').
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 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. ICE Clear Europe 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
1. Purpose
The purpose of the proposed rule change is for ICE Clear Europe to
offer clearing of Western European sovereign CDS contracts referencing
four additional reference entities: the Kingdom of the Netherlands, the
Republic of Finland, the Kingdom of Sweden and the Kingdom of Denmark.
ICE Clear Europe currently clears CDS contracts referencing six other
Western European sovereigns: Ireland, the Republic of Italy, the
Portuguese Republic, the Kingdom of Spain, the Kingdom of Belgium and
the Republic of Austria.\3\ ICE Clear Europe believes clearance of the
Additional WE Sovereign Contracts will benefit the markets for credit
default swaps on Western European sovereigns by offering to market
participants the benefits of clearing, including reduction in
counterparty risk and safeguarding of
[[Page 7662]]
margin assets pursuant to clearing house rules.
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\3\ See Securities Exchange Act Release No. 34-71920 (April 9,
2014), 79 FR 21331 (April 15, 2015) (File No. SR-ICEEU-2014-04)
(order approving rule changes to clear Western European sovereign
CDS contracts); Securities Exchange Act Release No. 34-73737
(December 4, 2014), 79 FR 73372 (December 10, 2014) (File No. SR-
ICEEU-2014-18) (order approving rule changes to clear additional
Western European sovereign CDS contracts) (the ``Prior WE Sovereigns
Orders'').
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The Additional WE Sovereign Contracts will constitute ``Non-STEC
Single Name Contracts'' for purposes of the CDS Procedures and
accordingly will be governed by Paragraph 10 of the CDS Procedures,
consistent with treatment of the Western European sovereign CDS
contracts currently cleared by ICE Clear Europe. Clearing of the
Additional WE Sovereign Contracts will not require any changes to ICE
Clear Europe's existing Clearing Rules and Procedures. In addition,
clearing of the Additional WE Sovereign Contracts will not require any
changes in ICE Clear Europe's risk management framework (including
relevant policies) or margin model.\4\
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\4\ For a description of previously approved changes to ICE
Clear Europe's risk management framework to accommodate clearing of
Western European sovereign CDS contracts, see the Prior WE
Sovereigns Orders. ICE Clear Europe has performed a variety of
empirical analyses related to clearing of the Additional WE
Sovereign Contracts under its margin methodology, including back
tests and stress tests.
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2. Statutory Basis
ICE Clear Europe believes that clearing of the proposed Additional
WE Sovereign Contracts is consistent with the requirements of Section
17A of the Act \5\ and regulations thereunder applicable to it,
including the standards under Rule 17Ad-22.\6\ The Additional WE
Sovereign Contracts are substantially similar to the other Western
European sovereign CDS contracts currently cleared by ICE Clear Europe.
The additional contracts will be cleared in the same manner as such
other Western European sovereign CDS contracts, consistent with ICE
Clear Europe's existing clearing arrangements and related financial
safeguards, protections, risk management policies and procedures, and
margin methodology (including those enhancements for Western European
sovereign contracts previously adopted and approved in the Prior WE
Sovereigns Orders). In ICE Clear Europe's view, clearing of the
Additional WE Sovereign CDS contracts, under such terms and
arrangements, is consistent with the prompt and accurate clearance of
and settlement of securities transactions and derivative agreements,
contracts and transactions cleared by ICE Clear Europe, the
safeguarding of securities and funds in the custody or control of ICE
Clear Europe and the protection of investors and the public interest,
within the meaning of Section 17A(b)(3)(F) of the Act.\7\ Clearing of
the Additional WE Sovereign Contracts will also satisfy the relevant
requirements of Rule 17Ad-22,\8\ as discussed below.
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\5\ 15 U.S.C. 78q-1.
\6\ 17 CFR 240.17Ad-22.
\7\ 15 U.S.C. 78q-1(b)(3)(F).
\8\ 17 CFR 240.17Ad-22.
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Financial Resources. ICE Clear Europe will apply its existing
margin methodology for Western European sovereign CDS contracts to the
Additional WE Sovereign Contracts. ICE Clear Europe believes that this
model will provide sufficient margin to cover its credit exposure to
its clearing members from clearing such contracts, consistent with the
requirements of Rule 17Ad-22(b)(2) and Rule 17Ad-22(d)(14).\9\ In
addition, ICE Clear Europe believes the CDS Guaranty Fund, under its
existing methodology, will, together with the required margin, provide
sufficient financial resources to support the clearing of Additional WE
Sovereign Contracts consistent with the requirements of Rule 17Ad-
22(b)(3).\10\
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\9\ 17 CFR 240.17Ad-22(b)(2), (d)(14).
\10\ 17 CFR 240.17Ad-22(b)(3).
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Operational Resources. ICE Clear Europe will have the operational
and managerial capacity to clear the Additional WE Sovereign Contracts
as of the commencement of clearing, consistent with the requirements of
Rule 17Ad-22(d)(4).\11\ ICE Clear Europe believes that its existing
systems used for sovereign CDS contracts are appropriately scalable to
handle the clearing of the Additional WE Sovereign Contracts.
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\11\ 17 CFR 240.17Ad-22(d)(4).
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Settlement. ICE Clear Europe will use its existing settlement
procedures (including for physical settlements), account structures and
approved financial institutions as used in other sovereign CDS clearing
for the Additional WE Sovereign Contracts. ICE Clear Europe believes
that clearing of the Additional WE Sovereign Contracts will therefore
be consistent with the requirements of Rule 17Ad-22(d)(5), (12) and
(15).\12\
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\12\ 17 CFR 240.17Ad-22(d)(5), (12) and (15).
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Default Procedures. ICE Clear Europe's existing Rules and default
management policies and procedures for CDS will apply to the Additional
WE Sovereign Contracts. ICE Clear Europe believes that the Rules and
procedures allow for it to take timely action to contain losses and
liquidity pressures and to continue meeting its obligations in the
event of clearing member insolvencies or defaults, including in respect
of Additional WE Sovereign Contracts, in accordance with Rule 17Ad-
22(d)(11).\13\
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\13\ 17 CFR 240.17Ad-22(d)(11).
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Governance. As discussed in further detail in the Prior WE
Sovereigns Orders, although the margin model applicable to Western
European sovereign CDS contracts, including the Additional WE Sovereign
Contracts, may result in clearing members being subject to different
margin charges based on their domicile and correlation with the
underlying sovereign, ICE Clear Europe believes that the margin model
properly aligns the margin requirements to the risks presented by
particular clearing members. Moreover, the model operates without the
need for ICE Clear Europe (or its management, Board or CDS Risk
Committee) to exercise discretion concerning particular clearing
members or the margin levels applicable to them. As a result, in ICE
Clear Europe's view, the clearing of such contracts does not result in
unfair discrimination among clearing members within the meaning of
Section 17A(b)(3)(F) of the Act and Rule 17Ad-22(d)(8).\14\
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\14\ 15 U.S.C. 78q-1(b)(3)(F); 17 CFR 240.17Ad-22(d)(8).
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B. Self-Regulatory Organization's Statement on Burden on Competition
ICE Clear Europe does not believe the proposed Additional WE
Sovereign Contracts would have any impact, or impose any burden, on
competition not necessary or appropriate in furtherance of the purpose
of the Act. ICE Clear Europe does not anticipate that its commencement
of clearing for the Additional WE Sovereign Contracts will adversely
affect the trading market for those contracts or for CDS more
generally. Specifically, allowing clearing of the Additional WE
Sovereign Contracts will provide market participants with the
additional choice to have their transactions in these types of
contracts cleared, and should generally promote the further development
of the market for these contracts. Moreover, ICE Clear Europe has
established fair and objective criteria for eligibility to clear the
Additional WE Sovereign Contracts, consistent with its criteria for
other cleared CDS.
Although clearance of Additional WE Sovereign Contracts may result
in higher margin requirements for some clearing members as a result of
the general wrong way risk component of the margin model, ICE Clear
Europe believes that the model properly aligns margin requirements to
the risks presented by such clearing members with respect to the
Additional WE Sovereign Contracts. As a result, ICE Clear Europe is of
the view that these
[[Page 7663]]
changes are necessary and appropriate in furtherance of the purpose of
the Act and the Commission's regulations thereunder, including the
financial resources and risk management requirements of Rule 17Ad-
22.\15\ Furthermore, ICE Clear Europe does not believe that any such
increase in margin requirements would significantly affect the ability
of clearing members or other market participants to continue to clear
CDS, consistent with the risk management requirements of the clearing
house, or otherwise limit market participants' choices for selecting
clearing services. Accordingly ICE Clear Europe does not believe that
clearance of the Additional WE Sovereign Contracts will impose any
burden on competition not necessary or appropriate in furtherance of
the purposes of the Act.
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\15\ 17 CFR 240.17Ad-22.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
Written comments relating to the acceptance of the Additional WE
Sovereign Contracts for clearing have not been solicited or received.
ICE Clear Europe will notify the Commission of any written comments
received by ICE Clear Europe.
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
(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-ICEEU-2015-004 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-ICEEU-2015-004. 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/clear-europe/regulation.
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-2015-004
and should be submitted on or before March 4, 2015.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-02751 Filed 2-10-15; 8:45 am]
BILLING CODE 8011-01-P