[Federal Register Volume 73, Number 148 (Thursday, July 31, 2008)]
[Notices]
[Pages 44706-44707]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-17357]


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COMMODITY FUTURES TRADING COMMISSION


Determination of Appropriateness of Standards of the United 
Kingdom's Financial Services Authority for Oversight and Supervision of 
ICE Clear Europe Limited, a Multilateral Clearing Organization

AGENCY: Commodity Futures Trading Commission.

ACTION: Order.

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SUMMARY: The Commodity Futures Trading Commission (CFTC) is issuing an 
Order pursuant to Section 409(b)(3) of the Federal Deposit Insurance 
Corporation Improvement Act (FDICIA). Section 409(b)(3) provides that 
the Commission (or one of several other authorized U.S. financial 
regulators) may determine that the supervision by a foreign financial 
regulator of a multilateral clearing organization (MCO) for over-the-
counter (OTC) instruments satisfies appropriate standards. The 
Commission is issuing this Order with respect to the supervision by the 
United Kingdom's (UK) Financial Services Authority (FSA) of ICE Clear 
Europe Limited (ICE Clear Europe).

DATES: Effective Date: July 31, 2008.

FOR FURTHER INFORMATION CONTACT: Robert B. Wasserman, Associate 
Director, 202-418-5092, [email protected], or Lois J. Gregory, 
Special Counsel, 816-960-7719, [email protected], Division of Clearing 
and Intermediary Oversight, Commodity Futures Trading Commission, Three 
Lafayette Centre, 1151 21st Street, NW., Washington, DC 20581.

SUPPLEMENTARY INFORMATION: The CFTC has issued the following Order:
    Order Issued Pursuant to Section 409 of the Federal Deposit 
Insurance Corporation Improvement Act Determining the Appropriateness 
of the Standards of the United Kingdom's Financial Services Authority 
in the Oversight and Supervision of ICE Clear Europe Limited, a 
Multilateral Clearing Organization.
    FDICIA Section 409 \1\ provides that, in order to operate an MCO 
\2\ for over-the-counter (OTC) derivatives instruments,\3\ a clearing 
organization must meet one of several alternative requirements. In 
particular, a clearing organization will qualify to operate such an MCO 
if it is supervised by a foreign financial regulator that the 
Comptroller of the Currency, the Board of Governors of the Federal 
Reserve System, the Federal Deposit Insurance Corporation, the 
Securities and Exchange Commission, or the CFTC, as applicable, has 
determined satisfies appropriate standards.\4\
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    \1\ 12 U.S.C. 4422.
    \2\ FDICIA Section 408(1), 12 U.S.C. 4421(1), defines MCO to 
mean ``a system utilized by more than [two] participants in which 
the bilateral credit exposures of participants arising from the 
transactions cleared are effectively eliminated and replaced by a 
system of guarantees, insurance, or mutualized risk of loss.''
    \3\ FDICIA Section 408(2), 12 U.S.C. 4421(2) defines OTC 
derivative instrument.
    \4\ FDICIA Section 409(b)(3), 12 U.S.C. 4422(b)(3). The CFTC has 
issued two previous orders pursuant to this authority determining 
that the supervision of particular MCOs by a foreign financial 
regulator met appropriate standards. The foreign financial 
regulators involved were the Norwegian Banking, Insurance and 
Securities Commission and the Alberta (Canada) Securities 
Commission. See 67 FR 2419 (January 17, 2002) and 71 FR 10959 (March 
3, 2006), respectively.
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    ICE Clear Europe, a Recognised Clearing House under the supervision 
of the UK FSA, has requested that the CFTC determine that the FSA's 
program for supervision of their clearing

[[Page 44707]]

activities satisfies appropriate standards.\5\ Such a determination 
would permit ICE Clear Europe to operate as an MCO consistent with the 
requirements set forth in FDICIA Section 409(b)(3).
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    \5\ Letter from Paul Swann, President and Chief Operating 
Officer of Ice Clear Europe, to David A. Stawick, Secretary, CFTC, 
dated March 10, 2008, with annexes. ICE Clear Europe intends to 
clear OTC derivatives transactions to be executed on the 
IntercontinentalExchange, Inc. (ICE), a U.S. exempt commercial 
market. See generally CEA Sec.  2(h)(3), 7 U.S.C. 2(h)(3), for a 
discussion of exempt commercial markets. This activity will bring it 
within FDICIA's definition of an MCO. See FDICIA Sec.  408(2)(C), 12 
U.S.C. 4421(2)(C) (defining OTC derivative instrument to include any 
agreement, contract, or transaction exempt under CEA Section 2(h)).
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    In reviewing this request, the Commission has considered the UK 
legal and regulatory regime for what are referred to as ``recognised 
clearing houses,'' and how that regime has been applied to ICE Clear 
Europe. This includes the UK's Financial Services and Markets Act, 2000 
\6\ (FSMA), regulations thereunder,\7\ and regulatory guidance provided 
by the FSA.\8\ ICE Clear Europe provided the CFTC with its analysis of 
the correspondence between recognition requirements applicable to 
clearing houses recognized by the FSA and the core principles 
applicable to DCOs as set forth in CEA Section 5b.\9\
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    \6\ Financial Services and Markets Act, 2000 (Eng.). References 
to sections of the FSMA are hereinafter cited as ``Section [ ] 
FSMA.''
    \7\ Financial Services and Markets Act 2000 (Recognition for 
Investment Exchanges and Clearing Houses) Regulations (2001) SI 
2001/995.
    \8\ The FSA provides what it describes as a ``specialized 
sourcebook'' entitled ``Recognised Investment Exchanges and 
Recognised Clearing Houses (REC) requirements applying to recognised 
bodies as part of the ``FSA Handbook,'' which is available at http://fsahandbook.info/FSA/html/handbook/REC.
    \9\ The issues raised under Section 409 do not include FSA's 
supervision of trading, and the Commission has accordingly not 
reviewed that aspect of FSA's regulatory program in considering the 
present Order.
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    The Commission also considered additional facts, including the 
authority of the FSA to enforce compliance with the applicable foreign 
law, the foreign law's applicability to the activities of MCOs, FSA's 
membership in the International Organization of Securities Commissions 
(IOSCO), a review of the UK financial system in general (including 
FSA's supervision of clearing in particular) by the International 
Monetary Fund and World Bank (with satisfactory results), and the FSA's 
demonstrated ability and willingness to share information and otherwise 
cooperate with the CFTC.
    The FSA is authorized under the FSMA to supervise the clearing of 
financial instruments by persons located in the UK and has the 
authority to enforce compliance with applicable laws, rules and 
regulations.\10\ Clearing in the UK of OTC instruments may be conducted 
only by a clearing house recognized by the FSA,\11\ thus MCO activity 
is subject to regulatory supervision by the FSA. Furthermore, the FSA 
has the ability and has agreed to share with the CFTC, upon request, 
information in its possession regarding ICE Clear Europe's activities 
as a recognised clearing house and to otherwise cooperate with the 
CFTC.\12\
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    \10\ Section 2 FSMA.
    \11\ Section 285 FSMA. ICE Clear Europe received such 
recognition on May 12, 2008.
    \12\ See generally the Memorandum of Understanding between the 
United States CFTC and the United Kingdom FSA Concerning 
Consultation, Cooperation and the Exchange of Information Related to 
Market Oversight (November 12, 2006) and other agreements to 
cooperate referred to therein.
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    As a matter of courtesy, the Commission invited comment concerning 
ICE Clear Europe's application from the other federal financial 
regulators listed in Section 409, but received none. The Commission 
also invited the public to comment on ICE Clear's petition by general 
release posted on the Commission's Web site on June 17, 2008. The 
Commission received comments from three individuals. Each of these 
comments concerned the trading of contracts in the United Kingdom, but 
none addressed the FSA's program for the supervision of clearing. As 
noted above, the supervision of trading was outside the scope of the 
current review.
    Based upon this information, the CFTC has determined, pursuant to 
FDICIA Section 409(b)(3), that the supervision by the UK's FSA of ICE 
Clear Europe's activity in clearing OTC instruments satisfies 
appropriate standards. Any material changes or omissions in the facts 
and circumstances upon which this order is based might require the CFTC 
to reconsider this matter.

    Issued in Washington, DC, on July 23, 2008.
David A. Stawick,
Secretary of the Commission.
[FR Doc. E8-17357 Filed 7-30-08; 8:45 am]
BILLING CODE 6351-01-P