[Federal Register Volume 74, Number 233 (Monday, December 7, 2009)]
[Notices]
[Pages 64127-64128]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-29210]


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DEPARTMENT OF THE TREASURY


Order Extending Temporary Exemptions From Certain Government 
Securities Act Provisions and Regulations in Connection With a Request 
From ICE Trust U.S. LLC Related to Central Clearing of Credit Default 
Swaps

AGENCY: Department of the Treasury, Office of the Under Secretary for 
Domestic Finance.

ACTION: Notice of extension of temporary exemptions.

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SUMMARY: The Department of the Treasury (Treasury) is extending its 
March 6, 2009 order providing temporary exemptions from certain 
Government Securities Act of 1986 (GSA) provisions and regulations in 
connection with a request from ICE Trust U.S. LLC (ICE Trust, formerly 
ICE US Trust LLC) related to the central clearing of credit default 
swaps (CDS) that reference government securities. This extension of 
temporary exemptions is consistent with an extension of temporary 
exemptions the Securities and Exchange Commission (SEC) recently 
granted to ICE Trust related to the central clearing of CDS.\1\
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    \1\ See the SEC's Web site at http://www.sec.gov for the recent 
Securities Exchange Act Release. Order Extending and Modifying 
Temporary Exemptions Under the Securities Exchange Act of 1934 in 
Connection with Request on Behalf of ICE Trust U.S. LLC Related to 
Central Clearing of Credit Default Swaps, and Request for Comments. 
See http://www.sec.gov. The SEC's order relates only to and is 
necessary only for CDS that are not swap agreements under Section 
206A of the Gramm-Leach-Bliley Act.

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DATES: Effective Date: December 7, 2009.

FOR FURTHER INFORMATION CONTACT: Lori Santamorena, Lee Grandy, or Kevin 
Hawkins; Bureau of the Public Debt, Department of the Treasury, at 202-
504-3632.

SUPPLEMENTARY INFORMATION: The following is Treasury's order extending 
the temporary exemptions:

I. Introduction

    On March 6, 2009, the SEC issued to ICE Trust, certain participants 
in ICE Trust, and others exemptions from certain provisions of the 
Securities Exchange Act of 1934 (Exchange Act).\2\ The SEC's exemptions 
did not cover the Exchange Act provisions applicable to government 
securities.\3\ Also, on March 6, 2009, Treasury issued an order that 
granted temporary exemptions that were consistent with certain of the 
temporary exemptions granted by the SEC.\4\ Specifically, the March 6, 
2009 order granted to (1) ICE Trust, (2) certain participants in ICE 
Trust (ICE Trust Participants) \5\ that are not registered or noticed 
government securities brokers and government securities dealers \6\ 
under section 15C(a)(1) of the Exchange Act, and (3) certain eligible 
contract participants (ECPs) \7\ temporary exemptions until December 6, 
2009, from certain GSA provisions and regulations.\8\ The exemption 
applied to these entities' transactions in ``cleared CDS,'' which 
generally are CDS submitted to ICE Trust where the CDS reference a 
government security. In addition, with respect to registered or noticed 
government securities brokers and government securities dealers that 
are not financial institutions, the order granted a temporary exemption 
from certain GSA regulatory requirements consistent with the SEC's 
treatment of registered brokers and dealers in its exemptive order. 
That temporary exemption similarly applied to those entities' 
transactions in cleared CDS.\9\ Together with its order, Treasury 
solicited public comment on all aspects of the temporary exemptions and 
received no comments.
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    \2\ Securities Exchange Act Release No. 34-59527 (March 6, 
2009). Order Granting Temporary Exemptions Under the Securities 
Exchange Act of 1934 in Connection with Request on Behalf of ICE US 
Trust LLC Related to Central Clearing of Credit Default Swaps, and 
Request for Comments. See http://www.sec.gov. The SEC's order 
relates only to and is necessary only for CDS that are not swap 
agreements under Section 206A of the Gramm-Leach-Bliley Act.
    \3\ The term government securities is defined at 15 U.S.C. 
78c(a)(42). As with the March 6, 2009 order, Treasury is not making 
a determination in this order as to whether particular CDS are 
``government securities.''
    \4\ 74 FR 10647, March 11, 2009, Order Granting Temporary 
Exemptions from Certain Provisions of the Government Securities Act 
and Treasury's Government Securities Act Regulations in Connection 
with a Request on Behalf of ICE US Trust LLC Related to Central 
Clearing of Credit Default Swaps, and Request for Comments (March 6, 
2009 order).
    \5\ For purposes of this Order, ICE Trust Participant means any 
participant in ICE Trust that submits CDS that reference a 
government security to ICE Trust for clearance and settlement 
exclusively (i) for its own account or (ii) for the account of an 
affiliate that controls, is controlled by, or is under common 
control with the participant in ICE Trust.
    \6\ As used in this order, registered or noticed government 
securities brokers and government securities dealers encompass all 
brokers, dealers, and entities required to register or file notice 
pursuant to Section 15C(a)(1) of the Exchange Act. The GSA 
regulations apply to all classes of government securities brokers 
and government securities dealers required to register or file 
notice pursuant to Section 15C(a)(1) of the Exchange Act. This 
encompasses registered brokers and dealers (including OTC 
derivatives dealers), registered government securities brokers and 
registered government securities dealers (those specialized 
government securities brokers and government securities dealers that 
conduct a business in only government or other exempted securities 
(other than municipal securities)), and financial institutions that 
are required to file notice as government securities brokers and 
government securities dealers. The GSA regulations also address 
futures commission merchants that are government securities brokers 
or government securities dealers, but these entities are not covered 
in this order.
    \7\ ECPs are defined in Section 1a(12) of the Commodity Exchange 
Act, 7 U.S.C. 1 et seq. The use of the term ECPs in this order 
refers to the definition of ECPs in effect on the date of this 
order, and excludes persons that are ECPs under Section 1a(12)(C). 
The temporary exemptions provided to ECPs in this order also apply 
to interdealer brokers that are ECPs.
    \8\ 17 CFR Chapter IV parts 400-405, and 449 were issued under 
Section 15C(a), (b), and (d) of the Exchange Act.
    \9\ For purposes of this order, cleared CDS means a credit 
default swap that is submitted (or offered, purchased, or sold on 
terms providing for submission) to ICE Trust, that is offered only 
to, purchased only by, and sold only to ECPs (as defined in Section 
1a(12) of the Commodity Exchange Act as in effect on the date of 
this order (other than a person that is an ECP under paragraph (C) 
of that section)), and that references a government security.
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    ICE Trust has requested that Treasury extend the temporary 
exemptions in the March 6, 2009 order.\10\ ICE Trust also requested 
that Treasury grant certain supplemental exemptive relief to 
accommodate customer clearing.\11\
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    \10\ See Letter from Kevin McClear, ICE Trust U.S. LLC, to the 
Commissioner of the Public Debt, Van Zeck, December 3, 2009, 
available at http://www.treasurydirect.gov/instit/statreg/gsareg/gsareg.htm.
    \11\ Id. ICE Trust's request includes a discussion of and 
request for supplemental exemptive relief to include Client Member 
Transactions and the Non-Member Framework, as well as a request for 
an exemption to Clearing Members in connection with the receiving or 
holding of funds or securities from other persons.
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    ICE Trust has stated that the existing order has allowed the 
financial industry to advance the goal of centralized clearing of CDS, 
and that allowing the order to expire could jeopardize this progress. 
It also states that the order should be extended because allowing it to 
expire would create uncertainty as to the regulatory status of cleared 
trades and clearing participants and that it would be premature to 
allow the order to expire at this stage in the

[[Page 64128]]

development of ICE and ICE Trust, given the goal to expand the 
availability of CDS clearing.
    ICE Trust's request described how ICE Trust currently clears CDS 
and how the proposed arrangements for central clearing of customers' 
CDS transactions would operate. The request also made representations 
about the safeguards associated with those arrangements. Since it began 
operation, ICE Trust has been subject to examination by the New York 
State Banking Department, the Federal Reserve Bank of New York, and the 
SEC. ICE Trust states that these examinations have addressed numerous 
aspects of ICE Trust's activities, including compliance with safety and 
soundness requirements.
    ICE Trust has cleared through acceptance and novation the 
proprietary CDS transactions of its clearing members since March 9, 
2009. As of October 30, 2009, ICE Trust represents that it had cleared 
approximately $2.6 trillion notional amount of CDS contracts based on 
indices of securities. ICE Trust also intends to clear single-name CDS 
contracts based on individual reference entities or securities.
    Treasury finds that the circumstances upon which it issued the 
March 6, 2009 order, including the need for increasing transparency and 
mitigation of potential systemic risk, still exist. Therefore, Treasury 
believes that continuing the temporary exemptions given in that order 
is warranted and appropriate. Treasury believes that applying the GSA 
requirements to certain CDS market participants that are not registered 
or noticed government securities brokers or government securities 
dealers could deter some of them from using ICE Trust to clear CDS 
transactions where the CDS references a government security, and 
thereby reduce the potential systemic risk mitigation and other 
benefits of central clearing.
    Treasury continues to balance the need to avoid creating 
disincentives to the prompt use of CCPs against the critical importance 
of certain government securities broker and government securities 
dealer requirements in promoting market integrity and protecting 
customers. Moreover, Treasury agrees that it would be premature to 
allow the exemptions to expire given ICE Trust's stage of development. 
For similar reasons, Treasury believes that the full range of GSA 
requirements generally should not be applied immediately to government 
securities brokers and government securities dealers that engage in 
transactions involving CDS that reference a government security.
    Treasury bases this extension of the order on the facts and 
circumstances presented and representations made by ICE Trust in the 
request. Treasury relies on these facts and representations in granting 
this temporary exemption.
    Accordingly, pursuant to Section 15C(a)(5) of the Exchange Act, the 
Secretary finds that it is consistent with the public interest, the 
protection of investors, and the purposes of the Exchange Act to extend 
the temporary exemptions granted in the March 6, 2009 order until March 
7, 2010. Consistent with the original order, the extension of the 
temporary exemptions does not apply to financial institution government 
securities brokers and government securities dealers. They should 
continue to comply with existing rules. In issuing this extension, 
Treasury has consulted with and considered the views of the staffs of 
the SEC, the Commodity Futures Trading Commission, and the appropriate 
regulatory agencies for financial institutions.\12\
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    \12\ The definition of appropriate regulatory agency with 
respect to a government securities broker or a government securities 
dealer is set out at 15 U.S.C. 78c(a)(34)(G). The definition 
includes the Board of Governors of the Federal Reserve System, the 
Comptroller of the Currency, the Federal Deposit Insurance 
Corporation, the Director of Thrift Supervision, and, in limited 
circumstances, the SEC.
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    Since Treasury is in the process of finalizing action with regard 
to ICE Trust's request that Treasury grant supplemental relief to 
permit an expansion of its clearing services to include the clearance 
of the CDS transactions of its clearing members' customers, this order 
only extends the exemptions granted in the March 6, 2009 order.

Conclusion

    It is hereby ordered, pursuant to Section 15C(a)(5) of the Exchange 
Act, that the order Treasury issued effective March 6, 2009 (74 FR 
10647, March 11, 2009) is amended by replacing the expiration date of 
December 6, 2009, with a new expiration date of March 7, 2010, and in 
all other respects that order remains in effect.
    The temporary exemptions contained in this order are based on the 
facts and circumstances presented in the request. These temporary 
exemptions could become unavailable if the facts or circumstances 
change such that the representations in the request are no longer 
materially accurate. If the SEC were to withdraw its order or modify 
the terms of its order, Treasury may revoke or modify this order 
accordingly. The status of cleared CDS submitted to ICE Trust prior to 
such change would be unaffected.

Michael S. Barr,
Acting Under Secretary for Domestic Finance.
[FR Doc. E9-29210 Filed 12-3-09; 4:15 pm]
BILLING CODE 4810-39-P