[Federal Register Volume 75, Number 233 (Monday, December 6, 2010)]
[Notices]
[Pages 75722-75724]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-30430]


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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: Office of the Assistant Secretary for Financial Markets, 
Department of the Treasury.

ACTION: Notice of extension of temporary exemptions.

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SUMMARY: The Department of the Treasury (Treasury) is extending its 
temporary exemptions from certain Government Securities Act provisions 
and regulations regarding the central clearing of credit default swaps 
that reference government securities. The extension of these temporary 
exemptions was requested by ICE Trust U.S. LLC.

DATES: Effective Date: Effective November 30, 2010.

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

    Treasury regulations govern transactions in government securities 
\1\ by government securities brokers \2\ and government securities 
dealers \3\ under

[[Page 75723]]

Section 15C of the Securities Exchange Act of 1934 (Exchange Act), as 
amended by the Government Securities Act of 1986 (GSA). These 
regulations impose obligations concerning financial responsibility, 
protection of customer securities and balances, and recordkeeping and 
reporting.
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    \1\ The term government securities is defined at 15 U.S.C. 
78c(a)(42).
    \2\ A government securities broker generally is ``any person 
regularly engaged in the business of effecting transactions in 
government securities for the account of others,'' with certain 
exclusions. 15 U.S.C. 78c(a)(43).
    \3\ A government securities dealer generally is ``any person 
engaged in the business of buying and selling government securities 
for his own account, through a broker or otherwise,'' with certain 
exclusions. 15 U.S.C. 78c(a)(44).
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    Treasury has previously issued orders providing temporary 
exemptions to permit ICE Trust U.S. LLC (ICE Trust) to clear and settle 
transactions in credit default swaps (CDS) \4\ that reference 
government securities.
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    \4\ A CDS is a bilateral contract between two parties, known as 
counterparties. The value of this financial contract is based on 
underlying obligations of a single entity (reference entity) or on a 
particular security or other debt obligation, or an index of several 
such entities, securities, or obligations. The obligation of a 
seller to make payments under a CDS contract is triggered by a 
default or other credit event as to such entity or entities or such 
security or securities.
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    Specifically, on March 6, 2009, Treasury granted a temporary 
exemption \5\ from certain GSA provisions and regulations to ICE Trust, 
certain ICE Trust participants, and certain eligible contract 
participants (ECPs).\6\ In the same order Treasury also granted a 
limited temporary exemption from certain GSA regulatory requirements to 
government securities brokers and government securities dealers that 
are not financial institutions. On December 7, 2009, Treasury extended 
the expiration date of these temporary exemptions until March 7, 
2010.\7\ On January 28, 2010, Treasury granted a temporary, conditional 
exemption until March 7, 2010, to certain ICE Trust clearing members 
and certain ECPs to accommodate using ICE Trust to clear customer CDS 
transactions.\8\ On March 7, 2010, Treasury granted a conditional, 
temporary exemption from certain GSA provisions and regulations to 
certain ICE Trust participants, and certain ECPs (the March 2010 
order).\9\ In the same order Treasury also granted a temporary 
exemption from certain Treasury regulatory requirements for registered 
or noticed government securities brokers and government securities 
dealers that are not financial institutions. The temporary exemptions 
expire on November 30, 2010. Treasury has received no comments on its 
previous orders.
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    \5\ 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, 
available at: http:[sol][sol]www.treasurydirect.gov/instit/statreg/
gsareg/gsareq_treasexemptiveorder309.pdf.
    \6\ 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 exemption provided to ECPs in this order also applies 
to interdealer brokers that are ECPs.
    \7\ 74 FR 64127, December 7, 2009 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, available at: 
http:[sol][sol]www.treasurydirect.gov/instit/statreg/gsareg/FR--
Treasury--Order--ICE--Extension--(12-7-09).pdf.
    \8\ 75 FR 4626, January 28, 2010 Order Granting a Temporary 
Exemption 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, and Request for 
Comments, available at: http:[sol][sol]www.treasurydirect.gov/
instit/statreg/gsareg/TreasuryICEOrderFedRegisterJan282010.pdf.
    \9\ 75 FR 11627, March 11, 2010 Order Granting 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, and Request for 
Comments, available at: http:[sol][sol]www.treasurydirect.gov/
instit/statreg/gsareg/
TreasuryExemptiveOrderMarch112010FedRegister.pdf.
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    Subsequent to the March 2010 order, the Dodd-Frank Wall Street 
Reform and Consumer Protection Act (Dodd-Frank Act) was enacted on July 
21, 2010.\10\ Title VII of the Dodd-Frank Act establishes a 
comprehensive new regulatory framework for swaps and security-based 
swaps, and provides the Securities and Exchange Commission (SEC) and 
the Commodity Futures Trading Commission (CFTC) with the authority to 
regulate over-the-counter (OTC) derivatives. The SEC and CFTC are 
working together to address the regulation of CDS, in consultation with 
Treasury and other regulators.
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    \10\ Public Law 111-203, 124 Stat. 1376.
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II. Discussion

    On November 26, 2010, Treasury received a letter (the request) \11\ 
from ICE Trust asking that Treasury extend the temporary exemptions in 
the March 2010 order. ICE Trust has stated in its request that the 
existing order has allowed the financial industry to advance the goal 
of central clearing of CDS, pending regulatory action to require such 
clearing. It also states that the order should be extended because 
allowing it to expire may jeopardize the ability of ICE Trust to 
continue its operations and that any regulatory uncertainty to the use 
of ICE Trust as a central counterparty (CCP) could create a significant 
barrier to Treasury's goal of encouraging the use of CCPs in the 
clearing of CDS. ICE Trust also notes that the order provides 
regulatory agencies with adequate authority to monitor its activities, 
and that it is also comprehensively monitored and regulated by State 
and Federal banking supervisors. ICE Trust believes the extension is 
warranted to avoid creating regulatory uncertainty with respect to the 
significant amounts of current open interest.
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    \11\ Letter from Kevin R. McClear, General Counsel, ICE Trust to 
the Commissioner of the Public Debt, Van Zeck, November 26, 2010, 
available at: http:[sol][sol]www.treasurydirect.gov/instit/statreg/
gsareg/gsareg.htm.
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    The request states that, to date, the products eligible for 
clearing at ICE Trust include CDS transactions involving certain 
indices and CDS contracts based on individual reference entities or 
securities (single-name CDS contracts) that meet ICE Trust's risk 
management and other criteria. The request also states that since the 
date of the March 2009 order, ICE Trust has cleared approximately $7.3 
trillion in notional amount of index-based CDS contracts and 
approximately $461.5 billion in notional amount of single-name CDS 
contracts. We understand that, to date, ICE Trust has not cleared any 
CDS contracts that reference U.S. government securities.
    In its request for an extension of the temporary exemptions, ICE 
Trust represents that there have been no material changes to its 
operations or the representations made in its previous letters 
requesting the exemptive relief.\12\
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    \12\ ICE Trust indicated that on November 12, 2010, it applied 
to the CFTC for registration as a derivatives clearing organization 
(DCO) in advance of the date Title VII of the Dodd-Frank Act goes 
into effect in order to facilitate implementation of the Dodd-Frank 
Act requirements. As part of the transition to DCO status, ICE Trust 
expects to admit futures commission merchants registered with the 
CFTC (which may be registered as government securities brokers or 
government securities dealers) as clearing members for customer 
clearing and may introduce related changes to its rules. Treasury 
has not determined whether these developments would be material for 
purposes of this order.
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    Treasury believes that continuing to facilitate the central 
clearing of CDS transactions--including customer CDS transactions--
through an extension of the temporary exemptions in this order will 
continue to provide important risk management and systemic benefits by 
avoiding an interruption in those CCP clearance and settlement services 
pending the effective date of Title VII of the Dodd-Frank Act. Any 
interruption in CCP clearance and settlement services for CDS 
transactions could eliminate the benefits ICE Trust provides. Treasury 
also believes that facilitating the central clearing of CDS 
transactions will continue to improve transparency, enhance 
counterparty risk management, and contribute generally to the goal of 
mitigating systemic risk.
    Treasury finds that the circumstances upon which it issued the 
previous order

[[Page 75724]]

to ICE Trust still exist and, therefore, Treasury believes that 
extending the temporary exemptions is warranted and appropriate. 
Accordingly, consistent with our findings in the March 2010 order, and, 
in particular, in light of the risk management and systemic benefits in 
continuing to accommodate clearing CDS that reference government 
securities by ICE Trust, the Secretary of the Treasury (Secretary) 
finds that it is consistent with the public interest, the protection of 
investors, and the purposes of the Exchange Act to extend the exemptive 
relief granted in the March 2010 order. The extension of the temporary 
exemptions will expire on July 16, 2011, unless revoked or modified by 
Treasury. In extending these temporary exemptions, Treasury has 
consulted with and considered the views of the staffs of the SEC, the 
CFTC, and the appropriate regulatory agencies for financial 
institutions.\13\ The extension of these temporary exemptions is 
consistent with temporary exemptions the SEC has granted to ICE Trust 
related to the central clearing of CDS.\14\
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    \13\ 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.
    \14\ See the SEC's Web site at http://www.sec.gov for the recent 
Order Extending and Modifying Temporary Exemptions Under the 
Securities Exchange Act of 1934 in Connection with Request of ICE 
Trust U.S. LLC Related to Central Clearing of Credit Default Swaps 
and Request for Comment.
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    In providing the extension of these temporary exemptions from 
certain provisions of Section 15C of the Exchange Act, Treasury is not 
determining whether particular CDS are ``government securities'' under 
15 U.S.C. 78c(a)(42).

III. Conclusion

    It is hereby ordered, pursuant to Section 15C(a)(5) of the Exchange 
Act, that the order Treasury issued effective March 7, 2010 (75 FR 
11627, March 11, 2010) is amended by replacing the expiration date of 
November 30, 2010, with a new expiration date of July 16, 2011, and in 
all other respects that order remains in effect.
    The temporary exemptions contained in this order are based on the 
facts and circumstances about ICE Trust's current operations 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.

IV. Paperwork Reduction Act

    This order extends the March 2010 order that included two requests 
that fall within the definition of ``information'' under the 
regulations implementing the Paperwork Reduction Act (PRA). 5 CFR 
1320.3(h). One is the certification that ICE Trust clearing members 
must provide to ICE Trust under paragraph (a)(3)(ii) of the March 2010 
order concerning their reliance on Treasury's temporary exemption. The 
second is the disclosures that certain ICE Trust clearing members must 
make if they receive or hold funds or securities for the purpose of 
purchasing, selling, clearing, settling, or holding cleared CDS 
positions for U.S. persons, under paragraph (a)(4)(ii) of that same 
order.
    However, Treasury continues to estimate that there will not be 10 
or more ICE Trust clearing members that will be relying on this order 
to clear CDS that reference a government security. As a result, these 
requests do not constitute ``collections of information'' subject to 
the PRA. 5 CFR 1320.3(c). Therefore, the PRA does not apply.

Mary J. Miller,
Assistant Secretary for Financial Markets.
[FR Doc. 2010-30430 Filed 12-3-10; 8:45 am]
BILLING CODE 4810-39-P