[Federal Register Volume 77, Number 198 (Friday, October 12, 2012)]
[Notices]
[Pages 62275-62277]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-25079]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67983; File No. SR-ICC-2012-17]


Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of 
Filing and Order Granting Accelerated Approval of Proposed Rule Change 
To Revise Rules Related To Legal Segregation With Operational 
Commingling

October 4, 2012.
    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 September 21, 2012, ICE Clear Credit LLC (``ICC'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
changes described in Items I and II below, which Items have been 
prepared primarily by ICC. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons 
and to approve 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    ICC submits proposed amendments to its Rules to implement the 
enhanced margin segregation model for cleared swaps that the Commodity 
Futures Trading Commission (``CFTC'') adopted in Part 22 of the CFTC 
regulations (generally referred to as ``legal segregation with 
operational commingling'' or ``LSOC''). CFTC rules require ICC (like 
other derivatives clearing organizations) to implement LSOC by November 
8, 2012. As result of the LSOC requirements, ICC principally proposes 
to (i) introduce new procedures for allocating initial margin to the 
positions carried for each customer on a customer-by-customer basis, 
(ii) introduce new procedures for calling for, holding and returning 
customer margin in light of the requirement to allocate initial margin 
on a customer-by-customer basis, and (iii) change the default 
``waterfall'' to limit ICC's ability to use customer margin in the 
event that a clearing member defaults, consistent with the requirements 
of LSOC. The LSOC requirements are intended to mitigate the risk that 
one customer of a clearing member would suffer a loss because of a 
default by another clearing member. ICC will also be removing existing 
provisions of the Rules that addressed the holding of excess margin and 
will not be necessary in ICC's initial implementation of LSOC.
    ICC proposes to amend Parts 3, 4, 8, 20 and 20A of the ICC Rules, 
as well as related definitions, to incorporate Part 22 of the CFTC 
Regulations. The other proposed changes in the ICC Rules reflect 
conforming changes and drafting clarifications and do not affect the 
substance of the ICC Rules or forms of cleared products. All 
capitalized terms not defined herein are defined in the ICC Rules.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, ICC included statements 
concerning the purpose of and basis for the proposed rule changes and 
discussed any comments it received on the proposed rule changes. The 
text of these statements may be examined at the places specified in 
Item III below. ICC has prepared summaries, set forth in sections A, B, 
and C below, of the most significant aspects of these statements.\3\
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    \3\ The Commission has modified the text of the summaries 
prepared by ICC to reflect information communicated during phone 
calls with Michelle Weiler, Assistant General Counsel, on October 2 
and October 3, 2012.
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A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    As noted above, the principal purpose of the proposed rule 
amendments is intended to update the particular characteristics of the 
Rules applicable to the segregation of customer margin. Specifically, 
the proposed rule changes affect Parts 3, 4, 8, 20 and 20A of the ICC 
Rules, and related definitions, by providing, in summary, that initial 
margin allocated to a particular customer's positions may not be used 
to cover losses arising from another customer's positions. Each of 
these changes is described in detail as follows.
    In Part 1 of the ICC Rules, the definitions of ``custodial asset 
policies,'' ``custodial client omnibus margin account,'' ``eligible 
custodial assets,''

[[Page 62276]]

``excess margin,'' ``net client omnibus margin account,'' ``net margin 
requirement,'' and ``Participant excess margin'' have been deleted to 
reflect the LSOC model and particularly the elimination of provisions 
relating to holding excess margin at ICC. New definitions for ``client 
omnibus margin account'' and ``non-Participant party portfolio'' have 
been added to accommodate the LSOC model, including the customer-by-
customer tracking of initial margin and positions.
    Existing Rule 304(b), which pertains to offsets, has been revised 
to conform to LSOC requirements that ICC calculate and collect Client-
Related Initial Margin on a gross basis as opposed to a net basis. 
Existing Rule 307 has been revised so that the Statement of Open 
Positions now lists the Net House Margin Requirement and the Net 
Client-Related Mark-To-Market Margin Requirement, and Existing Rule 308 
has been modified so that the Statement of Initial Margin states the 
Net House Margin Requirement and the Non-Participant Party Portfolio 
Margin Requirement for each Non-Participant Party Portfolio.
    Existing Rule 401(a) has been revised so that it only applies to 
house margin. ICC has adopted a new Rule 401(b) that governs for 
client-related margin, which is the margin posted by a Participant in 
respect of Client-Related Positions. To comply with LSOC as it relates 
to ``initial margin,'' under new Rule 401(b)(i), ICC will calculate the 
initial margin requirement separately for each Non-Participant Party 
Portfolio and compare it to the value of initial margin provided by the 
Participant and allocated by ICC under CFTC Rules to that portfolio. In 
each margin cycle, ICC will call for additional initial margin for each 
Non-Participant Party Portfolio for which there is a shortfall. ICC 
will separately make available for return to the Participant any excess 
initial margin held with respect to a Non-Participant Party Portfolio.
    For ``mark-to-market margin'' under new Rule 401(b)(ii), ICC will 
continue to calculate a net amount for all Client-Related Positions in 
all Non-Participant Party Portfolios and compare it to the value of the 
mark-to-market margin held by ICC or the value of the mark-to-market 
margin held or deemed held by the Participant. For each margin cycle, 
ICC will make a net call or payment of mark-to-market margin, as 
appropriate.
    Under the proposed revised Rule 402(h), ICC has incorporated the 
new CFTC Rule 22.15, which limits ICC's use of the Initial Margin 
posted in respect of Client-Related Positions. Revisions to Rule 406 
eliminate various provisions that are now covered by CFTC regulations 
and are no longer necessary with the implementation of the LSOC 
framework. Further, under the proposed new Rule 406(l), ICC states that 
it will not accept the deposit of Margin from a Participant in respect 
of Client-Related Positions in excess of the amount required by ICC.
    ICC proposes to revise Rule 20-605(c)(i)(A) in order to modify the 
default ``waterfall'' for application of resources in the Closing-out 
Process for Client-Related Positions upon a Participant default to 
reflect new CFTC Rule 22.15. The principal change to the rule is in 
subclause (C), which provides that ICC is only entitled to use Initial 
Margin allocated to a particular Non-Participant Party Portfolio to 
cover losses from that portfolio. Initial Margin for Client-Related 
Positions could not otherwise be applied by ICC as part of the default 
waterfall. Rule 20-605(c)(i)(A) and (B) also contain various non-
substantive drafting improvements and clarifications as compared to the 
existing Rule. Revisions to Rule 20-605(d) address ICC's ability to 
allocate margin to a particular Non-Participant Party Portfolio for 
purposes of the default waterfall. ICC has also made conforming changes 
to Chapter 8 of the Rules, which addresses the use of the guaranty fund 
in the default waterfall.
    The proposed changes to Part 20A of the ICC Rules, which address 
transfer of positions, are also intended to conform to the changes in 
the default waterfall.
    Finally, in addition to rule changes designed to address Part 22 of 
the CFTC Regulations, existing Rule 405 has been deleted because it is 
no longer applicable.

B. Self-Regulatory Organization's Statement on Burden on Competition

    ICC does not believe the proposed rule change would have any 
impact, or impose any burden, on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    Written comments relating to the proposed rule change have not been 
solicited or received. ICC will notify the Commission of any written 
comments received by ICC.

III. 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-ICC-2012-17 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-ICC-2012-17. 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 will also be available 
for inspection and copying at the principal office of ICC and on ICC's 
Web site at https://www.theice.com/publicdocs/regulatory_filings/ICEClearCredit_092112.pdf.
    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-ICC-2012-17 
and should be submitted on or before November 2, 2012.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    Section 19(b) of the Act \4\ directs the Commission to approve a 
proposed rule change of a self-regulatory organization if it finds that 
such proposed rule

[[Page 62277]]

change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to such organization. The Commission 
finds that the proposed rule change is consistent with the requirements 
of the Act, in particular the requirements of Section 17A of the Act, 
and the rules and regulations thereunder applicable to ICC.\5\ 
Specifically, the Commission finds that the proposed rule change is 
consistent with Section 17A(b)(3)(F) of the Act, which requires, among 
other things, that the rules of a registered clearing agency be 
designed 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 and to protect investors and the public interest.\6\
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    \4\ 15 U.S.C. 78s(b).
    \5\ 15 U.S.C. 78q-1. In approving this proposed rule change, the 
Commission has considered the proposed rule's impact on efficiency, 
competition, and capital formation. 15 U.S.C. 78c(f).
    \6\ 15 U.S.C. 78q-1(b)(3)(F).
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    In its filing, ICC requested that the Commission approve this 
proposed rule change on an accelerated basis for good cause shown. ICC 
believes there is good cause for accelerated approval because the rule 
change is required to be in compliance with Part 22 of the CFTC 
Regulations, which will become effective on November 8, 2012.
    The Commission finds good cause, pursuant to Section 19(b)(2) of 
the Act,\7\ for approving the proposed rule change prior to the 30th 
day after the date of publication of notice in the Federal Register 
because, as a derivatives clearing organization registered with the 
CFTC, ICC must amend certain of its rules to comply with CFTC's Part 22 
Regulations that will become effective on November 8, 2012.
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    \7\ 15 U.S.C. 78s(b)(2).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (SR-ICC-2012-17) be, and hereby is, 
approved on an accelerated basis.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-25079 Filed 10-11-12; 8:45 am]
BILLING CODE 8011-01-P