[Federal Register Volume 78, Number 2 (Thursday, January 3, 2013)]
[Notices]
[Pages 332-333]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-31570]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68542; File No. SR-ICEEU-2012-20]


Self-Regulatory Organizations; ICE Clear Europe Limited; Notice 
of Filing and Immediate Effectiveness of Proposed Rule Change Related 
to SPAN Margin Methodology Enhancements to Inter-Contract Credits and 
Average Option Pricing Model for Energy Clearing Members

December 27, 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 December 19, 2012, 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. ICE Clear 
Europe filed the proposal pursuant to Section 19(b)(3)(A)(iii) of the 
Act,\3\ and Rule 19b-4(f)(4)(ii) thereunder,\4\ so that the proposal 
was effective upon filing with the Commission. The Commission is 
publishing this notice to solicit comments on the proposed change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(4)(ii).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The purpose of the change is to implement changes to the 
SPAN[supreg] for ICE Margining algorithm employed to calculate Original 
Margin (``Margin'') on Clearing Member positions. All capitalized terms 
not defined herein are defined in the ICE Clear Europe 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, 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.\5\
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    \5\ The Commission has modified the text of the summaries 
prepared by ICE Clear Europe.
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A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In addition to providing clearing services for credit default 
swaps, ICE Clear Europe also provides clearing services for non-
securities contracts in energy and emissions markets (``Energy Futures 
Products''). Position Allocation Methodology is an enhancement to the 
SPAN[supreg] \6\ for the ICE Margining algorithm employed to calculate 
Original Margin for certain Energy Futures Products. This feature is 
applied for certain Energy Futures Products where the position in such 
a product can be better represented as one or more positions in 
alternate products for the purposes of calculating Original Margin. 
This Position Allocation Methodology will result in new enhanced 
positions, but the SPAN margin calculation algorithm itself has not 
been changed. These changes will impact both the algorithm employed and 
the format of SPAN for ICE Array Files (``SPAN Array Files'') published 
by ICE Clear Europe and will necessitate changes to the applications 
used by Energy Clearing Members to calculate margin on their 
Proprietary and Customer positions. ICE Clear Europe has updated the 
original technical specification, at the request of Clearing Members, 
in order to provide further clarification and examples relating to 
implementation of Volatility Credit.
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    \6\ SPAN is a registered trademark of Chicago Mercantile 
Exchange Inc., used herein under license. Chicago Mercantile 
Exchange Inc. assumes no responsibility in connection with the use 
of SPAN by any person or entity. SPAN is a risk evaluation and 
margin framework algorithm.
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    As of April 2, 2012, a change to the calculation of the inter-
contract credit that implements an additional credit, the Volatility 
Credit, was made. The change to the Inter-Contract Credit algorithm 
yields an additional credit that is included in the existing inter-
contract credit. Since April 2, 2012, the SPAN Arrays published by ICE 
Clear Europe include the Volatility Risk Credit Rate (the Offset Rate) 
within the type 14 records.
    Since March 30 2012, the Volatility Credit is introduced in respect 
of the following SPAN Combined Contract pairings:
     BRN/BSP, Brent Futures/Brent Option vs. Brent First Line 
Swap/Brent Average Price Option.
     GAS/GSP, Gas Oil Futures/Gas Oil Option vs. Gas Oil Front 
Line Swap/Gas Oil Average Price Option.
     ULS/ULA, Low-Sulphur Gas Oil Futures/Low Sulphur Gas Oil 
Option vs. Low Sulphur Gas Oil Front Line Swap/Low-Sulphur Gas Oil 
Average Price Option.
     WBS/WSP, WTI Future/WTI Option vs. WTI First Line Swap/WTI 
Average Price Option.
    Going forward, ICE Clear Europe will notify Clearing Members of the 
applicable Volatility Credit rates in due course. Inter-contract 
spreads in respect of all other products are unaffected.
    At end of day on April 6, 2012, the Clearing House enabled the 
Average Price Option model for Options on Brent, Gas Oil, Low-Sulphur 
Gas Oil and WTI First Line Swaps (Commodity Codes I, GSP, ULA and R).
    As of April 9, 2012, a modified Black 76 pricing model has been 
used to determine scanning losses in respect of Average Price Options. 
This model reflects the risk reduction inherent within these options 
during the averaging period prior to final settlement. This change has 
no impact on Clearing Member systems as this change is reflected within 
the SPAN Array Files and requires no changes to any software or 
algorithms within the SPAN methodology.
    All updated SPAN[supreg] margin parameters can be found at: https://www.theice.com/clear_europe_span_parameters.jhtml.
    ICE Clear Europe has also published test SPAN Array Files 
conforming to the new SPAN Array File Format, v2.5, which incorporates 
credit rates in respect of the product pairings identified above. The 
test files are available from the file download service (AFTS) and are 
located in the ``/test'' sub-directory of the standard SPAN Array 
download location on AFTS.
    These files are named according to the test file naming convention 
below:
    IPEmmddT.csv.zip or IPEmmddT.sp5.zip, where,
     mmdd represents the business month and day;
     The sp5 file is of the same format as the pa5 format file 
that Members might download from the CME ftp site.
    Section 17A(b)(3)(F) of the Act \7\ requires, among other things, 
that the rules of a clearing agency be designed to promote the prompt 
and accurate

[[Page 333]]

clearance and settlement of securities transactions and, to the extent 
applicable, derivative agreements, contracts, and transactions. ICE 
Clear Europe believes that the proposed change with respect to Energy 
Futures Products is consistent with the requirements of the Act and the 
rules and regulations thereunder applicable to ICE Clear Europe, in 
particular, with Section 17A(b)(3)(F),\8\ because improved margining 
protects investors and the public interest.
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    \7\ 15 U.S.C. 78q-1(b)(3)(F).
    \8\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    ICE Clear Europe does not believe the proposed 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 change 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

    The foregoing rule change has become effective upon filing pursuant 
to Section 19(b)(3)(A)(iii) of the Act \9\ and Rule 19b-4(f)(4)(ii) 
\10\ thereunder because it primarily affects the futures clearing 
operations of the clearing agency with respect to futures that are not 
security futures, and does not significantly affect any securities 
clearing operations of the clearing agency or any related rights or 
obligations of the clearing agency or persons using such service. At 
any time within 60 days of the filing of the proposed rule change, the 
Commission summarily may temporarily suspend such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.\11\
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    \9\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \10\ 17 CFR 240.19b-4(f)(4)(ii).
    \11\ 15 U.S.C. 78s(b)(3)(C).
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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-2012-20 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-ICEEU-2012-20. 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 ICE Clear Europe 
and on ICE Clear Europe's Web site at https://www.theice.com/publicdocs/regulatory_filings/ICEU_SEC_121912_2012-20.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-ICEEU-2012-20 
and should be submitted on or before January 24, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2012-31570 Filed 1-2-13; 8:45 am]
BILLING CODE 8011-01-P