[Federal Register Volume 78, Number 220 (Thursday, November 14, 2013)]
[Notices]
[Pages 68480-68482]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-27201]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70826; File No. SR-ICC-2013-08]


Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of 
Filing of Proposed Rule Change to Add Rules Related to the Clearing of 
MCDX Index CDS Contracts and Make Conforming Changes to Existing Rules

November 7, 2013.
    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 October 25, 2013, ICE Clear Credit LLC (``ICC'') 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 ICC. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
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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

    The purpose of the proposed rule change is to adopt new rules that 
will provide the basis for ICC to clear additional credit default swap 
contracts. Specifically, ICC is proposing to amend Chapter 26 of its 
rules to add Section 26H to provide for the clearance of the MCDX 
Untranched Contracts (``MCDX Contracts''). MCDX Contracts are credit 
default swap (``CDS'') contracts that reference an index of municipal 
issuers.
    As discussed in more detail in Item II.A below, Section 26H (MCDX 
Untranched Contracts) provides for the definitions and certain specific 
contract terms for cleared MCDX Contracts. Conforming changes are also 
made to the definition of ``CDS Restructuring Rules'' in Chapter 20 
(Credit Default Swaps) and to Rule 2101-02(a)(iii) (Role of the 
Regional CDS Committees) to clarify cross-references to the CDS 
Restructuring Rules set forth in Section 26E of the Rules. Section 26E 
(CDS Restructuring Rules) is modified to provide that it will not apply 
to MCDX Contracts (as such contracts are automatically triggered in the 
event of a restructuring credit event, as discussed below).

[[Page 68481]]

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 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. ICC has prepared summaries, set forth in sections A, B, 
and C below, of the most significant aspects of these statements.

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

    ICC has identified MCDX Contracts as a product that has become 
increasingly important for market participants to manage risk and 
express views with respect to municipal issuer credit. ICC's clearance 
of MCDX Contracts will facilitate the prompt and accurate settlement of 
swaps and contribute to the safeguarding of securities and funds 
associated with swap transactions.
    MCDX Contracts have similar terms to the CDX North American Index 
CDS contracts (``CDX.NA Contracts'') currently cleared by ICC and 
governed by Section 26A of the ICC rules. Accordingly, the proposed 
rules found in Section 26H largely mirror the ICC rules for CDX.NA 
Contracts in Section 26A, with certain modifications that reflect the 
underlying reference entities (municipal issuer reference entities 
instead of corporate reference entities) and differences in terms and 
market conventions between MCDX Contracts and CDX.NA Contracts.
    The MCDX Contracts reference the MCDX Index, the current series of 
which consists of 50 municipal issuers. MCDX Contracts, consistent with 
market convention and widely used standard terms documentation, can be 
triggered by credit events for failure to pay or restructuring (by 
contrast to the credit events of failure to pay and bankruptcy 
applicable to the CDX.NA Contracts). In the event of a restructuring, 
all outstanding positions are automatically triggered. Thus, from a 
clearing perspective, restructuring credit events would be handled in 
the same way as a failure to pay credit event (and would not require 
the additional restructuring triggering procedures that are used for 
certain corporate and sovereign CDS contracts). MCDX Contracts will 
only be denominated in U.S. dollars.
    Rule 26H-102 (Definitions) sets forth the definitions used for the 
MCDX Contract Rules. An ``Eligible MCDX Untranched Index'' is defined 
as ``each particular series and version of a MCDX index or sub-index, 
as published by the MCDX Untranched Publisher, determined by ICE Clear 
Credit to be eligible and included in the List of Eligible MCDX 
Untranched Indexes.'' ``MCDX Untranched Terms Supplement'' refers to 
the market standard form of documentation used for credit default swaps 
on the MCDX index, which is incorporated by reference into the contract 
specifications in Section 26H. The remaining definitions are 
substantially the same as the definitions found in ICC Section 26A, 
other than certain conforming changes.
    Rules 26H-309 (Acceptance of MCDX Untranched Contracts by ICE Clear 
Credit), 26H-315 (Terms of the Cleared MCDX Untranched Contract), and 
26H-316 (Updating Index Version of Fungible Contracts After a Credit 
Event or a Succession Event; Updating Relevant Untranched Standard 
Terms Supplement) reflect or incorporate the basic contract 
specifications for MCDX Contracts and are substantially the same as 
under ICC Section 26A for CDX.NA Contracts. In addition to various non-
substantive conforming changes, proposed Rule 26H-317 (Terms of MCDX 
Untranched Contracts) differs from the corresponding Rule 26A-317 to 
reflect the fact that restructuring is a credit event for the MCDX 
Contract. (CDX.NA Contracts currently cleared by ICC do not use the 
restructuring credit event. However, unlike the case with other 
corporate and sovereign CDS, in the event of a restructuring for an 
MCDX reference entity, all outstanding positions are automatically 
triggered. Thus, from a clearing perspective MCDX restructuring events 
would be handled in the same way as a failure to pay.)
    Because of the automatic triggering following a restructuring 
credit event, the provisions of Section 26E of the Rules are not 
necessary for MCDX Contracts, and Section 26E is amended to provide 
that it does not apply to MCDX Contracts. A conforming change is made 
to the definition of ``CDS Restructuring Rules'' in Chapter 20 (Credit 
Default Swaps) to make reference to the rules set forth in Section 26E 
(CDS Restructuring Rules) of the Rules. In addition, Rule 2101-
02(a)(iii) (Role of the Regional CDS Committees) is modified to make 
reference to the CDS Restructuring Rules set forth in Section 26E of 
the Rules.
    Section 17(A)(b)(3)(F) of the Act \3\ requires, among other things, 
that the rules of a clearing agency be designed to promote the prompt 
and accurate clearance and settlement of securities transactions and, 
to the extent applicable, derivative agreements, contracts, and 
transactions. ICC believes that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to ICC, in particular, to Section 17(A)(b)(3)(F), 
because ICC believes that the clearance of MCDX Contracts will 
facilitate the prompt and accurate settlement of securities and 
contribute to the safeguarding of securities and funds associated with 
swap transactions in ICC's custody or control, or for which ICC is 
responsible.
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    \3\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    MCDX Contracts will be available to all ICC Participants for 
clearing. The clearing of MCDX Contracts by ICC does not preclude the 
offering of MCDX Contracts for clearing by other market participants. 
In addition, ICC does not anticipate that accepting MCDX Contracts for 
clearing will have any adverse effect on the trading market for the 
contract. Therefore, 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

    ICC has consulted with its Participants and non-member market 
participants concerning the proposed rule change. 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. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) by order approve or disapprove the proposed rule change or

[[Page 68482]]

    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

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-ICC-2013-08 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-2013-08. 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 also will be available for inspection and 
copying at the principal office of ICE Clear Credit and on ICE Clear 
Credit's Web site at https://www.theice.com/notices/Notices.shtml?regulatoryFilings.
    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-2013-08 
and should be submitted on or before December 5, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\4\
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    \4\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-27201 Filed 11-13-13; 8:45 am]
BILLING CODE 8011-01-P