[Federal Register Volume 79, Number 150 (Tuesday, August 5, 2014)]
[Notices]
[Pages 45565-45570]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-18377]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72701; File No. SR-ICC-2014-11]
Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of
Filing of Proposed Rule Change To Revise Rules To Provide for the 2014
ISDA Definitions
July 29, 2014.
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 July 24, 2014, ICE Clear Credit LLC (``ICC'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change 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 principal purpose of the proposed change is to amend ICC rules
to incorporate references to revised Credit Derivatives Definitions, as
published by the International Swaps and Derivatives Association, Inc.
(``ISDA'') on February 21, 2014 (the ``2014 ISDA Definitions'').
Consistent with the approach being taken throughout the CDS market, the
industry standard 2014 ISDA Definitions will be applicable to certain
products cleared by ICC beginning on September 22, 2014.
[[Page 45566]]
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
1. Purpose
ICC submits proposed amendments to the ICC Clearing Rules (the
``ICC Rules'') to incorporate references to the 2014 ISDA Definitions
to be effective by the industry implementation date of September 22,
2014. ICC principally proposes to (i) revise the ICC Rules to make
proper distinctions between the 2014 ISDA Definitions and the ISDA
Credit Derivatives Definitions published previously in 2003 (as amended
in 2009, the ``2003 ISDA Definitions'') and related documentation; and
(ii) make conforming changes throughout the ICC Rules to reference
provisions from the proper ISDA Definitions. ICC also submits the ICC
Restructuring Procedures revised to reflect proper distinctions between
the 2003 ISDA Definitions and the 2014 ISDA Definitions. Finally, the
ICC Risk Management Framework has been revised to reflect appropriate
portfolio treatment between CDS Contracts cleared under the 2003 and
2014 ISDA Definitions.
As described by ISDA, the 2014 Definitions make a number of changes
from the 2003 ISDA Definitions to the standard terms for CDS Contracts,
including (i) introduction of new terms applicable to credit events
involving financial reference entities and settlement of such credit
events, (ii) introduction of new terms applicable to credit events
involving sovereign reference entities and settlement of such credit
events, (iii) implementation of standard reference obligations
applicable to certain reference entities, and (iv) various other
improvements and drafting updates that reflect market experience and
developments since the 2009 amendments to the 2003 ISDA Definitions.
Commencing on the implementation date of September 22, 2014, ICC
intends to accept for clearing new transactions in eligible contracts
that reference the 2014 ISDA Definitions. In addition, the amendments
will provide for the conversion of certain existing contracts (so-
called ``Converting Contracts'') currently based on the 2003 ISDA
Definitions into contracts based on the 2014 ISDA Definitions. (This
approach is consistent with expected industry practice for similar
contracts not cleared by ICC, which will be subject to a multilateral
amendment ``protocol'' sponsored by ISDA.) For contracts that are not
Converting Contracts, ICC expects to continue to accept for clearing
both new transactions referencing the 2014 ISDA Definitions and new
transactions referencing the 2003 ISDA Definitions (and such contracts
based on different definitions will not be fungible). The ISDA protocol
implementation has been developed with a high level of industry
involvement and consultation. ICC understands, through industry
consensus, that ICC Participants plan to adhere to the ISDA protocol
and would desire ICC to convert certain contracts cleared at ICC into
contracts based on the 2014 ISDA Definitions, consistent with the ISDA
protocol. Therefore, in an effort to achieve consistency across the CDS
marketplace, ICC's implementation plan is intended to be fully
consistent with the planned ISDA protocol implementation. ICC will
publish on its Web site a list of Converting Contracts, which is
expected to be the same as the list of contracts subject to the ISDA
protocol. (Most ICC Contracts will be Converting Contracts with certain
exceptions including CDS on sovereigns and certain financial reference
entities.)
ICC proposes to amend Chapters 20, 21, 22 and 26 of the ICC Rules
and the ICC Restructuring Procedures and ICC Risk Management Framework
to provide for the 2014 ISDA Definitions. All capitalized terms not
defined herein are defined in the ICC Rules. Each of these changes is
described in detail as follows.
Chapter 20 of the ICC Rules (Credit Default Swaps), has been
amended to provide new definitions for ``2003/2014 Changeover Effective
Date,'' ``2003 Definitions,'' ``2003-Type CDS Contract,'' ``2014
Definitions,'' ``2014-Type CDS Contract,'' ``Applicable Credit
Derivatives Definitions'' and ``Converting Contacts.'' The new
definitions accommodate the 2014 ISDA Definitions and provide terms
that allow for distinctions between the 2014 ISDA Definitions and the
2003 ISDA Definitions and have been applied throughout the ICC Rules.
Additionally, the references in the definitions of ``CDS Restructuring
Rules'' and ``DC Rules'' are updated. Rule 20-103 ``Interpretation
Relating to Index CDS Contracts'' is added to clarify that the
determination of whether the 2003 or 2014 ISDA Definitions applies may
be made separately for each component transaction in the index.
Finally, Rule 20-617(g) is revised to remove a cross-reference to the
definition of ``SR Auction'' because SR Auction is defined as
appropriate in multiple Subchapters, specifically, 26B, 26D and 26G.
Chapter 21 (Regional CDS Committees and Dispute Resolution
Procedures) and Chapter 22 (CDS Physical Settlement) of the ICC Rules
have been revised to include references, as appropriate, to the 2014
ISDA Definitions as well as the current 2003 ISDA Definitions. Within
Chapter 21, ICC Rules 2101-02(a), (c), (d), (e), (f), 2103-02(c) and
2106-04 are updated to make reference to the parallel provisions of the
2014 ISDA Definitions in conjunction with the existing references to
specific provisions of the 2003 ISDA Definitions. In addition, those
rules are updated to incorporate certain new concepts in the 2014 ISDA
Definitions, particularly the concept of Asset Package Credit Events
for financial and sovereign reference entities. Such events may result
in the delivery of a specified asset package in lieu of an otherwise
qualifying deliverable obligation, and the revised rules provide for
certain decisions that may need to be taken with respect to such asset
packages in such circumstances. In Chapter 22, ICC Rules 2202(d) and
2203(a) also are updated to make parallel reference to the provisions
of the 2014 ISDA Definitions in conjunction with the existing
references to specific provisions of the 2003 ISDA Definitions.
Chapter 26 of the ICC Rules (Cleared CDS Products) is revised as
applicable to implement the definitional changes in Chapter 20 of the
ICC Rules and the 2014 ISDA Definitions. These changes include
clarification of reference to provisions within the DC Rules,
clarification as to whether previous references to ``Credit Derivatives
Definitions'' are to the 2003 ISDA Definitions or the 2014 ISDA
Definitions and the addition of provisions consistent with the 2014
ISDA Definitions. The revisions to Chapter 26 are intended to ensure
that all ICC Cleared CDS Products are treated consistently with the
Applicable ISDA Definitions in effect from time to time, as is in
practice today.
Subchapter 26A (CDX Untranched North American IG/HY/XO) is revised
as follows. In ICC Rule 26A-102 (Definitions), the definition of
``CDX.NA
[[Page 45567]]
Untranched Terms Supplement'' is updated to include a reference to the
new ``CDX Untranched Transactions Standard Terms Supplement'' expected
to be published by Markit North America, Inc. on or about September 20,
2014 to incorporate the 2014 ISDA Definitions, in addition to the
existing references to the CDX Untranched Standard Terms Supplements
published on March 20, 2008 and January 31, 2011. Additionally in ICC
Rule 26A-102 (Definitions), the definition of ``List of Eligible CDX.NA
Untranched Indexes'' is revised in part (e) to state that the List of
Eligible CDX.NA Untranched Indexes will specify the Applicable Credit
Derivatives Definitions for each component of the Index, if applicable.
ICC Rule 26A-316 (Updating Index Version of Fungible Contracts After a
Credit Event or a Succession Event; Updating Relevant Untranched
Standard Terms Supplement) is revised in part (a) to add parallel
references to Successor determinations under the 2014 ISDA Definitions
and in part (d) to provide that CDX.NA Untranched Contracts that are
Converting Contracts will be deemed amended as of the 2003/2014
Changeover Date to reference the updated CDX Untranched Standard Terms
Supplement. ICC Rule 26A-317 (Terms of CDX.NA Untranched Contracts) is
revised to add references to provisions of the proper ISDA Definitions
and Relevant CDX Untranched Terms Supplement versions for the CDX
Untranched Contracts that ICC clears. Corresponding changes to
provision numbering are made as necessary. Specifically, ICC Rule 26A-
317(a) reorganizes and consolidates existing provisions that apply to
each CDX.NA Untranched Contract or component thereof to which the 2003
ISDA Definitions apply. ICC Rule 26A-317(a)(ix) was previously 26A-
317(j) and has been reproduced with amended reference to the 2003 ISDA
Definitions and the correct provisions within the 2003 ISDA
Definitions. Correspondingly, ICC Rule 26A-317(b) is added to the ICC
Rules to provide analogous terms that apply to each CDX.NA Untranched
Contract or component thereof to which the 2014 ISDA Definitions apply.
ICC Rule 26A-317(c) was previously the first sentence of 26A-317(i) and
is unchanged and applies consistently to each CDX.NA Untranched
Contract (whether under the 2003 or 2014 ISDA Definitions). ICC Rule
26A-317(d) is renumbered and the reference to the CDX.NA Untranched
Terms Supplement is generalized, but otherwise remains unchanged.
Subchapter 26B (Standard North American Corporate (``SNAC'') Single
Name) is revised as follows: In ICC Rule 26B-102 (Definitions), the
definitions of ``Eligible SNAC Reference Obligations,'' ``List of
Eligible SNAC Reference Entities'' and ``SNAC Contract Reference
Obligations'' are updated to include reference to the Applicable Credit
Derivatives Definitions and to provide for the use of Standard
Reference Obligations, Financial Reference Entity Terms and eligible
Seniority Levels under the 2014, ISDA Definitions, where applicable.
The restrictions on ``self-referencing'' transactions in ICC Rules 26B-
203 (Restriction on Activity) and 26B-206 (Notices Required of
Participants with Respect to SNAC Contracts) are revised to cover, in
addition to transactions referencing CDS Participants, also
transactions referencing Non-Participant Parties for whom such CDS
Participant is acting. ICC Rule 26B-309 (Acceptance of SNAC Contracts
by ICE Clear Credit) is revised in part (b)(iii) to add ``Relevant'' to
the definition of Restructuring Credit Event (reflecting the use of
that defined term in Subchapter 26E of the ICC Rules) and in part (e)
to address relevant successor or other events under both 2003 and 2014-
Type CDS Contracts. ICC Rule 26B-315 (Terms of the Cleared SNAC
Contract) is revised to provide reference to provisions of the proper
ISDA Definitions, and corresponding changes to provision numbering are
made as necessary. Specifically, ICC Rule 26B-315(d) reorganizes and
consolidates existing provisions that apply to each SNAC Contract to
which the 2003 ISDA Definitions apply. Correspondingly, ICC Rule 26B-
315(e) is added to the ICC Rules to provide analogous provisions that
apply to each SNAC Contract to which the 2014 ISDA Definitions apply.
ICC Rule 26B-315(f) was previously the first sentence of 26B-315(h) and
is unchanged (and applies to both SNAC Contracts under both the 2003
and 2014 ISDA Definitions). ICC Rule 26B-315(g) is revised to refer to
the Applicable Credit Derivatives Definitions, as appropriate,
including, in the case of 2014-Type CDS Contracts, any supplemental or
additional provisions or Financial Reference Entity Terms specified as
applicable in the List of Eligible SNAC Reference Entities. ICC Rule
26B-616 (Contract Modification) is revised in part (a) to provide for
successors to SNAC Contracts and Standard Reference Obligations, as
applicable under the ISDA Definitions, and part (b) is added to provide
that SNAC Contracts that are Converting Contracts will be deemed
amended as of the 2003/2014 Changeover Effective Date to be 2014-Type
CDS Contracts.
Subchapter 26C (CDX Untranched Emerging Markets) is revised as
follows: In ICC Rule 26C-102 (Definitions), the definition of ``CDX.EM
Untranched Terms Supplement'' is updated to include a reference to the
new ``CDX Emerging Markets Untranched Transactions Standard Terms
Supplement'' expected to be published by Markit North America, Inc. on
or about September 20, 2014 to incorporate the 2014 ISDA Definitions,
in addition to the existing reference to the CDX.EM Untranched Standard
Terms Supplement published on January 31, 2011. Additionally in ICC
Rule 26C-102 (Definitions), the definition of ``List of Eligible CDX.EM
Untranched Indexes'' is revised in part (e) to state that the List of
Eligible CDX.EM Untranched Indexes will specify reference to the
Applicable Credit Derivatives Definitions for each component of the
Index, if applicable. ICC Rule 26C-316 (Updating Index Version of
Fungible Contracts After a Credit Event or a Succession Event; Updating
Relevant Untranched Standard Terms Supplement) is revised in part (a)
to add parallel references to Successor determinations under the 2014
ISDA Definitions and in part (d) to provide that CDX.EM Untranched
Contracts that are Converting Contracts will be deemed amended as of
the 2003/2014 Changeover Date to reference the updated CDX.EM
Untranched Terms Supplement. ICC Rule 26C-317 (Terms of CDX.EM
Untranched Contracts) is revised to add references to provisions of the
proper ISDA Definitions and Relevant CDX.EM Untranched Terms Supplement
versions for the CDX.EM Untranched Contracts that ICC clears.
Corresponding changes to provision numbering are made as necessary.
Specifically, ICC Rule 26C-317(a) reorganizes and consolidates existing
provisions that apply to each CDX.EM Untranched Contract or component
thereof to which the 2003 ISDA Definitions apply. Correspondingly, ICC
Rule 26C-317(b) is added to the ICC Rules to provide analogous terms
that apply to each CDX.EM Untranched Contract or component thereof to
which the 2014 ISDA Definitions apply. ICC Rule 26C-317(c) was
previously the first sentence of 26C-317(g) and is unchanged and
applies consistently to each CDX.NA Untranched Contract. ICC Rule 26C-
317(d) was previously the first sentence of 26C-317(i) and is
generalized to apply consistently to each CDX.EM Untranched Contract
(whether under the 2003 or 2014 ISDA Definitions). ICC Rule 26C-317(e)
is
[[Page 45568]]
generalized to apply to both the 2003 and 2014 ISDA Definitions with
the same effect of stating that the Reference Obligation for a
Restructured Entity will be specified by ICC following consultation
with the ICC Risk Committee.
Subchapter 26D (Standard Emerging Sovereign (``SES'') Single Name)
is revised as follows. In ICC Rule 26D-102 (Definitions), the
definition of ``Eligible SES Reference Entities'' is revised to correct
a typo and correctly identify the reference entity for a cleared
product as the Bolivarian Republic of Venezuela and the definitions of
``Eligible SES Reference Obligations,'' ``List of Eligible SES
Reference Entities'' and ``SES Contract Reference Obligations'' are
updated to include reference to the Applicable Credit Derivatives
Definitions and to provide for the use of a Standard Reference
Obligation under the 2014 ISDA Definitions, where applicable. The
restrictions on ``self-referencing'' transactions in ICC Rules 26D-203
(Restriction on Activity) and 26D-206 (Notices Required of Participants
with Respect to SES Contracts) are revised to cover, in addition to
transactions referencing CDS Participants, also transactions
referencing Non-Participant Parties for whom such CDS Participant is
acting. ICC Rule 26D-309 (Acceptance of SES Contracts by ICE Clear
Credit) is revised in part (b)(iii) to add ``Relevant'' to the
definition of Restructuring Credit Event (reflecting the use of that
defined term in Subchapter 26E of the ICC Rules), in part (c) to, in
addition to CDS Participant, also provide for Non-Participant Parties
for whom such CDS Participant is acting and in part (e) to address
relevant successor or other events under both 2003 and 2014-Type CDS
Contracts. ICC Rule 26D-315 (Terms of the Cleared SES Contract) is
revised to provide reference to provisions of the proper ISDA
Definitions, and corresponding changes to provision numbering are made
as necessary. Specifically, ICC Rule 26D-315(d) reorganizes and
consolidates existing provisions that apply to each SES Contract to
which the 2003 ISDA Definitions apply. Correspondingly, ICC Rule 26D-
315(e) is added to the ICC Rules to provide analogous provisions that
apply to each SES Contract to which the 2014 ISDA Definitions apply.
ICC Rule 26D-315(f) was previously the first sentence of 26D-315(h) and
is unchanged (and applies to both 2003 and 2014-Type CDS Contracts. ICC
Rule 26D-315(g) remains unchanged; the previous reference was 26D-
315(k). ICC Rule 26D-315(h) is revised to refer to the Applicable
Credit Derivatives Definitions, as appropriate. ICC Rule 26D-616
(Contract Modification) is revised in part (a) to provide for
successors to SES Contracts and Standard Reference Obligations, as
applicable under the relevant ISDA Definitions, and part (b) is added
to provide that SES Contracts that are Converting Contracts will be
deemed amended as of the 2003/2014 Changeover Effective Date to be
2014-Type CDS Contracts.
Subchapter 26E is updated to provide for the differences in the
treatment of Relevant Restructuring Contracts under the 2003 ISDA
Definitions and 2014 ISDA Definitions. Specifically, in ICC Rule 26E-
102 (Definitions) the definitions of ``Matched Restructuring Pair,''
``Relevant Restructuring Contract,'' ``Relevant Restructuring Credit
Event'' and ``Restructuring CDS Contract'' are updated to allow for
application of either the 2003 ISDA Definitions or the 2014 ISDA
Definitions as relevant. Additionally, the definition of ``Triggered
Restructuring CDS Contract'' as well as ICC Rules 26E-104(a) and (b)
are updated to include provisions consistent with the 2014 ISDA
Definitions.
Subchapter 26F (iTraxx Europe) is revised as follows: In ICC Rule
26F-102 (Definitions), the definition of ``iTraxx Europe Untranched
Terms Supplement'' is updated to include reference to the new ``iTraxx
Europe Untranched Standard Terms Supplement'' expected to be published
by Markit North America, Inc. on or about September, 20 2014 to
incorporate the 2014 ISDA Definitions, in addition to the existing
reference to the iTraxx Europe Untranched Standard Terms Supplement
published on November 23, 2009. Additionally in ICC Rule 26F-102
(Definitions), the definition of ``List of Eligible iTraxx Europe
Untranched Indexes'' is revised in part (e) to state that the List of
Eligible iTraxx Europe Untranched Indexes will include reference to the
Applicable Credit Derivatives Definitions for each component of the
Index, if applicable. ICC Rule 26F-309 (Acceptance of iTraxx Europe
Untranched Contracts by ICE Clear Credit) is revised to correct a typo
from ``clauses'' to ``clause.'' ICC Rule 26F-316 (Updating Index
Version of Fungible Contracts After a Credit Event or a Succession
Event; Updating Relevant Untranched Standard Terms Supplement) is
revised in part (a) to add parallel references to Successor
determinations under the 2014 ISDA Definitions and in part (d) to
provide that iTraxx Europe Untranched Contracts that are Converting
Contracts will be deemed amended as of the 2003/2014 Changeover Date to
reference the updated iTraxx Europe Untranched Terms Supplement. ICC
Rule 26F-317 (Terms of iTraxx Europe Untranched Contracts) is revised
to add references to provisions of the proper ISDA Definitions and
Relevant iTraxx Europe Untranched Terms Supplement versions for the
iTraxx Europe Untranched Contracts that ICC clears. Corresponding
changes to provision numbering are made as necessary. Specifically, ICC
Rule 26F-317(a) reorganizes and consolidates existing provisions that
apply to each iTraxx Europe Untranched Contract or component thereof to
which the 2003 ISDA Definitions apply. Correspondingly, ICC Rule 26F-
317(b) is added to the ICC Rules to provide analogous terms that apply
to each iTraxx Europe Untranched Contract or component thereof to which
the 2014 ISDA Definitions apply. ICC Rule 26F-317(c) was previously the
first sentence of ICC Rule 26F-317(f) and is unchanged and applies
consistently to each iTraxx Europe Untranched Contract (whether under
the 2003 or 2014 ISDA Definitions). ICC Rule 26F-317(d), which provides
for the determination of a Reference Obligation for a Restructured
Entity, is revised slightly to accommodate a Standard Reference
Obligation, if applicable. ICC Rule 26F-317(e)(vi) is generalized to
provide for the Relevant iTraxx Europe Untranched Terms Supplement.
Subchapter 26G (Standard European Corporate (``STEC'') Single Name)
is revised throughout to change ``SDEC'' to ``STEC'' to follow the
industry standard acronym, and as follows: In ICC Rule 26G-102
(Definitions), the definitions of ``Eligible STEC Reference
Obligations,'' ``List of Eligible STEC Reference Entities'' and ``STEC
Contract Reference Obligations'' are updated to include reference to
the Applicable Credit Derivatives Definitions and to provide for the
use of a Standard Reference Obligation under the 2014 ISDA Definitions
and eligible Seniority Levels, where applicable. The restrictions on
``self-referencing'' transactions in ICC Rules 26G-203 (Restriction on
Activity) and 26G-206 (Notices Required of Participants with Respect to
STEC Contracts) are revised to cover, in addition to transactions
referencing a CDS Participant, also transactions referencing Non-
Participant Parties for whom such CDS Participant is acting. ICC Rule
26G-309 (Acceptance of STEC Contracts by ICE Clear Credit) is revised
in part (b)(iii) to add ``Relevant'' to the definition of
[[Page 45569]]
Restructuring Credit Event (reflecting the use of that defined term in
Subchapter 26E of the ICC Rules) and in part (e) to address relevant
successor or other events under both 2003 and 2014-Type CDS Contracts.
ICC Rule 26G-315 (Terms of the Cleared STEC Contract) is revised to
provide reference to provisions of the proper ISDA Definitions, and
corresponding changes to provision numbering are made as necessary.
Specifically, ICC Rule 26G-315(d) reorganizes and consolidates existing
provisions that apply to each STEC Contract to which the 2003 ISDA
Definitions apply. Correspondingly, ICC Rule 26G-315(e) is added to the
ICC Rules to provide analogous terms that apply to each STEC Contract
to which the 2014 ISDA Definitions apply. ICC Rule 26G-315(f) was
previously the first sentence of 26G-315(h) and is unchanged (and
applies to both 2003 and 2014-Type CDS Contracts). ICC Rule 26G-315(g)
remains unchanged; the previous reference was 26G-315(k). ICC Rule 26G-
315(h) is revised to refer to the Applicable Credit Derivatives
Definitions and eligible Seniority Level, as appropriate. ICC Rule 26G-
616 (Contract Modification) is revised in part (a) to provide for
successors to STEC Contracts and Standard Reference Obligations, as
applicable under the relevant ISDA Definitions, and part (b) is added
to provide that STEC Contracts that are Converting Contracts will be
deemed amended as of the 2003/2014 Changeover Effective Date to be
2014-Type CDS Contracts.
Subchapter 26H (Standard European Financial Corporate (``STEFC'')
Single Name) is added to the ICC Rules to provide for the clearance of
STEFC Single Names. Such contracts will be subject only to the 2014
ISDA Definitions. STEFC Contracts have similar terms to the Standard
European Corporate Single Name CDS contracts (``STEC Contracts'')
currently cleared by ICC and governed by Section 26G of the ICC Rules,
the Standard Emerging Sovereign CDS contracts (``SES Contracts'')
currently cleared by ICC and governed by Section 26D of the Rules.
Accordingly, the proposed rules found in Section 26H largely mirror the
ICC rules for STEC Contracts in Section 26G, with certain modifications
that reflect differences in terms and market conventions between those
contracts and STEFC Contracts (including that STEFC Contracts
incorporate additional Financial Reference Entity terms under the 2014
ISDA Definitions). STEFC Contracts will be denominated in Euros. Rule
26H-102 (Definitions) sets forth the definitions used for the STEFC
Contracts. The definitions are substantially similar to the definitions
found in Subchapter 26G of the ICC Rulebook, but contain reference only
to the 2014 ISDA Definitions and contain other conforming changes.
Rules 26H-203 (Restriction on Activity), 26H-206 (Notices Required of
Participants with respect to STEFC Contracts), 26H-303 (STEFC Contract
Adjustments), 26H-309 (Acceptance of STEFC Contracts by ICE Clear
Credit), 26H-315 (Terms of the Cleared STEFC Contract), 26H-316
(Relevant Physical Settlement Matrix Updates), 26H-502 (Specified
Actions), and 26H-616 (Contract Modification) reflect or incorporate
the basic contract specifications for STEFC Contracts and are
substantially similar to corresponding sections of Subchapter 26G of
the ICC Rulebook.
The ICC Restructuring Procedures supplement the provisions of
Subchapter 26E of the ICC Rules with respect to Relevant Restructuring
Contracts. The ICC Restructuring Procedures are amended throughout to
reflect revisions to defined terms in the ICC Rules including
``Relevant Restructuring Contract,'' ``Relevant Restructuring Credit
Event,'' and ``Applicable Credit Derivatives Definitions'' as defined
in ICC Rules 26E-102 (Definitions) and 20-102 (Definitions) and to make
appropriate distinctions between the applicability of the 2003 ISDA
Definitions and the 2014 ISDA Definitions and provisions therein.
The ICC Risk Management Framework has been revised to provide for
appropriate portfolio treatment between CDS Contracts cleared under the
2003 and 2014 Definitions. In the ICC Risk Management Framework, each
index, sub-index or underlying single name is deemed a separate ``Risk
Factor.'' The revisions to the ICC Risk Management Framework introduce
a ``Risk Sub-Factor'' as a specific single name and any unique
combination of instrument attributes (e.g., restructuring clause, 2003
or 2014 ISDA Definitions, debt tier, etc). The union of all Risk Sub-
Factors that share the same underlying single name form a single name
Risk Factor. The portfolio treatment at the Risk Sub-Factor level is
provided for in the Risk Management Framework, as appropriate.
Additionally, the ICC Risk Management Framework has been revised to
include long and short positions of Risk Sub-Factors for a single name
Risk Factor into the Jump-to-Default requirement. Finally, the ICC Risk
Management Framework has been revised to include other cleanup and
clarification changes (e.g., to address the difference in risk time
horizon between North American and European instruments).
2. Statutory Basis
Section 17A(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 and to comply with the provisions of the Act and the rules
and regulations thereunder. 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
17A(b)(3)(F) \4\ and Rule 17Ad-22,\5\ because ICC believes that the
proposed rule change will assure the prompt and accurate clearance and
settlement of securities transactions, derivatives agreements,
contracts, and transactions. ICC believes the proposed change to the
ICC Rules, Restructuring Procedures and Risk Management Framework
conforms to the Applicable Credit Definitions as published by ISDA in
conjunction with an industry-wide effort. As part of this effort, CDS
market participants have developed the 2014 ISDA Definitions to reflect
market experience since the ISDA Credit Derivatives Definitions were
last significantly amended in 2009 (including credit events involving
financial and sovereign entities), and to make various related
improvements and clarifications to the terms of CDS contracts and the
operation of the CDS market. The change to the ICC Rules thus
incorporates references to the 2014 ISDA Definitions in order to permit
clearing of contracts referencing the new definitions, and
distinguishes where applicable between the 2014 ISDA Definitions and
the 2003 ISDA Definitions. ICC plans to accept for clearing contracts
referencing the industry standard 2014 ISDA Definitions beginning with
the planned industry-wide implementation on September 22, 2014 (and to
convert certain existing contracts to the new definitions as of that
date). ICC believes the revisions to the ICC Rules, Restructuring
Procedures and Risk Management Framework are necessary in order to
permit clearing of contracts on the new terms, and to provide the
market with the necessary assurances that ICC plans to implement the
Applicable Credit Definitions consistent
[[Page 45570]]
with industry practice. As such, the proposed rule change is designed
to promote the prompt and accurate clearance and settlement of
securities transactions, derivatives agreements, contracts, and
transactions within the meaning of Section 17A(b)(3)(F) \6\ of the Act.
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\3\ 15 U.S.C. 78q-1(b)(3)(F).
\4\ Id.
\5\ 17 CFR 240.17Ad-22.
\6\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The proposed change to the ICC Rules in order to incorporate
references to the 2014 ISDA Definitions will apply consistently across
all Participants and Non-Participant Parties and facilitates changes
sought to be made by the industry throughout the CDS market. ICC does
not expect that the proposed change will affect access to clearing for
Participants or their customers, or materially affect the cost of
clearing. As a result, ICC does not believe the proposed rule change
would have any impact, or impose any burden, on competition not
appropriate in furtherance of the purposes of the Act.
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 by ICC. 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 such proposed rule change, or
(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-2014-11 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-ICC-2014-11. 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 ICC and on ICC's
Web site at https://www.theice.com/clear-credit/regulation.
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-2014-11
and should be submitted on or before August 26, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\7\
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\7\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-18377 Filed 8-4-14; 8:45 am]
BILLING CODE 8011-01-P