[Federal Register Volume 79, Number 213 (Tuesday, November 4, 2014)]
[Notices]
[Pages 65443-65445]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-26120]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73459; File No. SR-ICEEU-2014-18]


Self-Regulatory Organizations; ICE Clear Europe Limited; Notice 
of Filling of Proposed Rule Change To Provide for the Clearance of 
Additional Sovereign Contracts

October 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 October 20, 2014, ICE Clear Europe Limited (``ICE Clear Europe'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed changes to the rules as described in Items I, II, and III 
below, which Items have been primarily prepared by ICE Clear Europe. 
The Commission is publishing this notice to solicit comments on the 
proposed changes to the rules 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 change is to provide for the clearance 
of additional CDS contracts that are Western European sovereign CDS 
contracts referencing the Kingdom of Belgium and the Republic of 
Austria (the ``Additional WE Sovereign Contracts'').

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 proposing the 
Additional WE Sovereign Contracts. 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.

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

    The purpose of the proposed rule change is for ICE Clear Europe to 
offer clearing of Western European sovereign CDS contracts referencing 
two additional reference entities, the Kingdom of Belgium and the 
Republic of Austria. ICE Clear Europe currently clears CDS contracts 
referencing four other Western European sovereigns: Ireland, the 
Republic of Italy, the Portuguese Republic and the Kingdom of Spain.\3\ 
ICE Clear Europe believes clearance of the Additional WE Sovereign 
Contracts will benefit the markets for credit default swaps on Western 
European sovereigns by offering to market participants the benefits of 
clearing, including reduction in counterparty risk and safeguarding of 
margin assets pursuant to Clearing House rules.
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    \3\ See Exchange Act Release No. 34-71920 (Apr. 9, 2014) (File 
No. SR-ICEEU-2014-04); 79 FR 21331 (Apr. 15, 2015) (order approving 
rule changes to clear other Western European sovereign CDS 
contracts) (the ``Prior WE Sovereigns Order'').
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    The Additional WE Sovereign Contracts will constitute ``Non-STEC 
Single Name Contracts'' for purposes of the CDS Procedures and 
accordingly will be governed by Paragraph 10 of the CDS Procedures, 
consistent with treatment of the Western European sovereign CDS 
contracts currently cleared by ICE Clear Europe. Clearing of the 
Additional WE Sovereign Contracts will not require any changes to ICE

[[Page 65444]]

Clear Europe's existing Clearing Rules and Procedures. In addition, 
clearing of the Additional WE Sovereign Contracts will not require any 
changes in ICE Clear Europe's risk management framework (including 
relevant policies) or margin model.\4\ ICE Clear Europe believes that 
clearing of the proposed Additional WE Sovereign Contracts is 
consistent with the requirements of Section 17A of the Act \5\ and 
regulations thereunder applicable to it, including the standards under 
Rule 17Ad-22.\6\ The Additional WE Sovereign Contracts are 
substantially similar to the other Western European sovereign CDS 
contracts currently cleared by ICE Clear Europe. The additional 
contracts will be cleared in the same manner as such other Western 
European sovereign CDS contracts, consistent with ICE Clear Europe's 
existing clearing arrangements and related financial safeguards, 
protections, risk management policies and procedures and margin 
methodology (including those enhancements for Western European 
sovereign contracts previously adopted and approved in the Prior WE 
Sovereigns Order). In ICE Clear Europe's view, clearing of the 
Additional WE Sovereign CDS contracts, under such terms and 
arrangements, is consistent with the prompt and accurate clearance of 
and settlement of securities transactions and derivative agreements, 
contracts and transactions cleared by ICE Clear Europe, the 
safeguarding of securities and funds in the custody or control of ICE 
Clear Europe and the protection of investors and the public interest, 
within the meaning of Section 17A(b)(3)(F) of the Act.\7\ Clearing of 
the Additional WE Sovereign Contracts will also satisfy the relevant 
requirements of Rule 17Ad-22,\8\ as discussed below.
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    \4\ For a description of previously approved changes to ICE 
Clear Europe's risk management framework to accommodate clearing of 
Western European sovereign CDS contracts, see the Prior WE 
Sovereigns Order. ICE Clear Europe has performed a variety of 
empirical analyses related to clearing of the Additional WE 
Sovereign Contracts under its margin methodology, including back 
tests and stress tests.
    \5\ 15 U.S.C. 78q-1.
    \6\ 17 CFR 240.17Ad-22.
    \7\ 15 U.S.C. 78q-1(b)(3)(F).
    \8\ 17 CFR 240.17Ad-22.
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    Financial Resources. ICE Clear Europe will apply its existing 
margin methodology for Western European sovereign CDS contracts to the 
Additional WE Sovereign Contracts. ICE Clear Europe believes that this 
model will provide sufficient margin to cover its credit exposure to 
its clearing members from clearing such contracts, consistent with the 
requirements of Rule 17Ad-22(b)(2) and Rule 17Ad-22(d)(14).\9\ In 
addition, ICE Clear Europe believes the CDS Guaranty Fund, under its 
existing methodology, will, together with the required margin, provide 
sufficient financial resources to support the clearing of Additional WE 
Sovereign Contracts consistent with the requirements of Rule 17Ad-
22(b)(3).\10\
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    \9\ 17 CFR 240.17Ad-22(b)(2), (d)(14).
    \10\ 17 CFR 240.17Ad-22(b)(3).
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    Operational Resources. ICE Clear Europe will have the operational 
and managerial capacity to clear the Additional WE Sovereign Contracts 
as of the commencement of clearing, consistent with the requirements of 
Rule 17Ad-22(d)(4).\11\ ICE Clear Europe believes that its existing 
systems used for sovereign CDS contracts are appropriately scalable to 
handle the clearing of the Additional WE Sovereign Contracts.
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    \11\ 17 CFR 240.17Ad-22(d)(4).
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    Settlement. ICE Clear Europe will use its existing settlement 
procedures (including for physical settlements), account structures and 
approved financial institutions as used in other sovereign CDS clearing 
for the Additional WE Sovereign Contracts. ICE Clear Europe believes 
that clearing of the Additional WE Sovereign Contracts will therefore 
be consistent with the requirements of Rule 17Ad-22(d)(5), (12) and 
(15).\12\
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    \12\ 17 CFR 240.17Ad-22(d)(5), (12) and (15).
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    Default Procedures. ICE Clear Europe's existing Rules and default 
management policies and procedures for CDS will apply to the Additional 
WE Sovereign Contracts. ICE Clear Europe believes that the Rules and 
procedures allow for it to take timely action to contain losses and 
liquidity pressures and to continue meeting its obligations in the 
event of clearing member insolvencies or defaults, including in respect 
of Additional WE Sovereign Contracts, in accordance with Rule 17Ad-
22(d)(11).\13\
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    \13\ 17 CFR 240.17Ad-22(d)(11).
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    Governance. As discussed in further detail in the Prior WE 
Sovereigns Order, although the margin model applicable to Western 
European sovereign CDS contracts, including the Additional WE Sovereign 
Contracts, may result in clearing members being subject to different 
margin charges based on their domicile and correlation with the 
underlying sovereign, ICE Clear Europe believes that the margin model 
properly aligns the margin requirements to the risks presented by 
particular clearing members. Moreover, the model operates without the 
need for ICE Clear Europe (or its management, Board or CDS Risk 
Committee) to exercise discretion concerning particular clearing 
members or the margin levels applicable to them. As a result, in ICE 
Clear Europe's view, the clearing of such contracts does not result in 
unfair discrimination among clearing members within the meaning of 
Section 17A(b)(3)(F) of the Act and Rule 17Ad-22(d)(8).\14\
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    \14\ 15 U.S.C. 78q-1(b)(3)(F); 17 CFR 240.17Ad-22(d)(8).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    ICE Clear Europe does not believe the proposed Additional WE 
Sovereign Contracts would have any impact, or impose any burden, on 
competition not necessary or appropriate in furtherance of the purpose 
of the Act. ICE Clear Europe does not anticipate that its commencement 
of clearing for the Additional WE Sovereign Contracts will adversely 
affect the trading market for those contracts or for CDS more 
generally. Specifically, allowing clearing of the Additional WE 
Sovereign Contracts will provide market participants with the 
additional choice to have their transactions in these types of 
contracts cleared, and should generally promote the further development 
of the market for these contracts. Moreover, ICE Clear Europe has 
established fair and objective criteria for eligibility to clear the 
Additional WE Sovereign Contracts, consistent with its criteria for 
other cleared CDS.
    Although clearance of Additional WE Sovereign Contracts may result 
in higher margin requirements for some clearing members as a result of 
the general wrong way risk component of the margin model, ICE Clear 
Europe believes that the model properly aligns margin requirements to 
the risks presented by such clearing members with respect to the 
Additional WE Sovereign Contracts. As a result, ICE Clear Europe is of 
the view that these changes are necessary and appropriate in 
furtherance of the purpose of the Act and the Commission's regulations 
thereunder, including the financial resources and risk management 
requirements of Rule 17Ad-22.\15\ Furthermore, ICE Clear Europe does 
not believe that any such increase in margin requirements would 
significantly affect the ability of clearing members or other market 
participants to continue to clear CDS, consistent with the risk 
management requirements of the Clearing House, or otherwise limit 
market participants' choices for selecting clearing services. 
Accordingly ICE Clear Europe does not believe that

[[Page 65445]]

clearance of the Additional WE Sovereign Contracts will impose any 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Act.
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    \15\ 17 CFR 240.17Ad-22.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    Written comments relating to the acceptance of the Additional WE 
Sovereign Contracts for clearing 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

    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
    (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-ICEEU-2014-18 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-ICEEU-2014-18. 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/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-ICEEU-2014-18 
and should be submitted on or before November 25, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-26120 Filed 11-3-14; 8:45 am]
BILLING CODE 8011-01-P