[Federal Register Volume 79, Number 229 (Friday, November 28, 2014)]
[Notices]
[Pages 70905-70907]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-28080]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73667; File No. SR-ICEEU-2014-23]


Self-Regulatory Organizations; ICE Clear Europe Limited; Notice 
of Filing of Proposed Rule Change to Finance Procedures

November 21, 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 November 14, 2014, ICE Clear Europe Limited (``ICE Clear Europe'' or 
the ``Clearing House'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change described in Items 
I, II and III below, which Items have been primarily prepared by ICE 
Clear Europe. ICE Clear Europe filed the proposal pursuant to Section 
19(b)(3)(A) of the Act,\3\ and Rule 19b-4(f)(4)(ii) \4\ thereunder, so 
that the proposal was effective upon filing with the Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \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 principal purpose of the proposed change is to permit certain 
third party collateral purchase arrangements.

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.

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

1. Purpose
    The purpose of the proposed rule change is to modify the Finance 
Procedures to permit certain third party collateral purchase 
arrangements with respect to Triparty Collateral provided by F&O 
Clearing Members in respect of a Proprietary Account. Under such an 
arrangement, an F&O Clearing Member would, with the permission of the 
Clearing House, enter into a third party collateral purchase agreement 
(a ``Purchase Agreement'') with the Clearing House and a third party 
collateral purchaser (the ``TPCP'') designated by the Clearing Member. 
The TPCP may be an affiliate of the Clearing Member. Under the terms of 
the Purchase Agreement, if the Clearing House declares the Clearing 
Member to be a Defaulter under the Rules, then the Clearing House will 
offer to sell that Clearing Member's Triparty Collateral to the TPCP, 
for a specified price established by the Clearing House based on its 
determination of the market value of the collateral. The TPCP will have 
a specified period (expected to be two hours) to accept or reject the 
offer to sell. If the TPCP accepts the offer, the Clearing House will 
sell the Triparty Collateral to the TPCP at the specified price. The 
proceeds of such sale would be applied by the Clearing House in the 
default management process and net sum calculation in the same manner 
as any other liquidation of margin of a Defaulter. If the TPCP rejects 
the offer to sell, or does not respond within the specified period, the 
offer will expire, and the Clearing House will apply or liquidate the 
Triparty Collateral pursuant to the Rules as part of its usual default 
management process.
    These arrangements would not apply to (i) margin, collateral or 
permitted cover provided by F&O Clearing Members other than Triparty 
Collateral, (ii) any margin, collateral or permitted cover provided 
with respect to a customer account, or (iii) any margin, collateral or 
permitted cover provided by CDS or FX Clearing Members in respect of 
CDS or FX Contracts, respectively.
    The Clearing House proposes to permit third party collateral 
purchase arrangements to provide a pre-arranged alternative to 
collateral liquidation in the default management process for F&O 
Clearing Members. Certain F&O Clearing Members have requested that such 
arrangements be made available in order to facilitate their own 
collateral management activities. For example, ICE Clear Europe 
understands that for certain corporate groups, collateral to be 
transferred to the Clearing House may have been acquired by an 
affiliated entity (rather than the Clearing Member itself) through 
repurchase or similar transactions, and such entity may want to have 
the ability to reacquire the relevant collateral in order to settle 
such other transactions, even following a Clearing Member default. ICE 
Clear Europe has determined that the proposed collateral purchase 
arrangement is consistent with its own default management requirements. 
In this regard, if the TPCP accepts the offer, the Clearing House will 
be able to sell the relevant Triparty Collateral at the current market 
price, as determined by the Clearing House. The ability to sell such 
collateral to a willing buyer may avoid the need to liquidate such 
collateral in the market, and accordingly reduce time and transaction 
costs. In addition, the TPCP is granted only a short period of time 
(currently expected to be two hours) to respond to the Clearing House's 
offer, and if it rejects the offer or does not respond within such 
period, the Clearing House retains all of its existing rights and 
remedies with respect to the Triparty Collateral. ICE Clear Europe thus 
does not believe the proposed two-hour delay would adversely affect its 
ability to liquidate collateral or otherwise manage the default of an 
F&O Clearing Member.
    To implement these arrangements, ICE Clear Europe proposes to adopt 
a new Paragraph 3.32 of the Finance Procedures, the text of which is as 
follows (new text underlined):
    3.32 At the request of an F&O Clearing Member, the Clearing House 
may, in its sole discretion, agree to enter into a collateral purchase 
agreement with a third party collateral purchaser and such F&O Clearing 
Member, under which the Clearing House will agree to offer for sale to 
the third party collateral purchaser Triparty Collateral deposited by 
such F&O Clearing Member for a Proprietary Account in respect of F&O 
Contracts, in the event of the F&O Clearing Member being declared a 
Defaulter under the Rules. The Clearing House shall have no obligation 
to enter into any such agreement, and the identity of any such third 
party

[[Page 70906]]

collateral purchaser must be approved by the Clearing House pursuant to 
criteria established by the Clearing House. Any such collateral 
purchase agreement must be in the form approved by the Clearing House 
for such purposes from time to time.
    Paragraph 3.32 will thus authorize, but not require, the Clearing 
House to enter into a Purchase Agreement at the request of an F&O 
Clearing Member relating to Triparty Collateral provided with respect 
to a Proprietary Account. The Clearing House would need to approve the 
particular arrangement, including the TPCP. Paragraph 3.32 also 
contemplates that the Clearing House will develop and approve its own 
form of agreement to be used for this purpose (subject to modification 
in particular cases) that is consistent with the Clearing House's 
default management requirements. With respect to approval of TPCPs, the 
Clearing House will establish criteria focusing on the credit standing 
of the entity as well as considerations relating to legal 
enforceability of the arrangement, treatment of the arrangement in 
relevant insolvency proceedings and similar matters relevant to 
maintaining the integrity of the Clearing House's default management 
process.
2. Statutory Basis
    ICE Clear Europe believes that the proposed rule change is 
consistent with the requirements of Section 17A of the Act \5\ and the 
regulations thereunder applicable to it, including the standards under 
Rule 17Ad-22.\6\ 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 clearance and settlement of securities 
transactions and, to the extent applicable, derivative agreements, 
contracts, and transactions and 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. In addition, Rule 17Ad-
22(d)(11) \8\ requires that the clearing agency establish default 
procedures that ensure that the clearing agency can take timely action 
to contain losses and liquidity pressures and to continue meeting its 
obligations in the event of a clearing member default.
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    \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(d)(11).
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    The third party collateral purchase arrangements will use the 
existing Clearing House procedures for Triparty Collateral, which is 
held with a triparty collateral service provider such as Euroclear 
Bank. As a result, the proposed rule change will not adversely affect 
the manner in which collateral provided by a Clearing Member is 
currently held, prior to default, and accordingly will not adversely 
affect the safeguarding of securities or funds in the custody or 
control of ICE Clear Europe or for which it is responsible, within the 
meaning of Section 17A(b)(3)(F) of the Act.\9\ It bears noting in this 
regard that the proposed arrangements are limited to the Proprietary 
Accounts of F&O Clearing Members, and would not apply to any Customer 
Account. The arrangement also would not apply to CDS Clearing Members 
or FX Clearing Members acting in their capacities as such.
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    \9\ 15 U.S.C. 78q-1(b)(3)(F).
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    In terms of default management, as discussed above, ICE Clear 
Europe believes that the proposed amendments would not interfere with 
its ability to manage a Clearing Member default, consistent with the 
standards in the Act and Rule 17Ad-22. Under its existing Rules, the 
Clearing House has broad rights to apply and liquidate collateral 
provided by a Clearing Member following its default.\10\ In ICE Clear 
Europe's view, the proposed arrangements provide an additional means by 
which Triparty Collateral can be liquidated following default. In this 
regard, the arrangements may provide certain default management 
benefits if the collateral purchase option is exercised, as the 
collateral purchase option will provide the Clearing House with the 
cash value of the relevant collateral promptly, without the need for 
the Clearing House to undertake the liquidation of the collateral in 
the market (and incur related expenses). The proposed third party 
collateral purchase arrangement would provide only a brief period 
(expected to be two hours) in which the TPCP would have the right to 
purchase the Triparty Collateral. ICE Clear Europe does not believe 
this delay, even in the event the TPCP did not elect to purchase the 
collateral, would materially impact the Clearing House's ability to 
manage a default or liquidate collateral following expiration of the 
period. As a result, ICE Clear Europe believes that the proposed 
amendments are consistent with the requirements of Rule 17Ad-
22(d)(11).\11\
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    \10\ See Rules 903-906.
    \11\ 17 CFR 240.17Ad-22(d)(11).
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    As discussed above, ICE Clear Europe is proposing these 
arrangements at the request of F&O Clearing Members seeking to improve 
their own collateral management. In this respect, ICE Clear Europe 
believes that the proposed amendments are also consistent with the 
requirements of Rule 17Ad-22(d)(6),\12\ which requires that clearing 
agency procedures be cost-effective in meeting the requirements of 
participants while maintaining safe and secure operations.
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    \12\ 17 CFR 240.17Ad-22(d)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    ICE Clear Europe does not believe the proposed amendments would 
have any impact, or impose any burden, on competition not necessary or 
appropriate in furtherance of the purposes of the Act. The proposed 
changes will provide additional flexibility by permitting the use, on a 
voluntary basis, of third party collateral purchase arrangements for 
those F&O Clearing Members that are interested in such arrangements. No 
Clearing Member will be required to use these arrangements, and the 
changes will thus not affect those Clearing Members that do not 
participate in such arrangements. In addition, the amendments will not 
otherwise affect the terms or conditions of any cleared contract or the 
standards or requirements for participation in or use of the Clearing 
House. Accordingly, the changes should not, in the Clearing House's 
view, affect the availability of clearing, access to clearing services 
or the costs of clearing for clearing members or other market 
participants.

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 to the rules 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 pursuant to Section 
19(b)(3)(A) \13\ of the Act and Rule 19b-4(f)(4)(ii) \14\ thereunder 
because it effects a change in an existing service of a registered 
clearing agency that primarily affects the operations of the clearing 
agency with respect to products that are not securities, including 
futures that are not security futures, swaps that are not security-
based swaps or mixed swaps, and forwards that are not security 
forwards, and does not significantly

[[Page 70907]]

affect any securities clearing operations of the clearing agency or any 
rights or obligations of the clearing agency with respect to securities 
clearing or persons using such securities clearing service, within the 
meaning of Rule 19b-4(f)(4)(ii). 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.
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f).
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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-2014-23 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-ICEEU-2014-23. 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/clear-europe/regulation#rule-filings.
    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-2014-23 
and should be submitted on or before December 19, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-28080 Filed 11-26-14; 8:45 am]
BILLING CODE 8011-01-P