[Federal Register Volume 80, Number 28 (Wednesday, February 11, 2015)]
[Notices]
[Pages 7661-7663]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-02751]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 74213; File No. SR-ICEEU-2015-004]


Self-Regulatory Organizations; ICE Clear Europe Limited; Notice 
of Filing of Proposed Rule Change Relating to Additional European 
Sovereign CDS Contracts

February 5, 2015.
    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 January 27, 2015, 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. 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 change is to provide for the clearance 
of additional CDS contracts that are Western European sovereign CDS 
contracts referencing the Kingdom of the Netherlands, the Republic of 
Finland, the Kingdom of Sweden and the Kingdom of Denmark (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 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 for ICE Clear Europe to 
offer clearing of Western European sovereign CDS contracts referencing 
four additional reference entities: the Kingdom of the Netherlands, the 
Republic of Finland, the Kingdom of Sweden and the Kingdom of Denmark. 
ICE Clear Europe currently clears CDS contracts referencing six other 
Western European sovereigns: Ireland, the Republic of Italy, the 
Portuguese Republic, the Kingdom of Spain, the Kingdom of Belgium and 
the Republic of Austria.\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

[[Page 7662]]

margin assets pursuant to clearing house rules.
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    \3\ See Securities Exchange Act Release No. 34-71920 (April 9, 
2014), 79 FR 21331 (April 15, 2015) (File No. SR-ICEEU-2014-04) 
(order approving rule changes to clear Western European sovereign 
CDS contracts); Securities Exchange Act Release No. 34-73737 
(December 4, 2014), 79 FR 73372 (December 10, 2014) (File No. SR-
ICEEU-2014-18) (order approving rule changes to clear additional 
Western European sovereign CDS contracts) (the ``Prior WE Sovereigns 
Orders'').
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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 
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\
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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 Orders. 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.
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2. Statutory Basis
    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 Orders). 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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    \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 Orders, 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

[[Page 7663]]

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 
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-2015-004 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-2015-004. 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 Europe 
and on ICE Clear Europe's Web site at https://www.theice.com/clear-europe/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-ICEEU-2015-004 
and should be submitted on or before March 4, 2015.

    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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Brent J. Fields,
Secretary.
[FR Doc. 2015-02751 Filed 2-10-15; 8:45 am]
BILLING CODE 8011-01-P