[Federal Register Volume 80, Number 238 (Friday, December 11, 2015)]
[Notices]
[Pages 77032-77035]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-31176]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76565; File No. SR-ICEEU-2015-019]


Self-Regulatory Organizations; ICE Clear Europe Limited; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating to Gross Margining for Certain Categories of Customer Accounts

December 7, 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 November 24, 2015, 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 prepared primarily 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)(i) and (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)(i) and (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 changes is to amend certain 
provisions relating to gross margining for various categories of 
Customer Accounts.

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. 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 such statements.

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

i. Purpose
    ICE Clear Europe submits certain proposed amendments to its 
Clearing Rules (the ``Rules'') and Clearing Procedures relating to the 
margining of Customer Accounts. The amendments provide additional 
options for Clearing Members to use so-called ``gross margined'' 
Customer Accounts (and will require use of such accounts for certain 
F&O products as discussed below). The amendments further clarify which 
types of Customer Accounts are margined on a gross as opposed to a net 
basis, as well as related procedures for the collection and transfer of 
margin for such accounts and certain related information requirements, 
as discussed herein. For this purpose, for a Customer Account margined 
on a ``gross'' basis, initial or original margin requirements are 
determined separately with respect to the positions of each customer of 
the relevant Clearing Member (i.e., without netting of different 
positions across multiple customers). By contrast, for a Customer 
Account margined on a ``net'' basis, initial or original margin 
requirements are determined for the entire account on a net basis 
across the positions of all customers in that account.
    The proposed changes are principally relevant to the Customer 
Accounts of Non-FCM/BD Clearing Members with respect to F&O Contracts. 
ICE Clear Europe's existing rules provide several types of Customer 
Accounts for such Clearing Members in light of relevant regulatory 
requirements and

[[Page 77033]]

permissions. Currently, most such accounts for F&O Contracts are 
margined on a net basis, which is permitted under the European Market 
Infrastructure Regulation (``EMIR'').\5\ ICE Clear Europe is proposing 
to revise its account structure to allow Clearing Members to use 
Customer Accounts of the same types but which are margined on a gross 
basis for certain products. Once the rule amendments are effective, ICE 
Clear Europe will require the use of such gross margined accounts for 
Non-FCM/BD Clearing Members in relation to certain F&O products in the 
energy category that are margined using a one-day period of risk, as 
specified below, such as oil contracts traded on ICE Futures Europe. 
Gross or net margined accounts would be available on an optional basis 
for other categories of F&O Contracts (which are margined using a two-
day period of risk). As a result of these changes, ICE Clear Europe 
will no longer permit net margining of contracts for which margin is 
calculated using a one-day period of risk.
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    \5\ Regulation (EU) No 648/2012 of the European Parliament and 
of the Council of 4 July 2012 on OTC derivatives, central 
counterparties and trade repositories, as well as various 
implementing regulations and technical standards.
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    ICE Clear Europe is adopting the requirement for the use of gross 
margining to align the margin framework for certain energy contracts 
cleared by Non-FCM/BD Clearing Members more closely with the 
requirements that apply to FCM Clearing Members under CFTC rules and 
the Clearing House's rules for FCM Customer Accounts, as implemented in 
2012 when certain cleared OTC contracts were converted to economically-
equivalent futures contracts admitted to trading on ICE Futures US. 
Such contracts are margined using a one-day period of risk. In this 
regard, ICE Clear Europe also notes that the European Securities and 
Markets Authority has issued a discussion paper for consultation as to 
the use of gross margined customer accounts under certain circumstances 
(and in particular, whether a gross margined account using a one-day 
margin period of risk (of the type being provided under the rule 
amendments) should be a permitted alternative to an account using a 
two-day margin period of risk in order to satisfy requirements under 
EMIR, in light of the fact that EMIR is currently silent on whether 
accounts should be net or gross margined).\6\
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    \6\ ESMA, Review of Article 26 of RTS No. 153/2013 with respect 
to client accounts (26 August 2015) (Discussion Paper).
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    For Customer Accounts with respect to CDS Contracts, the current 
practice of margining on a gross basis would be maintained.
    The status of the DCM Customer Account and Swap Customer Account of 
FCM/BD Clearing Members (which are currently gross margined, consistent 
with U.S. regulatory requirements) would not be affected by the 
proposed amendments. The amendments would clarify the option for FCM/BD 
Clearing Members to use their Non-DCM/Swap Customer Account or General 
Customer Account on either a gross margined or net margined basis, to 
the extent permitted by applicable law. Certain other clarifications 
and updates are made in the Rules and Clearing Procedures as well, as 
discussed herein.
    Specifically, ICE Clear Europe proposes to make amendments to Parts 
3, 4, 6, 7 and 16 of its Rules and to the Clearing Procedures.
    In Part 3 of the Rules, Rule 302, which addresses the procedures 
for payments to and from the Clearing House in respect of various 
categories of Customer Accounts, has been revised to take into account 
the new set of gross margined accounts and to simplify some of the 
drafting. As revised, the Rule clarifies that the Clearing House will 
determine the required margin amount based on the relevant margin model 
for that account type (net or gross). The Clearing House will then 
calculate the net amount owed to or by the Clearing House for that 
account based on that requirement. With respect to the Swap Customer 
Account, Rule 302 has been revised to add a cross-reference to the 
appropriate provisions in Rule 1605(h), which address the calculation 
and settlement of margin for that account more specifically. In Rule 
304, which addresses payments with respect to Sponsored Principal 
accounts, certain changes have been made to conform to the changes made 
in Rule 302.
    Rule 401(g) is amended to require each Clearing Member to submit on 
a daily basis (or more frequently, if requested by ICE Clear Europe) a 
breakdown of the open positions in each Customer Account on a per 
customer basis, in order to permit the Clearing House to calculate 
gross margin for that account, if applicable. Rule 406 is amended to 
clarify that positions in a Customer Account of one customer are not to 
be netted against opposite positions of another customer, and that 
positions in separate Customer Accounts are not to be netted against 
each other, consistent with other existing provisions of the Rules.
    Rule 702(c) is amended to set out more clearly how the cash 
settlement amount for futures contracts is calculated based on the 
positions held in different accounts, in light of the use of gross or 
net margining discussed above. As revised, the rule refers to the 
difference between the exchange settlement price and the price at which 
the contract is recorded on the Clearing House's books (or, for new 
contracts entered into on the day of settlement, the price at which the 
contract was bought or sold). This is consistent with current practice 
for such contracts. Similar clarifications are made in Rule 705(a) to 
reflect the treatment of contracts entered into on the day of 
settlement. In Rule 803(a), a similar change is made to reflect the 
treatment of option contracts entered into on the same day as the 
exercise date. Rule 810(d) is amended to set out more clearly the 
calculation of the cash settlement amount for an option contract (based 
on the difference between the relevant reference price and the price at 
which the contract is recorded on the Clearing House's books (or, for 
new contracts entered into on the day of exercise, the price at which 
the contract was bought or sold). This is also consistent with current 
practice for such option contracts.
    In Rule 1605(h), which addresses margin for the Swap Customer 
Account of FCM/BD Clearing Members, certain amendments have been made 
to refer more specifically to the relevant Rules and procedures used 
for the transfer of relevant amounts to and from the Clearing House (in 
line with the procedures applicable to transfers of Margin for other 
accounts under the Rules and Finance Procedures). The amendments do not 
materially change the operation of the Swap Customer Account, but 
reflect the addition of the cross reference to Rule 1605(h) in Rule 
302, which is intended to provide greater clarity to Clearing Members 
and market participants.
    The Clearing Procedures have been amended to add the relevant new 
account designations and to distinguish more clearly between net 
margined and gross margined Customer Accounts, along with various 
conforming and clarifying changes. In paragraph 2.3(b)(2), for FCM/BD 
Clearing Members, the amendments state explicitly that the S, W and Z 
accounts use gross margin models, and add a new E account that can be 
used as a net margined account under the Non-DCM/Swap Customer Account 
or General Customer Account category, to the extent permissible under 
applicable law. In paragraphs 2.3(b)(3) and (4), for Non-FCM/BD 
Clearing Members, the amendments state explicitly that the S,

[[Page 77034]]

C, F, and T accounts use a gross margin model, and the E, R and K 
accounts use a net margin model. A change is made in paragraph 2.4(b) 
to conform to the changes made in Rule 406. Conforming changes to the 
relevant account designations have been made in paragraphs 3.1 and 3.2. 
Amendments to paragraph 4.4 of the Clearing Procedures address the 
difference between the calculation of net and gross margin for relevant 
Customer Accounts, consistent with the account designations under 
paragraph 2.3.
    ICE Clear Europe has made available to F&O Clearing Members, 
pursuant to a member transition plan and the electronic GSPD file 
provided to clearing members on a daily basis, the details of the 
particular F&O Contracts that will be required to be held in gross 
margined Customer Accounts, as well as those that may be held in either 
gross or net margined Customer Accounts, in accordance with the amended 
Rules and Procedures described above, upon implementation of the 
amendments. Specifically, those ICE Futures Europe and ICE Futures US 
energy contracts that currently are margined using a one-day margin 
period of risk will be required to be carried in gross margined 
Customer Accounts. These include contracts relating to coal, crude oil 
and refined crude products, petrochemicals, US electricity, US 
emissions, US natural gas and natural gas liquids. Other F&O Contracts 
(including Financials & Softs contracts and certain energy contract 
traded on ICE Futures Europe and ICE Endex that are currently margined 
using a two-day margin period of risk) may be carried in either net or 
gross margined Customer Accounts. ICE Clear Europe will notify F&O 
Clearing Members by circular of the date of implementation of the 
amendments and gross margining requirements discussed herein.
ii. Statutory Basis
    ICE Clear Europe believes that the proposed amendments to the Rules 
and Clearing Procedures are consistent with the requirements of Section 
17A of the Act \7\ and the regulations thereunder applicable to it.\8\ 
Section 17A(b)(3)(F) of the Act \9\ 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, 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 and to protect investors and the public interest.
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    \7\ 15 U.S.C. 78q-1.
    \8\ 17 CFR 240.17Ad-22.
    \9\ 15 U.S.C. 78q-1(b)(3)(F).
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    The amendments are designed principally to facilitate the use by 
Non-FCM/BD Clearing Members of gross margined Customer Accounts for the 
F&O product category. The amendments also more clearly distinguish 
between net margined and gross margined accounts in the Rules and 
Procedures, and clarify and simplify the rules and procedures relating 
to the calling and return of initial and original margin for all 
accounts. The amendments thus build on the existing customer account 
structure established in the ICE Clear Europe rules. By facilitating 
gross margining, and providing the Clearing House with customer-by-
customer position data that supports such margining, the amendments 
will also enhance the Clearing House's risk management infrastructure 
with respect to Customer Accounts. As described above, the amendments 
are principally relevant to Non-FCM/BD Clearing Members for F&O 
Contracts; the DCM Customer Account and Swap Customer Account 
structures for FCM/BD Clearing Members (which are gross margined 
accounts) are prescribed by applicable U.S. law and are not materially 
changing as a result of the amendments. As a result, in ICE Clear 
Europe's view, the amendments will promote the prompt and accurate 
clearance and settlement of derivative transactions, are consistent 
with the safeguarding of funds and securities in the custody or control 
of ICE Clear Europe, and generally further the public interest. The 
amendments are therefore consistent with the requirements of Section 
17A(b)(3)(F) of the Act \10\ and the regulations thereunder.
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    \10\ Id.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    ICE Clear Europe does not believe the proposed changes to the Rules 
discussed herein would have any adverse impact, or impose any burden, 
on competition not necessary or appropriate in furtherance of the 
purposes of the Act. The proposed amendments are intended to provide 
Clearing Members with additional ability to use gross margined Customer 
Accounts. Such accounts will be available on the same terms to all Non-
FCM/BD Clearing Members. ICE Clear Europe does not believe the proposed 
amendments would adversely affect access to clearing by Clearing 
Members or their customers, adversely affect competition among Clearing 
Members or adversely affect the market for clearing services or limit 
market participants' choices for clearing transactions. Rather, 
competition among Clearing Members, and access to clearing, may be 
facilitated through the possibility of Clearing Members offering a 
choice of net or gross margining, where permitted (in all cases subject 
to applicable legal requirements and Clearing Rules). Although the 
proposed amendments may impose additional compliance costs on Clearing 
Members, including because of the requirements to provide customer-
related data to the Clearing House, ICE Clear Europe believes that such 
costs are appropriate in light of the benefits (to each of the Clearing 
House, Clearing Members and customers) from facilitating gross 
margining for Customer Accounts. As a result, ICE Clear Europe does not 
believe that the proposed amendments to the Rules will 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

    On October 30, 2015, ICE Clear Europe solicited written comments 
relating to the proposed Rule and Procedure changes via a circular. 
Comments were due by November 13, 2015, and no comments had been 
received as of the time of this filing. 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 upon filing pursuant 
to Section 19(b)(3)(A) \11\ of the Act and Rule 19b-4(f)(4)(i) and (ii) 
\12\ thereunder. The amendments principally effect a change in an 
existing service of a registered clearing agency that primarily affects 
the clearing 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 
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. Certain 
other aspects of the amendments effect a change in an existing service 
of

[[Page 77035]]

a registered clearing agency that does not adversely affect the 
safeguarding of securities or funds in the custody or control of the 
clearing agency or for which it is responsible, and does not 
significantly affect the respective rights or obligations of the 
clearing agency or persons using the service. 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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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(4)(i) and (ii).
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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-2015-019 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-2015-019. 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-2015-019 
and should be submitted on or before January 4, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-31176 Filed 12-10-15; 8:45 am]
BILLING CODE 8011-01-P