[Federal Register Volume 81, Number 180 (Friday, September 16, 2016)]
[Notices]
[Pages 63831-63833]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-22257]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-78818; File No. SR-ICC-2016-012]
Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of
Filing of Proposed Rule Change To Provide for the Clearance of
Additional Credit Default Swap Contracts
September 12, 2016.
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 August 29, 2016, ICE Clear Credit LLC (``ICC'') 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 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 rule change is to revise the
ICC Rulebook (the ``Rules'') to provide for the clearance of additional
Standard Emerging Market Sovereign CDS contracts (collectively, ``EM
Contracts''), 2003 ISDA Definitions of Standard Western European
Sovereign CDS contracts (collectively, ``SWES Contracts''), and an
additional Asia/Pacific Sovereign CDS contract (the ``Asia/Pacific
Contract'').
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
The purpose of the proposed rule change is to adopt rules that will
provide the basis for ICC to clear additional credit default swap
contracts. ICC believes the addition of these contracts will benefit
the market for credit default swaps by providing market participants
the benefits of clearing, including reduction in counterparty risk and
safeguarding of margin assets pursuant to clearing house rules.
ICC proposes amending subchapter 26D of its Rules to provide for
the clearance of additional EM Contracts, specifically the Republic of
Panama, Abu Dhabi, Dubai, the State of Israel and the State of Qatar.
ICC plans to offer these additional EM Contracts on the 2003 and 2014
ISDA Credit Derivatives Definitions.
These additional EM Contracts have terms consistent with the other
EM Contracts approved for clearing at ICC and governed by subchapter
26D of the Rules. Minor revisions to Subchapter 26D (Standard Emerging
Market Sovereign (``SES'') Single Name) are made to provide for
clearing the additional EM Contracts. Specifically, in Rule 26D-102
(Definitions), ``Eligible SES Reference Entities'' is modified to
include the Republic of Panama, Abu Dhabi, Dubai, the State of Israel
and the State of Qatar in the list of specific Eligible SES Reference
Entities to be cleared by ICC.
Additionally, ICC proposes amending subchapter 26I of its Rules to
provide for the clearance of 2003 ISDA Definitions of SWES Contracts.
ICC currently clears the 2014 ISDA Definitions of ten SWES Contracts,
[[Page 63832]]
namely the Republic of Ireland, the Italian Republic, the Portuguese
Republic, the Kingdom of Spain, the Kingdom of Belgium, the Republic of
Austria, the Kingdom of the Netherlands, the Federal Republic of
Germany, the French Republic, and the United Kingdom of Great Britain
and Northern Ireland. The proposed rule changes to subchapter 26I will
allow ICC to offer clearing for the 2003 ISDA Definitions of these SWES
Contracts.
Minor revisions to subchapter 26I (Standard Western European
(``SWES'') Single Name) are made to provide for clearing the 2003 ISDA
Definitions of SWES Contracts. Specifically, in Rule 26I-102
(Definitions), the definitions of ``Eligible SWES Reference
Obligations'', ``List of Eligible SWES Reference Entities'' and ``SWES
Contract Reference Obligations'' are updated to distinguish between the
2003- and 2014-Type CDS Contracts, and the corresponding Applicable
Credit Derivatives Definitions.\3\ Rule 26I-309 (Acceptance of SWES
Contracts by ICE Clear Credit) is revised in part (c) to note that a
CDS Participant may not submit a Trade for clearance as a SWES
contract, and any such Trade shall not be a Confirming Trade, if the
acceptance would be at a time when the CDS Participant (or any Non-
Participant Party for whom such CDS Participant is acting) is, or is an
Affiliate of, the Eligible SWES Reference Entity for such SWES Contract
or is subject to an agreement under which it is reasonably likely that
the CDS Participant (or any such Non-Participant Party) will become, or
will become an Affiliate of, the Eligible SWES Reference Entity for
such SWES Contract. Rule 26I-309 is also revised in part (e) to address
and distinguish between relevant successor or other events under both
2003- and 2014-Type CDS Contracts, and the corresponding Applicable
Credit Derivatives Definitions.
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\3\ As defined in Rule 20-102 (Applicable Credit Derivatives
Definitions).
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Rule 26I-315 (Terms of the Cleared SWES Contract) is revised to
provide reference to provisions of the proper ISDA Definitions, and
corresponding changes to provision numbering are made as necessary.
Rule 26I-315(h) is revised to refer to the Applicable Credit
Derivatives Definitions and eligible Seniority Level, as appropriate.
Defined terms in Rule 26I-316 (Physical Settlement Matrix Updates)
are updated to refer specifically to SWES contracts. Rule 26I-616
(Contract Modification) is revised to note that it shall not constitute
a Contract Modification if the Board (or its designee) updates the List
of Eligible SWES Reference Entities (and modifies the terms and
conditions of related SWES Contracts) to give effect to determinations
of Succession Events.
Finally, ICC proposes amending subchapter 26L of its rules to
provide for the clearance of an additional Asia/Pacific Contract,
namely the Kingdom of Thailand. ICC plans to offer this contract on the
2003 and 2014 ISDA Credit Derivatives Definitions.
The additional Asia/Pacific Contract has terms consistent with the
other Asia/Pacific Contracts approved for clearing at ICC and governed
by subchapter 26L of the Rules. Minor revisions to subchapter 26L
(Asia/Pacific Sovereign (``SAS'') Single Name) are made to provide for
clearing the additional Asia/Pacific Contract. Specifically, in Rule
26L-102 (Definitions), ``Eligible SAS Reference Entities'' is modified
to include the Kingdom of Thailand in the list of specific Eligible SAS
Reference Entities to be cleared by ICC.
Section 17A(b)(3)(F) of the Act \4\ 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. The additional EM Contracts, Asia/Pacific
Contract and the 2003 ISDA Definitions of SWES Contracts proposed for
clearing are similar to the EM, SWES, and Asia/Pacific Contracts
currently cleared by ICC, and will be cleared pursuant to ICC's
existing clearing arrangements and related financial safeguards,
protections and risk management procedures. Clearing of the additional
EM Contracts, Asia/Pacific Contract and 2003 ISDA Definitions of SWES
Contracts will allow market participants an increased ability to manage
risk and ensure the safeguarding of margin assets pursuant to clearing
house rules. ICC believes that acceptance of the new EM Contracts,
Asia/Pacific Contract and 2003 ISDA Definitions of SWES Contracts, on
the terms and conditions set out in the Rules, is consistent with the
prompt and accurate clearance of and settlement of securities
transactions and derivative agreements, contracts and transactions
cleared by ICC, the safeguarding of securities and funds in the custody
or control of ICC, and the protection of investors and the public
interest, within the meaning of Section 17A(b)(3)(F) of the Act.\5\
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\4\ 15 U.S.C. 78q-1(b)(3)(F).
\5\ 15 U.S.C. 78q-1(b)(3)(F).
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Clearing of the additional EM Contracts, Asia/Pacific Contract and
2003 ISDA Definitions of SWES Contracts will also satisfy the
requirements of Rule 17Ad-22.\6\ In particular, in terms of financial
resources, ICC will apply its existing initial margin methodology to
the additional contracts. ICC believes that this model will provide
sufficient initial margin requirements to cover its credit exposure to
its clearing members from clearing such contracts, consistent with the
requirements of Rule 17Ad-22(b)(2).\7\ In addition, ICC believes its
Guaranty Fund, under its existing methodology, will, together with the
required initial margin, provide sufficient financial resources to
support the clearing of the additional contracts consistent with the
requirements of Rule 17Ad-22(b)(3).\8\ ICC also believes that its
existing operational and managerial resources will be sufficient for
clearing of the additional contracts, consistent with the requirements
of Rule 17Ad-22(d)(4),\9\ as the new contracts are substantially the
same from an operational perspective as existing contracts. Similarly,
ICC will use its existing settlement procedures and account structures
for the new contracts, consistent with the requirements of Rule 17Ad-
22(d)(5), (12) and (15) \10\ as to the finality and accuracy of its
daily settlement process and avoidance of the risk to ICC of settlement
failures. ICC determined to accept the additional EM Contracts, Asia/
Pacific Contract and 2003 ISDA Definitions of SWES Contracts for
clearing in accordance with its governance process, which included
review of the contracts and related risk management considerations by
the ICC Risk Committee and approval by its Board. These governance
arrangements are consistent with the requirements of Rule 17Ad-
22(d)(8).\11\ Finally, ICC will apply its existing default management
policies and procedures for the additional EM Contracts, Asia/Pacific
Contract and 2003 ISDA Definitions of SWES Contracts. ICC believes that
these 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 in
[[Page 63833]]
respect of the additional single names, in accordance with Rule 17Ad-
22(d)(11).\12\
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\6\ 17 CFR 240.17Ad-22.
\7\ 17 CFR 240.17Ad-22(b)(2).
\8\ 17 CFR 240.17Ad-22(b)(3).
\9\ 17 CFR 240.17Ad-22(d)(4).
\10\ 17 CFR 240.17Ad-22(d)(5), (12) and (15).
\11\ 17 CFR 240.17Ad-22(d)(8).
\12\ 17 CFR 240.17Ad-22(d)(11).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The additional EM Contracts, Asia/Pacific Contract and 2003 ISDA
Definitions of SWES Contracts will be available to all ICC participants
for clearing. The clearing of these additional EM Contracts, Asia/
Pacific Contract and 2003 ISDA Definitions of SWES Contracts by ICC
does not preclude the offering of the additional EM Contracts, Asia/
Pacific Contract and 2003 ISDA Definitions of SWES Contracts for
clearing by other market participants. Accordingly, ICC does not
believe that clearance of the additional EM Contracts, Asia/Pacific
Contract and 2003 ISDA Definitions of SWES Contracts will impose any
burden on competition not necessary or 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 or received. 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 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-ICC-2016-012 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-2016-012. 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 Credit
and on ICE Clear Credit'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-2016-012
and should be submitted on or before October 7, 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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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-22257 Filed 9-15-16; 8:45 am]
BILLING CODE 8011-01-P