[Federal Register Volume 81, Number 241 (Thursday, December 15, 2016)]
[Notices]
[Pages 90891-90893]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-30080]



[[Page 90891]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79516; File No. SR-ICEEU-2016-014]


Self-Regulatory Organizations; ICE Clear Europe Limited; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating to the Clearing Rules Regarding German CDS Clearing Members

December 9, 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 November 25, 2016, ICE Clear Europe Limited (``ICE Clear Europe'' or 
``Clearing House'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule changes described in Items I, II and 
III below, which Items have been primarily prepared by ICE Clear 
Europe. ICE Clear Europe filed the proposed rule changes pursuant to 
Section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(4)(i) \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).
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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 changes is to modify the ICE Clear 
Europe Clearing Rules (``Clearing Rules'') to clarify the application 
of economic sanctions compliance provisions to German CDS Clearing 
Members, as described herein.

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

(a) Purpose
    The purpose of the rule amendments is to modify the ICE Clear 
Europe Clearing Rules to revise the application of certain provisions 
related to economic sanctions compliance by CDS Clearing Members and 
Customers of CDS Clearing Members incorporated in Germany. The existing 
ICE Clear Europe Rules impose certain requirements on all Clearing 
Members with respect to compliance with economic sanctions regimes, 
specifically those imposed by the European Union, the United Kingdom, 
the United States and the United Nations Security Council. These 
requirements include representations by Clearing Members that they 
would not be prevented from entering into any cleared contract or from 
using the Clearing House under such sanctions regimes, and that they 
are in compliance with requirements under such regimes relating to due 
diligence in respect of their customers in any cleared transactions.
    Clearing Members that are incorporated in Germany (``German 
Clearing Members'') have expressed concern to ICE Clear Europe that 
these requirements under the Rules may potentially be inconsistent with 
the anti-boycott provisions in Section 7 of the German Foreign Trade 
Ordinance (Au[szlig]enwirtschaftsverordnung) (the ``anti-boycott 
ordinance''), which generally prevents German persons from 
participating in so-called foreign boycotts. German Clearing Members 
have noted the view that contractual provisions that require them to 
comply with economic sanctions that are imposed by a jurisdiction other 
than Germany, the EU or the UN Security Council may, at least as a 
theoretical matter, conflict with the anti-boycott ordinance. This 
potential conflict may apply to sanctions imposed by the United States 
or the United Kingdom that are not also imposed by the EU or UN 
Security Council.
    To avoid this potential conflict, ICE Clear Europe is proposing to 
amend its Clearing Rules to provide exceptions to certain of the 
representations and undertakings for German Clearing Members, to the 
extent the representation or undertaking would be in conflict with the 
anti-boycott ordinance. Instead, such German Clearing Members would be 
required to provide notice to the Clearing House at least 30 days in 
advance of any transaction (including a customer transaction) that 
would otherwise violate such a representation or undertaking. In such 
case, ICE Clear Europe would as an operational and compliance matter 
continue to evaluate whether the transaction or activity would be 
subject to or restricted under any applicable sanctions regime or 
restriction (including those of the United States and United Kingdom). 
If so, ICE Clear Europe would be entitled, as it determined to be 
appropriate, to use one of its existing authorities under the Clearing 
Rules, including potentially under Rules 104, 404 and Parts 2 and 6 
depending on the circumstances, to avoid or decline to clear the 
transaction or impose a position limit preventing the transaction from 
being effective even if submitted. The amendments only relate to German 
Clearing Members that are CDS Clearing Members in connection with their 
CDS clearing activity; they do not apply to Clearing Members organized 
in other jurisdictions or to other products cleared by German Clearing 
Members.\5\
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    \5\ Following prior consultations with Clearing Members, ICE 
Clear Europe is considering other potential changes to its Rules 
relating to sanctions. The proposed rule changes in this filing are 
intended to address only a specific issue identified by German 
Clearing Members.
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    The changes are thus intended to avoid placing German CDS Clearing 
Members in a situation where they face a potential conflict between the 
Clearing Rules as they relate to non-German sanctions regimes and the 
anti-boycott ordinance, while at the same time allowing ICE Clear 
Europe itself to maintain compliance with all applicable sanctions 
regimes, including those of the United States and the United Kingdom. 
The making of these changes is regarded as important by German market 
participants particularly in relation to CDS clearing, which is subject 
to a clearing mandate under the European Market Infrastructure 
Regulation (EMIR),\6\ effective from February 2017. The so-called 
``frontloading window'' for mandatory clearing of CDS has already 
commenced and based on communications with Clearing Members, ICE Clear 
Europe understands that market participants regard it as important that 
there be certainty that CDS transactions executed today by German 
users, which will later be required to be cleared, can be capable of 
being cleared in compliance with applicable laws.
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    \6\ 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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[[Page 90892]]

    The proposed amendments to the Rules are described in more detail 
as follows:
    In Rule 101, a new definition of ``Sanction'' has been added, which 
largely tracks existing references in the Rules to economic sanctions 
regulations and restrictions imposed by the EU, United Kingdom, United 
States or UN Security Council.
    In Rule 201(a), which contains a representation that the Clearing 
Member will not be prevented from entering into a contract or using the 
Clearing House as a result of prohibition or restriction under an 
economic sanction regime, paragraph (xxxiv) has been amended to provide 
the exception described above for German CDS Clearing Members, solely 
in respect of their CDS business, and solely to the extent that the 
representation would conflict with applicable laws purporting to 
nullify or restrict the effect of foreign sanctions or preventing 
boycotts (the ``anti-boycott exception''). It has also been modified to 
use the new defined term Sanction.
    In Rule 203(a), a new paragraph (xxi) has been added, which 
requires a German CDS Clearing Member (or any Clearing Member dealing 
with a customer incorporated in Germany) to provide at least 30 days' 
notice before entering into a transaction that would breach applicable 
representations or undertakings in the Rules relating to Sanctions, but 
for the anti-boycott exception.
    Similar provisions have been added in new paragraphs (xiv) and (xv) 
of Rule 204(a), which requires Clearing Members to provide certain 
notices to the Clearing House. Paragraph (xiv) requires that a German 
CDS Clearing Member provide notice if any UK or US Sanctions would, if 
they were applicable, prevent the German CDS Clearing Member from 
entering into a cleared contract or using the Clearing House in 
circumstances in which neither EU Sanctions nor UN Security Council 
Sanctions would impose such restriction. Similarly, paragraph (xv) 
requires that a German CDS Clearing Member (or any Clearing Member for 
a customer incorporated in Germany) provide notice if U.K. or U.S. 
Sanctions would, if they were applicable, restrict or prevent any 
derivatives or spot trading activities involving the customer in 
circumstances in which neither EU Sanctions nor UN Security Council 
Sanctions would impose such restriction. Such notices must be given 30 
days before entering into any such cleared contract.
    Rule 405(a), which establishes certain representations deemed made 
by Clearing Members upon entering into a cleared contract, has been 
revised in paragraph (xi) to use the defined term Sanctions and include 
the anti-boycott exception discussed above.
    In Rule 1901(d), which establishes requirements for being a 
Sponsored Principal, clause (xiii) has been revised (in a manner 
similar to the changes in Rule 201(a) above) to use the defined term 
Sanction and include the anti-boycott exception discussed above.
    In addition, in the form of Standard Terms Annex for CDS 
transactions, paragraph 3(o), which includes representations by the 
customer about compliance with economic sanctions, has been revised to 
use the defined term Sanctions and include an anti-boycott exception 
applicable where the Clearing Member or Customer is located in Germany. 
The other Standard Terms Annexes for F&O and FX include only a 
conforming amendment to use the new defined term Sanction.
(b) Statutory Basis
    ICE Clear Europe believes that the changes described herein are 
consistent with the requirements of Section 17A of the Act \7\ and the 
regulations thereunder applicable to it, and are consistent with the 
prompt and accurate clearance of and settlement of securities 
transactions and, to the extent applicable, derivative agreements, 
contracts and transactions, the safeguarding of securities and funds in 
the custody or control of ICE Clear Europe or for which it is 
responsible and the protection of investors and the public interest, 
within the meaning of Section 17A(b)(3)(F) of the Act.\8\ The 
amendments are intended to resolve a potential inconsistency for German 
Clearing Members between the provisions of the Rules relating to 
sanctions compliance and the German anti-boycott ordinance. Although 
certain responsibilities of German Clearing Members in this regard are 
being modified in light of the German anti-boycott ordinance, the 
amendments impose new notice requirements on such Clearing Members to 
facilitate the identification and review by the Clearing House of 
potential sanctions violations, which would entitle the Clearing House 
may [sic] take any appropriate action under the Rules, as discussed 
above. The amendments will thus facilitate continued compliance by ICE 
Clear Europe with sanctions regimes in all relevant jurisdictions. As 
such, ICE Clear Europe believes that the amendments will further the 
public interest in enforcement of such sanctions. By seeking to avoid a 
potential conflict with German law while maintaining overall 
compliance, the amendments will also further the development of a well-
founded legal framework applicable to German Clearing Members (and 
their customers) in all relevant jurisdictions, within the meaning of 
Rule 17Ad-22(d)(1).\9\ As a result, in ICE Clear Europe's view, the 
amendments are consistent with the requirements of Section 17A of the 
Act.\10\
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    \7\ 15 U.S.C. 78q-1.
    \8\ 15 U.S.C. 78q-1(b)(3)(F).
    \9\ 17 CFR 240.17Ad-22(d)(1). In this regard, ICE Clear Europe 
notes that as a clearing organization that provides services outside 
the United States, it is required to identify and address any 
material conflict of law issues, and be able to demonstrate that its 
rules and procedures are enforceable in all relevant jurisdictions. 
See 17 CFR 39.27(c); see also recently adopted Commission Rule 17Ad-
22(e)(1) and related guidance in Exchange Act Release No. 34-78961 
(Sept. 28, 2016).
    \10\ 15 U.S.C. 78q-1.
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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 
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 is adopting amendments to the Clearing Rules intended to 
address certain potential compliance issues for German Clearing Members 
relating to different economic sanctions regimes. The amendments do not 
affect other Clearing Members, and are tailored to address a particular 
concern under the German anti-boycott ordinance that may affect the 
ability of German Clearing Members to comply with certain requirements 
under the Rules. ICE Clear Europe does not believe that these changes 
will impose any significant additional costs on Clearing Members or 
other market participants. ICE Clear Europe also does not believe the 
amendments will adversely affect access to clearing by Clearing Members 
or their customers or otherwise adversely affect Clearing Members or 
market participants.

(C) Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Change Received From Members, Participants or Others

    ICE Clear Europe has previously conducted a public consultation 
with respect to a series of amendments relating to economic sanctions 
matters.\11\ That consultation included a prior version of the 
provisions addressing the German anti-boycott ordinance issue that are 
the subject of this proposed rule change. Although a number of comments 
were received in that consultation generally (which ICE

[[Page 90893]]

Clear Europe continues to consider), no material comments were received 
on the provisions relating to the German anti-boycott ordinance. ICE 
Clear Europe has commenced a further public consultation relating to 
the proposed changes to the Rules discussed here. ICE Clear Europe will 
notify the Commission of any written comments received by ICE Clear 
Europe.
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    \11\ See ICE Clear Europe Circular C16/099.
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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) \12\ of the Act and Rule 19b-4(f)(4)(i) \13\ 
thereunder because it effects a change in an existing service of 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 its clearing service, within the 
meaning of Rule 19b-4(f)(4)(i). 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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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(4) [sic].
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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-2016-014 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-2016-014. 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 Section, 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-2016-014 
and should be submitted on or before January 5, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2016-30080 Filed 12-14-16; 8:45 am]
BILLING CODE 8011-01-P