
[Federal Register Volume 75, Number 232 (Friday, December 3, 2010)]
[Notices]
[Pages 75520-75522]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-30375]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63389; File No. S7-16-09]


 Order Extending Temporary Conditional Exemptions Under The 
Securities Exchange Act of 1934 in Connection With Request on Behalf of 
Ice Clear Europe, Limited Related to Central Clearing of Credit Default 
Swaps and Request for Comment

November 29, 2010.

I. Introduction

    The Securities and Exchange Commission (``Commission'') has taken 
multiple actions designed to help foster the prompt development of 
credit default swap (``CDS'') central counterparties (``CCP''), 
including granting temporary conditional exemptions from certain 
provisions of the federal securities laws.\1\
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    \1\ See generally Securities Exchange Act Release Nos. 60372 
(Jul. 23, 2009), 74 FR 37748 (Jul. 29, 2009) and 61973 (Apr. 23, 
2010), 75 FR 22656 (Apr. 29, 2010) (temporary exemptions in 
connection with CDS clearing by ICE Clear Europe Limited); 
Securities Exchange Act Release Nos. 60373 (Jul. 23, 2009), 74 FR 
37740 (Jul. 29, 2009) and 61975 (Apr. 23, 2010), 75 FR 22641 (Apr. 
29, 2010) (temporary exemptions in connection with CDS clearing by 
Eurex Clearing AG); Securities Exchange Act Release Nos. 59578 (Mar. 
13, 2009), 74 FR 11781 (Mar. 19, 2009), 61164 (Dec. 14, 2009), 74 FR 
67258 (Dec. 18, 2009), and 61803 (Mar. 30, 2010), 75 FR 17181 (Apr. 
5, 2010) (temporary exemptions in connection with CDS clearing by 
Chicago Mercantile Exchange Inc.); Securities Exchange Act Release 
Nos. 59527 (Mar. 6, 2009), 74 FR 10791 (Mar. 12, 2009), 61119 (Dec. 
4, 2009), 74 FR 65554 (Dec. 10, 2009), and 61662 (Mar. 5, 2010), 75 
FR 11589 (Mar. 11, 2010) (temporary exemptions in connection with 
CDS clearing by ICE Trust U.S. LLC); Securities Exchange Act Release 
No. 59164 (Dec. 24, 2008), 74 FR 139 (Jan. 2, 2009) (temporary 
exemptions in connection with CDS clearing by LIFFE A&M and 
LCH.Clearnet Ltd.); and other Commission actions discussed in 
several of these orders. In addition, the Commission has issued 
interim final temporary rules that provide exemptions under the 
Securities Act of 1933 and the Securities Exchange Act of 1934 for 
CDS to facilitate the operation of one or more central 
counterparties for the CDS market. See Securities Act Release Nos. 
8999 (Jan. 14, 2009), 74 FR 3967 (Jan. 22, 2009) (initial approval), 
9063 (Sep. 14, 2009), 74 FR 47719 (Sep. 17, 2009) (extension until 
Nov. 30, 2010), and 9158 (Nov. 30, 2010) (extension until Jul. 16, 
2011).
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    In July 2009, the Commission issued an order providing temporary 
conditional exemptions to ICE Clear Europe Limited (``ICE Clear 
Europe''), and certain other parties, to permit ICE Clear Europe to 
clear and settle CDS transactions.\2\ In response to ICE Clear Europe's 
request, the Commission temporarily extended and expanded the 
exemptions in April 2010.\3\ The current exemptions pursuant to the 
April 2010 ICE Clear Europe Exemptive Order are scheduled to expire on 
November 30, 2010, and ICE Clear Europe has requested that the 
Commission extend the exemptions contained in the April 2010 ICE Clear 
Europe Exemptive Order.\4\
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    \2\ Securities Exchange Act Release No. 60372 (Jul. 23, 2009), 
74 FR 37748 (Jul. 29, 2009) (``July 2009 ICE Clear Europe Exemptive 
Order'').
    \3\ Securities Exchange Act Release No. 61973 (Apr. 23, 2010), 
75 FR 22656 (Apr. 29, 2010) (``April 2010 ICE Clear Europe Exemptive 
Order'').
    \4\ See Letter from Russell D. Sacks, ICE Clear Europe, to 
Elizabeth Murphy, Secretary, Commission, Nov. 29, 2010 (``November 
2010 Request'').
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II. Discussion

A. Legislative Developments

    Subsequent to the Commission's issuance of the April 2010 ICE Clear 
Exemptive Order, the President signed the Dodd-Frank Wall Street Reform 
and Consumer Protection Act of 2010 (``Dodd-Frank Act'') into law.\5\ 
The

[[Page 75521]]

Dodd-Frank Act was enacted to, among other purposes, promote the 
financial stability of the United States by improving accountability 
and transparency in the financial system.\6\ To this end, the 
provisions of Title VII of the Dodd-Frank Act provide for the 
comprehensive regulation of security-based swaps \7\ by the 
Commission.\8\ The Dodd-Frank Act amends the Exchange Act to require, 
among other things, that transactions in security-based swaps be 
cleared through a clearing agency that is registered with the 
Commission or that is exempt from registration if they are of a type 
that the Commission determines must be cleared, unless an exception or 
exemption from mandatory clearing applies.\9\ Furthermore, Title VII of 
the Dodd-Frank Act provides that a derivatives clearing organization 
registered with the CFTC that cleared swaps pursuant to an exemption 
from registration as a clearing agency prior to the date of enactment 
of the Dodd-Frank Act, such as ICE Clear Europe, is deemed registered 
as a clearing agency for the purposes of clearing security-based swaps 
(``Deemed Registered Provision'').\10\ The Deemed Registered Provision, 
along with other general provisions under Title VII of the Dodd-Frank 
Act, becomes effective on July 16, 2011.\11\ As a result, ICE Clear 
Europe will no longer need the exemption from registration as a 
clearing agency under Section 17A of the Exchange Act provided by the 
April 2010 ICE Clear Europe Exemptive Order, and previous orders, to 
clear security-based swaps after the Deemed Registered Provision 
becomes effective.
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    \5\ Public Law 111-203 (July 21, 2010).
    \6\ See Public Law 111-203, Preamble.
    \7\ Section 761(a)(6) of the Dodd-Frank Act defines a 
``security-based swap'' as any agreement, contract, or transaction 
that is a ``swap,'' as defined in Section 1a(47) of the Commodity 
Exchange Act, 7 U.S.C. 1a(47), that is based on an index that is a 
narrow-based security index, a single security, or a loan, including 
any interest therein or on the value thereof; or the occurrence, 
nonoccurrence, or extent of the occurrence of an event relating to a 
single issuer of a security or the issuers of securities in a 
narrow-based security index, provided that such event directly 
affects the financial statements, financial condition, or financial 
obligations of the issuer. See Section 3(a)(68) of the Securities 
Exchange Act of 1934 (``Exchange Act''), 15 U.S.C. 78c(a)(68) (as 
added by Section 761(a)(6) of the Dodd-Frank Act). Section 712(d) of 
the Dodd-Frank Act provides that the Commission and the Commodity 
Futures Trading Commission (``CFTC''), in consultation with the 
Board of Governors of the Federal Reserve System, shall, among other 
things, jointly further define the terms ``swap'' and ``security-
based swap.''
    \8\ Section 761(a)(2) of the Dodd-Frank Act explicitly includes 
security-based swaps in the definition of ``security'' in Section 
3(a)(10) of the Exchange Act, 15 U.S.C. 78c.
    \9\ See Section 763(a) of the Dodd-Frank Act (adding new Section 
3C to the Exchange Act, 15 U.S.C. 78c-2).
    \10\ See Section 763(b) of the Dodd-Frank Act (adding new 
Section 17A(l) to the Exchange Act, 15 U.S.C. 78q-1(1)). Under this 
Deemed Registered Provision, ICE Clear Europe will be required to 
comply with all requirements of the Exchange Act, and the rules 
thereunder, applicable to registered clearing agencies to the extent 
it clears security-based swaps after the effective date of the 
Deemed Registered Provision, including, for example, the obligation 
to file proposed rule changes under Section 19(b) of the Exchange 
Act.
    \11\ Section 774 of the Dodd-Frank Act states, ``[u]nless 
otherwise provided, the provisions of this subtitle shall take 
effect on the later of 360 days after the date of the enactment of 
this subtitle or, to the extent a provision of this subtitle 
requires a rulemaking, not less than 60 days after publication of 
the final rule or regulation implementing such provision of this 
subtitle.''
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B. ICE Clear Europe's Request for Extension of April 2010 ICE Clear 
Europe Exemptive Order

    ICE Clear Europe seeks an extension of the temporary exemptions of 
the April 2010 ICE Clear Europe Exemptive Order under the same terms 
and conditions contained in the April 2010 ICE Clear Europe Exemptive 
Order.\12\ In ICE Clear's request for an extension of the April 2010 
ICE Clear Exemptive Order, ICE Clear represents that there have been no 
material changes to the operations of ICE Clear, and that the 
representations made by ICE Clear in connection with the April 2010 ICE 
Clear Exemptive Order remain true in all material respects.\13\ These 
representations are discussed in detail in our earlier ICE Clear 
orders.
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    \12\ See November 2010 Request, supra note 4.
    \13\ See id. ICE Clear Europe notes that it has created a set of 
amendments to its rulebook and procedures for technical improvements 
to the process for dealing with restructuring credit events and to 
facilitate the imminent introduction of clearing of non-U.S., non-
U.K. sovereign CDS contracts.
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    Accordingly, consistent with our findings in the April 2010 ICE 
Clear Europe Order, and, in particular, in light of the risk management 
and systemic benefits in continuing to facilitate CDS clearing by ICE 
Clear Europe until Title VII of the Dodd-Frank Act becomes fully 
effective, the Commission finds that it is necessary or appropriate in 
the public interest and is consistent with the protection of investors 
to exercise its authority to extend the exemptive relief granted in the 
April 2010 ICE Clear Europe Exemptive Order until July 16, 2011. 
Specifically, pursuant to the Commission's authority under Section 36 
of the Exchange Act,\14\ based on the facts presented and the 
representations made by ICE Clear Europe,\15\ the Commission is 
extending until July 16, 2011, under the same terms and conditions in 
the April 2010 ICE Clear Europe Exemptive Order each of the existing 
exemptions connected with CDS clearing by ICE Clear Europe, which 
include: The temporary conditional exemption granted to ICE Clear 
Europe from clearing agency registration under Section 17A of the 
Exchange Act solely to perform the functions of a clearing agency for 
certain non-excluded CDS; the temporary conditional exemption of ICE 
Clear Europe and certain of its clearing members from the registration 
requirements of Sections 5 and 6 of the Exchange Act solely in 
connection with the calculation of mark-to-market prices for certain 
non-excluded CDS cleared by ICE Clear Europe; the temporary conditional 
exemption of ICE Clear Europe and certain eligible contract 
participants from certain Exchange Act requirements with respect to 
certain non-excluded CDS cleared by ICE Clear Europe; and the temporary 
conditional exemption from certain Exchange Act requirements granted to 
registered broker-dealers with respect to certain non-excluded CDS.\16\
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    \14\ 15 U.S.C. 78mm. Section 36 of the Exchange Act authorizes 
the Commission to conditionally or unconditionally exempt any 
person, security, or transaction, or any class of classes of 
persons, securities, or transactions, from any provision or 
provisions of the Exchange Act or any rule or regulation thereunder, 
by rule, regulation, or order, to the extent that such exemption is 
necessary or appropriate in the public interest, and is consistent 
with the protection of investors.
    \15\ See November 2010 Request, supra note 4. The exemptions we 
are granting today are based on all of the representations made by 
ICE Clear Europe in its request, which incorporate representations 
made by ICE Clear Europe in connection with the April 2010 ICE Clear 
Europe Exemptive Order, which in turn incorporate representations 
related to our earlier exemptive orders. We recognize, however, that 
there could be legal uncertainty in the event that one or more of 
the underlying representations were to become inaccurate. 
Accordingly, if any of these exemptions were to become unavailable 
by reason of an underlying representation no longer being materially 
accurate, the legal status of existing open positions in non-
excluded CDS (as defined in the April 2010 ICE Clear Europe 
Exemptive Order) that previously had been cleared pursuant to the 
exemptions would remain unchanged, but no new positions could be 
established pursuant to the exemptions until all of the underlying 
representations were again accurate.
    \16\ See April 2010 ICE Clear Europe Exemptive Order, supra note 
3.
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C. Solicitation of Comments

    When we granted the April 2010 ICE Clear Europe Order, we requested 
comment on all aspects of the exemptions. We received no comments in 
response. In connection with this Order extending the exemptions 
granted in connection with CDS clearing by ICE Clear Europe, we 
reiterate our request for comments on all aspects of the exemptions.
    Comments may be submitted by any of the following methods:

[[Page 75522]]

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/other.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number S7-16-09 on the subject line; or
     Use the Federal eRulemaking Portal (http://www.regulations.gov/). Follow the instructions for submitting comments.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number S7-16-09. This file number 
should be included on the subject line if e-mail is used. To help us 
process and review your comments more efficiently, please use only one 
method. We will post all comments on the Commission's Internet Web site 
(http://www.sec.gov/rules/other.shtml). Comments are also 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 a.m. and 3 p.m. All comments received will 
be posted without change; we do not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly.

III. Conclusion

    It is hereby ordered, pursuant to Section 36(a) of the Exchange 
Act, that, until July 16, 2011, the following exemptions connected with 
CDS clearing by ICE Clear Europe contained in the April 2010 ICE Clear 
Europe Exemptive Order are extended: (i) The temporary conditional 
exemption granted to ICE Clear Europe from clearing agency registration 
under Section 17A of the Exchange Act solely to perform the functions 
of a clearing agency for certain non-excluded CDS; (ii) the temporary 
conditional exemption of ICE Clear Europe and certain of its clearing 
members from the registration requirements of Sections 5 and 6 of the 
Exchange Act solely in connection with the calculation of mark-to-
market prices for certain non-excluded CDS cleared by ICE Clear Europe; 
(iii) the temporary conditional exemption of ICE Clear Europe and 
certain eligible contract participants from certain Exchange Act 
requirements with respect to certain non-excluded CDS cleared by ICE 
Clear Europe; and (iv) the temporary conditional exemption from certain 
Exchange Act requirements granted to registered broker-dealers with 
respect to certain non-excluded CDS.

    By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-30375 Filed 12-2-10; 8:45 am]
BILLING CODE 8011-01-P


