
[Federal Register Volume 76, Number 218 (Thursday, November 10, 2011)]
[Notices]
[Pages 70206-70207]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-29163]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65699; File No. SR-ICC-2011-03]


Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of 
Filing of Proposed Rule Change to Adopt ICC's Enhanced Margin 
Methodology (the ``Decomp Model'')

November 7, 2011.
    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 4, 2011, 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 ICC Decomp Model includes the following enhancements to the ICC 
margin methodology for Credit Default Swap (``CDS'') Indices: replacing 
standard deviation with Mean Absolute deviation (``MAD'') as a measure 
of spread volatility, use of an auto regressive process to obtain 
multi-horizon risk measures, expansion of spread response scenarios, 
introduction of liquidity requirements, and base concentration charges.

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.\3\
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    \3\ The Commission has modified the text of the summaries 
prepared by ICC.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    The enhancements effected by this proposed rule change have been 
reviewed and/or recommended by the ICC Risk Working Group, ICC Risk 
Committee, ICC Board of Managers, an independent third-party risk 
expert (Finance Concepts), the Federal Reserve Bank of New York and the 
New York State Banking Department. Implementation of these enhancements 
to the ICC risk methodology will result in a better measurement of the 
risk associated with clearing CDS Indices.
    A fundamental aspect of the Decomp Model is the recognition that 
the CDS Indices cleared by ICC are essentially a composition of 
specific Single Name CDS instruments. As a result of the decomposition 
of the CDS Indices, ICC will be able to (1) incorporate jump-to-default 
risk as a component of the risk margin associated with CDS Indices and 
(2) provide appropriate portfolio margin treatment between CDS Indices 
and offsetting CDS Single Name positions.
    Incorporating jump-to-default risk as a component of the Decomp 
Model will result in a better measurement of the risk associated with 
clearing CDS Indices.
    Recognizing the highly correlated relationship between long-short 
positions in CDS Indices and the underlying CDS Single Name 
constituents of the CDS Indices will provide for fundamental and 
appropriate portfolio margin treatment. To date, ICC has not offered 
such fundamental and appropriate portfolio treatment strictly for 
operational reasons. However, on or about December 12, 2011, ICC will 
be operationally ready to offer such portfolio margining treatment with 
respect to its clearing participants' proprietary positions.
    As noted above, the proposed change in the ICC margin methodology 
will provide appropriate portfolio margining treatment only with 
respect to ICC clearing participants' proprietary positions. The 
portfolio margining treatment will only be available to ICC clearing 
participants' proprietary positions because ICC does not currently 
clear CDS Single Names for customer-related transactions. Accordingly, 
currently, there are no customer-related positions that would qualify 
for portfolio margining treatment. ICC does not believe that the fact 
that the portfolio margining element of the proposed Decomp Model will 
apply only to a Clearing Participant's proprietary account raises an 
issue of unfair discrimination. Importantly, the portfolio margining 
aspect of the Decomp Model does not unfairly discriminate with respect 
to similarly situated participants because it is available to any 
participant for whom ICC is currently able to provide portfolio margin 
treatment. Again, ICC does not currently offer clearing in CDS Single 
Names for customer-related transactions. In the event that ICC makes 
CDS Single Name clearing available for customer-related transactions 
and provided that the SEC and CFTC grant the requisite approval as 
discussed below, ICC will offer portfolio margining with respect to 
customer-related transactions. The proposed rule amendments are not 
designed to permit unfair discrimination among participants in the use 
of ICC's clearing services. ICC is not discriminating among proprietary 
participants or among customers. Proprietary accounts are not subject 
to the SEC's customer protection rules and thus are not subject to the 
same restrictions that the SEC has imposed on customer accounts. 
Specifically, ICC clears proprietary CDS Index and CDS Single Name 
positions in the same commingled house account origin. Whereas, as 
customer-related positions in CDS Indices and CDS Single Names must be 
maintained, as a matter of law, in separate accounts. Thus, ICC is 
unable to commingle and portfolio margin customer-related CDS Index and 
CDS Single Name positions without the SEC's and CFTC's approval of 
ICC's pending petitions.
    On or about November 7, 2011, ICC formally filed with the SEC a 
petition to provide portfolio margining treatment for customer-related 
positions (the ``Customer-related Portfolio Margining Request'') in 
anticipation of ICC offering clearing of CDS Single Names for customer-
related transactions in the future. The Customer-related Portfolio 
Margining Request is posted on the ICC Web site and will be posted on 
the SEC's Web site.\4\ In short, the Customer-related Portfolio 
Margining Request, if granted by the SEC, would provide all customers 
with the same portfolio margining treatment that is being

[[Page 70207]]

proposed in this submission for the proprietary accounts. However, in 
order to obtain portfolio margining treatment for customers, ICC was 
required to file the separate Customer-related Portfolio Margining 
Request. Although the SEC has not published ICC's Customer-related 
Portfolio Margining Request for public comment, the SEC is interested 
in receiving comments from the public.
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    \4\ Available at: https://www.theice.com/publicdocs/globalmarketfacts/docs/legislativecomments/ICC_Commingling_PortfolioMargining_Petitions.pdf. The petition also will be 
available on the Commission's public Web site at: http://www.sec.gov/rules/petitions.shtml.
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    ICC believes that the proposed rule change will facilitate the 
prompt and accurate settlement of security-based swaps and contribute 
to the safeguarding of securities and funds associated with security-
based swap transactions. As discussed above, ICC does not believe that 
the portfolio margining-related proposed changes raise an issue of 
unfair discrimination in the use of ICC's clearing services by 
similarly situated participants.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    ICC does not believe the proposed rule change would have any 
impact, or impose any burden, on competition.

(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 rule-comments@sec.gov. 
Please include File Number SR-ICC-2011-03 on the subject line.

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 SR-ICC-2011-03. 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 a.m. and 3 p.m. Copies of such filings will also be available for 
inspection and copying at the principal office of ICC and on ICC's Web 
site at https://www.theice.com/publicdocs/regulatory_filings/ICEClearCredit_110411.pdf.
    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-2011-03 
and should be submitted on or before December 1, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\5\
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    \5\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-29163 Filed 11-9-11; 8:45 am]
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