
[Federal Register Volume 77, Number 29 (Monday, February 13, 2012)]
[Notices]
[Pages 7652-7655]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-3214]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66341; File No. SR-ICEEU-2012-01]


Self-Regulatory Organizations; ICE Clear Europe Limited; Notice 
of Proposed Rule Change To Revise Rules and Procedures Related to 
Certain Technical and Operational Changes Relating to Credit Default 
Swap Contracts

February 7, 2012.
    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 January 24, 2012, ICE Clear Europe Limited (``ICE Clear Europe'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule changes described in Items I, II and III below, which 
Items have been prepared primarily by ICE Clear Europe. 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

    ICE Clear Europe is in regular communication with representatives 
of its Clearing Members, as that term is defined in the Rules of ICE 
Clear Europe \3\ (the ``Rules''), in relation to the operation of 
clearing processes and arrangements. ICE Clear Europe has published 
these proposed rule and procedural changes, has carried out a public 
consultation process in respect of all of the changes described below, 
and has presented and agreed to the changes described below with its 
Clearing Members. These changes seek to improve drafting and cross-
references within the ICE Clear Europe Rules and CDS Procedures, and to 
clarify the timing and operation of various clearing

[[Page 7653]]

processes, for existing clearing activities. ICE Clear Europe takes the 
view that the proposed rule changes are improvements in operational 
services that are administrative in nature.
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    \3\ See ICE Clear Europe Rule 101. The Rules of ICE Clear Europe 
are available on-line at: https://www.theice.com/Rulebook.shtml?clearEuropeRulebook=.
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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 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 III below. ICE Clear Europe has prepared summaries, 
set forth in sections (A), (B), and (C) below, of the most significant 
aspects of these statements.\4\
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    \4\ Per discussions with Shearman & Sterling, LLP, counsel to 
ICE Clear Europe, the staff has made minor modifications to the text 
of the summaries prepared by ICE Clear Europe to (1) incorporate 
information from the form filed by ICE Clear Europe addressing the 
statutory basis for the proposed rule change, (2) remove conclusory 
language from the description of the rule changes, and (3) revise 
the description of certain of ICE Clear Europe's existing rules and 
processes solely for purposes of clarification. Telephone conference 
between Russell Sacks and Michael Blankenship, Shearman & Sterling 
LLP, and Andrew Bernstein, Securities and Exchange Commission, 
Division of Trading and Markets, on February 6, 2012.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The proposed changes were set out in revisions to the Rules and CDS 
Procedures that were published in circular no. C11/170 published on 
November 25, 2011 (available on the Internet Web site of ICE Clear 
Europe at: https://www.theice.com/publicdocs/clear_europe/circulars/C11170_att1.pdf and https://www.theice.com/publicdocs/clear_europe/circulars/C11170_att2.pdf). ICE Clear Europe makes these rule changes 
for the purpose of specifying technical operational changes relating to 
CDS Contracts (as defined at ICE Clear Europe Rule 101), principally 
those that arise under its rules on an occasional basis as part of the 
end-of-day price submission process by Clearing Members.
    Specifically, these changes can be grouped into three categories:
    First, under the current Rules, CDS Contracts that arise following 
the end-of-day pricing process give rise to non-cleared transactions 
that may later be submitted for clearing. However, since the applicable 
CDS Contract is typically intended to be cleared between the parties, 
and since trades that arise following end-of-day pricing arise at the 
direction of the clearing house, ICE Clear Europe believes that it is 
more efficient and reduces risk for such CDS Contract to arise upon 
notice by ICE Clear Europe, rather than to require the applicable 
parties to submit the CDS Contract later. Once ICE Clear Europe has 
notified the two affected clearing members of a contract under Rule 
401(a)(xi), the contract will stand, unless it is voidable under Rule 
404 (for example due to illegality or manifest error). The first change 
therefore establishes Rule 401(a)(xi) to permit ICE Clear Europe to 
specify the time and terms of entry into a CDS Contract arising 
following the submission of end-of-day prices by a Clearing Member. 
This change gives rise to the majority of the proposed rule changes in 
the text of the ICE Clear Europe Rules and the CDS Procedures. As a 
practical matter, this change operationalizes a technical service by 
which the terms of a CDS Contract entered into following submission of 
end-of-day prices can be promptly cleared by ICE Clear Europe. In order 
to operationalize this change, certain conforming changes are required. 
For example, various Rules establishing procedures for other 
automatically effective CDS Contracts are amended to include new Rule 
401(a)(xi). Also, a corresponding amendment amends Rule 602 to provide 
for Rule 602(c), which deems Clearing Members not to be in violation of 
Position Limits (as defined in the Rules) as a result of CDS Contracts 
that arise by notice of ICE Clear Europe. During consultations with 
Clearing Members, it was pointed out that such CDS Contracts could 
otherwise cause a breach of Position Limits, if any are in place (which 
they currently are not). Rule 602(c) provides a procedure under which 
the Clearing Member can close out such a position within five business 
days of the applicable Position Limit adoption or determination date. 
In this manner, both the policy of ensuring the pricing process through 
automatically effective trades and the policy of ensuring Position 
Limits are respected. ICE Clear Europe notes that these provisions 
relating to accommodation of Clearing Members in respect of Position 
Limits that may be applicable to CDS Contracts that are automatically 
effective applies not only to Rule 401(a)(xi), but also to Rules 
401(a)(v), (vi), and (x). In the case of Rule 401(a)(v), new Rule 
602(c) would apply to CDS Contracts that arise from transactions 
generated by ICE Futures Europe or the ICE OTC Operator as a result of 
the operation of their contra trade, error trade, invalid trade, 
cancelled trade, error correction or similar policies and rules and 
procedures relating thereto or otherwise. In the case of Rule 
401(a)(vi), new Rule 602(c) would apply to CDS Contracts that form as a 
result of another Contract being invoiced back by ICE Clear Europe. 
Finally, in the case of Rule 401(a)(x), new Rule 602(c) would apply to 
CDS Contracts arising pursuant to Rule 903(a)(xii), which generally 
governs the creation of new CDS Contracts between ICE Clear Europe and 
non-defaulting Clearing Members to replace any remaining CDS Contracts 
of a defaulting Clearing Member.
    Second, settlement and coupon payments under CDS Contracts will, 
under the Rule changes, take place through the ICE Clear Europe's 
payment banking network used for other cleared products, and not 
through the CLS Bank International (``CLS'') system. At present, 
Section 8.9 of the CDS Procedures provides that where a CDS Contract is 
to be settled in circumstances in which Rule 1514 (CDS Alternative 
Delivery or Settlement Procedure) does not apply, relevant cash 
payments between ICE Clear Europe and CDS Clearing Members will take 
place through The Depository Trust and Clearing Corporation using CLS, 
unless otherwise specified by ICE Clear Europe in a circular prior to 
the date on which such cash payments are due. However, following 
consultation with Clearing Members, ICE Clear Europe has determined it 
is more efficient if settlement and coupon payments are effected 
through ICE Clear Europe's current payment system (which is also 
permitted by the current CDS Procedures). ICE Clear Europe has 
determined to harmonize the system described at Section 8.9 of the CDS 
Procedures into a single payment system. This is achieved through the 
deletion of Section 8.9 of the CDS Procedures. It should be noted that 
this proposed change also serves to further harmonize the ICE Clear 
Europe Rules and CDS Procedures with those of ICE Clear Credit LLC, the 
U.S.-based clearing agency affiliate of ICE Clear Europe.
    Third, various immaterial other cross-reference and typographical 
amendments to the processes for submission of CDS Contracts are made. 
The typographical changes are as follows: (i) Section 4.2 of the CDS 
Procedures, the words ``Bilateral CDS Contract'' are changed to 
``Bilateral CDS Transaction'', and (ii) Section 8.4 of the

[[Page 7654]]

CDS Procedures, the words ``submission of'' are added. These changes 
are made solely to correct typographical and cross-reference drafting 
in the text of the Rules and make no substantive changes to the Rules.
    As noted above, the proposed rule changes consist of technical rule 
changes that are designed to implement operational improvements that 
have been published for public consultation by ICE Clear Europe and 
discussed with and approved by the Clearing Members of ICE Clear 
Europe. In each case, the principal purpose of the proposed rule change 
is for the rule or procedural provisions to be updated to reflect such 
improvements, in particular relating to (i) CDS Contracts that arise as 
a result of the end-of-day pricing process and (ii) to settlement and 
to coupon payments under CDS Contracts that will, under the rule 
changes, take place solely through ICE Clear Europe's payment banking 
network used for other cleared products, not through either such 
payment network or through third-party systems.
    As regards the changes relating to CDS contracts, ICE Clear Europe 
has engaged in extensive private consultation with its CDS Clearing 
Members involving both operational and legal consultation groups and 
has presented the changes to its CDS Risk Committee, which approved the 
changes. ICE Clear Europe has also engaged in a public consultation 
process in relation to all the changes, pursuant to the Circulars 
referred to above, and as required under applicable U.K. legislation. 
This public consultation involved the publication of such Circulars on 
a publicly accessible portion of the Internet Web site of ICE Clear 
Europe. ICE Clear Europe has received no opposing views from its 
Clearing Members in relation to the proposed rule amendments and 
received no responses to its public consultations during the 
consultation period.
2. Statutory Basis
    The proposed rule amendments incorporate changes that seek to 
improve drafting and cross-references within the ICE Clear Europe Rules 
and CDS Procedures, and to clarify the timing and operation of various 
clearing processes, for existing clearing activities. The proposed rule 
changes are improvements in the services of ICE Clear Europe that are 
administrative in nature. In particular, the changes relating to CDS 
Contracts arising following end-of-day pricing are being implemented to 
provide a more efficient mechanism for the clearing of CDS Contracts 
already agreed to by the applicable parties, and do not relate to the 
safeguarding of funds or securities or to the rights or obligations of 
ICE Clear Europe or its Clearing Members in relation to such CDS 
Contracts. The timing improvements arising from the faster processing 
of such agreed-to CDS Contracts does not impact the consistency of the 
services of ICE Clear Europe with applicable requirements and standards 
under the Act. Similarly, the harmonization of payment systems for 
settlement and coupon payments does not impact the custody of 
securities or funds, nor does it impact the rights or obligations of 
ICE Clear Europe or its Clearing Members or the consistency of the 
payment systems with statutory requirements and standards. This is 
particularly so since the harmonized system is already operative and 
eligible for use under ICE Clear Europe Rules and CDS Procedures. 
Further, the changes do not change the substantial provisions of the 
Rules or CDS Procedures, or the rights and obligations of ICE Clear 
Europe Clearing Members, in relation to the underlying CDS Contracts, 
nor do they impact the guarantee fund or custody functions of ICE Clear 
Europe.

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

    ICE Clear Europe 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 been 
solicited by ICE Clear Europe pursuant to public consultation processes 
in the Circular referred to above. No comments have been received. The 
time period for the public consultation required by U.K. law has 
closed, and ICE Clear Europe does not expect to receive any further 
written comments as a result of this process.

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 (i) as the Commission may 
designate up to 90 days of such date 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-ICEEU-2012-01 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-ICEEU-2012-01. 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 ICE Clear Europe. 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-2012-01 and should be 
submitted on or before March 5, 2012.


[[Page 7655]]


    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. 2012-3214 Filed 2-10-12; 8:45 am]
BILLING CODE 8011-01-P


