
[Federal Register Volume 77, Number 58 (Monday, March 26, 2012)]
[Notices]
[Pages 17533-17534]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-7203]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66628; File No. SR-ICEEU-2012-01]


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

March 20, 2012.

I. Introduction

    On January 24, 2012, ICE Clear Europe Limited (``ICE Clear 
Europe'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change SR-ICEEU-2012-01 pursuant to 
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ 
and Rule 19b-4 thereunder.\2\ The proposed rule change was published 
for comment in the Federal Register on February 13, 2012.\3\ The 
Commission received no comment letters regarding the proposal. For the 
reasons discussed below, the Commission is granting approval of the 
proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 34-66341 (January 24, 
2012), 77 FR 7652 (February 13, 2012). 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 is incorporated into the discussion of the proposed rule 
change in Section II below.
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II. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The proposed changes were set out in revisions to the Rules and CDS 
Procedures that were described 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). According to ICE Clear Europe, the purpose 
of these rule changes is to allow the clearing agency to make certain 
technical operational changes relating to CDS Contracts (as defined at 
ICE Clear Europe Rule 101), including 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 ICE Clear Europe's current rule framework, 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. 
Accordingly, the first change 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. 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). 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).
    In addition, a new paragraph (c) has been added to Rule 602 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. 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.
    Under the second category of changes, settlement and coupon 
payments under CDS Contracts will 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.\4\ 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

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clearing agency affiliate of ICE Clear Europe.
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    \4\ On January 12, 2012, ICE Clear Europe published circular no. 
C12/003 (available at: https://www.theice.com/publicdocs/clear_europe/circulars/C12003.pdf), pursuant to which ICE Clear Europe 
used its authority under Rule 8.9 of the CDS Procedures to specify 
that, effective January 17, 2012, all payments that had been settled 
via CLS including Upfront Fees, Quarterly Coupon Payments and Cash 
Credit Event Settlements would subsequently be settled in accordance 
with standard process set out in the Finance Procedures.
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    The third category of changes involves various cross-reference and 
typographical amendments to the processes for submission of CDS 
Contracts. 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 CDS 
Procedures, the words ``submission of'' are added. According to ICE 
Clear Europe, 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.
    In its filing with the Commission, ICE Clear Europe indicated that 
it 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.

III. Discussion

    Section 19(b)(2)(B) of the Act directs the Commission to approve a 
proposed rule change of a self-regulatory organization if it finds that 
such proposed rule change is consistent with the requirements of the 
Act and the rules and regulations thereunder applicable to such 
organization.\5\ For example, Section 17A(b)(3)(F) of the Act \6\ 
requires, among other things, that the rules of a clearing agency be 
designed to remove impediments to and perfect the mechanism of a 
national system for the prompt and accurate clearance and settlement of 
securities transactions and to assure the safeguarding of securities 
and funds in the custody or control of the clearing agency or for which 
it is responsible.
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    \5\ 15 U.S.C. 78s(b)(2)(B).
    \6\ 15 U.S.C. 78q-1(b)(3)(F).
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    If approved, the proposed rule change would allow ICE Clear Europe 
to implement certain operational changes related to the processing of 
CDS contracts, including with respect to (i) CDS Contracts that arise 
as a result of the end-of-day pricing process and (ii) and the process 
by which settlement and coupon payments under CDS Contracts will be 
made. After considering these changes, the Commission believes that the 
proposed rule change is consistent with Section 17A(b)(3)(F) of the 
Act, including ICE Clear Europe's obligation to ensure that its rules 
be designed to remove impediments to and perfect the mechanism of a 
national system for the prompt and accurate clearance and settlement of 
securities transactions.

IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposal is consistent with the requirements of the Act and in 
particular with the requirements of Section 17A of the Act \7\ and the 
rules and regulations thereunder.
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    \7\ 15 U.S.C. 78q-1.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\8\ that the proposed rule change (File No. SR-ICEEU-2012-01) be, 
and hereby is, approved.\9\
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    \8\ 15 U.S.C. 78s(b)(2).
    \9\ In approving the proposed rule change, the Commission 
considered the proposal's impact on efficiency, competition and 
capital formation. 15 U.S.C. 78c(f).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-7203 Filed 3-23-12; 8:45 am]
BILLING CODE 8011-01-P


