
[Federal Register Volume 77, Number 129 (Thursday, July 5, 2012)]
[Notices]
[Pages 39760-39761]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-16371]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67289; File No. SR-ICC-2012-04]


Self-Regulatory Organizations; ICE Clear Credit LLC; Order 
Approving Proposed Rule Change To Add Rules Related to the Clearing of 
Emerging Markets Sovereign Index CDS

June 28, 2012.

I. Introduction

    On April 3, 2012, ICE Clear Credit LLC (``ICC'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change (SR-ICC-2012-04) 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 April 16, 2012.\3\ On May 29, 2012, the Commission extended the time 
within which to take action of the proposed rule change to July 13, 
2012.\4\ The Commission received no comment letters regarding the 
proposal. For the reasons discussed

[[Page 39761]]

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. 66777 (April 10, 2012), 
77 FR 22623 (April 16, 2012).
    \4\ Securities Exchange Act Release No. 67070 (May 29, 2012), 77 
FR 33013 (June 4, 2012).
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II. Description

    This rule change will amend Chapter 26 of ICC's rules to add 
Section 26C to provide for the clearance of the CDX Emerging Markets 
CDS contracts (``CDX.EM Contracts''), which reference an emerging 
market sovereign index. ICC will list the five year tenor of Series 14, 
15, 16 and 17 of the CDX.EM Contracts.
    CDX.EM Contracts have similar terms to the CDX North American Index 
CDS contracts (``CDX.NA Contracts'') currently cleared by ICC and 
governed by Section 26A of the ICC rules. Accordingly, the proposed 
rules found in Section 26C largely mirror the ICC rules for CDX.NA 
Contracts in Section 26A, with certain modifications that reflect the 
underlying reference entities (sovereign reference entities instead of 
corporate reference entities) and differences in terms and market 
conventions between CDX.EM Contracts and CDX.NA Contracts. The CDX.EM 
Contracts reference the CDX.EM index, the current series of which 
consists of 15 emerging market sovereign entities: Argentina, 
Venezuela, Brazil, Malaysia, Colombia, Hungary, Indonesia, Panama, 
Peru, South Africa, the Philippines, Turkey, Russia, Ukraine, and 
Mexico. CDX.EM Contracts, consistent with market convention and widely 
used standard terms documentation, can be triggered by credit events 
for failure to pay, restructuring, and repudiation/moratorium (by 
contrast to the credit events of failure to pay and bankruptcy 
applicable to the CDX.NA Contracts). CDX.EM Contracts will only be 
denominated in U.S. dollars.
    ICC Rule 26C-102 (Definitions) sets forth the definition ICC uses 
for its CDX.EM Contract rules. An ``Eligible CDX.EM Untranched Index'' 
is defined as ``each particular series and version of a CDX.EM index or 
sub-index, as published by the CDX.EM Untranched Publisher, included 
from time to time in the List of Eligible CDX.EM Untranched Indexes,'' 
which is a list maintained, updated, and published from time to time by 
the ICC board of directors or its designee, containing certain 
specified information with respect to each index. ``CDX.EM Untranched 
Terms Supplement'' refers to the market standard form of documentation 
used for credit default swaps on the CDX.EM index, which is 
incorporated by reference into the contract specifications in Section 
26C. The remaining definitions are substantially the same as the 
definitions found in Section 26A of the ICC rules, other than certain 
conforming changes.
    Rules 26C-309 (Acceptance of CDX.EM Untranched Contract), 26C-315 
(Terms of the Cleared CDX.EM Untranched Contract), and 26C-316 
(Updating Index Version of Fungible Contracts After a Credit Event or a 
Succession Event; Updating Relevant Untranched Standard Terms 
Supplement) reflect or incorporate the basic contract specifications 
for CDX.EM Contracts and are substantially the same as under Section 
26A of the ICC rulebook for CDX.NA Contracts. In addition to various 
non-substantive conforming changes, proposed Rule 26C-317 (Terms of 
CDX.EM Untranched Contracts) differs from the corresponding Rule 26A-
317 to reflect the fact that restructuring and repudiation/moratorium 
are credit events for the CDX.EM Contract.
    In addition, a conforming change is being made to the definition of 
``Restructuring CDS Contract'' in Section 26E (CDS Restructuring Rules) 
to address components of CDX.EM Contracts that become subject to a 
restructuring credit event. The treatment of such restructuring credit 
events for CDX.EM Contracts will thus be as set forth in existing 
Section 26E of the ICC rules.

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\ After careful review, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act and 
the rules and regulations thereunder applicable to a registered 
clearing agency. Given the particular characteristics of the products 
proposed to be cleared, the Commission carefully considered ICC's 
ability to clear the CDX.EM Contracts in a manner that assures the 
safeguarding of securities and funds which are in the custody and 
control of ICC or for which ICC is responsible. After considering the 
representations made by ICC regarding its belief that it would clear 
CDX.EM Contracts in a manner that assures the safeguarding of 
securities and funds, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder.
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    \5\ 15 U.S.C. 78s(b)(2)(B). For example, Section 17A(b)(3)(F) of 
the Act requires, among other things, that the rules of a clearing 
agency be designed to assure the safeguarding of securities and 
funds in the custody or control of the clearing agency or for which 
the clearing agency is responsible. 15 U.S.C. 78q-1(b)(3)(F). Though 
the CDX.EM Contracts are not themselves securities, the safety and 
soundness of the product directly impacts ICC's ability to safeguard 
securities and funds in its custody or control or for which it is 
responsible.
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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 \6\ and the 
rules and regulations thereunder.
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    \6\ 15 U.S.C. 78q-1.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\7\ that the proposed rule change (File No. SR-ICC-2012-04) be, and 
hereby is, approved.\8\
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    \7\ 15 U.S.C. 78s(b)(2).
    \8\ 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.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-16371 Filed 7-3-12; 8:45 am]
BILLING CODE 8011-01-P


