
[Federal Register Volume 77, Number 213 (Friday, November 2, 2012)]
[Notices]
[Pages 66209-66210]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-26860]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68119; File No. SR-ICEEU-2012-08)]


Self-Regulatory Organizations; ICE Clear Europe Limited; Notice 
of Filing of Proposed Rule Change To Clear Western European Sovereign 
CDS Contracts

October 29, 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 October 15, 2012, ICE Clear Europe Limited (``ICE Clear Europe'') 
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 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

    The purpose of the proposed rule change is to provide for the 
clearing of Western European Sovereign CDS contracts in connection with 
Paragraph 13 of ICE Clear Europe's CDS Procedures on the following 
sovereign reference entities: Republic of Ireland, Italian Republic, 
Hellenic Republic, Portuguese Republic, and Kingdom of Spain (the ``New 
Sovereign Contracts'').

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 IV below. ICE Clear Europe 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 ICE Clear Europe.
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A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    ICE Clear Europe has identified Western European Sovereign CDS

[[Page 66210]]

Contracts as a product that has become increasingly important for 
market participants to manage risk and express views with respect to 
the European sovereign credit markets. ICE Clear Europe believes 
clearance of the New Sovereign Contracts will facilitate the prompt and 
accurate settlement of swaps and contribute to the safeguarding of 
securities and funds associated with swap transactions. The terms of 
the New Sovereign Contracts will be governed by Paragraph 13 of the CDS 
Procedures. Clearing of the New Sovereign Contracts will not require 
any changes to ICE Clear Europe's existing Rules and Procedures.
    ICE Clear Europe's risk management framework has several features 
designed to address particular risks of the New Sovereign Contracts. To 
address so-called ``wrong way risk'' involving correlation between the 
risk of default of an underlying sovereign and the risk of default of a 
clearing member that has written credit protection on such a sovereign, 
the New Sovereign Contracts are denominated in U.S. dollars, rather 
than Euro (and related margin and guaranty fund requirements are 
denominated in U.S. dollars). In addition, the rules contain 
limitations on self-referencing trades (i.e., trades where the clearing 
member is an affiliate of the underlying sovereign reference entity). 
Such trades may not be submitted for clearing, and if a clearing member 
subsequently becomes affiliated with the underlying reference entity, 
the rules applicable to New Sovereign Contracts provide for the 
termination of relevant positions.
    The margin model applicable to New Sovereign Contracts will use a 
combination of ICE Clear Europe's spread risk margin calculation 
methodology used for other CDS trades and a separate margin calculation 
using a Monte Carlo simulation. The initial margin requirement will 
reflect the higher of the two calculations.\4\
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    \4\ ICE Clear Europe has performed a variety of empirical 
analyses related to clearing of the New Sovereign Contracts under 
its margin methodology, including back tests and stress tests.
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    ICE Clear Europe believes that the proposed rule change to add New 
Sovereign Contracts for clearing are consistent with the requirements 
of Section 17A of the Act and the CDS procedures and regulations 
thereunder applicable to it.

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, CDS Clearing Members or Others

    Written comments relating to the proposed rule change have not been 
solicited or received. ICE Clear Europe will notify the Commission of 
any written comments received by ICE Clear Europe.

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. In addition, the Commission seeks 
comment generally on the following issues.
    (1) What would be the effect on the promotion of efficiency, 
competition, and capital formation of ICE Clear Europe clearing New 
Sovereign Contracts?
    (2) Would the clearing of New Sovereign Contracts create incentives 
among market participants to initiate trades that they otherwise would 
not? If so, would this increase or create new risks to the financial 
system or to the central counterparty that would offset the potential 
benefits of centralized clearing of New Sovereign Contracts?
    (3) Would ICE Clear Europe's risk management framework, as 
described above, appropriately address risks arising from ICE Clear 
Europe's clearing of New Sovereign Contracts, including but not limited 
to ``wrong-way risk''?
    (4) Is the information set forth in this notice or otherwise 
available to the public sufficient to allow the public to provide 
meaningful comment on the proposed rule change?
    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-2012-08 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-2012-08. 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 Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filings will also be available 
for inspection and copying at the principal office of ICE Clear Europe 
and on ICE Clear Europe's Web site at https://www.theice.com/notices/Notices.shtml?regulatoryFilings.
    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-2012-08 
and should be submitted on or before November 23, 2012.

    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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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2012-26860 Filed 11-1-12; 8:45 am]
BILLING CODE 8011-01-P


