
[Federal Register Volume 77, Number 247 (Wednesday, December 26, 2012)]
[Notices]
[Pages 76109-76112]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-31020]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68481; File No. SR-ICC-2012-23]


Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of 
Filing of Proposed Rule Change to Add Rules Related to the Clearing of 
iTraxx Europe Index CDS

December 19, 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 December 6, 2012, 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 purpose of the proposed rule change is to adopt new rules that 
will provide the basis for ICC to clear additional credit default swap 
contracts. Specifically, ICC is proposing to amend Chapters 8, 20 and 
26 and Schedule 401 and Schedule 502 of its rules as well as make 
corresponding changes to the applicable ICC Policies and Procedures to 
provide for the clearance of iTraxx Europe Index CDS (``iTraxx 
Contracts'').
    ICC proposes to amend Chapter 8 of its rules to provide for an 
additional Guaranty Fund Contribution by those Clearing Participants 
that present Specific Wrong Way Risk (i.e., the risk that arises from 
the fact that iTraxx Contracts include, in part, the names of certain 
Clearing Participants or Clearing Participant affiliates). In a default 
scenario, if the defaulting Clearing Participant has funded a Specific 
Wrong Way Risk Contribution, the Specific Wrong Way Risk Contributions 
of all contributing Clearing Participants would be used immediately 
following the defaulting Clearing Participant's funds to cure deficits 
related to the default.

[[Page 76110]]

    ICC proposes to amend Chapter 20 of its rules to remove definitions 
that are included in Chapter 26E of the rules as well as to include the 
Specific WWR Guaranty Fund Contribution, as appropriate, as a portion 
of Clearing Participant funds.
    ICC proposes to amend Section 26E of its rules to include certain 
additional provisions relevant to the treatment of restructuring credit 
events under iTraxx and standard single-name CDS Contracts referencing 
European corporate reference entities (``European SN Contracts'').
    ICC proposes to add Section 26F to provide for the clearance of the 
iTraxx Contracts, which reference the iTraxx Europe corporate index. As 
discussed in more detail in Item II.A below, new Section 26F of the ICC 
rules provides for the definitions and certain specific contract terms 
for cleared iTraxx Contracts.
    ICC will update Schedule 401 of its Rules (Eligible Collateral & 
Thresholds), as applicable, with respect to Initial Margin and Guaranty 
Fund liquidity requirements for Non-Client and Client-Related positions 
for both US Dollar and Euro denominated products.
    ICC will also update Schedule 502 of its Rules (Cleared Products 
List) to incorporate the additional cleared products. Upon Commission 
approval, ICC will list the following European Indices: Markit iTraxx 
Europe Main Series 18 with a 5-year maturity, maturing on December 20, 
2017; Markit iTraxx Europe Main Series 18 with a 10-year maturity, 
maturing on December 20, 2022; Markit iTraxx Europe Main Series 17 with 
a 5-year maturity, maturing on June 20, 2017; Markit iTraxx Europe Main 
Series 17 with a 10-year maturity, maturing on June 20, 2022; Markit 
iTraxx Europe Main Series 16 with a 5-year maturity, maturing on 
December 20, 2016; Markit iTraxx Europe Main Series 16 with a 10-year 
maturity, maturing on December 20, 2021; Markit iTraxx Europe Main 
Series 15 with a 5-year maturity, maturing on June 20, 2016; Markit 
iTraxx Europe Main Series 15 with a 10-year maturity, maturing on June 
20, 2021; Markit iTraxx Europe Main Series 14 with a 5-year maturity, 
maturing on December 20, 2015; Markit iTraxx Europe Main Series 14 with 
a 10-year maturity, maturing on December 20, 2020; Markit iTraxx Europe 
Main Series 13 with a 5-year maturity, maturing on June, 20, 2015; 
Markit iTraxx Europe Main Series 13 with a 10-year maturity, maturing 
on June, 20, 2020; Markit iTraxx Europe Main Series 12 with a 5-year 
maturity, maturing on December 20, 2014; Markit iTraxx Europe Main 
Series 12 with a 10-year maturity, maturing on December 20, 2019; 
Markit iTraxx Europe Main Series 11 with a 5-year maturity, maturing on 
June 20, 2014; Markit iTraxx Europe Main Series 11 with a 10-year 
maturity, maturing on June 20, 2019; Markit iTraxx Europe Main Series 
10 with a 5-year maturity, maturing on December 20, 2013; Markit iTraxx 
Europe Main Series 10 with a 10-year maturity, maturing on December 20, 
2018; Markit iTraxx Europe Main Series 9 with a 5-year maturity, 
maturing on June 20, 2013; Markit iTraxx Europe Main Series 9 with a 
10-year maturity, maturing on June 20, 2018; Markit iTraxx Europe Main 
Series 8 with a 5-year maturity, maturing on December 20, 2012; Markit 
iTraxx Europe Main Series 8 with a 10-year maturity, maturing on 
December 20, 2017; Markit iTraxx Europe Main Series 7 with a 10-year 
maturity, maturing June 20, 2017; Markit iTraxx Crossover Series 18 
with a 5-year maturity, maturing on December 20, 2017; Markit iTraxx 
Crossover Series 17 with a 5-year maturity, maturing on June 20, 2017; 
Markit iTraxx Crossover Series 16 with a 5-year maturity, maturing on 
December 20, 2016; Markit iTraxx Crossover Series 15 with a 5-year 
maturity, maturing on June 20, 2016; Markit iTraxx Crossover Series 14 
with a 5-year maturity, maturing on December 20, 2015; Markit iTraxx 
Crossover Series 13 with a 5-year maturity, maturing on June, 20, 2015; 
Markit iTraxx Crossover Series 12 with a 5-year maturity, maturing on 
December 20, 2014; Markit iTraxx Crossover Series 11 with a 5-year 
maturity, maturing on June 20, 2014; Markit iTraxx Crossover Series 10 
with a 5-year maturity, maturing on December 20, 2013; Markit iTraxx 
Crossover Series 9 with a 5-year maturity, maturing on June 20, 2013; 
Markit iTraxx HiVol Series 18 with a 5-year maturity, maturing on 
December 20, 2017; Markit iTraxx HiVol Series 17 with a 5-year 
maturity, maturing on June 20, 2017; Markit iTraxx HiVol Series 16 with 
a 5-year maturity, maturing on December 20, 2016; Markit iTraxx HiVol 
Series 15 with a 5-year maturity, maturing on June 20, 2016; Markit 
iTraxx HiVol Series 14 with a 5-year maturity, maturing on December 20, 
2015; Markit iTraxx HiVol Series 13 with a 5-year maturity, maturing on 
June, 20, 2015; Markit iTraxx HiVol Series 12 with a 5-year maturity, 
maturing on December 20, 2014; Markit iTraxx HiVol Series 11 with a 5-
year maturity, maturing on June 20, 2014; Markit iTraxx HiVol Series 10 
with a 5-year maturity, maturing on December 20, 2013; Markit iTraxx 
HiVol Series 9 with a 5-year maturity, maturing on June 20, 2013; and 
Markit iTraxx HiVol Series 8 with a 5-year maturity, maturing on 
December 20, 2012.
    ICC also updated its Policies and Procedures to provide for the 
clearance of iTraxx Contracts, specifically the ICC Treasury Operations 
Policies & Procedures, ICC Risk Management Framework and ICC End-of-Day 
(``EOD'') Price Discovery Policies and Procedures.
    Consistent with the changes to Schedule 401 of the ICC Rules, the 
ICC Treasury Operations Policies & Procedures have been updated to 
include Initial Margin and Guaranty Fund liquidity requirements for 
Non-Client and Client-Related positions for both US Dollar and Euro 
denominated products. In order to accommodate the return of funds 
during London banking hours, the ICC Treasury Operations Policies & 
Procedures have been updated to require requests for Euro withdrawals 
to be submitted by 9:00 a.m. Eastern.
    The ICC Risk Management Framework has been updated to account for 
Euro denominated portfolios. Specifically, updates have been made to 
the Guaranty Fund, Initial Margin and Mark-to-Market Methodologies to 
address: Wrong Way Risk, Foreign Exchange Risk, Liquidity Risk, Time 
Zone Risk, and Operational Risk. Additionally, the Portfolio Approach 
was updated to include appropriate portfolio benefits between North 
American CDS Indices and iTraxx Contracts.
    The ICC EOD Price Discovery Policies and Procedures has been 
updated to provide that ICC will use ICE Clear Europe's EOD prices for 
iTraxx Contracts and rely on the ICE Clear Europe Firm Trade process to 
ensure the accuracy of price submissions. ICC will extend the risk 
time-horizon for iTraxx Contracts to account for the half day 
difference, on average, between the EOD price discovery process 
timings. The extended risk horizon accounts for the fact that European 
markets close earlier and new financial information may be reflected 
only in the North American instrument prices and not reflected in the 
iTraxx Contracts, in general.

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

[[Page 76111]]

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

    ICC has identified iTraxx Contracts as products that have become 
increasingly important for market participants to manage risk and 
express views with respect to European corporate credit risk. ICC's 
clearance of these Contracts will facilitate the prompt and accurate 
settlement of swaps and contribute to the safeguarding of securities 
and funds associated with swap transactions. In addition, ICC notes 
that the Commodity Futures Trading Commission has determined that 
iTraxx Europe CDS contracts would be subject to mandatory clearing 
under Section 2(h) of the Commodity Exchange Act.
    iTraxx Contracts have similar terms to the CDX North American Index 
CDS contracts (``CDX.NA Contracts'') and CDX Emerging Market Index 
(``CDX.EM Contracts'') currently cleared by ICC and governed by 
Sections 26A and 26C of the ICC rules. Accordingly, the proposed rules 
found in Section 26F largely mirror the ICC rules for those Contracts, 
with certain modifications that reflect the underlying reference 
entities (European corporate reference entities instead of North 
American corporate or Latin American sovereign entities) and 
differences in terms and market conventions. The iTraxx Contracts 
reference the iTraxx Europe index, the current series of which consists 
of 125 European corporate reference entities. iTraxx Contracts, 
consistent with market convention and widely used standard terms 
documentation, can be triggered by credit events for failure to pay, 
bankruptcy and restructuring. iTraxx Contracts will be denominated in 
Euro.
    Rule 26F-102 (Definitions) sets forth the definitions used for the 
iTraxx Contract Rules. An ``Eligible iTraxx Europe Untranched Index'' 
is defined as ``each particular series and version of an iTraxx Europe 
index or sub-index, as published by the iTraxx Untranched Publisher, 
included from time to time in the List of Eligible iTraxx Untranched 
Indexes,'' which is a list maintained, updated and published from time 
to time by the ICC Board of Managers or its designee, containing 
certain specified information with respect to each index. ``iTraxx 
Europe Untranched Terms Supplement'' refers to the market standard form 
of documentation used for credit default swaps on the iTraxx Europe 
index, which is incorporated by reference into the contract 
specifications in Chapter 26F. The remaining definitions are 
substantially the same as the definitions found in ICC Section 26A and 
Section 26C, other than certain conforming changes.
    Rules 26F-309 (Acceptance of iTraxx Europe Untranched Contracts by 
ICE Clear Credit), 26F-315 (Terms of the Cleared iTraxx Europe 
Untranched Contract), and 26F-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 iTraxx Contracts and are substantially the 
same as under ICC Section 26A for CDX.NA Contracts and ICC Section 26C 
for CDX.EM Contracts. In addition to various non-substantive conforming 
changes, proposed Rule 26F-317 (Terms of iTraxx Europe Untranched 
Contracts) differs from the corresponding Rule 26A-317 to reflect the 
fact that restructuring is a credit event for the iTraxx Contract.\4\
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    \4\ The provisions dealing with the ``spin-out'' of a single 
name CDS following a restructuring credit event for a component of 
the iTraxx Europe index are part of the iTraxx Europe Untranched 
Standard Terms Supplement (Nov. 2009 edition), which is incorporated 
into the contract specifications for cleared iTraxx Europe contracts 
through proposed ICC Rule 26F-315(c). Specifically, Section 7.3(b) 
of the Supplement addresses the removal of the restructured 
reference entity from the index and continuation of that component 
as a separate contract. (Proposed ICC Rule 26F-317(h) clarifies the 
treatment of the reference obligation for that separate cleared 
contract.) This is part of the basic standard terms of the iTraxx 
Europe contract and operates the same way in both the cleared and 
uncleared contexts (much like other aspects of the market standard 
terms supplements and/or ISDA Credit Derivatives Definitions on 
which other cleared and uncleared CDS trade).
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    In addition, ICC proposes to make conforming changes in Section 26E 
of the Rules (the CDS Restructuring Rules), principally to address the 
particular restructuring terms that apply to iTraxx Contracts and 
European SN Contracts. Specifically, ICC proposes to modify the notice 
delivery procedures in Rule 26E-104 to include ``notices to exercise 
movement option'' under the Mod Mod R terms. In addition, the 
definition of ``Triggered Restructuring CDS Contract'' has been 
modified to reflect that under Mod Mod R terms a CDS contract may be 
triggered in part following a restructuring credit event.
    Section 17A(b)(3)(F) of the Act \5\ requires, among other things, 
that the rules of a clearing agency be designed to promote the prompt 
and accurate clearance and settlement of securities transactions and, 
to the extent applicable, derivative agreements, contracts, and 
transactions. ICC believes that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to ICC, in particular, to Section 17(A)(b)(3)(F), 
because ICC believes that the clearance of iTraxx Contracts will 
facilitate the prompt and accurate settlement of swaps and contribute 
to the safeguarding of securities and funds associated with swap 
transactions.
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    \5\ 15 U.S.C. 78q-1(b)(3)(F).
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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-2012-23 on the subject line.

[[Page 76112]]

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-2012-23. 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 Credit 
and on ICE Clear Credit's Web site at https://www.theice.com/publicdocs/regulatory_filings/ICEClearCredit_120512.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-2012-23 
and should be submitted on or before January 16, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-31020 Filed 12-21-12; 4:15 pm]
BILLING CODE 8011-01-P


