
[Federal Register Volume 78, Number 26 (Thursday, February 7, 2013)]
[Notices]
[Pages 9088-9090]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-02711]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68812; File No. SR-ICEEU-2012-09]


Self-Regulatory Organizations; ICE Clear Europe Limited; Order 
Approving Proposed Rule Change To Provide for a Customer Clearing Model 
for CDS Products and To Amend, Clarify, and Consolidate Certain Rules 
and Procedures

February 1, 2013.

I. Introduction

    On October 22, 2012, ICE Clear Europe Limited (``ICE Clear 
Europe'') filed with the Securities and Exchange Commission (``SEC'' or 
``Commission'') the proposed rule change SR-ICEEU-2012-09 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 November 9, 2012.\3\ The 
Commission received one comment letter to the proposed rule change.\4\ 
This order approves 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. 68152 (November 5, 
2012), 77 FR 67427 (November 9, 2012).
    \4\ Letter from Kermit Kubitz (November 30, 2012).
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II. Description of the Proposed Rule Change

    The principal purpose of the proposed rule change is to provide for 
a Customer CDS Clearing Model whereby customers of ICE Clear Europe 
Clearing Members have the ability to clear CDS products through ICE 
Clear Europe. In addition, ICE Clear Europe is amending its Rules and 
CDS Procedures in order to implement certain rule changes that are 
unrelated to Customer CDS Clearing Model.
    Currently, ICE Clear Europe Clearing Members may clear CDS products 
at ICE Clear Europe through their proprietary accounts only and not on 
behalf of their customers. The Customer CDS Clearing Model extends ICE 
Clear Europe's

[[Page 9089]]

customer clearing models that are currently available for other 
products to CDS products, with certain modifications appropriate for 
the nature of the product.
    The Customer CDS Clearing Model builds on the customer clearing 
framework available for other products at ICE Clear Europe. US 
customers must clear through a registered futures commission merchant 
and/or broker-dealer (depending on whether the product is an index CDS 
or single-name CDS), consistent with the requirements of the Commodity 
Exchange Act and the Act, as applicable. Non-US customers may clear 
through a non-US clearing member in accordance with applicable local 
laws or through a registered futures commission merchant and/or broker-
dealer.
    The terms of the Customer CDS Clearing Model, as well as various 
related enhancements to the clearing model, were proposed as amendments 
to the ICE Clear Europe Rules and CDS Procedures. Changes to Part 1 of 
the Rules clarify and conform existing definitions to the Customer CDS 
Clearing Model, create new CDS-specific definitions used in new 
operative provisions, clarify customer and proprietary account class 
definitions that are relevant to CDS, and clarify general standards of 
Clearing Member responsibility and liability. Other changes reflect the 
incorporation into the Rules of provisions that had been in a separate 
master agreement entered into between the Clearing Member and ICE Clear 
Europe. Changes to Part 2 of the Rules provide updates related to anti-
money laundering legislation applicable to customers, clarify 
membership standards for Clearing Members, clarify the obligations of 
Clearing Members with respect to customer accounts and proprietary 
accounts and clarify and/or restate certain provisions relating to 
Clearing Member default and termination of clearing membership. Changes 
to Part 3 of the Rules clarify certain payment mechanics for Clearing 
Members with respect to amounts owed by their customers and include a 
waiver of set-off by Clearing Members. Changes to Part 4 of the Rules 
reflect amendments to the contract rights and obligations of ICE Clear 
Europe and Clearing Members, particularly in the context of the 
clearing of CDS on behalf of customers. Changes to Part 5 of the Rules 
address the delivery of margin from customers to Clearing Members and 
add provisions dealing with transfer of margin by security interest 
rather than title transfer. Changes to Part 6 of the Rules clarify the 
procedures for providing notice of position limits and clarify further 
how position limits apply in instances where contracts arise due to 
firm trades, voiding, or error policies. Changes to Parts 7 and 8 of 
the Rules clarify that references in those parts of the Rules (covering 
Settlement and Delivery of Futures (Part 7) and Options (Part 8)), 
which relate solely to Energy contracts, do not apply to CDS Customer 
Accounts or customers in the context of CDS clearing. Changes to Part 9 
of the Rules consolidate and clarify the respective rights and 
obligations of ICE Clear Europe and Clearing Members in the case of a 
Clearing Member or ICE Clear Europe default and the procedures to be 
followed in determining a net sum payable to or receivable from a 
defaulting Clearing Member. Changes to Part 10 of the Rules provide 
more detail regarding how a disciplinary or appeals panel could impose 
a sanction on a customer and determine liability or responsibility in 
any instance where there is joint misfeasance. Changes to Part 11 
relate to the operation of the ICE Clear Europe guaranty funds, 
including changes relating to the introduction of customer clearing. 
ICE Clear Europe will continue to operate separate guaranty funds for 
CDS products and for energy products. Changes to Part 12 of the Rules 
conform to the new terms and definitions that are part of the Customer 
CDS Customer Model. Changes to Part 15 of the Rules provide provisions 
dealing with CDS contracts cleared in the customer account (including 
the representation of customer transactions in relevant books and 
records and treatment of customer transactions in the case of credit 
events) and the elimination of the separate master agreement previously 
entered into between CDS Clearing Members and ICE Clear Europe. Changes 
to Part 16 of the Rules address the addition of CDS clearing to the ICE 
Clear Europe FCM customer clearing model and certain other 
clarifications and enhancements requested by CDS Clearing Members.
    ICE Clear Europe is also establishing in Exhibit 1 of the Rules 
certain standard terms (the Customer-CM CDS Transactions Standard 
Terms) that will be applicable to Customer-CM CDS Transactions, which 
are CDS transactions between a Non-FCM/BD Clearing Member and a non-
U.S. customer. Under the changes to Rule 1516, all Non-FCM/BD Clearing 
Members must agree to the applicability of these terms as between them 
and each of their customers. The Standard Terms provisions, among other 
things, ensure that the terms of Customer-CM CDS Transactions mirror 
the terms of the cleared transaction, enable a clearing member to pass 
on clearing-house performance (or non-performance) to their customers, 
facilitate the provision of margin to ICE Clear Europe, and amend 
provisions in underlying agreements relating to events of default and 
close-out in order to ensure that the porting of contracts and margin 
under the default rules will be effective. In addition, various 
consents must be supplied for ICE Clear Europe to update customer 
records in DTCC and receive other information as required relating to 
customers.\5\
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    \5\ As noted above, US customers must clear through an FCM/BD 
Clearing Member. The Customer-CM CDS Transactions Standard Terms 
will not apply to that relationship.
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    ICE Clear Europe is also modifying its CDS Procedures. Changes to 
Part 1 of the CDS Procedures clarify and conform existing definitions 
to the Customer CDS Clearing Model, as well as add new definitions used 
in new operative provisions. Changes to Part 2 of the CDS Procedures 
clarify and conform membership requirements to standards implemented as 
a result of the Dodd-Frank Act. Changes to Part 3 of the CDS Procedures 
delete a reference to CDS Operational Procedures, which document has 
become obsolete in light of the changes related to customer clearing. 
Changes to Part 4 of the CDS Procedures update information that must be 
provided with respect to CDS contracts and procedures for submission of 
CDS contracts for clearing. Changes to Part 5 of the CDS Procedures 
address customer clearing in the context of the CDS Default Committee 
procedures. Part 6 of the CDS Procedures was removed because it is no 
longer necessary in light of ICE Clear Europe's use of determinations 
made by the ISDA Determinations Committees with respect to credit and 
succession events. Changes to Part 7 address restructuring as a credit 
event with respect to CDS contracts cleared in the customer account, 
including the processing for triggering settlement of such contracts. 
Changes to Part 8 of the CDS Procedures clarify the procedures for 
listing new CDS Contracts, in particular to enable ICE Clear Europe to 
respond in timely fashion to any prohibition on trading in CDS imposed 
under the EU Short Selling Regulation (Regulation 236/2012 dated 14 
March 2012). Changes to Part 9 of the CDS Procedures include various 
provisions previously included in the separate master agreement between 
CDS Clearing Members and ICE Clear Europe as well as certain tax 
provisions relevant to customer clearing. These updated provisions 
apply to both customer

[[Page 9090]]

positions and proprietary positions of CDS Clearing Members. Changes to 
Part 10 of the CDS Procedures update the cross-references and 
definitions relevant to customer clearing as they relate to Index CDS 
Contracts. Changes to Part 11 of the CDS Procedures update the cross-
references and definitions relevant to customer clearing as they relate 
to Single Name CDS Contracts. Changes to Part 12 of the CDS Procedures 
update the cross-references and the definitions relevant to customer 
clearing with respect to Sovereign Contracts. Changes to Part 13 of the 
CDS Procedures add certain general procedures relating to customer 
clearing of CDS contracts.

III. Comment

    The Commission received one comment to the proposed rule change. 
The comment concerned ICE Clear Europe's requirements under the 
Exchange Act, including but not limited to recordkeeping and reporting 
requirements that are outside of the scope of this proposal. The 
Commission notes, however, that ICE Clear Europe, as a clearing agency 
registered with the Commission, is fully subject to the Exchange Act 
and all applicable rules and regulations promulgated thereto.

IV. Discussion

    Section 17A(b)(3)(F) of the Act \6\ requires that, among other 
things, a clearing agency be organized and its rules designed to 
promote the prompt and accurate clearance and settlement of securities 
transactions and, to the extent applicable, derivative agreements, 
contracts, and transactions and to protect investors and the public 
interest. After careful consideration, the Commission finds that the 
proposed rule change is consistent with the Act and the rules and 
regulations thereunder. The implementation of the Customer CDS Clearing 
Model may promote the prompt and accurate clearance of securities 
transactions, derivatives agreements, contracts, and transactions by 
extending clearing to a broader segment of the CDS market.
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    \6\ 15 U.S.C. 78q-1(b)(3)(F).
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V. 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-2012-09) be, 
and hereby is, approved.\9\
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    \8\ 15 U.S.C. 78s(b)(2).
    \9\ In approving this proposed rule change the Commission has 
considered the proposed rule's impact of efficiency, competition, 
and capital formation. See 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. 2013-02711 Filed 2-6-13; 8:45 am]
BILLING CODE 8011-01-P


