
[Federal Register Volume 78, Number 60 (Thursday, March 28, 2013)]
[Notices]
[Pages 19057-19059]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-07177]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69209; File No. SR-ICEEU-2013-05]


Self-Regulatory Organizations; ICE Clear Europe Limited; Notice 
of Filing Proposed Rule Changes Regarding Central Counterparty 
Resolution and Recovery Procedures

March 22, 2013.
    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 March 7, 2013, ICE Clear Europe Limited (``ICE Clear Europe'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule changes 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 
changes 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

    ICE Clear Europe submits these proposed amendments to its Rules in 
order to adopt new provisions relating to clearinghouse resolution and 
recovery following the exhaustion of available resources after a 
Clearing Member default or a series of Clearing Member defaults. The 
amendments would, among other matters: (i) Establish a ``cooling-off 
period'' in cases of certain Clearing Member defaults that result in 
guaranty fund depletion, in which case the liability of Clearing 
Members for additional guaranty fund assessments would be capped for 
all defaults during that period; (ii) establish new procedures under 
which a Clearing Member may terminate its Clearing Membership, both in 
the ordinary course of business and during a cooling-off period, and 
related procedures for unwinding all positions of such a Clearing 
Member and capping its continuing liability to ICE Clear Europe, (iii) 
provide for ``haircutting'' of variation margin gains and other 
outgoing payments by ICE Clear Europe in situations when ICE Clear 
Europe determines, following a Clearing Member's default, that it is 
unlikely to have sufficient resources to make all such payments; (iv) 
permit ICE Clear Europe to temporarily suspend payments on cleared 
contracts when ICE Clear Europe determines that applying haircuts to 
Clearing Members' variation margin gains will not be sufficient to 
address a shortfall in resources, or when an auction of the positions 
of a defaulting Clearing Member has failed; (v) revise procedures for 
the termination of clearing and the wind-up of outstanding contracts of 
a particular type in the event the resources available to ICE Clear 
Europe to support those contracts are exhausted; (vi) eliminate rules 
permitting the forced allocation of credit default swap (``CDS'') 
positions to non-defaulting Clearing Members in the case of a failed 
default auction, and provide for the use of guaranty funds of Clearing 
Members that fail to participate in default auctions prior to the 
guaranty funds of other Clearing Members; and (vii) in general limit 
the effect of losses in certain product categories--viz., Energy, CDS 
or foreign exchange (``FX'')--on ongoing clearing for other product 
categories.

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 
changes, and discussed any comments it received on the proposed rule 
changes. 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 ICEEU.
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A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

i. Purpose
    The proposed rule changes are intended to establish arrangements 
for the recovery and resolution of ICE Clear Europe's central 
counterparty services. The proposed Rule amendments are described in 
detail below.
    In Part 1 of ICE Clear Europe's Rules (``Rules''), various 
conforming changes have been made to definitions, including the 
definitions of ``FX Default Amount'', ``Termination Close-Out Deadline 
Date'', ``Termination Close-Out Time'' and ``Termination Date.'' Rule 
105(c) (entitled ``Termination'') has been revised to conform to new 
termination provisions in Part 9 of the Rules, and to clarify the use 
of the term ``Termination Notice Time'' in connection with a 
termination of ICE Clear Europe's services. A new

[[Page 19058]]

subsection (f) has been added to Rule 110 which permits ICE Clear 
Europe to delay making outgoing variation margin payments on an intra-
day basis in certain circumstances when a Clearing Member has failed to 
make a variation margin payment to the Clearing House on such day.
    In Rule 209 (entitled ``Termination of Clearing Membership''), 
certain provisions addressing the termination of Clearing Membership 
and a default by ICE Clear Europe and the consequences thereof have 
been moved to Rules 912 and Rule 918, as discussed below. Various 
conforming changes are made in Part 4 of the Rules.
    Part 9 of the Rules has been revised to incorporate the new 
resolution and recovery provisions discussed above. In addition, 
several provisions that were previously in other parts of the Rules 
have been moved into Part 9 to consolidate the relevant provisions. 
Rule 905, which permitted the forced allocation of CDS contracts to 
Clearing Members in the event of a failed auction or other inability to 
close out or transfer relevant positions, has been removed following 
extensive discussions with Clearing Members. ICE Clear Europe believes 
that the risks of this scenario are now addressed through the 
haircutting, suspension and termination procedures discussed below. 
Various other conforming changes are made in Rules 905 and 906.
    Former Rule 1103 (entitled ``Application of Assets upon Event of 
Default'') has been moved to Rule 908. In addition to various 
conforming changes, new Rule 908 also clarifies the application of 
guaranty fund contributions and other resources depending on the 
product categories in which a defaulting Clearing Member acted. New 
Rule 908(i) provides that, if a non-defaulting Clearing Member fails to 
participate in a default auction or does not comply with its 
obligations under any such auction, its guaranty fund contributions 
will be applied prior to the guaranty fund contributions of other non-
defaulting Clearing Members.
    Former Rules 1105 (entitled ``Powers of Assessment: Energy''), 1106 
(entitled ``Powers of Assessment: CDS'') and 1107 (entitled ``Powers of 
Assessment: FX'') have been moved to new Rules 909, 910 and 911, 
respectively. In addition to certain conforming changes, new Rules 909, 
910 and 911 have been revised to clarify the timing under which ICE 
Clear Europe may call for assessments, the maximum assessment liability 
of Clearing Members acting in each product category, and the manner in 
which any assessments called by ICE Clear Europe but not yet used will 
be held.
    Certain provisions addressing the termination of transactions in 
the event of an ICE Clear Europe insolvency or other default (formerly 
in Rule 209) have been moved to new Rule 912, which also includes 
certain conforming changes and a clarification relating to a default 
that affects some but not all product categories.
    New Rule 913 contains various new definitions used in the 
haircutting provisions in Rule 914, the suspension provisions of Rule 
915 and the termination provisions of Rule 916. New Rule 914 
establishes the haircutting mechanism. The core of Rule 914 is a 
procedure for haircutting (i.e., reducing) the variation margin and 
certain other contractual payments ICE Clear Europe owes to Clearing 
Members for a contract category, to the extent of a shortfall in 
available resources for that contract category, when ICE Clear Europe 
issues a ``Haircutting Determination.'' Such a determination may be 
made when certain conditions are satisfied:
    (i) One or more Clearing Member defaults have occurred but ICE 
Clear Europe has not yet declared and either paid or submitted a claim 
in respect of all net sums due to or from the defaulter in respect of 
its proprietary account and all of its customer accounts; and
    (ii) ICE Clear Europe determines, based on one of several relevant 
tests, that its available resources are insufficient to pay all 
relevant outward variation margin and contractual payments and/or its 
available resources would be insufficient to cover the losses or 
shortfalls to the Clearing House from the close out of the defaulter's 
positions.
    A Haircutting Determination will not be made if: (i) A 
determination to suspend clearing has been made under Rule 915; (ii) 
clearing in the relevant contracts is being terminated under Rule 916 
or a Clearing House insolvency; or (iii) a failure to pay has occurred. 
In the event of such a determination, on the day during the ``Loss 
Distribution Period'' specified by ICE Clear Europe, the net amount 
owed on such day to each Clearing Member that is deemed to be a ``cash 
gainer'' in respect of an account class (i.e., a member that would 
otherwise be entitled to receive variation margin or other payments in 
respect of such account class) will be subject to a percentage haircut. 
Corresponding adjustments are also made for ``cash losers'' (i.e., 
those who owe the Clearing House) to the extent amounts previously owed 
to them have received a haircut.
    New Rule 915 authorizes ICE Clear Europe to make a ``Suspension 
Determination'' for a contract category when the following conditions 
occur: (i) ICE Clear Europe's obligations to meet variation margin 
payments or the cost of auctioning off the positions of a defaulting 
Clearing Member will not be satisfied through the haircutting procedure 
of Rule 914; (ii) following the declaration of all net sums in respect 
of a particular default, ICE Clear Europe might be rendered insolvent 
if it does not suspend clearing; or (iii) an auction in a relevant 
contract category has failed. In such circumstances, during the 
suspension period, which is initially up to 2 business days, payments 
in respect of contracts in the suspended category will be suspended.
    New Rule 916 permits ICE Clear Europe to terminate a set of 
contracts if, at the end of a suspension period under Rule 915, the 
conditions for suspension are still satisfied, or if ICE Clear Europe 
determines that, because of the termination of Clearing Members, there 
will be insufficient Clearing Members for clearing of the relevant 
contract category to remain viable. Rule 916 provides a procedure for 
determining the termination price for all contracts in a particular 
set. To the extent the termination value payable by ICE Clear Europe 
for the terminated contract set exceeds available resources for that 
contract set, ICE Clear Europe's obligations will be limited to the 
available resources. This will permit clearing activity to continue in 
other contract categories.
    Rule 917 implements a ``cooling-off period'' concept. A cooling-off 
period is triggered by certain defaults that result in a guaranty fund 
assessment or a series of defaults resulting in depletion of the 
guaranty fund. During a cooling-off period, the assessment liability of 
a Clearing Member is capped with respect to all defaults occurring 
during the period.
    Rule 918 revises the procedures for Clearing Members that wish to 
terminate their Clearing Membership (including during a cooling-off 
period). Clearing members that have submitted a termination notice are 
required to close out their open contracts by a specified deadline. 
Rule 918 also provides for the calculation and payment of a net amount 
to or from the terminating Clearing Member for each of its accounts in 
respect of the close out of all of its positions. Terminating Clearing 
Members are not responsible for additional guaranty fund contributions 
for defaults occurring after the effective date of their termination.
    Various conforming changes are also made to Part 11 of the Rules. 
Rule 1102(g), addressing the return of the

[[Page 19059]]

guaranty fund, has been revised to conform to the new termination 
provisions in Rule 918. Former Rule 1104, which addresses the use of 
guaranty fund contributions, has been redesignated as Rule 1103. Other 
conforming changes have been made in parts 12 and 15 of the Rules, as 
well.
ii. Statutory Basis
    ICE Clear Europe believes that the proposed rule changes are 
consistent with the requirements of Section 17A \4\ of the Act and the 
regulations thereunder applicable to it, in particular, 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, derivatives agreements, contracts, and transactions, as 
well as to assure the safeguarding of securities and funds which are in 
the custody or control of the clearing agency or for which it is 
responsible.\5\ ICE Clear Europe has developed the new resolution and 
recovery procedures in response to issues raised by the Bank of England 
as overseer of its payment arrangements, and following extensive 
consultation with the Bank of England, the Financial Services 
Authority, and Clearing Members. Specifically, ICE Clear Europe 
believes that the proposed rule changes will enhance its stability 
following the default of one or more Clearing Members, and will reduce 
the risk of its failure or insolvency. The revisions will, in 
particular, facilitate the orderly wind-down or termination of 
contracts affected by a default, and will minimize the effect on other 
categories of contracts, for which clearing should be able to continue. 
Further, ICE Clear Europe, as a clearing house for multiple products, 
also believes that the changes will reduce the risk of a systemic 
problem in one cleared market causing contagion or creating risks for 
other cleared markets. The amendments also provide clearer limitations 
on the liability of Clearing Members for assessments following 
defaults, and a clearer procedure for termination of Clearing 
Membership.
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    \4\ 15 U.S.C. 78q-1.
    \5\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    ICE Clear Europe does not believe the proposed rule changes 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

    ICE Clear Europe has solicited written comments relating to the 
proposed rule change, but has not received any written comments to 
date. 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 such 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 
changes are 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-ICEEU-2013-05 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-2013-05. 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 of submission. 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 Section, 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 ICE Clear Europe's principal 
office and on ICE Clear Europe's Web site at https://www.theice.com/publicdocs/regulatory_filings/ICEU_SEC_030613.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-ICEEU-2013-05 
and should be submitted on or before April 18, 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. 2013-07177 Filed 3-27-13; 8:45 am]
BILLING CODE 8011-01-P


