
[Federal Register Volume 79, Number 122 (Wednesday, June 25, 2014)]
[Notices]
[Pages 36112-36114]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-14781]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72437; File No. SR-ICC-2014-06]


Self-Regulatory Organizations; ICE Clear Credit LLC; Order 
Approving Proposed Rule Change To Provide for the Clearance of 
Additional Non-Investment Grade Instruments on Standard North American 
Corporate Single Name Reference Entities

June 19, 2014.

I. Introduction

    On April 25, 2014, ICE Clear Credit LLC (``ICC'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change SR-ICC-2014-06 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

[[Page 36113]]

the Federal Register on May 14, 2014.\3\ The Commission received no 
comment letters regarding the proposed change. For the reasons 
discussed 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. 34-72124 (May 8, 2014), 
79 FR 27669 (May 14, 2014) (SR-ICC-2014-06).
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II. Description

    ICC is proposing to expand its product offering to provide for the 
clearance of additional non-investment grade instruments on Standard 
North American Corporate Single Name reference entities. ICC has stated 
that the term ``non-investment grade'' refers to those Standard North 
American Corporate Single Names which reference an entity that has been 
assigned a debt rating of below ``BBB-'' by Moody's, below ``Baa3'' by 
S&P, or is not rated.
    ICC has also stated that the risk profiles (as related to 
underlying debt rating) of these new non-investment grade instruments 
on Standard North American Corporate Single Name reference entities are 
similar to certain Standard North American Corporate Single Name and 
Standard Emerging Sovereign Single Name CDS contracts currently cleared 
at ICC with similar debt ratings to the proposed non-investment grade 
instruments. ICC currently clears investment grade instruments on 
Standard North American Corporate Single Name reference entities. ICC 
contends that the debt ratings of the entities that these contracts 
reference may change over time, resulting in an investment grade single 
name becoming a non-investment grade single name. ICC states that it 
already clears eleven non-investment grade instruments on Standard 
North American Corporate Single Name reference entities as a result of 
such changes. ICC also states that it clears certain Standard Emerging 
Sovereign Single Name CDS contracts, which reference countries with 
debt ratings similar to the additional non-investment grade instruments 
on Standard North American Corporate Single Name reference entities 
that ICC is proposing to clear.
    ICC has also stated that the additional non-investment grade 
instruments on Standard North American Corporate Single Name reference 
entities have terms consistent with the Standard North American 
Corporate Single Names currently cleared by ICC and governed by Section 
26B of the ICC Rules.

III. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act \4\ directs the Commission to 
approve a proposed rule change of a self-regulatory organization if the 
Commission finds that such proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to such self-regulatory organization. Section 17A(b)(3)(F) 
of the Act \5\ requires, among other things, that the rules of a 
clearing agency are designed to promote the prompt and accurate 
clearance and settlement of securities transactions and, to the extent 
applicable, derivative agreements, contracts, and transactions, 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 and, in general, to protect investors and the public 
interest. As part of the process of preparing this order, the 
Commission reviewed information and representations of ICC.
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    \4\ 15 U.S.C. 78s(b)(2)(C).
    \5\ 15 U.S.C. 78q-1(b)(3)(F).
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    The Commission finds that the proposed rule change is consistent 
with Section 17A of the Act \6\ and the rules thereunder applicable to 
ICC. The proposed rule change will provide for clearing of new CDS 
contracts on non-investment grade reference entities. These contracts 
are substantially similar to the Standard North American Corporate 
Single Name contracts currently cleared by ICC, and the new contracts 
will be cleared pursuant to ICC's existing clearing arrangements and 
related financial safeguards, protections and risk management 
framework, including policies and procedures. The Commission believes 
that the proposal is therefore consistent with the prompt and accurate 
clearance and settlement of securities transactions and derivative 
agreements, contracts and transactions cleared by ICC, the safeguarding 
of securities and funds in the custody or control of ICC, and the 
protection of investors and the public interest, within the meaning of 
Section 17A(b)(3)(F) of the Act.\7\
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    \6\ 15 U.S.C. 78q-1.
    \7\ 15 U.S.C. 78q-1(b)(3)(F).
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    Specifically, the Commission finds that clearing of the new non-
investment grade instruments on Standard North American Corporate 
Single Name reference entities by ICC is consistent with the 
requirements of Rule 17Ad-22.\8\ In particular, in terms of financial 
resources, ICC represents that its existing margin methodology, when 
applying to the clearing of the new contracts, will be reasonably 
designed to provide sufficient margin to cover ICC's credit exposure to 
its clearing members from clearing the existing contracts and the new 
contracts,\9\ consistent with the requirements of Rule 17Ad-
22(b)(2).\10\ In addition, based on representations and information 
provided by ICC, under its existing methodology, ICC's Guaranty Fund, 
together with the required margin, will provide sufficient financial 
resources to support the clearing of the additional contracts 
consistent with the requirements of Rule 17Ad-22(b)(3).\11\ Because the 
new contracts are substantially similar to existing products already 
cleared by ICC, ICC already has in place operational and managerial 
resources sufficient for clearing of the additional contracts, 
consistent with the requirements of Rule 17Ad-22(d)(4).\12\ 
Furthermore, ICC's existing settlement procedures and account 
structures will apply to the new contracts, consistent with the 
requirements of Rules 17Ad-22(d)(5), (12) and (15) \13\ relating to the 
finality, accuracy and risk mitigation of its daily settlement process. 
Finally, ICC will apply its existing default management policies and 
procedures for the new contracts, allowing it to take timely action to 
contain losses and liquidity pressures and to continue meeting its 
obligations in the event of clearing member insolvencies or defaults in 
respect of the new single names, in accordance with Rule 17Ad-
22(d)(11).\14\
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    \8\ 17 CFR 240.17Ad-22.
    \9\ ICC acknowledges that, if clearing of any non-investment 
grade instruments on standard North American corporate single name 
reference entities would result in changes to its existing margin 
methodology or risk policies and procedures, it would be required to 
submit a rule filing to seek approval of clearing such additional 
non-investment grade instruments and change of its risk methodology 
and policies and procedures.
    \10\ 17 CFR 240.17Ad-22(b)(2).
    \11\ 17 CFR 240.17Ad-22(b)(3).
    \12\ 17 CFR 240.17Ad-22(d)(4).
    \13\ 17 CFR 240.17Ad-22(d)(5), (12) and (15).
    \14\ 17 CFR 240.17Ad-22(d)(11).
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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 \15\ and the 
rules and regulations thereunder.
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    \15\ 15 U.S.C. 78q-1.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\16\ that the

[[Page 36114]]

proposed rule change (File No. SR-ICC-2014-06) be, and hereby is, 
approved.\17\
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    \16\ 15 U.S.C. 78s(b)(2).
    \17\ 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.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-14781 Filed 6-24-14; 8:45 am]
BILLING CODE 8011-01-P


