
[Federal Register Volume 79, Number 186 (Thursday, September 25, 2014)]
[Notices]
[Pages 57629-57632]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-22791]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73156; File No. SR-ICEEU-2014-13]


Self-Regulatory Organizations; ICE Clear Europe Limited; Notice 
of Filing of Amendment No. 1 and Order Granting Accelerated Approval of 
a Proposed Rule Change, as Modified by Amendment No. 1, Relating to the 
2014 ISDA Credit Derivatives Definitions

September 19, 2014.

I. Introduction

    On August 14, 2014, ICE Clear Europe Limited (``ICE Clear Europe'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change SR-ICEEU-2014-13 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 August 20, 2014.\3\ The Commission did not 
receive comments on the proposed rule change. On September 19, 2014, 
ICE Clear Europe filed Amendment No. 1 to the proposed rule change.\4\ 
The Commission is publishing this notice to solicit comments on 
Amendment No. 1 from interested persons and is approving the proposed 
rule change, as modified by

[[Page 57630]]

Amendment No. 1, on an accelerated basis.
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    \1\ 15 U.S.C. 78(s)(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 34-72849 (August 14, 
2014), 79 FR 49357 (August 20, 2014) (SR-ICEEU-2014-13) (hereinafter 
referred to as the ``Initial Rule Filing'').
    \4\ ICE Clear Europe filed Amendment No. 1 to the proposed rule 
change to address the timing of the commencement of clearing of 
transactions incorporating the 2014 ISDA Credit Derivatives 
Definitions in light of changes in the implementation timing of the 
industry-wide ISDA protocol, as discussed in more detail below.
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II. Description of the Proposed Rule Change

A. Description of the Initial Rule Filing

    ICE Clear Europe has stated that the principal purpose of the 
proposed rule change is to revise the ICE Clear Europe Clearing Rules 
(the ``Rules'') and the ICE Clear Europe CDS Procedures (the ``CDS 
Procedures'') to incorporate references to revised Credit Derivatives 
Definitions, as published by the International Swaps and Derivatives 
Association, Inc. (``ISDA'') on February 21, 2014 (the ``2014 ISDA 
Definitions''). In the Initial Rule Filing, ICE Clear Europe 
anticipated that, consistent with the approach being taken throughout 
the CDS market at that time, the industry standard 2014 ISDA 
Definitions would be applicable to certain products cleared by ICE 
Clear Europe beginning on September 22, 2014.\5\
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    \5\ See supra note 4 and the discussion of Amendment No. 1 
below.
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    ICE Clear Europe principally proposes to (i) revise the Rules and 
CDS Procedures to make proper distinctions between the 2014 ISDA 
Definitions and the ISDA Credit Derivatives Definitions published 
previously in 2003 (as amended in 2009, the ``2003 ISDA Definitions'') 
and related documentation; and (ii) make conforming changes throughout 
the Rules and the CDS Procedures to reference provisions from the 
proper ISDA Definitions. In addition, ICE Clear Europe proposes to 
revise its CDS Risk Policy to reflect appropriate portfolio margin 
treatment between CDS Contracts cleared under the 2003 and 2014 ISDA 
Definitions.
    ICE Clear Europe has stated that, as described by ISDA, the 2014 
Definitions make a number of changes from the 2003 ISDA Definitions to 
the standard terms for CDS Contracts, including (i) introduction of new 
terms applicable to credit events involving financial reference 
entities and settlement of such credit events, (ii) introduction of new 
terms applicable to credit events involving sovereign reference 
entities and settlement of such credit events, (iii) implementation of 
standard reference obligations applicable to certain reference 
entities, and (iv) various other improvements and drafting updates that 
reflect market experience and developments since the 2009 amendments to 
the 2003 ISDA Definitions.
    ICE Clear Europe proposes to accept for clearing new transactions 
in eligible contracts that reference the 2014 ISDA Definitions. ICE 
Clear Europe also proposes revisions that would provide for the 
conversion of certain existing contracts currently based on the 2003 
ISDA Definitions into contracts based on the 2014 ISDA Definitions, an 
approach consistent with expected industry practice for similar 
contracts not cleared by ICE Clear Europe, and these converting 
contracts will be subject to a multilateral amendment ``protocol'' 
sponsored by ISDA. For contracts that are not converting automatically, 
ICE Clear Europe expects to continue to accept for clearing both new 
transactions referencing the 2014 ISDA Definitions and new transactions 
referencing the 2003 ISDA Definitions (and such contracts based on 
different definitions will not be fungible). ICE Clear Europe 
understands, through industry consensus, that Clearing Members plan to 
adhere to the ISDA protocol and would desire ICE Clear Europe to 
convert certain protocol-eligible contracts cleared at ICE Clear Europe 
into contracts based on the 2014 ISDA Definitions, consistent with the 
ISDA protocol. In an effort to achieve consistency across the CDS 
marketplace, ICE Clear Europe's implementation plan is intended to be 
fully consistent with the planned ISDA protocol implementation. ICE 
Clear Europe anticipates that, consistent with the protocol, most ICE 
Clear Europe CDS Contracts will convert, with certain exceptions 
including CDS on so-called protocol excluded reference entities, which 
are principally sovereigns and financial reference entities.
    To this end, ICE Clear Europe proposes to (i) revise the Rules to 
make proper distinctions between the 2014 ISDA Definitions and the 2003 
ISDA Definitions and related documentation; and (ii) make conforming 
changes throughout the Rules to reference provisions from the proper 
ISDA Definitions. ICE Clear Europe proposes changes to Parts 1, 9 and 
15 of the Rules. ICE Clear Europe also proposes revisions to the CDS 
Procedures to reflect proper distinctions between the 2003 ISDA 
Definitions and the 2014 ISDA Definitions.\6\
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    \6\ A more detailed description of the proposed changes to the 
Rules, CDS Procedures and CDS Risk Policy is set forth in the notice 
of the Initial Rule Filing. See supra note 3.
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    Finally, ICE Clear Europe proposes revisions to its CDS Risk Policy 
to provide for appropriate portfolio treatment between CDS Contracts 
cleared under the 2003 and 2014 ISDA Definitions. ICE Clear Europe 
intends to introduce a ``Risk Sub-Factor'' in the CDS Risk Policy as a 
specific single name and any unique combination of instrument 
attributes (e.g., restructuring clause, 2003 or 2014 ISDA Definitions, 
debt tier, etc), so that the union of all Risk Sub-Factors that share 
the same underlying single name would form a single name Risk Factor. 
ICE Clear Europe intends the portfolio treatment at the Risk Sub-Factor 
level would be provided for in the risk policy, as appropriate. 
Additionally, ICE Clear Europe proposes that the CDS Risk Policy would 
be revised to reflect a change in the 2014 ISDA Definitions that 
restructuring credit events (including sovereign restructurings) other 
than M(M)R Restructuring will not require separate triggering of each 
contract and will therefore be treated as ``hard'' credit events such 
as bankruptcy and failure to pay. ICE Clear Europe also intends to 
revise its CDS Risk Policy regarding physical settlement, including 
referencing the cash settlement fallback where physical settlement 
fails.

B. Description of Amendment No. 1

    On September 19, 2014, ICE Clear Europe filed Amendment No. 1 to 
the proposed rule change to address the timing of the commencement of 
clearing of transactions incorporating the 2014 ISDA Definitions in 
light of changes in the implementation timing of the industry-wide ISDA 
protocol. ICE Clear Europe has represented that, except as described in 
Amendment No. 1, the proposed rule changes in the Initial Rule Filing 
are unchanged.
    As described in the Initial Rule Filing, ICE Clear Europe is 
proposing changes to incorporate the 2014 ISDA Definitions, which make 
a number of changes to the standard terms for CDS Contracts. ICE Clear 
Europe has stated that, based on consultation with its Clearing Members 
and others, ICE Clear Europe has sought to implement these revisions in 
a manner and at a time consistent with the expected industry 
implementation of the 2014 ISDA Definitions for similar contracts not 
cleared by ICE Clear Europe, as provided under a multilateral amendment 
protocol sponsored by ISDA.
    ICE Clear Europe has stated that, as has been publicly announced by 
ISDA, the implementation date for the conversion of existing 
transactions to the 2014 ISDA Definitions under the ISDA protocol has 
been delayed until October 6, 2014. In addition, ICE Clear Europe has 
stated that the industry consensus date for the commencement of trading 
of new transactions based on the 2014 ISDA Definitions has similarly 
been delayed until October 6, 2014, with the exception of certain 
European

[[Page 57631]]

corporate, financial and sovereign CDS contracts for which new 
transactions based on the 2014 ISDA Definitions may be entered into 
commencing on September 22, 2014 (so-called ``protocol excluded 
transactions'' or ``Non-STEC Contracts'' \7\). Following consultation 
with its Clearing Members, and in an effort to maintain consistency 
across the CDS marketplace, ICE Clear Europe proposes to modify certain 
of the proposed rule changes in the Initial Rule Filing so that the 
clearing of CDS contracts at ICE Clear Europe after the implementation 
of the 2014 ISDA Definitions by the industry is consistent with this 
revised schedule.
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    \7\ As defined in the Initial Rule Filing.
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    Accordingly, ICE Clear Europe proposes to make certain additional 
changes to the CDS Procedures. In Paragraph 1 of the CDS Procedures, a 
new definition of ``2014 CDD Implementation Date'' (defined to be 
September 22, 2014) is proposed to be added. As described below, this 
definition will be used to distinguish the 2014 ISDA Definitions 
implementation date for protocol excluded transactions from that of 
other transactions. ICE Clear Europe also proposes to revise the 
definition of ``2014 CDD Protocol'' to reflect the fact that the 
protocol has been modified as discussed above. The definition of 
``Protocol Effective Date'' would be clarified to refer to the first 
Amendment Effective Date under the protocol, which is now expected to 
be October 6, 2014. The remaining provisions in Paragraph 1 of the CDS 
Procedures would be renumbered and cross-references would be updated.
    Paragraph 4.3(c) would be revised to distinguish single-name CDS 
contracts with different implementation times for the 2014 ISDA 
Definitions. Revised subparagraph (i) would address contracts for which 
use of the 2014 ISDA Definitions will not commence until the Protocol 
Effective Date. Proposed revisions to subparagraph (ii) would address 
the protocol excluded contracts for which use of the 2014 ISDA 
Definitions may commence on the 2014 CDD Implementation Date.
    Similarly, Paragraph 10.1 would be revised to reflect the revised 
implementation timing for the 2014 ISDA Definitions for Non-STEC 
Contracts (i.e., protocol excluded contracts). Under revised Paragraph 
10.1(e), Non-STEC Contracts accepted for clearing prior to the 2014 CDD 
Implementation Date would be subject to the 2003 ISDA Definitions. 
Under revised Paragraph 10.1(f), Non-STEC Contracts accepted for 
clearing on or following the 2014 CDD Implementation Date would be 
subject to the 2014 ISDA Definitions, unless the 2003 ISDA Definitions 
are specified to be applicable to such contracts.
    ICE Clear Europe has represented that the purpose of, and statutory 
basis for, the proposed rule changes, as set forth in the Initial Rule 
Filing, are otherwise unchanged.

III. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act \8\ 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 \9\ 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.
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    \8\ 15 U.S.C. 78s(b)(2)(C).
    \9\ 15 U.S.C. 78q-1(b)(3)(F).
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    The Commission finds that the proposed revisions to the Rules, CDS 
Procedures and CDS Risk Policy, as modified by Amendment No. 1, are 
consistent with the requirements of Section 17A of the Act \10\ and the 
rules and regulations thereunder applicable to ICE Clear Europe. The 
proposed rule change, which is principally designed to incorporate and 
implement the 2014 ISDA Definitions, will permit clearing of contracts, 
both new and existing, referencing the new definitions, while 
distinguishing, where applicable, contracts cleared by ICE Clear Europe 
between those referencing the 2014 ISDA Definitions and those 
referencing the 2003 ISDA Definitions for purposes of risk management 
and clearing operations. Additionally, the proposed rule change, as 
modified by Amendment No. 1, will allow ICE Clear Europe to implement 
the clearing of contracts referencing the 2014 ISDA Definitions in a 
manner consistent with the implementation of the industry-wide ISDA 
protocol for similar uncleared contracts, as discussed above, thereby 
facilitating the trading and clearing of CDS throughout the entire 
credit derivatives market. Finally, ICE Clear Europe states that the 
proposed rule change is necessary to provide the market with the 
assurances that ICE Clear Europe plans to implement the 2014 ISDA 
Definitions consistent with industry practice, thereby facilitating 
prompt and accurate clearance and settlement. The Commission therefore 
believes that the proposed rule change, as modified by Amendment No. 1, 
is reasonably 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 assure the 
safeguarding of securities and funds which are in the custody or 
control of the clearing agency or for which it is responsible, 
consistent with Section 17A(b)(3)(F) of the Act.\11\
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    \10\ 15 U.S.C. 78q-1.
    \11\ 15 U.S.C. 78q-1(b)(3)(F).
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IV. Solicitation of Comments on Amendment No. 1

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether Amendment No. 1 
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-ICEEU-2014-13 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
    All submissions should refer to File Number SR-ICEEU-2014-13. 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

[[Page 57632]]

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 the filing also will 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/clear-europe/regulation.

V. Accelerated Approval of Proposed Rule Change as Modified by 
Amendment No. 1

    As discussed above, ICE Clear Europe submitted Amendment No. 1 to 
the proposed rule change to address the necessary change in the timing 
of the clearing of transactions incorporating the 2014 ISDA Definitions 
in light of the change in the implementation timing of the industry-
wide ISDA protocol. The Commission believes that Amendment No. 1 does 
not modify the proposed rule change as described in the Initial Rule 
Filing \12\ in any substantive manner, but will facilitate the trading 
and clearing of CDS throughout the entire credit derivatives market. 
Accordingly, the Commission finds good cause, pursuant to Section 
19(b)(2)(C)(iii) of the Act,\13\ to approve the proposed rule change, 
as modified by Amendment No. 1, prior to the thirtieth day after the 
date of publication of notice of Amendment No. 1 in the Federal 
Register.
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    \12\ The Initial Rule Filing was published in the Federal 
Register on August 20, 2014, for 21-day comment and the comment 
period ended on September 10, 2014. The Commission did not receive 
comments on the Initial Rule Filing.
    \13\ 15 U.S.C. 78s(b)(2)(C)(iii).
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VI. 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 \14\ and the 
rules and regulations thereunder.
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    \14\ 15 U.S.C. 78q-1.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\15\ that the proposed rule change (File No. SR-ICEEU-2014-13), as 
modified by Amendment No. 1, be, and hereby is, approved on an 
accelerated basis.\16\
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    \15\ 15 U.S.C. 78s(b)(2).
    \16\ 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.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-22791 Filed 9-24-14; 8:45 am]
BILLING CODE 8011-01-P


