
[Federal Register Volume 79, Number 236 (Tuesday, December 9, 2014)]
[Notices]
[Pages 73126-73128]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-28772]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73731; File No. SR-ICEEU-2014-20]


Self-Regulatory Organizations; ICE Clear Europe Limited; Notice 
of Filing of Proposed Rule Change Relating to CDS Pricing Policy

December 3, 2014.
    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 November 24, 2014, ICE Clear Europe Limited (``ICE Clear Europe'' or 
``Clearing House'') 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 ICE Clear 
Europe. 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 principal purpose of the change is to revise ICE Clear Europe's 
CDS End-of-Day Price Discovery Policy (the ``CDS Pricing Policy'') to 
incorporate enhancements to the price discovery process.

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 
change and discussed any comments it received on the

[[Page 73127]]

proposed rule change. 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.

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

1. Purpose
    ICE Clear Europe proposes revising the CDS Pricing Policy to 
incorporate enhancements to its end-of-day price discovery process for 
CDS Contracts. The proposed revisions are described in detail as 
follows:
    ICE Clear Europe currently uses a ``cross and lock'' algorithm as 
part of its price discovery process for CDS Contracts. Under this 
algorithm, bids and offers derived from Clearing Member submissions are 
matched by sorting them from highest to lowest and lowest to highest 
levels, respectively. This sorting process pairs the Clearing Member 
submitting the highest bid price with the Clearing Member submitting 
the lowest offer price, the Clearing Member submitting the second 
highest bid price with the Clearing Member submitting the second-lowest 
offer price, and so on. The algorithm then identifies crossed and/or 
locked pairs (or ``markets''). Crossed markets are the Clearing Member 
pairs generated by the sorting process for which the bid price of one 
Clearing Member is above the offer price of the matched Clearing 
Member. Locked markets are the Clearing Member pairs where the bid and 
the offer are equal. The mid-point of the bid and offer of the first 
non-crossed, non-locked matched market is the final end-of-day level 
(with additional steps taken to remove off-market submissions from 
influencing the final level). This process captures the market dynamics 
of trading; however, final pricing levels are ultimately determined by 
a single bid and a single offer, which results in the ability for one 
submission to influence the outcome.
    ICE Clear Europe proposes enhancements to this methodology to 
improve the consistency of prices and reduce the sensitivity of the 
final end-of-day level to a single Clearing Member's submission. Under 
the new ``cross and lock'' methodology, the average of the mid-points 
of all non-crossed, non-locked matched markets for which the difference 
between the matched market bid and matched market offer is less than or 
equal to one bid-offer width is used as the final level (with 
additional steps taken to remove off-market submissions from 
influencing the final level). Under this approach, the end-of-day 
prices determined are less sensitive to outlying submissions.
    An additional clarification is made to the calculation of a 
Clearing Member's open interest for purposes of the end-of-day price 
submission process to take into account the aggregate of both house and 
client positions carried by the Clearing Member. A correction is made 
in the policy to the minimum number of Clearing Members that need to 
have open interest in a particular instrument; this change conforms to 
current practice by the Clearing House.
    The amendments also clarify that notional limits applicable to firm 
trades that may be assigned to Clearing Members as a result of the end-
of-day price submission process will be established at risk sub-factor 
and sector levels. The revised policy also clarifies the sequencing of 
firm trades in relation to the determination of breaches of those 
limits, including to take into account the applicable risk sub-factor 
and to address sequencing within a particular instrument that is part 
of a particular risk sub-factor, if necessary.
    The amendments also revise certain requirements applicable to the 
unwinding of firm trades entered into by Clearing Members. Although the 
existing policy does not require that firm trades be maintained for any 
particular period of time, it currently requires Clearing Members that 
elect to unwind a firm trade to do so at the then-current market price. 
There are practical difficulties with objectively determining whether 
an unwind transaction was executed at the then-current market price and 
therefore this requirement can be difficult to enforce. ICE Clear 
Europe proposes revising the policy to replace the requirement that 
unwind be executed at the then-current market price with the 
requirement that any unwind must be executed in a competitive manner. 
Further, ICE Clear Europe proposes adding the requirement that, upon 
request, Clearing Members be able to demonstrate to the Clearing 
House's reasonable satisfaction that such unwind transaction was 
executed in a competitive manner. ICE Clear Europe proposes adding a 
non-exclusive list of examples of how Clearing Members may be able to 
demonstrate competitive execution of unwind transactions. Specifically, 
such examples include: (i) Execution on an available trading venue; 
(ii) multiple dealer quotes received and execution of the unwind 
transaction at the best quoted price; or (iii) placement of the unwind 
transaction with an interdealer broker with price terms and 
instructions commensurate with a competitive execution.
    In addition, the amendments make certain clarifications with 
respect to permissible reversing transactions with respect to firm 
trades, and the manner in which that Clearing House designates that 
actively traded benchmark instruments are not eligible for reversing 
transactions.
    Certain other changes are made in the CDS Pricing Policy in order 
to conform to changes that have recently been made to the CDS Risk 
Policy.\3\ Specifically, references to risk sub-factors, as that term 
is described in the CDS Risk Policy, have been added throughout the CDS 
Pricing Policy, as well as conforming changes to various references to 
risk factors. Various non-substantive drafting clarifications have also 
been made throughout the CDS Pricing Policy.
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    \3\ See Exchange Act Release No. 34-73156 (Sept. 19, 2014), 79 
FR 57629 (Sept. 25, 2014) (SR-ICEEU-2014-13).
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    The proposed changes are solely to the CDS Pricing Policy. No 
changes are proposed to ICE Clear Europe's Clearing Rules or Procedures 
as a result of these enhancements.
2. Statutory Basis
    ICE Clear Europe believes that the proposed changes are consistent 
with the requirements of Section 17A of the Act \4\ and regulations 
thereunder applicable to it.\5\ Section 17A(b)(3)(F) of the Act \6\ 
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, the safeguarding of securities 
and funds in the custody or control of ICE Clear Europe and the 
protection of investors and the public interest. The proposed rule 
change is principally designed to enhance the Clearing House's end-of-
day price discovery process for CDS Contracts, and in particular to 
result in more consistent day-over-day end-of-day price levels, as well 
as to make various other improvements to the policy as discussed above.
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    \4\ 15 U.S.C. 78q-1.
    \5\ 17 CFR 240.17Ad-22.
    \6\ 15 U.S.C. 78q-1(b)(3)(F).
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    The amendments regarding the unwind of firm trades are intended to 
make this aspect of the CDS Pricing Policy more readily enforceable, 
while maintaining the same or similar level of incentive for Clearing 
Members to provide accurate price submissions. ICE

[[Page 73128]]

Clear Europe considers the proposed revision to further its goal in the 
existing policy of assuring that Clearing Members unwind firm trades on 
a competitive basis. If Clearing Members were permitted to unwind firm 
trades non-competitively at the original firm trade price, thereby 
alleviating the firm trade's impact to their portfolio, the incentive 
to provide accurate price submissions would be diminished. Given the 
significance of accurate submission to the end-of-day pricing process, 
ICE Clear Europe believes the proposed revision both clarifies and 
enhances its CDS Pricing Policy.
    As such, the amendments will facilitate the prompt and accurate 
clearance and settlement of the CDS Contracts cleared by the Clearing 
House, and are therefore consistent with the requirements of 
17A(b)(3)(F) of the Act and the rules thereunder.

B. Self-Regulatory Organization's Statement on Burden on Competition

    ICE Clear Europe does not believe the proposed amendments would 
have any impact, or impose any burden, on competition not necessary or 
appropriate in furtherance of the purpose of the Act. The enhancements 
to the end-of-day price discovery process apply uniformly across all 
CDS Clearing Members. ICE Clear Europe does not anticipate that these 
enhancements will materially affect the cost of clearing or adversely 
affect the ability of Clearing Members or other market participants to 
continue to clear CDS Contracts. ICE Clear Europe also does not believe 
the enhancements will limit the availability of clearing in CDS 
products for Clearing Members or their customers or otherwise limit 
market participants' choices for selecting clearing services in CDS. 
Therefore, ICE Clear Europe does not believe the proposed rule change 
imposes any burden on competition that is not appropriate in 
furtherance of the purpose of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    Written comments relating to the amendments to the CDS Pricing 
Policy have not been solicited or received. 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 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-ICEEU-2014-20 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-2014-20. 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 Europe 
and on ICE Clear Europe's Web site at https://www.theice.com/clear-europe/regulation.
    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-2014-20 
and should be submitted on or before December 30, 2014.
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    \7\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\7\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-28772 Filed 12-8-14; 8:45 am]
BILLING CODE 8011-01-P


