
[Federal Register Volume 80, Number 1 (Friday, January 2, 2015)]
[Notices]
[Pages 75-77]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-30700]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73941; File No. SR-ICC-2014-21]


Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of 
Filing of Proposed Rule Change To Provide for the Clearance of 
Additional Standard Western European Sovereign Single Names

December 24, 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 December 16, 2014, ICE Clear Credit LLC (``ICC'') 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 ICC. 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 purpose of the proposed rule change is to adopt rules that will 
provide the basis for ICC to clear additional credit default swap 
(``CDS'') contracts. Specifically, ICC is proposing to amend Section 
26I of its Rules to provide for the clearance of additional Standard 
Western European Sovereign CDS contracts (collectively, ``SWES 
Contracts''). ICC has been approved to clear four SWES Contracts: The 
Republic of Ireland, the Italian Republic, the Portuguese Republic, and 
the Kingdom of Spain.\3\ The proposed changes to the ICC Rules would 
provide for the clearance of additional SWES Contracts, specifically 
the Kingdom of Belgium and the Republic of Austria.
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    \3\ See Exchange Act Release No. 34-72941 (Nov. 5, 2014), 79 FR 
67213 (Nov. 12, 2014) (File No. SR-ICC-2014-14) (order approving 
rule change to clear other Western European sovereign CDS contracts) 
(the ``Prior WES Order'').
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II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, ICC included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. ICC 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

    The purpose of the proposed rule change is to adopt rules that will 
provide the basis for ICC to clear additional credit default swap 
contracts. ICC has been approved to clear four SWES Contracts: The 
Republic of Ireland, the Italian Republic, the Portuguese Republic, and 
the Kingdom of Spain.\4\ ICC proposes amending Subchapter 26I of its 
Rules to provide for the clearance of two additional SWES Contracts, 
specifically the Kingdom of Belgium and the Republic of Austria. These 
two additional SWES Contracts will be offered on the 2003 and 2014 ISDA 
Credit Derivatives Definitions. The addition of these SWES Contracts 
will benefit the market for credit default swaps on Western European by 
providing market

[[Page 76]]

participants the benefits of clearing, including reduction in 
counterparty risk and safeguarding of margin assets pursuant to 
clearing house rules. Clearing of the additional SWES Contracts will 
not require any changes in ICC's risk management framework (including 
relevant policies) or margin model.
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    \4\ Id.
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    These additional SWES Contracts have terms consistent with the 
other SWES Contracts which ICC has been approved to clear and which 
will be governed by Subchapter 26I of the ICC rules, namely the 
Republic of Ireland, the Italian Republic, the Portuguese Republic, and 
the Kingdom of Spain. Minor revisions to Subchapter 26I (Standard 
Western European Sovereign (``SWES'') Single Name) are made to provide 
for clearing the additional SWES Contracts and described as follows.
    Rule 26I-102 is modified to include the Kingdom of Belgium and the 
Republic of Austria in the list of specific Eligible SWES Reference 
Entities to be cleared by ICC.
    Additionally, in ICC Rule 26D-102 (Definitions), the definition of 
``Eligible SES Reference Entity'' is modified to correct a 
typographical error and correctly identify the reference entity for a 
cleared product as Hungary (as opposed to the Republic of Hungary).
    Section 17A(b)(3)(F) of the Act \5\ 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 clearance of additional SWES Contracts will allow 
market participants an increased ability to manage risk. ICC believes 
that acceptance of these new contracts, on the terms and conditions set 
out in the ICC Rules, is consistent with the prompt and accurate 
clearance of 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.\6\
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    \5\ 15 U.S.C. 78q-1(b)(3)(F).
    \6\ Id.
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    Clearing of the additional SWES Contracts will also satisfy the 
requirements of Rule 17Ad-22.\7\ In particular, in terms of financial 
resources, ICC will apply its existing margin methodology to the 
additional SWES Contracts. ICC believes that this model will provide 
sufficient margin to cover its credit exposure to its clearing members 
from clearing such contracts, consistent with the requirements of Rule 
17Ad-22(b)(2).\8\ In addition, ICC believes its Guaranty Fund, under 
its existing methodology, will, together with the required margin, 
provide sufficient financial resources to support the clearing of the 
new contracts consistent with the requirements of Rule 17Ad-
22(b)(3).\9\ ICC also believes that its existing operational and 
managerial resources will be sufficient for clearing of the additional 
SWES Contracts, consistent with the requirements of Rule 17Ad-
22(d)(4),\10\ as the new contracts are similar from an operational 
perspective to existing SWES Contracts. Similarly, ICC will use its 
existing settlement procedures and account structures for the new 
contracts, consistent with the requirements of Rule 17Ad-22(d)(5), (12) 
and (15) \11\ as to the finality and accuracy of its daily settlement 
process and avoidance of the risk to ICC of settlement failures. 
Finally, ICC will apply its existing default management policies and 
procedures for the new contracts. ICC believes that these procedures 
allow for 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 additional 
SWES Contracts, in accordance with Rule 17Ad-22(d)(11).\12\
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    \7\ 17 CFR 240.17Ad-22.
    \8\ 17 CFR 240.17Ad-22(b)(2).
    \9\ 17 CFR 240.17Ad-22(b)(3).
    \10\ 17 CFR 240.17Ad-22(d)(4).
    \11\ 17 CFR 240.17Ad-22(d)(5), (12) and (15).
    \12\ 17 CFR 240.17Ad-22(d)(11).
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    As discussed in further detail in the Prior WES Order, although the 
margin model applicable to SWES Contracts, including the additional 
SWES Contracts, may result in Clearing Participants being subject to 
different margin charges based on their domicile and correlation with 
the underlying sovereign, ICC believes that the margin model properly 
aligns the margin requirements to the risks presented by particular 
Clearing Participants. Moreover, the model operates without the need 
for ICC (or its management, Board or Risk Committee) to exercise 
discretion concerning particular Clearing Participants or the margin 
levels applicable to them. As a result, in ICC's view, the clearing of 
such contracts does not result in unfair discrimination among Clearing 
Participants within the meaning of Section 17A(b)(3)(F) of the Act and 
Rule 17Ad-22(d)(8).\13\
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    \13\ 15 U.S.C. 78q-1(b)(3)(F); 17 CFR 240.17Ad-22(d)(8).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The additional SWES Contracts will be available to all ICC 
Participants for clearing. The clearing of these additional SWES 
Contracts by ICC does not preclude the offering of the additional SWES 
Contracts for clearing by other market participants.
    Although clearance of additional SWES Contracts may result in 
higher margin requirements for some Clearing Participants as a result 
of the general wrong way risk component of the margin model, ICC 
believes that the model properly aligns margin requirements to the 
risks presented by such clearing members with respect to the additional 
SWES Contracts. As a result, ICC is of the view that these changes are 
necessary and appropriate in furtherance of the purpose of the Act and 
the Commission's regulations thereunder, including the financial 
resources and risk management requirements of Rule 17Ad-22.\14\ 
Furthermore, ICC does not believe that any such increase in margin 
requirements would significantly affect the ability of Clearing 
Participants or other market participants to continue to clear CDS, 
consistent with the risk management requirements of the clearing house, 
or otherwise limit market participants' choices for selecting clearing 
services. Accordingly, ICC does not believe that clearance of the 
additional SWES Contracts will impose any burden on competition not 
necessary or appropriate in furtherance of the purposes of the Act.
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    \14\ 17 CFR 240.17Ad-22.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    Written comments relating to the proposed rule change have not been 
solicited or received. ICC will notify the Commission of any written 
comments received by ICC.

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

[[Page 77]]

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-ICC-2014-21 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-ICC-2014-21. 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 Credit 
and on ICE Clear Credit's Web site at https://www.theice.com/clear-credit/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-ICC-2014-21 
and should be submitted on or before January 23, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2014-30700 Filed 12-31-14; 8:45 am]
BILLING CODE 8011-01-P


