
[Federal Register Volume 80, Number 20 (Friday, January 30, 2015)]
[Notices]
[Pages 5169-5171]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-01752]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74133; File No. SR-ICEEU-2015-003]


Self-Regulatory Organizations; ICE Clear Europe Limited; Notice 
of Filing and Order Granting Accelerated Approval of Proposed Rule 
Change Related to New Haircuts

January 26, 2015.
    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 January 23, 2015, ICE Clear Europe Limited (``ICE Clear Europe'') 
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 and to approve the proposed rule change 
on an accelerated basis.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The principal purpose of the proposed rule change is to modify the 
cross-currency haircuts applied by ICE Clear Europe to Permitted Cover 
provided by Clearing Members in order to address recent volatility in 
Swiss franc (``CHF'') exchange rates. The Clearing House has determined 
to modify the CHF cross-currency haircuts as follows:

                  Proposed CHF Cross Currency Haircuts
------------------------------------------------------------------------
                                                     Current    Proposed
                   Currency pair                     haircut    haircut
                                                       (%)        (%)
------------------------------------------------------------------------
CHF-CAD...........................................      10.00      16.00
CHF-CZK...........................................       6.00      17.25
CHF-DKK...........................................       6.00      17.25
CHF-EUR...........................................      10.00      17.25
CHF-GBP...........................................      10.00      16.25
CHF-HUF...........................................       6.00      17.25
CHF-JPY...........................................       6.00      16.25
CHF-NOK...........................................       6.00      14.75
CHF-PLN...........................................       6.00      18.50
CHF-SEK...........................................       8.00      16.00
CHF-TRY...........................................       6.00      17.50
CHF-USD...........................................      10.00      15.75
CHF-ZAR...........................................       6.00      19.75
------------------------------------------------------------------------

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 proposed rule 
change. The text of these statements may be examined at the places 
specified in Item III 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
    Under its existing margin and haircut methodology, ICE Clear Europe 
imposes an additional haircut, referred to as a ``cross-currency 
haircut,'' with respect to assets provided by Clearing Members as 
Permitted Cover for margin obligations where the Permitted Cover is 
denominated in a different currency from that of the relevant margin 
requirement. The cross-currency haircut is designed to protect the 
Clearing House against exchange rate risk in the event it needs to 
liquidate the Permitted Cover and convert the proceeds into the 
currency of the relevant underlying obligation following a Clearing 
Member default.\3\
---------------------------------------------------------------------------

    \3\ Current cross-currency haircuts are set out in the List of 
Permitted Cover and Limits on Collateral published on the Clearing 
House's Web site, https://www.theice.com/publicdocs/clear_europe/list-of-permitted-covers.pdf.
---------------------------------------------------------------------------

    As has been publicly reported, on January 15, 2015, the Swiss 
central bank discontinued a policy establishing a minimum exchange rate 
of 1.20 Swiss francs per Euro. Very large moves in Swiss franc exchange 
rates followed that decision, with the result that the Swiss franc 
appreciated approximately 16-17% on that day against other major 
currencies such as the US dollar, Euro and British pound. Because that 
level of appreciation exceeded the existing cross-currency haircut of 
10% applied by the Clearing House for those currency pairs, the 
Clearing House, consistent with its internal policies, reviewed the 
cross-currency haircut levels for all relevant Swiss franc currency 
pairs. As a result of that review, the Clearing House determined to 
modify the CHF cross-currency haircuts as set forth in Item I above.
    In reviewing the haircuts, the Clearing House applied, consistent 
with its policies and practices, a value at risk model under both 
parametric and historical simulation methods, taking into account both 
recent volatility and historical volatility, and looking at both one 
and two day liquidation period assumptions for the relevant Permitted 
Cover.
2. Statutory Basis
    ICE Clear Europe believes that the change in CHF cross-currency 
haircuts is consistent with the requirements of Section 17A of the Act 
\4\ and the regulations thereunder applicable to it, and in particular, 
is consistent with the prompt and accurate clearance of and settlement 
of securities 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, within the meaning of Section 
17A(b)(3)(F) of the Act.\5\ ICE Clear Europe is proposing the change in 
response to a significant recent increase in the volatility of CHF 
exchange rates as observed in the market. The Clearing House has 
determined, based on the application of its internal policies and value 
at risk models, that the proposed increase in cross-currency haircuts 
is appropriate to protect the Clearing House against currency risk 
where Clearing Members provide Permitted Cover in one currency to cover 
margin obligations in a different currency. The change thus enhances 
the Clearing House's risk management, margin framework and financial 
resources to support its clearing operations in the event of Clearing 
Member default. As a result, ICE Clear Europe believes that the change 
will facilitate the prompt and accurate clearance and settlement of 
securities and derivatives transactions, and promote the public 
interest and the protection of investors, within the meaning of Section 
17A(b)(3)(F) of the Act.\6\
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78q-1.
    \5\ 15 U.S.C. 78q-1(b)(3)(F).
    \6\ 15 U.S.C. 78q-1(b)(3)(F).

---------------------------------------------------------------------------

[[Page 5170]]

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

    ICE Clear Europe does not believe the proposed changes would have 
any impact, or impose any burden, on competition not necessary or 
appropriate in furtherance of the purposes of the Act. The proposed 
change will apply to all Clearing Members and market participants that 
provide Permitted Cover in circumstances where a CHF cross-currency 
haircut applies. ICE Clear Europe does not believe the change will have 
a material effect on access to clearing or the ability of Clearing 
Members and other market participants to obtain clearing services, or 
limit market participants' choices for clearing contracts. Although the 
increased haircuts may increase the cost of using certain types of 
Permitted Cover, ICE Clear Europe believes that such costs are 
warranted by the increased CHF exchange rate risk presented to the 
Clearing House. As a result, ICE Clear Europe believes that any impact 
on competition is appropriate in furtherance of the purposes 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 proposed changes have not been 
solicited or received. ICE Clear Europe will notify the Commission of 
any written comments received by ICE Clear Europe.

III. 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-2015-003 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-2015-003. 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 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.
    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-2015-003 
and should be submitted on or before February 20, 2015.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    Section 19(b)(2)(C) of the Act \7\ directs the Commission to 
approve a proposed rule change of a self-regulatory organization if it 
finds that such proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to such organization. Section 17A(b)(3)(F) of the Act \8\ 
requires, among other things, that the rules of a registered 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, and, in general, to 
protect investors and the public interest.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78s(b)(2)(C).
    \8\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    The Commission finds that the proposed revisions to the Swiss franc 
cross-currency haircuts are consistent with the requirements of Section 
17A of the Act \9\ and the rules and regulations thereunder applicable 
to ICE Clear Europe. ICE Clear Europe proposes to revise the cross-
currency haircut levels for all relevant Swiss franc currency pairs in 
response to increased volatility in Swiss franc exchange rates, which 
has resulted in appreciation of the Swiss franc exceeding the existing 
cross-currency haircuts applied to its Swiss franc currency pairs. The 
revised haircuts, which were determined using risk-based models and 
parameters, are intended to protect ICE Clear Europe from exchange rate 
risk in the event it needs to liquidate relevant Permitted Cover and 
convert the proceeds into the currency of the relevant underlying 
obligation following the default of a Clearing Member. The Commission 
therefore believes that the proposed rule change is designed to promote 
the prompt and accurate clearance and settlement of securities and 
derivatives transactions, and, in general, to protect investors and the 
public interest, consistent with Section 17A(b)(3)(F) of the Act \10\ 
and the rules and regulations thereunder.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78q-1.
    \10\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    ICE Clear Europe has requested that the Commission approve the 
proposed rule change on an accelerated basis for good cause shown. ICE 
Clear Europe states that the proposed rule change is intended to 
address a recent market development resulting in substantially 
increased volatility in Swiss franc exchange rates. ICE Clear Europe 
believes that in light of these developments, it is necessary to 
increase the Swiss franc cross-currency haircuts as set forth herein in 
order to appropriately manage the currency risks from Permitted Cover 
provided to the Clearing House. ICE Clear Europe further believes that 
a delay in implementation of the proposed changes could adversely 
affect its risk management and unnecessarily expose the Clearing House 
to increased currency risk if it were necessary to liquidate Permitted 
Cover in the event of a Clearing Member default. Accordingly, the 
Commission finds good cause, pursuant to Section 19(b)(2)(C)(iii) of 
the Act,\11\ for approving the proposed rule change on an accelerated 
basis.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(2)(C)(iii).
---------------------------------------------------------------------------

V. 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

[[Page 5171]]

Act \12\ and the rules and regulations thereunder.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\13\ that the proposed rule change (SR-ICEEU-2015-003) be, and 
hereby is, approved on an accelerated basis.\14\
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78s(b)(2).
    \14\ 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.\15\
---------------------------------------------------------------------------

    \15\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015-01752 Filed 1-29-15; 8:45 am]
BILLING CODE 8011-01-P


