
[Federal Register Volume 81, Number 60 (Tuesday, March 29, 2016)]
[Notices]
[Pages 17529-17532]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-06992]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77427; File No. SR-ICEEU-2016-003]


Self-Regulatory Organizations; ICE Clear Europe Limited; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating to Additions to Permitted Cover

March 23, 2016.
    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 March 11, 2016, ICE Clear Europe Limited (``ICE Clear Europe'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule changes described in Items I, II and III below, which 
Items have been prepared primarily by ICE Clear Europe. ICE Clear 
Europe filed the proposal pursuant to section 19(b)(3)(A) of the 
Act,\3\ and Rule 19b-4(f)(4)(ii)\4\ thereunder, so that the proposal 
was effective upon filing with the Commission. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(4)(ii).
---------------------------------------------------------------------------

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

    The principal purpose of the changes is to permit F&O Clearing 
Members of ICE Clear Europe to provide qualifying high-grade corporate 
and other non-sovereign or ``semi-government'' bonds (``Non-Sovereign 
Permitted Cover'') to ICE Clear Europe as Permitted Cover to satisfy 
original margin requirements for the F&O product category.

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. 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 such statements.

[[Page 17530]]

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

1. Purpose
    The purpose of the rule changes is to permit F&O Clearing Members 
of ICE Clear Europe to provide qualifying Non-Sovereign Permitted Cover 
to ICE Clear Europe to satisfy original margin requirements for the F&O 
product category. Non-Sovereign Permitted Cover will be limited to high 
grade (i.e., rated ``AA'' equivalent and above) public sector, agency, 
municipal and corporate bonds meeting certain criteria, as discussed 
herein. ICE Clear Europe intends to commence accepting the Non-
Sovereign Permitted Cover once all necessary regulatory approvals have 
been obtained. ICE Clear Europe believes that the changes will provide 
F&O Clearing Members access to a broader range of eligible collateral 
to support their margin obligations (and thus their clearing business), 
while continuing to satisfy the Clearing House's financial resources 
and risk management requirements.
    In order to simplify the operational aspects of holding non-
sovereign bonds (including addressing corporate actions), the Non-
Sovereign Permitted Cover may be posted by F&O Clearing Members to ICE 
Clear Europe only through triparty accounts at Euroclear or Clearstream 
Banking in accordance with the Finance Procedures. Under existing 
procedures for the use of triparty collateral service providers, the 
service provider is responsible for allowing only bonds that meet ICE 
Clear Europe's acceptable collateral requirements to be transferred 
into the triparty account by the F&O Clearing Member. ICE Clear Europe 
will thus inform the triparty collateral service providers of the 
detailed criteria for eligible Non-Sovereign Permitted Cover, and 
expect the triparty collateral service provider to reflect those 
criteria in its systems for accepting triparty collateral. ICE Clear 
Europe then monitors collateral in the triparty account periodically 
during the day. Consistent with its Collateral and Haircut Policy, ICE 
Clear Europe will continue to impose absolute and relative limits on 
the various types of Permitted Cover provided by F&O Clearing Members, 
including the Non-Sovereign Permitted Cover.
    Rather than publish a specific list of acceptable Non-Sovereign 
Permitted Cover, ICE Clear Europe proposes to establish a set of 
credit, liquidity, pricing, currency, structural and other criteria 
applicable to Non-Sovereign Permitted Cover. Bonds that meet the 
criteria may be accepted as Non-Sovereign Permitted Cover. All Non-
Sovereign Permitted Cover must be rated at least ``AA'' (or 
equivalent). ICE Clear Europe will periodically review issuers of Non-
Sovereign Permitted Cover and decline to continue to accept bonds 
issued by an entity that falls below the AA equivalent for corporate 
issuance. The issuer of Non-Sovereign Permitted Cover (other than 
certain public sector debt) must also have an equity listing or a 
credit spread. For public sector debt that is either a fully or 
implicitly guaranteed ``state'' bond (e.g., Deutsche Bundesl[auml]nder 
bonds), ICE Clear Europe will generally look to the rating of the 
relevant ultimate sovereign (e.g., German (Federal) Sovereign Bonds) 
but may consider a higher haircut to reflect a wider bid-ask spread and 
reduced relative and absolute limits.
    The Non-Sovereign Permitted Cover must not be issued by a Clearing 
Member (or affiliate of a Clearing Member). In addition, Non-Sovereign 
Permitted Cover must not be issued by any entity linked to the energy 
market as determined by the Clearing House. The Non-Sovereign Permitted 
Cover must be fixed coupon or floating rate only, with no derivative 
aspects to its pricing and with no embedded caps or floors with respect 
to its price or coupon. In addition, covered bonds are not eligible. 
The Non-Sovereign Permitted Cover cannot be subject to any regulatory 
or legal constraint or third party claims that impair liquidation. The 
Non-Sovereign Permitted Cover must be redeemable only in a single 
currency, which must be one of EUR, USD, CHF, GBP, JPY, CAD, SEK, or 
NOK.
    In terms of liquidity, the issue size of the particular bond to be 
used as Non-Sovereign Permitted Cover must be at least USD 500 million. 
In addition to any otherwise applicable relative and absolute limits 
under the Collateral and Haircut Policy, ICE Clear Europe will accept a 
maximum of five percent of the total outstanding bond issuance of the 
issuer of any Non-Sovereign Permitted Cover for any single F&O Clearing 
Member's (and its affiliates') original margin requirement. The 
absolute maximum amount acceptable of Non-Sovereign Permitted Cover of 
any single bond issue from any F&O Clearing Member (and its affiliated 
Clearing Members) is ten percent of that issue. The maximum amount of 
Non-Sovereign Permitted Cover provided by an F&O Clearing Member (and 
its affiliated Clearing Members) may not exceed USD 50 million or its 
equivalent. As an additional limit, an F&O Clearing Member's use of 
Non-Sovereign Permitted Cover will be limited to twenty-five percent of 
its total F&O margin requirement.
    Valuations of Non-Sovereign Permitted Cover will be made at end of 
day by the triparty collateral service provider. For public sector Non-
Sovereign Permitted Cover (such as semi-government bonds and agency 
bonds), ICE Clear Europe will use the same pricing procedures as used 
for sovereign bonds. In terms of corporate bonds, while ICE Clear 
Europe anticipates that ``AA'' grade bonds will have readily available 
pricing, ICE Clear Europe will take additional steps to limit the use 
of illiquid bonds (for which pricing may be less available). 
Specifically, ICE Clear Europe will decline to accept those corporate 
bonds that breach 40 percent of haircut levels in the last ten days. In 
addition, where corporate bonds are not repriced on a regular basis 
(such as where the price has been unchanged for 3 or more days in a row 
under normal market conditions), ICE Clear Europe will review the 
continued acceptance of such bonds.
    Non-Sovereign Permitted Cover comprising semi-government and agency 
bonds will be managed in the same manner as the relevant sovereign 
bonds (i.e., added to the same absolute and relative limit applicable 
to such sovereign bonds under the ICE Clear Europe Collateral and 
Haircut Policy). ICE Clear Europe proposes to manage general wrong-way 
risk (``WWR'') with respect to corporate Non-Sovereign Permitted Cover 
in line with its existing WWR policy in its Collateral and Haircut 
Policy, such that a threshold per Clearing Member is established 
relative to member capital (currently 2.5% of capital). If a Clearing 
Member has a short equity position in excess of the threshold, it will 
be required to remove the Non-Sovereign Permitted Cover that presents 
WWR with respect to that position.
    As set forth in Exhibit 5, ICE Clear Europe has revised its List of 
Permitted Cover to incorporate the criteria for Non-Sovereign Permitted 
Cover.\5\
---------------------------------------------------------------------------

    \5\ As a result of the addition of such criteria, which will 
only apply to initial margin for F&O Contracts, ICE Clear Europe 
will hereafter maintain and publish separate Lists of Permitted 
Cover for F&O Contracts and CDS Contracts. The List of Permitted 
Cover for CDS Contracts is unchanged from the current List of 
Permitted Cover.
---------------------------------------------------------------------------

2. Statutory Basis
    ICE Clear Europe has identified the Non-Sovereign Permitted Cover 
as encompassing types of assets that would be appropriate for Clearing 
Members to

[[Page 17531]]

post in order to meet original margin requirements for the F&O product 
category. ICE Clear Europe believes that accepting the Non-Sovereign 
Permitted Cover is consistent with the requirements of section 17A of 
the Act \6\ and the regulations thereunder applicable to it, and is 
consistent with the prompt and accurate clearance of 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 or for which it 
is responsible, and the protection of investors and the public 
interest, within the meaning of section 17A(b)(3)(F) of the Act.\7\
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78q-1.
    \7\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    Although it has not previously accepted collateral of the type of 
the Non-Sovereign Permitted Cover, ICE Clear Europe has developed a 
detailed set of criteria addressing credit risk, liquidity risk, 
structure, pricing, wrong way risk and other relevant factors for these 
instruments. ICE Clear Europe has further analyzed the trading 
characteristics and volatility of instruments that may qualify as Non-
Sovereign Permitted Cover. As a result, ICE Clear Europe believes that 
the qualifying Non-Sovereign Permitted Cover will have characteristics 
that are appropriate for use as Permitted Cover for a Clearing Member's 
obligations in respect of original margin for F&O contracts. ICE Clear 
Europe will impose haircuts and limitations on the Non-Sovereign 
Permitted Cover under its Collateral and Haircut Policy, and will 
review and update such haircuts and limitations under that policy as 
necessary. Taken together, these criteria and related haircuts and 
limitations will restrict Non-Sovereign Permitted Cover to instruments 
that have a stable value and present low credit risk and volatility. As 
such, acceptance of such Permitted Cover is, in ICE Clear Europe's 
view, consistent with the financial resources and risk management 
requirements of the Clearing House.
    For the reasons noted above, ICE Clear Europe believes that the 
acceptance of the Non-Sovereign Permitted Cover is consistent with the 
requirements of section 17A of the Act and regulations thereunder 
applicable to it.

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 purposes of the Act. The proposed 
changes will provide additional flexibility to F&O Clearing Members by 
allowing them to use, on an optional basis, Non-Sovereign Permitted 
Cover (in addition to existing forms of Permitted Cover) to satisfy F&O 
original margin obligations. The changes will thus allow F&O Clearing 
Members access to a broader pool of potential collateral that may be 
used to satisfy margin obligations. As a result, ICE Clear Europe does 
not believe the changes will adversely affect the cost to clearing 
members or other market participants of clearing services. The changes 
will otherwise not affect the terms or conditions of any cleared 
contract or the standards or requirements for participation in or use 
of the Clearing House. Accordingly, the changes should not, in the 
Clearing House's view, affect the availability of clearing or access to 
clearing services.

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 to the rules 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

    The foregoing rule change has become effective upon filing pursuant 
to section 19(b)(3)(A) \8\ of the Act and Rule 19b-4(f)(4)(ii) \9\ 
thereunder because it effects a change in an existing service of a 
registered clearing agency that primarily affects the clearing 
operations of the clearing agency with respect to products that are not 
securities, including futures that are not security futures, swaps that 
are not security-based swaps or mixed swaps, and forwards that are not 
security forwards, and does not significantly affect any securities 
clearing operations of the clearing agency or any rights or obligations 
of the clearing agency with respect to securities clearing or persons 
using such securities-clearing service. At any time within 60 days of 
the filing of the proposed rule change, the Commission summarily may 
temporarily suspend such rule change if it appears to the Commission 
that such action is necessary or appropriate in the public interest, 
for the protection of investors, or otherwise in furtherance of the 
purposes of the Act.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(4)(ii).
---------------------------------------------------------------------------

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-2016-003 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-2016-003. 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 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#rule-filings.
    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-2016-003 
and should be submitted on or before April 19, 2016.


[[Page 17532]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
---------------------------------------------------------------------------

    \10\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Brent J. Fields,
Secretary.
[FR Doc. 2016-06992 Filed 3-28-16; 8:45 am]
 BILLING CODE 8011-01-P


