
[Federal Register Volume 81, Number 106 (Thursday, June 2, 2016)]
[Notices]
[Pages 35401-35402]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-13042]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77943; File No. SR-ICEEU-2016-004]


Self-Regulatory Organizations; ICE Clear Europe Limited; Notice 
of Filing of Amendment No. 1 and Order Approving Proposed Rule Change, 
as Modified by Amendment No. 1 Thereto, Relating to Additions to 
Permitted Cover

May 27, 2016.

I. Introduction

    On February 10, 2016, ICE Clear Europe Limited (``ICE Clear 
Europe'' or the ``Clearing House'') filed with the Securities and 
Exchange Commission (``Commission''), pursuant to Section 19(b)(1) of 
the Securities Exchange Act (``Act'') \1\ and Rule 19b-4 thereunder,\2\ 
a proposed rule change relating to additions to Permitted Cover. The 
proposed rule change was published for comment in the Federal Register 
on March 2, 2016.\3\ The Commission did not receive comments on the 
proposed rule change. On April 15, 2016, the Commission extended the 
time period in which to either approve, disapprove, or institute 
proceedings to determine whether to disapprove the proposed rule change 
to May 31, 2016.\4\ On May 13, 2016, ICEEU filed Amendment No. 1 to the 
proposal.\5\ For the reasons discussed below, the Commission is 
approving the proposed rule change, as modified by Amendment No. 1.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 34-77234 (February 25, 
2016), 81 FR 10949
    (Mar. 2, 2016).
    \4\ Securities Exchange Act Release No. 34-77634 (April 15, 
2016), 81 FR 23531
    (April 21, 2016).
    \5\ ICE Clear Europe filed Amendment No. 1 to clarify in its 
List of Permitted Cover that the operation of the relative limits 
applicable to certain Permitted Cover apply across an individual 
Clearing Member's total initial margin and guaranty fund 
requirement, as described in ICE Clear Europe's Collateral and 
Haircut Policy. The List of Permitted Cover incorrectly described 
the relative limit as applying only to the initial margin 
requirement. The amendment is intended to ensure that the 
description of relative limits in the List of Permitted Cover is 
consistent with the approach set forth in ICE Clear Europe's 
Collateral and Haircut Policy, but does not substantively change any 
policies or procedures. Amendment No. 1 is not subject to comment 
because it is a technical amendment that does not alter the 
substance of the proposed rule change or raise any novel regulatory 
issues.
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II. Description of the Proposed Rule Change

    The purpose of the proposed rule change is to permit Clearing 
Members of ICE Clear Europe to provide additional categories of 
securities, including treasury bills and floating and inflation-linked 
government bonds (the ``Additional Permitted Cover'') to ICE Clear 
Europe to satisfy certain margin and guaranty fund requirements.
    Specifically, the Additional Permitted Cover will include the 
following types of government securities: (i) U.S. Treasury floating-
rate notes (``UST FRNs''), (ii) Canadian government treasury bills and 
Canadian government real return bonds, (iii) Spanish government 
treasury bills (Letras del Tesoro), (iv) Swedish government treasury 
bills, (v) German government inflation-linked bonds (of two types: 
Deutsche Bundesrepublik Inflation-Linked Bonds and Bundesobligationen 
I/L), (vi) Japanese government CPI-linked bonds, and (vii) Swedish 
government inflation index-linked bonds.
    ICE Clear Europe represents that it believes that the Additional 
Permitted Cover is of minimal credit risk, comparable to that of other 
sovereign debt currently accepted by ICE Clear Europe as Permitted 
Cover. ICE Clear Europe also represents that other debt obligations of 
the same governments that issue the Additional Permitted Cover are 
currently eligible as Permitted Cover. According to ICE Clear Europe, 
the Additional Permitted Cover consisting of treasury bills is 
substantially similar to existing forms of treasury bill Permitted 
Cover currently accepted by the Clearing House. In terms of the 
Additional Permitted Cover consisting of inflation-linked government 
bonds, ICE Clear Europe represents that it currently accepts similar 
bonds issued by other governments. As a result, ICE Clear Europe does 
not believe that such bonds would pose any additional or novel risks 
for the Clearing House. ICE Clear Europe further believes that the 
Additional Permitted Cover has demonstrated low volatility, including 
in stressed market conditions.
    ICE Clear Europe represents that it will initially apply to the 
Additional Permitted Cover the same valuation haircuts as currently 
applied to currently accepted bonds of the same issuer and within the 
same maturity bucket. ICE Clear Europe also asserts that it will review 
and modify such haircuts from time to time, in accordance with Clearing 
House's Collateral and Haircut Policy and will impose both absolute 
limits and relative limits for each type of Additional Permitted Cover 
(other than U.S. Treasury obligations), consistent with the existing 
issuer limits for Permitted Cover and the Collateral and Haircut 
Policy. As part of that policy, ICE Clear Europe asserts that an 
additional haircut will apply where Additional Permitted Cover is used 
to cover a margin requirement denominated in a different currency, to 
cover the exchange rate risk.
    ICE Clear Europe represents that it will accept the Additional 
Permitted Cover in respect of original margin requirements for F&O 
Contracts and initial margin requirements for CDS Contracts. In 
addition, ICE Clear Europe represents that the UST FRNs will be 
accepted as Permitted Cover in respect of F&O and CDS guaranty fund 
contribution requirements and the Spanish and German securities 
constituting Additional Permitted Cover will also be accepted for the 
Euro-denominated component of the CDS guaranty fund. According to ICE 
Clear Europe, the other types of Additional Permitted Cover will not be 
accepted in respect of guaranty fund requirements and the Additional 
Permitted Cover cannot be used to satisfy variation margin requirements 
because variation margin must be paid in cash in the currency of the 
contract.

III. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act \6\ directs the Commission to 
approve a proposed rule change of a self-regulatory organization if the 
Commission finds that the 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 \7\ 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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    \6\ 15 U.S.C. 78s(b)(2)(C).
    \7\ 15 U.S.C. 78q-1(b)(3)(F).
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    The Commission finds that the proposed rule change is consistent 
with the requirements of Section 17A of the Act \8\ and the rules and 
regulations thereunder applicable to ICE Clear Europe. The proposed 
rule change will permit Clearing Members of ICE Clear Europe to provide 
additional categories of securities to satisfy certain margin and 
guaranty fund requirements. The

[[Page 35402]]

Additional Permitted Cover is substantially similar to existing forms 
of Permitted Cover, will be subject to the same valuation haircuts as 
currently applied to currently accepted bonds of the same issuer and 
within the same maturity bucket, and will be subject to both absolute 
limits and relative limits, consistent with the existing issuer limits 
for Permitted Cover and the Collateral and Haircut Policy. The 
Commission believes that the proposed rule change is intended to allow 
Clearing Members more flexibility in meeting their margin and guaranty 
fund requirements without compromising ICE Clear Europe's risk 
management function.
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    \8\ 15 U.S.C. 78q-1.
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    The Commission therefore finds that the proposed rule change is 
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 and, in general, to 
protect investors and the public interest.

IV. 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 \9\ and the 
rules and regulations thereunder.
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    \9\ 15 U.S.C. 78q-1.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\10\ that the proposed rule change (File No. SR-ICEEU-2016-004) as 
amended by Amendment No. 1, be, and hereby is, approved.\11\
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    \10\ 15 U.S.C. 78s(b)(2).
    \11\ 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.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-13042 Filed 6-1-16; 8:45 am]
 BILLING CODE 8011-01-P


