Federal Register / Vol. 75, No. 47 / Thursday, March 11, 2010 / Notices 11589 

1See generally Securities Exchange Act Release 

No. 60372 (Jul. 23, 2009), 74 FR 37748 (Jul. 29, 

2009) (temporary exemptions in connection with 

CDS clearing by ICE Clear Europe Limited); 

Securities Exchange Act Release No. 60373 (Jul. 23, 

2009), 74 FR 37740 (Jul. 29, 2009) (temporary 

exemptions in connection with CDS clearing by 

Eurex Clearing AG); Securities Exchange Act 

Release No. 59578 (Mar. 13, 2009), 74 FR 11781 

(Mar. 19, 2009) and Securities Exchange Act 

Release No. 61164 (Dec. 14, 2009), 74 FR 67258 

(Dec. 18, 2009) (temporary exemptions in 

connection with CDS clearing by Chicago 

Mercantile Exchange Inc.); Securities Exchange Act 

Release No. 59527 (Mar. 6, 2009), 74 FR 10791 

(Mar. 12, 2009) (hereinafter, the ‘‘March 2009 ICE 

Trust Order’’) and Securities Exchange Act Release 

No. 61119 (Dec. 4, 2009), 74 FR 65554 (Dec. 10, 

2009) (hereinafter, the ‘‘December 2009 ICE Trust 

Order,’’ collectively with the March 2009 ICE Trust 

Order, the ‘‘2009 ICE Trust Orders’’) (temporary 

exemptions in connection with CDS clearing by ICE 

US Trust LLC (now ‘‘ICE Trust U.S. LLC’’)); 

Securities Exchange Act Release No. 59164 (Dec. 

24, 2008), 74 FR 139 (Jan. 2, 2009) (temporary 

exemptions in connection with CDS clearing by 

LIFFE A&M and LCH.Clearnet Ltd.) and other 

Commission actions discussed in several of these 

orders. 

In addition, we have issued interim final 

temporary rules that provide exemptions under the 

Securities Act of 1933 and the Securities Exchange 

Act of 1934 for CDS to facilitate the operation of 

one or more central counterparties for the CDS 

market. See Securities Act Release No. 8999 (Jan. 

14, 2009), 74 FR 3967 (Jan. 22, 2009) (initial 

approval); Securities Act Release No. 9063 (Sep. 14, 

2009), 74 FR 47719 (Sep. 17, 2009) (extension until 

Nov. 30, 2010). 

Further, the Commission has provided temporary 

exemptions in connection with Sections 5 and 6 of 

the Securities Exchange Act of 1934 for transactions 

in CDS. See Securities Exchange Act Release No. 

59165 (Dec. 24, 2008), 74 FR 133 (Jan. 2, 2009) 

(initial exemption); Securities Exchange Act Release 

No. 60718 (Sep. 25, 2009), 74 FR 50862 (Oct. 1, 

2009) (extension until Mar. 24, 2010). 

2A CDS is a bilateral contract between two 

parties, known as counterparties. The value of this 

financial contract is based on underlying 

obligations of a single entity (‘‘reference entity’’) or 

on a particular security or other debt obligation, or 

an index of several such entities, securities, or 

obligations. The obligation of a seller to make 

payments under a CDS contract is triggered by a 

default or other credit event as to such entity or 

entities or such security or securities. Investors may 

use CDS for a variety of reasons, including to offset 

Continued 

Company a list of the names of each 

Fund of Funds Affiliate and 

Underwriting Affiliate. The Fund of 

Funds will notify the Unaffiliated 

Investment Company of any changes to 

the list of the names as soon as 

reasonably practicable after a change 

occurs. The Unaffiliated Investment 

Company and the Fund of Funds will 

maintain and preserve a copy of the 

order, the Participation Agreement, and 

the list with any updated information 

for the duration of the investment and 

for a period of not less than six years 

thereafter, the first two years in an 

easily accessible place. 

9. Before approving any advisory 

contract under section 15 of the Act, the 

Board of each Fund of Funds, including 

a majority of the Independent Trustees, 

shall find that the advisory fees charged 

under such advisory contract are based 

on services provided that are in addition 

to, rather than duplicative of, services 

provided under the advisory contract(s) 

of any Underlying Fund in which the 

Fund of Funds may invest. Such finding 

and the basis upon which the finding 

was made will be recorded fully in the 

minute books of the appropriate Fund of 

Funds. 

10. The Adviser will waive fees 

otherwise payable to it by a Fund of 

Funds in an amount at least equal to any 

compensation (including fees received 

pursuant to any plan adopted by an 

Unaffiliated Investment Company under 

rule 12b–1 under the Act) received from 

an Unaffiliated Fund by the Adviser, or 

an affiliated person of the Adviser, other 

than any advisory fees paid to the 

Adviser or its affiliated person by an 

Unaffiliated Investment Company, in 

connection with the investment by the 

Fund of Funds in the Unaffiliated Fund. 

Any Subadviser will waive fees 

otherwise payable to the Subadviser, 

directly or indirectly, by the Fund of 

Funds in an amount at least equal to any 

compensation received by the 

Subadviser, or an affiliated person of the 

Subadviser, from an Unaffiliated Fund, 

other than any advisory fees paid to the 

Subadviser or its affiliated person by an 

Unaffiliated Investment Company, in 

connection with the investment by the 

Fund of Funds in the Unaffiliated Fund 

made at the direction of the Subadviser. 

In the event that the Subadviser waives 

fees, the benefit of the waiver will be 

passed through to the Fund of Funds. 

11. With respect to Registered 

Separate Accounts that invest in a Fund 

of Funds, no sales load will be charged 

at the Fund of Funds level or at the 

Underlying Fund level. Other sales 

charges and service fees, as defined in 

NASD Conduct Rule 2830, if any, will 

be charged at the Fund of Funds level 

or at the Underlying Fund level, not 

both. With respect to other investments 

in a Fund of Funds, any sales charges 

and/or service fees charged with respect 

to shares of a Fund of Funds will not 

exceed the limits applicable to a fund of 

funds set forth in NASD Conduct Rule 

2830. 

12. No Underlying Fund will acquire 

securities of any other investment 

company or company relying on section 

3(c)(1) or 3(c)(7) of the Act in excess of 

the limits contained in section 

12(d)(1)(A) of the Act, except to the 

extent that such Underlying Fund: (a) 

Receives securities of another 

investment company as a dividend or as 

a result of a plan of reorganization of a 

company (other than a plan devised for 

the purpose of evading section 12(d)(1) 

of the Act); or (b) acquires (or is deemed 

to have acquired) securities of another 

investment company pursuant to 

exemptive relief from the Commission 

permitting such Underlying Fund to (i) 

acquire securities of one or more 

investment companies for short-term 

cash management purposes, or (ii) 

engage in interfund borrowing and 

lending transactions. 

Other Investments by Same Group 

Funds of Funds 

Applicants agree that the relief to 

permit Same Group Funds of Funds to 

invest in Other Investments shall be 

subject to the following condition: 

13. Applicants will comply with all 

provisions of rule 12d1–2 under the Act, 

except for paragraph (a)(2), to the extent 

that it restricts any Same Group Fund of 

Funds from investing in Other 

Investments as described in the 

application. 

For the Commission, by the Division of 

Investment Management, pursuant to 

delegated authority. 

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–5213 Filed 3–10–10; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–61662; File No. S7–05–09] 

Order Extending Temporary 

Exemptions Under the Securities 

Exchange Act of 1934 in Connection 

with Request of ICE Trust U.S. LLC 

Related to Central Clearing of Credit 

Default Swaps, and Request for 

Comments 

March 5, 2010. 

I. Introduction 

The Securities and Exchange 

Commission (‘‘Commission’’) has taken 

multiple actions 1 designed to address 

concerns related to the market in credit 

default swaps (‘‘CDS’’).2 The over-theVerDate Nov<24>2008 16:35 Mar 10, 2010 Jkt 220001 PO 00000 Frm 00085 Fmt 4703 Sfmt 4703 E:\FR\FM\11MRN1.SGM 11MRN1

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11590 Federal Register / Vol. 75, No. 47 / Thursday, March 11, 2010 / Notices 

or insure against risk in their fixed-income 

portfolios, to take positions in bonds or in segments 

of the debt market as represented by an index, or 

to take positions on the volatility in credit spreads 

during times of economic uncertainty. 

Growth in the CDS market has coincided with a 

significant rise in the types and number of entities 

participating in the CDS market. CDS were initially 

created to meet the demand of banking institutions 

looking to hedge and diversify the credit risk 

attendant to their lending activities. However, 

financial institutions such as insurance companies, 

pension funds, securities firms, and hedge funds 

have entered the CDS market. 

3See generally actions referenced in note 1, 

supra. 

4 15 U.S.C. 78c–1. Section 3A excludes both a 

non-security-based and a security-based swap 

agreement from the definition of ‘‘security’’ under 

Section 3(a)(10) of the Exchange Act, 15 U.S.C. 

78c(a)(10). Section 206A of the Gramm-Leach-Bliley 

Act defines a ‘‘swap agreement’’ as ‘‘any agreement, 

contract, or transaction between eligible contract 

participants (as defined in section 1a(12) of the 

Commodity Exchange Act . . .) . . . the material 

terms of which (other than price and quantity) are 

subject to individual negotiation.’’ 15 U.S.C. 78c 

note. 

5See generally actions referenced in note 1, 

supra. 

6For purposes of this Order, ‘‘Cleared CDS’’ 

means a credit default swap that is submitted (or 

offered, purchased, or sold on terms providing for 

submission) to ICE Trust, that is offered only to, 

purchased only by, and sold only to eligible 

contract participants (as defined in Section 1a(12) 

of the Commodity Exchange Act as in effect on the 

date of this Order (other than a person that is an 

eligible contract participant under paragraph (C) of 

that section)), and in which: (i) The reference entity, 

the issuer of the reference security, or the reference 

security is one of the following: (A) An entity 

reporting under the Exchange Act, providing 

Securities Act Rule 144A(d)(4) information, or 

about which financial information is otherwise 

publicly available; (B) a foreign private issuer 

whose securities are listed outside the United States 

and that has its principal trading market outside the 

United States; (C) a foreign sovereign debt security; 

(D) an asset-backed security, as defined in 

Regulation AB, issued in a registered transaction 

with publicly available distribution reports; or (E) 

an asset-backed security issued or guaranteed by the 

Federal National Mortgage Association (‘‘Fannie 

Mae’’), the Federal Home Loan Mortgage 

Corporation (‘‘Freddie Mac’’) or the Government 

National Mortgage Association (‘‘Ginnie Mae’’); or 

(ii) the reference index is an index in which 80 

percent or more of the index’s weighting is 

comprised of the entities or securities described in 

subparagraph (i). See definition in paragraph 

III.(f)(1) of this Order. As discussed above, the 

Commission’s action today does not affect CDS that 

are swap agreements under Section 206A of the 

Gramm-Leach-Bliley Act. See text at note 4, supra. 

7See Letter from Kevin McClear, ICE Trust, to 

Elizabeth Murphy, Secretary, Commission, Mar. 5, 

2010 (‘‘March 2010 Request’’). 

8See id. The exemptions we are granting today 

are based on all of the representations made by ICE 

Trust, which incorporate representations made by 

or on behalf of ICE Trust as part of the requests that 

preceded our earlier exemptions addressing CDS 

clearing by ICE Trust. We recognize, however, that 

there could be legal uncertainty in the event that 

one or more of the underlying representations were 

to become inaccurate. Accordingly, if any of these 

exemptions were to become unavailable by reason 

of an underlying representation no longer being 

materially accurate, the legal status of existing open 

positions in non-excluded CDS that previously had 

been cleared pursuant to the exemptions would 

remain unchanged, but no new positions could be 

established pursuant to the exemptions until all of 

the underlying representations were again accurate. 

9See March 2010 Request, supra note 7. In its 

present request, ICE Trust states that, consistent 

with an earlier representation, it has adopted a 

requirement that clearing members subject to the 

framework are regulated by: (i) A signatory to the 

International Organization of Securities 

Commissions (‘‘IOSCO’’) Multilateral Memorandum 

of Understanding Concerning Consultation and 

Cooperation and the Exchange of Information, or (ii) 

a signatory to a bilateral arrangement with the 

Commission for enforcement cooperation. 

ICE Trust also states that it has commenced 

implementation of certain changes to the end-of-day 

settlement price process described in the December 

2009 ICE Trust Order in connection with the 

clearing of single-name CDS. Specifically, ICE Trust 

has implemented required trading for single-name 

CDS on a daily basis, rather than the random-day 

basis that applies to index CDS, for the 100 basis 

point coupon for certain single-name CDS (and one 

tenor). As ICE Trust rolls out additional single 

names, it expects to include the additional single 

names in the required trading process. ICE Trust 

also anticipates including other coupons and tenors 

commencing in March 2010. 

Under ICE Trust’s process for required trading for 

single-name CDS on a daily basis, on each business 

day, ICE Trust requires trading for a set percentage 

(initially set at approximately 10%) of the randomly 

selected cleared single-name reference entities. ICE 

Trust applies a filter that first selects for required 

trading the most traded ‘‘cross points’’ on a curve 

generated for each such reference entity. ICE Trust 

will also apply a notional ceiling with respect to the 

amount of required trades in CDS on the selected 

reference entities for any given day. The current 

notional ceiling is ten million (10,000,000) dollars 

counter (‘‘OTC’’) market for CDS has 

been a source of particular concern to us 

and other financial regulators, and we 

have recognized that facilitating the 

establishment of central counterparties 

(‘‘CCPs’’) for CDS can play an important 

role in reducing the counterparty risks 

inherent in the CDS market, and thus 

can help mitigate potential systemic 

impact. We have therefore found that 

taking action to help foster the prompt 

development of CCPs, including 

granting temporary conditional 

exemptions from certain provisions of 

the federal securities laws, is in the 

public interest.3

The Commission’s authority over the 

OTC market for CDS is limited. 

Specifically, Section 3A of the 

Securities Exchange Act of 1934 

(‘‘Exchange Act’’) limits the 

Commission’s authority over swap 

agreements, as defined in Section 206A 

of the Gramm-Leach-Bliley Act.4 For 

those CDS that are swap agreements, the 

exclusion from the definition of security 

in Section 3A of the Exchange Act, and 

related provisions, will continue to 

apply. The Commission’s action today 

does not affect these CDS, and this 

Order does not apply to them. For those 

CDS that are not swap agreements 

(‘‘non-excluded CDS’’), the 

Commission’s action today provides 

temporary conditional exemptions from 

certain requirements of the Exchange 

Act. 

The Commission believes that using 

well-regulated CCPs to clear 

transactions in CDS provides a number 

of benefits by helping to promote 

efficiency and reduce risk in the CDS 

market, by contributing to the goal of 

market stability, and by requiring 

maintenance of records of CDS 

transactions that would aid the 

Commission’s efforts to prevent and 

detect fraud and other abusive market 

practices.5

In the 2009 ICE Trust Orders, the 

Commission provided temporary 

conditional exemptions to ICE Trust 

U.S. LLC (‘‘ICE Trust’’) and certain other 

parties to permit ICE Trust to clear and 

settle CDS transactions.6 The current 

exemptions are scheduled to expire on 

March 7, 2010, and ICE Trust has 

requested that the Commission extend 

those exemptions.7

Based on the facts presented and the 

representations made by ICE Trust,8 and 

for the reasons discussed in this Order 

and subject to certain conditions, the 

Commission is extending each of the 

existing exemptions connected with 

CDS clearing by ICE Trust: The 

temporary conditional exemption 

granted to ICE Trust from clearing 

agency registration under Section 17A 

of the Exchange Act solely to perform 

the functions of a clearing agency for 

certain non-excluded CDS transactions; 

the temporary conditional exemption of 

ICE Trust and certain of its clearing 

members from the registration 

requirements of Sections 5 and 6 of the 

Exchange Act solely in connection with 

the calculation of mark-to-market prices 

for non-excluded CDS cleared by ICE 

Trust; the temporary conditional 

exemption of eligible contract 

participants and others from certain 

Exchange Act requirements with respect 

to non-excluded CDS cleared by ICE 

Trust; the temporary exemption of ICE 

Trust clearing members and others from 

broker-dealer registration requirements 

and related requirements in connection 

with CDS clearing by ICE Trust 

(including clearing of customer CDS 

transactions); and the temporary 

exemption from certain Exchange Act 

requirements granted to registered 

broker-dealers. This extension is 

temporary, and the exemptions will 

expire on November 30, 2010. 

II. Discussion 

In its request for an extension, ICE 

Trust represents that, other than as 

discussed in its request, there have been 

no material changes to the operations of 

ICE Trust and the representations in the 

2009 ICE Trust Orders remain true in all 

material respects.9 These 


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per single name reference entity (a reference entity 

includes all of the coupons and tenors). The 

notional ceiling for the most traded ‘‘cross point’’ on 

the tenor curve of a particular reference entity is 

five million (5,000,000) dollars. The notional 

ceilings for the other ‘‘cross points’’ on the tenor 

curve is two million five hundred thousand 

(2,500,000) dollars. 

In addition to the procedures implementing 

required trades on random days for CDS indices 

and the required trade process described above with 

respect to single name CDS, ICE Trust regularly 

monitors the quality of the respective firm’s end-ofday price submissions. On a regular basis, ICE 

Trust: (1) Performs a statistical analysis with respect 

to the dispersion of price submissions; (2) reviews 

the number of ‘‘Advisory Trades’’ for each firm; and 

(3) reviews any instances where firms have either 

submitted late prices or failed to submit prices. 

When appropriate in the view of ICE Trust 

management, it contacts firms to discuss the quality 

of their price submissions. In addition, on a regular 

basis, ICE Trust management reviews the default 

spread widths and the daily trade results 

(‘‘Advisory’’ and ‘‘Firm’’) with the ICE Trust Trading 

Advisory Committee and the ICE Trust Risk 

Committee. 

10See https://www.theice.com/marketdata/ 

reports/ReportCenter.shtml. 

11See https://www.theice.com/marketdata/ 

reports/ReportCenter.shtml. 

12See Securities Exchange Act Release No. 59527 

(Mar. 6, 2009), 74 FR 10791 (Mar. 12, 2009) and 

Securities Exchange Act Release No. 61119 (Dec. 4, 

2009), 74 FR 65554 (Dec. 10, 2009). 

13The RCCP was drafted by a joint task force 

(‘‘Task Force’’) composed of representative members 

of IOSCO and CPSS and published in November 

2004. The Task Force consisted of securities 

regulators and central bankers from 19 countries 

and the European Union. The U.S. representatives 

on the Task Force included staff from the 

Commission, the Federal Reserve Board, and the 

Commodity Futures Trading Commission. 

14 15 U.S.C. 78mm. Section 36 of the Exchange 

Act authorizes the Commission to conditionally or 

unconditionally exempt any person, security, or 

transaction, or any class or classes of persons, 

securities, or transactions, from any provision or 

provisions of the Exchange Act or any rule or 

regulation thereunder, by rule, regulation, or order, 

to the extent that such exemption is necessary or 

appropriate in the public interest, and is consistent 

with the protection of investors. 

15 ICE Trust has no rule requiring an executing 

dealer to be a clearing member. As an operational 

matter, ICE Trust currently has one authorized trade 

processing platform for submission of client CDS 

transactions, ICE Link. Currently, ICE Link does not 

have a mechanism by which a non-member dealer 

could submit a transaction for clearing at ICE Trust. 

However, ICE Trust Clearing Rule 314 provides for 

open access to ICE Trust’s clearing systems for all 

reasonably qualified execution venues and trade 

processing platforms. ICE Trust has represented that 

it remains committed to work with reasonably 

qualified execution venues and trade processing 

platforms to facilitate functionality for submission 

of trades by non-member dealers if there is interest 

in such functionality. See March 2010 Request, 

supra note 7. 

representations are discussed in detail 

in the December 2009 ICE Trust Order. 

A. ICE Trust’s CDS Clearing Activities to 

Date 

ICE Trust has cleared proprietary CDS 

transactions of its clearing members 

since March 9, 2009, and has cleared 

CDS transactions involving its clearing 

members’ clients since December 14, 

2009. As of February 11, 2010, ICE Trust 

had cleared approximately $3.82 trillion 

notional amount of CDS contracts based 

on indices of securities.10

On December 29, 2009 ICE Trust 

commenced clearing CDS contracts 

based on individual reference entities or 

securities. As of February 11, 2010, ICE 

Trust had cleared approximately $18.86 

billion notional amount of CDS 

contracts based on individual reference 

entities or securities.11

B. Extended Temporary Conditional 

Exemption from Clearing Agency 

Registration Requirement 

On December 4, 2009, in connection 

with its efforts to facilitate the 

establishment of one or more central 

counterparties (‘‘CCP’’) for Cleared CDS, 

the Commission issued the December 

2009 ICE Trust Order, conditionally 

extending the Commission’s March 

2009 ICE Trust Order, which 

conditionally exempted ICE Trust from 

clearing agency registration under 

Section 17A of the Exchange Act on a 

temporary basis. Subject to the 

conditions in the December 2009 ICE 

Trust Order, ICE Trust is permitted to 

act as a CCP for Cleared CDS by 

novating trades of non-excluded CDS 

that are securities and generating money 

and settlement obligations for 

participants without having to register 

with the Commission as a clearing 

agency. The December 2009 ICE Trust 

Order expires on March 7, 2010. 

In the 2009 ICE Trust Orders, the 

Commission recognized the need to 

ensure the prompt establishment of ICE 

Trust as a CCP for CDS transactions. The 

Commission also recognized the need to 

ensure that important elements of 

Section 17A of the Exchange Act, which 

sets forth the framework for the 

regulation and operation of the U.S. 

clearance and settlement system for 

securities, apply to the non-excluded 

CDS market. Accordingly, the temporary 

exemptions in the 2009 ICE Trust 

Orders were subject to a number of 

conditions designed to enable 

Commission staff to monitor ICE Trust’s 

clearance and settlement of CDS 

transactions.12 Moreover, the temporary 

exemptions in the 2009 ICE Trust 

Orders in part were based on ICE Trust’s 

representation that it met the standards 

set forth in the Committee on Payment 

and Settlement Systems (‘‘CPSS’’) and 

IOSCO report entitled: 

Recommendation for Central 

Counterparties (‘‘RCCP’’).13 The RCCP 

establishes a framework that requires a 

CCP to have: (i) The ability to facilitate 

the prompt and accurate clearance and 

settlement of CDS transactions and to 

safeguard its users’ assets; and (ii) sound 

risk management, including the ability 

to appropriately determine and collect 

clearing fund and monitor its users’ 

trading. This framework is generally 

consistent with the requirements of 

Section 17A of the Exchange Act. 

The Commission believes that 

continuing to facilitate the central 

clearing of CDS transactions—including 

customer CDS transactions—through a 

temporary conditional exemption from 

Section 17A will continue to provide 

important risk management and 

systemic benefits by avoiding an 

interruption in those CCP clearance and 

settlement services. Any interruption in 

CCP clearance and settlement services 

for CDS transactions would eliminate in 

the future the benefits ICE Trust 

provides to the non-excluded CDS 

market. Accordingly, and consistent 

with our findings in the 2009 ICE Trust 

Orders and for the reasons described 

herein, we find pursuant to Section 36 

of the Exchange Act 14 that it is 

necessary and appropriate in the public 

interest and is consistent with the 

protection of investors for the 

Commission to extend, until November 

30, 2010, the relief provided from the 

clearing agency registration 

requirements of Section 17A by the 

2009 ICE Trust Orders. 

Our action today balances the aim of 

facilitating ICE Trust’s continued 

service as a CCP for non-excluded CDS 

transactions with ensuring that 

important elements of Commission 

oversight are applied to the nonexcluded CDS market. The temporary 

exemptions will permit the Commission 

to continue to develop direct experience 

with the non-excluded CDS market. 

During the extended exemptive period, 

the Commission will continue to 

monitor closely the impact of the CCPs 

on the CDS market. In particular, the 

Commission will seek to assure itself 

that ICE Trust does not act in an 

anticompetitive manner or indirectly 

facilitate anticompetitive behavior with 

respect to fees charged to members, the 

dissemination of market data, and the 

access to clearing services by 

independent CDS exchanges or CDS 

trading platforms.15

This temporary extension of the 

December 2009 ICE Trust Order also is 

designed to assure that—as represented 

in ICE Trust’s request—information will 

continue to be available to market 

participants about the terms of the CDS 

cleared by ICE Trust, the 

creditworthiness of ICE Trust or any 

guarantor, and the clearance and 


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16The Commission believes that it is important in 

the CDS market, as in the market for securities 

generally, that parties to transactions should have 

access to financial information that would allow 

them to evaluate appropriately the risks relating to 

a particular investment and make more informed 

investment decisions. See generally Policy 

Statement on Financial Market Developments, The 

President’s Working Group on Financial Markets, 

March 13, 2008, available at: http://www.treas.gov/ 

press/releases/reports/ 

pwgpolicystatemktturmoil_03122008.pdf. 

17See Automated Systems of Self-Regulatory 

Organization, Exchange Act Release No. 27445 

(November 16, 1989), File No. S7–29–89, and 

Automated Systems of Self-Regulatory Organization 

(II), Exchange Act Release No. 29185 (May 9, 1991), 

File No. S7–12–91. 

18As a CCP, ICE Trust collects and processes 

information about CDS transactions, prices, and 

positions. Public availability of such information 

can improve fairness, efficiency, and 

competitiveness in the market. Moreover, with 

pricing and valuation information relating to 

Cleared CDS, market participants would be able to 

derive information about underlying securities and 

indices, potentially improving the efficiency and 

effectiveness of the securities markets. 

19 In particular, Section 5 states: 

It shall be unlawful for any broker, dealer, or 

exchange, directly or indirectly, to make use of the 

mails or any means or instrumentality of interstate 

commerce for the purpose of using any facility of 

an exchange * * * to effect any transaction in a 

security, or to report any such transactions, unless 

such exchange (1) is registered as a national 

securities exchange under section 6 of [the 

Exchange Act], or (2) is exempted from such 

registration * * * by reason of the limited volume 

of transactions effected on such exchange. * * * 

15 U.S.C. 78e. 

20 15 U.S.C. 78f. Section 6 of the Exchange Act 

also sets forth various requirements to which a 

national securities exchange is subject. 

settlement process for CDS.16 The 

Commission believes continued 

operation of ICE Trust consistent with 

the conditions of this Order will 

facilitate the availability to market 

participants of information that should 

enable them to make better informed 

investment decisions and better value 

and evaluate their Cleared CDS and 

counterparty exposures relative to a 

market for CDS that is not centrally 

cleared. 

This temporary extension of the 

December 2009 ICE Trust Order is 

subject to a number of conditions that 

are designed to enable Commission staff 

to continue to monitor ICE Trust’s 

clearance and settlement of CDS 

transactions and help reduce risk in the 

CDS market. These conditions require 

that ICE Trust: (i) Make available on its 

Web site its annual audited financial 

statements; (ii) preserve records related 

to the conduct of its Cleared CDS 

clearance and settlement services for at 

least five years (in an easily accessible 

place for the first two years); (iii) 

provide information relating to its 

Cleared CDS clearance and settlement 

services to the Commission and provide 

access to the Commission to conduct 

on-site inspections of facilities, records 

and personnel related to its Cleared CDS 

clearance and settlement services; (iv) 

notify the Commission about material 

disciplinary actions taken against any of 

its members utilizing its Cleared CDS 

clearance and settlement services, and 

about the involuntary termination of the 

membership of an entity that is utilizing 

ICE Trust’s Cleared CDS clearance and 

settlement services; (v) provide the 

Commission with changes to rules, 

procedures, and any other material 

events affecting its Cleared CDS 

clearance and settlement services; (vi) 

provide the Commission with reports 

prepared by independent audit 

personnel that are generated in 

accordance with risk assessment of the 

areas set forth in the Commission’s 

Automation Review Policy 

Statements 17 and its annual audited 

financial statements prepared by 

independent audit personnel; and (vii) 

report all significant systems outages to 

the Commission. 

In addition, this temporary extension 

of the December 2009 ICE Trust Order 

is conditioned on ICE Trust, directly or 

indirectly, making available to the 

public on terms that are fair and 

reasonable and not unreasonably 

discriminatory: (i) All end-of-day 

settlement prices and any other prices 

with respect to Cleared CDS that ICE 

Trust may establish to calculate markto-market margin requirements for ICE 

Trust clearing members; and (ii) any 

other pricing or valuation information 

with respect to Cleared CDS as is 

published or distributed by ICE Trust.18

C. Extended Temporary Conditional 

Exemption From Exchange Registration 

Requirements 

When we initially provided 

exemptions in connection with CDS 

clearing by ICE Trust, we granted a 

temporary conditional exemption to ICE 

Trust from the requirements of Sections 

5 and 6 of the Exchange Act, and the 

rules and regulations thereunder, in 

connection with ICE Trust’s calculation 

of mark-to-market prices for open 

positions in Cleared CDS. We also 

temporarily exempted ICE Trust 

participants from the prohibitions of 

Section 5 to the extent that they use ICE 

Trust to effect or report any transaction 

in Cleared CDS in connection with ICE 

Trust’s calculation of mark-to-market 

prices for open positions in Cleared 

CDS. Section 5 of the Exchange Act 

contains certain restrictions relating to 

the registration of national securities 

exchanges,19 while Section 6 provides 

the procedures for registering as a 

national securities exchange.20

We granted these temporary 

exemptions to facilitate the 

establishment of ICE Trust’s end-of-day 

settlement price process. ICE Trust had 

represented that in connection with its 

clearing and risk management process it 

would calculate an end-of-day 

settlement price for each Cleared CDS in 

which an ICE Trust participant has a 

cleared position, based on prices 

submitted by the participants. As part of 

this mark-to-market process, ICE Trust 

has periodically required its clearing 

members to execute certain CDS trades 

at the price at which certain quotations 

of the clearing members cross. ICE Trust 

represents that it wishes to continue 

periodically requiring clearing members 

to execute certain CDS trades in this 

manner. 

As discussed above, we have found in 

general that it is necessary or 

appropriate in the public interest, and is 

consistent with the protection of 

investors, to facilitate continued CDS 

clearing by ICE Trust. Consistent with 

that finding—and in reliance on ICE 

Trust’s representation that the end-ofday settlement pricing process, 

including the periodically required 

trading, is integral to its risk 

management—we further find that it is 

necessary or appropriate in the public 

interest, and is consistent with the 

protection of investors that we exercise 

our authority under Section 36 of the 

Exchange Act to extend, until November 

30, 2010, ICE Trust’s temporary 

exemption from Sections 5 and 6 of the 

Exchange Act in connection with its 

calculation of mark-to-market prices for 

open positions in Cleared CDS, and ICE 

Trust clearing members’ temporary 

exemption from Section 5 with respect 

to such trading activity. 

The temporary exemption for ICE 

Trust will continue to be subject to three 

conditions. First, ICE Trust must report 

the following information with respect 

to its calculation of mark-to-market 

prices for Cleared CDS to the 

Commission within 30 days of the end 

of each quarter, and preserve such 

reports during the life of the enterprise 

and of any successor enterprise: 

• The total dollar volume of 

transactions executed during the 

quarter, broken down by reference 

entity, security, or index; and 

• The total unit volume and/or 

notional amount executed during the 

quarter, broken down by reference 

entity, security, or index. 

Second, ICE Trust must establish and 

maintain adequate safeguards and 

procedures to protect participants’ 

confidential trading information. Such 

safeguards and procedures shall 

include: (a) Limiting access to the 


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21While Section 3A of the Exchange Act excludes 

‘‘swap agreements’’ from the definition of ‘‘security,’’ 

certain antifraud and insider trading provisions 

under the Exchange Act explicitly apply to securitybased swap agreements. See (a) paragraphs (2) 

through (5) of Section 9(a), 15 U.S.C. 78i(a), 

prohibiting the manipulation of security prices; (b) 

Section 10(b), 15 U.S.C. 78j(b), and underlying rules 

prohibiting fraud, manipulation or insider trading 

(but not prophylactic reporting or recordkeeping 

requirements); (c) Section 15(c)(1), 15 U.S.C. 

78o(c)(1), which prohibits brokers and dealers from 

using manipulative or deceptive devices; (d) 

Sections 16(a) and (b), 15 U.S.C. 78p(a) and (b), 

which address disclosure by directors, officers and 

principal stockholders, and short-swing trading by 

those persons, and rules with respect to reporting 

requirements under Section 16(a); (e) Section 20(d), 

15 U.S.C. 78t(d), providing for antifraud liability in 

connection with certain derivative transactions; and 

(f) Section 21A(a)(1), 15 U.S.C. 78u–1(a)(1), related 

to the Commission’s authority to impose civil 

penalties for insider trading violations. 

‘‘Security-based swap agreement’’ is defined in 

Section 206B of the Gramm-Leach-Bliley Act as a 

swap agreement in which a material term is based 

on the price, yield, value, or volatility of any 

security or any group or index of securities, or any 

interest therein. 

22This exemption in general applies to eligible 

contract participants, as defined in Section 1a(12) 

of the Commodity Exchange Act as in effect on the 

date of this Order, other than persons that are 

eligible contract participants under paragraph (C) of 

that section. 

23A separate temporary exemption addresses the 

Cleared CDS activities of registered broker-dealers. 

See Part II.F, infra. Solely for purposes of this 

Order, a registered broker-dealer, or a broker or 

dealer registered under Section 15(b) of the 

Exchange Act, does not refer to someone that would 

otherwise be required to register as a broker or 

dealer solely as a result of activities in Cleared CDS 

in compliance with this Order. 

24See note 40, infra. 

25Thus, for example, the Commission retains the 

ability to investigate potential violations and bring 

enforcement actions in the federal courts as well as 

in administrative proceedings, and to seek the full 

panoply of remedies available in such cases. 

26These are subject to a separate temporary class 

exemption. See note 1, supra. A national securities 

exchange that effects transactions in Cleared CDS 

would continue to be required to comply with all 

requirements under the Exchange Act applicable to 

such transactions. A national securities exchange 

could form subsidiaries or affiliates that operate 

exchanges exempt under that order. Any subsidiary 

or affiliate of a registered exchange could not 

integrate, or otherwise link, the exempt CDS 

exchange with the registered exchange including 

the premises or property of such exchange for 

effecting or reporting a transaction without being 

considered a ‘‘facility of the exchange.’’ See Section 

3(a)(2), 15 U.S.C. 78c(a)(2). 

This Order also includes a separate temporary 

exemption from Sections 5 and 6 in connection 

with the mark-to-market process of ICE Trust, 

discussed above, at note 19 and accompanying text. 

27 15 U.S.C. 78l, 78m, 78n, 78o(d), 78p. Eligible 

contract participants and other persons instead 

should refer to the interim final temporary rules 

issued by the Commission. See note 1, supra. 

28 15 U.S.C. 78o(a)(1). 

29Exchange Act Sections 15(b)(4) and 15(b)(6), 15 

U.S.C. 78o(b)(4) and (b)(6), grant the Commission 

authority to take action against broker-dealers and 

associated persons in certain situations. 

30This exemption specifically does not extend to 

the Exchange Act provisions applicable to 

government securities, as set forth in Section 15C, 

15 U.S.C. 78o–5, and its underlying rules and 

regulations. The exemption also does not extend to 

Continued 

confidential trading information of 

participants to those employees of ICE 

Trust who are operating the system or 

responsible for its compliance with this 

exemption or any other applicable rules; 

and (b) establishing and maintaining 

standards controlling employees of ICE 

Trust trading for their own accounts. 

ICE Trust must establish and maintain 

adequate oversight procedures to ensure 

that the safeguards and procedures 

established pursuant to this condition 

are followed. 

Third, ICE Trust must comply with 

the conditions to the temporary 

exemption from Section 17A of the 

Exchange Act in this Order, given that 

this exemption is granted in the context 

of our goal of continuing to facilitate ICE 

Trust’s ability to act as a CCP for nonexcluded CDS, and given ICE Trust’s 

representation that the end-of-day 

settlement pricing process, including 

the periodically required trading, is 

integral to its risk management. 

D. Extended Temporary Conditional 

General Exemption for ICE Trust and 

Certain Eligible Contract Participants 

As we recognized when we initially 

provided temporary exemptions in 

connection with CDS clearing by ICE 

Trust, applying the full panoply of 

Exchange Act requirements to 

participants in transactions in nonexcluded CDS likely would deter some 

participants from using CCPs to clear 

CDS transactions. We also recognized 

that it is important that the antifraud 

provisions of the Exchange Act apply to 

transactions in non-excluded CDS, 

particularly given that OTC transactions 

subject to individual negotiation that 

qualify as security-based swap 

agreements already are subject to those 

provisions.21

As a result, we concluded that it is 

appropriate in the public interest and 

consistent with the protection of 

investors to apply temporarily 

substantially the same framework to 

transactions by market participants in 

non-excluded CDS that applies to 

transactions in security-based swap 

agreements. Consistent with that 

conclusion, we temporarily exempted 

ICE Trust, and certain members and 

eligible contract participants, from a 

number of Exchange Act requirements, 

subject to certain conditions, while 

excluding certain enforcement-related 

and other provisions from the scope of 

the exemption. 

We believe that continuing to 

facilitate the central clearing of CDS 

transactions by ICE Trust through this 

type of temporary exemption will 

provide important risk management 

benefits and systemic benefits. We also 

believe that facilitating the central 

clearing of customer CDS transactions, 

subject to the conditions in this Order, 

will provide an opportunity for the 

customers of ICE Trust clearing 

members to control counterparty risk. 

Accordingly, pursuant to Section 36 

of the Exchange Act, the Commission 

finds that it is necessary or appropriate 

in the public interest and is consistent 

with the protection of investors to 

exercise its authority to grant an 

exemption until November 30, 2010 

from certain requirements under the 

Exchange Act. 

As before, this temporary conditional 

exemption applies to ICE Trust and to 

any eligible contract participants 22— 

including any ICE Trust clearing 

member—other than eligible contract 

participants that are self-regulatory 

organizations or eligible contract 

participants that are registered brokers 

or dealers.23

As before, under this temporary 

conditional exemption, and solely with 

respect to Cleared CDS, those persons 

generally are exempt from the 

provisions of the Exchange Act and the 

rules and regulations thereunder that do 

not apply to security-based swap 

agreements. Thus, those persons would 

still be subject to those Exchange Act 

requirements that explicitly are 

applicable in connection with securitybased swap agreements.24 In addition, 

all provisions of the Exchange Act 

related to the Commission’s 

enforcement authority in connection 

with violations or potential violations of 

such provisions would remain 

applicable.25 In this way, the temporary 

conditional exemption would apply the 

same Exchange Act requirements in 

connection with non-excluded CDS as 

apply in connection with OTC credit 

default swaps. 

Consistent with the December 2009 

ICE Trust Order exemptions, this 

temporary conditional exemption does 

not extend to: The exchange registration 

requirements of Exchange Act Sections 

5 and 6; 26 the clearing agency 

registration requirements of Exchange 

Act Section 17A; the requirements of 

Exchange Act Sections 12, 13, 14, 15(d), 

and 16; 27 the broker-dealer registration 

requirements of Section 15a(1) 28 and 

the other requirements of the Exchange 

Act, including paragraphs (4) and (6) of 

Section 15(b),29 and the rules and 

regulations thereunder that apply to a 

broker or dealer that is not registered 

with the Commission; or certain 

provisions related to government 

securities.30


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related definitions found at paragraphs (42) through 

(45) of Section 3(a), 15 U.S.C. 78c(a). The 

Commission does not have authority under Section 

36 to issue exemptions in connection with those 

provisions. See Exchange Act Section 36(b), 15 

U.S.C. 78mm(b). 

31To the extent we extend this temporary 

conditional exemption and include the same type 

of certification requirement, the clearing member 

then would annually renew the certification. 

This condition requiring clearing members to 

convey information to ICE Trust as a repository for 

regulators, and other conditions of this Order that 

require clearing members or others to convey 

information (e.g., an audit report related to the 

clearing member’s compliance with exemptive 

conditions) to ICE Trust, does not impose upon ICE 

Trust any independent duty to audit or otherwise 

review that information. These conditions also do 

not impose on ICE Trust any independent fiduciary 

or other obligation to any customer of a clearing 

member. 

32 15 U.S.C. 78o(a)(1). This section generally 

provides that, absent an exception or exemption, a 

broker or dealer that uses the mails or any means 

of interstate commerce to effect transactions in, or 

to induce or attempt to induce the purchase or sale 

of, any security must register with the Commission. 

Section 3(a)(4) of the Exchange Act generally 

defines a ‘‘broker’’ as ‘‘any person engaged in the 

business of effecting transactions in securities for 

the account of others,’’ but excludes certain bank 

securities activities. 15 U.S.C. 78c(a)(4). Section 

3(a)(5) of the Exchange Act generally defines a 

‘‘dealer’’ as ‘‘any person engaged in the business of 

buying and selling securities for his own account,’’ 

but includes exceptions for certain bank activities. 

15 U.S.C. 78c(a)(5). Exchange Act Section 3(a)(6) 

defines a ‘‘bank’’ as a bank or savings association 

that is directly supervised and examined by state 

or federal banking authorities (with certain 

additional requirements for banks and savings 

associations that are not chartered by a federal 

authority or a member of the Federal Reserve 

System). 15 U.S.C. 78c(a)(6). 

33Registered broker-dealers are required to 

segregate assets held on behalf of customers from 

proprietary assets, because segregation will assist 

customers in recovering assets in the event the 

intermediary fails. Absent such segregation, 

collateral could be used by an intermediary to fund 

its own business, and could be attached to satisfy 

the intermediary’s debts were it to fail. Moreover, 

the maintenance of adequate capital and liquidity 

protects customers, CCPs, and other market 

participants. Adequate books and records 

(including both transactional and position records) 

are necessary to facilitate day to day operations as 

well as to help resolve situations in which an 

intermediary fails and either a regulatory authority 

or receiver is forced to liquidate the firm. 

Appropriate records also are necessary to allow 

examiners to review for improper activities, such as 

insider trading or fraud. 

34We noted that in granting the temporary 

exemption, we also relied on ICE Trust’s 

representation that before offering the Non-Member 

Framework, it will adopt a requirement that nonU.S. clearing members subject to the framework are 

regulated by: (i) A signatory to the IOSCO 

Multilateral Memorandum of Understanding 

Concerning Consultation and Cooperation and the 

Exchange of Information, or (ii) a signatory to a 

bilateral arrangement with the Commission for 

enforcement cooperation. We further noted that 

non-U.S. clearing members that do not meet these 

criteria would not be eligible to rely on this 

exemption. 

35As noted above, see note 29, supra, Exchange 

Act Sections 15(b)(4) and 15(b)(6) grant the 

Commission authority to take action against brokerdealers and associated persons in certain situations. 

Accordingly, while the exemption we granted from 

broker-dealer requirements generally extended to 

persons that act as broker-dealers in the market for 

Cleared CDS (potentially including inter-dealer 

brokers that do not hold funds or securities for 

others), such persons may be subject to actions 

under Sections 15(b)(4) and (b)(6) of the Exchange 

Act. 

In addition, such persons may be subject to 

actions under Exchange Act Section 15(c)(1), 15 

U.S.C. 78o(c)(1), which prohibits brokers and 

dealers from using manipulative or deceptive 

devices. As noted above, Section 15(c)(1) explicitly 

applies to security-based swap agreements. Sections 

15(b)(4), 15(b)(6) and 15(c)(1), of course, would not 

apply to persons subject to this exemption who do 

not act as broker-dealers or associated persons of 

broker-dealers. 

36 In some circumstances, an eligible contract 

participant that does not hold customer funds or 

securities nonetheless may act as a dealer in 

securities transactions, or as a broker (such as an 

inter-dealer broker). 

37Other conditions of this exemption precluded 

the clearing of CDS transaction for natural persons, 

required certain risk disclosures to customers, 

required the clearing member also must annually 

provide ICE Trust with a self-assessment that it is 

in compliance with the requirements along with a 

report by the clearing member’s independent thirdparty auditor that attests to that assessment, and 

required the clearing member to agree to provide 

the Commission with access to information related 

to Cleared CDS transactions. 

As before, ICE Trust clearing members 

must be in material compliance with 

ICE Trust rules to be eligible for this 

temporary conditional exemption from 

Exchange Act requirements. ICE Trust 

clearing members that participate in the 

clearing of Cleared CDS transactions on 

behalf of other persons annually must 

provide a certification to ICE Trust that 

attests to whether the clearing member 

is relying on the temporary conditional 

exemption from broker-dealer related 

requirements described below.31

E. Conditional Temporary Exemption 

From Broker-Dealer Related 

Requirements for Certain Clearing 

Members of ICE Trust and Others 

In the December 2009 ICE Trust 

Order, we granted a conditional 

temporary exemption from particular 

Exchange Act requirements to certain 

clearing members of ICE Trust, and to 

certain eligible contract participants, in 

connection with CDS cleared on ICE 

Trust. Absent an exception or 

exemption, persons that effect 

transactions in non-excluded CDS that 

are securities may be required to register 

as broker-dealers pursuant to Section 

15(a)(1) of the Exchange Act.32 Certain 

reporting and other requirements of the 

Exchange Act could apply to such 

persons, as broker-dealers, regardless of 

whether they are registered with the 

Commission. 

In granting that exemption, we noted 

that it is consistent with our investor 

protection mandate to require securities 

intermediaries that receive or hold 

funds and securities on behalf of others 

to comply with standards that safeguard 

the interests of their customers.33 We 

recognized, however, that requiring 

intermediaries that receive or hold 

funds and securities on behalf of 

customers in connection with 

transactions in non-excluded CDS to 

register as broker-dealers may deter the 

use of CCPs in customer CDS 

transactions, to the detriment of the 

markets and market participants 

generally. We concluded that those 

factors, along with certain 

representations of ICE Trust,34 argued in 

favor of flexibility in applying the 

requirements of the Exchange Act to 

these intermediaries, conditioned on 

requiring the intermediaries to take 

reasonable steps to help increase the 

likelihood that their customers would 

be protected in the event the 

intermediary became insolvent, even if 

those safeguards are as not as strong as 

those required of registered brokerdealers. 

As a result, and solely with respect to 

Cleared CDS, we provided a temporary 

conditional exemption from the brokerdealer registration requirements of 

Section 15(a)(1), and the other 

requirements of the Exchange Act (other 

than paragraphs (4) and (6) of Section 

15(b) 35) and the rules and regulations 

thereunder that apply to a broker or 

dealer that is not registered with the 

Commission, to: (i) ICE Trust clearing 

members other than registered brokerdealers; and (ii) any eligible contract 

participant, other than a registered 

broker-dealer, that does not receive or 

hold funds or securities for the purpose 

of purchasing, selling, clearing, settling, 

or holding Cleared CDS positions for 

other persons.36

That exemption was subject to a 

number of conditions. For ICE Trust 

clearing members that receive or hold 

funds or securities of U.S. persons (or 

who receive or hold funds or securities 

of any person in the case of a U.S. 

clearing member)—other than for an 

affiliate that controls, is controlled by, 

or is under common control with the 

clearing member—in connection with 

Cleared CDS, these included a condition 

requiring the clearing member, as 

promptly as practicable after receipt, to 

transfer such funds and securities (other 

than those promptly returned to such 

other persons) to either the Custodial 

Client Omnibus Margin Account at ICE 

Trust or to an account held by a thirdparty custodian. Additional related 

conditions addressed the types of 

permissible arrangements for holding 

collateral at a third-party custodian, and 

permissible custodians.37


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38As before, in granting this relief we are relying 

on representations by ICE Trust that non-U.S. 

clearing members that provide their customers with 

access to CDS clearing on ICE Trust are regulated 

by: (i) A signatory to the IOSCO Multilateral 

Memorandum of Understanding Concerning 

Consultation and Cooperation and the Exchange of 

Information, or (ii) a signatory to a bilateral 

arrangement with the Commission for enforcement 

cooperation. Non-U.S. clearing members that do not 

meet these criteria would not be eligible to rely on 

this exemption. 

39 In some circumstances, an eligible contract 

participant that does not hold customer funds or 

securities nonetheless may act as a dealer in 

securities transactions, or as a broker (such as an 

inter-dealer broker). 

Solely for purposes of this requirement, an 

eligible contract participant would not be viewed as 

receiving or holding funds or securities for purpose 

of purchasing, selling, clearing, settling, or holding 

Cleared CDS positions for other persons, if the other 

persons involved in the transaction would not be 

considered ‘‘customers’’ of the eligible contract 

participant under the analysis used for determining 

whether certain persons would be considered 

‘‘customers’’ of a broker-dealer under Exchange Act 

Rule 15c3–3(a)(1). For these purposes, and for the 

purpose of the definition of ‘‘Cleared CDS,’’ the 

terms ‘‘purchasing’’ and ‘‘selling’’ mean the 

execution, termination (prior to its scheduled 

maturity date), assignment, exchange, or similar 

transfer or conveyance of, or extinguishing the 

rights or obligations under, a Cleared CDS, as the 

context may require. This is consistent with the 

meaning of the terms ‘‘purchase’’ or ‘‘sale’’ under the 

Exchange Act in the context of security-based swap 

agreements. See Exchange Act Section 3A(b)(4). 

40The clearing member must disclose that it is 

not regulated by the Commission and that U.S. 

broker-dealer segregation requirements and 

protections under the Securities Investor Protection 

Act will not apply, that the insolvency law of the 

applicable jurisdiction may affect the customer’s 

ability to recover funds and securities or the speed 

of any such recovery, and (if applicable) that nonU.S. members may be subject to an insolvency 

regime that is materially different from that 

applicable to U.S. persons. 

41Cash collateral transferred to ICE Trust may be 

invested in ‘‘Eligible Custodial Assets,’’ as defined 

in ICE Trust’s ‘‘Custodial Asset Policies.’’ Also, 

collateral transferred to ICE Trust may be held at 

a subcustodian. 

42We do not contemplate that either of these 

approaches involving the use of a third-party 

custodian would interfere with the ability of a 

clearing member and its customer to agree as to 

how any return or losses earned on those assets 

would be distributed between the clearing member 

and its customer. 

Also, the restriction in both approaches on the 

clearing member’s and the custodian’s ability to 

rehypothecate these customer funds and securities 

does not preclude that collateral from being 

transferred to ICE Trust as necessary to satisfy 

variation margin requirements in connection with 

the customer’s CDS position. 

43For purposes of the Order, an ‘‘affiliated 

person’’ of a clearing member mean any person who 

directly or indirectly controls a clearing member or 

any person who is directly or indirectly controlled 

by or under common control with a clearing 

member; ownership of 10 percent or more of an 

entity’s common stock will be deemed prima facie 

control of that entity. See definition in paragraph 

III.(f)(2) of this Order. This standard is analogous to 

the standard used to identify affiliated persons of 

broker-dealers under Exchange Act Rule 15c3– 

3(a)(13), 17 CFR 240.15c3–3(a)(13). 

These conditions requiring customer 

collateral to be segregated from clearing 

members address only the initial margin 

that customers post in connection with 

Cleared CDS. In the December 2009 ICE 

Trust Order we noted, however, that we 

would evaluate the protections afforded 

to customers’ mark-to-market profits 

associated with Cleared CDS positions, 

and consider the potential benefits of 

requiring clearing members to segregate 

customers’ variation margin in 

connection with Cleared CDS positions. 

As before, we are required to balance 

the goals of promoting the central 

clearing of customer CDS transactions 

against the goal of protecting customers, 

and to be mindful that these conditions 

cannot provide legal certainty that 

customer collateral in fact would be 

protected in the event an ICE Trust 

clearing member were to become 

insolvent. We believe that the 

segregation framework set forth in our 

earlier order represents a reasonable 

step to help protect the collateral posted 

by customers of ICE Trust’s clearing 

members from the threat of loss in the 

event of clearing member insolvency. 

Accordingly, pursuant to Section 36 

of the Exchange Act, the Commission 

finds that it is necessary or appropriate 

in the public interest and is consistent 

with the protection of investors to 

exercise its authority to grant a 

conditional exemption until November 

30, 2010, with respect to certain 

Exchange Act requirements related to 

broker-dealers.38 As before, this 

exemption is available to ICE Trust 

clearing members other than registered 

broker-dealers, and to any eligible 

contract participant, other than a 

registered broker-dealer, that does not 

receive or hold funds or securities for 

the purpose of purchasing, selling, 

clearing, settling, or holding Cleared 

CDS positions for other persons.39 As 

before, and solely with respect to 

Cleared CDS, those persons temporarily 

will be exempt from the broker-dealer 

registration requirements of Section 

15(a)(1), and the other requirements of 

the Exchange Act (other than paragraphs 

(4) and (6) of Section 15(b)) and the 

rules and regulation thereunder that 

apply to a broker or dealer that is not 

registered with the Commission. 

As before, for all ICE Trust clearing 

members—regardless of whether they 

receive or hold customer collateral in 

connection with Cleared CDS—this 

temporary exemption is conditioned on 

the clearing member being in material 

compliance with ICE Trust’s rules, as 

well as on the clearing member being in 

compliance with applicable laws and 

regulations relating to capital, liquidity, 

and segregation of customers’ funds and 

securities (and related books and 

records provisions) with respect to 

Cleared CDS. 

Additional conditions apply to ICE 

Trust clearing members that receive or 

hold funds or securities of U.S. persons 

(or that receive or hold funds or 

securities of any person in the case of 

a U.S. clearing member)—other than for 

an affiliate that controls, is controlled 

by, or is under common control with the 

clearing member—in connection with 

Cleared CDS. For those ICE Trust 

clearing members, this temporary 

exemption is conditioned on the 

customer not being a natural person, 

and on the clearing member providing 

certain risk disclosures to the 

customer.40

In addition, under this revised 

temporary exemption, such clearing 

members must, as promptly as practical 

after receipt, transfer such funds and 

securities—other than those promptly 

returned to such other person—to either 

the Custodial Client Omnibus Margin 

Account at ICE Trust 41 or an account 

held by a third-party custodian, as 

described below. 

As before, collateral that is held at a 

third-party custodian must either be 

held: (1) In the name of the customer, 

subject to an agreement in which the 

customer, the clearing member and the 

custodian are parties, acknowledging 

that the assets held therein are customer 

assets used to collateralize obligations of 

the customer to the clearing member, 

and that the assets held in the account 

may not otherwise be pledged or 

rehypothecated by the clearing member 

or the custodian; or (2) in an omnibus 

account for which the clearing member 

maintains daily records as to the 

amount owing to each customer, and 

which is subject to an agreement 

between the clearing member and the 

custodian specifying: (i) That all 

account assets are held for the exclusive 

benefit of the clearing member’s 

customers and are being kept separate 

from any other accounts that the 

clearing member maintains with the 

custodian; (ii) that the account assets 

may not be used as security for a loan 

to the clearing member by the 

custodian, and shall be subject to no 

right, charge, security interest, lien, or 

claim of any kind in favor of the 

custodian or any person claiming 

through the custodian; and (iii) that the 

assets may not otherwise be pledged or 

rehypothecated by the clearing member 

or the custodian.42 Under either 

approach, the third-party custodian 

cannot be affiliated with the clearing 

member.43 Moreover, if the third-party 

custodian is a U.S. entity, it must be a 


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44 In particular, custodians that are U.S. entities 

must have total capital, as calculated to meet the 

applicable requirements imposed by the entity’s 

appropriate regulatory agency of at least $1 billion. 

The term ‘‘appropriate regulatory agency’’ is defined 

in Section 3(a)(34) of the Exchange Act, 15 U.S.C. 

78c(a)(34). 

45Custodians that are non-U.S. entities must have 

total capital, as calculated to meet the applicable 

requirements imposed by the foreign financial 

regulatory authority of at least $1 billion. The term 

‘‘foreign financial regulatory authority’’ is defined in 

Section 3(a)(52) of the Exchange Act, 15 U.S.C. 

78c(a)(52). 

46See note 41, supra. 

47This provision is intended to address shortterm technology or operational issues. ICE Trust 

rules require collateral to be transferred promptly 

on receipt, with the expectation that margin would 

be transferred on the same business day. 

48 In particular, to facilitate compliance with the 

segregation practices that are required as a 

condition to this temporary exemption, the clearing 

member must annually provide ICE Trust with a 

self-assessment that it is in compliance with the 

requirements, along with a report by the clearing 

member’s independent third-party auditor that 

attests to that assessment. The report must be dated 

the same date as the clearing member’s annual audit 

report (but may be separate from it), and must be 

produced in accordance with the standards that the 

auditor follows in auditing the clearing member’s 

financial statements. 

As the self-assessment is intended to serve as the 

basis for the third-party auditor’s report, we expect 

the self-assessment to be generally 

contemporaneous with that report. 

49Specifically, to support these segregation 

practices and enhance the ability to detect and deter 

circumstances in which clearing members fail to 

segregate customer collateral consistent with the 

exemption, this temporary exemption is 

conditioned on the clearing member agreeing to 

provide the Commission with access to information 

related to Cleared CDS transactions. This 

requirement is consistent with a requirement in 

Exchange Act Rule 15a–6(a)(3)(i)(B), which exempts 

certain foreign broker-dealers from registering with 

the Commission. See Exchange Act Rule 15a– 

6(a)(3)(i)(B). 

Under this condition, the clearing member would 

provide the Commission (upon request and subject 

to agreements reached between the Commission or 

the U.S. Government and an appropriate foreign 

securities authority, see Section 3(a)(50) of the 

Exchange Act, 15 U.S.C. 78c(a)(50)), with 

information or documents within the clearing 

member’s possession, custody, or control, as well as 

testimony of clearing member personnel and 

assistance in taking the evidence of other persons, 

that relates to Cleared CDS transactions. If, after the 

clearing member has exercised its best efforts to 

provide this information (including requesting the 

appropriate governmental body and, if legally 

necessary, its customers), the clearing member 

nonetheless is prohibited from providing the 

information by applicable foreign law or 

regulations, this temporary conditional exemption 

would no longer be available to the clearing 

member. 

Consistent with the discussion above as to the 

loss of an exemption due to an underlying 

representation no longer being accurate, see note 8, 

supra, if a clearing member were to lose the benefit 

of this exemption due to the failure to provide 

information to the Commission as the result of a 

prohibition by an applicable foreign law or 

regulation, the legal status of existing open 

positions in non-excluded CDS associated with 

those clearing members and its customers would 

remain unchanged, but the clearing member could 

not establish new CDS positions pursuant to the 

exemption. 

50The temporary exemptions addressed above— 

with regard to ICE Trust, certain clearing members 

and certain eligible contract participants—are not 

available to persons that are registered as brokerdealers with the Commission (other than those that 

are notice registered pursuant to Exchange Act 

Section 15(b)(11)). Exchange Act Section 15(b)(11) 

provides for notice registration of certain persons 

that effect transactions in security futures products. 

15 U.S.C. 78o(b)(11). 

51See notes 41 and 45, supra. As noted above, 

broker-dealers also would be subject to Section 

15(c)(1) of the Exchange Act, which prohibits 

brokers and dealers from using manipulative or 

deceptive devices, because that provision explicitly 

applies in connection with security-based swap 

agreements. In addition, to the extent the Exchange 

bank (as that term is defined in Section 

3(a)(6) of the Exchange Act), have total 

regulatory capital of at least $1 billion,44

and have been approved to engage in a 

trust business by an appropriate 

regulatory agency. A custodian that is 

not a U.S. entity must have regulatory 

capital of at least $1 billion,45 and must 

provide the clearing member, the 

customer and ICE Trust with a legal 

opinion providing that the account 

assets are subject to regulatory 

requirements in the custodian’s home 

jurisdiction designed to protect, and 

provide for the prompt return of, 

custodial assets in the event of the 

custodian’s insolvency, and that the 

assets held in that account reasonably 

could be expected to be legally separate 

from the clearing member’s assets in the 

event of the clearing member’s 

insolvency. Also, cash collateral posted 

with the third-party custodian may be 

invested in other assets, consistent with 

the investment policies that govern 

collateral held at ICE Trust.46 Finally, a 

clearing member that uses a third-party 

custodian to hold customer collateral 

must notify ICE Trust of that use. 

As before, to the extent there is any 

delay in the clearing member 

transferring such funds and securities to 

ICE Trust or a third-party custodian,47

the clearing member must effectively 

segregate the collateral in a way that, 

pursuant to applicable law, could 

reasonably be expected to effectively 

protect the collateral from the clearing 

member’s creditors. The clearing 

member may not permit customers to 

‘‘opt out’’ of such segregation even if 

applicable regulations or laws otherwise 

would permit such ‘‘opt out.’’ 

Also, as before, this temporary 

exemption is conditioned on clearing 

member compliance with a selfassessment and audit requirement,48

and on the clearing member’s agreement 

to provide the Commission with access 

to information related to Cleared CDS 

transactions.49

As we discussed in the December 

2009 ICE Trust order, requiring clearing 

members that receive or hold customer 

collateral to satisfy such conditions will 

not guarantee that a customer would 

receive the return of its collateral in the 

event of a clearing member’s insolvency, 

particularly in light of the fact-specific 

nature of the insolvency process and the 

multiplicity of insolvency regimes that 

may apply to ICE Trust’s members 

clearing for U.S. customers. We believe, 

however, that these are reasonable steps 

for increasing the likelihood that 

customers would be able to access 

collateral in such an insolvency event. 

We also recognize that these customers 

generally may be expected to be 

sophisticated market participants that 

should be able to weigh the risks 

associated with entering into 

arrangements with intermediaries that 

are not registered broker-dealers, 

particularly in light of the disclosure 

required as a condition to this 

temporary exemption. 

F. Extended Temporary General 

Exemption for Certain Registered 

Broker-Dealers 

The 2009 ICE Trust Orders included 

limited exemptions from Exchange Act 

requirements to registered brokerdealers in connection with their 

activities involving Cleared CDS. In 

crafting these temporary exemptions, we 

balanced the need to avoid creating 

disincentives to the prompt use of CCPs 

against the critical role that certain 

broker-dealers play in promoting market 

integrity and protecting customers 

(including broker-dealer customers that 

are not involved with CDS transactions). 

In light of the risk management and 

systemic benefits in continuing to 

facilitate CDS clearing by ICE Trust 

through targeted exemptions to 

registered broker-dealers, the 

Commission finds pursuant to Section 

36 of the Exchange Act that it is 

necessary or appropriate in the public 

interest and is consistent with the 

protection of investors to exercise its 

authority to extend this temporary 

registered broker-dealer exemption from 

certain Exchange Act requirements until 

November 30, 2010.50

Consistent with the temporary 

exemptions discussed above, and solely 

with respect to Cleared CDS, we are 

temporarily exempting registered 

broker-dealers from provisions of the 

Exchange Act and the rules and 

regulations thereunder that do not apply 

to security-based swap agreements. As 

discussed above, we are not excluding 

registered broker-dealers from Exchange 

Act provisions that explicitly apply in 

connection with security-based swap 

agreements or from related enforcement 

authority provisions.51 As above, and 


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Act and any rule or regulation thereunder imposes 

any other requirement on a broker-dealer with 

respect to security-based swap agreements (e.g., 

requirements under Rule 17h–1T to maintain and 

preserve written policies, procedures, or systems 

concerning the broker or dealer’s trading positions 

and risks, such as policies relating to restrictions or 

limitations on trading financial instruments or 

products), these requirements would continue to 

apply to broker-dealers’ activities with respect to 

Cleared CDS. 

52We also are not exempting those members from 

provisions related to government securities, as 

discussed above. 

53 15 U.S.C. 78g(c). 

54 15 U.S.C. 78o(c)(3). 

55 15 U.S.C. 78q(a). 

56 15 U.S.C. 78q(b). 

57 12 CFR 220.1 et seq. 

58Solely for purposes of this temporary 

exemption, in addition to the general requirements 

under the referenced Exchange Act sections, 

registered broker-dealers shall only be subject to the 

enumerated rules under the referenced Exchange 

Act sections. 

59 Indeed, Congress directed the Commission to 

promulgate broker-dealer financial responsibility 

rules, including rules relating to custody, the use 

of customer securities, the use of customers’ 

deposits or credit balances, and the establishment 

of minimum financial requirements. 

60See Comment from Kristie L. Lovelady (Dec. 9, 

2009) (requesting stronger restrictions generally); 

Comment from JP Morgan (Mar. 2, 2010) (opposing 

application of segregation conditions to variation 

margin transfers, and raising issues as to 

application of segregation conditions in the context 

of portfolio margining practices; both issues are the 

subject of additional requests for comment in this 

Order). 

We also solicited comments earlier as part of the 

March 2009 ICE Trust Order, but received no 

comments in response to that request. 

for similar reasons, we are not 

exempting registered broker-dealers 

from: Sections 5, 6, 12(a) and (g), 13, 14, 

15(b)(4), 15(b)(6), 15(d), 16 and 17A of 

the Exchange Act.52

Further we are not exempting 

registered broker-dealers from the 

following additional provisions under 

the Exchange Act: (1) Section 7(c),53

regarding the unlawful extension of 

credit by broker-dealers; (2) Section 

15(c)(3),54 regarding the use of unlawful 

or manipulative devices by brokerdealers; (3) Section 17(a),55 regarding 

broker-dealer obligations to make, keep 

and furnish information; (4) Section 

17(b),56 regarding broker-dealer records 

subject to examination; (5) Regulation 

T,57 a Federal Reserve Board regulation 

regarding extension of credit by brokerdealers; (6) Exchange Act Rule 15c3–1, 

regarding broker-dealer net capital; (7) 

Exchange Act Rule 15c3–3, regarding 

broker-dealer reserves and custody of 

securities; (8) Exchange Act Rules 17a– 

3 through 17a–5, regarding records to be 

made and preserved by broker-dealers 

and reports to be made by brokerdealers; and (9) Exchange Act Rule 17a– 

13, regarding quarterly security counts 

to be made by certain exchange 

members and broker-dealers.58

Registered broker-dealers must comply 

with these provisions in connection 

with their activities involving nonexcluded CDS because these provisions 

are especially important to helping 

protect customer funds and securities, 

ensure proper credit practices and 

safeguard against fraud and abuse.59

G. Solicitation of Comments 

When we granted the December 2009 

ICE Trust Order extending the 

exemptions granted in connection with 

CDS clearing by ICE Trust and 

expanding that relief to accommodate 

central clearing of customer CDS 

transactions, we requested comment on 

all aspects of the exemptions and 

particularly requested comments as to 

the relief we granted in connection with 

customer clearing. We received two 

comments in response to this request.60

In connection with this Order 

extending the exemptions granted in 

connection with CDS clearing by ICE 

Trust, we reiterate our request for 

comments on all aspects of the 

exemptions. We particularly request 

comments as to whether the conditions 

we have placed on the relief adequately 

protect customer collateral from the 

threat posed by clearing member 

insolvency, whether additional 

conditions or requirements are 

appropriate to promote compliance with 

the requirements of the exemptions, and 

what, if any, additional conditions 

would be appropriate. 

We also request comment as to 

whether the segregation conditions of 

this Order should extend to certain 

transfers of variation margin associated 

with Cleared CDS, as well as whether 

CDS customers are able to easily access 

mark-to-market profits associated with 

Cleared CDS. Do any practices (such as, 

for example, negotiated ‘‘thresholds’’ in 

credit support annexes between clearing 

members and customers) impede 

customers from demanding and 

receiving the timely return of such 

mark-to-market profits? Should the 

Commission condition any future 

exemptions on segregating the mark-tomarket profits associated with Cleared 

CDS if they are not returned to 

customers within a certain amount of 

time following demand (subject to 

provisions regarding reasonable 

minimum transfer amounts, and 

provisions permitting offset against 

amounts owing from the customer 

directly to the clearing member)? Would 

such a condition impose significant 

operational or other costs that may deter 

the clearing of customer CDS 

transactions? Are there other factors 

(e.g., costs, benefits, market conditions, 

economic considerations, or availability 

of credit hedges) that may reduce the 

significance of any customer protection 

benefits provided by requiring 

segregation of such mark-to-market 

profits? We also invite comment on 

whether differences among CDS CCPs 

regarding protection of mark-to-market 

profits may have competitive impacts. 

In addition, we request comment on 

how clearing members intend to comply 

with this Order’s (and have complied 

with the December 2009 ICE Trust 

Order’s) condition requiring the 

segregation of all margin posted by 

customers connected with purchasing, 

selling, clearing, settling or holding 

Cleared CDS positions—not only the 

gross margin required by ICE Trust 

rules. To what extent would clearing 

firms typically require certain customers 

to post such ‘‘excess’’ margin above the 

ICE Trust requirements in connection 

with Cleared CDS transactions? 

Finally, to what extent do clearing 

members and customers seek to include 

Cleared CDS positions within portfolio 

margining calculations that include 

other instruments (e.g., non-cleared 

CDS, other OTC derivatives or 

securities)? If portfolio margining is 

used, how do clearing members allocate 

the total collateral required by a clearing 

member from a customer between the 

portion posted in connection with 

Cleared CDS (and hence subject to this 

Order’s segregation conditions) and the 

portion attributable to other derivatives 

transactions involving that clearing 

member and customer? To the extent a 

clearing member’s portfolio margin 

calculations include a customer’s 

Cleared CDS positions, is it reasonable 

to conclude that any portion of the 

customer margin is not connected with 

Cleared CDS, and thus does not need to 

be segregated? Would a dealer’s 

inclusion of Cleared CDS positions in its 

portfolio margin calculation interfere 

with the customer protection benefits of 

CDS clearing in the event of a dealer’s 

insolvency? In other words, would the 

dealer’s cleared CDS customer positions 

be portable to another dealer if 

collateralized solely by the ICE Trustrequired margin, or would the dealer’s 

cleared CDS customers be placed at a 

disadvantage in an insolvency situation 

because of this practice? Should the 

Commission provide firms with further 

guidance regarding the inclusion of 

Cleared CDS in portfolio margin 

calculations? 

Comments may be submitted by any 

of the following methods: 


jlentini on DSKJ8SOYB1PROD with NOTICES
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Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/other.shtml); or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number S7–05–09 on the subject line; 

or 

• Use the Federal eRulemaking Portal 

(http://www.regulations.gov/). Follow 

the instructions for submitting 

comments. 

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 S7–05–09. This file number 

should be included on the subject line 

if e-mail is used. To help us process and 

review your comments more efficiently, 

please use only one method. We will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/ 

rules/other.shtml). Comments are also 

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 

a.m. and 3 p.m. All comments received 

will be posted without change; we do 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. 

III. Conclusion 

It is hereby ordered, pursuant to 

Section 36(a) of the Exchange Act, that, 

until November 30, 2010: 

(a) Exemption from Section 17A of the 

Exchange Act. 

ICE Trust U.S. LLC (‘‘ICE Trust’’) shall 

be exempt from Section 17A of the 

Exchange Act solely to perform the 

functions of a clearing agency for 

Cleared CDS (as defined in paragraph 

(f)(1) of this Order), subject to the 

following conditions: 

(1) ICE Trust shall make available on 

its Web site its annual audited financial 

statements. 

(2) ICE Trust shall keep and preserve 

at least one copy of all documents, 

including all correspondence, 

memoranda, papers, books, notices, 

accounts, and other such records as 

shall be made or received by it relating 

to its Cleared CDS clearance and 

settlement services. These records shall 

be kept for at least five years and for the 

first two years shall be held in an easily 

accessible place. 

(3) ICE Trust shall supply information 

and periodic reports relating to its 

Cleared CDS clearance and settlement 

services as may be reasonably requested 

by the Commission, and shall provide 

access to the Commission to conduct 

on-site inspections of all facilities 

(including automated systems and 

systems environment), records, and 

personnel related to ICE Trust’s Cleared 

CDS clearance and settlement services. 

(4) ICE Trust shall notify the 

Commission, on a monthly basis, of any 

material disciplinary actions taken 

against any of its members utilizing its 

Cleared CDS clearance and settlement 

services, including the denial of 

services, fines, or penalties. ICE Trust 

shall notify the Commission promptly 

when ICE Trust involuntarily terminates 

the membership of an entity that is 

utilizing ICE Trust’s Cleared CDS 

clearance and settlement services. Both 

notifications shall describe the facts and 

circumstances that led to ICE Trust’s 

disciplinary action. 

(5) ICE Trust shall notify the 

Commission of all changes to rules, 

procedures, and any other material 

events affecting its Cleared CDS 

clearance and settlement services, 

including its fee schedule and changes 

to risk management practices, the day 

before effectiveness or implementation 

of such rule changes or, in exigent 

circumstances, as promptly as 

reasonably practicable under the 

circumstances. All such rule changes 

will be posted on ICE Trust’s Web site. 

Such notifications will not be deemed 

rule filings that require Commission 

approval. 

(6) ICE Trust shall provide the 

Commission with reports prepared by 

independent audit personnel that are 

generated in accordance with risk 

assessment of the areas set forth in the 

Commission’s Automation Review 

Policy Statements. ICE Trust shall 

provide the Commission (beginning in 

its first year of operation) with its 

annual audited financial statements 

prepared by independent audit 

personnel. 

(7) ICE Trust shall report all 

significant systems outages to the 

Commission. If it appears that the 

outage may extend for 30 minutes or 

longer, ICE Trust shall report the 

systems outage immediately. If it 

appears that the outage will be resolved 

in less than 30 minutes, ICE Trust shall 

report the systems outage within a 

reasonable time after the outage has 

been resolved. 

(8) ICE Trust, directly or indirectly, 

shall make available to the public on 

terms that are fair and reasonable and 

not unreasonably discriminatory: (i) All 

end-of-day settlement prices and any 

other prices with respect to Cleared CDS 

that ICE Trust may establish to calculate 

mark-to-market margin requirements for 

ICE Trust clearing members; and (ii) any 

other pricing or valuation information 

with respect to Cleared CDS as is 

published or distributed by ICE Trust. 

(b) Exemption from Sections 5 and 6 

of the Exchange Act. 

(1) ICE Trust shall be exempt from the 

requirements of Sections 5 and 6 of the 

Exchange Act and the rules and 

regulations thereunder in connection 

with its calculation of mark-to-market 

prices for open positions in Cleared 

CDS, subject to the following 

conditions: 

(i) ICE Trust shall report the following 

information with respect to the 

calculation of mark-to-market prices for 

Cleared CDS to the Commission within 

30 days of the end of each quarter, and 

preserve such reports during the life of 

the enterprise and of any successor 

enterprise: 

(A) The total dollar volume of 

transactions executed during the 

quarter, broken down by reference 

entity, security, or index; and 

(B) The total unit volume and/or 

notional amount executed during the 

quarter, broken down by reference 

entity, security, or index; 

(ii) ICE Trust shall establish and 

maintain adequate safeguards and 

procedures to protect clearing members’ 

confidential trading information. Such 

safeguards and procedures shall 

include: 

(A) Limiting access to the confidential 

trading information of clearing members 

to those employees of ICE Trust who are 

operating the system or responsible for 

its compliance with this exemption or 

any other applicable rules; and 

(B) Establishing and maintaining 

standards controlling employees of ICE 

Trust trading for their own accounts. 

ICE Trust must establish and maintain 

adequate oversight procedures to ensure 

that the safeguards and procedures 

established pursuant to this condition 

are followed; and 

(iii) ICE Trust shall satisfy the 

conditions of the temporary exemption 

from Section 17A of the Exchange Act 

set forth in paragraphs (a)(1)–(8) of this 

Order. 

(2) Any ICE Trust clearing member 

shall be exempt from the requirements 

of Section 5 of the Exchange Act to the 

extent such ICE Trust clearing member 

uses any facility of ICE Trust to effect 

any transaction in Cleared CDS, or to 

report any such transaction, in 

connection with ICE Trust’s clearance 

and risk management process for 

Cleared CDS. 


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(c) Exemption for ICE Trust, ICE Trust 

clearing members, and certain eligible 

contract participants. 

(1) Persons eligible. The exemption in 

paragraph (c)(2) is available to: 

(i) ICE Trust; and 

(ii) Any eligible contract participant 

(as defined in Section 1a(12) of the 

Commodity Exchange Act as in effect on 

the date of this Order (other than a 

person that is an eligible contract 

participant under paragraph (C) of that 

section)), including any ICE Trust 

clearing member, other than: 

(A) An eligible contract participant 

that is a self-regulatory organization, as 

that term is defined in Section 3(a)(26) 

of the Exchange Act; or 

(B) A broker or dealer registered 

under Section 15(b) of the Exchange Act 

(other than paragraph (11) thereof). 

(2) Scope of exemption. 

(i) In general. Subject to the 

conditions specified in paragraph (c)(3) 

of this subsection, such persons 

generally shall, solely with respect to 

Cleared CDS, be exempt from the 

provisions of the Exchange Act and the 

rules and regulations thereunder that do 

not apply in connection with securitybased swap agreements. Accordingly, 

under this exemption, those persons 

remain subject to those Exchange Act 

requirements that explicitly are 

applicable in connection with securitybased swap agreements (i.e., paragraphs 

(2) through (5) of Section 9(a), Section 

10(b), Section 15(c)(1), paragraphs (a) 

and (b) of Section 16, Section 20(d) and 

Section 21A(a)(1) and the rules 

thereunder that explicitly are applicable 

to security-based swap agreements). All 

provisions of the Exchange Act related 

to the Commission’s enforcement 

authority in connection with violations 

or potential violations of such 

provisions also remain applicable. 

(ii) Exclusions from exemption. The 

exemption in paragraph (c)(2)(i), 

however, does not extend to the 

following provisions under the 

Exchange Act: 

(A) Paragraphs (42), (43), (44), and 

(45) of Section 3(a); 

(B) Section 5; 

(C) Section 6; 

(D) Section 12 and the rules and 

regulations thereunder; 

(E) Section 13 and the rules and 

regulations thereunder; 

(F) Section 14 and the rules and 

regulations thereunder; 

(G) The broker-dealer registration 

requirements of Section 15(a)(1), and 

the other requirements of the Exchange 

Act (including paragraphs (4) and (6) of 

Section 15(b)) and the rules and 

regulations thereunder that apply to a 

broker or dealer that is not registered 

with the Commission; 

(H) Section 15(d) and the rules and 

regulations thereunder; 

(I) Section 15C and the rules and 

regulations thereunder; 

(J) Section 16 and the rules and 

regulations thereunder; and 

(K) Section 17A (other than as 

provided in paragraph (a)). 

(3) Conditions for ICE Trust clearing 

members. 

(i) Any ICE Trust clearing member 

relying on this exemption must be in 

material compliance with the rules of 

ICE Trust. 

(ii) Any ICE Trust clearing member 

relying on this exemption that 

participates in the clearing of Cleared 

CDS transactions on behalf of other 

persons must annually provide a 

certification to ICE Trust that attests to 

whether the clearing member is relying 

on the exemption from broker-dealer 

related requirements set forth in 

paragraph (d) of this Order. 

(d) Exemption from broker-dealer 

related requirements for ICE Trust 

clearing members and certain eligible 

contract participants. 

(1) Persons eligible. The exemption in 

paragraph (d)(2) is available to: 

(i) Any ICE Trust clearing member 

(other than one that is registered as a 

broker or dealer under Section 15(b) of 

the Exchange Act (other than paragraph 

(11) thereof)); and 

(ii) Any eligible contract participant 

that does not receive or hold funds or 

securities for the purpose of purchasing, 

selling, clearing, settling, or holding 

Cleared CDS positions for other persons 

(other than one that is registered as a 

broker or dealer under Section 15(b) of 

the Exchange Act (other than paragraph 

(11) thereof)). 

(2) Scope of exemption. The persons 

described in paragraph (d)(1) shall, 

solely with respect to Cleared CDS, be 

exempt from the broker-dealer 

registration requirements of Section 

15(a)(1) and the other requirements of 

the Exchange Act (other than Sections 

15(b)(4) and 15(b)(6)) and the rules and 

regulations thereunder that apply to a 

broker or dealer that is not registered 

with the Commission, subject to the 

conditions set forth in paragraph (d)(3) 

with respect to ICE Trust clearing 

members. 

(3) Conditions for ICE Trust clearing 

members. 

(i) General condition for ICE Trust 

clearing members. An ICE Trust clearing 

member relying on this exemption must 

be in material compliance with the rules 

of ICE Trust, and also must be in 

material compliance with applicable 

laws and regulations relating to capital, 

liquidity, and segregation of customers’ 

funds and securities (and related books 

and records provisions) with respect to 

Cleared CDS. 

(ii) Additional conditions for ICE 

Trust clearing members that receive or 

hold customer funds or securities. Any 

ICE Trust clearing member that receives 

or holds funds or securities for the 

purpose of purchasing, selling, clearing, 

settling, or holding Cleared CDS 

positions for U.S. persons (or for any 

person if the clearing member is a U.S. 

clearing member)—other than for an 

affiliate that controls, is controlled by, 

or is under common control with the 

clearing member—also shall comply 

with the following conditions with 

respect to such activities: 

(A) The U.S. person (or any person if 

the clearing member is a U.S. clearing 

member) for whom the clearing member 

receives or holds such funds or 

securities shall not be natural persons; 

(B) The clearing member shall 

disclose to such U.S. person (or to any 

such person if the clearing member is a 

U.S. clearing member) that the clearing 

member is not regulated by the 

Commission and that U.S. broker-dealer 

segregation requirements and 

protections under the Securities 

Investor Protection Act will not apply to 

any funds or securities held by the 

clearing member, that the insolvency 

law of the applicable jurisdiction may 

affect such persons’ ability to recover 

funds and securities, or the speed of any 

such recovery, in an insolvency 

proceeding, and, if applicable, that nonU.S. clearing members may be subject to 

an insolvency regime that is materially 

different from that applicable to U.S. 

persons; 

(C) As promptly as practicable after 

receipt, the clearing member shall 

transfer such funds and securities (other 

than those promptly returned to such 

other person) to: 

(I) The clearing member’s Custodial 

Client Omnibus Margin Account at ICE 

Trust; or 

(II) An account held by a third-party 

custodian, subject to the following 

requirements: 

(a) The funds and securities must be 

held either: 

(1) In the name of a customer, subject 

to an agreement to which the customer, 

the clearing member and the custodian 

are parties, acknowledging that the 

assets held therein are customer assets 

used to collateralize obligations of the 

customer to the clearing member, and 

that the assets held in that account may 

not otherwise be pledged or 

rehypothecated by the clearing member 

or the custodian; or 


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(2) In an omnibus account for which 

the clearing member maintains a daily 

record as to the amount held in the 

account that is owed to each customer, 

and which is subject to an agreement 

between the clearing member and the 

custodian specifying that: 

(i) All assets in that account are held 

for the exclusive benefit of the clearing 

member’s customers and are being kept 

separate from any other accounts 

maintained by the clearing member with 

the custodian; 

(ii) The assets held in that account 

shall at no time be used directly or 

indirectly as security for a loan to the 

clearing member by the custodian and 

shall be subject to no right, charge, 

security interest, lien, or claim of any 

kind in favor of the custodian or any 

person claiming through the custodian; 

and 

(iii) The assets held in that account 

may not otherwise be pledged or 

rehypothecated by the clearing member 

or the custodian; 

(b) The custodian may not be an 

affiliated person of the clearing member 

(as defined at paragraph (f)(2)); and 

(1) If the custodian is a U.S. entity, it 

must be a bank (as that term is defined 

in section 3(a)(6) of the Exchange Act), 

have total capital, as calculated to meet 

the applicable requirements imposed by 

the entity’s appropriate regulatory 

agency (as defined in section 3(a)(34) of 

the Exchange Act), of at least $1 billion, 

and have been approved to engage in a 

trust business by its appropriate 

regulatory agency; 

(2) If the custodian is not a U.S. 

entity, it must have total capital, as 

calculated to meet the applicable 

requirements imposed by the foreign 

financial regulatory authority (as 

defined in section 3(a)(52) of the 

Exchange Act) responsible for setting 

capital requirements for the entity, 

equating to at least $1 billion, and 

provide the clearing member, the 

customer and ICE Trust with a legal 

opinion providing that the assets held in 

the account are subject to regulatory 

requirements in the custodian’s home 

jurisdiction designed to protect, and 

provide for the prompt return of, 

custodial assets in the event of the 

insolvency of the custodian, and that 

the assets held in that account 

reasonably could be expected to be 

legally separate from the clearing 

member’s assets in the event of the 

clearing member’s insolvency; 

(c) Such funds may be invested in 

Eligible Custodial Assets as that term is 

defined in ICE Trust’s Custodial Asset 

Policies; and 

(d) The clearing member must provide 

notice to ICE Trust that it is using the 

third-party custodian to hold customer 

collateral. 

(D) To the extent there is any delay in 

transferring such funds and securities to 

the third-parties identified in paragraph 

(C), the clearing member shall 

effectively segregate the collateral in a 

way that, pursuant to applicable law, is 

reasonably expected to effectively 

protect such funds and securities from 

the clearing member’s creditors. The 

clearing member shall not permit such 

persons to ‘‘opt out’’ of such segregation 

even if regulations or laws otherwise 

would permit such ‘‘opt out.’’ 

(E) The clearing member annually 

must provide ICE Trust with 

(I) An assessment by the clearing 

member that it is in compliance with all 

the provisions of paragraphs (d)(3)(ii)(A) 

through (D) in connection with such 

activities, and 

(II) A report by the clearing member’s 

independent third-party auditor that 

attests to, and reports on, the clearing 

member’s assessment described in 

paragraph (d)(3)(ii)(E)(I) and that is 

(a) Dated as of the same date as, but 

which may be separate and distinct 

from, the clearing member’s annual 

audit report; 

(b) Produced in accordance with the 

auditing standards followed by the 

independent third party auditor in its 

audit of the clearing member’s financial 

statements. 

(F) The clearing member shall provide 

the Commission (upon request or 

pursuant to agreements reached 

between the Commission or the U.S. 

Government and any foreign securities 

authority (as defined in Section 3(a)(50) 

of the Exchange Act)) with any 

information or documents within the 

possession, custody, or control of the 

clearing member, any testimony of 

personnel of the clearing member, and 

any assistance in taking the evidence of 

other persons, wherever located, that 

the Commission requests and that 

relates to Cleared CDS transactions, 

except that if, after the clearing member 

has exercised its best efforts to provide 

the information, documents, testimony, 

or assistance, including requesting the 

appropriate governmental body and, if 

legally necessary, its customers (with 

respect to customer information) to 

permit the clearing member to provide 

the information, documents, testimony, 

or assistance to the Commission, the 

clearing member is prohibited from 

providing this information, documents, 

testimony, or assistance by applicable 

foreign law or regulations, then this 

exemption shall not longer be available 

to the clearing member. 

(e) Exemption for certain registered 

broker-dealers. 

A broker or dealer registered under 

Section 15(b) of the Exchange Act (other 

than paragraph (11) thereof) shall be 

exempt from the provisions of the 

Exchange Act and the rules and 

regulations thereunder specified in 

paragraph (c)(2), solely with respect to 

Cleared CDS, except: 

(1) Section 7(c); 

(2) Section 15(c)(3); 

(3) Section 17(a); 

(4) Section 17(b); 

(5) Regulation T, 12 CFR 200.1 et seq.; 

(6) Rule 15c3–1; 

(7) Rule 15c3–3; 

(8) Rule 17a–3; 

(9) Rule 17a–4; 

(10) Rule 17a–5; and 

(11) Rule 17a–13. 

(f) Definitions. 

(1) For purposes of this Order, the 

term ‘‘Cleared CDS’’ shall mean a credit 

default swap that is submitted (or 

offered, purchased, or sold on terms 

providing for submission) to ICE Trust, 

that is offered only to, purchased only 

by, and sold only to eligible contract 

participants (as defined in Section 

1a(12) of the Commodity Exchange Act 

as in effect on the date of this Order 

(other than a person that is an eligible 

contract participant under paragraph (C) 

of that section)), and in which: 

(i) The reference entity, the issuer of 

the reference security, or the reference 

security is one of the following: 

(A) An entity reporting under the 

Exchange Act, providing Securities Act 

Rule 144A(d)(4) information, or about 

which financial information is 

otherwise publicly available; 

(B) A foreign private issuer whose 

securities are listed outside the United 

States and that has its principal trading 

market outside the United States; 

(C) A foreign sovereign debt security; 

(D) An asset-backed security, as 

defined in Regulation AB, issued in a 

registered transaction with publicly 

available distribution reports; or 

(E) An asset-backed security issued or 

guaranteed by Fannie Mae, Freddie Mac 

or Ginnie Mae; or 

(ii) The reference index is an index in 

which 80 percent or more of the index’s 

weighting is comprised of the entities or 

securities described in subparagraph (1). 

(2) For purposes of this Order, the 

term ‘‘Affiliated Person of the Clearing 

Member’’ shall mean any person who 

directly or indirectly controls a clearing 

member or any person who is directly 

or indirectly controlled by or under 

common control with the clearing 

member. Ownership of 10 percent or 

more of the common stock of the 

relevant entity will be deemed prima 

facie control of that entity. 


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61 44 U.S.C. 3501 et seq. 

62 10 hours = (20 clearing members × 1⁄2 hour per 

clearing member). This estimate is based on burden 

estimates published with respect to other 

Commission actions that contained similar 

certification requirements (see e.g., Exchange Act 

Release No. 41661 (Jul 27, 1999) (64 FR 42012 (Aug. 

3, 1999)), and the burden associated with the Year 

2000 Operational Capability Requirements, 

including notification and certifications required by 

Rule 15b7–3T(e). 

63 Id. 

64 If the clearing member is a U.S. entity, it must 

make this disclosure to all of its customers. 

65 30 hours = (1 hour per clearing member to draft 

the disclosure + 1⁄2 hour per clearing member to 

determine how the disclosure should be integrated 

into those other documents or agreements) 20 

clearing members. 

IV. Paperwork Reduction Act 

Certain provisions of this Order 

contain ‘‘collection of information 

requirements’’ within the meaning of the 

Paperwork Reduction Act of 1995.61

The Commission has submitted the 

proposed amendments to the Office of 

Management and Budget (‘‘OMB’’) for 

review in accordance with 44 U.S.C. 

3507(d) and 5 CFR 1320.11. An agency 

may not conduct or sponsor, and a 

person is not required to respond to, a 

collection of information unless it 

displays a currently valid control 

number. 

A. Collection of Information 

The Commission found it to be 

necessary or appropriate in the public 

interest and consistent with the 

protection of investors to grant the 

conditional temporary exemptions 

discussed in this Order until November 

30, 2010. Among other things, the Order 

would require an ICE Trust clearing 

member that receives or holds 

customers’ funds or securities for the 

purpose of purchasing, selling, clearing, 

settling, or holding Cleared CDS 

positions to: (i) Provide ICE Trust with 

certain certifications/notifications, (ii) 

make certain disclosures to cleared CDS 

customers, (iii) enter into certain 

agreements to protect customer assets, 

(iv) maintain a record of each 

customer’s share of assets maintained in 

an omnibus account, and (v) obtain a 

separate report, as part of its annual 

audit report, as to its compliance with 

the conditions of the ICE Trust Order 

regarding protection of customer assets. 

B. Proposed Use of Information 

These collection of information 

requirements are designed, among other 

things, to inform cleared CDS customers 

that their ability to recover assets placed 

with the clearing member are dependent 

on the applicable insolvency regime, 

provide Commission staff with access to 

information regarding whether clearing 

members are complying with the 

conditions of the ICE Trust order, and 

provide documentation helpful for the 

protection of cleared CDS customers’ 

funds and securities. 

C. Respondents 

Based on conversations with industry 

participants, the Commission 

understands that approximately 12 

firms may be presently engaged as CDS 

dealers and thus may seek to be a 

clearing member of ICE Trust. In 

addition, 8 more firms may enter into 

this business. Consequently, the 

Commission estimates that ICE Trust, 

like the other CCPs that clear CDS 

transactions, may have up to 20 clearing 

members. 

D. Total Annual Reporting and 

Recordkeeping Burden 

Paragraph III.(c)(3)(ii) of this Order 

requires any ICE Trust clearing member 

relying on the exemptive relief specified 

in paragraph (c) that participates in the 

clearing of cleared CDS transactions on 

behalf of other persons to annually 

provide a certification to ICE Trust that 

attests to whether the clearing member 

is relying on the exemption from brokerdealer related requirements set forth in 

paragraph (d) of that Order. The 

Commission estimates that it would take 

a clearing member approximately one 

half hour each year to complete the 

certification and provide it to ICE Trust, 

resulting in an aggregate burden of 10 

hours per year for all 20 clearing 

members to comply with this 

requirement on an annual basis.62

Paragraph III.(d)(3)(ii)(C)(II)(d) of this 

Order requires that a clearing member 

notify ICE Trust if it is using a thirdparty custodian to hold customer 

collateral. The Commission estimates 

that it would take a clearing member 

approximately one half hour each year 

to draft a notification and provide it to 

ICE Trust, which would result in an 

aggregate burden of 10 hours per year 

for all 20 clearing members to comply 

with this requirement on an annual 

basis.63

Paragraph III.(d)(3)(ii)(B) of this Order 

requires an ICE Trust clearing member 

to disclose to its U.S. customers 64 that 

it is not regulated by the Commission 

and that U.S. broker-dealer segregation 

requirements and protections under the 

Securities Investor Protection Act will 

not apply to any funds or securities it 

holds, that the insolvency law of the 

applicable jurisdiction may affect the 

customers’ ability to recover funds and 

securities, or the speed of any such 

recovery, in an insolvency proceeding, 

and, if it is not a U.S. entity, that it may 

be subject to an insolvency regime that 

is materially different from that 

applicable to U.S. persons. The 

Commission believes that clearing 

members could use the language in the 

ICE Trust order that describes the 

disclosure that must be made as a 

template to draft the disclosure. 

Consequently the Commission 

estimates, based on staff experience, 

that it would take a clearing member 

approximately one hour to draft the 

disclosure. Further, the Commission 

believes clearing members will include 

this disclosure with other documents or 

agreements provided to cleared CDS 

customers and a clearing member may 

take approximately one half hour to 

determine how the disclosure should be 

integrated into those other documents or 

agreements, resulting in a one-time 

aggregate burden of 30 hours for all 20 

clearing members to comply with this 

requirement.65

Paragraph III.(d)(3)(ii)(C)(II)(a)(1 ) of 

this Order requires that, if an ICE Trust 

clearing member chooses to segregate 

each of its customers’ funds and 

securities in a separate account, it must 

obtain a tri-party agreement for each 

such account acknowledging that the 

assets held in the account are customer 

assets used to collateralize obligations of 

the customer to the clearing member, 

and that the assets held in the account 

may not otherwise be pledged or rehypothecated by the clearing member or 

the custodian. Paragraph 

III.(d)(ii)(C)(II)(a)(2 ) of the ICE Trust 

order requires that, if an ICE Trust 

clearing member chooses to segregate its 

customers’ funds and securities on an 

omnibus basis, it must obtain an 

agreement with the custodian with 

respect to the omnibus account 

acknowledging that the assets held in 

the account (i) are customer assets and 

are being kept separate from any other 

accounts maintained by the clearing 

member with the custodian, (ii) may at 

no time be used directly or indirectly as 

security for a loan to the clearing 

member by the custodian and shall be 

subject to no right, charge, security 

interest, lien, or claim of any kind in 

favor of the custodian or any person 

claiming through the custodian, and (iii) 

may not otherwise be pledged or rehypothecated by the clearing member or 

the custodian. Opening a bank account 

generally includes discussions regarding 

the purpose for the account and a 

determination as to the terms and 

conditions applicable to such an 

account. We understand that most banks 

presently maintain omnibus and other 

similar types of accounts that are 

designed to recognize legally that the 


jlentini on DSKJ8SOYB1PROD with NOTICES
11602 Federal Register / Vol. 75, No. 47 / Thursday, March 11, 2010 / Notices 

66This estimate is based on burden estimates 

published with respect to other Commission actions 

that contained similar certification requirements 

(see e.g., Exchange Act Release No. 55431 (Mar. 9, 

2007) (72 FR 12862 (Mar. 19, 2007)), and the burden 

associated with the amendments to the financial 

responsibility rules, including language required in 

securities lending agreements). 

67 20 hours = (20 clearing members × 5%) × 20 

hours to work with a bank to update its standard 

agreement template to include the necessary 

language. 

68The Commission intends for this requirement 

to be performed in conjunction with the firm’s 

annual audit report. 

69This estimate is based on burden estimates 

published with respect to other Commission actions 

that contained similar certification requirements 

(see e.g., Securities Act Release No. 8138 (Oct. 9, 

2002) (67 FR 66208 (Oct. 30, 2002)), and the burden 

associated with the Disclosure Required by the 

Sarbanes-Oxley Act of 2002, including 

requirements relating to internal control reports). 

70This estimate is based on staff conversations 

with an audit firm. That firm suggested that the cost 

of such an audit report could range from $10,000 

to $1 million, depending on the size of the clearing 

member, the complexity of its systems, and whether 

the work included a review of other systems already 

being reviewed as part of audit work the firms is 

already providing to the clearing member. The staff 

understands that it would be less costly to perform 

this type of audit if the clearing member chooses 

to forward all customer collateral to ICE Trust (an 

option allowed by this Order) and does not use any 

third party. Finally, the staff understands that most 

ICE Trust clearing members are large dealers whose 

audits likely include internal control reviews and 

SAS 70 reports regarding custody of customer 

assets, which would require a review of the same 

or similar systems used to comply with the audit 

report requirement in this order. 

71 100 hours = (5 hours for each clearing member 

to assess its compliance with the requirements of 

the order relating to segregation of customer assets 

and attest that it is in compliance with those 

requirements × 20 clearing members). $4 million = 

$200,000 per clearing member × 20 clearing 

members. 

assets in the account may not be 

attached to cover debts of the account 

holder. Thus the standard agreement for 

this type of account used by banks 

should contain the representations and 

disclosures required by the proposed 

amendment. However, a small 

percentage of clearing members may 

need to work with a bank to modify its 

standard agreement. We estimate that 

5% of the 20 clearing members, or 1 

firm, may use a bank with a standard 

agreement that does not contain the 

required language.66 We further 

estimate each clearing member that uses 

a bank with a standard agreement that 

does not contain the required language 

would spend approximately 20 hours of 

employee resources working with the 

bank to update its standard agreement 

template. Therefore, we estimate that 

the total one-time burden to the 

industry as a result of this proposed 

requirement would be approximately 20 

hours.67

Paragraph III.(d)(3)(ii)(C)(II)(a)(2 ) of 

this Order further requires that the 

clearing member maintain a daily record 

as to the amount held in the omnibus 

account that is owed to each customer. 

The Commission included this 

requirement in the ICE Trust order to 

stress the importance of such a record. 

However it believes that a prudent 

clearing member likely would create 

and maintain such a record for business 

purposes. Consequently, the 

Commission believes this requirement 

would not create any additional 

paperwork burden. 

Paragraph III.(d)(3)(ii)(E) of this Order 

requires ICE Trust clearing members 

that receive or hold customers’ funds or 

securities for the purpose of purchasing, 

selling, clearing, settling, or holding 

cleared CDS positions annually to 

provide ICE Trust with an assessment 

that it is in compliance with all the 

provisions of paragraphs III.(d)(3)(ii)(A) 

through (D) of that order in connection 

with such activities, and a report by the 

clearing member’s independent thirdparty auditor, as of the same date as the 

firm’s annual audit report,68 that attests 

to, and reports on, the clearing 

member’s assessment. The Commission 

estimates that it will take each clearing 

member approximately five hours each 

year to assess its compliance with the 

requirements of the order relating to 

segregation of customer assets and attest 

that it is in compliance with those 

requirements.69 Further, the 

Commission estimates that it will cost 

each clearing member approximately 

$200,000 more each year to have its 

auditor prepare this special report as 

part of its audit of the clearing 

member.70 Consequently, the 

Commission estimates that compliance 

with this requirement will result in an 

aggregate annual burden of 100 hours 

for all 20 clearing members, and that the 

total additional cost of this requirement 

will be approximately $4,000,000 each 

year.71

E. Collection of Information Is 

Mandatory 

The collections of information 

contained in the conditions to this 

Order are mandatory for any entity 

wishing to rely on the exemptions 

granted by this Order. 

F. Confidentiality 

Certain of the conditions of this Order 

that address collections of information 

require ICE Trust clearing members to 

make disclosures to their customers, or 

to provide other information to ICE 

Trust (and in some cases also to 

customers). Apart from those 

requirements, the provisions of this 

Order that address collections of 

information do not address or restrict 

the confidentiality of the documentation 

prepared by ICE Trust clearing members 

under the exemptive conditions. 

Accordingly, ICE Trust clearing 

members would have to make the 

applicable information available to 

regulatory authorities or other persons 

to the extent otherwise provided by law. 

G. Request for Comment on Paperwork 

Reduction Act 

The Commission requests, pursuant to 

44 U.S.C. 3506(c)(2)(B), comment on the 

collections of information contained in 

this Order to: 

(i) Evaluate whether the collections of 

information are necessary for the proper 

performance of the functions of the 

Commission, including whether the 

information would have practical 

utility; 

(ii) Evaluate the accuracy of the 

Commission’s estimates of the burden of 

the collections of information; 

(iii) Determine whether there are ways 

to enhance the quality, utility, and 

clarity of the information to be 

collected; and 

(iv) Evaluate whether there are ways 

to minimize the burden of the 

collections of information on those 

required to respond, including through 

the use of automated collection 

techniques or other forms of information 

technology. 

Persons who desire to submit 

comments on the collection of 

information requirements should direct 

their comments to the OMB, Attention: 

Desk Officer for the Securities and 

Exchange Commission, Office of 

Information and Regulatory Affairs, 

Washington, DC 20503, and should also 

send a copy of their comments to 

Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090, and refer to File No. S7– 

05–09. OMB is required to make a 

decision concerning the collections of 

information between 30 and 60 days 

after publication of this document in the 

Federal Register; therefore, comments 

to OMB are best assured of having full 

effect if OMB receives them within 30 

days of this publication. The 

Commission has submitted the 

proposed collections of information to 

OMB for approval. Requests for the 

materials submitted to OMB by the 

Commission with regard to these 

collections of information should be in 

writing, refer to File No. S7–05–09, and 

be submitted to the Securities and 

Exchange Commission, Records 

Management Office, 100 F Street, NE., 

Washington, DC 20549. 


jlentini on DSKJ8SOYB1PROD with NOTICES
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1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3 15 U.S.C. 78s(b)(3)(A)(i). 

4 17 CFR 240.19b–4(f)(1). 

5Securities Exchange Act Release No. 61381, File 

No. SR–MSRB–2009–18 (January 20, 2010). 6 15 U.S.C. 78o-4(b)(2)(C). 

7 15 U.S.C. 78s(b)(3)(A)(i). 

8 17 CFR 240.19b–4(f)(1). 

9See Section 19(b)(3)(C) of the Act, 15 U.S.C. 

78s(b)(3)(C). 

By the Commission. 

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–5222 Filed 3–10–10; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–61647; File No. SR–MSRB– 

2010–01] 

Self-Regulatory Organizations; 

Municipal Securities Rulemaking 

Board; Notice of Filing and Immediate 

Effectiveness of Proposed Rule 

Change Consisting of Revised 

Interpretive Questions & Answers on 

the Application of Rule G–37 

March 4, 2010. 

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 February 

25, 2010, the Municipal Securities 

Rulemaking Board (‘‘MSRB’’), filed with 

the Securities and Exchange 

Commission (‘‘Commission’’ or ‘‘SEC’’) 

the proposed rule change as described 

in Items I, II and III below, which Items 

have been prepared by the MSRB. The 

MSRB has designated the proposed rule 

change as constituting a stated policy, 

practice, or interpretation with respect 

to the meaning, administration, or 

enforcement of an existing rule of the 

self-regulatory organization pursuant to 

Section 19(b)(3)(A)(i) of the Act,3 and 

Rule 19b–4(f)(1) thereunder,4 which 

renders the proposal effective upon 

filing with the Commission. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The MSRB has filed with the 

Commission a proposed rule change 

consisting of revisions to certain of the 

existing Rule G–37 interpretive 

Questions & Answers (‘‘Qs&As’’) to 

reflect the new rule language as 

contained in recently adopted 

amendments to Rule G–37 5, concerning 

disclosure of certain contributions to 

bond ballot campaigns. The MSRB 

requested that the proposed rule change 

become effective immediately upon its 

filing with the SEC. 

The text of the proposed rule change 

is available on the MSRB’s Web site 

(http://www.msrb.org/msrb1/sec.asp), at 

the MSRB’s principal office, and at the 

Commission’s Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

MSRB 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. The MSRB has 

prepared summaries, set forth in 

Sections A, B, and C below, of the most 

significant aspects of such statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

Since the adoption of Rule G–37, on 

political contributions and prohibitions 

on municipal securities business, the 

MSRB has received numerous inquiries 

concerning the application of the rule. 

In order to assist the municipal 

securities industry in understanding 

and complying with the provisions of 

the rule, the MSRB has published a 

series of interpretive notices that set 

forth, in Q & A format, general guidance 

on Rule G–37. 

On February 1, 2010, amendments to 

Rule G–37 became effective concerning 

disclosure of certain contributions to 

bond ballot campaigns. The proposed 

rule change revises certain of the Rule 

G–37 Qs&As to reflect the new rule 

language as contained in the 

amendments. 

2. Statutory Basis 

The MSRB believes that the proposed 

rule change is consistent with Section 

15B(b)(2)(C) of the Act,6 which provides 

that the MSRB’s rules shall: 

Be designed to prevent fraudulent and 

manipulative acts and practices, to promote 

just and equitable principles of trade, to 

foster cooperation and coordination with 

persons engaged in regulating, clearing, 

settling, processing information with respect 

to, and facilitating transactions in municipal 

securities, to remove impediments to and 

perfect the mechanism of a free and open 

market in municipal securities, and, in 

general, to protect investors and the public 

interest. 

The MSRB believes that the proposed 

rule change is consistent with the Act in 

that it provides guidance to brokers, 

dealers, and municipal securities 

dealers in complying with existing 

MSRB rules. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The MSRB does not believe that the 

proposed rule change will impose any 

burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act, since it 

would apply equally to all dealers. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants or Others 

Written comments were neither 

solicited nor received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The proposed rule change has become 

effective pursuant to Section 

19(b)(3)(A)(i) of the Act 7 and Rule 19b– 

4(f)(1) thereunder,8 in that the proposed 

rule change constitutes a stated policy, 

practice, or interpretation with respect 

to the meaning, administration, or 

enforcement of an existing rule of the 

MSRB. At any time within 60 days of 

the filing of the proposed rule change, 

the Commission may summarily 

abrogate 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.9

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 e-mail to rulecomments@sec.gov. Please include File 

Number SR–MSRB–2010–01 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 


jlentini on DSKJ8SOYB1PROD with NOTICES