Federal Register / Vol. 83, No. 143 / Wednesday, July 25, 2018 / Notices 35241 

1 82 FR 59586 (Dec. 15, 2017). 

2 7 U.S.C. 6d. 

3 17 CFR 1.25(a) (2017). 

4Although Regulation 1.25 by its terms applies 

only to futures customer funds, Regulation 22.3(d) 

requires that a DCO investing cleared swap 

customer funds comply with the requirements of 

Regulation 1.25. 

5See 7 U.S.C. 6d(a)(2) (futures), (f)(4) (cleared 

swaps). 

6Regulation 1.25 permits investment of customer 

funds in: (i) Obligations of the United States and 

obligations fully guaranteed as to principal and 

interest by the United States (U.S. government 

securities); (ii) General obligations of any State or 

of any political subdivision thereof (municipal 

securities); (iii) Obligations of any United States 

government corporation or enterprise sponsored by 

the United States government (U.S. agency 

obligations); (iv) Certificates of deposit issued by a 

bank (certificates of deposit) as defined in section 

3(a)(6) of the Securities Exchange Act of 1934, or 

a domestic branch of a foreign bank that carries 

deposits insured by the Federal Deposit Insurance 

Corporation; (v) Commercial paper fully guaranteed 

as to principal and interest by the United States 

under the Temporary Liquidity Guarantee Program 

as administered by the Federal Deposit Insurance 

Corporation (commercial paper); (vi) Corporate 

notes or bonds fully guaranteed as to principal and 

interest by the United States under the Temporary 

Liquidity Guarantee Program as administered by the 

Federal Deposit Insurance Corporation (corporate 

notes or bonds); and (vii) Interests in money market 

mutual funds. 

7See 17 CFR 1.25(a) (2005). 

8 Investment of Customer Funds and Funds Held 

in an Account for Foreign Futures and Foreign 

Options Transactions, 76 FR 78776, 78782 (Dec. 19, 

2011). 

‘‘Electronic Maintenance Fee Form’’) 

provided through the USPTO website. 

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information quality standards 

established in the Paperwork Reduction 

Act (44 U.S.C. chapter 35) (PRA), in 

OMB Circular A–130, and in the OMB 

information quality guidelines. 

Frequency: On occasion. 

Respondent’s Obligation: Required to 

Obtain or Retain Benefits. 

OMB Desk Officer: Nicholas A. Fraser, 

email: Nicholas_A._Fraser@

omb.eop.gov. 

Once submitted, the request will be 

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Written comments and 

recommendations for the proposed 

information collection should be sent on 

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attention of Nicholas A. Fraser. 

Marcie Lovett, 

Director, Records and Information 

Governance Division, Office of the Chief 

Technology Officer, United States Patent and 

Trademark Office. 

[FR Doc. 2018–15877 Filed 7–24–18; 8:45 am] 

BILLING CODE 3510–16–P 

COMMODITY FUTURES TRADING 

COMMISSION 

Order Granting Exemption From 

Certain Provisions of the Commodity 

Exchange Act Regarding Investment of 

Customer Funds and From Certain 

Related Commission Regulations 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Order. 

SUMMARY: The Commodity Futures 

Trading Commission (‘‘CFTC’’ or 

‘‘Commission’’) is issuing an order in 

response to a petition from ICE Clear 

Credit LLC, ICE Clear US, Inc., and ICE 

Clear Europe Limited (collectively, ‘‘the 

ICE DCOs’’ or ‘‘the Petitioners’’) seeking 

an exemption permitting the investment 

of futures and swap customer funds in 

certain categories of euro-denominated 

sovereign debt. The Commission is also 

granting exemptive relief to expand the 

universe of permissible counterparties 

and depositories that can be used in 

connection with these investments 

given the structure of the market for 

repurchase agreements in eurodenominated sovereign debt. 

DATES: Applicable as of July 25, 2018. 

FOR FURTHER INFORMATION CONTACT: 

Eileen A. Donovan, Deputy Director, 

(202) 418–5096, edonovan@cftc.gov, 

Division of Clearing and Risk, or Lihong 

McPhail, Research Economist, (202) 

418–5722, lmcphail@cftc.gov, Office of 

the Chief Economist, Commodity 

Futures Trading Commission, Three 

Lafayette Centre, 1155 21st Street NW, 

Washington, DC 20581; or Tad Polley, 

Associate Director, (312) 596–0551, 

tpolley@cftc.gov, or Scott Sloan, 

Attorney-Advisor, (312) 596–0708, 

ssloan@cftc.gov, Division of Clearing 

and Risk, Commodity Futures Trading 

Commission, 525 West Monroe Street, 

Chicago, Illinois 60661. 

SUPPLEMENTARY INFORMATION: 

I. Background 

By petition dated June 22, 2017, the 

Petitioners, all registered derivatives 

clearing organizations (‘‘DCOs’’), 

requested an exemptive order under 

section 4(c) of the Commodity Exchange 

Act (‘‘CEA’’ or ‘‘Act’’) permitting the ICE 

DCOs to invest futures and cleared swap 

customer funds in certain categories of 

euro-denominated sovereign debt. On 

December 15, 2017, the Commission 

published a proposed order that would 

grant the requested exemption 

(‘‘Proposed Order’’) and requested 

public comment on the Proposed 

Order.1

Section 4d of the Act 2 and 

Commission Regulation 1.25(a) 3 set out 

the permitted investments in which 

DCOs may invest customer funds.4

Section 4d limits investments of 

customer money to obligations of the 

United States (‘‘U.S. Government 

Securities’’), general obligations of any 

State or of any political subdivision 

thereof, and obligations fully guaranteed 

as to principal and interest by the 

United States.5 Regulation 1.25 expands 

the list of permitted investments but 

does not permit investment of customer 

funds in foreign sovereign debt.6

Regulation 1.25 previously included 

foreign sovereign debt as a permitted 

investment for customer funds.7 In 

2011, the Commission removed this 

option from Regulation 1.25, but also 

acknowledged that the safety of 

sovereign debt issuances of one country 

may vary greatly from those of another, 

and stated that it was amenable to 

considering requests for section 4(c) 

exemptions from this restriction.8

Specifically, the Commission stated that 

it would consider permitting foreign 

sovereign debt investments (1) to the 

extent that the petitioner has balances in 

segregated accounts owed to customers 

or clearing member futures commission 

merchants in that country’s currency 

and (2) to the extent that the sovereign 

debt serves to preserve principal and 

maintain liquidity of customer funds as 


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35242 Federal Register / Vol. 83, No. 143 / Wednesday, July 25, 2018 / Notices 

9 Id. 

10A copy of the petition is available on the 

Commission’s website at http://www.cftc.gov/idc/ 

groups/public/@requestsandactions/documents/ 

ifdocs/icedcos4cappl6-22-17.pdf. 

11The ICE DCOs have indicated they may not 

currently be able to enter into repurchase 

agreements with these central banks. 

12Section 4(c)(1) of the Act empowers the 

Commission to promote responsible economic or 

financial innovation and fair competition by 

exempting any transaction or class of transactions 

(including any person or class of persons offering, 

entering into, rendering advice or rendering other 

services with respect to, the agreement, contract, or 

transaction), from any of the provisions of the Act, 

subject to exceptions not relevant here. 7 U.S.C. 

6(c)(1). 

13Section 4(c)(2) of the Act provides that the 

Commission may grant exemptions under Section 

4(c)(1) only when it determines that the 

requirements for which an exemption is being 

provided should not be applied to the agreements, 

contracts, or transactions at issue; that the 

exemption is consistent with the public interest and 

the purposes of the Act; that the agreements, 

contracts, or transactions will be entered into solely 

between appropriate persons; and that the 

exemption will not have a material adverse effect 

on the ability of the Commission or any contract 

market or derivatives transaction execution facility 

to discharge its regulatory or self-regulatory 

responsibilities under the Act. 

14See 7 U.S.C. 5(b). 

15The section 4(c)(2) factor of whether an 

agreement, contract or transaction is entered into 

solely between appropriate persons does not apply 

here. 

required for all other investments of 

customer funds under Regulation 1.25.9

In connection with their proposal to 

invest customer funds in foreign 

sovereign debt, the ICE DCOs have also 

requested an exemption from 

Regulations 1.25(d)(2) and (7). 

Regulation 1.25(d)(2) limits the 

counterparties with which a DCO can 

enter into a repurchase agreement 

involving customer funds to a bank as 

defined in section 3(a)(6) of the 

Securities Exchange Act of 1934, a 

domestic branch of a foreign bank 

insured by the Federal Deposit 

Insurance Corporation, a securities 

broker or dealer, or a government 

securities broker or government 

securities dealer registered with the 

Securities and Exchange Commission or 

which has filed notice pursuant to 

section 15C(a) of the Government 

Securities Act of 1986. Regulation 

1.25(d)(7) requires a DCO to hold the 

securities transferred to the DCO under 

a repurchase agreement in a safekeeping 

account with a bank as referred to in 

Regulation 1.25(d)(2), a Federal Reserve 

Bank, a DCO, or the Depository Trust 

Company in an account that complies 

with the requirements of Regulation 

1.26. 

II. The ICE DCOs’ Petition 

The ICE DCOs request a limited 

exemption from section 4d of the Act 

and Commission Regulation 1.25(a) to 

invest euro-denominated customer 

funds in sovereign debt issued by the 

French Republic and the Federal 

Republic of Germany (‘‘Designated 

Foreign Sovereign Debt’’) through both 

direct investment and repurchase 

agreements.10 The Petitioners also 

request an exemption from Regulation 

1.25(d)(2) that would permit them to 

enter into reverse repurchase 

agreements with certain foreign banks, 

certain regulated securities dealers, or 

the European Central Bank and the 

central banks of Germany and France.11

Lastly, the ICE DCOs request an 

exemption from Regulation 1.25(d)(7) 

that would permit them to hold the 

securities purchased through reverse 

repurchase agreements in a safekeeping 

account with a non-U.S. bank that 

qualifies as a depository under the 

requirements of Regulation 1.49. 

III. Section 4(c) Analysis 

In connection with the Proposed 

Order, the Commission preliminarily 

determined that granting the requested 

exemption would be consistent with 

Section 4(c) of the Act.12 After 

reviewing the comments received in 

response to the Proposed Order, all of 

which supported an exemption, the 

Commission has determined that the 

exemption detailed below satisfies the 

requirements of Section 4(c)(2) of the 

Act.13

Specifically, the Commission has 

determined that the restriction on 

investments of customer funds by DCOs 

should not apply to Designated Foreign 

Sovereign Debt. As the Commission 

previously observed, the ICE DCOs 

demonstrated that the Designated 

Foreign Sovereign Debt has credit, 

liquidity, and volatility characteristics 

that are comparable to U.S. Government 

Securities, which are permitted 

investments under the Act and 

Regulation 1.25. For example, as 

evidence of the creditworthiness of 

France and Germany, the ICE DCOs 

provided data demonstrating that credit 

default swap spreads of France and 

Germany have historically been similar 

to those of the United States. To 

demonstrate the liquidity of the 

markets, the ICE DCOs pointed to, for 

example, the substantial amount of 

outstanding marketable French and 

German debt and the daily transaction 

value of the repo markets for their debt. 

And with respect to volatility, the ICE 

DCOs provided data on daily changes to 

sovereign debt yields demonstrating that 

the price stability of French and German 

debt is comparable to that of U.S. 

Government Securities. 

The Commission also observed that 

the ICE DCOs demonstrated that 

investing in the Designated Foreign 

Sovereign Debt poses less risk to 

customer funds than the current 

alternative of holding the funds at a 

commercial bank, on the basis that 

exposure to high-quality sovereign debt 

is preferable to facing the credit risk of 

commercial banks through unsecured 

bank demand deposit accounts. While 

investments through reverse repurchase 

agreements (as opposed to direct 

investments) still involve exposure to a 

commercial counterparty, a DCO would 

receive the additional benefit of 

receiving securities as collateral against 

that counterparty’s credit risk. The ICE 

DCOs also represented that in the event 

a securities custodian enters insolvency 

proceedings, they would have a claim to 

specific securities rather than a general 

claim against the assets of the custodian. 

Further, the Commission has 

determined that the exemption is 

consistent with the public interest and 

the purposes of the Act, which include 

ensuring the financial integrity of 

transactions and avoiding systemic 

risk.14 As noted above, investing 

customer funds in Designated Foreign 

Sovereign Debt is often a prudent 

alternative to holding cash at a 

commercial bank from a risk 

management perspective, and granting 

the exemption thus serves to protect 

market participants and the public. For 

the same reasons, granting the 

exemption may enhance the financial 

integrity of the DCO and thereby help to 

avoid systemic risk. 

Finally, the Commission has 

determined that granting an exemption 

allowing investment of customer funds 

in instruments with risk characteristics 

comparable to currently permitted 

investments does not have a material 

adverse effect on the ability of the 

Commission or any contract market to 

discharge its regulatory or selfregulatory duties under the Act.15

Based on the foregoing, the 

Commission has determined that 

granting the exemption provided in the 

order below satisfies the requirements of 

section 4(c) of the Act. 

IV. Proposed Order 

The Commission proposed an 

exemption to permit the ICE DCOs, 

subject to certain conditions, to invest 

customer funds in Designated Foreign 

Sovereign Debt. The first condition 

required that the ICE DCOs only use 

customer euro cash to invest in the 

Designated Foreign Sovereign Debt. This 

restriction was previously included in 


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Federal Register / Vol. 83, No. 143 / Wednesday, July 25, 2018 / Notices 35243 

16See 17 CFR 1.25(b)(4)(D) (2005) (providing that 

sovereign debt is subject to the following limits: A 

futures commission merchant may invest in the 

sovereign debt of a country to the extent it has 

balances in segregated accounts owed to its 

customers denominated in that country’s currency; 

a DCO may invest in the sovereign debt of a country 

to the extent it has balances in segregated accounts 

owed to its clearing member futures commission 

merchants denominated in that country’s currency). 

17The Commission reviewed the daily U.S. 

Spread from July 3, 2009 to July 3, 2017. Over this 

time period, the U.S. Spread had a mean of 

approximately 26.5 BPS and a standard deviation 

of approximately 9.72 BPS. Over this same period, 

the two-year German spread exceeded 45 BPS 

approximately 6% of the time, and the two-year 

French spread exceeded 45 BPS approximately 25% 

of the time. Neither the German nor the French twoyear spread has exceeded 45 BPS since September 

2012. 18See 17 CFR 270.2a–7. 

19 82 FR 59586 (Dec. 15, 2017). 

20Letters were submitted by CME Group, Inc 

(‘‘CME’’), Eurex Clearing AG (‘‘Eurex’’), and the 

Futures Industry Association (‘‘FIA’’). All comment 

letters are available through the Commission’s 

website at: https://comments.cftc.gov/Public

Comments/CommentList.aspx?id=2850. 

21See 7 U.S.C. 6(c)(1). 

Regulation 1.25 16 when the rule 

permitted the investment of customer 

funds in foreign sovereign debt, and the 

Commission believes it is still an 

appropriate restriction on the amount 

that may be invested in these 

instruments. 

Second, the Commission proposed to 

permit the ICE DCOs to invest in 

Designated Foreign Sovereign Debt only 

so long as the two-year credit default 

spread of the issuing sovereign is 45 

basis points (‘‘BPS’’) or less. The 

Commission explained that because the 

proposed order was not intended to 

expand the universe of permitted 

investments beyond instruments with a 

risk profile similar to those that are 

currently permitted, U.S. Government 

Securities provide an appropriate 

benchmark to confine permitted 

investments in foreign sovereign debt. 

The Commission proposed the cap of 45 

BPS based on a historical analysis of the 

two-year credit default spread of the 

United States (‘‘U.S. Spread’’). Fortyfive BPS is approximately two standard 

deviations above the mean U.S. Spread 

over the past eight years and represents 

a risk level that the U.S. Spread has 

exceeded approximately 5% of the time 

over that period.17 The Proposed Order 

provided that if the spread exceeds 45 

BPS, the ICE DCOs would not be 

permitted to make new investments in 

the relevant debt. They also would not 

need to immediately divest all current 

investments, however, due to risks 

associated with selling assets in a 

potentially volatile market. The 

Commission explained that prohibiting 

new investments, together with the 

length to maturity condition discussed 

immediately below, sufficiently protects 

customer funds in the event that a 

country’s Designated Foreign Sovereign 

Debt were to exceed the 45 BPS spread 

limit. 

Third, the Commission proposed to 

limit the length to maturity of direct 

investments in Designated Foreign 

Sovereign Debt, to limit permitted 

investments to those with a lower risk 

profile. Specifically, the Proposed Order 

contained a requirement that each of the 

ICE DCOs ensure that the dollarweighted average of the time-to-maturity 

of their portfolio of direct investments 

in each type of Designated Foreign 

Sovereign Debt does not exceed 60 days. 

This restriction was modeled on 

Securities and Exchange Commission 

requirements for money market mutual 

funds,18 which have liquidity timing 

needs appropriately analogous to those 

of a DCO in this instance, and was 

designed to ensure that the investments 

will mature relatively quickly, 

providing the ICE DCOs with access to 

euro cash. 

To provide the ICE DCOs with the 

ability to invest customer funds in the 

Designated Foreign Sovereign Debt, the 

Commission proposed to exempt the 

ICE DCOs from the counterparty and 

depository requirements of Regulation 

1.25(d)(2) and (7), subject to conditions. 

As a practical matter, complying with 

these requirements would severely 

restrict the ICE DCOs’ ability to enter 

into repurchase agreements for 

Designated Foreign Sovereign Debt. 

Specifically the Commission 

proposed to exempt the ICE DCOs from 

the counterparty restrictions of 

Regulation 1.25(d)(2), subject to the 

condition that counterparties be limited 

to certain categories that are intended to 

limit the risk associated with reverse 

repurchase transactions. The ICE DCOs 

represented that the principal 

participants in the European sovereign 

debt repurchase markets are non-U.S. 

banks, non-U.S. securities dealers, and 

foreign branches of U.S. banks. As a 

result, the counterparty requirements 

under Regulation 1.25(d)(2) would 

significantly constrain the use of eurodenominated sovereign debt repurchase 

agreements. Additionally, the ICE DCOs 

represented that it would be impractical 

and inefficient to hold such securities at 

a U.S. custodian, and the Commission 

proposed to exempt the ICE DCOs from 

the depository requirement of 

Regulation 1.25(d)(7), so long as the 

depository qualifies as a permitted 

depository under Regulation 1.49. The 

Commission explained that the 

proposed restrictions on permitted 

counterparties and depositories are 

designed to ensure that the 

counterparties and depositories used by 

the ICE DCOs will be regulated entities 

comparable to those currently permitted 

under Regulation 1.25(d)(2) and (7). 

V. Comments on the Proposed Order 

The Commission published a request 

for comments regarding the Proposed 

Order in the Federal Register on 

December 15, 2017.19

The Commission received three 

comment letters.20 Each of the 

commenters supported an exemption 

and suggested several changes to the 

Proposed Order. Both Eurex and FIA 

stated that the proposed exemption is 

consistent with the Regulation 1.25 

objectives of preserving principle and 

maintaining liquidity. 

All three commenters recommended 

that the Commission expand the scope 

of the order to grant relief to additional 

registrants. Eurex, a registered DCO, 

requested that it be included within the 

scope of the exemption. CME 

encouraged the Commission to include 

all DCOs in the scope of the exemption, 

and FIA recommended including all 

DCOs and their FCM clearing members. 

CME and Eurex argued that 

expanding the scope of the order is 

consistent with the promotion of fair 

competition, which is one of the stated 

purposes of section 4(c) exemptions.21

They also highlighted the benefits of 

investing customer funds in Designated 

Foreign Sovereign Debt as justification 

for expanding the scope of the order. 

Eurex stated that investing in 

Designated Foreign Sovereign Debt is 

safer than holding euro cash at a 

commercial bank. Additionally, CME 

noted that investing in Designated 

Foreign Sovereign Debt promotes 

effective management of liquidity risk 

by aligning collateral types with 

potential liquidity obligations and by 

diversifying risk in the investment 

portfolio. CME further stated that 

investments in Designated Foreign 

Sovereign Debt allow DCOs to better 

mitigate collateral concentration risk 

and argued that these benefits are not 

unique to any particular DCO. 

The Commission agrees that the 

benefits of the Proposed Order are not 

unique to the ICE DCOs and is 

accordingly expanding the scope of the 

Proposed Order to permit all DCOs to 

invest customer funds in Designated 

Foreign Sovereign Debt, subject to the 

conditions of the order. The 

Commission notes, however, that some 

DCOs have access to a central bank 

account for euro deposits and believes 

that such access can, in certain 


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35244 Federal Register / Vol. 83, No. 143 / Wednesday, July 25, 2018 / Notices 

22See Comm. on Payment and Settlement Sys. 

and Technical Comm. of the Int’l Org. of Sec. 

Comm’ns [CPSS–IOSCO, now CPMI–IOSCO] 

Principles for Financial Market Infrastructures, 

Princ. 7 Key Consideration 8 (2012) (‘‘An FMI with 

access to central bank accounts, payment services, 

or security services should use these services, 

where practical, to enhance its management of 

liquidity risk.’’). 

23See FIA comment letter at 3 (providing only 

that ‘‘[w]e see no reason why the proposed relief 

should not be’’ available to FCMs holding eurodenominated segregated balances). 

24FIA did not specify whether repurchase 

agreements would be included in the calculation of 

the time-to-maturity limit it proposed. 

circumstances, reduce or eliminate the 

need for investing customer funds in 

Designated Foreign Sovereign Debt. The 

Commission therefore encourages DCOs 

to deposit customer euro with a central 

bank when it is practical to do so.22 The 

comments received did not provide 

support for an expansion of the 

exemption to FCMs,23 a separate class of 

registrants subject to differing regulatory 

obligations that the Commission would 

need to carefully consider on their own 

terms. As a result, the Commission 

declines to expand the order to permit 

FCMs to invest customer funds in 

Designated Foreign Sovereign Debt at 

this time. 

Both Eurex and FIA encouraged the 

Commission to expand the weighted 

average time-to-maturity limit beyond 

the proposed 60 days. Eurex 

recommended limiting portfolios, 

including repurchase agreements, to a 

two-year time-to-maturity requirement, 

consistent with the current limit in 

Regulation 1.25 for the overall portfolio 

of investments purchased with customer 

funds. It argued that because the 

Commission found the risk 

characteristics of German and French 

debt to be similar to those of U.S. 

Government Securities, the same timeto-maturity limit should apply. FIA 

recommended using a six month timeto-maturity limit.24 Based on 

discussions with trading desks at 

several member firms, FIA suggested 

that the 60-day limit would be too 

restrictive. It explained that the new 

issuance supply of French and German 

sovereign debt that could be used to 

satisfy this restriction is limited and 

thinly traded and quoted, which could 

force participants to invest in less-liquid 

secondary market securities. Further, 

FIA noted that although the discussion 

of the proposed 60-day time-to-maturity 

limit noted the SEC’s requirement for 

mutual funds as a point of reference, the 

SEC rule includes overnight repos in the 

calculation, which significantly reduces 

the average time-to-maturity of the 

portfolio as a whole. 

The 60-day average time-to-maturity 

limitation as proposed to apply only to 

direct investments may unduly limit 

investments in Designated Foreign 

Sovereign Debt, and the Commission is 

therefore amending the calculation of 

the limitation. Under the final order, the 

dollar-weighted average time-tomaturity of all investments in 

Designated Foreign Sovereign Debit, 

including repurchase agreements, may 

not exceed 60 days. The Commission is 

also, however, limiting individual direct 

investments in Designated Foreign 

Sovereign Debt to securities that have a 

remaining maturity of 180 days or less. 

While the risk characteristics of 

Designated Foreign Sovereign Debt are 

broadly comparable to those of U.S. 

Government Securities, Designated 

Foreign Sovereign Debt is somewhat 

less liquid than U.S. Government 

Securities and the cap on the time-tomaturity of individual investments is 

intended to address that reduced 

liquidity. 

FIA recommended using the five-year 

credit default swap (‘‘CDS’’) spread as 

the measure of credit quality for 

Designated Foreign Sovereign Debt, 

arguing that the two-year CDS is thinly 

traded and quoted compared to the fiveyear instrument. FIA recommended 

permitting investments in French and 

German debt when the five-year CDS 

spread is at 60 basis points or less. 

The Commission understands that the 

five-year CDS is more commonly traded 

than the two-year, but believes that the 

two-year spread is more suitable for this 

purpose because it more closely tracks 

the duration of the investments that 

DCOs will make in Designated Foreign 

Sovereign debt. While liquidity of the 

two-year product may not match that of 

the five-year, the Commission believes 

that data and quotes on the two-year 

spread are adequately available for their 

intended use as a measure of 

creditworthiness. 

FIA noted that under the proposed 

exemption from Regulation 1.25(d)(2) 

and (7), the ICE DCOs would be 

required to comply with the remaining 

provisions of Regulation 1.25(d). FIA 

stated that these requirements provide 

important protections for customer 

funds employed in repurchase 

agreements and should not be waived. 

The Commission agrees and confirms 

that DCOs must continue to comply 

with all requirements in Regulation 1.25 

not exempted by the order. 

Eurex requested the Commission 

clarify that like U.S. Government 

Securities, Foreign Sovereign Debt is not 

subject to an asset-based concentration 

limit. The Commission confirms that the 

order does not subject Designated 

Foreign Sovereign Debt to an assetbased concentration limit. Because 

investments of customer funds in 

Designated Foreign Sovereign Debt will 

be limited to the amount of euro cash 

held by DCOs, the Commission does not 

believe that an asset-based 

concentration limit is necessary. 

In addition, the Commission is 

amending the Proposed Order to permit 

DCOs a reasonable amount of time after 

the two-year CDS spread of France or 

Germany exceeds 45 basis points to 

determine an appropriate alternative 

investment or depository for funds that 

had been invested in a repurchase 

agreement for the relevant Designated 

Foreign Sovereign Debt. The 

Commission does not believe it is 

prudent to immediately require DCOs to 

locate depositories for potentially large 

amounts of cash without notice. The 

order as revised will require DCOs to 

stop entering into repurchase 

agreements as soon as practicable under 

the circumstances while the French or 

German two-year CDS spread exceeds 

45 basis points. The Commission is not 

amending the restriction that no new 

direct investments in the relevant debt 

may be made if the two-year spread is 

greater than 45 basis points. 

The Commission is also making a 

change to the Proposed Order to clarify 

that the exemption to Regulation 

1.25(d)(2) and (7) only applies to 

investments in Designated Foreign 

Sovereign Debt and not all securities 

purchased with customer funds. 

The Commission does not intend this 

order to relieve a DCO of any obligation 

relating to investments in Designated 

Foreign Sovereign Debt that would 

apply if Designated Foreign Sovereign 

Debt were a permitted investment under 

Commission Regulation 1.25. The 

Commission is adding a new paragraph 

to the order to clarify that certain 

Commission regulations apply to 

investments made pursuant to this 

order. 

VI. Order 

After considering the above factors 

and the comment letters received in 

response to its request for comments, 

the Commission has determined to issue 

the following: 

(1) The Commission, pursuant to its 

authority under section 4(c) of the 

Commodity Exchange Act (‘‘Act’’) and 

subject to the conditions below, hereby 

grants registered derivatives clearing 

organizations (‘‘DCOs’’) a limited 

exemption to section 4d of the Act and 

to Commission Regulation 1.25(a) to 

permit all registered DCOs to invest 

euro-denominated futures and cleared 

swap customer funds in eurodenominated sovereign debt issued by 

the French Republic and the Federal 


daltland on DSKBBV9HB2PROD with NOTICES
Federal Register / Vol. 83, No. 143 / Wednesday, July 25, 2018 / Notices 35245 

Republic of Germany (‘‘Designated 

Foreign Sovereign Debt’’). 

(2) The Commission, subject to the 

conditions below, additionally grants: 

(a) A limited exemption to 

Commission Regulation 1.25(d)(2) to 

permit registered DCOs to use customer 

funds to enter into repurchase 

agreements for Designated Foreign 

Sovereign Debt with foreign banks and 

foreign securities brokers or dealers; and 

(b) A limited exemption to 

Commission Regulation 1.25(d)(7) to 

permit registered DCOs to hold 

Designated Foreign Sovereign Debt 

purchased under a repurchase 

agreement in a safekeeping account at a 

foreign bank. 

(3) This order is subject to the 

following conditions: 

(a) Investments of customer funds in 

Designated Foreign Sovereign Debt by a 

DCO must be limited to investments 

made with euro customer cash. 

(b) If the two-year credit default 

spread of an issuing sovereign of 

Designated Foreign Sovereign Debt is 

greater than 45 basis points: 

(i) A DCO must discontinue investing 

customer funds in the relevant debt 

through repurchase transactions as soon 

as practicable under the circumstances; 

(ii) A DCO may not make any new 

direct investments in the relevant debt 

using customer funds. Direct investment 

refers to purchases of Designated 

Foreign Sovereign Debt unaccompanied 

by a contemporaneous agreement to 

resell the securities. 

(c) The dollar-weighted average of the 

time-to-maturity of a DCO’s portfolio of 

investments in each sovereign’s 

Designated Foreign Sovereign Debt may 

not exceed 60 days. 

(d) A DCO may not make a direct 

investment in any Designated Foreign 

Sovereign Debt that has a remaining 

maturity of greater than 180 calendar 

days. 

(e) A DCO may use customer funds to 

enter into repurchase agreements for 

Designated Foreign Sovereign Debt with 

a counterparty that does not meet the 

requirements of Commission Regulation 

1.25(d)(2) only if the counterparty is: 

(i) A foreign bank that qualifies as a 

permitted depository under Commission 

Regulation 1.49(d)(3) and that is located 

in a money center country (as defined 

in Commission Regulation 1.49(a)(1)) or 

in another jurisdiction that has adopted 

the euro as its currency; 

(ii) A securities dealer located in a 

money center country as defined in 

Commission Regulation 1.49(a)(1) that is 

regulated by a national financial 

regulator such as the UK Prudential 

Regulation Authority or Financial 

Conduct Authority, the German 

Bundesanstalt fu ̈r 

Finanzdienstleistungsaufsicht (BaFin), 

the French Autorite ́ Des Marche ́s 

Financiers (AMF) or Autorite ́ de 

Controˆle Prudentiel et de Re ́solution 

(ACPR), or the Italian Commissione 

Nazionale per le Societa` e la Borsa 

(CONSOB); or 

(iii) The European Central Bank, the 

Deutsche Bundesbank, or the Banque de 

France. 

(f) A DCO may hold customer 

Designated Foreign Sovereign Debt 

purchased under a repurchase 

agreement with a depository that does 

not meet the requirements of 

Commission Regulation 1.25(d)(7) only 

if the depository meets the location and 

qualification requirements contained in 

Commission Regulation 1.49(c) and (d) 

and if the account complies with the 

requirements of Commission Regulation 

1.26. 

(4) A DCO must continue to comply 

with all other requirements in 

Commission Regulation 1.25, including 

but not limited to the counterparty 

concentration limits in Commission 

Regulation 1.25(b)(3)(v), and other 

applicable Commission regulations. 

(5) Investments made pursuant to this 

order will be considered ‘‘instruments 

described in § 1.25’’ for the purposes of 

Commission Regulation 1.29 and will be 

considered to be made ‘‘in accordance 

with § 1.25’’ for the purposes of 

Commission Regulation 22.3. 

IV. Related Matters 

A. Paperwork Reduction Act 

The Paperwork Reduction Act 

(‘‘PRA’’) imposes certain requirements 

on federal agencies (including the 

Commission) in connection with their 

conducting or sponsoring any collection 

of information as defined by the PRA. 

This exemptive order does not involve 

a collection of information. 

Accordingly, the PRA does not apply. 

B. Cost-Benefit Analysis 

Section 15(a) of the CEA requires the 

Commission to consider the costs and 

benefits of its action before issuing an 

order under the CEA. By its terms, 

section 15(a) does not require the 

Commission to quantify the costs and 

benefits of an order or to determine 

whether the benefits of the order 

outweigh its costs. Rather, section 15(a) 

simply requires the Commission to 

‘‘consider the costs and benefits’’ of its 

action. The Commission did not receive 

any comments on its proposed costs and 

benefits. 

1. Baseline 

The Commission’s baseline for 

consideration of the costs and benefits 

of the exemptive order are the costs and 

benefits that DCOs and the public 

would face if the Commission does not 

grant the order, or in other words, the 

status quo. In that scenario, DCOs 

would be limited to investing customer 

funds in the instruments listed in 

Regulation 1.25. 

2. Costs and Benefits 

The costs and benefits of the order are 

not presently susceptible to meaningful 

quantification. Therefore, the 

Commission discusses costs and 

benefits in qualitative terms. 

The Commission does not believe 

granting the exemption will impose 

additional costs on DCOs. The order 

permits but does not require DCOs to 

invest customer funds in Designated 

Foreign Sovereign Debt. Each DCO may 

therefore decide whether to accept any 

costs and benefits of an investment. The 

Commission also does not expect the 

order to impose additional costs on 

other market participants or the public, 

which do not face any direct costs from 

the order. While other market 

participants or the public could 

potentially face costs from riskier 

investment activity leading to financial 

instability at a DCO, the Commission 

believes that this is unlikely, because 

the order prescribes limits on 

investments of customer funds in 

Designated Foreign Sovereign Debt 

designed to preserve principal and 

maintain liquidity. In addition, the 

flexibility to hold customer funds in 

Designated Foreign Sovereign Debt 

rather than in euro cash at a commercial 

bank provides risk management benefits 

as described above. 

The Commission believes that DCOs 

will benefit from the order. The 

exemption provides DCOs additional 

flexibility in how they manage and hold 

customer funds and allows them to 

improve the risk management of their 

customer accounts. Further, if DCOs 

invest customer funds in Designated 

Foreign Sovereign Debt, other 

participants in the relevant market may 

benefit from the additional liquidity. 

Moreover, as described above, it is safer 

from a risk management perspective to 

hold Foreign Sovereign Debt in a 

safekeeping account than to hold euro 

cash at a commercial bank. Therefore, 

market participants and the public may 

also benefit from the exemption. 

3. Section 15(a) Factors 

Section 15(a) of the CEA further 

specifies that costs and benefits shall be 

evaluated in light of five broad areas of 

market and public concern: protection 

of market participants and the public; 

efficiency, competitiveness, and 


daltland on DSKBBV9HB2PROD with NOTICES
35246 Federal Register / Vol. 83, No. 143 / Wednesday, July 25, 2018 / Notices 

financial integrity of futures markets; 

price discovery; sound risk management 

practices; and other public interest 

considerations. The Commission could 

in its discretion give greater weight to 

any one of the five enumerated areas 

and could in its discretion determine 

that, notwithstanding its costs, a 

particular order was necessary or 

appropriate to protect the public interest 

or to effectuate any of the provisions or 

to accomplish any of the purposes of the 

CEA. The Commission is considering 

the costs and benefits of this exemptive 

order in light of the specific provisions 

of section 15(a) of the CEA, as follows: 

1. Protection of market participants 

and the public. As described above, 

investing in the Designated Foreign 

Sovereign Debt as requested by the 

Petitioners can provide risk 

management benefits relative to the 

current alternative of holding euro 

collateral in a commercial bank. 

Granting the exemption thus serves to 

protect market participants and the 

public. 

2. Efficiency, competition, and 

financial integrity. Granting the 

exemption may increase efficiency by 

providing DCOs additional flexibility in 

how they manage customer funds. 

Making the investments permitted by 

the order is elective, within the 

discretion of each DCO, and thus does 

not impose additional costs. Further, as 

discussed in the above, DCOs can 

exercise prudent risk management by 

investing in the Designated Foreign 

Sovereign Debt, which may enhance the 

financial integrity of the DCO. 

3. Price discovery. The exemption is 

unlikely to impact price discovery in 

the derivatives markets. 

4. Sound risk management practices. 

As described above, investing customer 

funds in the Designated Foreign 

Sovereign Debt is intended to advance 

sound risk management practices, 

including by limiting custodian and 

collateral concentration risks. 

5. Other public interest 

considerations. The Commission 

believes that the relevant cost-benefit 

considerations are captured in the four 

factors above. 

Issued in Washington, DC, on July 19, 

2018, by the Commission. 

Robert Sidman, 

Deputy Secretary of the Commission. 

Appendix To Order Granting 

Exemption From Certain Provisions of 

the Commodity Exchange Act 

Regarding Investment of Customer 

Funds and From Certain Related 

Commission Regulations—Commission 

Voting Summary 

On this matter, Chairman Giancarlo and 

Commissioners Quintenz and Behnam voted 

in the affirmative. No Commissioner voted in 

the negative. 

[FR Doc. 2018–15860 Filed 7–24–18; 8:45 am] 

BILLING CODE 6351–01–P 

DEPARTMENT OF DEFENSE 

Office of the Department of the Air 

Force 

Board of Visitors of the U.S. Air Force 

Academy; Notice of Federal Advisory 

Committee Meeting 

AGENCY: Board of Visitors of the U.S. Air 

Force Academy, Department of the Air 

Force. 

ACTION: Notice of Federal Advisory 

Committee meeting. 

SUMMARY: On Thursday, July 5, 2018, 

the Department of Defense published a 

notice to announce a Federal Advisory 

Committee meeting of the Board of 

Visitors of the U.S. Air Force Academy 

to be held on July 27, 2018. Subsequent 

to the publication of the notice, the 

meeting timeframe for opening and 

closing was changed, as well as part of 

the order of agenda topics. All other 

information in the July 5, 2018 notice 

remains the same. 

DATES: Open to the public Friday July 

27, 2018 from 7:30 a.m. to 3:00 p.m. 

(Mountain Time). 

ADDRESSES: United States Air Force 

Academy, Blue and Silver Club, 

Colorado Springs, CO. 

FOR FURTHER INFORMATION CONTACT: Jean 

R. Love, (703) 692–7757 (Voice), 703– 

693–4244 (Facsimile), jean.r.love.civ@

mail.mil (Email). Mailing address is 

SAF/MRM, 1660 Air Force Pentagon, 

Washington, DC 20330–1660. Website: 

https://www.usafa.edu/about/bov/. 

Captain Natalie Campos, Officer of the 

Deputy Assistant Secretary of the Air 

Force, SAF/MRM, Executive Officer and 

Force Management Action Officer, 1660 

Air Force Pentagon, Washington, DC 

20330, (703) 697–7058, 

natalie.m.campos.mil@mail.mil. 

SUPPLEMENTARY INFORMATION: Due to 

circumstances beyond the control of the 

Department of Defense (DoD) and the 

Designated Federal Officer, the meeting 

schedule for the previously announced 

meeting of the Board of Visitors of the 

U.S. Air Force Academy on July 27, 

2018 was changed and the Designated 

Federal Officer to the Board of Visitors 

of the U.S. Air Force Academy was 

unable to provide sufficient public 

notification of this change as required 

by 41 CFR 102–3.150(a). Accordingly, 

the Advisory Committee Management 

Officer for the Department of Defense, 

pursuant to 41 CFR 102–3.150(b), 

waives the 15-calendar day notification 

requirement. This meeting is being held 

under the provisions of the Federal 

Advisory Committee Act (FACA) of 

1972 (5 U.S.C., Appendix, as amended), 

the Government in the Sunshine Act of 

1976 (5 U.S.C. 552b, as amended), and 

41 CFR 102–3.140 and 102–3.150. 

Purpose of the Meeting: No change. 

Agenda: 

0730–0735 Introductions & opening 

remarks by Designated Federal 

Officer (Ms. Love) 

0735–0740 Call to Order and Agenda 

Overview, BoV Chairman: Gen (Ret) 

Rice 

0740–0745 Chairman’s Opening 

Comments 

0745–0845 Superintendent’s Update 

0845–0900 Comfort Break 

0900–0945 Commandant’s Update 

0945–1030 Dean’s Update 

1030–1100 SAPR Update 

1100–1130 CCLD’s Update 

1130–1215 BREAK: Group Photo, 

Lunch served 

1215–1315 Admissions Update 

1315–1330 Comfort Break 

1330–1400 Athletic Director’s Update 

1400–1430 Superintendent’s Summary 

Remarks 

1430–1500 Chairman’s Concluding 

Remarks 

1500 Public Comment/Adjourn (DFO) 

Meeting Accessibility: Open to the 

public subject to the availability of 

space. Registration of members of the 

public who wish to attend the meeting 

will begin upon publication of this 

meeting notice and end three business 

days (24 July) prior to the start of the 

meeting. All members of the public 

must contact Capt Campos at the phone 

number or email listed in the FOR

FURTHER INFORMATION CONTACT. Seating 

is limited and is on a first-to-arrive 

basis. Attendees will be asked to 

provide their name, title, affiliation, and 

contact information to include email 

address and daytime telephone number 

to the POC listed in the FOR FURTHER

INFORMATION CONTACT section. Any 

interested person may attend the 

meeting, file written comments or 


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