Federal Register / Vol. 74, No. 47 / Thursday, March 12, 2009 / Notices 10791 

1A nonexclusive list of the Commission’s actions 

to stabilize financial markets during this credit 

crisis include: adopting a package of measures to 

strengthen investor protections against naked short 

selling, including rules requiring a hard T+3 closeout, eliminating the options market maker 

exception of Regulation SHO, and expressly 

targeting fraud in short selling transactions (See 

Securities Exchange Act Release No. 58572 

(September 17, 2008), 73 FR 54875 (September 23, 

2008)); issuing an emergency order to enhance 

protections against naked short selling in the 

securities of primary dealers, Federal National 

Mortgage Association (‘‘Fannie Mae’’), and Federal 

Home Loan Mortgage Corporation (‘‘Freddie Mac’’) 

(See Securities Exchange Act Release No. 58166 

(July 15, 2008), 73 FR 42379 (July 21, 2008)); taking 

temporary emergency action to ban short selling in 

financial securities (See Securities Exchange Act 

Release No. 58592 (September 18, 2008), 73 FR 

55169 (September 24, 2008)); approving emergency 

rulemaking to ensure disclosure of short positions 

by hedge funds and other institutional money 

managers (See Securities Exchange Act Release No. 

58591A (September 21, 2008), 73 FR 55557 

(September 25, 2008)); proposing rules to 

strengthen the regulation of credit rating agencies 

and making the limits and purposes of credit ratings 

clearer to investors (See Securities Exchange Act 

Release No. 57967 (June 16, 2008), 73 FR 36212 

(June 25, 2008); entering into a Memorandum of 

Understanding with the Board of Governors of the 

Federal Reserve System (‘‘FRB’’) to make sure key 

Federal financial regulators share information and 

coordinate regulatory activities in important areas 

of common interest (See Memorandum of 

Understanding Between the U.S. Securities and 

Exchange Commission and the Board of Governors 

of the Federal Reserve System Regarding 

Coordination and Information Sharing in Areas of 

Common Regulatory and Supervisory Interest (July 

7, 2008), http://www.sec.gov/news/press/2008/ 

2008–134_mou.pdf). 

2 In addition to the potential systemic risks that 

CDS pose to financial stability, we are concerned 

about other potential risks in this market, including 

operational risks, risks relating to manipulation and 

fraud, and regulatory arbitrage risks. 

3See Policy Objectives for the OTC Derivatives 

Market, The President’s Working Group on 

Financial Markets, November 14, 2008, available at 

http://www.ustreas.gov/press/releases/reports/ 

policyobjectives.pdf (‘‘Public reporting of prices, 

trading volumes and aggregate open interest should 

be required to increase market transparency for 

participants and the public.’’). 

4See The Role of Credit Derivatives in the U.S. 

Economy Before the H. Agric. Comm., 110th Cong. 

(2008) (Statement of Erik Sirri, Director of the 

Division of Trading and Markets, Commission). 

5See id. 

6See Policy Objectives for the OTC Derivatives 

Market, The President’s Working Group on 

Financial Markets (November 14, 2008), http:// 

www.ustreas.gov/press/releases/reports/ 

policyobjectives.pdf. See also Policy Statement on 

Financial Market Developments, The President’s 

Working Group on Financial Markets (March 13, 

2008), http://www.treas.gov/press/releases/reports/ 

pwgpolicystatemktturmoil_03122008.pdf; Progress 

Update on March Policy Statement on Financial 

Market Developments, The President’s Working 

Group on Financial Markets (October 2008), http:// 

www.treas.gov/press/releases/reports/ 

q4progress%20update.pdf. 

7See Memorandum of Understanding Between 

the Board of Governors of the Federal Reserve 

System, the U.S. Commodity Futures Trading 

Commission and the U.S. Securities and Exchange 

Commission Regarding Central Counterparties for 

Credit Default Swaps (November 14, 2008), http:// 

www.treas.gov/press/releases/reports/finalmou.pdf. 

8See Semiannual OTC derivatives statistics at 

end-December 2007, Bank for International 

Settlements (‘‘BIS’’), available at http:// 

www.bis.org/statistics/otcder/dt1920a.pdf. 

9CDS were initially created to meet the demand 

of banking institutions looking to hedge and 

diversify the credit risk attendant with their lending 

activities. However, financial institutions such as 

insurance companies, pension funds, securities 

firms, and hedge funds have entered the CDS 

market. 

10 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. 

information on respondents, including 

through the use of automated collection 

techniques or other forms of information 

technology. Consideration will be given 

to comments and suggestions submitted 

in writing within 60 days of this 

publication. 

Please direct your written comments 

to Charles Boucher, Director/CIO, 

Securities and Exchange Commission, 

C/O Shirley Martinson, 6432 General 

Green Way, Alexandria, VA 22312; or 

send an e-mail to: 

PRA_Mailbox@sec.gov. 

Dated: March 5, 2009. 

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–5298 Filed 3–11–09; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–59527; File No. S7–05–09] 

Order Granting Temporary Exemptions 

Under the Securities Exchange Act of 

1934 in Connection With Request on 

Behalf of ICE U.S. Trust LLC Related to 

Central Clearing of Credit Default 

Swaps, and Request for Comments 

March 6, 2009. 

I. Introduction 

In response to the recent turmoil in 

the financial markets, the Securities and 

Exchange Commission (‘‘Commission’’) 

has taken multiple actions to protect 

investors and ensure the integrity of the 

nation’s securities markets.1 Today the 

Commission is taking further action 

designed to address concerns related to 

the market in credit default swaps 

(‘‘CDS’’). The over-the-counter (‘‘OTC’’) 

market for CDS has been a source of 

concerns to us and other financial 

regulators. These concerns include the 

systemic risk posed by CDS, highlighted 

by the possible inability of parties to 

meet their obligations as counterparties 

and the potential resulting adverse 

effects on other markets and the 

financial system.2 Recent credit market 

events have demonstrated the 

seriousness of these risks in a CDS 

market operating without meaningful 

regulation, transparency,3 or central 

counterparties (‘‘CCPs’’).4 These events 

have emphasized the need for CCPs as 

mechanisms to help control such risks.5

A CCP for CDS could be an important 

step in reducing the counterparty risks 

inherent in the CDS market, and thereby 

help mitigate potential systemic 

impacts. In November 2008, the 

President’s Working Group on Financial 

Markets stated that the implementation 

of a CCP for CDS was a top priority 6

and, in furtherance of this 

recommendation, the Commission, the 

FRB and the Commodity Futures 

Trading Commission (‘‘CFTC’’) signed a 

Memorandum of Understanding 7 that 

establishes a framework for consultation 

and information sharing on issues 

related to CCPs for CDS. Given the 

continued uncertainty in this market, 

taking action to help foster the prompt 

development of CCPs, including 

granting conditional exemptions from 

certain provisions of the Federal 

securities laws, is in the public interest. 

A 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 or on a particular security 

or other debt obligation, or an index of 

several such entities, securities, or 

obligations. The obligation of a seller 

under a CDS 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 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 capitalize 

on the volatility in credit spreads during 

times of economic uncertainty. In recent 

years, CDS market volumes have rapidly 

increased.8 This growth has coincided 

with a significant rise in the types and 

number of entities participating in the 

CDS market.9

The Commission’s authority over this 

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.10 For 


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10792 Federal Register / Vol. 74, No. 47 / Thursday, March 12, 2009 / Notices 

11See generally R. Bliss and C. Papathanassiou, 

‘‘Derivatives clearing, central counterparties and 

novation: The economic implications’’ (March 8, 

2006), at 6. See also ‘‘New Developments in 

Clearing and Settlement Arrangements for OTC 

Derivatives,’’ Committee on Payment and 

Settlement Systems, BIS, at 25 (March 2007), 

available at http://www.bis.org/pub/cpss77.pdf; 

‘‘Reducing Risks and Improving Oversight in the 

OTC Credit Derivatives Market,’’ Before the Sen. 

Subcomm. On Secs., Ins. and Investments, 110th 

Cong. (2008) (Statement of Patrick Parkinson, 

Deputy Director, Division of Research and 

Statistics, FRB). 

12 ‘‘Novation’’ is a ‘‘process through which the 

original obligation between a buyer and seller is 

discharged through the substitution of the CCP as 

seller to buyer and buyer to seller, creating two new 

contracts.’’ Committee on Payment and Settlement 

Systems, Technical Committee of the International 

Organization of Securities Commissioners, 

Recommendations for Central Counterparties 

(November 2004) at 66. 

13See ‘‘New Developments in Clearing and 

Settlement Arrangements for OTC Derivatives,’’ 

supra note 11, at 25. Multilateral netting of trades 

would permit multiple counterparties to offset their 

open transaction exposure through the CCP, 

spreading credit risk across all participants in the 

clearing system and more effectively diffusing the 

risk of a counterparty’s default than could be 

accomplished by bilateral netting alone. 

14See Letter from Johnathan Short, 

InterContinental Exchange, Inc. and Kevin McClear, 

The Clearing Corporation, to Elizabeth Murphy, 

Secretary, Commission, February 26, 2009. 

15See id. The exemptions we are granting today 

are based on representations made in the request on 

behalf of 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 associated with 

persons subject to those unavailable exemptions 

would remain unchanged, but no new positions 

could be established pursuant to the exemptions 

until all of the underlying representations were 

again accurate. 

16See Securities Act Release No. 33–8999 

(January 14, 2009). 

17See Securities Exchange Act Release No. 59165 

(December 24, 2008). 

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 

conditional exemptions from certain 

requirements of the Exchange Act. 

The Commission believes that using 

well-regulated CCPs to clear 

transactions in CDS would help 

promote efficiency and reduce risk in 

the CDS market and among its 

participants. These benefits could be 

particularly significant in times of 

market stress, as CCPs would mitigate 

the potential for a market participant’s 

failure to destabilize other market 

participants, and reduce the effects of 

misinformation and rumors. CCPmaintained records of CDS transactions 

would also aid the Commission’s efforts 

to prevent and detect fraud and other 

abusive market practices. 

A well-regulated CCP also would 

address concerns about counterparty 

risk by substituting the creditworthiness 

and liquidity of the CCP for the 

creditworthiness and liquidity of the 

counterparties to a CDS. In the absence 

of a CCP, participants in the OTC CDS 

market must carefully manage their 

counterparty risks because the default 

by a counterparty can render worthless, 

and payment delay can reduce the 

usefulness of, the credit protection that 

has been bought by a CDS purchaser. 

CDS participants currently attempt to 

manage counterparty risk by carefully 

selecting and monitoring their 

counterparties, entering into legal 

agreements that permit them to net 

gains and losses across contracts with a 

defaulting counterparty, and often 

requiring counterparty exposures to be 

collateralized.11 A CCP could allow 

participants to avoid these risks specific 

to individual counterparties because a 

CCP ‘‘novates’’ bilateral trades by 

entering into separate contractual 

arrangements with both 

counterparties—becoming buyer to one 

and seller to the other.12 Through 

novation, it is the CCP that assumes 

counterparty risks. 

For this reason, a CCP for CDS would 

contribute generally to the goal of 

market stability. As part of its risk 

management, a CCP may subject 

novated contracts to initial and 

variation margin requirements and 

establish a clearing fund. The CCP also 

may implement a loss-sharing 

arrangement among its participants to 

respond to a participant insolvency or 

default. 

A CCP would also reduce CDS risks 

through multilateral netting of trades.13

Trades cleared through a CCP would 

permit market participants to accept the 

best bid or offer from a dealer in the 

OTC market with very brief exposure to 

the creditworthiness of the dealer. In 

addition, by allowing netting of 

positions in similar instruments, and 

netting of gains and losses across 

different instruments, a CCP would 

reduce redundant notional exposures 

and promote the more efficient use of 

resources for monitoring and managing 

CDS positions. Through uniform 

margining and other risk controls, 

including controls on market-wide 

concentrations that cannot be 

implemented effectively when 

counterparty risk management is 

decentralized, a CCP can help prevent a 

single market participant’s failure from 

destabilizing other market participants 

and, ultimately, the broader financial 

system. 

In this context, 

IntercontinentalExchange, Inc. (‘‘ICE’’) 

and The Clearing Corporation (‘‘TCC’’), 

on behalf of ICE U.S. Trust LLC (‘‘ICE 

Trust’’), have requested that the 

Commission grant exemptions from 

certain requirements under the 

Exchange Act with respect to the 

proposed activities of ICE Trust in 

clearing and settling certain CDS, as 

well as the proposed activities of certain 

other persons, as described below.14

Based on the facts presented and the 

representations made in the request on 

behalf of ICE Trust,15 and for the 

reasons discussed in this Order, the 

Commission temporarily is exempting, 

subject to certain conditions, ICE Trust 

from the requirement to register as a 

clearing agency under Section 17A of 

the Exchange Act solely to perform the 

functions of a clearing agency for certain 

non-excluded CDS transactions. The 

Commission also temporarily is 

exempting eligible contract participants 

and others from certain Exchange Act 

requirements with respect to nonexcluded CDS cleared by ICE Trust. In 

addition, the Commission temporarily is 

exempting ICE Trust and certain 

participants of ICE Trust 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 

Commission’s exemptions are 

temporary and will expire on December 

7, 2009. To facilitate the operation of 

one or more CCPs for the CDS market, 

the Commission has also approved 

interim final temporary rules providing 

exemptions under the Securities Act of 

1933 and the Exchange Act for nonexcluded CDS.16 Finally, the 

Commission has provided temporary 

exemptions in connection with Sections 

5 and 6 of the Exchange Act for 

transactions in non-excluded CDS.17

II. Discussion 

A. Description of ICE Trust’s Proposal 

The exemptive request on behalf of 

ICE Trust describes how the proposed 

arrangements for central clearing of CDS 

by ICE Trust would operate, and makes 

representations about the safeguards 

associated with those arrangements, as 

described below: 


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18See note 35, infra. 

19An ICE Trust Participant would be permitted to 

withdraw mark-to-market margin amounts credited 

to its account to the extent not required to satisfy 

its initial margin requirement. 

1. ICE Trust Organization 

ICE Trust is organized as a New York 

State chartered limited liability trust 

company and has received approval of 

its application to become a member of 

the Federal Reserve System. ICE Trust is 

subject to direct supervision and 

examination by the New York State 

Banking Department (‘‘NYSBD’’), and, 

in association with the approval of its 

application to become a member of the 

Federal Reserve System, will be subject 

to direct supervision and examination 

by the FRB, specifically the Federal 

Reserve Bank of New York. 

2. ICE Trust Central Counterparty 

Services for CDS 

Initially, ICE Trust’s business will be 

limited to the provision of clearing 

services for the OTC CDS market. ICE 

Trust will act as a central counterparty 

for ICE Trust Participants (as defined 

below) 18 by assuming, through 

novation, the obligations of all eligible 

CDS transactions accepted by it for 

clearing and collecting margin and other 

credit support from ICE Trust 

Participants to collateralize their 

obligations to ICE Trust. ICE Trust’s 

trade submission process is designed to 

ensure that it maintains a matched book 

of offsetting CDS contracts. 

Although CDS are currently 

bilaterally negotiated and executed, 

major market participants frequently use 

the Deriv/SERV service of The 

Depository Trust & Clearing Corporation 

(‘‘DTCC’’) comparison and confirmation 

service when documenting their CDS 

transactions. This service creates 

electronic records of transaction terms 

and counterparties. As part of this 

service, market participants separately 

submit the terms of a CDS transaction to 

Deriv/SERV in electronic form. Paired 

submissions are compared to verify that 

their terms match in all required 

respects. If a match is confirmed, the 

parties receive an electronic 

confirmation of the submitted 

transaction. All submitted transactions 

are recorded in the Deriv/SERV Trade 

Information Warehouse, which serves as 

the primary registry for submitted 

transactions. 

ICE Trust will leverage the Deriv/ 

SERV infrastructure in operating its CDS 

clearing service. Initially, all trades 

submitted by Participants for clearing 

through ICE Trust will be recorded in 

the Deriv/SERV Trade Information 

Warehouse. ICE Trust will, initially on 

a weekly basis, obtain from DTCC 

matched trades that have been recorded 

in the Deriv/SERV Trade Information 

Warehouse as having been submitted for 

clearing through ICE Trust. Within two 

months of launch, ICE Trust intends to 

obtain matched trades from DTCC on a 

daily basis. 

Participants may use the facilities of 

an inter-dealer broker to execute CDS 

transactions, for example, to access 

liquidity more rapidly or to maintain 

pre-execution anonymity and submit 

such transactions for clearance and 

settlement to ICE Trust. The inter-dealer 

brokers do not assume market positions 

in connection with their intermediation 

of CDS transactions. 

Once a matched CDS contract has 

been forwarded to, or obtained by, ICE 

Trust, and has been accepted for 

clearing by it, ICE Trust will clear the 

CDS contract by becoming the central 

counterparty to each party to the trade 

through novation. Deriv/SERV’s current 

infrastructure will help to ensure that 

ICE Trust maintains a matched book of 

offsetting CDS contracts. Maintaining a 

matched offsetting book is essential to 

managing the credit risk associated with 

CDS submitted to ICE Trust for clearing. 

Under the ICE Trust’s current draft 

rules (‘‘ICE Trust Rules’’), each bilateral 

CDS contract between two ICE Trust 

Participants that is submitted, and 

accepted by ICE Trust, for clearing will 

be ‘‘novated.’’ As part of this process, 

each bilateral CDS contract submitted to 

ICE Trust will be replaced by two 

superseding CDS contracts between 

each of the original parties to the 

submitted transaction and ICE Trust. 

Under these new contracts, ICE Trust 

will act as the counterparty to each of 

the original parties. As central 

counterparty to each novated CDS 

contract, ICE Trust will be able to net 

offsetting positions on a multilateral 

basis, even though ICE Trust will have 

different counterparties with respect to 

the novated CDS contracts that are being 

netted. 

As part of the novation process, the 

terms and conditions governing the CDS 

bilaterally negotiated by the submitting 

counterparties will be superseded by the 

relevant provisions of the ICE Trust 

Rules applicable to the relevant CDS 

transaction. Multilateral netting will 

significantly reduce the outstanding 

notional amount of each ICE Trust 

Participant’s CDS portfolio. When ICE 

Trust acts as the central counterparty to 

all cleared CDS of an ICE Trust 

Participant, that participant’s positions 

will be netted down to a single exposure 

to ICE Trust. 

3. ICE Trust Risk Management 

ICE Trust will mitigate counterparty 

risk through its margin, guaranty fund, 

and credit support framework, as set 

forth in the ICE Trust Rules. ICE Trust’s 

risk management infrastructure and 

related risk metrics will be structured 

specifically for the CDS products that 

ICE Trust clears. Each ICE Trust 

Participant’s credit support obligations 

will be governed by a uniform credit 

support framework and applicable ICE 

Trust Rules. 

ICE Trust represents that it will 

maintain strict, objectively determined, 

risk-based margin and guaranty fund 

requirements, which will be subject to 

extensive and ongoing regulation and 

oversight by the FRB and the NYSBD. 

These requirements will also be 

consistent with clearing industry 

practice, Basel II capital adequacy 

standards, and international standards 

established for central counterparties as 

articulated in the Bank for International 

Settlements / International Organization 

of Securities Commissions (‘‘IOSCO’’) 

CCP Recommendations. The amount of 

margin and guaranty fund required of 

each ICE Trust Participant will be 

continuously adjusted to reflect the size 

and profile of, and risk associated with, 

the ICE Trust Participant’s cleared CDS 

transactions (and related market 

factors). 

Pursuant to ICE Trust Rules, each ICE 

Trust Participant’s margin requirement 

will consist of two components: (1) 

Initial margin, reflecting a risk-based 

calculation of potential loss on 

outstanding CDS positions in the event 

of a significant adverse market 

movement, and (2) mark-to-market 

margin, based upon an end-of-day markto-market of outstanding positions. 

Acceptable margin will initially include 

only cash in specified currencies and G– 

7 government debt for initial margin and 

only cash for mark-to-market margin. 

ICE Trust Participants will be required 

to cover any end-of-day margin deficit 

with U.S. dollars by the following 

morning, and ICE Trust will have the 

discretion to require and collect 

additional margin, both at the end of the 

day and intraday, as it deems 

necessary.19

ICE Trust will also maintain a 

guaranty fund (the ‘‘Guaranty Fund’’) to 

cover losses arising from an ICE Trust 

Participant’s default on cleared CDS 

transactions that exceed the amount of 

margin held by ICE Trust from the 

defaulting ICE Trust Participant. Each 

ICE Trust Participant will be required to 

contribute a minimum of $20 million to 

the Guaranty Fund initially when it 

becomes an ICE Trust Participant and 


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20 15 U.S.C. 78mm. 

21For purposes of this exemption, and the other 

exemptions addressed in 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 

Fannie Mae, 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). 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 10, supra. 

on an ongoing basis, additional amounts 

based on its actual and anticipated CDS 

position exposures. The adequacy of the 

Guaranty Fund will be monitored daily 

and the need for additional 

contributions will be determined on at 

least a monthly basis, based on the size 

of ICE Trust Participant exposures 

within the ICE Trust clearing system. As 

a result, the Guaranty Fund will grow in 

proportion to the position risk 

associated with the aggregate volume of 

CDS cleared by ICE Trust. 

ICE Trust will also establish rules that 

‘‘mutualize’’ the risk of an ICE Trust 

Participant default across all ICE Trust 

Participants. In the event of an ICE Trust 

Participant’s default, ICE Trust may look 

to the margin posted by such 

participant, such participant’s Guaranty 

Fund contributions and, if applicable, 

any recovery from a parent guarantor. In 

addition, at its discretion, ICE Trust will 

be authorized to use, to the extent 

needed, other ICE Trust Participants’ 

Guaranty Fund contributions to satisfy 

any obligations of the defaulting ICE 

Trust Participant; provided that, any 

recovery from the defaulting ICE Trust 

Participant, its parent guarantor, if any, 

or the sale of the defaulting ICE Trust 

Participant’s positions in ICE Trust will 

first be used to refund any amounts 

utilized by ICE Trust from contributions 

of non-defaulting ICE Trust Participants 

to the Guaranty Fund. 

4. Member Default 

Following a default by an ICE Trust 

Participant, ICE Trust has a number of 

tools available to it under the ICE Trust 

Rules to ensure an orderly liquidation 

and unwinding of the open positions of 

such defaulting ICE Trust Participant. In 

the first instance, upon determining that 

a default has occurred, ICE Trust will 

have the ability to immediately enter 

into replacement CDS transactions with 

other ICE Trust Participants that are 

designed to mitigate, to the greatest 

extent possible, the market risk of the 

defaulting ICE Trust Participant’s open 

positions. For open positions in which 

there is no liquid trading market, ICE 

Trust may enter into covering CDS 

transactions for which there is a liquid 

market and that are most closely 

correlated with such illiquid open 

positions. 

After entering into covering 

transactions in the open market, if any, 

ICE Trust will seek to close out any 

remaining open positions of the 

defaulting ICE Trust Participant 

(including any initial covering 

transactions) by using one or more 

auctions or other commercially 

reasonable unwind processes. The ICE 

Trust Rules will prohibit ICE Trust from 

entering into any replacement 

transaction if the price of such 

transaction would be below the least 

favorable price that would be reasonable 

to accept for such replacement 

transaction. To the extent ICE Trust is 

not able to enter into the necessary 

replacement transactions through 

auctions or open market processes, ICE 

Trust will be entitled to allocate such 

replacement transactions to the 

remaining ICE Trust Participants at the 

floor price established by ICE Trust. 

B. Temporary Conditional Exemptions 

From Clearing Agency and Exchange 

Registration Requirements 

1. Exemption From Section 17A of the 

Exchange Act 

Section 17A of the Exchange Act sets 

forth the framework for the regulation 

and operation of the U.S. clearance and 

settlement system, including CCPs. 

Specifically, Section 17A directs the 

Commission to use its authority to 

promote enumerated Congressional 

objectives and to facilitate the 

development of a national clearance and 

settlement system for securities 

transactions. Absent an exemption, a 

CCP that novates trades of non-excluded 

CDS that are securities and generates 

money and settlement obligations for 

participants is required to register with 

the Commission as a clearing agency. 

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.20

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 December 7, 2009 to 

ICE Trust from Section 17A of the 

Exchange Act, solely to perform the 

functions of a clearing agency for 

Cleared CDS,21 subject to the conditions 

discussed below. 

Our action today balances the aim of 

facilitating the prompt establishment of 

ICE Trust as a CCP for non-excluded 

CDS transactions—which should help 

reduce systemic risks during a period of 

extreme turmoil in the U.S. and global 

financial markets—with ensuring that 

important elements of Commission 

oversight are applied to the nonexcluded CDS market. In doing so, we 

are mindful that applying the full scope 

of the Exchange Act to transactions 

involving non-excluded CDS could 

deter the prompt establishment of ICE 

Trust as a CCP to settle those 

transactions. 

While we are acting so that the 

prompt establishment of ICE Trust as a 

CCP for non-excluded CDS will not be 

delayed by the need to apply the full 

scope of Exchange Act Section 17A’s 

requirements that govern clearing 

agencies, the relief we are providing is 

temporary and conditional. The limited 

duration of the exemptions will permit 

the Commission to gain more direct 

experience with the non-excluded CDS 

market after ICE Trust becomes 

operational, giving the Commission the 

ability to oversee the development of 

the centrally cleared non-excluded CDS 

market as it evolves. During the 

exemptive period, the Commission will 

closely monitor the impact of the CCPs 

on the CDS market. In particular, the 

Commission will seek to assure itself 

that the CCPs do not act in 

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. The Commission will 

take that experience into account in 

future actions. 

Moreover, this temporary exemption 

in part is based on ICE Trust’s 


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22The 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 FRB, and the CFTC. 

23The Commission notes the recommendations of 

the President’s Working Group on Financial 

Markets regarding the informational needs and due 

diligence responsibilities of investors. See 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. 

24See 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. S7–12–19. 

25 15 U.S.C. 78k–1(a)(1)(C)(iii). See also 15 U.S.C. 

78k–1(a)(1)(D). 

26See President’s Working Group on Financial 

Markets, Policy Objectives for the OTC Derivatives 

Market (November 14, 2008), available at http:// 

www.ustreas.gov/press/releases/reports/ 

policyobjectives.pdf (‘‘Public reporting of prices, 

trading volumes and aggregate open interest should 

be required to increase market transparency for 

participants and the public.’’). 

27See Exchange Act Release No. 42209 

(December 9, 1999), 64 FR 70613, 70621–70623 

(December 17, 1999) (‘‘Market Information Concept 

Release’’) (discussion of legal standards applicable 

to market data distribution since Section 11A was 

adopted in 1975). 

representation that it meets the 

standards set forth in the Committee on 

Payment and Settlement Systems 

(‘‘CPSS’’) and IOSCO report entitled: 

Recommendation for Central 

Counterparties (‘‘RCCP’’).22 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. 

In addition, this Order is designed to 

assure that—as represented in the 

request on behalf of ICE Trust— 

information will 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 clearing and 

settlement process for the CDS. 

Moreover, to be within the definition of 

Cleared CDS for purposes of this 

exemption (as well as the other 

exemptions granted through this Order), 

a CDS may only involve a reference 

entity, a reference security, an issuer of 

a reference security, or a reference index 

that satisfies certain conditions relating 

to the availability of information about 

such persons or securities. For nonexcluded CDS that are index-based, the 

definition provides that at least 80 

percent of the weighting of the index 

must be comprised of reference entities, 

issuers of a reference security, or 

reference securities that satisfy the 

information conditions. The definition 

does not prescribe the type of financial 

information that must be available nor 

the location of the particular 

information, recognizing that eligible 

contract participants have access to 

information about reference entities and 

reference securities through multiple 

sources. The Commission believes, 

however, 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 

appropriately evaluate the risks relating 

to a particular investment and make 

more informed investment decisions.23

Such information availability also will 

assist ICE Trust and the buyers and 

sellers in valuing their Cleared CDS and 

their counterparty exposures. As a result 

of the Commission’s actions today, the 

Commission believes that information 

should be available for market 

participants to be able to make informed 

investment decisions, and value and 

evaluate their Cleared CDS and their 

counterparty exposures. 

This temporary exemption is subject 

to a number of conditions that are 

designed to enable Commission staff 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 24 and its annual audited 

financial statements prepared by 

independent audit personnel; and (vii) 

report all significant systems outages to 

the Commission. 

In addition, this relief 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 

mark-to-market margin requirements for 

ICE Trust Participants; and (ii) any other 

pricing or valuation information with 

respect to Cleared CDS as is published 

or distributed by ICE Trust. The 

Commission believes this is an 

appropriate condition for ICE Trust’s 

exemption from registration as a 

clearing agency. In Section 11A of the 

Exchange Act, Congress found that ‘‘[i]t 

is in the public interest and appropriate 

for the protection of investors and the 

maintenance of fair and orderly markets 

to assure * * * the availability to 

brokers, dealers, and investors of 

information with respect to quotations 

for and transactions in securities.’’ 25

The President’s Working Group on 

Financial Markets has stated that 

increased transparency is a policy 

objective for the over-the-counter 

derivatives market,26 which includes 

the market for CDS. The condition is 

designed to further this policy objective 

of both Congress and the President’s 

Working Group by requiring ICE Trust 

to make useful pricing data available to 

the public on terms that are fair and 

reasonable and not unreasonably 

discriminatory. Congress adopted these 

standards for the distribution of data in 

Section 11A. The Commission long has 

applied the standards in the specific 

context of securities market data,27 and 

it anticipates that ICE Trust will 

distribute its data on terms that 

generally are consistent with the 

application of these standards to 

securities market data. For example, 

data distributors generally are required 

to treat subscribers equally and not 

grant special access, fees, or other 

privileges to favored customers of the 

distributor. Similarly, distributors must 

make their data feeds reasonably 

available to data vendors for those 

subscribers who wish to receive their 

data indirectly through a vendor rather 


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28See Exchange Act Release No. 59039 

(December 2, 2008), 73 FR 74770, 74793 (December 

9, 2008) (‘‘NYSE ArcaBook Order’’) (‘‘[S]ection 6 

and Exchange Act Rule 603(a) require NYSE Arca 

to distribute the ArcaBook data on terms that are 

not tied to other products in a way that is unfairly 

discriminatory or anticompetitive.’’). 

29See Market Information Concept Release, 64 FR 

at 70630 (‘‘The most important objectives for the 

Commission to consider in evaluating fees are to 

assure (1) the wide availability of market 

information, (2) the neutrality of fees among 

markets, vendors, broker-dealers, and users, (3) the 

quality of market information—its integrity, 

reliability, and accuracy, and (4) fair competition 

and equal regulation among markets and brokerdealers.’’). 

30See NYSE ArcaBook Order, 73 FR at 74794 

(‘‘[T]he proposed fees for ArcaBook data will apply 

equally to all professional subscribers and all nonprofessional subscribers * * * The fees therefore 

do not unreasonably discriminate among types of 

subscribers, such as by favoring participants in the 

NYSE Arca market or penalizing participants in 

other markets.’’). 

31 15 U.S.C. 78e. 

32Section 3(a)(1) of the Exchange Act, 15 U.S.C. 

78c(a)(1), defines ‘‘exchange.’’ Rule 3b–16 under the 

Exchange Act, 17 CFR 240.3b–16, defines certain 

terms used in the statutory definition of exchange. 

See Exchange Act Release No. 40760 (December 8, 

1998), 63 FR 70844 (December 22, 1998) (adopting 

Rule 3b–16 in addition to Regulation ATS). 

33 15 U.S.C. 78f. Section 6 of the Exchange Act 

also sets forth various requirements to which a 

national securities exchange is subject. 

than directly from the distributor. In 

addition, a distributor’s attempt to tie 

data products that must be made 

available to the public with other 

products or services of the distributor 

would be inconsistent with the statutory 

requirements.28 The Commission 

carefully evaluates any type of 

discrimination with respect to 

subscribers and vendors to assess 

whether there is a reasonable basis for 

the discrimination given, among other 

things, the Exchange Act objective of 

promoting price transparency.29

Moreover, preventing unreasonable 

discrimination is a practical means to 

promote fair and reasonable terms for 

data distribution because distributors 

are more likely to act appropriately 

when the terms applicable to the 

broader public also must apply to any 

favored classes of customers.30

As a CCP, ICE Trust will collect and 

process information about CDS 

transactions, prices, and positions from 

all of its participants. With this 

information, a CCP will, among other 

things, calculate and disseminate 

current values for open positions for the 

purpose of setting appropriate margin 

levels. The availability of such 

information can improve fairness, 

efficiency, and competitiveness of the 

market—all of which enhance investor 

protection and facilitate capital 

formation. Moreover, with pricing and 

valuation information relating to 

Cleared CDS, market participants would 

be able to derive information about 

underlying securities and indexes. This 

may improve the efficiency and 

effectiveness of the securities markets 

by allowing investors to better 

understand credit conditions generally. 

2. Exemption From Sections 5 and 6 of 

the Exchange Act 

ICE Trust represents that, in 

connection with its clearing and risk 

management process, it will 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 ICE Trust 

Participants. As part of this mark-tomarket process, ICE Trust will 

periodically require ICE Trust 

Participants to execute certain CDS 

trades at the applicable end-of-day 

settlement price. Requiring ICE Trust 

Participants to trade CDS periodically in 

this manner is designed to help ensure 

that such submitted prices reflect each 

ICE Trust Participant’s best assessment 

of the value of each of its open positions 

in Cleared CDS on a daily basis, thereby 

reducing risk by allowing ICE Trust to 

impose appropriate margin 

requirements. 

Section 5 of the Exchange Act states 

that ‘‘[i]t 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. * * *’’ 31 Section 6 of the 

Exchange Act sets forth a procedure 

whereby an exchange 32 may register as 

a national securities exchange.33 To 

facilitate the establishment of ICE 

Trust’s end-of-day settlement price 

process, including the periodically 

required trading described above, the 

Commission is exercising its authority 

under Section 36 of the Exchange Act to 

temporarily exempt ICE Trust and ICE 

Trust Participants from Sections 5 and 

6 of the Exchange Act and the rules and 

regulations thereunder in connection 

with ICE Trust’s calculation of mark-tomarket prices for open positions in 

Cleared CDS. This temporary exemption 

is subject to the following conditions: 

First, ICE Trust must 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: 

• 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. 

Reporting of this information will assist 

the Commission in carrying out its 

responsibility to supervise and regulate 

the securities markets. 

Second, ICE Trust must establish 

adequate safeguards and procedures to 

protect participants’ confidential trading 

information. Such safeguards and 

procedures shall include: (a) Limiting 

access to the 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) 

implementing standards controlling 

employees of ICE Trust trading for their 

own accounts. ICE Trust must adopt and 

implement adequate oversight 

procedures to ensure that the safeguards 

and procedures established pursuant to 

this condition are followed. This 

condition is designed to prevent any 

misuse of ICE Trust Participant trading 

information that may be available to ICE 

Trust in connection with the daily 

marking-to-market process of open 

positions in Cleared CDS. This should 

strengthen confidence in ICE Trust as a 

CCP for CDS, promoting participation. 

Third, ICE Trust must comply with 

the conditions to the temporary 

exemption from registration as a 

clearing agency granted in this Order. 

As set forth above, this Order is 

designed to facilitate the prompt 

establishment of ICE Trust as a CCP for 

non-excluded CDS. ICE Trust has 

represented that, to enhance the 

reliability of end-of-day settlement 

prices submitted as part of the daily 

mark-to-market process, it must require 

periodic trading of Cleared CDS 

positions by ICE Participants whose 

submitted end-of-day prices lock or 

cross. The Commission’s temporary 

exemption from Sections 5 and 6 of the 

Exchange Act is based on ICE Trust’s 

representation that the end-of-day 

settlement pricing process, including 

the periodically required trading is 

integral to its risk management. 


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34While 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 security-based 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. 

35For purposes of this Order, an ‘‘ICE Trust 

Participant’’ means any participant in ICE Trust that 

submits Cleared CDS to ICE Trust for clearance and 

settlement exclusively (i) for its own account or (ii) 

for the account of an affiliate that controls, is 

controlled by, or is under common control with the 

participant in ICE Trust. In general, this exemption 

does not apply to any ICE Trust Participant that is 

registered with the Commission as a broker-dealer. 

A separate temporary exemption addresses the 

Cleared CDS activities of registered broker-dealers. 

See Part II.D., infra. 

36This 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. 

37For 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). 

38A separate temporary exemption addresses the 

Cleared CDS activities of registered broker-dealers. 

See Part II.D., 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. 

39See note 34, supra. 

40Thus, for example, the Commission retains the 

ability to investigate potential violations and bring 

enforcement actions in the Federal courts and 

administrative proceedings, and to seek the full 

panoply of remedies available in such cases. 

41This Order includes a separate temporary 

exemption regarding the mark-to-market process of 

ICE Trust, discussed above. 

42See note 17, 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 

Continued 

Accordingly, as a condition to ICE 

Trust’s temporary exemption from 

Sections 5 and 6 of the Exchange Act, 

ICE trust must comply with the 

conditions to the temporary exemption 

from Section 17A of the Exchange Act 

in this Order. 

The Commission is also exempting 

each ICE Trust Participant from the 

prohibition in Section 5 of the Exchange 

Act to the extent that such ICE Trust 

Participant 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 calculation 

of mark-to-market prices for open 

positions in Cleared CDS. Absent an 

exemption, Section 5 would prohibit 

any ICE Trust Participant that is a 

broker or dealer from effecting 

transactions in Cleared CDS on ICE 

Trust, which will rely on this order for 

an exemption from exchange 

registration. The Commission believes 

that exempting ICE Trust Participants 

from the restriction in Section 5 is 

necessary and appropriate in the public 

interest and is consistent with the 

protection of investors because it will 

facilitate their use of ICE Trust’s CCP for 

Cleared CDS, which for the reasons 

noted in this Order the Commission 

believes to be beneficial. Without also 

exempting ICE Trust Participants from 

this Section 5 requirement, the 

Commission’s temporary exemption of 

ICE Trust from Sections 5 and 6 of the 

Exchange Act would be ineffective, 

because ICE Trust Participants that are 

brokers or dealers would not be 

permitted to effect transactions on ICE 

Trust in connection with the end-of-day 

settlement price process. 

C. Temporary General Exemption for 

ICE Trust, Certain ICE Trust 

Participants, and Certain Eligible 

Contract Participants 

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. At the same time, it 

is important that the antifraud 

provisions of the Exchange Act apply to 

transactions in non-excluded CDS; 

indeed, OTC transactions subject to 

individual negotiation that qualify as 

security-based swap agreements already 

are subject to these antifraud 

provisions.34

We thus believe that it is appropriate 

in the public interest and consistent 

with the protection of investors 

temporarily to apply substantially the 

same framework to transactions by 

market participants in non-excluded 

CDS that applies to transactions in 

security-based swap agreements. 

Applying substantially the same set of 

requirements to participants in 

transactions in non-excluded CDS as 

apply to participants in OTC CDS 

transactions will avoid deterring market 

participants from promptly using CCPs, 

which would detract from the potential 

benefits of central clearing. 

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 December 7, 2009 from 

certain requirements under the 

Exchange Act. This temporary 

exemption applies to ICE Trust, any ICE 

Trust Participant 35 which is not a 

broker or dealer registered under 

Section 15(b) of the Exchange Act (other 

than paragraph (11) thereof), and any 

eligible contract participants 36 other 

than: Eligible contract participants that 

receive or hold funds or securities for 

the purpose of purchasing, selling, 

clearing, settling or holding Cleared 

CDS positions for other persons; 37

eligible contract participants that are 

self-regulatory organizations; or eligible 

contract participants that are registered 

brokers or dealers.38

Under this temporary exemption, and 

solely with respect to Cleared CDS, 

these persons generally are exempt from 

provisions of the Exchange Act and the 

rules and regulations thereunder that do 

not apply to security-based swap 

agreements. Those persons thus would 

still be subject to those Exchange Act 

requirements that explicitly are 

applicable in connection with securitybased swap agreements.39 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.40 In this way, the temporary 

exemption would apply the same 

Exchange Act requirements in 

connection with non-excluded CDS as 

apply in connection with OTC credit 

default swaps. 

This temporary exemption, however, 

does not extend to Sections 5 and 6 of 

the Exchange Act.41 The Commission 

separately issued a conditional 

exemption from these provisions to all 

broker-dealers and exchanges.42 This 


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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). 

43 15 U.S.C. 78l, 78m, 78n, 78o(d), 78p. 

44Exchange 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. 

Accordingly, while this exemption generally 

extends to persons that act as inter-dealer brokers 

in the market for Cleared CDS and do not hold 

funds or securities for others, such inter-dealer 

brokers may be subject to actions under Sections 

15(b)(4) and (b)(6) of the Exchange Act. 

In addition, such inter-dealer brokers 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. 

45This 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; nor does the exemption extend to 

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). 

46Exchange 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). 

47See notes 34 and 40, 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 

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. 

48We also are not exempting those members from 

provisions related to government securities, as 

discussed above. 

49 15 U.S.C. 78g(c). 

50 15 U.S.C. 78o(c)(3). 

51 15 U.S.C. 78q(a). 

52 15 U.S.C. 78q(b). 

53 12 CFR 220.1 et seq. 

54Solely for purposes of this exemption, in 

addition to the general requirements under the 

referenced Exchange Act sections, registered brokerdealers shall only be subject to the enumerated 

rules under the referenced Exchange Act sections. 

55 Indeed, Congress directed the Commission to 

promulgate broker-dealer financial responsibility 

rules, including rules regarding custody, the use of 

customer securities and the use of customers’ 

deposits or credit balances, and regarding 

establishment of minimum financial requirements. 

temporary exemption also does not 

extend to Section 17A of the Exchange 

Act; instead, ICE Trust is exempt from 

registration as a clearing agency under 

the conditions discussed above. In 

addition, this exemption does not apply 

to Exchange Act Sections 12, 13, 14, 

15(d), and 16; 43 eligible contract 

participants and other persons instead 

should refer to the interim final 

temporary rules issued by the 

Commission. Finally, this temporary 

exemption does not extend to the 

Commission’s administrative 

proceeding authority under Sections 

15(b)(4) and (b)(6),44 or to certain 

provisions related to government 

securities.45

D. Temporary General Exemption for 

Certain Registered Broker-Dealers 

The temporary exemptions addressed 

above—with regard to ICE Trust, certain 

ICE Trust Participants, and certain 

eligible contract participants—are not 

available to persons that are registered 

as broker-dealers with the Commission 

(other than those that are notice 

registered pursuant to Section 

15(b)(11)).46 The Exchange Act and its 

underlying rules and regulations require 

broker-dealers to comply with a number 

of obligations that are important to 

protecting investors and promoting 

market integrity. We are mindful of the 

need to avoid creating disincentives to 

the prompt use of CCPs, and we 

recognize that the factors discussed 

above suggest that the full panoply of 

Exchange Act requirements should not 

immediately be applied to registered 

broker-dealers that engage in 

transactions involving Cleared CDS. At 

the same time, we also are sensitive to 

the critical importance of certain brokerdealer requirements to promoting 

market integrity and protecting 

customers (including those brokerdealer customers that are not involved 

with CDS transactions). 

This calls for balancing the 

facilitation of the development and 

prompt implementation of CCPs with 

the preservation of certain key investor 

protections. 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 

December 7, 2009 from certain 

Exchange Act requirements. Consistent 

with the temporary exemptions 

discussed above, and solely with respect 

to Cleared CDS, we are exempting 

registered broker-dealers in general from 

provisions of the Exchange Act and its 

underlying rules and regulations that do 

not apply to security-based swap 

agreements. As 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.47 As 

above, and 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.48

Further we are not exempting 

registered broker-dealers from the 

following additional provisions under 

the Exchange Act: (1) Section 7(c),49

which addresses the unlawful extension 

of credit by broker-dealers; (2) Section 

15(c)(3),50 which addresses the use of 

unlawful or manipulative devices by 

broker-dealers; (3) Section 17(a),51

regarding broker-dealer obligations to 

make, keep and furnish information; (4) 

Section 17(b),52 regarding broker-dealer 

records subject to examination; (5) 

Regulation T,53 a Federal Reserve Board 

regulation regarding extension of credit 

by broker-dealers; (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 broker-dealers; and (9) Exchange Act 

Rule 17a–13, regarding quarterly 

security counts to be made by certain 

exchange members and brokerdealers.54 Registered broker-dealers 

should comply with these provisions in 

connection with their activities 

involving non-excluded CDS because 

these provisions are especially 

important to helping protect customer 

funds and securities, ensure proper 

credit practices and safeguard against 

fraud and abuse.55

E. Solicitation of Comments 

The Commission intends to monitor 

closely the development of the CDS 

market and intends to determine to 

what extent, if any, additional 

regulatory action may be necessary. For 

example, as circumstances warrant, 

certain conditions could be added, 

altered, or eliminated. Moreover, 

because these exemptions are 

temporary, the Commission will in the 

future consider whether they should be 

extended or allowed to expire. The 

Commission believes it would be 

prudent to solicit public comment on its 

action today, and on what action it 

should take with respect to the CDS 

market in the future. The Commission is 

soliciting public comment on all aspects 

of these exemptions, including: 

1. Whether the length of this 

temporary exemption (until December 7, 

2009) is appropriate. If not, what should 

the appropriate duration be? 


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Federal Register / Vol. 74, No. 47 / Thursday, March 12, 2009 / Notices 10799 

2. Whether the conditions to these 

exemptions are appropriate. Why or 

why not? Should other conditions 

apply? Are any of the present conditions 

to the exemptions provided in this 

Order unnecessary? If so, please specify 

and explain why such conditions are 

not needed. 

3. Whether ICE Trust ultimately 

should be required to register as a 

clearing agency under the Exchange Act. 

Why or why not? 

Comments may be submitted by any of 

the following methods: 

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 public inspection and 

copying 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 December 7, 2009: 

(a) Exemption From Section 17A of the 

Exchange Act 

ICE US Trust 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 

(e)(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 the ICE Trust’s 

disciplinary action. 

(5) ICE Trust 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 with 

(beginning in its first year of operation) 

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 Participants; 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 adequate 

safeguards and procedures to protect 

participants’ confidential trading 

information. Such safeguards and 

procedures shall include: (A) Limiting 

access to the 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) 

implementing standards controlling 

employees of ICE Trust trading for their 

own accounts. ICE Trust must adopt and 

implement 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 


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10800 Federal Register / Vol. 74, No. 47 / Thursday, March 12, 2009 / Notices 

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

Order. 

(2) Any ICE Trust Participant shall be 

exempt from the requirements of 

Section 5 of the Exchange Act to the 

extent such ICE Trust Participant 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. 

(c) Exemption for ICE Trust, Certain ICE 

Trust Participants, and Certain Eligible 

Contract Participants 

(1) Persons eligible. The exemption in 

paragraph (c)(2) is available to: 

(i) ICE Trust; 

(ii) Any ICE Trust Participant (as 

defined in paragraph (e)(2) of this 

Order), which is not a broker or dealer 

registered under Section 15(b) of the 

Exchange Act (other than paragraph (11) 

thereof); and 

(iii) 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)), other than: (A) an eligible 

contract participant that receives or 

holds funds or securities for the purpose 

of purchasing, selling, clearing, settling, 

or holding Cleared CDS positions for 

other persons; (B) 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 

(C) 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. 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 security-based swap 

agreements. Accordingly, under this 

exemption, those persons would 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) Paragraphs (4) and (6) of Section 

15(b); 

(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)). 

(d) 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. 

(e) Definitions 

For purposes of this Order: 

(1) ‘‘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 (i). 

(2) ‘‘ICE Trust Participant’’ shall mean 

any participant in ICE Trust that 

submits Cleared CDS to ICE Trust for 

clearance and settlement exclusively (i) 

for its own account or (ii) for the 

account of an affiliate that controls, is 

controlled by, or is under common 

control with the participant in ICE 

Trust. 

By the Commission. 

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. E9–5299 Filed 3–11–09; 8:45 am] 

BILLING CODE 8011–01–P 

DEPARTMENT OF TRANSPORTATION 

ITS Joint Program Office, Intelligent 

Transportation Systems Program 

Advisory Committee; Notice of Meeting 

AGENCY: Research and Innovative 

Technology Administration, U.S. 

Department of Transportation. 

ACTION: Notice. 

This notice announces, pursuant to 

Section 10(a)(2) of the Federal Advisory 

Committee Act (FACA) (Pub. L. 72–363; 

5 U.S.C. app. 2), a meeting of the 

Intelligent Transportation Systems (ITS) 

Program Advisory Committee (ITSPAC). 

The meeting will be held on April 6, 

2009, 2 p.m. to 4 p.m. The meeting will 

take place at the U.S. Department of 

Transportation (U.S. DOT), 1200 New 

Jersey Avenue, SE., Washington DC, in 

conference room #2 of the U.S DOT 

Conference Center on the lobby level of 

the West Building. 

The ITSPAC, established under 

Section 5305 of Public Law 109–59, 

Safe, Accountable, Flexible, Efficient 

Transportation Equity Act: A Legacy for 

Users, August 10, 2005, and chartered 

on February 7, 2008, was created to 

advise the Secretary of Transportation 

on all matters relating to the study, 

development and implementation of 

intelligent transportation systems. 

Through its sponsor, the ITS Joint 

Program Office, the ITSPAC makes 

recommendations to the Secretary 


cprice-sewell on PRODPC61 with NOTICES