[Federal Register Volume 81, Number 29 (Friday, February 12, 2016)]
[Notices]
[Pages 7613-7616]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-02839]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77079; File No. SR-ICC-2016-002]


Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of 
Filing, as Modified by Amendment No. 1 Thereto, of Proposed Rule Change 
To Provide for the Clearance of Certain Asia-Pacific Credit Default 
Swap Contracts

February 8, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on January 27, 2016, ICE Clear Credit LLC (``ICC'') filed with the 
Securities and Exchange Commission (``Commission'') a proposed rule 
change to adopt new rules that will provide the basis for ICC to clear 
certain Asia-Pacific credit default swap (``CDS'') contracts, as 
described in Items I, II, and III below, which Items have been prepared 
primarily by ICC. On January 29, 2016, ICC filed Amendment No. 1 to the 
proposal.\3\ The Commission is publishing this notice, as modified by 
Amendment No. 1, to solicit comments on the proposed rule change, from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, ICC deleted a factual error in the 
originally filed proposal that stated that no changes would be made 
to ICC's Risk Management Framework. Amendment No. 1 amends and 
replaces the original filing in its entirety.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    ICC is proposing an amendment to its previously submitted proposed 
rule change to adopt new rules that will provide the basis for ICC to 
clear certain Asia-Pacific CDS contracts. Specifically, ICC proposed to 
amend Chapter 26 of the ICC Rulebook (``ICC Rules'') to add Subchapters 
26J and 26L to provide for the clearance of iTraxx Asia/Pacific CDS 
contracts (``iTraxx Asia/Pacific Contracts'') and Standard Asia/Pacific 
Sovereign CDS contracts (``SAS Contracts'', collectively with iTraxx 
Asia/Pacific Contracts ``Asia-Pacific CDS Contracts''). Additionally, 
ICC proposed to amend the ICC End-of-Day Price Discovery Policies and 
Procedures to add two additional pricing windows to accommodate the 
submission of end-of-day prices relating to such Asia-Pacific CDS 
Contracts. Finally, ICC proposed to amend the ICC Risk Management 
Framework to include the risk horizon utilized for instruments traded 
during Asia-Pacific hours and to

[[Page 7614]]

amend the ICC Risk Management Model Description document to add Asia-
Pacific to the list of regions to be considered in General Wrong Way 
Risk calculations. This Amendment No. 1 deletes a factual error and is 
intended to replace the original filing in its entirety.

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

    In its filing with the Commission, ICC included statements 
concerning the purpose of and basis for the additional rule change in 
Amendment No. 1. The text of these statements may be examined at the 
places specified in Item IV below. ICC has prepared summaries, set 
forth in sections A, B, and C below, of the most significant aspects of 
these statements.

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

    The purpose of the proposed rule change is to adopt new rules that 
will provide the basis for ICC to clear Asia-Pacific CDS Contracts. 
Specifically, ICC proposes amending chapter 26 of the ICC Rules to add 
Subchapters 26J and 26L to provide for the clearance of iTraxx Asia/
Pacific Contracts and Standard Asia/Pacific Sovereign CDS contracts 
(specifically the Commonwealth of Australia, the Malaysian Federation, 
the People's Republic of China, the Republic of Indonesia, the Republic 
of Korea and the Republic of the Philippines), respectively. Further, 
ICC proposes amending the ICC End-of-Day Price Discovery Policies and 
Procedures to add two additional pricing windows to accommodate the 
submission of end-of-day prices relating to such Asia-Pacific CDS 
Contracts. Finally, ICC proposes amending the ICC Risk Management 
Framework to include the risk horizon utilized for instruments traded 
during Asia-Pacific hours and amending the ICC Risk Management Model 
Description document to add Asia-Pacific to the list of regions to be 
considered in General Wrong Way Risk calculations. The addition of 
these Asia-Pacific CDS Contracts will benefit the CDS market by 
providing market participants the benefits of clearing, including 
reduction in counterparty risk and safeguarding of margin assets 
pursuant to clearing house rules.
    The iTraxx Asia/Pacific Contracts have similar terms to the CDX 
North American IG/HY/XO CDS contracts (``CDX NA Contracts'') currently 
cleared by ICC and governed by Subchapter 26A of the ICC Rules, the CDX 
Emerging Markets CDS contracts (``CDX EM Contracts'') currently cleared 
by ICC and governed by Subchapter 26C of the ICC Rules, and the iTraxx 
Europe CDS contracts (``iTraxx Europe Contracts'') currently cleared by 
ICC and governed by Subchapter 26F of the ICC Rules. Accordingly, the 
proposed rules found in Subchapter 26J largely mirror the ICC Rules for 
CDX NA Contracts in Subchapter 26A, CDX EM Contracts in Subchapter 26C, 
and iTraxx Europe Contracts in Subchapter 26F, with certain 
modifications that reflect differences in terms and market conventions 
between those contracts and iTraxx Asia/Pacific Contracts. iTraxx Asia/
Pacific Contracts will be denominated in United States Dollars.
    ICC Rule 26J-102 (Definitions) sets forth the definitions used for 
the iTraxx Asia/Pacific Contracts. The definitions are substantially 
the same as the definitions found in Subchapters 26A, 26C, and 26F of 
the ICC Rules, other than certain conforming changes.
    ICC Rules 26J-309 (Acceptance of iTraxx Asia/Pacific Untranched 
Contracts by ICE Clear Credit), 26J-315 (Terms of the Cleared iTraxx 
Asia/Pacific Untranched Contract), 26J-316 (Updating Index Version of 
Fungible Contracts After a Credit Event or a Succession Event; Updating 
Relevant Untranched Standard Terms Supplement), and 26J-317 (Terms of 
iTraxx Asia/Pacific Untranched Contracts) reflect or incorporate the 
basic contract specifications for iTraxx Asia/Pacific Contracts and are 
substantially the same as under Subchapters 26A, 26C, and 26F of the 
ICC Rules.
    SAS Contracts have similar terms to the Standard North American 
Corporate Single Name CDS contracts (``SNAC Contracts'') currently 
cleared by ICC and governed by Subchapter 26B of the ICC Rules, the 
Standard Emerging Sovereign CDS contracts (``SES Contracts'') currently 
cleared by ICC and governed by Subchapter 26D of the ICC Rules, the 
Standard European Corporate Single Name CDS contracts (``STEC 
Contracts'') currently cleared at ICC and governed by Subchapter 26G of 
the ICC Rules, the Standard European Financial Corporate Single Name 
CDS Contracts (``STEFC Contracts'') currently cleared at ICC and 
governed by Subchapter 26H of the ICC Rules, and the Standard Western 
European Corporate Single Name CDS contracts (``SWES Contracts'') 
currently cleared by ICC and governed by Subchapter 26I of the ICC 
Rules. Accordingly, the proposed rules found in Subchapter 26L largely 
mirror the ICC Rules for SNAC Contracts in Subchapter 26B, SES 
Contracts in Subchapter 26D, STEC Contracts in Subchapter 26G, STEFC 
Contracts in Subchapter 26H, and SWES Contracts in Subchapter 26I, with 
certain modifications that reflect differences in terms and market 
conventions between those contracts and SAS Contracts. SAS Contracts 
will be denominated in United States Dollars.
    ICC Rule 26L-102 (Definitions) sets forth the definitions used for 
the SAS Contracts. ``Eligible SAS Reference Entities'' are defined as 
``each particular Reference Entity included in the List of Eligible SAS 
Reference Entities,'' which is a list maintained, updated and published 
from time to time by ICC containing certain specified information with 
respect to each reference entity. ICC is proposing to add the 
Commonwealth of Australia, the Malaysian Federation, the People's 
Republic of China, the Republic of Indonesia, the Republic of Korea and 
the Republic of the Philippines to its List of Eligible SAS Reference 
Entities. If ICC determines to add or remove additional SAS Contracts 
from the List of Eligible SAS Reference Entities, it will seek approval 
from the Commission for such contracts (or for a class of product 
including such contracts) by a subsequent filing. The remaining 
definitions are substantially the same as the definitions found in 
Subchapters 26B, 26D, 26G, 26H, and 26I of the ICC Rules, other than 
certain conforming changes.
    ICC Rules 26L-203 (Restriction on Activity), 26L-206 (Notices 
Required of Participants with respect to SAS Contracts), 26L-303 (SAS 
Contract Adjustments), 26L-309 (Acceptance of SAS Contracts by ICE 
Clear Credit), 26L-315 (Terms of the Cleared SAS Contract), 26L-316 
(Relevant Physical Settlement Matrix Updates), 26L-502 (Specified 
Actions), and 26L-616 (Contract Modification) reflect or incorporate 
the basic contract specifications for SAS Contracts and are 
substantially the same as under Subchapters 26B, 26D, 26G, 26H, and 26I 
of the ICC Rules.
    Additionally, ICC is proposing to amend the ICC End-of-Day Price 
Discovery Policies and Procedures to add two additional pricing windows 
to accommodate the submission of end-of-day prices relating to such 
Asia-Pacific CDS Contracts. Specifically, ICC is proposing adding one 
pricing window at the end of the Sydney trading day to determine prices 
for instruments primarily traded in Sydney hours and one pricing window 
at the end of the Singapore trading day to determine prices for 
instruments primarily traded

[[Page 7615]]

in Singapore/Hong Kong hours. ICC will apply the same price discovery 
methodology to all submission windows. For easier comprehension, ICC 
also consolidated information regarding the timing of all pricing 
windows into a table in an appendix to the policy. Accordingly, ICC 
replaced references throughout the document to specific pricing window 
times with a reference to this table. ICC also removed a reference to 
end-of-day risk requirements, as such information is more appropriately 
included in the Risk Management Framework.
    Finally, ICC is proposing to amend the ICC Risk Management 
Framework to include the risk horizon utilized for instruments traded 
during Asia-Pacific hours and to amend the ICC Risk Management Model 
Description document to add Asia-Pacific to the list of regions to be 
considered in General Wrong Way Risk calculations.
    Section 17A(b)(3)(F) of the Act \4\ requires, among other things, 
that the rules of a clearing agency be designed to promote the prompt 
and accurate clearance and settlement of securities transactions and, 
to the extent applicable, derivative agreements, contracts, and 
transactions and to comply with the provisions of the Act and the rules 
and regulations thereunder. These iTraxx Asia/Pacific Contracts are 
similar to CDX NA, CDX EM, and iTraxx Europe Contracts currently 
cleared by ICC, and the SAS Contracts are similar to the SNAC, SES, 
STEC, STEFC, and SWES Contracts currently cleared by ICC. The iTraxx 
Asia/Pacific Contracts and SAS Contracts will be cleared pursuant to 
ICC's existing clearing arrangements and related financial safeguards, 
protections and risk management procedures.
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    \4\ 15 U.S.C. 78q-1(b)(3)(F).
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    The addition of iTraxx Asia/Pacific Contracts and SAS Contracts 
will allow market participants an increased ability to manage risk. ICC 
believes that acceptance of the new contracts, on the terms and 
conditions set out in the ICC Rules, is consistent with the prompt and 
accurate clearance of and settlement of securities transactions and 
derivative agreements, contracts and transactions cleared by ICC, the 
safeguarding of securities and funds in the custody or control of ICC, 
and the protection of investors and the public interest, within the 
meaning of Section 17A(b)(3)(F) of the Act.\5\ ICC performed a 
comprehensive risk analysis related to the clearing of iTraxx Asia/
Pacific Contracts and SAS Contract and has identified no additional 
risk or systemic risk concerns introduced by clearing these contracts, 
not accounted for by ICC's existing risk management procedures. As 
such, clearing the new iTraxx Asia/Pacific Contracts and SAS Contracts 
is consistent with the requirement of promoting and protecting the 
public interest in Section 17A(b)(3)(F).\6\
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    \5\ Id.
    \6\ Id.
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    Clearing of the iTraxx Asia/Pacific Contracts and SAS Contracts 
will also satisfy the requirements of Rule 17Ad-22.\7\ In particular, 
in terms of financial resources, ICC will apply its existing margin 
methodology (which includes General Wrong Way Risk considerations) to 
the additional contracts. ICC believes that this model will provide 
sufficient margin to cover its credit exposure to its clearing members 
from clearing such contracts, consistent with the requirements of Rule 
17Ad-22(b)(2).\8\ In addition, ICC believes its Guaranty Fund, under 
its existing methodology, will, together with the required margin, 
provide sufficient financial resources to support the clearing of the 
new contracts consistent with the requirements of Rule 17Ad-
22(b)(3).\9\ ICC also believes that its existing operational and 
managerial resources will be sufficient for clearing of the new 
contracts, consistent with the requirements of Rule 17Ad-22(d)(4),\10\ 
as the new contracts are substantially the same from an operational 
perspective as existing contracts. Similarly, ICC will use its existing 
settlement procedures and account structures for the new contracts, 
consistent with the requirements of Rule 17Ad-22(d)(5), (12) and 
(15)\11\ as to the finality and accuracy of its daily settlement 
process and avoidance of the risk to ICC of settlement failures. ICC 
determined to accept the iTraxx Asia/Pacific Contracts and SAS 
Contracts for clearing in accordance with its governance process, which 
included review of the contracts and related risk management 
considerations by the ICC Risk Committee and approval by its Board. 
These governance arrangements are consistent with the requirements of 
Rule 17Ad-22(d)(8).\12\ Finally, ICC will apply its existing default 
management policies and procedures for the iTraxx Asia/Pacific 
Contracts and SAS Contracts. ICC believes that these procedures allow 
for it to take timely action to contain losses and liquidity pressures 
and to continue meeting its obligations in the event of clearing member 
insolvencies or defaults in respect of the new contracts, in accordance 
with Rule 17Ad-22(d)(11).\13\
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    \7\ 17 CFR 240.17Ad-22.
    \8\ 17 CFR 240.17Ad-22(b)(2).
    \9\ 17 CFR 240.17Ad-22(b)(3).
    \10\ 17 CFR 240.17Ad-22(d)(4).
    \11\ 17 CFR 240.17Ad-22(d)(5), (12) and (15).
    \12\ 17 CFR 240.17Ad-22(d)(8).
    \13\ 17 CFR 240.17Ad-22(d)(11).
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    Furthermore, ICC believes that the proposed changes to the ICC End-
of-Day Price Discovery Policies and Procedures are consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to ICC, in particular, to Section 17(A)(b)(3)(F),\14\ 
because ICC believes that such changes will assure the prompt and 
accurate clearance and settlement of securities transactions, 
derivatives agreements, contracts, and transactions, as the proposed 
revisions will allow ICC to receive end-of-day prices for Asia-Pacific 
CDS Contracts, complete its end-of-day price discovery process, and 
determine end-of-day prices for such Asia-Pacific CDS Contracts. As 
such, the proposed changes are designed to promote the prompt and 
accurate clearance and settlement of securities transactions, 
derivatives agreements, contracts, and transactions within the meaning 
of Section 17A(b)(3)(F)\15\ of the Act.
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    \14\ 15 U.S.C. 78q-1(b)(3)(F).
    \15\ Id.
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    Finally, ICC believes that the proposed changes to the ICC Risk 
Management Framework and the ICC Risk Management Model Description 
document are consistent with the requirements of the Act and the rules 
and regulations thereunder applicable to ICC, in particular, to Section 
17(A)(b)(3)(F),\16\ because ICC believes that such changes will assure 
the prompt and accurate clearance and settlement of securities 
transactions, derivatives agreements, contracts, and transactions, as 
the proposed revisions allow for the consideration of Asia-Pacific 
contracts within ICC's risk model. As such, the proposed changes are 
designed to promote the prompt and accurate clearance and settlement of 
securities transactions, derivatives agreements, contracts, and 
transactions within the meaning of Section 17A(b)(3)(F) \17\ of the 
Act. In addition, the proposed revisions are consistent with the 
relevant requirements of Rule 17Ad-22.\18\ In particular, the 
amendments to the Risk Management Framework and the ICC Risk Management 
Model Description document allow for the consideration of Asia-Pacific 
contracts within the ICC risk model, which, as discussed above,

[[Page 7616]]

ICC believes will provide sufficient margin and financial resources to 
support the clearing of the new contracts consistent with the margin 
and financial resource requirements of Rule 17Ad-22(b)(2-3).\19\
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    \16\ 15 U.S.C. 78q-1(b)(3)(F).
    \17\ Id.
    \18\ 17 CFRSec.  240.17Ad-22.
    \19\ 17 CFRSec.  240.17Ad-22(b)(2-3).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    ICC does not believe the proposed rule change would have any 
impact, or impose any burden, on competition. The iTraxx Asia/Pacific 
Contracts and SAS Contracts will be available for clearing to all ICC 
Clearing Participants. The clearing of iTraxx Asia/Pacific Contracts 
and SAS Contracts by ICC does not preclude the offering of this product 
for clearing by other market participants. Further, the changes to the 
ICC End-of-Day Price Discovery Policies and Procedures, ICC Risk 
Management Framework, and ICC Risk Management Model Description 
document apply uniformly across all market participants. Therefore, ICC 
does not believe the proposed rule change imposes any burden on 
competition that is inappropriate in furtherance of the purposes of the 
Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    Written comments relating to the proposed rule change have not been 
solicited or received. ICC will notify the Commission of any written 
comments received by ICC.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

    <bullet> Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#6311160f064e000c0e0e060d1710231006004d040c15"><span class="__cf_email__" data-cfemail="e391968f86ce808c8e8e868d9790a3908680cd848c95">[email protected]</span></a>. Please include 
File Number SR-ICC-2016-002 on the subject line.

Paper Comments

    <bullet> Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-ICC-2016-002. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filings will also be available 
for inspection and copying at the principal office of ICE Clear Credit 
and on ICE Clear Credit's Web site at https://www.theice.com/clear-credit/regulation.
    All comments received will be posted without change; the Commission 
does not edit personal identifying information from submissions. You 
should submit only information that you wish to make available 
publicly. All submissions should refer to File Number SR-ICC-2016-002 
and should be submitted on or before March 4, 2016.
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    \20\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-02839 Filed 2-11-16; 8:45 am]
BILLING CODE 8011-01-P


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