37748 Federal Register / Vol. 74, No. 144 / Wednesday, July 29, 2009 / Notices 

1See generally Securities Exchange Act Release 

No. 59578 (Mar. 13, 2009), 74 FR 11781 (Mar. 19, 

2009) (temporary exemption in connection with 

CDS clearing by Chicago Mercantile Exchange Inc.), 

Securities Exchange Act Release No. 59527 (Mar. 6, 

2009), 74 FR 10791 (Mar. 12, 2009) (temporary 

exemption in connection with CDS clearing by ICE 

US Trust LLC), Securities Exchange Act Release No. 

59164 (Dec. 24, 2008), 74 FR 139 (Jan. 2, 2009) 

(temporary exemption in connection with CDS 

clearing by LIFFE A&M and LCH.Clearnet Ltd.) and 

other Commission actions discussed therein. 

2A CDS is a bilateral contract between two 

parties, known as counterparties. The value of this 

financial contract is based on underlying 

obligations of a single entity 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 

(iii) Any Eurex non-U.S. Clearing 

Member (as defined in paragraph (d)(3) 

of this Order) that is not a broker or 

dealer registered under Section 15(b) of 

the Exchange Act (other than paragraph 

(11) thereof); and 

(iv) 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 (b)(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)). 

(c) 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 (b)(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. 

(d) 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 Eurex, 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) ‘‘Eurex U.S. Clearing Member’’ 

shall mean any U.S. clearing member of 

Eurex that submits Cleared CDS to 

Eurex 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 U.S. clearing 

member of Eurex. 

(3) ‘‘Eurex non-U.S. Clearing 

Member’’ shall mean any clearing 

member of Eurex, other than a clearing 

member that is a U.S. person, that 

submits Cleared CDS to Eurex for 

clearance and settlement exclusively (i) 

for its own account, (ii) for the account 

of an affiliate (including a U.S. affiliate) 

that controls, is controlled by, or is 

under common control with the nonU.S. clearing member of Eurex, or (iii) 

for the account of any other person 

except a U.S. person. 

By the Commission. 

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. E9–17991 Filed 7–28–09; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–60372; File No. S7–16–09] 

Order Granting Temporary Exemptions 

Under the Securities Exchange Act of 

1934 in Connection With Request on 

Behalf of Ice Clear Europe Limited 

Related to Central Clearing of Credit 

Default Swaps, and Request for 

Comments 

July 23, 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, including 

actions1 designed to address concerns 

related to the market in credit default 

swaps (‘‘CDS’’).2 The over-the-counter 

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Federal Register / Vol. 74, No. 144 / Wednesday, July 29, 2009 / Notices 37749 

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. See Semiannual 

OTC derivatives statistics at end-December 2008, 

Bank for International Settlement (‘‘BIS’’), available 

at http://www.bis.org/statistics/otcder/dt1920a.pdf. 

This growth has coincided with a significant rise 

in the types and number of entities participating in 

the CDS market. CDS were initially created to meet 

the demand of banking institutions looking to hedge 

and diversify the credit risk attendant with their 

lending activities. However, financial institutions 

such as insurance companies, pension funds, 

securities firms, and hedge funds have entered the 

CDS market. 

3See generally actions referenced in note 1, 

supra. 

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

non-security-based and a security-based swap 

agreement from the definition of ‘‘security’’ under 

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

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

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

contract, or transaction between eligible contract 

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

Commodity Exchange Act * * * ) * * * the 

material terms of which (other than price and 

quantity) are subject to individual negotiation.’’ 15 

U.S.C. 78c note. 

5 ‘‘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 (Nov. 

2004) at 66. Through novation, the CCP assumes 

counterparty risk. 

6See generally actions referenced in note 1, 

supra. 

7See Letter from Abigail Arms, Shearman & 

Sterling LLP, to Elizabeth M. Murphy, Secretary, 

Commission, July 23, 2009. 

8See id. The exemptions we are granting today 

are based on representations made in the request on 

behalf of ICE Clear Europe. 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. 

9To 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 non-excluded CDS. See 

Securities Act Release No. 8999 (Jan. 14, 2009), 74 

FR 3967 (Jan. 22, 2009). 

Further, the Commission has provided temporary 

exemptions in connection with Sections 5 and 6 of 

the Exchange Act for transactions in non-excluded 

CDS. See Securities Exchange Act Release No. 

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

10 ICE Clear Europe is owned by 

IntercontinentalExchange Holdings, which itself is 

over 99% owned by ICE Netherlands C.V. ICE 

Netherlands C.V. is owned by ICE Markets, Inc. and 

by IntercontinentalExchange International Inc., both 

of which are wholly owned by ICE. 

11See note 33, infra. 

(‘‘OTC’’) market for CDS has been a 

source of concern to us and other 

financial regulators, and we have 

recognized that facilitating the 

establishment of central counterparties 

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

role in reducing the counterparty risks 

inherent in the CDS market, and thereby 

can help mitigate potential systemic 

impacts.3 Thus, 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. 

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.4 For 

those CDS that are swap agreements, the 

exclusion from the definition of security 

in Section 3A of the Exchange Act, and 

related provisions, will continue to 

apply. The Commission’s action today 

does not affect these CDS, and this 

Order does not apply to them. For those 

CDS that are not swap agreements 

(‘‘non-excluded CDS’’), the 

Commission’s action today provides 

conditional exemptions from certain 

requirements of the Exchange Act. 

The Commission believes that using 

well-regulated CCPs to clear 

transactions in CDS would provide a 

number of benefits, by helping to 

promote efficiency and reduce risk in 

the CDS market and among its 

participants, requiring maintenance of 

records of CDS transactions that would 

aid the Commission’s efforts to prevent 

and detect fraud and other abusive 

market practices, addressing concerns 

about counterparty risk—through the 

novation process—by substituting the 

creditworthiness and liquidity of the 

CCP for the creditworthiness and 

liquidity of the counterparties to a 

CDS,5 contributing generally to the goal 

of market stability, and reducing CDS 

risks through multilateral netting of 

trades.6

In this context, ICE Clear Europe 

Limited (‘‘ICE Clear Europe’’) has 

requested that the Commission grant 

exemptions from certain requirements 

under the Exchange Act with respect to 

its proposed activities in clearing and 

settling certain CDS, as well as the 

proposed activities of certain other 

persons, as described below.7

Based on the facts presented and the 

representations made in the request on 

behalf of ICE Clear Europe,8 and for the 

reasons discussed in this Order, the 

Commission temporarily is exempting, 

subject to certain conditions, ICE Clear 

Europe 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 Clear 

Europe. In addition, the Commission 

temporarily is exempting ICE Clear 

Europe and certain members of ICE 

Clear Europe 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 

Clear Europe. The Commission’s 

exemptions are temporary and will 

expire on April 23, 2010.9

II. Discussion 

A. Description of ICE Clear Europe’s 

Proposal 

The exemptive request on behalf of 

ICE Clear Europe describes how its 

proposed arrangement for central 

clearing of CDS would operate and 

makes representations about the 

safeguards associated with those 

arrangements, as described below: 

1. ICE Clear Europe Organization 

ICE Clear Europe is indirectly a 

wholly-owned subsidiary of the 

IntercontinenalExchange, Inc. (‘‘ICE’’).10

ICE Clear Europe was incorporated in 

England and Wales on April 19, 2007 as 

a private limited company under the 

Companies Act 1985 (as amended, now 

largely superseded by the Companies 

Act 2006). ICE Clear Europe is subject 

to direct supervision by the United 

Kingdom’s Financial Services Authority 

(‘‘FSA’’) as a Recognised Clearing House 

(‘‘RCH’’). 

2. ICE Clear Europe Central 

Counterparty Services for CDS 

ICE Clear Europe will act as a central 

counterparty for ICE Clear Europe 

Clearing Members11 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 Clear 

Europe Clearing Members to 

collateralize their obligations to ICE 

Clear Europe. ICE Clear Europe’s trade 

submission process is designed to 

ensure that it maintains a matched book 

of offsetting CDS contracts. 

ICE Clear Europe will leverage the 

Deriv/SERV infrastructure in operating 

its CDS clearing service. Initially, all 

trades submitted by ICE Clear Europe 

Clearing Members for clearing through 

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12Major market participants frequently use the 

Deriv/SERV comparison and confirmation service 

of The Depository Trust & Clearing Corporation 

(‘‘DTCC’’) 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. 

13 ICE Clear Europe takes collateral, including 

margin and guaranty fund contributions and noncash collateral, by way of a ‘‘title transfer financial 

collateral arrangement’’ for purposes of the 

Directive 2002/47/EC on Financial Collateral 

Arrangements (‘‘Financial Collateral Regulations’’). 

This is different from applicable U.S. law, which 

mandates that a clearinghouse receive pledged 

collateral. This collateral structure results in ICE 

Clear Europe having an unencumbered property 

right in all collateral provided to it, subject only to 

an obligation to return excess collateral or such 

collateral as remains unexpended following a 

closeout on a default. The Financial Collateral 

Regulations also provide for the effectiveness of 

financial collateral arrangements and close-out 

netting provisions under English law 

notwithstanding an insolvency of the counterparty. 

14The RCCP was drafted by a joint task force 

(‘‘Task Force’’) composed of representative 

members of IOSCO and CPSS and published in 

November 2004. The Task Force consisted of 

securities regulators and central bankers from 19 

countries and the European Union. The U.S. 

representatives on the Task Force included staff 

from the Commission, the Federal Reserve Board of 

Governors, and the Commodity Futures Trading 

Commission. 

15The full list of permitted cover is set out in ICE 

Clear Europe circulars. The most recent circular in 

this respect is available at: https://www.theice.com/ 

publicdocs/clear_europe/circulars/C09015_att.pdf. 

16An ICE Clear Europe Clearing Member 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. 

ICE Clear Europe will be recorded in the 

Deriv/SERV Trade Information 

Warehouse (‘‘TIW’’).12 ICE Clear Europe 

will, initially on a weekly basis, obtain 

from DTCC matched trades that have 

been recorded in the Deriv/SERV TIW 

as having been submitted for clearing 

through ICE Clear Europe. Eventually, 

ICE Clear Europe intends to obtain 

matched trades from DTCC on a realtime basis. 

Members 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 Clear Europe. 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 

Clear Europe, and has been accepted for 

clearing by it, ICE Clear Europe will 

clear the CDS contract by becoming the 

central counterparty to each party to the 

trade. Deriv/SERV’s current 

infrastructure will help to ensure that 

ICE Clear Europe 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 

Clear Europe for clearing. 

Under ICE Clear Europe’s draft CDS 

rules and CDS procedures (‘‘ICE Clear 

Europe Rules’’), each bilateral CDS 

contract between two ICE Clear Europe 

Clearing Members that is submitted to 

and accepted by ICE Clear Europe for 

clearing will be ‘‘novated.’’ As part of 

this process, each bilateral CDS contract 

submitted to ICE Clear Europe will be 

replaced by two superseding CDS 

contracts between each of the original 

parties to the submitted transaction and 

ICE Clear Europe on standard terms 

mandated by ICE Clear Europe. Under 

these new contracts, ICE Clear Europe 

will act as the protection buyer to the 

original protection seller and protection 

seller to the original protection buyer. 

As central counterparty to each novated 

CDS contract, ICE Clear Europe will be 

able to net offsetting positions on a 

multilateral basis, even though ICE 

Clear Europe 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 Clear 

Europe Rules, the ISDA 2002 Master 

Agreement, and the Schedule to the 

ISDA 2002 Master Agreement that is 

entered into by ICE Clear Europe and 

each ICE Clear Europe Clearing Member. 

Multilateral netting will significantly 

reduce the outstanding notional amount 

of each ICE Clear Europe Clearing 

Member’s portfolio. When ICE Clear 

Europe acts as the central counterparty 

to all cleared CDS of an ICE Clear 

Europe Clearing Member, that member’s 

positions will be netted down to a single 

exposure to ICE Clear Europe. 

3. ICE Clear Europe Risk Management 

ICE Clear Europe will mitigate 

counterparty risk through a six-tiered 

waterfall consisting of: (i) Membership 

criteria; (ii) initial margin; (iii) mark-tomarket margin; (iv) intraday risk 

monitoring; (v) guaranty fund; and (vi) 

a one-time power of assessment. ICE 

Clear Europe’s risk management 

infrastructure and related risk metrics 

are structured specifically for the CDS 

products that ICE Clear Europe clears. 

Each ICE Clear Europe Clearing 

Member’s credit support obligations 

will be governed by a uniform credit 

support framework and applicable ICE 

Clear Europe Rules. 

ICE Clear Europe will maintain strict, 

objectively determined, risk-based 

margin and guaranty fund 

requirements,13 which will be 

consistent with clearing industry 

practice and international standards 

established for central counterparties as 

articulated in the Committee on 

Payment and Settlement Systems/ 

International Organization of Securities 

Commissions (‘‘CPSS–IOSCO’’) 

Recommendations for Central 

Counterparties (‘‘RCCP’’).14 These 

requirements will also be subject to 

ongoing regulation and oversight by the 

FSA. The amount of margin and 

guaranty fund required of each ICE 

Clear Europe Clearing Member will be 

continuously monitored and 

periodically adjusted as required to 

reflect the size and profile of, and risk 

associated with, the ICE Clear Europe 

Clearing Member’s cleared CDS 

transactions (and related market 

factors). 

Each ICE Clear Europe Clearing 

Member’s margin requirement will 

consist of two components: (i) Initial 

margin, reflecting a risk-based 

calculation of potential loss on 

outstanding CDS positions in the event 

of a significant adverse market 

movement; and (ii) mark-to-market 

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

any time when a requirement for initial 

margin falls due and insufficient 

permitted cover is held, the ICE Clear 

Europe Clearing Member must initially 

transfer cash. Thereafter, an ICE Clear 

Europe Clearing Member may substitute 

such cash margin with other permitted 

cover by delivery of the replacement 

permitted cover to ICE Clear Europe.15

Mark-to-market margin payments, 

however, may be made by ICE Clear 

Europe or an ICE Clear Europe Clearing 

Member only in cash. ICE Clear Europe 

Clearing Members will be required to 

cover any end-of-day margin deficit 

with Euros (or such other currency as 

may be permitted under the proposed 

CDS finance procedures) by the 

following morning, and ICE Clear 

Europe will have the discretion to 

require and collect additional margin, 

both at the end of the day and intraday, 

as it deems necessary.16

ICE Clear Europe will also maintain a 

guaranty fund in respect of ICE Clear 

Europe Clearing Members (the ‘‘CDS 

Guaranty Fund’’) to cover losses arising 

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17 In the event of a default of an ICE Clear Europe 

Clearing Member, only the CDS Guaranty Fund will 

be available to cover losses from the default. In the 

event of a default of an energy-only clearing 

member, only the Energy Guaranty Fund will be 

available to cover losses from the default. In the 

event of a default of an ICE Clear Europe Clearing 

Member that is active in both CDS and energy 

contracts, the Clearing Member’s margin and 

guaranty fund are available to cover any loss, but 

the CDS Guaranty Fund deposits of the nondefaulting ICE Clear Europe Clearing Members can 

only be applied against losses in CDS contracts, and 

the Energy Guaranty Fund deposits of the nondefaulting Energy Clearing Members can only be 

applied against losses in energy contracts. 

18An ICE Clear Europe Clearing Member can 

limit the amount of its assessment to an amount 

equal to such clearing member’s guaranty fund 

contribution immediately prior to the relevant 

default only by contributing such amount and 

terminating its membership from ICE Clear Europe, 

with the withdrawal effective three months after 

notice. 

19 15 U.S.C. 78mm. 

20For 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 Clear Europe, that is offered 

only to, purchased only by, and sold only to eligible 

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

of the Commodity Exchange Act as in effect on the 

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

eligible contract participant under paragraph (C) of 

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

the issuer of the reference security, or the reference 

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

reporting under the Exchange Act, providing 

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

about which financial information is otherwise 

publicly available; (B) a foreign private issuer 

whose securities are listed outside the United States 

and that has its principal trading market outside the 

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

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

Regulation AB, issued in a registered transaction 

with publicly available distribution reports; or (E) 

an asset-backed security issued or guaranteed by the 

Federal National Mortgage Association (‘‘Fannie 

Mae’’), the Federal Home Loan Mortgage 

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

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

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

percent or more of the index’s weighting is 

comprised of the entities or securities described in 

subparagraph (i). 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 note 4, supra. The 

Commission’s action today also does not affect 

activities in CDS that are outside the jurisdiction of 

the United States. 

from an ICE Clear Clearing Member’s 

default on cleared CDS transactions that 

exceed the amount of margin held by 

ICE Clear Europe from the defaulting 

ICE Clear Europe Clearing Member. 

Each ICE Clear Europe Clearing Member 

will be required to contribute a 

minimum of 15 million Euros to the 

CDS Guaranty Fund initially when it 

becomes a Clearing Member and 

additional amounts based on its actual 

and anticipated CDS position exposures 

plus such other amount as ICE Clear 

Europe at its discretion determines is 

necessary based on projected clearing 

activity. The adequacy of the total 

amount of the CDS Guaranty Fund will 

be monitored daily, and if ICE Clear 

Europe determines the total amount in 

the CDS Guaranty Fund is to change, 

ICE Clear Europe Clearing Members will 

be given notice and will be required to 

deposit their new contribution prior to 

the opening of business on the next 

business day. As a result, the CDS 

Guaranty Fund will grow in proportion 

to the position risk associated with the 

aggregate volume of CDS cleared by ICE 

Clear Europe. 

ICE Clear Europe will also establish 

rules that ‘‘mutualize’’ the risk of an ICE 

Clear Europe Clearing Member default 

across all such clearing members.17 In 

the event of an ICE Clear Europe 

Clearing Member’s default, ICE Clear 

Europe may look to the margin posted 

by such ICE Clear Europe Clearing 

Members, such an ICE Clear Europe 

Clearing Member’s CDS Guaranty Fund 

contributions and, if applicable, any 

recovery from a parent guarantor. In 

addition, at its discretion, ICE Clear 

Europe will be authorized to use, to the 

extent needed, other ICE Clear Europe 

Clearing Members’ CDS Guaranty Fund 

contributions to satisfy any obligations 

of the defaulting ICE Clear Europe 

Clearing Member. 

In the event that the total CDS 

Guaranty Fund is exhausted, remaining 

ICE Clear Europe Clearing Members will 

be obligated to contribute additional 

amounts to the CDS Guaranty Fund 

based on a one-time limited power of 

assessment. The amount of the 

assessment will be up to, but will not 

exceed,18 each ICE Clear Europe 

Clearing Member’s CDS Guaranty Fund 

obligation immediately prior to the 

default. 

4. Member Default 

Following a default by an ICE Clear 

Europe Clearing Member, ICE Clear 

Europe has a number of tools available 

to it under the ICE Clear Europe Rules 

to ensure an orderly liquidation and 

unwinding of the open positions of such 

defaulting ICE Clear Europe Clearing 

Member. In the first instance, upon 

determining that a default has occurred, 

ICE Clear Europe will have the ability to 

immediately enter into replacement 

CDS transactions with other ICE Clear 

Europe Clearing Members that are 

designed to mitigate, to the greatest 

extent possible, the market risk of the 

defaulting clearing member’s open 

positions. ICE Clear Europe can also 

seek to sell or transfer positions to other 

ICE Clear Europe clearing members. For 

open positions in which there is no 

liquid trading market, ICE Clear Europe 

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 Clear Europe will seek to close out 

any remaining open positions of the 

defaulting ICE Clear Europe Clearing 

Member by using one or more auctions 

or other commercially reasonable 

unwind processes. ICE Clear Europe 

may close out its position through 

auctions, open market processes, or by 

allocating replacement transactions to 

non-defaulting ICE Clear Europe 

Clearing Members at the floor price 

established by ICE Clear Europe. 

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.19

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 April 23, 2010 to ICE 

Clear Europe from Section 17A of the 

Exchange Act, solely to perform the 

functions of a clearing agency for 

Cleared CDS,20 subject to the conditions 

discussed below. 

Our action today balances the aim of 

facilitating the prompt establishment of 

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21The 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, 

Mar. 13, 2008, available at: http://www.ustreas.gov/ 

press/releases/reports/ 

pwgpolicystatemktturmoil_03122008.pdf. 

22See Automated Systems of Self-Regulatory 

Organizations, Securities Exchange Act Release No. 

27445 (Nov. 16, 1989), 54 FR 48703 (Nov. 24, 1989), 

and Automated Systems of Self-Regulatory 

Organizations, Securities Exchange Act Release No. 

29185 (May 9, 1991), 56 FR 22490 (May 15, 1991). 

excluded CDS transactions—which 

should help reduce systemic risks— 

with ensuring that important elements 

of Commission oversight are applied to 

the non-excluded 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 Clear Europe as a 

CCP to settle those transactions. 

While we are acting so that the 

prompt establishment of ICE Clear 

Europe 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 continue to gain 

more direct experience with the nonexcluded CDS market after ICE Clear 

Europe 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 an anticompetitive manner or 

indirectly facilitate anticompetitive 

behavior with respect to fees charged to 

members, the dissemination of market 

data and the access to clearing services 

by independent CDS exchanges or CDS 

trading platforms. The Commission will 

take that experience into account in 

future actions. 

Moreover, this temporary exemption 

in part is based on ICE Clear Europe’s 

representation that it meets the 

standards set forth in the CPSS–IOSCO 

RCCP report. 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 Clear Europe— 

information will be available to market 

participants about the terms of the CDS 

cleared by ICE Clear Europe, the 

creditworthiness of ICE Clear Europe 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 or 

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.21

Such information availability also will 

assist ICE Clear Europe 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 Clear Europe’s clearance 

and settlement of CDS transactions and 

help reduce risk in the CDS market. 

These conditions require that ICE Clear 

Europe: (i) Make available on its Web 

site its annual audited financial 

statements; (ii) preserve records of all 

activities 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) supply information relating 

to its Cleared CDS clearance and 

settlement services as may be 

reasonably requested by 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, 

subject to cooperation with the FSA and 

upon terms and conditions agreed 

between the FSA and the Commission; 

(iv) notify the Commission about 

material disciplinary actions taken 

against any of its members using its 

Cleared CDS clearance and settlement 

services, and about the involuntary 

termination of the membership of an 

entity that is using ICE Clear Europe’s 

Cleared CDS clearance and settlement 

services; (v) notify the Commission not 

less than one day prior to 

implementation or effectiveness of 

changes to rules, procedures, and any 

other material events affecting its 

Cleared CDS clearance and settlement 

services, or, in exigent circumstances, as 

promptly as reasonably practicable 

under the circumstances; (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 22 and its annual 

audited financial statements prepared 

by independent audit personnel; and 

(vii) provide notice to the Commission 

regarding the suspension of services or 

inability to operate facilities in 

connection with Cleared CDS clearance 

and settlement services at the same time 

it provides notice to the FSA. 

In addition, this relief is conditioned 

on ICE Clear Europe, 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 

Clear Europe may establish to calculate 

mark-to-market margin requirements for 

ICE Clear Europe Clearing Members; 

and (ii) any other pricing or valuation 

information with respect to Cleared CDS 

as is published or distributed by ICE 

Clear Europe. The Commission believes 

this is an appropriate condition for ICE 

Clear Europe’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 

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23 15 U.S.C. 78k–1(a)(1)(C)(iii). See also 15 U.S.C. 

78k–1(a)(1)(D). 24See President’s Working Group on Financial 

Markets, Policy Objectives for the OTC Derivatives 

Market (Nov. 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.’’). See also Department 

of the Treasury, Financial Regulatory Reform: A 

New Foundation, available at http:// 

www.financialstability.gov/docs/regs/ 

FinalReport_web.pdf, at p.48 (‘‘[m]arket efficiency 

and price transparency should be improved in 

derivatives markets * * * by requiring 

development of a system for timely reporting of 

trades and prompt dissemination of prices and 

other trade information.’’). 

25See Securities Exchange Act Release No. 42209 

(Dec. 9, 1999), 64 FR 70613, 70621–70623 (Dec. 17, 

1999) (‘‘Market Information Concept Release’’) 

(discussion of legal standards applicable to market 

data distribution since Section 11A was adopted in 

1975). 

26See Securities Exchange Act Release No. 59039 

(Dec. 2, 2008), 73 FR 74770, 74793 (Dec. 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.’’). 

27See 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.’’). 

28See 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.’’). 

29 15 U.S.C. 78e. 

30Section 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 Securities Exchange Act Release No. 40760 

(Dec. 8, 1998), 63 FR 70844 (Dec. 22, 1998) 

(adopting Rule 3b–16 in addition to Regulation 

ATS). 

31 15 U.S.C. 78f. Section 6 of the Exchange Act 

also sets forth various requirements to which a 

national securities exchange is subject. 

information with respect to quotations 

for and transactions in securities.’’ 23

The President’s Working Group on 

Financial Markets has stated that 

increased transparency is a policy 

objective for the over-the-counter 

derivatives market,24 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 Clear 

Europe 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,25 and it 

anticipates that ICE Clear Europe 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 

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.26 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.27

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.28

As a CCP, ICE Clear Europe 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 Clear Europe 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 Clear 

Europe Clearing Member has a cleared 

position, based on prices submitted by 

ICE Clear Europe Clearing Members. As 

part of this mark-to-market process, ICE 

Clear Europe will periodically require 

ICE Clear Europe Clearing Members to 

execute certain CDS trades at the 

applicable end-of-day settlement price. 

Requiring ICE Clear Europe Clearing 

Members to trade CDS periodically in 

this manner is designed to help ensure 

that such submitted prices reflect each 

ICE Clear Europe Clearing Member’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 Clear Europe 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 * * *.’’ 29 Section 6 of the 

Exchange Act sets forth a procedure 

whereby an exchange 30 may register as 

a national securities exchange.31 To 

facilitate the establishment of ICE Clear 

Europe’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 Clear Europe 

and ICE Clear Europe Clearing Members 

from Sections 5 and 6 of the Exchange 

Act and the rules and regulations 

thereunder in connection with ICE Clear 

Europe’s calculation of mark-to-market 

prices for open positions in Cleared 

CDS. This temporary exemption is 

subject to the following conditions: 

First, ICE Clear Europe 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 

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32While 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. 

33For purposes of this Order, an ‘‘ICE Clear 

Europe Clearing Member’’ means any clearing 

member of ICE Clear Europe that submits Cleared 

CDS to ICE Clear Europe 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 

clearing member of ICE Clear Europe. In general, 

this exemption does not apply to any ICE Clear 

Europe Clearing Member 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. 

34This 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. 

35Solely for purposes of this requirement, an 

eligible contract participant would not be viewed as 

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 Clear Europe must 

establish adequate safeguards and 

procedures to protect members’ 

confidential trading information. Such 

safeguards and procedures shall 

include: (i) Limiting access to the 

confidential trading information of 

members to those employees of ICE 

Clear Europe who are operating the 

system or responsible for its compliance 

with this exemption or any other 

applicable rules; and (ii) implementing 

standards controlling employees of ICE 

Clear Europe trading for their own 

accounts. ICE Clear Europe 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 Clear Europe Clearing 

Members’ trading information that may 

be available to ICE Clear Europe in 

connection with the daily marking-tomarket process of open positions in 

Cleared CDS. This should strengthen 

confidence in ICE Clear Europe as a CCP 

for CDS, promoting participation. 

Third, ICE Clear Europe 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 Clear Europe as a 

CCP for non-excluded CDS. ICE Clear 

Europe 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 Clear Europe Clearing 

Members 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 Clear Europe’s representation that 

the end-of-day settlement pricing 

process, including the periodically 

required trading, is integral to its risk 

management. Accordingly, as a 

condition to ICE Clear Europe’s 

temporary exemption from Sections 5 

and 6 of the Exchange Act, ICE Clear 

Europe must comply with the 

conditions to the temporary exemption 

from Section 17A of the Exchange Act 

in this Order. 

The Commission is also temporarily 

exempting each ICE Clear Europe 

Clearing Member from the prohibition 

in Section 5 of the Exchange Act to the 

extent that such ICE Clear Europe 

Clearing Member uses any facility of ICE 

Clear Europe to effect any transaction in 

Cleared CDS, or to report any such 

transaction, in connection with ICE 

Clear Europe’s calculation of mark-tomarket prices for open positions in 

Cleared CDS. Absent an exemption, 

Section 5 would prohibit any ICE Clear 

Europe Clearing Member that is a broker 

or dealer from effecting transactions in 

Cleared CDS on ICE Clear Europe, 

which will rely on this Order for an 

exemption from exchange registration. 

The Commission believes that 

temporarily exempting ICE Clear Europe 

Clearing Members 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 Clear Europe’s CCP for 

Cleared CDS, which for the reasons 

noted in this Order the Commission 

believes to be beneficial. Without also 

temporarily exempting ICE Clear Europe 

Clearing Members from this Section 5 

requirement, the Commission’s 

temporary exemption of ICE Clear 

Europe from Sections 5 and 6 of the 

Exchange Act would be ineffective, 

because ICE Clear Europe Clearing 

Members that are brokers or dealers 

would not be permitted to effect 

transactions on ICE Clear Europe in 

connection with the end-of-day 

settlement price process. 

C. Temporary General Exemption for 

ICE Clear Europe, ICE Clear Europe 

Clearing Members, 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.32

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 April 23, 2010 from 

certain requirements under the 

Exchange Act. This temporary 

exemption applies to ICE Clear Europe, 

any ICE Clear Europe Clearing 

Member 33 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 34 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; 35 eligible contract 

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receiving or holding funds or securities for purpose 

of purchasing, selling, clearing, settling, or holding 

Cleared CDS positions for other persons, if the other 

persons involved in the transaction would not be 

considered ‘‘customers’’ of the eligible contract 

participant under the analysis used for determining 

whether certain persons would be considered 

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

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

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

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

execution, termination (prior to its scheduled 

maturity date), assignment, exchange, or similar 

transfer or conveyance of, or extinguishing the 

rights or obligations under, a Cleared CDS, as the 

context may require. This is consistent with the 

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

the Exchange Act in the context of security-based 

swap agreements. See Exchange Act Section 

3A(b)(4). 

36A 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. 

37See note 32, supra. 

38Thus, 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. 

39This Order includes a separate temporary 

exemption regarding the mark-to-market process of 

ICE Clear Europe, discussed above. 

40See note 9, supra. A national securities 

exchange that effects transactions in Cleared CDS 

would continue to be required to comply with all 

requirements under the Exchange Act applicable to 

such transactions. A national securities exchange 

could form subsidiaries or affiliates that operate 

exchanges exempt under that order. Any subsidiary 

or affiliate of a registered exchange could not 

integrate, or otherwise link, the exempt CDS 

exchange with the registered exchange including 

the premises or property of such exchange for 

effecting or reporting a transaction without being 

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

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

41 15 U.S.C. 78l, 78m, 78n, 78o(d), 78p. 

42Exchange 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. 

43This 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). 

44Exchange 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). 

45See notes 32 and 38, 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. 

46We also are not exempting those members from 

provisions related to government securities, as 

discussed above. 

participants that are self-regulatory 

organizations; or eligible contract 

participants that are registered brokers 

or dealers.36

Under this temporary exemption, and 

solely with respect to Cleared CDS, 

these persons generally are exempt from 

the provisions of the Exchange Act and 

the rules and regulations thereunder 

that do not apply to security-based swap 

agreements. Those persons thus would 

still be subject to those Exchange Act 

requirements that explicitly are 

applicable in connection with securitybased swap agreements.37 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.38 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.39 The Commission 

separately issued a conditional 

exemption from these provisions to all 

broker-dealers and exchanges.40 This 

temporary exemption also does not 

extend to Section 17A of the Exchange 

Act; instead, ICE Clear Europe is exempt 

from registration as a clearing agency 

under the conditions discussed above. 

In addition, this temporary exemption 

does not apply to Exchange Act Sections 

12, 13, 14, 15(d), and 16; 41 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),42 or to certain 

provisions related to government 

securities.43

D. Temporary General Exemption for 

Certain Registered Broker-Dealers 

The temporary exemptions addressed 

above—with regard to ICE Clear Europe, 

certain ICE Clear Europe Clearing 

Members, and certain eligible contract 

participants—are not available to 

persons that are registered as brokerdealers with the Commission (other 

than those that are notice registered 

pursuant to Section 15(b)(11)).44 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 broker-dealer requirements to 

promoting market integrity and 

protecting customers (including those 

broker-dealer 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 

April 23, 2010 from certain Exchange 

Act requirements. Consistent with the 

temporary exemptions discussed above, 

and solely with respect to Cleared CDS, 

we are temporarily exempting registered 

broker-dealers in general from the 

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.45 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.46

Further we are not exempting 

registered broker-dealers from the 

following additional provisions under 

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47 15 U.S.C. 78g(c). 

48 15 U.S.C. 78o(c)(3). 

49 15 U.S.C. 78q(a). 

50 15 U.S.C. 78q(b). 

51 12 CFR 220.1 et seq. 

52Solely 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. 

53 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. 

the Exchange Act: (i) Section 7(c),47

which addresses the unlawful extension 

of credit by broker-dealers; (ii) Section 

15(c)(3),48 which addresses the use of 

unlawful or manipulative devices by 

broker-dealers; (iii) Section 17(a),49

regarding broker-dealer obligations to 

make, keep and furnish information; (iv) 

Section 17(b),50 regarding broker-dealer 

records subject to examination; (v) 

Regulation T,51 a Federal Reserve Board 

regulation regarding extension of credit 

by broker-dealers; (vi) Exchange Act 

Rule 15c3–1, regarding broker-dealer net 

capital; (vii) Exchange Act Rule 15c3–3, 

regarding broker-dealer reserves and 

custody of securities; (viii) 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 (ix) 

Exchange Act Rule 17a–13, regarding 

quarterly security counts to be made by 

certain exchange members and brokerdealers.52 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.53

E. Solicitation of Comments 

The Commission is continuing 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 temporary exemptions, 

including: 

1. Whether the length of this 

temporary exemption (until April 23, 

2010) is appropriate. If not, what should 

the appropriate duration be? 

2. Whether the conditions to these 

temporary exemptions are appropriate. 

Why or why not? Should other 

conditions apply? Are any of the present 

conditions to the temporary exemptions 

provided in this Order unnecessary? If 

so, please specify and explain why such 

conditions are not needed. 

3. Whether ICE Clear Europe 

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 S7–16–09 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number S7–16–09. 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/exorders.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 

10:00 am and 3:00 pm. 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 April 23, 2010: 

(a) Exemption From Section 17A of the 

Exchange Act 

ICE Clear Europe Limited (‘‘ICE Clear 

Europe’’) 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 Clear Europe shall make 

available on its Web site its annual 

audited financial statements. 

(2) ICE Clear Europe 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 Clear Europe shall supply 

information and periodic reports 

relating to its Cleared CDS clearance 

and settlement services as may be 

reasonably requested by the 

Commission and, subject to cooperation 

with the FSA and upon such terms and 

conditions as may be agreed between 

the FSA and the Commission, 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 Clear Europe’s 

Cleared CDS clearance and settlement 

services. 

(4) ICE Clear Europe shall notify the 

Commission, on a monthly basis, of any 

material disciplinary actions taken 

against any of its members using its 

Cleared CDS clearance and settlement 

services, including the denial of 

services, fines, or penalties. ICE Clear 

Europe shall notify the Commission 

promptly when ICE Clear Europe 

terminates on an involuntary basis the 

membership of an entity that is using 

ICE Clear Europe’s Cleared CDS 

clearance and settlement services. Both 

notifications shall describe the facts and 

circumstances that led to the ICE Clear 

Europe’s disciplinary action. 

(5) ICE Clear Europe shall notify the 

Commission of all changes to its 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, not less 

than one day prior to effectiveness or 

implementation of such changes or, in 

exigent circumstances, as promptly as 

reasonably practicable under the 

circumstances. If ICE Clear Europe gives 

notice to, or seeks approval from, the 

FSA regarding any other changes to its 

rules regarding its Cleared CDS 

clearance and settlement services, ICE 

Clear Europe will also provide notice to 

the Commission. All such rule changes 

will be posted on ICE Clear Europe’s 

Web site. Such notifications will not be 

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Federal Register / Vol. 74, No. 144 / Wednesday, July 29, 2009 / Notices 37757 

deemed rule filings that require 

Commission approval. 

(6) ICE Clear Europe shall provide the 

Commission with reports prepared by 

independent audit personnel 

concerning its Cleared CDS clearance 

and settlement services that are 

generated in accordance with risk 

assessment of the areas set forth in the 

Commission’s Automation Review 

Policy Statements. ICE Clear Europe 

shall provide the Commission with 

annual audited financial statements for 

ICE Clear Europe prepared by 

independent audit personnel. 

(7) ICE Clear Europe shall notify the 

Commission at the same time it notifies 

the FSA in accordance with FSA REC 

3.15 and FSA REC 3.16 regarding the 

suspension of services or inability to 

operate its facilities in connection with 

its Cleared CDS clearance and 

settlement services. 

(8) ICE Clear Europe, 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 

Clear Europe may establish to calculate 

mark-to-market margin requirements for 

ICE Clear Europe Clearing Members; 

and (ii) any other pricing or valuation 

information with respect to Cleared CDS 

as is published or distributed by ICE 

Clear Europe. 

(b) Exemption From Sections 5 and 6 of 

the Exchange Act 

(1) ICE Clear Europe 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 Clear Europe 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 Clear Europe shall establish 

adequate safeguards and procedures to 

protect members’ confidential trading 

information. Such safeguards and 

procedures shall include: (A) Limiting 

access to the confidential trading 

information of members to those 

employees of ICE Clear Europe 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 Clear Europe trading 

for their own accounts. ICE Clear 

Europe must adopt and implement 

adequate oversight procedures to ensure 

that the safeguards and procedures 

established pursuant to this condition 

are followed; and 

(iii) ICE Clear Europe shall satisfy the 

conditions of the temporary exemption 

from Section 17A of the Exchange Act 

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

Order. 

(2) Any ICE Clear Europe Clearing 

Member shall be exempt from the 

requirements of Section 5 of the 

Exchange Act to the extent such ICE 

Clear Europe Clearing Member uses any 

facility of ICE Clear Europe to effect any 

transaction in Cleared CDS, or to report 

any such transaction, in connection 

with ICE Clear Europe’s clearance and 

risk management process for Cleared 

CDS. 

(c) Exemption for ICE Clear Europe, 

ICE Clear Europe Clearing Members, 

and certain eligible contract 

participants. 

(1) Persons eligible. The exemption in 

paragraph (c)(2) is available to: 

(i) ICE Clear Europe; 

(ii) Any ICE Clear Europe Clearing 

Member (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 Clear 

Europe, that is offered only to, 

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1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 60106 

(June 12, 2009), 74 FR 29525 (June 22, 2009) 

(‘‘Notice’’). 

4 17 CFR 240.19h–1. 

5Exchange Act Rule 19h–1(a)(2), 17 CFR 

240.19h–1(a)(2), provides that a notice need not be 

filed with the Commission, pursuant to Exchange 

Act Rule 19h–1, regarding an associated person 

subject to a statutory disqualification if the person’s 

activities with respect to the member are solely 

clerical or ministerial in nature and such person 

does not have access to funds, securities, or books 

and records. 

6Exchange Act Rule 19h–1(a)(3), 17 CFR 

240.19h–1(a)(3), provides that a notice need not be 

filed with the Commission, pursuant to Exchange 

Act Rule 19h–1, regarding a person or member 

subject to a statutory disqualification if the person 

or member proposed for continued association or 

membership, respectively, satisfies the 

requirements of Exchange Act Rule 19h–1(a)(3)(i)– 

(vi). 

7 15 U.S.C. 78a et seq. 

8See Securities Exchange Act Release No. 56614 

(October 4, 2007), 72 FR 58132 (October 12, 2007) 

(SR–CBOE–2007–14). 

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 Clear Europe Clearing 

Member’’ shall mean any clearing 

member of ICE Clear Europe that 

submits Cleared CDS to ICE Clear 

Europe 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 clearing 

member of ICE Clear Europe. 

By the Commission. 

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. E9–17990 Filed 7–28–09; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–60370; File No. SR–CBOE– 

2009–033] 

Self-Regulatory Organizations; 

Chicago Board Options Exchange, 

Incorporated; Order Approving 

Proposed Rule Change Regarding 

Statutory Disqualification Procedures 

July 23, 2009. 

I. Introduction 

On May 26, 2009, the Chicago Board 

Options Exchange, Incorporated 

(‘‘CBOE’’ or the ‘‘Exchange’’) filed with 

the Securities and Exchange 

Commission (the ‘‘SEC’’ or 

‘‘Commission’’) a proposed rule change 

pursuant to Section 19(b)(1) 1 of the 

Securities Exchange Act of 1934 (the 

‘‘Exchange Act’’), and Rule 19b–4 

thereunder.2 The proposed rule change 

was published for comment in the 

Federal Register on June 22, 2009.3 The 

Commission received no comments on 

the proposal. This order approves the 

proposed rule change. 

II. Description of the Proposal 

Exchange Act Rule 19h–1 4 prescribes 

the form and content of, and establishes 

the mechanism by which the 

Commission reviews, proposals 

submitted by self-regulatory 

organizations (‘‘SROs’’), such as CBOE, 

to allow a member or associated person 

subject to a statutory disqualification to 

become or remain a member or 

associated with a member. Among other 

things, Rule 19h–1 provides for 

Commission review of notices filed by 

SROs proposing to admit any person to, 

or continue any person in, membership 

or association with a member, 

notwithstanding a statutory 

disqualification. However, Exchange 

Act Rule 19h–1(a)(2)5 and Exchange Act 

Rule 19h–1(a)(3)6 provide that for 

certain persons, and in limited 

circumstances, a notice does not need to 

be filed. 

CBOE Rule 3.18(a) provides that 

CBOE may determine not to permit a 

member or an associated person of a 

member who is or becomes subject to a 

statutory disqualification under the 

Exchange Act,7 to continue in 

membership or in association with a 

member. Under Rule 3.18(b), a member 

or an associated person who is or 

becomes subject to a statutory 

disqualification and wishes to continue 

in membership or in association with a 

member must submit an application to 

the Exchange to do so. When the 

Exchange receives such an application, 

or otherwise becomes aware that a 

member or an associated person is 

subject to a statutory disqualification, 

the Exchange is required to appoint a 

panel to conduct a hearing under the 

procedures set forth in Rule 3.18 to 

determine whether to allow the member 

or associated person to continue in 

membership or in association with a 

member. 

Interpretation and Policy .03 to Rule 

3.18 currently permits the Exchange to 

waive the hearing provisions of Rule 

3.18 when the Exchange intends to grant 

an associated person’s application for 

continued association and the Exchange 

is not required to make a notice filing 

with the Commission under Exchange 

Act Rule 19h–1(a)(2).8 The Exchange 

proposed to expand its ability to waive 

the hearing provisions of Rule 3.18 

when the Exchange intends to grant a 

member’s or associated person’s 

application for continued membership 

or association and the Exchange is not 

required to make a notice filing with the 

Commission under Exchange Act Rule 

19h–1(a)(3). 

CBOE also proposed to waive the 

hearing provisions of Rule 3.18 when it 

determines to allow a member to 

continue in membership, or an 

associated person to continue in 

association with a member, and CBOE 

determines that it is otherwise 

appropriate to waive the hearing 

provisions of Rule 3.18 under the 

circumstances. For example, a 

settlement agreement for a disciplinary 

matter involving CBOE and multiple 

regulators or SROs could fully address 

statutory disqualification issues, 

obviating the need for a CBOE hearing 

on those same issues. The Exchange 

might also choose to exercise this 

waiver authority when no regulatory 

purpose would be served by conducting 

a hearing under Rule 3.18, such as when 

the Commission initiated the 

proceeding regarding the underlying 

conduct that resulted in the statutory 

disqualification and the sanction 

imposed in the matter does not inhibit 

the applicable party’s ability to continue 

as an Exchange member or associated 

person. 

Interpretation and Policy .01 to Rule 

3.18 (‘‘Rule 3.18.01’’) provides that the 

Exchange may waive the provisions of 

Rule 3.18 when a proceeding is pending 

before another SRO to determine 

whether to permit a member or an 

associated person to continue in 

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