Document ID: SEC-2016-0561-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: ICE Clear Europe Ltd.
Posted Date: 2016-03-31T04:00Z

[Federal Register Volume 81, Number 62 (Thursday, March 31, 2016)]
[Notices]
[Pages 18660-18662]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-07194]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77448; File No. SR-ICEEU-2016-005]

Self-Regulatory Organizations; ICE Clear Europe Limited; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating to Equity Futures and Options

March 25, 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 March 11, 2016, ICE Clear Europe Limited (``ICE Clear Europe'' or 
``Clearing House'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule changes described in Items I, II and 
III below, which Items have been prepared by ICE Clear Europe. ICE 
Clear Europe filed the proposal pursuant to Section 19(b)(3)(A) of the 
Act,\3\ and Rule 19b-4(f)(4)(ii) \4\ thereunder, so that the proposal 
was effective upon filing with the Commission. The Commission is 
publishing this notice 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\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(4)(ii).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The principal purpose of the changes is to modify certain aspects 
of the ICE Clear Europe Clearing Procedures and the ICE Clear Europe 
Delivery Procedures in connection with equity futures and options 
contracts traded on the ICE Futures Europe market and cleared by ICE 
Clear Europe.

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

    In its filing with the Commission, ICE Clear Europe included 
statements concerning the purpose of and basis for the proposed rule 
change. The text of these statements may be examined at the places 
specified in Item IV below. ICE Clear Europe has prepared summaries, 
set forth in sections A, B, and C below, of the most significant 
aspects of such statements.

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

1. Purpose
    The principal purpose of the amendments is to modify certain 
aspects of the ICE Clear Europe Clearing Procedures and the ICE Clear 
Europe Delivery Procedures relating to equity futures and options 
contracts traded on the ICE Futures Europe market and cleared by ICE 
Clear Europe.
    The ICE Clear Europe Clearing Procedures have been amended to 
revise certain provisions relating to option exercise and expiration, 
particularly in the context of equity options. In particular, in 
paragraph 5.8 of the Clearing Procedures, amendments are made to 
clarify that allocations of

[[Page 18661]]

exercised equity options to Clearing Members with short positions will 
be made on a random basis, one lot at a time. In this regard, the 
amendments distinguish equity options from other F&O option contracts 
(e.g., energy contracts), for which exercised options are allocated on 
a pro rata basis. The change is intended to make the Clearing 
Procedures consistent with current market practice with respect to 
equity options. Certain provisions relating to early and automatic 
exercise in paragraph 5 have also been revised to be consistent with 
the relevant contract terms and specifications for each type of option 
contract. The amendments additionally specify the procedures for a 
party to abandon options that would otherwise be automatically 
exercised. Certain other clarifying changes in paragraph 5.2 and 5.8 
reflect that an equity option is settled through a contract for the 
delivery of the underlying security.
    In addition, amendments to paragraphs 1.1, 2.2 and 4.6 of the 
Clearing Procedures contain various drafting clarifications applicable 
to F&O Contracts generally, including with respect to the calculation 
of contingent variation margin for certain F&O energy and softs 
contracts under tender for delivery. Consistent with current practice, 
such calculation is made pursuant to the method specified in paragraph 
4.6 or another method prescribed by the Clearing House for the relevant 
contract type from time to time, which would be notified to Clearing 
Members by Circular. Such amendments also update certain references to 
defined terms and ICE Clear Europe clearing systems and documentation.
    In addition, the amendments revise Part Z of the Delivery 
Procedures, which relates to equity futures and options. The amendments 
generally update certain references to defined terms and relevant ICE 
Futures Europe and ICE Clear Europe systems, reports and other 
documentation. Amendments have been made to take into account 
additional underlying securities settlement systems that may be used to 
settle physical deliveries of securities resulting from equity futures 
and options, including Clearstream Frankfurt for German securities, SIX 
SIS for Swiss securities and Takasbank for Turkish securities. In 
addition, the timetables for physical delivery (for settlement of both 
equity futures and options and stock contingent trades) have been 
updated to indicate the appropriate requirements for each of the 
respective settlement systems. In the timetable for stock contingent 
trades, the details required to be submitted have been updated to 
include any relevant special conditions relating to corporate events. 
Amendments to the delivery timetable also clarify the timing 
requirements on the intended settlement day. In particular, the revised 
timetable requires delivery by the delivering Clearing Member to the 
Clearing House by one hour prior to the close of delivery-versus-
payment settlement, in order to provide time for on-delivery by the 
Clearing House to the receiving Clearing Member. Additional notice 
requirements have been added concerning failures to deliver by such 
time.
    In paragraph 2.3, certain clarifications have been made to the 
Clearing House's ability to split a delivery obligation into multiple 
deliveries (known as partialling), including to take advantage of 
various automated and manual processes at the different securities 
settlement systems. In paragraph 2.4, clarifications have been made to 
the procedures for a selling Clearing Member to request the use of a 
daylight settlement period. The Clearing House retains the discretion 
not to accept a request for such settlement.
    Provisions relating to failed settlements and buy-ins have also 
been updated. In paragraph 3.1, the timetable for buy in by the 
Clearing House following a failure to deliver securities by a Clearing 
Member has been clarified. Cash payment obligations have been specified 
for situations where the Clearing House is unable to buy in securities. 
A new paragraph 3.2 has been added to allow for early buy-in if 
directed by the Clearing House. It is expected that early buy-in would 
be likely to be used only in the case of default, force majeure or 
similar event. A new paragraph 3.3 has also been added that allows the 
Clearing House to charge a Clearing Member that has failed to make a 
settlement a daily charge for each day that the failure remains 
outstanding.
    Paragraph 4 of Part Z, which relates to the treatment of certain 
corporate events that occur after exercise or expiration with respect 
to the securities underlying an equity futures or option contract, has 
been substantially revised. The revisions generally conform the 
corporate event provisions to the similar provisions relating to debt 
corporate events in Part Y of the Delivery Procedures. Specifically, 
the term ``corporate event'' has been defined to include cash claims in 
respect of the underlying securities (such as dividends or cash 
obligation from a fractional entitlement), distributions of non-cash 
property with respect to the underlying securities (such as warrants or 
rights issuances), and transformations of the underlying (such as 
pursuant to a corporate reorganization, de-listing, merger, de-merger, 
or a buy-out). Revised paragraph 4 clarifies the rights and obligations 
of the buyer and seller under the relevant contract in respect of such 
an event (in general, the buyer under the contract will be entitled to 
the relevant cash claim, distribution or transformed obligation). Where 
the corporate event requires an election to be made, the relevant buyer 
is permitted to make the election (subject to satisfying certain notice 
requirements). As revised, paragraph 4 provides certain limitations on 
the obligations and liability of the Clearing House with respect to a 
corporate event. It also addresses certain failed deliveries or 
settlements in connection with debt events and certain tax liabilities.
    In paragraph 5 of Part Z, the various reports provided in respect 
of delivery of equity contracts have been updated. An existing report 
type relating to stock contingent trades has also been removed and 
consolidated into the general stock deliveries report.
2. Statutory Basis
    ICE Clear Europe believes that the changes described herein are 
consistent with the requirements of Section 17A of the Act \5\ and the 
regulations thereunder applicable to it, including the standards under 
Rule 17Ad-22,\6\ and are consistent with the prompt and accurate 
clearance of and settlement of securities transactions and, to the 
extent applicable, derivative agreements, contracts and transactions, 
the safeguarding of securities and funds in the custody or control of 
ICE Clear Europe or for which it is responsible and the protection of 
investors and the public interest, within the meaning of Section 
17A(b)(3)(F) of the Act.\7\ The amendments are intended to update and 
clarify provisions of the Clearing Procedures and Delivery Procedures 
relevant to the exercise and settlement of equity futures and options 
currently traded on ICE Futures Europe and cleared through ICE Clear 
Europe. In particular, the amendments clarify the procedures for 
exercise and allocation of exercised equity options, consistent with 
current market practice for such products. They also update provisions 
of the Delivery Procedures to reflect the relevant settlement systems, 
to clarify treatment of delivery failures and buy-ins, and to enhance 
procedures relating to the treatment of corporate events. In

[[Page 18662]]

ICE Clear Europe's view, the amendments will promote the prompt and 
accurate clearance and settlement of equity futures and option 
transactions, and are thus consistent with the requirements of Section 
17A of the Act and the regulations thereunder.
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    \5\ 15 U.S.C. 78q-1.
    \6\ 17 CFR 240.17Ad-22.
    \7\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    ICE Clear Europe does not believe the proposed changes to the rules 
would have any impact, or impose any burden, on competition not 
necessary or appropriate in furtherance of the purpose of the Act. ICE 
Clear Europe is adopting the amendments to [sic] the Delivery 
Procedures and Clearing Procedures in order to clarify certain aspects 
of the exercise and settlement of equity futures and options currently 
cleared by ICE Clear Europe. ICE Clear Europe does not believe the 
adoption of related Delivery Procedures and Clearing Procedures 
amendments would materially affect the cost of clearing these products, 
adversely affect access to clearing in these products for Clearing 
Members or their customers, or otherwise adversely affect competition 
in clearing services.

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 changes to the rules have 
not been solicited or received. ICE Clear Europe will notify the 
Commission of any written comments received by ICE Clear Europe.

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

    The foregoing rule change has become effective upon filing pursuant 
to Section 19(b)(3)(A) \8\ of the Act and Rule 19b-4(f)(4)(ii) \9\ 
thereunder because it effects a change in an existing service of a 
registered clearing agency that primarily affects the clearing 
operations of the clearing agency with respect to products that are not 
securities, including futures that are not security futures, swaps that 
are not security-based swaps or mixed swaps, and forwards that are not 
security forwards, and does not significantly affect any securities 
clearing operations of the clearing agency or any rights or obligations 
of the clearing agency with respect to securities clearing or persons 
using such securities-clearing service. At any time within 60 days of 
the filing of the proposed rule change, the Commission summarily may 
temporarily suspend such rule change if it appears to the Commission 
that such action is necessary or appropriate in the public interest, 
for the protection of investors, or otherwise in furtherance of the 
purposes of the Act.
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(4)(ii).
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IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml) or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-ICEEU-2016-005 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-ICEEU-2016-005. 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 Europe 
and on ICE Clear Europe's Web site at https://www.theice.com/clear-europe/regulation#rule-filings.
    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-ICEEU-2016-005 
and should be submitted on or before April 21, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-07194 Filed 3-30-16; 8:45 am]
BILLING CODE 8011-01-P