Document ID: SEC-2014-1146-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: ICE Clear Europe Limited
Posted Date: 2014-07-10T04:00Z

[Federal Register Volume 79, Number 132 (Thursday, July 10, 2014)]
[Notices]
[Pages 39429-39440]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-16099]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72540; File No. SR-ICEEU-2014-09]

Self-Regulatory Organizations; ICE Clear Europe Limited; Notice 
of Filing of Proposed Rule Change Relating To EMIR Requirements

 July 3, 2014.
    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 June 30, 2014, ICE Clear Europe Limited (``ICE Clear Europe'') 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. 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.
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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 proposed changes is to amend the ICE 
Clear Europe Clearing Rules in order to comply with requirements under 
the European Market Infrastructure Regulation (including regulations 
and implementing technical standards thereunder, ``EMIR'') \3\ that 
will apply to ICE Clear Europe as an authorized central 
counterparty.\4\ Among other changes, the proposed rules would 
implement a framework under which Clearing Members may offer to their 
clients the ability to have their positions and margin assets 
segregated from those of other clients of the Clearing Member 
(``Individual Client Segregation'').\5\ The proposed rule changes 
include various other amendments to comply with EMIR, as discussed 
herein. In addition, certain other aspects of the proposed amendments 
are not specifically intended to comply with EMIR, but are designed to 
harmonize various rule provisions across different products and to make 
various other improvements to the rules. ICE Clear Europe will be 
required to be in compliance with EMIR as of the time it receives 
authorization as a central counterparty from the European Securities 
and Markets Authority (``ESMA'').
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    \3\ Regulation (EU) No 648/2012 of the European Parliament and 
of the Council of 4 July 2012 on OTC derivatives, central 
counterparties and trade repositories, as well as various 
implementing regulations and technical standards.
    \4\ ICE Clear Europe will separately file certain related 
changes to its policies and procedures, including risk management 
policies.
    \5\ As discussed herein, the Individual Client Segregation model 
is not being offered at this time to U.S. clearing members or U.S. 
person clients, and certain provisions of the proposed rules are 
therefore not applicable to such persons. ICE Clear Europe will make 
a subsequent rule filing if it subsequently determines to offer such 
model to U.S. clearing members or U.S. persons.
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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 and discussed any comments it received on 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 these statements.

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

a. Purpose
    ICE Clear Europe submitted proposed amendments to its Rules in 
order to comply with requirements under EMIR that will apply to ICE 
Clear Europe upon its authorization as a central counterparty under 
EMIR, and to make certain other improvements to its rules. The 
principal change will be to implement changes to the structure of 
customer accounts for cleared transactions to enhance segregation

[[Page 39430]]

options for customers of Clearing Members. This includes the adoption 
of the Individual Client Segregation framework as well as certain 
modifications relating to the existing, omnibus client segregation 
model for Non-FCM/BD Clearing Members. (The existing account structure 
and segregation framework applicable to FCM/BD Clearing Members will 
remain in effect for such clearing members.) The customer clearing 
model and commitments being offered by ICE Clear Europe in compliance 
with EMIR are being made available for all product categories, subject 
to applicable local law.
    Pursuant to Article 39(1) to (3) of EMIR, ICE Clear Europe is 
required to keep separate records and accounts that will enable it to 
distinguish the assets and positions of: (i) One Clearing Member from 
those of any other Clearing Member and (ii) either (A) a Clearing 
Member from those of its clients (``omnibus segregation'') or (B) a 
client of a Clearing Member from any other client of that Clearing 
Member (``individual segregation''). In addition, each of ICE Clear 
Europe's Clearing Members is required (i) to keep separate records and 
accounts that enable them to distinguish in both accounts held with the 
clearing house and their own accounts Clearing Member assets and 
positions from those of its clients; and (ii) to offer clients a choice 
of individual or omnibus segregation at the clearing house. ICE Clear 
Europe has revised its segregation models to implement this 
requirement, as described herein, to provide both individual 
segregation and omnibus segregation options.
    The proposed rules would establish two new types of individually 
segregated accounts for Non-FCM/BD Clearing Members, Individually 
Segregated Margin-flow Co-mingled Accounts and Individually Segregated 
Sponsored Accounts. The proposed rules will also establish multiple new 
types of omnibus accounts, Segregated Customer Omnibus Accounts 
(separately for each product: FX, F&O and CDS) and Segregated TTFCA 
Customer Omnibus Accounts (separately for each product: FX, F&O and 
CDS) as well as Omnibus Margin-flow Co-mingled Accounts. These new 
individually segregated and omnibus accounts will be available only to 
non-FCM/BD Clearing Members and their customers. For FCM/BD Clearing 
Members and their customers, individual client segregation is not being 
offered at this time, and the existing account types and segregation 
requirements for client assets (which are required under applicable 
law) would be maintained.\6\
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    \6\ The Bank of England has advised ICE Clear Europe that the 
requirement under EMIR for the Clearing House to offer an individual 
segregation model to Clearing Members (and in turn for Clearing 
Members to offer individual segregation to their customers) may be 
satisfied, in the case of an FCM/BD Clearing Member, if the Clearing 
Member introduces such customers to another Clearing Member 
(including an affiliate) that can offer an individually segregated 
account, to the extent permitted by applicable law. ICE Clear Europe 
is not at this time offering its Sponsored Principal Model to U.S. 
Clearing Members or potential U.S. Sponsored Principals, and 
therefore Rule 1905 and other references in the Rules to U.S. 
Sponsored Principals will not apply at this time. ICE Clear Europe 
will submit another rule filing if it determines to offer the 
Sponsored Principal Model to U.S. Clearing Members or U.S. Sponsored 
Principals.
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    Each Margin-flow Co-mingled Account constitutes a separate account, 
referencing a single client (in the case of an Individually Segregated 
Margin-flow Co-mingled Account) or group of clients (in the case of an 
Omnibus Margin-flow Co-mingled Account) for which separate records are 
kept of both margin and positions. However, margin flows are aggregated 
across all Margin-flow Co-mingled Accounts. These accounts are broadly 
similar to an LSOC account under CFTC rules in operational terms for 
position-keeping but differ in that assets are also tracked per 
individual Customer, rather than constituting a shared pool with deemed 
interests, allowing Customers to decide (subject to agreeing this with 
their Clearing Member) what sort of assets should be used to cover 
their individual positions, as is required under EMIR. The Rules 
provide for two types of Margin-flow Co-mingled Accounts: Individually 
segregated and omnibus segregated. Each Individually Segregated Margin-
flow Co-mingled Account records the margin and positions of a single 
customer. An Omnibus Margin-flow Co-mingled Account records the margin 
and positions of a group of customers (such as a group of affiliated 
customers or funds under common management). In either case, margin 
flows are aggregated across all Margin-flow Co-mingled Accounts of a 
Clearing Member.
    Individually Segregated Sponsored Accounts, from a position-keeping 
and margin accounting operational perspective treat a client 
(``Sponsored Principal'') in effect as if it were a Clearing Member, 
with fully segregated margin, positions and margin flows. The 
Individually Segregated Sponsored Account requires the Sponsored 
Principal to appoint a Sponsor from among the Clearing Membership to be 
fully jointly liable on the account.
    Under the revised rules, ICE Clear Europe will also offer several 
types of omnibus segregation accounts for customers of non-FCM/BD 
Clearing Members, including a segregated customer omnibus account for 
each product category (F&O, CDS and FX) (each a ``Segregated Customer 
Omnibus Account'') and a segregated title transfer financial collateral 
arrangement (``TTFCA'') account for each product category (each, a 
``Segregated TTFCA Customer Omnibus Account''). In accordance with the 
FSA policy statement on client money and client assets,\7\ Segregated 
Customer Omnibus Accounts will be used for customers of non-FCM/BD 
Clearing Members who provide assets to their Clearing Members that are 
subject to the FCA's client money and client assets regime (or another 
legal requirement to segregate which goes beyond that required under 
EMIR). In contrast, Segregated TTFCA Customer Omnibus Accounts will be 
used for customers of non-FCM/BD Clearing Members who use title 
transfer financial collateral arrangements to provide margin to their 
Clearing Members (or which are otherwise subjected only to the 
requirement to segregate assets under EMIR, and not under any 
applicable law, trust or property law based regime). Within each 
category, ICE Clear Europe has chosen to set up separate accounts for 
each of the different product types cleared by ICE Clear Europe (F&O, 
FX and CDS), for purposes of ease of administration and maintaining the 
separation of product categories as otherwise provided in the rules. 
Consistent with EMIR,\8\ Clearing Members may use multiple different 
types of individually segregated and omnibus segregated accounts for 
their various customers.
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    \7\ FSA Policy Statement PS12/23: Client Assets Regime: Changes 
Following EMIR (Dec. 2012).
    \8\ EMIR Article 39.
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    In terms of individual segregation, as discussed herein, the 
proposed rules establish the framework for the relevant new account 
structures for Non-FCM/BD Clearing Members. For Individually Segregated 
Margin-flow Co-mingled Accounts, new provisions require separate record 
keeping and reporting for the account and permit the aggregation of 
margin flows across accounts in this class. As discussed in further 
detail below, the amendments for Individually Segregated Sponsored 
Principal Accounts, among other matters, (i) introduce the concepts of 
a ``Sponsored Principal'' (the client whose positions and margin are 
being segregated under the Individually

[[Page 39431]]

Segregated Sponsored Account) and a ``Sponsor'' (the Clearing Member 
responsible to the clearing house for the Sponsored Principal's 
performance in an Individually Segregated Sponsored Account); (ii) set 
forth the relationship among the clearing house, Sponsored Principal 
and Sponsor; (iii) establish procedures under which ICE Clear Europe 
may manage a default by either the Sponsor and/or the Sponsored 
Principal under the Rules, (iv) allocate responsibilities and rights as 
between a Sponsor and a Sponsored Participant with respect to cleared 
contracts; and (v) establish documentation requirements for Sponsored 
Principal arrangements.
    The proposed rule amendments are described in detail as follows.
    In Part 1 of the Rules, various definitions have been added or 
modified in order to address the changes required by EMIR in a 
consistent manner across all products, including: ``CDS Standard 
Terms'', ``Customer-CM CDS Transaction'', Customer-CM F&O 
Transaction'', ``Customer-CM FX Transaction'', ``EMIR'', ``Energy'', 
``F&O'', ``F&O Standard Terms'', ``FX Standard Terms'', ``FX Trade 
Particulars'', ``Individually Segregated Customer'', Individually 
Segregated Margin-flow Co-mingled Account'', ``Individually Segregated 
Sponsored Account'', ``Margin Account'', ``Position Account'', 
``Repository'', ``Segregated Customer Omnibus Account for CDS'', 
``Segregated Customer Omnibus Account for F&O'', ``Segregated Customer 
Omnibus Account for FX'', Segregated TTFCA Customer'', ``Segregated 
TTFCA Customer Omnibus Account for CDS'', ``Segregated TTFCA Customer 
Omnibus Account for F&O'', ``Segregated TTFCA Customer Omnibus Account 
for FX'', ``Sponsor,'' ``Sponsor Agreement'', ``Sponsored Principal'', 
``Sponsored Principal Clearing Agreement'', and ``U.S. Sponsored 
Principal''. In addition, conforming changes have been made to numerous 
existing definitions in order to incorporate these concepts, including 
in particular references to Sponsored Principals in addition to 
existing references to Clearing Members. In light of various changes 
and expected changes to trade execution requirements in the U.S. and 
Europe, revised definitions of ``CDS Trade Execution/Processing 
Platform'' and ``FX Trade Execution/Processing Platform'' have been 
added, and conforming references have been made throughout the Rules. 
Certain defined terms relating to ICE OTC commodity contracts and 
certain other definitions have been removed as they are no longer used. 
Definitions of the Financial Conduct Authority (``FCA'') and Prudential 
Regulatory Authority (``PRA'') (and of their rules) have been added 
following the recent separation of regulators in the UK, and references 
to the FCA's former name, the Financial Services Authority (the 
``FSA''), are deleted. References to the FSA throughout the rules have 
been modified accordingly.
    The hierarchy of documents in Rule 102(f) has been revised to 
include, in relation to an Individually Segregated Sponsored Account, 
the Sponsored Principal Clearing Agreement between the Sponsored 
Principal and ICE Clear Europe and the Sponsor Agreement between the 
relevant Clearing Member Sponsor and ICE Clear Europe. Reference to the 
new Standard Terms annexes for FX and F&O customer clearing are also 
included. Other clarifications and conforming changes have been made to 
the rest of Rule 102(f). Similar changes have been made in Rule 102(l). 
New Rule 102(g) requires all Clearing Members providing services to 
customers to comply with relevant provisions of EMIR.\9\ Specifically, 
Clearing Members must offer customers a choice of individual or omnibus 
segregation, to the extent they are permitted to do so under applicable 
law, and provide information as to the costs and levels of protection 
for various options. Where a Clearing Member is not able under 
applicable law to offer such an account, it must, to the extent 
permitted under applicable law, offer to introduce the customer to 
another Clearing Member that can offer such an account.
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    \9\ Clearing Members would, of course, also need to comply with 
any other applicable law in providing services to Customers.
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    Rule 102(j) has been amended to clarify that Sponsors and Sponsored 
Principals, in addition to Clearing Members, are responsible for the 
conduct of their employees and agents (in addition to their own 
conduct) and to reference the new defined terms ``CDS Trade Execution/
Processing Platform'' and ``FX Trade Execution/Processing Platform'' to 
account for the current and expected use of such platforms in light of 
trade execution requirements under applicable law.
    Rule 102(o) clarifies that with respect to a Clearing Member that 
is also a Sponsor, the Rules, the Sponsor Agreement, and certain other 
specified documents form a contract between ICE Clear Europe, each 
Sponsor acting in its capacity as such and each Sponsored Principal for 
which such Sponsor acts. Similarly, the Rules, the applicable Sponsored 
Principal Clearing Agreement (if any) and other certain other specified 
documents also form a contract between ICE Clear Europe, each Sponsored 
Principal and the Sponsor for that Sponsored Principal. Other 
conforming changes are made in the rest of Rule 102(o) and Rule 102(p).
    Rule 102(q) has been revised to clarify certain segregation 
requirements with respect to different categories of accounts, 
including the limitations on setting off one category of proprietary or 
customer account against another category, or otherwise using one 
category to cover losses in another category, in light of the 
additional types of account classes added under the proposed rules.
    Rule 102(r) has been revised to refer to certain of the clearing 
house's obligations under EMIR and address certain related interpretive 
issues, as well as to add references to Sponsored Principals.
    The governing law provision in Rule 102(s) has been revised to 
clarify that the choice of English law is intended also to govern non-
contractual obligations arising out of or in connection with the Rules 
or any Contract.
    New Rule 102(w) addresses a Clearing Member's ability to outsource 
performance of its obligations, in particular to allow Clearing Members 
to outsource performance to affiliates or third parties of their 
obligation with respect to end-of-day settlement price submission, 
acceptance of forced allocations and participation in default auctions. 
This approach is consistent with EMIR and also reflects the 
requirements of CFTC Rule 39.16.
    New Rule 102(x) clarifies that persons that are partners of general 
partnerships will be jointly and severally liable for the partnership's 
obligations under the Rules, and that dissolution of the partnership 
will not affect that liability. This provision is not specifically 
required under EMIR but is intended to clarify the Clearing House's 
rights and obligations when dealing with Sponsored Principals that may 
be partnerships, but also is drafted to be applicable in the event that 
a partnership applies in future for clearing membership.
    Rule 104, which addresses the clearing house's ability to ``invoice 
back'' (in effect, termination of a position through creation by the 
clearing house of an offsetting contract) or override the price or 
other terms of contracts has been revised to provide that the clearing 
house may do so only in the case of a force majeure event, illegality 
or impossibility and not, as a general matter, as a remedy for a 
default by a Clearing Member. Although this

[[Page 39432]]

change is not specifically intended to comply with EMIR, it results 
from ongoing discussions with Clearing Members and other market 
participants, who have asked that the powers under this provision be 
clarified, circumscribed and made consistent across all products. In so 
doing, the change has also eliminated uncertainty that these powers 
could be used in a default management situation, and thus has clarified 
that the Clearing House's default management powers are as set forth in 
Part 9 of the Rules. Conforming changes have been made to relevant 
definitions, including the addition of a new definition of 
``Impossibility''.
    Rule 105, which addresses a decision by the clearing house to cease 
acting in that capacity, has been revised to clarify that such an 
action might be taken if the clearing house loses any regulatory 
authorization required to continue its business.
    The confidentiality provisions of Rule 106 have been extended to 
apply to Sponsored Principals and Sponsors and modified in various 
technical respects to ensure compliance with ICE Clear Europe's 
confidentiality, reporting and disclosure obligations under EMIR. The 
changes also clarify that that the Clearing House may disclose 
confidential information in certain circumstances, including in the 
case of a breach by the Clearing Member or Sponsored Principal of 
membership criteria and certain other disclosure requirements (clause 
(a)(ii)), information being provided to a data repository or other 
entity for purposes of transaction reporting (clause (a)(iii)),\10\ 
information concerning an Individually Segregated Sponsored Account to 
the relevant Sponsor or Sponsored Principal (clause (a)(xi)) and 
information concerning a Customer to the relevant Clearing Member 
carrying its account (clause (a)(xii)).
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    \10\ Based on Staff's conversation with ICE Clear Europe's 
counsel on July 2, 2014, ICE Clear Europe's counsel has confirmed 
that the reference to Rule 106(a)(iii) should instead refer to Rule 
106(a)(viii).
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    The record retention requirements under Rule 108 for Clearing 
Members (and other persons, such as Sponsored Principals) that provide 
information to the Clearing House has been extended to ten years, 
consistent with the record retention requirements applicable to the 
Clearing House itself under Article 29 of EMIR. Various conforming 
references to Sponsored Principals, Sponsors and other new defined 
terms, as well as other clarifying changes, have also been added in 
Rules 107-113. In Rules 111(a)(B) and 111(c)(xviii), ``gross 
negligence'' is added as an exclusion to exculpatory provisions 
relating to ICE Clear Europe's liability, in order to address 
enforceability issues with respect to exculpatory provisions that lack 
such an exclusion in some continental European jurisdictions, based on 
legal advice received by the clearing house.
    Rule 114(c) allows for outsourcing by the clearing house, subject 
to its retention of liability, consistent with the requirements of 
article 35 of EMIR. A clarification has been made to Rule 116 to 
require notice of changes to Clearing House business days. Finally, new 
Rules 117(p) and (q) have been added to clarify that the dispute 
resolution procedures from the Rules apply to disputes in connection 
with Sponsored Principals, Sponsors, Sponsored Principal Clearing 
Agreements and Sponsor Agreements in the same way the Rules apply to 
disputes in connection with Clearing Members and Clearing Membership 
Agreements.
    A statement has been added to the preamble of Part 2 of the Rules 
to clarify that Part 2 (Clearing Membership) does not apply to 
Sponsored Principals except to the extent expressly set out in Part 19. 
Certain updates and drafting improvements and clarifications to the 
Clearing Membership criteria have been made in Rule 201, including the 
consolidation into the Rules of various membership criteria previously 
in paragraph 2 of the CDS Procedures and paragraph 2 of the FX 
Procedures, and other requirements stemming from EMIR or other 
applicable law, including requirements as to operational and financial 
capacity, compliance with sanctions regimes, and having a well-founded 
legal framework to support clearing operations. Rule 201(a)(v) has been 
revised to require that a Clearing Member be a user of a designated 
repository for purposes of swap data reporting. Rule 201(b) includes a 
requirement that additional conditions imposed on Clearing Membership 
be proportional to the risk brought by the applicant. Revised Rules 
201(c) and (e) contain additional requirements around rejection or 
denial of applications.
    Rule 202(a) contains certain additional obligations on Clearing 
Members driven by requirements in EMIR, including obligations to make 
available to the Clearing House certain information for risk management 
purposes (including as to client activity) and to participate in 
default management exercises and other testing. Rule 202(b)-(e) (which 
are based on and replace current Rule 1516(b) for CDS) establish 
responsibilities of a Non-FCM/BD Clearing Member for the execution and 
content of customer-facing documentation, including to incorporate the 
applicable CDS Standard Terms, F&O Standard Terms or FX Standard Terms. 
These aspects of customer documentation facilitate the portability of 
customer positions following Clearing Member default, consistent with 
the requirements of EMIR, among other matters. Provisions concerning 
controller guarantees of Clearing Members are moved to Rule 202(f) from 
the CDS Procedures and Rule 1709 (FX) so as to apply to all product 
categories.
    Certain conforming changes relating to Sponsored Principals and the 
use of the new set of account classes have been added in Rule 207(a) 
and (d). New Rule 207(e) clarifies the obligations of certain Disclosed 
Principal Members for which a Clearing Member may act in connection 
with the energy business, but which are not treated as customers under 
the Rules and to align this provision with the equivalent requirement 
for Sponsored Principals.
    Rule 301 has been modified to clarify certain matters relating to 
its payment banking arrangements. (These generally reflect comments of 
and discussions with Clearing Members, and do not specifically relate 
to compliance with EMIR.) Rule 301(f), which generally provides that 
payments from Clearing Members to ICE Clear Europe are not deemed 
received until they have been transferred to the clearing house 
concentration account at its concentration bank, has been modified to 
provide that if an Approved Financial Institution used by the Clearing 
House fails to pay due to a Clearing Member default or similar event, 
the Clearing House will first attempt to reinstruct the payment 
excluding amounts relevant to the defaulter rather than exercising its 
rights to require use of a different Approved Financial Institution 
under Rule 301. This accords with the clearing house's existing 
practices, and ICE Clear Europe believes it is an appropriate 
clarification on its authority under Rule 301(f). Rules 301(m)-(n) 
document ICE Clear Europe's existing practice of publishing a list of 
Approved Financial Institutions and Concentration Banks, and require 
ICE Clear Europe to ensure there is always at least one Concentration 
Bank.
    Rule 302(a) has been revised to incorporate new rules with respect 
to the payment mechanics for the various accounts classes (including as 
to whether payments are made on a net basis or, in certain specified 
cases, on a gross basis for a particular account). Rules 302(a)(iii) 
and (iv) have been revised to provide for net payments to and from the 
clearing house in respect of the F&O product category, for either

[[Page 39433]]

Segregated Customer Omnibus Accounts or Segregated TTFCA Customer 
Omnibus Accounts. Rules 302(a)(v) and (vi) address the need to have 
consolidated settlement with respect to all of a Clearing Member's 
Margin-flow Co-mingled Accounts. Rules 302(a)(vii) and (viii) address 
settlement of margin transfers for other categories of customer account 
(such as for CDS or FX customers), which are calculated on a gross 
basis. A conforming change is made in Rule 302(e) for Margin-flow Co-
mingled Accounts.
    New Rule 304 applies the payment provisions of Part 3 of the Rules 
in the context of Individually Segregated Sponsored Accounts. Pursuant 
to Rule 304(a)(ii), Payments are made to and from the clearing house 
separately on a net basis for each such account, by the relevant 
Sponsored Principal (or the Sponsor if acting as representative of the 
Sponsored Principal for making payments). Rule 304(a)(v) clarifies that 
ICE Clear Europe is not permitted to exercise rights of set off as 
between any obligation, right or liability arising in connection with 
an Individually Segregated Sponsored Account and between any 
obligation, right or liability arising in connection with any Customer 
Account that is not an Individually Segregated Sponsored Account in 
respect of which the Sponsored Principal is a Customer. Rule 304 also 
disapplies a number of provisions in Part 3 of the Rules, including 
Rules 301(k), 302(a), 302(d) and 302(e), as such provisions are more 
specifically provided for in Rule 304 in the context of Individually 
Segregated Sponsored Accounts. Rule 304(a)(vi) provides that if a 
payment is made by the Sponsor in respect of an Individually Segregated 
Sponsored Account, that payment discharges the obligation of the 
Sponsored Principal. Similarly, if the clearing house makes a payment 
to the Sponsor in respect of the Individually Segregated Sponsored 
Account, that payment discharges the clearing house's obligation to the 
Sponsored Principal. As provided in Rule 304(a)(vii), Sponsored 
Principals are not required to make guaranty fund contributions to the 
clearing house.
    Rule 401, which addresses the formation of a cleared contract, has 
been amended to incorporate the concept of Sponsored Principals and 
Individually Segregated Sponsored Accounts, as well as the other 
categories of customer account and certain other conforming changes 
(including the removal of obsolete references to ICE OTC markets that 
have been superseded). Specifically, the amendments clarify the 
capacity in which the Sponsor or Clearing Member is acting with respect 
to any such contracts, and the appropriate account in which such 
contracts are to be recorded. Conforming changes that incorporate the 
new account classes have also been made. The amendments also include 
certain non-EMIR related changes, including harmonization of drafting 
of provisions across different products and use of new defined terms 
(such as Buying Counterparty and Selling Counterparty, terms introduced 
due to the existence of Sponsored Principals as a joint counterparty to 
Contracts, in addition to Clearing Members). New Rule 401(l) provides 
for the reporting of cleared transactions to a Repository, in 
accordance with the requirements of EMIR. Rule 401(n) has been revised 
to address customer-CM transactions arising from FX transactions. Rule 
401(o) has been revised to reflect the various capacities in which a 
Clearing Member or Sponsored Principal may enter into a transaction for 
the relevant account category. Conforming changes have been made to 
rule 401(p) to reflect the various account categories.
    Conforming changes (including addition of references to Sponsored 
Principals, use of defined terms for Buying Counterparties and Selling 
Counterparties and providing for reporting to Repositories) are made in 
Rules 402-408 and 410. Additional conforming changes are made to Rule 
405 to address Disclosed Principal Members and use of CDS Trade 
Execution/Processing Platforms and FX Trade Execution/Processing 
Platforms, as well as other drafting clarifications. Rule 406 contains 
additional conforming changes relating to netting of positions and 
reporting of net positions to ta Repository. Rule 407 has been amended 
to include references to Sponsored Principals and to clarify use of 
defined terms. Rule 408 has been revised to address transfer of 
positions of a Sponsored Principal as well as a Clearing Member, and to 
incorporate certain drafting clarifications.
    Rule 502 has been amended with various conforming changes and 
clarifications as to the characterization of margin, generally relating 
to the additional account classes and revised defined terms. Rule 
502(h) has been revised to expand an undertaking on the part of ICE 
Clear not to change the legal characterization of pledged collateral 
accounts or assets provided with respect thereto. This change is in 
response to clearing member requests for additional legal certainty as 
to account characterization, but reflects existing practices. Rule 
502(i) contains certain drafting improvements as to the manner in which 
the clearing house may use pledged collateral for purposes of the net 
sum calculation in Part 9 of the Rules and conforms to the rules 
governing the return of excess margin for the account of customers set 
forth in Part 9 of the Rules. Rules 503(e) and (f) contain various 
conforming changes to reflect the use of the new account classes (and 
removing references to Designated CDS Customer Accounts, which are no 
longer used), as well as the use of various defined terms.
    New Rule 503(k) is the principal new rule relating to the operation 
of Margin-flow Co-mingled Accounts. In circumstances where the clearing 
house permits the use of more than one type of permitted cover, the 
rule mandates reporting by Clearing Members on such accounts to allow 
the tracking of assets (where more than one account is used and more 
than one type of margin is provided), such that assets can be allocated 
to particular Customers. The rule also sets out backstop rules for pro 
rata allocation across different customers that apply in the event of 
reporting failures by the Clearing Member.
    Rules 504 and 505 contain various conforming changes, including for 
the addition of Sponsored Principals and Individually Segregated 
Sponsored Accounts, as well as a clarification of the rights and 
obligations of Disclosed Principal Members. Rule 506 sets out 
particular procedures for the transfer of margin in the context of 
Individually Segregated Sponsored Accounts. As further set out in Rule 
1902, the Sponsored Principal may provide margin directly to the 
clearing house, or the Sponsor may be operationally responsible for 
providing margin to the clearing house on behalf of the Sponsored 
Principal. Rule 506 also replaces Rules 504(a), 504(c)(v) and 504(f) 
with additional provisions more specifically reflecting the particular 
responsibilities of the Sponsored Principal and Sponsor in connection 
with the transfer of margin.
    Parts 6, 7 and 8 of the Rules contain various conforming changes 
that reflect the addition of Individually Sponsored Segregated Accounts 
and other categories of customer accounts. These changes also clarify 
that the rules in those parts relating to position limits, and 
settlement of futures and options apply to Sponsored Principals in 
substantially the same manner as Clearing Members.
    The Default Rules in Part 9 have been amended to provide for the 
management of a default by a Sponsor and/or Sponsored Principal. 
Certain

[[Page 39434]]

conforming changes to defined terms and related drafting improvements 
and clarifications have also been made, as discussed herein. The 
preamble to Part 9 has also been updated to refer to relevant sections 
of EMIR and other applicable law.\11\
---------------------------------------------------------------------------

    \11\ References to particular laws in this preamble are not 
intended to be exclusive; nothing in this provision affects any 
requirement on ICE Clear Europe to comply with applicable laws not 
specifically enumerated.
---------------------------------------------------------------------------

    Under new Rule 901(d), a Sponsored Principal may be declared in 
default by the Clearing House in the same way as a Clearing Member if 
any of the events specified in Rule 901(a) occur, unless, in the case 
of a default under Rule 901(a)(i)-(iii), the Sponsor cures the default. 
A Sponsored Principal may also be declared in default if it is in 
default under any relevant agreement between the Sponsored Principal 
and its Sponsor (as notified by the Sponsor to ICE Clear Europe). If 
ICE Clear Europe becomes aware of grounds for declaring a Sponsored 
Principal to be a Defaulter under Rule 901(a)(i) to (iii) but no Event 
of Default is declared, ICE Clear Europe will notify the Sponsor of 
details of such grounds and give the Sponsor an opportunity to perform 
the obligation prior to declaring a default in respect of the Sponsored 
Principal. (As discussed above, the Sponsor is jointly and severally 
liable with the Sponsored Principal with respect to the Sponsored 
Principal's positions and related obligations in its Individually 
Segregated Sponsored Account. In the case of a failure to perform by 
the Sponsored Principal, the Clearing House will direct all liabilities 
on the Individually Segregated Sponsored Account to be met from the 
Sponsor's nominated proprietary bank account, and the Sponsor is liable 
to make such payments.) A Sponsor will not be declared a defaulter 
solely as a result of a default of a Sponsored Principal, although the 
Sponsor can be declared a defaulter as a result of its own default, 
including for failure to perform its own obligations (as jointly and 
severally liable) with respect to the Individually Segregated Sponsored 
Account. Finally, new Rule 901(e) provides for notification to 
regulators of Clearing Member or Sponsored Principal default, as 
required under article 48(3) of EMIR.
    If a Sponsored Principal is declared in default, the clearing house 
will have the rights and remedies set forth in Part 9 of the Rules, in 
the same manner as if the Sponsored Principal were a defaulting 
Clearing Member, as provided in Rule 901(d). Various changes to Rules 
902-904 also implement these default rights and remedies. Rules 902 and 
903, which address certain remedies following default, adds relevant 
references to defaulting Sponsored Principals. Revised Rule 903 also 
contains certain changes to defined terms and reflects reporting 
requirements to Repositories under applicable law for all relevant 
product categories.
    The amendments to Rule 904 contain the principal new provisions 
addressing remedies of the clearing house in the event of the default 
of a Sponsor or a Sponsored Principal. They also make certain other 
changes to general provisions relating to transfer of positions and use 
of margin, consistent with EMIR requirements.\12\ Rules 904(a) and (b) 
contain various changes reflecting new defined terms. Rule 904(c) 
clarifies and specifies additional circumstances in which the clearing 
house is not obligated to transfer contracts, including where it would 
cause a default by the clearing house, require the use of guaranty fund 
contributions of non-defaulting Clearing Members or an assessment on 
non-defaulting Clearing Members, be contrary to applicable law or lack 
any required consent or approval. Consistent with the standards in 
EMIR, transfers are required to be fair to both customers and indirect 
customers of the defaulter. The provisions in Rule 904 relating to 
transfers generally apply to all Clearing Members, including FCM/BD 
Clearing Members, subject to any particular requirements of applicable 
law or approvals or consents required in order to effect such transfers 
(as may be required for the customer account of an FCM/BD Clearing 
Member.)
---------------------------------------------------------------------------

    \12\ These include the requirement that the central counterparty 
contractually commit to trigger the procedures for transfer of 
customer positions and assets of a defaulting clearing member. EMIR 
Article 48(5-6).
---------------------------------------------------------------------------

    Rule 904(d)(v) has been amended to create a payment obligation from 
the Clearing Member that will net out the value of any appropriation of 
collateral to support porting or direct payments to customers under 
EMIR. Rule 904(f) has been revised to remove a former provision that 
the clearing house was not obligated to effect any transfers of margin, 
which was inconsistent with EMIR Articles 39 and 48. Former Rules 
904(j) and (k), which were applicable only to CDS but now apply to all 
products, have been removed and combined into a new Rule 904(k) and 
(l). Former Rule 904(l) (now renumbered as Rule 904(j)), which 
addresses transfers of contracts, has been revised to apply generally 
to all product categories and types of customer accounts, and to 
contemplate reliance on consents to transfers by customers provided 
under standard terms documentation.
    Rules 904(m), (p) and (u) include a commitment by ICE Clear Europe 
to trigger the process for transfers of customer positions and margin, 
as required under Article 48(5-6) of EMIR. Slightly different wording 
applies to different types of account, reflecting the requirements of 
EMIR for that kind of account and the ability of ICE Clear Europe to 
give additional assurances for different account classes. This wording 
is supplemented by additional amended provisions around the operational 
process for porting notices in the Standard Terms annexes. These 
commitments are subject to various conditions precedent to porting set 
out in the rules cited above and in Rule 904(c), as discussed above.
    Rules 904(n) and (o) address the default of a Sponsor. Under Rule 
904(n), upon a default of a Sponsor, the Sponsored Principal must 
continue to fulfill its payment and margin obligations on the 
Individually Segregated Sponsored Account to ICE Clear Europe and may 
be required to pay additional amounts by way of margin (reflecting the 
fact that Sponsored Principals do not make Guaranty Fund 
Contributions). Pursuant to Rule 904(o), a Sponsored Principal must 
within 10 days of a Sponsor default (i) notify ICE Clear Europe of a 
new Sponsor, (ii) become a Clearing Member itself or (iii) move its 
positions and margin from the Individually Segregated Sponsored Account 
to the omnibus Customer Account of another Clearing Member (which would 
require the Sponsored Principal to have or to put into place a customer 
relationship with that Clearing Member). If one of the above three 
steps is not taken within 10 days or such longer time as the Clearing 
House at its discretion allows, then the Sponsored Principal itself may 
be declared in default under Rule 904(q).
    New Rules 904(r)-(s) address the default of a Sponsored Principal, 
where the Sponsor is not itself in default.\13\ Pursuant to Rule 
904(r), in such a case, the Sponsor will be responsible for performance 
of any obligations on the Individually Segregated Sponsored Account. 
The Sponsor may manage the default by terminating contracts in the 
Individually Segregated Sponsored Account within a time period set by 
the clearing house. The Sponsor may also

[[Page 39435]]

transfer positions (and margin) from the Individually Segregated 
Sponsored Account to its proprietary account as part of the default 
management process. The clearing house is also entitled to manage the 
default, using the same rights, remedies and procedures it has for a 
Clearing Member default. If the Sponsor elects to manage the default, 
the clearing house will give the Sponsor such time as the clearing 
house determines reasonable before managing the default itself. Rule 
904(s) clarifies the manner in which guaranty fund contributions and 
surplus collateral of the Sponsor may be applied to the net sum 
calculated for an Individually Segregated Sponsored Account of a 
defaulting Sponsored Principal. Rule 904(s) also provides that if the 
Sponsor has made payments in respect of the Individually Segregated 
Sponsored Account under Rule 901(d) or 904(r), and the net sum on the 
account would otherwise be payable in favor of the Sponsored Principal, 
it will instead be paid to the Sponsor. Together, Rules 904(r) and (s) 
are designed to give the Sponsor an incentive to manage the default 
itself (as would be the case for any other customer default), in light 
of its ongoing obligations (based on its joint and several liability) 
with respect to the Individually Segregated Sponsored Account until the 
default management process is completed. In addition, where the Sponsor 
manages the default by transferring the relevant positions in the 
Individually Segregated Sponsored Account to its own account, it is 
entitled to also receive any margin or balance in the account as well 
as any net sum payable by the Clearing House on the account in this 
situation, which it may potentially apply against other (uncleared) 
liabilities of the defaulted Sponsored Principal. By contrast, if the 
Clearing House has to manage the default, then any net sum payable by 
the Clearing House would be delivered to the Sponsored Principal and 
the Sponsor would have to recoup any separate debts owed to it in other 
ways.
---------------------------------------------------------------------------

    \13\ As noted above, the Sponsored Principal model is not being 
offered at this time to U.S. Clearing Members or potential U.S. 
Sponsored Principals, and accordingly these provisions will not 
apply to such persons.
---------------------------------------------------------------------------

    A new Rule 904(t) addresses the calculation of net sums with 
respect to Margin-flow Co-mingled Accounts of a defaulting Clearing 
Member.\14\ The Rule sets out a procedure for allocating all assets and 
liabilities on the Margin-flow Co-mingled Accounts appropriately and 
fairly to each individual account, based on the positions and reports 
provided as to permitted cover. (Fallback rules apply if no such 
reports or records are available, including providing for pro rata 
allocation of certain initial margin based on margin requirements for 
each account.) New Rule 904(u) addresses ICE Clear Europe's 
responsibility to transfer positions in an Individually Segregated 
Margin-flow Co-mingled Account, subject to certain conditions analogous 
to those discussed above for Rule 904(c).
---------------------------------------------------------------------------

    \14\ As noted above, these accounts are not applicable to FCM/BD 
Clearing Members or their customers, and accordingly Rule 904(t) and 
(u) would not apply to such persons.
---------------------------------------------------------------------------

    Conforming and clarifying changes are made in Rules 905 and 906, 
including for Individually Segregated Sponsored Accounts and the 
various other new account classes. In particular, Rule 905 has been 
amended to include various conforming references to Sponsored 
Principals and Individually Segregated Sponsored Accounts. Rule 
905(b)(ii) has been revised to harmonize the drafting across different 
product categories. Rules 905(b)(viii) and (ix) have also been amended 
to clarify the rights of the clearing house over pledged collateral and 
the realization and/or valuation of pledged collateral in the case of 
set-off following default. In Rule 906(a), new language expressly 
clarifies that the respective obligations of the defaulting Clearing 
Member and the clearing house that would otherwise be due following 
default are to be reduced to the net sum (as was implicit in the 
current rule), in order to facilitate close-out netting following 
default.
    Rule 906(b) has been revised to reflect the calculation of separate 
net sums for each of the new account classes. Guaranty Fund 
Contributions of the defaulter may be applied to the net sum for any 
account, but will be applied first to reduce losses on customer 
accounts, on a pro rata basis. Rule 906(c) similarly provides that 
where proprietary assets of a defaulter are being used to satisfy 
losses in the customer accounts, they must be used on a pro rata basis 
across such accounts. Revised Rule 906(d) incorporates requirements 
under Article 48 of EMIR as to the payment of net sums owed in respect 
of various customer accounts, as applicable, including, where 
permissible under applicable law and the Rules, return of a net sum 
directly to the relevant customer(s). Certain protections under current 
rules for the differences between net and gross Customer Account margin 
(old Rule 906(i) and usages of ``Customer Account Gross-Net Amount'' 
and ``Gross Margin Shortfall'' here and elsewhere) are being removed in 
light of the EMIR requirements and the new account classes.
    Additional clarifying and conforming changes are made in Rules 907-
918, principally to reference Individually Segregated Sponsored 
Accounts as well as remove references to certain former CDS account 
concepts that have been deleted as discussed above. Rule 907 
incorporates certain default rules for FX contracts. New Rule 907(m) 
clarifies that positions in a customer account may, at the request of a 
Clearing Member, be moved to the proprietary account of the Clearing 
Member in the case of a default of the relevant customer for default 
management purposes. (This provision applies equally in the absence of 
the declaration of an Event of Default by the Clearing House, and also 
applies to a request by a Sponsor to transfer positions of a Sponsored 
Principal following a breach or default by the Sponsored Principal.)
    Former Rule 908(a)(ix), which referenced Designated CDS Customer 
Accounts (which are no longer offered), has been removed and replaced 
with a new provision that provides that in case of a Sponsored 
Principal default, Guaranty Fund and assessment contributions of 
Clearing Members other than the Sponsor will not be used unless the 
Sponsor is itself in default. This is consistent with the use of assets 
of non-defaulting Clearing Members generally, and requires that in the 
first instance the Sponsor cover losses of its Sponsored Principals.
    Rule 908(b)-(d) and (g) simplify and consolidate certain references 
to the default waterfall by referring to the net sum calculation under 
`N' in Rule 906 rather than specific components of that calculation. 
Rule 908(e) has been revised to remove references to Designated CDS 
Customer Accounts, which are no longer offered. Conforming and 
clarifying changes are made to Rules 908(g) and (h) to add the concept 
of Sponsored Principal. Rule 908(i) (which does not apply to CDS 
contracts) has been revised to clarify the application of the default 
auction priority as set forth in the relevant F&O or FX auction 
procedures.
    Rules 909-911, which address the Clearing House's assessment rights 
with respect to default losses, have been revised to also address 
losses resulting from Sponsored Principals clearing in the relevant 
product category, as well as to update certain cross references and 
defined terms.
    In Rule 912, new clause (a)(iv) has been added to address the 
treatment of Individually Segregated Sponsored Accounts (and the joint 
liability and entitlement of the Sponsor and Sponsored Principal in 
respect of such accounts) in the case of a Clearing House default.
    Rule 914 (and related definitions in Rule 913) have been modified 
such that variation margin haircutting for the F&O and FX product 
categories, if applicable,

[[Page 39436]]

will also apply to variation margin owed to Sponsored Principals in 
respect of Individually Segregated Sponsored Accounts. Accordingly, 
terms such as ``Clearing Member Adjustment Amount'' and ``Contributing 
Clearing Member'' have been changed to ``Adjustment Amount'' and 
``Contributor,'' respectively (to cover both Clearing Members and 
Sponsored Principals), and references to Sponsored Principals have been 
added as appropriate throughout the definitions in Rule 913 and the 
provisions of Rule 914. Similarly, Rule 916 (relating to termination of 
positions in the F&O and FX product categories) and Rule 917 (relating 
to cooling-off periods) will apply to Sponsored Principals. Rule 918, 
in respect of termination of membership (including during a cooling-off 
period), will also apply to Sponsored Principals in respect of 
Individually Segregated Sponsored Accounts for F&O and FX contracts.
    Pursuant to new Rule 1006, part 10 of the Rules, relating to 
disciplinary matters, applies to Sponsored Principals to the same 
extent as Clearing Members acting for their proprietary accounts.
    Rule 1101(c) and 1102(b) have been revised to state that the 
Clearing House would establish minimum parameters for determining the 
relevant Guaranty Funds for the F&O, CDS and FX businesses to meet the 
requirements of Article 42 of EMIR. (This statement does not affect the 
Clearing House's obligation to comply with other financial resources 
requirements under applicable laws, including the Exchange Act and 
Commission rules thereunder (including Rule 17Ad-22(b)(3)). 
Accordingly, the parameters for determining the Guaranty Funds will 
also take into account such other requirements.) Certain other 
conforming and clarifying changes have been made to Rule 1102 and 1103. 
Rule 1103(a) and (b) also have been revised to address the use of 
Guaranty Fund contributions to support borrowings under liquidity 
facilities for the purpose of making payments on cleared contracts, in 
accordance with articles 44-45 of Commission Delegated Regulation 153/
2013 under EMIR, subject to certain limitations for each product 
category. Rule 1103(b) allows the clearing house to pledge or otherwise 
transfer any guaranty fund contributions to support credit or similar 
facilities to provide liquidity for clearing house functions. Proceeds 
of such facilities could only be used for purposes set forth in Rule 
1103(a) (that is, paying amounts owed on cleared contracts and managing 
defaults).
    Part 12 of the Rules contains various conforming changes and 
updates relating to its EU settlement finality system to enhance 
settlement finality for payment arrangements, including for approved 
financial institutions used in the payment system, concentration banks 
and so-called investment agent banks used by the clearing house for 
holding assets pending investment. The changes also reflect the new set 
of accounts (including the Individually Segregated Sponsored Accounts) 
and amended terminology in the Rules generally and reflect certain 
feedback from its UK regulators.
    Part 15 of the Rules, which addresses clearing of CDS, has been 
modified to reflect Individually Segregated Sponsored Accounts and 
other categories of customer accounts and to make certain other 
conforming changes. Rule 1501(kk) has been modified to provide for the 
recording of CDS recorded in Individually Segregated Sponsored Accounts 
within the Deriv/SERV ``tripartite representation'' system, which is 
used by the clearing house, Clearing Members and customers for the 
recording of the details of CDS contracts as well as for taking certain 
actions (such as triggering following restructuring credit events) with 
respect to those contracts. The changes also reflect updates to defined 
terms and certain drafting clarifications. As discussed above, the 
provisions in Rules 1516(a)-(b) have been moved to Rule 202(b) et seq. 
and now apply to all products, with certain minor modifications.
    As noted above, the Sponsored Principal model will not be offered 
at this time to FCM/BD Clearing Members or their customers, and changes 
to Part 16 of the Rules relating to the Sponsored Principal model will 
not apply to FCM/BD Clearing Members at this time. Part 16 of the Rules 
contains certain other conforming changes and drafting improvements 
that will apply at this time, including in Rules 1604(b), 1604(e), 
1605(d), 1605(h), 1607(d), 1608(a) and 1608(c). These largely relate to 
changes in defined terms and cross-references, references to a Clearing 
Member having multiple proprietary accounts, and certain clarifications 
with respect to the CFTC ``Legally Segregated, Operationally 
Commingled'' model for cleared swaps carried through FCM/BD Clearing 
Members.
    Part 17 of the Rules contains various conforming changes relating 
to Individually Segregated Sponsored Accounts and other updates to 
defined terms. As mentioned above, a number of modifications to the 
Rules for FX contracts (previously in Rules 1701(m), 1706 and 1709) 
have been made applicable to all products and so are moved from here to 
other parts of the rules.
    New Part 19 of the Rules has been added to address various aspects 
of the Individually Segregated Sponsored Account framework. As set 
forth above, this framework is not being offered to U.S. Clearing 
Members or potential U.S. Sponsored Principals at this time, and ICE 
Clear Europe will adopt a further rule change if it determines to offer 
this framework to such persons. Rule 1901 contains the initial and 
ongoing requirements an entity must meet in order to become a Sponsored 
Principal, including signing relevant documentation, paying relevant 
fees, being solvent, meeting operational requirements, being an 
``eligible contract participant'' and pre-funding a specified amount of 
margin to ICE Clear Europe. Rule 1901 (and the requirements set out in 
it) broadly reflect those set out in Part 2 of the Rules for Clearing 
Members but have been adapted by ICE Clear Europe for this class of 
participant, including to reflect the different documentation 
requirements for Sponsored Principals and the particular banking 
relationships applicable to Sponsored Principals, as well as the fact 
that Sponsored Principals are not required to have the same level of 
credit standing as Clearing Members (given the Clearing House's 
reliance on the Sponsor). Subject to ICE Clear Europe's discretion, 
certain criteria for obtaining and maintaining the status of a 
Sponsored Principal may be met by the Sponsor or (in the case of 
Sponsored Principals that are funds, the fund manager).
    Rule 1902 provides that the relevant Sponsored Principal and Non-
FCM/BD Clearing Member Sponsor are each jointly and severally liable, 
as principal and without limitation, to ICE Clear Europe in respect of 
all obligations and liabilities arising in connection with the 
Individually Segregated Sponsored Account and all Contracts recorded in 
it. A Sponsor may be subject to increased Guaranty Fund Contribution 
requirements as a result of acting as a Sponsor, on the basis of the 
Contracts cleared by its Sponsored Principals. Rule 1902 also specifies 
required arrangements for payments between the clearing house and a 
Sponsored Principal, and allows the Sponsored Principal and Sponsor to 
arrange between them that the Sponsor will perform certain 
responsibilities on behalf of the Sponsored Principal. The goal is to 
permit the Sponsor and Sponsored Principal flexibility as to the 
arrangements between them with

[[Page 39437]]

respect to the Individually Segregated Sponsored Account. The Rule 
specifies certain required aspects of the agreement between the 
Sponsored Principal and Sponsor, in order for obligations to be 
properly performed as a matter of the applicable contract law by all 
parties on the account. Various modifications applicable to the back-
to-back contract between the Sponsor and Sponsored Principal are set 
out in Rule 1902(g) so as to ensure that the Sponsor maintains a flat 
position and that the arrangements can be used in the context of 
industry standard clearing documentation. The Standard Terms annexes, 
which govern the terms of back-to-back contracts, are also separately 
amended for purposes of the Sponsored Principal model, as discussed 
below.
    Rule 1903 sets forth general modifications to the Rules for 
Sponsored Principals, Sponsors and Individually Segregated Accounts in 
order to implement the individual segregation model for Sponsors that 
are Non-FCM/BD Clearing Members and Non-U.S. Sponsored Principals. 
Sponsored Principals do not make guaranty fund contributions, are not 
subject to assessment contributions pursuant to the default waterfall 
and are not responsible for submitting any pricing data to ICE Clear 
Europe. Sponsored Principals may, but are not required to, participate 
in default auctions.\15\ Rule 1903 also provides that Sponsored 
Principals are subject to the dispute resolution and complaint and 
disciplinary procedures otherwise applicable to Clearing Members under 
the Rules and, if relevant, market or exchange rules.
---------------------------------------------------------------------------

    \15\ Based on Staff's conversation with ICE Clear Europe's 
counsel on July 2, 2014, ICE Clear Europe's counsel has confirmed 
that a Sponsored Principal will not be subject to forced allocation 
of contracts in the event of a failed auction.
---------------------------------------------------------------------------

    Rule 1904 addresses termination of a Sponsored Principal 
relationship with its Sponsor. In general, a Sponsored Principal may 
terminate its Sponsor on notice or a Sponsor may terminate its 
Sponsored Principal on notice, in either case only if there are no open 
Contracts in the relevant Individually Segregated Sponsored Account. 
Following service of any such notice, neither the Sponsored Principal 
nor the Sponsor may enter into or cause the entry into of any further 
Contract for the Individually Segregated Sponsored Account, and the 
Clearing House shall be entitled to close the Individually Segregated 
Sponsored Account. A Sponsored Principal may change the Sponsor only if 
it has established arrangements with a new Sponsor.
    As noted above, the Sponsored Principal framework will not be made 
available to FCM/BD Clearing Members or U.S. persons at this time. It 
is expected that FCM/BD Clearing Members will satisfy the requirements 
of EMIR to offer individual segregation to customers by referring such 
customers seeking individual segregation to a Non-FCM/BD Clearing 
Member that offers an Individually Segregated Sponsored Account, to the 
extent permitted by law. As a result, pursuant to the introductory 
paragraph of Rule 1905, the remainder of that rule, and other 
references to U.S. Sponsored Principals in the Rules, will be 
inapplicable at this time. No U.S. person will be permitted to become a 
Sponsored Principal, Individually Segregated Sponsored Accounts will 
not be available to U.S. Sponsored Principals, and FCM/BD Clearing 
Members will not be permitted to act as Sponsors, until such time as 
ICE Clear Europe adopts a further rule change (and makes a related rule 
filing) implementing the Sponsored Principal framework for FCM/BD 
Clearing Members and U.S. persons and receives all necessary regulatory 
approvals in connection therewith.
    Certain changes to the Standard Terms annex, setting out certain 
mandatory terms of back-to-back contracts between Clearing Members and 
Customers, have been made for CDS contracts. In addition, new Standard 
Terms annexes are added for F&O and FX contracts. (The Standard Terms 
annexes only apply to Non-FCM/BD Clearing Members and their customers.) 
The CDS Standard Terms annex has been modified to incorporate the 
Sponsored Principal Model (and distinguish between provisions 
applicable to an Individually Segregated Sponsored Account and those 
applicable to other Customer Accounts). References to various other 
categories of account class have been updated. Certain procedures 
concerning portability of positions and margin in the case of a 
Clearing Member default (including related notice and timing 
requirements) have also been added, consistent with revisions to Rule 
904. In addition, certain provisions are made governed by English law 
rather than the law of any underlying master agreement, as are the 
Rules and Procedures (which are incorporated here by reference), based 
on legal advice received by the clearing house. The new annexes for F&O 
and FX products are based on the Standard Terms annex for CDS (as 
modified).
    Additional changes are made to Exhibit 4 to the Rules, which 
contains Settlement and Notices Terms applicable to customer 
transactions in CDS. These provisions generally specify certain 
requirements for delivery of certain notices as between a customer and 
its Clearing Member in connection with a CDS contract, including 
certain notices relating to physical settlement, as well as certain 
procedures relevant to settling the Clearing Member to customer leg of 
such a transaction if physical settlement is applicable. The exhibit 
has been modified to include Sponsored Principals and their Sponsors. 
The modifications also distinguish between Non-FCM/BD Clearing Members, 
which have a back-to-back relationship with their customers pursuant to 
a Customer-CM CDS Transaction, and FCM/BD Clearing Members, which act 
on behalf of their customers, and do not enter into Customer-CM CDS 
Transactions. Various conforming changes to defined terms and drafting 
clarifications have also been made.
b. Statutory Basis
    ICE Clear Europe believes that the proposed rule changes are 
consistent with the requirements of Section 17A of the Act \16\ and the 
regulations thereunder applicable to it, including the standards under 
Rule 17Ad-22.\17\ Section 17A(b)(3)(F) of the Act \18\ requires, among 
other things, that the rules of a clearing agency be designed to 
promote the prompt and accurate clearance and settlement of securities 
transactions and, to the extent applicable, derivative agreements, 
contracts, and transactions. The proposed rule changes, which are 
intended principally to ensure compliance by the clearing house with 
the requirements of EMIR, implement new, strengthened options for the 
segregation and safeguarding of customer funds and property to be 
available to customers of Non-FCM/BD Clearing Members. The existing, 
non-individually segregated models will also generally remain available 
for those customers that want them. In addition, the customer account 
structures and segregation requirements for FCM/BD Clearing Members are 
not being changed. Accordingly, the proposed rule changes will enhance, 
and not reduce, the level of customer protection available under the 
current ICE Clear Europe rules. As a result, ICE Clear Europe believes 
that the proposed rule changes will contribute to the safeguarding of 
funds and securities

[[Page 39438]]

associated with derivative transactions that are in the custody or 
control of the clearing house or for which it is responsible, as set 
forth herein, within the meaning of Section 17(A)(b)(3)(F).\19\
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78q-1.
    \17\ 17 CFR 240.17Ad-22.
    \18\ 15 U.S.C. 78q-1(b)(3)(F).
    \19\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    As discussed above, EMIR requires that the clearing house offer an 
individual segregation model that Clearing Members may in turn offer to 
their customers. Under such a model, the clearing house is required to 
separately account for, and track, the portfolio of positions of a 
customer of a Clearing Member and specific assets provided to margin 
such contracts. ICE Clear Europe has developed its Individually 
Segregated Sponsored Account model to satisfy this requirement of EMIR. 
The Individually Segregated Sponsored Account provides a separate 
account for the positions, and margin, of a particular customer, and 
accordingly should be protected in the event of a default of the 
sponsoring Clearing Member or other customers of the Clearing Member. 
It also facilitates the transition to a new Sponsor in the event of a 
default of the current Sponsor. For market participants that are 
eligible to use and elect to use the Individually Segregated Sponsored 
Account model, the approach may provide a higher degree of protection 
for customer assets than is currently available.\20\
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    \20\ As noted above, ICE Clear Europe is not offering the 
Sponsored Principal model to FCM/BD Clearing Members and potential 
U.S. Sponsored Principals at this time. ICE Clear Europe expects to 
continue to evaluate the demand for such a model by such persons, 
including in light of evolving commercial, regulatory, capital, 
insolvency and other considerations applicable to the Clearing 
House, FCM/BD Clearing Members and other market participants. ICE 
Clear Europe will submit subsequent rule filings if it determines to 
offer such a model to FCM/BD Clearing Members and U.S. persons.
---------------------------------------------------------------------------

    As part of the proposed amendments, ICE Clear Europe is making 
other enhancements to its omnibus segregation models. As discussed 
above, EMIR also permits the use of omnibus segregation models. The 
proposed amendments would, consistent with EMIR and related UK 
requirements, establish separate customer omnibus account for client 
money and TTFCA collateral arrangements. These provide broadly 
equivalent protection that available in ICE Clear Europe's current 
model. The amendments would also introduce Margin-flow Co-mingled 
Accounts, which provide an intermediate level of segregation and 
elimination of certain fellow customer risks through the separate 
tracking of positions and actual assets provided to cover particular 
Customer positions, but permits co-mingling of payment flows for 
operational convenience. This provides another option for market 
participants that provides a higher level of protection than is 
available using European omnibus accounts, but may involve less cost 
and operational complexity than the full Individually Segregated 
Sponsored Account model. Consistent with EMIR, the proposed rules also 
contemplate that Clearing Members may use multiple types of these 
customer accounts, and may maintain multiple accounts within each 
category, as needed in their business operations. As discussed above, 
ICE Clear Europe is not proposing to change its account framework (and 
related customer property protections) for FCM/BD Clearing Members, 
which are consistent with existing U.S. regulatory requirements 
(including under the Exchange Act).\21\
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    \21\ As noted above, ICE Clear Europe has been advised that EMIR 
does not require the Individual Segregation Model to be offered to 
FCM/BD Clearing Members or U.S. persons, provided that, to the 
extent permitted by applicable law, such clearing members may refer 
interested customers to a Non-FCM/BD Clearing Member able to offer 
such an account. The other modified account frameworks for Non-FCM/
BD Clearing Members are not designed to satisfy the specific 
requirements of U.S. law, including those under the Commodity 
Exchange Act and CFTC rules as well as the Exchange Act. As a 
result, ICE Clear Europe believes that maintaining the current 
account structures for FCM/BD Clearing Members provides the required 
level of protection for customers of such Clearing Members in light 
of U.S. legal requirements, and that changes to those structures 
would not be appropriate at this time as they are not mandated by 
EMIR.
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    As such, ICE Clear Europe believes that the proposed rule changes 
will enhance the safeguarding of securities and funds associated with 
derivative transactions that are in the custody or control of ICE Clear 
Europe or for which it is responsible. ICE Clear Europe also believes 
that the proposed rule changes will enhance the stability of the 
clearing system, by reducing the risk to market participants of a 
default by a Clearing Member or other customer. As a result, the 
proposed changes are, in the clearing house's view, consistent with the 
requirements of Section 17A(b)(3)(F) of the Act. The amendments also 
satisfy the relevant requirements of Rule 17Ad-22,\22\ and in 
particular implicate the following provisions thereof, as discussed in 
more detail below:
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    \22\ 17 CFR 240.17Ad-22.
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    Financial Resources. ICE Clear Europe believes that the amendments 
are consistent with the requirements of Rule 17Ad-22(b)(2-3).\23\ The 
proposed rule changes do not themselves change ICE Clear Europe's 
methodology with respect to its margin or Guaranty Fund 
requirements,\24\ although the amendments would require Sponsors to 
make additional Guaranty Fund deposits in respect of the individually 
segregated accounts of their Sponsored Principals. The amendments would 
also require Sponsored Principals to make additional margin payments 
upon a default of its Sponsor. Accordingly, ICE Clear Europe does not 
believe that the proposed changes will adversely affect its financial 
resources that support clearing operations.
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    \23\ 17 CFR 240.17Ad-22(b)(2)-(3).
    \24\ ICE Clear Europe has separately made a filing with respect 
to changes in its CDS risk management and other policies. Based on 
Staff's conversation with ICE Clear Europe's counsel on July 2, 
2014, ICE Clear Europe's counsel has confirmed that notwithstanding 
the changes made to Rule 1101(c), ICE Clear Europe currently 
implements risk management methodology that takes into account those 
parameters required to comply with all applicable laws, including 
EMIR and Commission Rules 17Ad-22(b)(2-3). For the avoidance of any 
doubt, ICE Clear Europe intends to continue maintaining risk 
management methodology with respect to margin and the guaranty fund 
that will comply with all applicable laws.
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    Settlement. ICE Clear Europe believes that the rule changes are 
consistent with the requirements of Rule 17Ad-22(d)(5), (12) and (15) 
\25\ as to the finality and accuracy of its daily settlement process 
and avoidance of the risk of settlement failures. In the individual 
segregation model, Sponsored Principals will have the option of direct 
settlement with the clearing house, which will enhance the finality and 
accuracy of the settlement process. ICE Clear Europe believes it has 
sufficient operational infrastructure to support these arrangements. 
Sponsored Principals who settle through their Sponsor will be treated 
in the same manner, and with the same level of finality and accuracy, 
as customers of Clearing Members under current Rules. ICE Clear 
Europe's existing settlement model will be used for the various omnibus 
customer accounts. As a result, ICE Clear Europe does not believe that 
the proposed amendments will adversely affect the settlement process, 
and believes that the changes are consistent with the relevant 
requirements of Rule 17Ad-22 in this regard.
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    \25\ 17 CFR 240.17Ad-22(d)(5), (12) and (15).
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    Default Procedures. ICE Clear Europe believes that the amendments 
enhance its default management procedures and its ability to take 
timely action to contain losses and liquidity pressures and to continue 
meeting its obligations in the event of insolvencies or defaults, in 
accordance with Rule 17Ad-22(d)(11).\26\ The amendments further protect 
the assets of customer in the event of a default by a sponsoring 
Clearing Member. In particular, the

[[Page 39439]]

amendments provide a mechanism for managing the default of a Sponsor 
and/or Sponsored Principal, similar to the existing process for 
Clearing Member default. Consistent with the requirements of EMIR, the 
proposed amendments, also enhance the clearing house's ability to 
handle other defaults, and in particular to provide for transfer of 
positions and margin following default. These changes are thus in 
furtherance of the goals of Rule 17Ad-22 as well.
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    \26\ 17 CFR 240.17Ad-22(d)(11).
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    Although the amendments establish a number of new categories of 
accounts in order to comply with EMIR, ICE Clear Europe believes that 
its default management process is sufficient to address defaults for 
each relevant category. With respect to the new varieties of omnibus 
accounts, ICE Clear Europe does not believe that such accounts pose any 
default management issues different from those presented by its current 
omnibus account structure. With respect to the individually segregated 
account structures, ICE Clear Europe has considered default management 
issues and revised its Rules accordingly to facilitate default 
management, consistent with the requirements of EMIR and the Exchange 
Act. In the case of Individually Segregated Sponsored Accounts in 
particular, the Clearing House has designed its default procedures to 
permit, and to incentivize, the Sponsor to manage the default of a 
Sponsored Principal in largely the same manner as it manages other 
customer defaults. The Clearing House also retains the ability to 
manage a Sponsored Principal default in the same manner as it manages 
Clearing Member defaults.
    Legal Framework. Consistent with the requirements of EMIR, ICE 
Clear Europe has obtained advice of legal counsel in relevant 
jurisdictions as to the enforceability of its Rules and Procedures, 
including with respect to the Sponsored Principal model and other 
relevant amendments made in the proposed Rules. Based on this advice, 
ICE Clear Europe believes that the amendments are consistent with the 
requirements of Rule 17Ad-22(d)(1) that a clearing agency maintain a 
well-founded, transparent and enforceable legal framework for its 
activities, including with respect to default management.

B. Self-Regulatory Organization's Statement on Burden on Competition

    ICE Clear Europe does not believe the proposed rule changes would 
have any adverse impact, or impose any burden, on competition not 
necessary or appropriate in furtherance of the purposes of the Act. The 
proposed amendments are principally intended to offer new segregation 
models, and enhancements to existing segregation models, for customers 
of Clearing Members in order to comply with EMIR requirements 
applicable to the clearing house. The amendments are thus expected to 
increase the segregation choices available to market participants.
    In terms of access to the clearing house, ICE Clear Europe is not 
proposing to materially change its standards for Clearing Membership or 
financial requirements for Clearing Membership. ICE Clear Europe is 
permitting a new form of access to the clearing house, for Sponsored 
Principals, and ICE Clear Europe believes that this development should 
facilitate, rather than limit, access to the clearing house. Although 
cost models remain to be developed, use of these accounts may be more 
expensive than use of omnibus accounts, reflecting the additional 
operational complexity and segregation available. It is possible that 
these additional costs may deter some market participants for using the 
Individually Segregated Sponsored Account. The clearing house retains 
other, omnibus segregation models, however, that are based on existing 
models and will be available to market participants that do not elect 
individual segregation. The clearing house also recognizes that the new 
segregation models may impose certain additional costs on Clearing 
Members, including potentially additional guaranty fund contributions, 
which could raise the cost of customer clearing. However, ICE Clear 
Europe believes that this is the result of the requirement under EMIR 
to offer such models and in any event is justified by the benefits 
provided by such models for those who use them.
    ICE Clear Europe also does not believe the proposed amendments are 
likely to adversely affect competition among Clearing Members. The new 
segregation models are (and are required to be) made available to all 
Non-FCM/BD Clearing Members. As noted above, the new models are not 
being offered to FCM/BD Clearing Members, which will continue to use 
the account and segregation frameworks provided under applicable U.S. 
law. The ability for FCM/BD Clearing Members to continue using the 
existing framework should mitigate any competitive impact of the new 
models for such Clearing Members. ICE Clear Europe believes that the 
new options will facilitate competition among Clearing Members as they 
seek to offer the segregation models to clients, consistent with the 
commercial requirements of the Clearing Member and their customers and 
the competitive environment as well as background regulatory 
requirements. To the extent that the new segregation models impose 
additional costs and operational complexity, those will fall on all 
Clearing Members that seek to use the models, and are not designed to 
favor one type of Clearing Member over another.
    In terms of the impact on customers of Clearing Members, the 
proposed amendments are intended to provide those customers a greater 
range of choices and protections for margin assets provided by those 
customers, as required under EMIR. Certain models, such as the 
individually segregated model, may impose higher costs on customers. 
ICE Clear Europe believes that such costs are accompanied by the higher 
protection to customer assets afforded by those models and required 
under EMIR. In addition, other models, including omnibus segregation 
models, remain available for customers that prefer such models. As a 
result, ICE Clear Europe does not believe that the proposed amendments 
will impose a significant burden on customers seeking access to 
clearing.
    For similar reasons, ICE Clear Europe does not believe that the 
rule amendments will adversely affect the ability of market 
participants to continue to clear transactions, or otherwise limit 
market participants' choices for clearing derivatives. The rule changes 
implement a range of different models, each with different costs and 
benefits to customers. ICE Clear Europe is also maintaining a 
segregation framework analogous to that available today for customers 
of Clearing Members. Furthermore, the amendments are intended to 
implement requirements that will apply to European clearing houses 
generally under EMIR, including the requirement to offer an individual 
segregation model. As a result, ICE Clear Europe expects that other 
clearing house will offer a similar range of clearing segregation 
options, and the changes are not expected to reduce access to clearing 
or clearing services.
    For the foregoing reasons, ICE Clear Europe does not believe that 
the proposed amendments will impose any burden on competition not 
appropriate in furtherance of the purposes of the Act.

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

    Written comments relating to the rule changes have been solicited 
from

[[Page 39440]]

Clearing Members through extensive discussions with clearing members 
and a public consultation. ICE Clear Europe received various comments 
during this consultation and took such comments into account in making 
further modifications to the proposed rules. The rule changes also 
reflect comments received from the Bank of England in connection with 
ICE Clear Europe's application for EMIR authorization. ICE Clear Europe 
will notify the Commission of any additional written comments received 
by ICE Clear Europe.

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

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

IV. Solicitation of Comments

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

Electronic Comments

     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-2014-09 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-2014-09. 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 Section, 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/notices/Notices.shtml?regulatoryFilings.
    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-2014-09 
and should be submitted on or before July 31, 2014.
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    \27\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2014-16099 Filed 7-9-14; 8:45 am]
BILLING CODE 8011-01-P