Document ID: SEC-2012-2142-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: ICE Clear Credit LLC
Posted Date: 2012-12-26T05:00Z

[Federal Register Volume 77, Number 247 (Wednesday, December 26, 2012)]
[Notices]
[Pages 76156-76158]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-31021]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68482; File No. SR-ICC-2012-24]

Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of 
Filing of Proposed Rule Change To Add Rules Related to the Clearing of 
European Corporate Single-Name CDS

December 19, 2012.
    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 December 6, 2012, ICE Clear Credit LLC (``ICC'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change as described in Items I, II, and III below, which Items have 
been prepared primarily by ICC. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b 4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The purpose of the proposed rule change is to adopt new rules that 
will provide the basis for ICC to clear additional credit default swap 
contracts. Specifically, ICC is proposing to amend Chapters 20 and 26 
and Schedule 401 and Schedule 502 of its rules as well as make 
corresponding changes to the applicable ICC Policies and Procedures to 
provide for the clearance of standard single-name CDS Contracts 
referencing European corporate reference entities (``European SN 
Contracts'').
    ICC proposes to amend Chapter 20 of its rules to remove definitions 
that are included in Chapter 26E of the rules.
    ICC proposes to amend Section 26E of its rules to include certain 
additional provisions relevant to the treatment of restructuring credit 
events under iTraxx Europe Index CDS (``iTraxx Contracts'') and 
European SN Contracts.
    ICC proposes to add new Section 26G to provide for the clearance of 
European SN Contracts. As discussed in more detail in Item II.A below, 
new Section 26G provides for the definitions and certain specific 
contracts terms for cleared European SN Contracts.
    ICC will update Schedule 401 of its Rules (Eligible Collateral & 
Thresholds), as applicable, with respect to Initial Margin and Guaranty 
Fund liquidity requirements for Non-Client and Client-Related positions 
for both US Dollar and Euro denominated products.
    ICC will also update Schedule 502 of its Rules (Cleared Products 
List) to incorporate the additional cleared products. Upon Commission 
approval, ICC plans to provide for the clearance of the following 
European SN Contracts: Centrica Plc; E.ON AG; ENEL S.P.A.; EDISON 
S.P.A.; EDP--Energias de Portugal S.A.; ELECTRICITE DE FRANCE; EnBW 
Energie Baden-Wuerttemberg AG; Fortum Oyj; Adecco S.A.; Aktiebolaget 
Volvo; ALSTOM; BRITISH TELECOMMUNICATIONS public limited company; 
COMPAGNIE DE SAINT-GOBAIN; Deutsche Telekom AG; FRANCE TELECOM; GAS 
NATURAL SDG, S.A.; GDF SUEZ; HELLENIC TELECOMMUNICATIONS ORGANISATION 
SOCIETE ANONYME; IBERDROLA, S.A.; Koninklijke KPN N.V.; NATIONAL GRID 
PLC; Portugal Telecom International Finance B.V.; RWE 
Aktiengesellschaft; TELECOM ITALIA SPA; TELEFONICA, S.A.; Telekom 
Austria Aktiengesellschaft; TELENOR ASA; TeliaSonera Aktiebolag; UNITED 
UTILITIES PLC; Vattenfall Aktiebolag; VEOLIA ENVIRONNEMENT; VIVENDI; 
VODAFONE GROUP PUBLIC LIMITED COMPANY; Deutsche Post AG; European 
Aeronautic Defence and Space Company EADS N.V.; FINMECCANICA S.P.A.; 
Holcim Ltd; ROLLS-ROYCE plc; Siemens Aktiengesellschaft; PostNL N.V.; 
REPSOL, S.A.; Bayerische Motoren Werke Aktiengesellschaft; BRITISH 
AMERICAN TOBACCO p.l.c.; Daimler AG; DANONE; DIAGEO PLC; Koninklijke 
Philips Electronics N.V.; LVMH MOET HENNESSY LOUIS VUITTON; Nestle 
S.A.; Svenska Cellulosa Aktiebolaget SCA; Unilever N.V.; VOLKSWAGEN 
AKTIENGESELLSCHAFT; ACCOR; Bertelsmann AG; CARREFOUR; CASINO GUICHARD-
PERRACHON; COMPASS GROUP PLC; EXPERIAN FINANCE PLC; GROUPE AUCHAN; J 
SAINSBURY plc; Koninklijke Ahold N.V.; MARKS AND SPENCER p.l.c.; METRO 
AG; NEXT PLC; PEARSON plc; PPR; PUBLICIS GROUPE SA; REED ELSEVIER PLC; 
SAFEWAY LIMITED; SODEXO; TESCO PLC; Wolters Kluwer N.V.; WPP 2005 
LIMITED; AKZO Nobel N.V.; Anglo American plc; ArcelorMittal; BASF SE; 
Glencore International AG; Henkel AG & Co. KGaA; Koninklijke DSM N.V.; 
LANXESS Aktiengesellschaft; Linde Aktiengesellschaft; Solvay; XSTRATA 
PLC; STMicroelectronics N.V.; Bayer Aktiengesellschaft; SANOFI; Aegon 
N.V.; Allianz SE; ASSICURAZIONI GENERALI--SOCIETA PER AZIONI; AVIVA 
PLC; AXA; BANCA MONTE DEI PASCHI DI SIENA S.P.A.; BANCO BILBAO VIZCAYA 
ARGENTARIA, SOCIEDAD ANONIMA; Banco Espirito Santo, S.A.; BANCO 
SANTANDER, S.A.; Bank of Scotland plc; INTESA SANPAOLO SPA; JTI (UK) 
FINANCE PLC; Swiss Reinsurance Company Ltd; Zurich Insurance Company 
Ltd; Compagnie Financiere Michelin; L'AIR LIQUIDE SOCIETE ANONYME POUR 
L'ETUDE ET L'EXPLOITATION DES PROCEDES GEORGES CLAUDE; BAE SYSTEMS PLC; 
BOUYGUES; BP P.L.C.; IMPERIAL TOBACCO GROUP PLC; KINGFISHER PLC; 
Suedzucker Aktiengesellschaft Mannheim/Ochsenfurt; Swedish Match AB; 
TECHNIP; IMPERIAL CHEMICAL INDUSTRIES LIMITED; ALTADIS SA; BRITISH SKY 
BROADCASTING GROUP PLC; Aktiebolaget Electrolux; THALES; Metso Oyj; 
Muenchener Rueckversicherungs-Gesellschaft Aktiengesellschaft in 
Muenchen; Syngenta AG; TATE & LYLE PUBLIC LIMITED COMPANY; and TOTAL 
SA.
    ICC also updated its Policies and Procedures to provide for the 
clearance of European SN Contracts, specifically the ICC Treasury 
Operations Policies & Procedures, ICC Risk Management Framework and ICC 
End-of-Day (``EOD'') Price Discovery Policies and Procedures.
    Consistent with the changes to Schedule 401 of the ICC Rules, the 
ICC Treasury Operations Policies & Procedures have been updated to 
include Initial Margin and Guaranty Fund liquidity requirements for 
Non-Client and Client-Related positions for both US Dollar and Euro 
denominated products. In order to accommodate the return of funds 
during London banking hours, the ICC Treasury Operations Policies & 
Procedures have been updated to require requests for Euro withdrawals 
to be submitted by 9:00 a.m. Eastern.
    The ICC Risk Management Framework has been updated to account for 
Euro denominated portfolios. Specifically, updates have been made to 
the Guaranty Fund, Initial Margin and Mark-to-Market Methodologies to 
address: Foreign Exchange Risk, Liquidity Risk, Time Zone Risk, and 
Operational Risk.

[[Page 76157]]

    The ICC EOD Price Discovery Policies and Procedures has been 
updated to provide that ICC will use ICE Clear Europe's EOD prices for 
European SN Contracts and rely on the ICE Clear Europe Firm Trade 
process to ensure the accuracy of price submissions. ICC will extend 
the risk time-horizon for European SN Contracts to account for the 
half-day difference, on average, between the EOD price discovery 
process timings. The extended risk horizon accounts for the fact that 
European markets close earlier and new financial information may be 
reflected only in the North American instrument prices and not 
reflected in the European SN Contracts, in general.

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

    In its filing with the Commission, ICC included statements 
concerning the purpose of and basis for the 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. ICC has prepared summaries, set forth in sections A, B, 
and C below, of the most significant aspects of these statements.\3\
---------------------------------------------------------------------------

    \3\ The Commission has modified the text of the summaries 
prepared by ICE Clear Credit.
---------------------------------------------------------------------------

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

    ICC has identified European SN Contracts as products that have 
become increasingly important for market participants to manage risk 
and express views with respect to European corporate credit risk. ICC's 
clearance of these Contracts will facilitate the prompt and accurate 
settlement of swaps and contribute to the safeguarding of securities 
and funds associated with swap transactions. In addition, ICC notes 
that the Commodity Futures Trading Commission has determined that 
iTraxx Europe CDS contracts would be subject to mandatory clearing 
under Section 2(h) of the Commodity Exchange Act.
    European SN Contracts have similar terms to the North American 
Corporate Single Name CDS Contracts (``North American SN Contracts'') 
currently cleared by ICC and governed by Section 26B of the Rules and 
the Latin American sovereign CDS contracts currently cleared by ICC and 
governed by Section 26D of the Rules. Accordingly, the proposed rules 
found in Section 26G largely mirror the ICC rules for North American SN 
Contracts in Section 26B, with certain modifications that reflect 
differences in terms and market conventions between European SN 
Contracts and North American SN Contracts. European SN Contracts will 
be denominated in Euro.
    Rule 26G-102 (Definitions) sets forth the definitions used for the 
European SN Contracts. An ``Eligible SNEC Reference Entity'' is defined 
as ``each particular Reference Entity included from time to time in the 
List of Eligible Reference Entities,'' which is a list maintained, 
updated and published from time to time by the ICC Board of Managers or 
its designee, containing certain specified information with respect to 
each reference entity. The Eligible SNEC Reference Entities will 
initially consist of 121 European corporate reference entities 
specified in Schedule 502 to the ICC Rules. Certain substantive changes 
have also been made to the definition of ``List of Eligible SNEC 
Reference Entities'', due to the fact that certain terms and elections 
for North American SN Contracts are not applicable to European SN 
Contracts. These include (i) the need for an election as to whether 
``Restructuring'' is an eligible ``Credit Event'' (it is by contract 
term and market convention applicable to all European SN Contracts, 
whereas it is generally not applicable to North American SN Contracts) 
and (ii) the applicability of certain ISDA supplements that may apply 
to North American SN Contracts but do not apply to European SN 
Contracts, including the 2005 Monoline Supplement, the ISDA Additional 
Provisions for a Secured Deliverable Obligation Characteristic and the 
ISDA Additional Provisions for Reference Entities with Delivery 
Restrictions. The remaining definitions are substantially the same as 
the definitions found in ICC Section 26B, other than certain conforming 
changes.
    Rules 26G-203 (Restriction on Activity), 26G-206 (Notices Required 
of Participants with respect to SNEC Contracts), 26G-303 (SNEC Contract 
Adjustments), 26G-309 (Acceptance of SNEC Contracts by ICE Clear 
Credit), 26G-315 (Terms of the Cleared SNEC Contract), 26G-316 
(Relevant Physical Settlement Matrix Updates), 26G-502 (Specified 
Actions), and 26G-616 (Contract Modification) reflect or incorporate 
the basic contract specifications for European SN Contracts and are 
substantially the same as under ICC Section 26B for North American SN 
Contracts, except as follows. In addition to various non-substantive 
conforming changes, the proposed rules differ from the existing North 
American SN Contracts in that the contract terms in Rule 26G-315 
incorporate the relevant published ISDA physical settlement matrix 
terms for Standard European Corporate transactions, rather than 
Standard North American Corporate transactions, and, as noted in the 
preceding paragraph, certain elections and supplements used for North 
American SN Contracts are not applicable to European SN Contracts. In 
addition, the contracts reflect the fact that under the ISDA physical 
settlement matrix terms, the restructuring credit event and the related 
additional terms for ``Modified Restructuring Maturity Limitation and 
Conditionally Transferable Obligation'' under the ISDA Credit 
Derivatives Definitions (commonly referred to as ``Mod Mod R'' terms) 
apply to European SN Contracts.
    In addition, ICC proposes to make conforming changes in Section 26E 
of the Rules (the CDS Restructuring Rules), principally to address the 
particular restructuring terms that apply to iTraxx Contracts and 
European SN Contracts. Specifically, ICC proposes to modify the notice 
delivery procedures in Rule 26E-104 to include ``notices to exercise 
movement option'' under the Mod Mod R terms. In addition, the 
definition of ``Triggered Restructuring CDS Contract'' has been 
modified to reflect that under Mod Mod R terms a CDS contract may be 
triggered in part following a restructuring credit event.
    Section 17A(b)(3)(F) of the Act \4\ requires, among other things, 
that the rules of a clearing agency be designed to promote the prompt 
and accurate clearance and settlement of securities transactions and, 
to the extent applicable, derivative agreements, contracts, and 
transactions. ICC believes that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to ICC, in particular, to Section 17(A)(b)(3)(F), 
because ICC believes that the clearance of European SN Contracts will 
facilitate the prompt and accurate settlement of swaps and contribute 
to the safeguarding of securities and funds associated with swap 
transactions.
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

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

    ICC does not believe the proposed rule change would have any 
impact, or impose any burden, on competition.

[[Page 76158]]

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

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

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

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

IV. Solicitation of Comments

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

Electronic Comments

     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-ICC-2012-24 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-ICC-2012-24. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filings will also be available 
for inspection and copying at the principal office of ICE Clear Credit 
and on ICE Clear Credit's Web site at https://www.theice.com/publicdocs/regulatory_filings/ICEClearCredit_120512a.pdf.
    All comments received will be posted without change; the Commission 
does not edit personal identifying information from submissions. You 
should submit only information that you wish to make available 
publicly. All submissions should refer to File Number SR-ICC-2012-24 
and should be submitted on or before January 16, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\5\
---------------------------------------------------------------------------

    \5\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-31021 Filed 12-21-12; 4:15 pm]
BILLING CODE 8011-01-P