Document ID: SEC-2013-1218-0001
Agency: sec
Document Type: Notice
Title: Exemptions from Clearing Agency Registration Requirement: ICE Clear Europe, Ltd.
Posted Date: 2013-07-03T04:00Z

[Federal Register Volume 78, Number 128 (Wednesday, July 3, 2013)]
[Notices]
[Pages 40220-40223]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-15927]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69872]

Order Pursuant to Section 17A of the Securities Exchange Act of 
1934 Granting Exemption From the Clearing Agency Registration 
Requirement Under Section 17A(b) of the Exchange Act for ICE Clear 
Europe Limited in Connection With Its Proposal To Clear Contracts 
Traded on the LIFFE Administration and Management Market

June 27, 2013.

I. Introduction

    Section 17A of the Securities Exchange Act of 1934 (``Exchange 
Act'') \1\ sets forth the framework for the regulation of the clearance 
and settlement of securities transactions and directs the Securities 
and Exchange Commission (``Commission'') to facilitate the 
establishment of a national system for the prompt and accurate 
clearance and settlement of securities transactions. Pursuant to 
Section 17A(b)(1) of the Exchange Act,\2\ absent an exemption, a 
clearing agency that makes use of the mails or any means or 
instrumentality of interstate commerce to perform the functions of a 
clearing agency with respect to any security (other than an exempted 
security) is required to register with the Commission. The Commission 
has required a foreign clearing agency to register or obtain an 
exemption from clearing agency registration if the foreign clearing 
agency provides clearance and settlement services for U.S. securities 
directly to U.S. persons.\3\ The Commission, by rule or order, upon its 
own motion or upon application, may conditionally or unconditionally 
exempt any clearing agency or security or any class of clearing 
agencies or securities from any provisions of Section 17A or the rules 
or regulations thereunder, if the Commission finds that such exemption 
is consistent with the public interest, the protection of investors, 
and the purposes of Section 17A, including the prompt and accurate

[[Page 40221]]

clearance and settlement of securities transactions and the 
safeguarding of securities and funds.\4\
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    \1\ 15 U.S.C. 78q-1.
    \2\ 15 U.S.C. 78q-1(b)(1).
    \3\ See Cross-Border Security-Based Swap Activities; Re-Proposal 
of Regulation SBSR and Certain Rules and Forms Relating to the 
Registration of Security-Based Swap Dealers and Major Security-Based 
Swap Participants, Exchange Act Release No. 69490 (May 1, 2013), 78 
FR 30967 (May 23, 2013), Part V.B, n. 682; and Exemption of Certain 
Foreign Brokers or Dealers, Exchange Act Release No. 58047 (Jun. 27, 
2008), 73 FR 39182 (Jul. 8, 2008), Part III.F.3 (both discussing the 
Commission's approach to the registration of foreign clearing 
agencies).
    \4\ See Section 17A(b)(1) of the Exchange Act, 15 U.S.C. 78q-
1(b)(1).
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    ICE Clear Europe Limited (``ICE Clear Europe'') is an indirectly 
wholly-owned subsidiary of IntercontinentalExchange, Inc. (``ICE''). 
Incorporated in England and Wales in 2007 as a private limited company, 
ICE Clear Europe is subject to supervision by the Bank of England as a 
Recognised Clearing House (``RCH'') in the United Kingdom. Pursuant to 
Section 763(b) of the Dodd-Frank Act,\5\ on July 16, 2011, ICE Clear 
Europe became registered with the Commission as a clearing agency 
solely for the purpose of clearing security-based swaps (``SBS'').\6\
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    \5\ The Dodd-Frank Wall Street Reform and Consumer Protection 
Act of 2010, Public Law 111-203, 124 Stat. 1376 (2010).
    \6\ Section 763(b) of the Dodd-Frank Act amended Section 17A of 
the Exchange Act by adding new Section 17A(l) to the Exchange Act, 
15 U.S.C. 78q-1(l), which provides that (i) a depository institution 
registered with the Commodity Futures Trading Commission (``CFTC'') 
that cleared swaps as a multilateral clearing organization prior to 
the date of enactment of the Dodd-Frank Act and (ii) a derivatives 
clearing organization registered with the CFTC that cleared swaps 
pursuant to an exemption from registration as a clearing agency 
prior to the date of enactment of the Dodd-Frank Act will be deemed 
registered with the Commission as a clearing agency solely for the 
purpose of clearing SBS.
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    In connection with the proposed merger of ICE with NYSE Euronext, 
ICE Clear Europe filed with the Commission a proposed rule change under 
Section 19(b) of the Exchange Act \7\ and Rule 19b-4 \8\ thereunder to 
clear futures and options contracts traded on the LIFFE Administration 
and Management Market (``LIFFE A&M''), including contracts traded over-
the-counter and processed through LIFFE A&M's BClear \9\ service.\10\ 
The contracts traded on LIFFE A&M proposed to be cleared by ICE Clear 
Europe (``LIFFE Contracts'') include instruments that constitute 
securities for the purposes of U.S. securities laws (``LIFFE Securities 
Products''), including U.S. securities, which for purposes of the 
Proposal, include futures or options on underlying U.S. equities and 
equity indices.
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    \7\ 15 U.S.C. 78s(b).
    \8\ 17 CFR 240.19b-4.
    \9\ BClear is a service operated by LIFFE A&M, which enables 
LIFFE A&M clearing members to report certain bilaterally agreed off-
exchange trades to LIFFE A&M. After ICE Clear Europe launches its 
clearing business for LIFFE A&M, trades would be eligible for 
clearing by ICE Clear Europe upon being reported.
    \10\ On May 13, 2013, ICE Clear Europe filed a proposed rule 
change with the Commission. On May 22, 2013, ICE Clear Europe 
submitted Amendment No. 1 to the proposed rule change to, among 
other things, clarify the scope of products proposed to be cleared, 
add new Rule 207(f) prohibiting broker-dealer/futures commission 
merchant Clearing Members and other Clearing Members organized in 
the U.S. from clearing LIFFE Contracts that are futures or options 
on underlying U.S. securities, add additional clarification 
surrounding the operation of the combined F&O Guaranty Fund and the 
margining of LIFFE Contracts, and supplement the statutory basis for 
the proposed rule change. See Exchange Act Release No. 69628 (May 
23, 2013), 78 FR 32287 (May 29, 2013) (SR-ICEEU-2013-09) (``Original 
Filing''). On June 4, 2013, ICE Clear Europe submitted Amendment No. 
2 to the proposed rule change to set forth more fully the statutory 
basis for the proposed rule changes and to make certain additional 
rule changes relevant to changes in margin requirements. See 
Exchange Act Release No. 69703 (Jun. 5, 2013), 78 FR 35335 (Jun. 12, 
2013) (SR-ICEEU-2013-09) (``Amendment No. 2''). On June 20, 2013, 
ICE Clear Europe filed Amendment No. 3 to the proposed rule change, 
which modified proposed Rule 207(f) to further define the persons 
that are subject to the restriction from clearing U.S. securities to 
include any clearing member having a U.S. residence, based upon the 
location of its executive office or principal place of business, 
including, without limitation, (i) a U.S. bank (as defined by 
Section 3(a)(6) of the Exchange Act) and (ii) a foreign branch of a 
U.S. bank or U.S. registered broker-dealer. The initial rule filing 
and all subsequent amendments filed are collectively referred to 
hereinafter as the ``Proposal.''
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    In this context, ICE Clear Europe has filed with the Commission an 
application on Form CA-1 for exemption from clearing agency 
registration under Section 17A(b) of the Exchange Act and Rule 17Ab2-1 
thereunder in connection with ICE Clear Europe's proposed clearing 
activity involving LIFFE Securities Products.\11\ Based on the rules 
and procedures contained in the Proposal, the representations made and 
information submitted by ICE Clear Europe in the Proposal, its Form CA-
1 application, including the ICE Clear Europe Letter, and additional 
supplemental materials (collectively, the ``Exemptive Application''), 
and for the reasons discussed in this Order, the Commission is 
exempting ICE Clear Europe from the registration requirement under 
Section 17A(b)(1) of the Exchange Act solely with respect to ICE Clear 
Europe's provision of clearance and settlement services for LIFFE 
Securities Products, subject to certain conditions.
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    \11\ ICE Clear Europe's Form CA-1 incorporates a letter from 
Paul Swann, President, ICE Clear Europe, to Elizabeth Murphy, 
Secretary, SEC, dated June 11, 2013, requesting exemptive relief 
from clearing agency registration in connection with the clearing of 
LIFFE Securities Products (``ICE Clear Europe Letter'').
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II. Discussion

A. Applicable Standards

    Section 17A(b)(1) of the Exchange Act \12\ prohibits any clearing 
agency from directly or indirectly making use of the mails or any means 
or instrumentality of interstate commerce to perform the functions of a 
clearing agency with respect to any security (other than an exempted 
security), unless it is registered with the Commission. Section 
17A(b)(1) further provides that the Commission, by rule or order, may 
conditionally or unconditionally exempt any clearing agency or security 
or any class of clearing agencies or securities from any provisions of 
Section 17A of the Exchange Act or the rules or regulations thereunder, 
if the Commission finds that such exemption is consistent with the 
public interest, the protection of investors, and the purposes of 
Section 17A, including the prompt and accurate clearance and settlement 
of securities transactions and the safeguarding of securities and 
funds.\13\
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    \12\ 15 U.S.C. 78q-1(b)(1).
    \13\ Id.
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    The Commission has required a foreign clearing agency to register, 
or obtain an exemption from clearing agency registration, when the 
foreign clearing agency provides clearance and settlement services for 
U.S. securities directly to U.S. persons.\14\
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    \14\ See supra n. 3. See, also, e.g., Order Approving 
Application for Exemption from Registration as a Clearing Agency, 
Exchange Act Release No. 38328 (Feb. 24, 1997), 62 FR 9225 (Feb. 28, 
1997) (granting an exemption from registration as a clearing agency 
under Section 17A in connection with performing the functions of a 
clearing agency with respect to transactions involving U.S. 
government and agency securities for U.S. entities); Order Approving 
Application for Exemption from Registration as a Clearing Agency, 
Exchange Act Release No. 39643 (Feb. 11, 1998), 63 FR 8232 (Feb. 18, 
1998); and Order Approving Application to Modify an Existing 
Exemption from Clearing Agency Registration, Exchange Act Release 
No. 43775 (Dec. 28, 2000), 66 FR 819 (Jan. 4, 2001).
    Cf. Order Approving Proposed Rule Change to Allow The Depository 
Trust Company to Provide Settlement Services to European Central 
Counterparty Limited for U.S. Securities Traded on European Trading 
Venues, Exchange Act Release No. 61593 (Feb. 25, 2010), 75 FR 9987 
(Mar. 4, 2010) (SR-DTC-2009-17) (approving a proposed rule change to 
allow The Depository Trust Company (``DTC'') to provide settlement 
services to European Central Counterparty Limited, a separately 
incorporated foreign subsidiary of The Depository Trust and Clearing 
Corporation and a RCH, for U.S. securities).
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B. ICE Clear Europe's Request for Exemption

    ICE Clear Europe is a foreign clearing agency registered in the 
U.S. solely for the purpose of clearing SBS. The Commission has not 
previously addressed the registration requirements applicable to a 
foreign clearing agency registered solely for the purpose of clearing 
SBS that proposes to clear non-SBS securities products. However, the 
Commission believes that the proposed clearing of the LIFFE Securities 
Products would exceed the scope of activities permitted by ICE Clear

[[Page 40222]]

Europe's registration as a SBS clearing agency under Section 17A(l) of 
the Exchange Act, and therefore ICE Clear Europe may not clear the 
LIFFE Securities Products pursuant to its existing Commission 
registration. In addition, because the LIFFE Securities Products 
include certain products that are considered U.S. securities, and ICE 
Clear Europe clearing members include financial institutions that are 
organized or resident in the United States, the Commission has 
determined that ICE Clear Europe must register or seek an exemption 
from registration as a clearing agency under Section 17A(b)(1) of the 
Exchange Act prior to providing clearing services for the LIFFE 
Securities Products.
    In light of the Commission's precedents pertaining to registration 
requirements for foreign clearing agencies, ICE Clear Europe is 
proposing to amend its rule book to prohibit U.S. clearing members 
(``U.S. participants'') from clearing U.S. securities. Specifically, 
new ICE Clear Europe Rule 207(f) would prohibit U.S. participants \15\ 
from clearing U.S. securities. In addition, ICE Clear Europe has 
developed policies and procedures to enforce proposed Rule 207(f), 
including market access controls that prevent U.S. participants from 
creating or holding cleared positions in U.S. securities and, 
consequently, from engaging in any clearing-related activity (including 
give-ups or take-ups in respect of those products).\16\ In addition, 
when a new U.S. participant is approved for clearing, LIFFE A&M and ICE 
Clear Europe will be jointly responsible to ensure that these access 
limitations are properly in place.\17\ ICE Clear Europe represents that 
it will report any incidents not in compliance with such proposed Rule 
207(f).\18\
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    \15\ The term ``U.S. participant'' was previously defined for 
the limited purposes of a clearing agency exemptive order as a 
person having a U.S. residence, based upon the location of its 
executive office or principal place of business, including, without 
limitation, (i) a U.S. bank (as defined by Section 3(a)(6) of the 
Exchange Act), (ii) a foreign branch of a U.S. bank or U.S. 
registered broker-dealer, and (iii) any broker-dealer registered as 
such with the Commission even if such broker-dealer does not have a 
U.S. residence. See Exchange Act Release No. 39643 (Feb. 11, 1998), 
63 FR 8232 (Feb. 18, 1998) (order exempting Euroclear Bank's 
predecessor, Morgan Guaranty Trust Company, as operator of the 
Euroclear system, from clearing agency registration), n. 62. 
Consistent with this definition of U.S. participant, ICE Clear 
Europe's Proposal contains rule changes that would prohibit a person 
(i) that is a FCM/BD, (ii) organized in the United States of 
America, or (iii) having a U.S. residence, based on the location of 
its executive office or principal place of business, including, 
without limitation, a U.S. bank (as defined by Section 3(a)(6) of 
the Exchange Act) or a foreign branch of a U.S. bank or U.S. 
registered broker-dealer, from participating in clearing U.S. 
securities.
    \16\ See Amendment No. 2 at 35337.
    \17\ Id.
    \18\ See Exemptive Application.
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    In connection with its clearing of the LIFFE Contracts, ICE Clear 
Europe has represented that it is not seeking an exemption from 
substantive regulation that it is currently subject to as a registered 
clearing agency.\19\ ICE Clear Europe states that it will clear LIFFE 
Contracts in a manner consistent with the requirements of Section 17A 
of the Exchange Act and Rule 17Ad-22 thereunder, including the 
requirements as to financial resources, operational and managerial 
resources, participant requirements, settlement procedures, 
safeguarding of funds and default procedures, among others.\20\ ICE 
Clear Europe further represents that it will manage its clearing 
activities involving the LIFFE Contracts, including LIFFE Securities 
Products, to the standards applicable to registered clearing 
agencies.\21\ ICE Clear Europe has noted that, since ICE Clear Europe 
is a registered clearing agency for SBS, ICE Clear Europe's clearing of 
LIFFE Contracts, including LIFFE Securities Products, will be subject 
to the requirements under the Exchange Act applicable to a registered 
clearing agency, including the rule approval requirements under Section 
19(b) of the Exchange Act, regardless of whether ICE Clear Europe is 
exempt from the registration requirement of Section 17A(b)(1).\22\ ICE 
Clear Europe also acknowledges the Commission's current supervision and 
examination authority over ICE Clear Europe's business generally, 
including the authority to conduct regular on-site examination.\23\
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    \19\ Id.
    \20\ Id. See also Original Filing, supra n. 10.
    \21\ See Exemptive Application.
    \22\ Id.
    \23\ Id.
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    In its exemptive request, ICE Clear Europe has expressed concerns 
that a delay in its ability to clear the LIFFE Contracts beginning July 
1, 2013, would cause disruption to the market for these products.\24\ 
In addition, ICE Clear Europe noted that by September 2013, all 
European clearing agencies will need to apply for authorization under 
the European Markets and Infrastructure Directive (EMIR).\25\ ICE Clear 
Europe states that the current LIFFE A&M clearing arrangements are not 
built out for EMIR compliance, and therefore LIFFE A&M, ICE Clear 
Europe, LCH.Clearnet Limited, and market participants are relying on 
this transition taking place to be compliant with EU law.\26\
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    \24\ Id.
    \25\ Id.
    \26\ Id.
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C. Effect of Exemption

    Based on ICE Clear Europe's representations to clear LIFFE 
Contracts in a manner consistent with the standards applicable to 
clearing agencies registered under Section 17A, and the Commission's 
existing authority over ICE Clear Europe as a registered clearing 
agency under Section 17A(l), granting an exemption from the clearing 
agency registration requirement under Section 17A(b) to ICE Clear 
Europe for the clearing of LIFFE Securities Products would operate as 
an exemption from the registration process and not from the 
Commission's statutory authority to substantively oversee and regulate 
such activities.
    Furthermore, ICE Clear Europe's proposed limitations to prevent 
U.S. participants from clearing U.S. securities, including proposed 
Rule 207(f) and related policies, procedures, and market access 
controls, are consistent with clearing arrangements involving foreign 
clearing agencies for which the Commission has granted exemptive relief 
from registration requirements under Section 17A(b).\27\
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    \27\ See supra n. 14.
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    An exemption granted to ICE Clear Europe from the clearing agency 
registration requirement under Section 17A(b)(1) of the Exchange Act 
provides legal certainty for ICE Clear Europe as to its activities 
associated with the clearing of LIFFE Securities Products, avoids 
disruption in the European markets, and facilitates compliance with 
EMIR, consistent with promoting the prompt and accurate clearance and 
settlement of securities transactions and derivative agreements, 
contracts, and transactions. In addition, the Commission's continued 
supervision over ICE Clear Europe as a registered clearing agency, 
notwithstanding the exemption from the registration requirement, 
permits the Commission to oversee that ICE Clear Europe provides 
clearance and settlement services with respect to LIFFE Contracts, 
including LIFFE Securities Products, in a manner consistent with the 
requirements of Section 17A of the Exchange Act. Accordingly, based on 
the foregoing, the amended rules and procedures contained in the 
Proposal, and the representations made by ICE Clear Europe in its 
Exemptive Application, the Commission finds that an exemption from 
registration with respect to the clearing activity for the LIFFE 
Securities Products under Section 17A(b)(1) is

[[Page 40223]]

consistent with the public interest, the protection of investors, and 
the purposes of Section 17A, including the prompt and accurate 
clearance and settlement of securities transactions and the 
safeguarding of securities and funds.

III. Scope and Modification of Order

    This exemption granted by this order is solely with respect to the 
registration requirement in Section 17A(b)(1) applicable to the 
clearance and settlement services to be provided by ICE Clear Europe 
for LIFFE Securities Products as described in ICE Clear Europe's 
Proposal, and does not in any way affect the Commission's existing 
supervisory authority over ICE Clear Europe as a registered clearing 
agency. ICE Clear Europe as a registered clearing agency continues to 
be subject to the applicable provisions of the Exchange Act, including 
Sections 17A,\28\ 17(a),\29\ 17(b),\30\ and 19(b),\31\ and the rules 
and regulations thereunder applicable to clearance and settlement 
activities and registered clearing agencies.
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    \28\ 15 U.S.C. 78q-1.
    \29\ 15 U.S.C. 78q(a).
    \30\ 15 U.S.C. 78q(b).
    \31\ 15 U.S.C. 78s(b).
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    The Commission may modify by order the terms, scope, or condition 
of this exemptive order if the Commission determines that such 
modification is necessary or appropriate in the public interest, for 
the protection of investors, or otherwise in furtherance of the 
purposes of the Exchange Act. Furthermore, the Commission may limit, 
suspend, or revoke this exemption if the Commission finds that ICE 
Clear Europe has violated or is unable to comply with the conditions of 
this Order or applicable provisions in the Exchange Act with respect to 
a registered clearing agency, if such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Exchange Act.

IV. Conclusion

    The Commission finds that ICE Clear Europe's application for 
exemption from the registration requirement under Section 17A(b)(1) is 
consistent with the public interest, the protection of investors, and 
the purposes of Section 17A.
    It is hereby ordered, pursuant to Section 17A(b)(1) of the Exchange 
Act, that the application for exemption from registration under Section 
17A(b)(1) filed by ICE Clear Europe Limited be, and hereby is, approved 
within the scope described in this order subject to the following 
conditions:
    (1) ICE Clear Europe shall have rules, policies, and procedures 
reasonably designed to prohibit the clearing of U.S. securities by U.S. 
participants, including market access controls preventing U.S. 
participants from creating or holding cleared positions in U.S. 
securities and, consequently, from engaging in any clearing-related 
activity for such products.
    (2) ICE Clear Europe shall immediately notify the Commission of 
incidents of non-compliance with its rules, policies, or procedures 
prohibiting U.S. participants from clearing U.S. securities, whether 
intentional or otherwise, including any failure of any operational 
controls proposed by ICE Clear Europe to prevent U.S. participants from 
creating or holding cleared positions in U.S. securities.
    (3) ICE Clear Europe shall clear LIFFE Contracts, including LIFFE 
Securities Products, in a manner consistent with the requirements of 
Section 17A of the Exchange Act and Rule 17Ad-22 thereunder.
    (4) ICE Clear Europe, as a registered clearing agency, shall 
continue to be subject to the applicable provisions of the Exchange 
Act, including Sections 17A,\32\ 17(a),\33\ 17(b),\34\ and 19(b),\35\ 
and the rules and regulations thereunder applicable to clearance and 
settlement activities and registered clearing agencies.
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    \32\ 15 U.S.C. 78q-1.
    \33\ 15 U.S.C. 78q(a).
    \34\ 15 U.S.C. 78q(b).
    \35\ 15 U.S.C. 78s(b).

    By the Commission.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-15927 Filed 7-2-13; 8:45 am]
BILLING CODE 8011-01-P