Document ID: SEC-2015-1024-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: ICE Clear Europe Ltd.
Posted Date: 2015-06-19T04:00Z

[Federal Register Volume 80, Number 118 (Friday, June 19, 2015)]
[Notices]
[Pages 35418-35421]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-15043]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75170; File No. SR-ICEEU-2015-011]

Self-Regulatory Organizations; ICE Clear Europe Limited; Notice 
of Filing and Immediate Effectiveness of Proposed Rule Change Relating 
to the Natural Gas Spot Contracts Policies

June 15, 2015.
    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 2, 2015, ICE Clear Europe Limited (``ICE Clear Europe'') 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 ICE Clear Europe. ICE Clear 
Europe filed the proposal pursuant to Section 19(b)(3)(A) of the 
Act,\3\ and Rule 19b-4(f)(4)(ii) \4\ thereunder, so that the proposal 
was effective upon filing with the Commission. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(4)(ii).
---------------------------------------------------------------------------

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

    ICE Clear Europe proposes amendments to its Policies and Procedures 
in order to implement a clearing relationship under which ICE Clear 
Europe will provide clearing services for certain natural gas spot 
contracts traded on ICE Endex Gas B.V. (``ICE Endex Continental'') and 
ICE Endex Gas Spot Ltd. (``ICE Endex UK'').

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

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

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

1. Purpose
    ICE Clear Europe has agreed to act as the clearing organization for 
natural gas spot contracts traded on the ICE Endex Continental and ICE 
Endex UK markets (the ``Natural Gas Spot Contracts''). ICE Endex UK has 
been designated by the UK's Office of Gas and Electricity Markets and 
appointed by National Grid Gas plc (``National Grid'') to operate the 
independent market for balancing for natural gas in the U.K. (the ``on-
the-day'' commodity market). ICE Endex Continental operates spot 
markets for trading of gas at relevant virtual delivery points at the 
gas transmission systems of the Netherlands and Belgium. Clearing of 
such contracts is currently conducted by APX Commodities Limited (``APX 
UK'') and APX Clearing B.V. (``APX Continental''), respectively, and 
will be moved to ICE Clear Europe. It is expected that ICE Clear Europe 
will commence clearing of the Natural Gas Spot Contracts, subject to 
the completion of all regulatory approvals and requirements, on or 
about July 14, 2015 (or such later date determined by ICE Clear 
Europe). ICE Clear Europe currently clears natural gas derivatives 
traded on the ICE Endex derivatives market, including some contracts 
with the same underlying products as the Natural Gas Spot Contracts.
    The clearing of Natural Gas Spot Contracts will be supported by the 
F&O Guaranty Fund (and in particular the energy clearing segment of the 
F&O Guaranty Fund). ICE Clear Europe anticipates that the clearing of 
the Natural Gas Spot Contracts will initially require no more than a de 
minimis change in the size of the F&O Guaranty Fund or the energy 
segment thereof, if indeed any change is actually required. ICE Clear 
Europe similarly does not anticipate the need to designate a new 
Guaranty Fund period as a result of the transition. In making this 
determination, ICE Clear Europe has considered and will continue to 
review a number of factors, including the anticipated volume and open 
interest in Natural Gas Spot Contracts based on historical trading 
volume and open interest, expected market conditions in the relevant 
natural gas markets, the fact that clearing of Natural Gas Spot 
Contracts is expected to be conducted by existing ICE Clear Europe 
Clearing Members, the identity of such members, and the margin expected 
to be required in connection with the Natural Gas Spot Contracts. In 
particular, the Natural Gas Spot Contracts are spot contracts with a 
short settlement period and low original margin requirements compared 
to the total amount of original margin held by ICE Clear Europe for 
Energy Contracts. As a result, the impact on the total F&O Guaranty 
Fund and its breakdown among clearing members for the next scheduled 
Guaranty Fund period is expected to be minimal, in light of ICE Clear 
Europe's overall energy clearing activities and Guaranty Fund 
methodology.
    ICE Clear Europe submits revised Parts 1, 2, 3, 4, 6, 19 and new 
Part 22 of its Rules (along with certain other conforming and 
clarifying Rule and Procedure amendments) and new Parts E and J to the 
Delivery Procedures to reflect the delivery arrangements in relation to 
the Natural Gas Spot Contracts (along with certain other conforming and 
clarifying Rule and Procedure amendments). The text of the proposed 
Rule and Procedure amendments were submitted in Exhibit 5 of ICE Clear 
Europe's filing, with additions underlined and deletions in 
strikethrough text.
    In Part 1 of the Rules, Rule 101 is modified to add new defined 
terms and revise existing definitions in connection with the ICE Endex 
Continental and ICE Endex UK clearing relationships, including 
designation of ICE Endex Continental and ICE Endex UK as Markets for 
which ICE Clear Europe provides clearing services and the addition of 
defined terms and other revisions to integrate Natural Gas Spot 
Contracts into the existing ICE Clear Europe clearing framework for 
energy contracts in the F&O product category. In particular, 
definitions relating to ICE Endex Continental and ICE Endex UK, and 
related definitions for their respective contracts, matched contracts, 
transactions and rules have been added.
    In addition, certain conforming changes and clarifications have 
been made to definitions relating to delivery. The definition of 
``Delivery Facility'' has been revised to clarify that it also includes 
certain facilities and systems for gas and power transactions. The 
definition of ``Force Majeure Event'' has been expanded to include 
disruptions or blackouts of gas or electricity transmission systems and 
actions and omissions by Markets. Certain definitions related to gas 
transactions, such as ``National Grid,'' ``Network

[[Page 35419]]

Code'' and ``Trade Nomination'' have also been added. The definition of 
``Non-DCM/Swap'' has been revised to clarify the distinction between 
spot and futures transactions for purposes of applicable CFTC 
requirements. Certain other general updates to definitions have been 
made, including addition of definitions for ``MiFID'' and ``MiFID II''.
    In Rule 102(f), ICE Endex UK Rules and ICE Endex Continental Rules 
have been added to the list of priorities of relevant documents, and 
certain cross-references have been amended. Rule 102(r) has been 
revised to take into account ICE Clear Europe's status granted by a 
relevant Delivery Facility or Market. New Rule 102(y) has been added to 
provide that the provisions of the Rules relating to Repositories will 
not apply to Contracts that are not derivatives for purposes of MiFID 
or MiFID II (such as gas spot transactions). Rule 105 has been modified 
to provide for the cessation of relevant business following a loss of 
status from a Delivery Facility or Market. Additionally, the existing 
four month notice period provided by ICE Clear Europe in the case of 
certain service terminations has been shortened in the event that 
action by a Regulatory Authority, Delivery Facility or Market takes 
effect within a shorter period. Rule 106(a) has been modified to permit 
disclosures of information pursuant to requirements under the UK's 
Uniform Network Code (``Network Code''), Fluxys Belgium Rules, 
Huberator Terms or the GTS Rules for gas transactions. Rule 109(b)(v) 
has been revised to contemplate amendments to the Rules in order to 
maintain ICE Clear Europe's status granted by a Delivery Facility or 
Market. The limitations on ICE Clear Europe's liability in Rule 111 
have been revised in Rule 111(c) to apply to certain actions, omissions 
or failures by a Market or a Delivery Facility.
    In Part 2 of the Rules, Rule 201 has been revised to provide that 
in order to be a Clearing Member for Natural Gas Spot Contracts, the 
applicable nominated Transferor and Transferee for delivery under the 
transactions must be a member of the applicable market (or have 
arrangements in place to permit the Clearing Member to manage a default 
with respect to such an entity) and satisfy certain other requirements 
relevant to delivery under the relevant gas transactions. Rule 202 has 
been revised to add an explicit requirement that the Clearing Member 
comply with any applicable Market Rules and Delivery Facility rules and 
agreements, as applicable.
    In Part 3 of the Rules, new Rule 305 addresses the interaction of 
the Rules and the Network Code for ICE Endex UK transactions, including 
prevention of double recoveries and treatment of certain payments in 
respect of cash calls under the Network Code.
    Changes to Part 4 of the Rules incorporate Natural Gas Spot 
Contracts into the procedures for submission of contracts for clearing 
and establishment of cleared contracts. New Rule 404(a)(x) extends ICE 
Clear Europe's discretion to avoid a Contract or Transaction in 
circumstances where, solely in respect of Natural Gas Spot Transactions 
or Contracts, a trade nomination has been rejected by National Grid. 
Various other relevant clarifying and conforming changes concerning 
transactions resulting from errors have also been incorporated.
    Rule 602 has been revised to provide expressly that ICE Clear 
Europe may request a Market to withdraw orders on that Market if a 
Clearing Member's positions exceed applicable position limits. Certain 
other corrections and updates to cross-references have been made in 
Part 6 of the Rules.
    As provided in new Rule 1906, ICE Clear Europe's sponsored 
principal model for individual segregation will not be available for 
Natural Gas Spot Contracts.
    New Part 22 of the Rules adopts certain transitional provisions 
relating to the launch of clearing for Natural Gas Spot Contracts. In 
particular, Rules 2203 and 2204 address the termination of the clearing 
of Natural Gas Spot Contracts by APX Continental and APX UK and the 
commencement of clearing in those contracts by ICE Clear Europe. Rule 
2205 requires Clearing Members for such contracts to have deposited the 
requisite amounts in the F&O Guaranty Fund and satisfy the appropriate 
Original Margin requirements prior to the Launch Time. Rule 2206 also 
allocates responsibility for certain disciplinary matters as among ICE 
Clear Europe and APX Continental and APX UK.
    ICE Clear Europe also proposes to amend its Delivery Procedures to 
add a new Part E for ICE Endex UK Natural Gas Spot Contracts and a new 
Part J for ICE Endex Continental Natural Gas Spot Contracts. (Other 
parts of the Delivery Procedures have been renumbered accordingly and 
various cross-references have been updated as necessary.) The Delivery 
Procedures amendments set forth specifications for delivery of natural 
gas under the Natural Gas Spot Contracts, including relevant 
definitions and a detailed delivery timetable. The amendments also 
address invoicing and payment for delivery. The amendments provide for 
calculation by ICE Clear Europe of buyer's and seller's security to 
cover delivery obligations and related liabilities, costs or charges, 
as well as procedures to address failed deliveries. The revised 
procedures also set out various documentation requirements for the 
relevant parties. A conforming change is also made in Paragraph 5 of 
the Delivery Procedures.
    ICE Clear Europe also proposes various conforming and clarifying 
amendments to the Clearing Procedures, Membership Procedures and 
General Contract Terms. The Clearing Procedures have been amended to 
add a reference to ICE Clear Europe's Managed File Transfer Service, 
which is used for reporting and data file downloads. The Clearing 
Procedures have also been modified to clarify the cash settlement 
amount for F&O Contracts entered into on the last day of trading. The 
Membership Procedures have been amended to update references to 
relevant EU capital regulations, as well as to make conforming changes 
to various information and notice requirements and delete certain 
obsolete references. The General Contract Terms have been amended to 
incorporate conforming changes relating to the Natural Gas Spot 
Contracts.
2. Statutory Basis
    ICE Clear Europe believes that the proposed rule change is 
consistent with the requirements of Section 17A of the Act \5\ and the 
regulations thereunder applicable to it, including the standards under 
Rule 17Ad-22,\6\ and in particular is consistent with the prompt and 
accurate clearance and settlement of securities transactions and 
derivative agreements, contracts and transactions cleared by ICE Clear 
Europe, the safeguarding of securities and funds in the custody or 
control of ICE Clear Europe and the protection of investors and the 
public interest, within the meaning of Section 17A(b)(3)(F) of the 
Act.\7\ Specifically, the amendments will provide for clearing of 
Natural Gas Spot Contracts, consistent with ICE Clear Europe's existing 
clearing arrangements. The Natural Gas Spot Contracts are spot 
contracts in natural gas commodities that underlie natural gas futures 
and options contracts traded on the ICE Endex market and cleared by ICE 
Clear Europe. ICE Clear Europe believes that the Natural Gas Spot 
Contracts present a similar risk profile to other ICE Endex contracts 
currently cleared by ICE Clear Europe, and that ICE Clear Europe's 
existing financial safeguards and

[[Page 35420]]

resources, risk management, systems and operational arrangements are 
sufficient to support clearing of such products (and address physical 
delivery under such products). The other changes set forth in the 
proposed amendments are generally intended to conform, clarify and 
update various other provisions of the Rules and Procedures, and are 
consistent with the prompt and accurate clearance and settlement of 
securities and derivative agreements, contracts and transactions.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78q-1.
    \6\ 17 CFR 240.17Ad-22.
    \7\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    Clearing of the Natural Gas Spot Contracts will also satisfy the 
relevant requirements of Rule 17Ad-22,\8\ as discussed below.
---------------------------------------------------------------------------

    \8\ 17 CFR 240.17Ad-22.
---------------------------------------------------------------------------

    Financial Resources. ICE Clear Europe will apply its existing 
margin methodology for energy contracts to the new Natural Gas Spot 
Contracts. ICE Clear Europe believes that this model will provide 
sufficient margin to cover the risks from clearing such contracts. In 
addition, ICE Clear Europe believes the F&O Guaranty Fund will provide 
sufficient financial resources to support the clearing of Natural Gas 
Spot Contracts consistent with the requirements of Rule 17Ad-22(b)(2)-
(3).\9\ ICE Clear Europe anticipates that clearing of the Natural Gas 
Spot Contracts will initially require at most a de minimis change in 
the size of the F&O Guaranty Fund or the energy clearing segment 
thereof, if indeed any change is actually required, and the impact on 
the total Guaranty Fund and its breakdown among clearing members for 
the next Guaranty Fund period is expected to be minimal. The proposed 
amendments do not affect ICE Clear Europe's financial resources devoted 
to its security-based swap related (i.e., credit default swap) clearing 
business. ICE Clear Europe further does not propose to alter the 
segment of the F&O Guaranty Fund that primarily supports the Financials 
& Softs contracts cleared by ICE Clear Europe.
---------------------------------------------------------------------------

    \9\ 17 CFR 240.17Ad-22(b)(2)-(3)
---------------------------------------------------------------------------

    Operational Resources. ICE Clear Europe will have the operational 
and managerial capacity to clear the Natural Gas Spot Contracts as of 
the commencement of clearing, consistent with the requirements of Rule 
17Ad-22(d)(4).\10\ ICE Clear Europe believes that its existing systems 
are appropriately scalable to handle the Natural Gas Spot Contracts, 
which present a similar risk profile to other energy contracts 
currently cleared by ICE Clear Europe.
---------------------------------------------------------------------------

    \10\ 17 CFR 240.17Ad-22(d)(4).
---------------------------------------------------------------------------

    Participant Requirements. ICE Clear Europe believes that the rule 
amendments are consistent with the requirements of Rule 17Ad-22(d)(2) 
\11\ to provide fair and open access through participation requirements 
that are objective and publicly disclosed. The amendments establish 
fair and objective criteria for the eligibility to clear Natural Gas 
Spot Contracts. ICE Clear Europe clearing membership is available to 
participants that meet such criteria. ICE Clear Europe clearing members 
that wish to clear Natural Gas Spot Contracts will have to satisfy the 
financial resources requirements to clear these products and continue 
to do so in order to preserve their eligibility to clear Natural Gas 
Spot Contracts. New requirements have been added to ensure that 
relevant designated transferors and transferees under Natural Gas Spot 
Contracts have appropriate access to the relevant market, or other 
appropriate arrangements for default management. Clearing member 
compliance with the requirements to clear Natural Gas Spot Contracts 
will be monitored by ICE Clear Europe.
---------------------------------------------------------------------------

    \11\ 17 CFR 240.17Ad-22(d)(2).
---------------------------------------------------------------------------

    Settlement. ICE Clear Europe believes that the rule change will be 
consistent with the requirements of Rule 17Ad-22(d)(5), (12) and (15) 
\12\ as to the finality and accuracy of its daily settlement process 
and avoidance of the risk to ICE Clear Europe of settlement failures. 
ICE Clear Europe will use its existing settlement procedures, account 
structures and approved financial institutions as used in energy 
clearing for the Natural Gas Spot Contracts, with the additional 
modifications set forth in the proposed rule change addressing the 
interaction with delivery facilities for such contracts. ICE Clear 
Europe believes that its Rules and procedures related to settlements 
(including physical settlements), as amended, appropriately identify 
and manage the risks associated with settlements under Natural Gas Spot 
Contracts.
---------------------------------------------------------------------------

    \12\ 17 CFR 240.17Ad-22(d)(5), (12) and (15).
---------------------------------------------------------------------------

    Default Procedures. ICE Clear Europe believes that the Rules and 
its relevant procedures, as proposed to be revised, allow it to take 
timely action to contain losses and liquidity pressures and to continue 
meeting its obligations in the event of clearing member insolvencies or 
defaults, including in respect of Natural Gas Spot Contracts, in 
accordance with Rule 17Ad-22(d)(11).\13\
---------------------------------------------------------------------------

    \13\ 17 CFR 240.17Ad-22(d)(11).
---------------------------------------------------------------------------

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

    ICE Clear Europe does not believe the proposed rule change would 
have any impact, or impose any burden, on competition not necessary or 
appropriate in furtherance of the Act. ICE Endex Continental and ICE 
Endex UK are established markets for the Natural Gas Spot Contracts, 
and ICE Clear Europe does not anticipate that its becoming the clearing 
house for the Natural Gas Spot Contracts will adversely affect the 
trading market for those contracts on ICE Endex Continental or ICE 
Endex UK. ICE Clear Europe has established fair and objective criteria 
for eligibility to clear Natural Gas Spot Contracts that are 
appropriate to the characteristics and requirements of those markets. 
ICE Clear Europe does not believe that acceptance of the Natural Gas 
Spot Contracts for clearing would adversely affect access to clearing 
for clearing members or their customers or other market participants, 
or materially and adversely affect the cost of clearing for market 
participants. Similarly, ICE Clear Europe does not believe the proposed 
change would otherwise adversely affect competition among clearing 
members or for clearing services generally.

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

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

    The foregoing rule change has become effective upon filing pursuant 
to Section 19(b)(3)(A) \14\ of the Act and Rule 19b-4(f)(4)(ii) \15\ 
thereunder because it effects a change in an existing service of a 
registered clearing agency that primarily affects the clearing 
operations of the clearing agency with respect to products that are not 
securities, including futures that are not security futures, swaps that 
are not security-based swaps or mixed swaps, and forwards that are not 
security forwards, and does not significantly affect any securities 
clearing operations of the clearing agency or any rights or obligations 
of the clearing agency with respect to securities clearing or persons 
using such securities-clearing service.\16\ At any

[[Page 35421]]

time within 60 days of the filing of the proposed rule change, the 
Commission summarily may temporarily suspend such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(4)(ii).
    \16\ ICE Clear Europe notes in its filing that the proposed rule 
change also contains certain conforming and clarifying changes, as 
well as updates to various definitions and provisions, as discussed 
herein. ICE Clear Europe believes that these changes do not 
significantly affect the substantive rights or obligations of ICE 
Clear Europe or its Clearing Members (or otherwise adversely affect 
the safeguarding of funds or securities in the custody or control of 
the Clearing House or for which it is responsible), and therefore 
would also qualify for immediate effectiveness under Rule 19b-
4(f)(4)(i), 17 CFR 240.19b-4(f)(4)(i).
---------------------------------------------------------------------------

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-2015-011 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-2015-011. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filings will also be available 
for inspection and copying at the principal office of ICE Clear Europe 
and on ICE Clear Europe's Web site at https://www.theice.com/clear-europe/regulation. 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-2015-011 and should be submitted on or before July 10,  2015.
---------------------------------------------------------------------------

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

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-15043 Filed 6-18-15; 8:45 am]
 BILLING CODE 8011-01-P