Document ID: SEC-2014-1336-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: ICE Clear Europe Limited
Posted Date: 2014-08-08T04:00Z

[Federal Register Volume 79, Number 153 (Friday, August 8, 2014)]
[Notices]
[Pages 46481-46484]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-18751]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72755; File No. SR-ICEEU-2014-09]

Self-Regulatory Organizations; ICE Clear Europe Limited; Order 
Granting Accelerated Approval of Proposed Rule Change Relating to EMIR 
Requirements

August 4, 2014.

I. Introduction

    On June 30, 2014, ICE Clear Europe Limited (``ICE Clear Europe'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change SR-ICEEU-2014-09 pursuant to Section 19(b)(1) of 
the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder.\2\ The proposed rule change was published for comment in 
the Federal Register on July 10, 2014.\3\ The Commission did not 
receive any comments on the proposed rule change. For the reasons 
discussed below, the Commission is granting approval of the proposed 
rule change on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 34-72540 (July 3, 2014), 
79 FR 39429 (July 10, 2014) (SR-ICEEU-2014-09).
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II. Description of the Proposed Rule Change

    The principal purpose of the proposed change 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'') \4\ that 
will apply to ICE Clear Europe as an authorized central 
counterparty,\5\ and to make certain other amendments to harmonize its 
rules across different products and make improvements to its rules.
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    \4\ 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.
    \5\ ICE Clear Europe has separately filed certain related 
changes to its policies and procedures, including risk management 
policies. See Securities Exchange Act Release No. 34-72544 (July 3, 
2014), 79 FR 39421 (July 10, 2014) (SR-ICEEU-2014-10) and Securities 
Exchange Act Release No. 34-72582 (July 10, 2014), 79 FR 41320 (July 
15, 2014) (SR-ICEEU-2014-11).
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    ICE Clear Europe states that the principal change will be to 
implement changes to the structure of customer accounts for cleared 
transactions to enhance segregation options for customers of Clearing 
Members. According to ICE Clear Europe, pursuant to EMIR,\6\ ICE Clear 
Europe will be 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 will be 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 proposed revisions to its segregation 
models to implement this requirement to provide both individual

[[Page 46482]]

segregation and omnibus segregation options.
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    \6\ EMIR Article 39(1)-(3).
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    The proposed rule change will establish two new types of 
individually segregated accounts for Clearing Members that are not 
registered as a futures commission merchant with the Commodity Futures 
Trading Commission (``CFTC'') and/or as a broker-dealer with the 
Commission (``Non-FCM/BD Clearing Members''): Individually Segregated 
Margin-flow Co-mingled Accounts and Individually Segregated Sponsored 
Accounts. With respect to an Individually Segregated Sponsored Account, 
ICE Clear Europe proposes the concept of treating a customer as a 
Sponsored Principal, capable of entering into contracts with ICE Clear 
Europe directly, with a Clearing Member serving as Sponsor to be 
jointly and severally liable with the Sponsored Principal for the 
Sponsored Principal's obligations to ICE Clear Europe. ICE Clear Europe 
has proposed extensive revisions to its Clearing Rules designed to 
implement the Sponsored Principal model.
    The proposed rule change 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.
    ICE Clear Europe proposes making these new individually segregated 
and omnibus accounts available only to Non-FCM/BD Clearing Members and 
their customers. For Clearing Members registered as a futures 
commission merchant with the CFTC and/or as a broker-dealer with the 
Commission, as applicable (``FCM/BD Clearing Members'') and their 
customers, ICE Clear Europe proposes that it will not offer individual 
client segregation at this time, and the existing account types and 
segregation requirements for client assets (which are required under 
applicable law) would be maintained.\7\
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    \7\ ICE Clear Europe has confirmed in the filing that 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 provisions 
regarding U.S. Sponsored Principals (e.g., Rule 1905) and other 
references in the Clearing Rules to U.S. Sponsored Principals will 
not apply at this time. ICE Clear Europe confirmed in its rule 
filing that it 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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    ICE Clear Europe further proposes changes relating to the 
parameters for determining the relevant guaranty funds for the F&O, CDS 
and FX businesses to meet the requirements under EMIR.\8\ ICE Clear 
Europe states that the proposed changes do not affect the Clearing 
House's obligation to comply with other financial resources 
requirements under applicable laws, including the Act and Commission 
rules. Accordingly, ICE Clear Europe states that the parameters for 
determining the guaranty funds will also take into account such other 
requirements under applicable laws. Additionally, pursuant to EMIR,\9\ 
ICE Clear Europe proposes to revise rules to address the use of 
guaranty fund contributions to support borrowings under liquidity 
facilities for the purpose of making payments on cleared contracts, 
subject to certain limitations for each product category.
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    \8\ EMIR Article 42(3).
    \9\ Articles 44-45 of Commission Delegated Regulation (EU) 153/
2013 of 19 December 2012.
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    Pursuant to EMIR,\10\ ICE Clear Europe also proposes changes 
relating to porting customer positions and margin, changes relating to 
direct payments to customers following a Clearing Member's default, and 
changes relating to default management in the event of a customer's 
breach or default. These changes include the requirement for the 
Clearing House to transfer customer positions and margin after a 
Clearing Member's default, subject to certain conditions (including 
transfer being subject to applicable insolvency laws); the requirement 
that any transfer of customer positions and margin be fair to clients 
and indirect clients of the defaulting Clearing Member; the provision 
that would authorize ICE Clear Europe, upon a Clearing Member's 
default, to make any net sum payment relating to a customer directly to 
that customer, if known; and the provision that would permit ICE Clear 
Europe, at the request of a Clearing Member, to transfer positions in a 
customer account to the Clearing Member's proprietary account to 
facilitate the Clearing Member's management of a breach of that 
customer, or default of that customer, under a Customer-Clearing Member 
Agreement.
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    \10\ EMIR Article 48(5) and (6).
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    In addition, ICE Clear Europe proposes changes relating to 
membership criteria, including requirements as to operational and 
financial capacity, compliance with sanctions regimes, and having a 
well-founded legal framework to support clearing operations. The 
proposed rule change also imposes a requirement that additional 
conditions imposed on Clearing Membership be proportional to the risk 
brought by the applicant and additional requirements around rejection 
or denial of applications. ICE Clear Europe also proposes changes that 
contain additional obligations on Clearing Members that are driven by 
EMIR requirements.
    ICE Clear Europe further proposes changes to implement EMIR 
requirements related to trade repository reporting.\11\ These include a 
rule change that requires a Clearing Member be a user of a designated 
repository for purposes of swap data reporting; a rule change to 
require that each Clearing Member, Sponsored Principal, customer and 
the Clearing House, as applicable, shall ensure reporting of cleared 
contracts and any modification or termination thereof to a trade 
repository within one working day following the conclusion, 
modification or termination of the contracts; and a rule change to 
authorize ICE Clear Europe to submit reporting data to reflect any 
transfer on behalf of a defaulting Clearing Member and its customers as 
a result of porting customer positions and collateral.
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    \11\ EMIR Article 9.
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    Finally, ICE Clear Europe also proposes certain other changes to 
its Clearing Rules that implement the foregoing, update various 
definitions, conform to new defined terms and other provisions of the 
updated Clearing Rules, incorporate the Sponsored Principal model and 
other new account structures, and make various other conforming and 
clarifying revisions that constitute drafting improvements, as more 
fully described in its filing with the Commission.\12\
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    \12\ See supra note 3.
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III. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act \13\ directs the Commission to 
approve a proposed rule change of a self-regulatory organization if it 
finds that such proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to such organization. Section 17A(b)(3)(F) of the Act \14\ 
requires, among other things, that the rules of a clearing agency are 
designed to promote the prompt and accurate clearance and settlement of 
securities transactions

[[Page 46483]]

and, to the extent applicable, derivative agreements, contracts, and 
transactions, to assure the safeguarding of securities and funds which 
are in the custody or control of the clearing agency or for which it is 
responsible, to foster cooperation and coordination with persons 
engaged in the clearance and settlement of securities transactions and 
in general, to protect investors and the public interest, and are not 
designed to permit unfair discrimination in the admission of 
participants or among participants in the use of the clearing agency.
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    \13\ 15 U.S.C. 78s(b)(2)(C).
    \14\ 15 U.S.C. 78q-1(b)(3)(F).
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    The Commission finds that the proposed rule change is consistent 
with the Act and the rules and regulations thereunder applicable to ICE 
Clear Europe. With respect to the proposed rule change intended to 
implement the new individual and omnibus segregation accounts, ICEEU 
contends that these changes provide strengthened options for the 
segregation and safeguarding of customer funds 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, ICEEU states that the proposed rule changes will enhance, 
and not reduce, the level of customer protection available under the 
current ICE Clear Europe rules. The Commission finds that the proposed 
rule changes implementing the new individual and omnibus segregation 
accounts reduce the risk of loss to the Clearing House and market 
participants associated with a default by a Clearing Member or its 
customer and therefore, contribute to the safeguarding of securities 
and funds associated with derivative transactions that are in the 
custody or control of the Clearing House or for which it is 
responsible, consistent with Section 17(A)(b)(3)(F) of the Act.\15\
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    \15\ 15 U.S.C. 78q-1(b)(3)(F).
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    With respect to the proposed rule change regarding guaranty fund, 
ICEEU contends that the proposed changes do not themselves change ICE 
Clear Europe's methodology with respect to its margin or guaranty fund 
requirements. ICE Clear Europe currently implements risk management 
methodology that takes into account the parameters required to comply 
with all applicable laws and intends to continue maintaining risk 
management methodology with respect to margin and the guaranty fund 
that will comply with all applicable laws. Therefore, the Commission 
finds that the proposed rule change will not adversely affect ICE Clear 
Europe's maintenance of financial resources that support its clearing 
operations and is consistent with the requirement of safeguarding 
securities and funds in the custody or control of the clearing 
agency,\16\ and the requirements of Rule 17Ad-22(b)(3) \17\ regarding 
the maintenance of sufficient financial resources.
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    \16\ 15 U.S.C. 78q-1(b)(3)(F).
    \17\ 17 CFR 240.17Ad-22(b)(3).
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    With respect to customer portability, direct payment to customers, 
and the option for a Clearing Member to request that ICE Clear Europe 
transfer a customer's positions and margin to the Clearing Member's 
proprietary account, the Commission finds that the proposed rule change 
enhances ICE Clear Europe's ability to manage defaults and is 
consistent with the Act, and rules and regulations thereunder 
applicable to ICE Clear Europe, in particular the requirement of 
safeguarding securities and funds in the custody or control of the 
clearing agency and the requirement that a clearing agency establishes 
default procedures that ensure timely action to contain losses and 
liquidity pressures and to continue meeting its obligations in the 
event of a participant default.\18\
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    \18\ 15 U.S.C. 78q-1(b)(3)(F) and 17 CFR 240.17Ad-22(d)(11).
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    Further, the Commission finds the proposed changes relating to 
membership criteria and obligations improves the financial and 
operational requirements for Clearing Membership and clarifies the 
Clearing House's ability to impose additional conditions on Clearing 
Membership and to reject or deny Clearing Membership applications, 
which is consistent with the Act, in particular the requirements that 
the rules of a clearing agency are designed to promote the prompt and 
accurate clearance and settlement, to foster cooperation and 
coordination with persons engaged in the clearance and settlement, and 
not designed to permit unfair discrimination in the admission of 
participants or among participants in the use of the clearing 
agency.\19\
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    \19\ 15 U.S.C. 78q-1(b)(3)(F).
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    With respect to the proposed rule change to implement the reporting 
requirements under EMIR, the Commission finds that the proposed rule 
change only requires ICE Clear Europe or its counterparties to ensure 
that contract data are reported and leaves flexibility for ICE Clear 
Europe and its counterparties to determine who would be the reporting 
party undertaking the reporting obligations. The Commission finds that 
the proposed rule change is consistent with the Act, in particular the 
requirement that the rules of a clearing agency are designed to remove 
impediments to and perfect the mechanism of a national system for 
prompt and accurate clearance and settlement, and to protect investors 
and the public interest.\20\
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    \20\ 15 U.S.C. 78q-1(b)(3)(F).
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    Finally, the Commission finds that the other proposed changes to 
ICE Clear Europe's Clearing Rules are consistent with Section 17A of 
the Act, and rules and regulations thereunder applicable to ICE Clear 
Europe. In particular, the Commission believes that these proposed 
changes are principally designed to further implement the other changes 
to the Clearing Rules described above that are consistent with the Act 
by updating various definitions, conforming to new defined terms and 
other provisions of the updated Clearing Rules, and making various 
other conforming and clarifying revisions that constitute drafting 
improvements, and therefore are designed to promote prompt and accurate 
clearance and settlement of securities transactions and, to the extent 
applicable, derivative agreements, contracts, and transactions, and to 
assure the safeguarding of securities and funds which are in the 
custody or control of the clearing agency or for which it is 
responsible, consistent with Section 17A(b)(3)(F) of the Act.\21\
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    \21\ 15 U.S.C. 78q-1(b)(3)(F).
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    Section 19(b)(2)(C)(iii) of the Act \22\ allows the Commission to 
approve a proposed rule change earlier than 30 days after the date of 
publication of the notice of the proposed rule change in the Federal 
Register where the Commission finds good cause for so doing and 
publishes the reason for the finding. In its filing, ICE Clear Europe 
requested that the Commission approve the proposed rule change on an 
accelerated basis for good cause shown. ICE Clear Europe has 
represented that the proposed changes to its Clearing Rules are 
necessary to comply with requirements under EMIR in connection with its 
authorization as a central counterparty under EMIR. ICE Clear Europe 
further notes that failure to have the amendments in effect, and to be 
in compliance with the EMIR requirements, may adversely affect the 
approval of its authorization application and therefore its ability to 
do business as a recognized central counterparty. Accordingly, the 
Commission finds that good cause exists to approve the proposed rule 
change on an accelerated

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basis pursuant to Section 19(b)(2)(C)(iii) of the Act.\23\
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    \22\ 15 U.S.C. 78s(b)(2)(C)(iii).
    \23\ 15 U.S.C. 78s(b)(2)(C)(iii).
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IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposal is consistent with the requirements of the Act and in 
particular with the requirements of Section 17A of the Act \24\ and the 
rules and regulations thereunder.
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    \24\ 15 U.S.C. 78q-1.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\25\ that the proposed rule change (SR-ICEEU-2014-09) be, and 
hereby is, approved on an accelerated basis.\26\
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    \25\ 15 U.S.C. 78s(b)(2).
    \26\ In approving the proposed rule change, the Commission 
considered the proposal's impact on efficiency, competition and 
capital formation. 15 U.S.C. 78c(f).

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
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    \27\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-18751 Filed 8-7-14; 8:45 am]
BILLING CODE 8011-01-P