Document ID: SEC-2012-1711-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: ICE Clear Credit LLC
Posted Date: 2012-10-17T04:00Z

[Federal Register Volume 77, Number 201 (Wednesday, October 17, 2012)]
[Notices]
[Pages 63905-63908]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-25499]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68035; File No. SR-ICC-2012-18]

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

October 11, 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 September 28, 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.

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[[Page 63906]]

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 Chapter 26 of its 
rules to add Section 26F to provide for the clearance of the iTraxx 
Europe CDS (``iTraxx Contracts''), which reference the iTraxx Europe 
corporate index, and new Section 26G to provide for the clearance of 
standard single-name CDS Contracts referencing European corporate 
reference entities (``European SN Contracts''). ICC will also update 
Schedule 502 of its Rules (Cleared Products List) to incorporate the 
additional cleared products.
    Upon Commission approval, ICC will list the following European 
Indices: Markit iTraxx Europe Main Series 18 with a 5-year maturity, 
maturing on December 20, 2017; Markit iTraxx Europe Main Series 18 with 
a 10-year maturity, maturing on December 20, 2022; Markit iTraxx Europe 
Main Series 17 with a 5-year maturity, maturing on June 20, 2017; 
Markit iTraxx Europe Main Series 17 with a 10-year maturity, maturing 
on June 20, 2022; Markit iTraxx Europe Main Series 16 with a 5-year 
maturity, maturing on December 20, 2016; Markit iTraxx Europe Main 
Series 16 with a 10-year maturity, maturing on December 20, 2021; 
Markit iTraxx Europe Main Series 15 with a 5-year maturity, maturing on 
June 20, 2016; Markit iTraxx Europe Main Series 15 with a 10-year 
maturity, maturing on June 20, 2021; Markit iTraxx Europe Main Series 
14 with a 5-year maturity, maturing on December 20, 2015; Markit iTraxx 
Europe Main Series 14 with a 10-year maturity, maturing on December 20, 
2020; Markit iTraxx Europe Main Series 13 with a 5-year maturity, 
maturing on June, 20, 2015; Markit iTraxx Europe Main Series 13 with a 
10-year maturity, maturing on June, 20, 2020; Markit iTraxx Europe Main 
Series 12 with a 5-year maturity, maturing on December 20, 2014; Markit 
iTraxx Europe Main Series 12 with a 10-year maturity, maturing on 
December 20, 2019; Markit iTraxx Europe Main Series 11 with a 5-year 
maturity, maturing on June 20, 2014; Markit iTraxx Europe Main Series 
11 with a 10-year maturity, maturing on June 20, 2019; Markit iTraxx 
Europe Main Series 10 with a 5-year maturity, maturing on December 20, 
2013; Markit iTraxx Europe Main Series 10 with a 10-year maturity, 
maturing on December 20, 2018; Markit iTraxx Europe Main Series 9 with 
a 5-year maturity, maturing on June 20, 2013; Markit iTraxx Europe Main 
Series 9 with a 10-year maturity, maturing on June 20, 2018; Markit 
iTraxx Europe Main Series 8 with a 5-year maturity, maturing on 
December 20, 2012; Markit iTraxx Europe Main Series 8 with a 10-year 
maturity, maturing on December 20, 2017; Markit iTraxx Europe Main 
Series 7 with a 10-year maturity, maturing June 20, 2017; Markit iTraxx 
Crossover Series 18 with a 5-year maturity, maturing on December 20, 
2017; Markit iTraxx Crossover Series 17 with a 5-year maturity, 
maturing on June 20, 2017; Markit iTraxx Crossover Series 16 with a 5-
year maturity, maturing on December 20, 2016; Markit iTraxx Crossover 
Series 15 with a 5-year maturity, maturing on June 20, 2016; Markit 
iTraxx Crossover Series 14 with a 5-year maturity, maturing on December 
20, 2015; Markit iTraxx Crossover Series 13 with a 5-year maturity, 
maturing on June, 20, 2015; Markit iTraxx Crossover Series 12 with a 5-
year maturity, maturing on December 20, 2014; Markit iTraxx Crossover 
Series 11 with a 5-year maturity, maturing on June 20, 2014; Markit 
iTraxx Crossover Series 10 with a 5-year maturity, maturing on December 
20, 2013; Markit iTraxx Crossover Series 9 with a 5-year maturity, 
maturing on June 20, 2013; Markit iTraxx HiVol Series 18 with a 5-year 
maturity, maturing on December 20, 2017; Markit iTraxx HiVol Series 17 
with a 5-year maturity, maturing on June 20, 2017; Markit iTraxx HiVol 
Series 16 with a 5-year maturity, maturing on December 20, 2016; Markit 
iTraxx HiVol Series 15 with a 5-year maturity, maturing on June 20, 
2016; Markit iTraxx HiVol Series 14 with a 5-year maturity, maturing on 
December 20, 2015; Markit iTraxx HiVol Series 13 with a 5-year 
maturity, maturing on June, 20, 2015; Markit iTraxx HiVol Series 12 
with a 5-year maturity, maturing on December 20, 2014; Markit iTraxx 
HiVol Series 11 with a 5-year maturity, maturing on June 20, 2014; 
Markit iTraxx HiVol Series 10 with a 5-year maturity, maturing on 
December 20, 2013; Markit iTraxx HiVol Series 9 with a 5-year maturity, 
maturing on June 20, 2013; and Markit iTraxx HiVol Series 8 with a 5-
year maturity, maturing on December 20, 2012.
    Additionally, 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

[[Page 63907]]

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.
    In addition, ICC proposes to amend Section 26E of its rules to 
include certain additional provisions relevant to the treatment of 
restructuring credit events under the iTraxx Contracts and European SN 
Contracts.
    As discussed in more detail in Item II.A. below, new Section 26F of 
the ICC rules provides for the definitions and certain specific 
contract terms for cleared iTraxx Contracts. New Section 26G provides 
for the definitions and certain specific contract terms for cleared 
European SN Contracts.

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.

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

    ICC has identified iTraxx Contracts and 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 proposed that certain iTraxx Europe CDS contracts would 
be subject to mandatory clearing under Section 2(h) of the Commodity 
Exchange Act.
    iTraxx Contracts have similar terms to the CDX North American Index 
CDS contracts (``CDX.NA Contracts'') and CDX Emerging Market Index 
(``CDX.EM Contracts'') currently cleared by ICC and governed by 
Sections 26A and 26C of the ICC rules. Accordingly, the proposed rules 
found in Section 26F largely mirror the ICC rules for those Contracts, 
with certain modifications that reflect the underlying reference 
entities (European corporate reference entities instead of North 
American corporate or Latin American sovereign entities) and 
differences in terms and market conventions. The iTraxx Contracts 
reference the iTraxx Europe index, the current series of which consists 
of 125 European corporate reference entities. iTraxx Contracts, 
consistent with market convention and widely used standard terms 
documentation, can be triggered by credit events for failure to pay, 
bankruptcy and restructuring. iTraxx Contracts will be denominated in 
Euro.
    Rule 26F-102 (Definitions) sets forth the definitions used for the 
iTraxx Contract Rules. An ``Eligible iTraxx Europe Untranched Index'' 
is defined as ``each particular series and version of an iTraxx Europe 
index or sub-index, as published by the iTraxx Untranched Publisher, 
included from time to time in the List of Eligible iTraxx Untranched 
Indexes,'' 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 index. ``iTraxx 
Europe Untranched Terms Supplement'' refers to the market standard form 
of documentation used for credit default swaps on the iTraxx Europe 
index, which is incorporated by reference into the contract 
specifications in Chapter 26F. The remaining definitions are 
substantially the same as the definitions found in ICC Section 26A and 
Section 26C, other than certain conforming changes.
    Rules 26F-309 (Acceptance of iTraxx Europe Untranched Contract), 
26F-315 (Terms of the Cleared iTraxx Europe Untranched Contract), and 
26F-316 (Updating Index Version of Fungible Contracts After a Credit 
Event or a Succession Event; Updating Relevant Untranched Standard 
Terms Supplement) reflect or incorporate the basic contract 
specifications for iTraxx Contracts and are substantially the same as 
under ICC Section 26A for CDX.NA Contracts and ICC Section 26C for 
CDX.EM Contracts. In addition to various non-substantive conforming 
changes, proposed Rule 26F-317 (Terms of iTraxx Europe Untranched 
Contracts) differs from the corresponding Rule 26A-317 to reflect the 
fact that restructuring is a credit event for the iTraxx Contract.
    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),

[[Page 63908]]

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

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-2012-18 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-2012-18. 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_092812.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-2012-18 
and should be submitted on or before November 7, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\4\
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    \4\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-25499 Filed 10-16-12; 8:45 am]
BILLING CODE 8011-01-P