80 FR 20278 - Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of Filing of Proposed Rule Change To Provide for the Clearance of Additional Western European Sovereign Single Names

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 72 (April 15, 2015)

[Federal Register Volume 80, Number 72 (Wednesday, April 15, 2015)]
[Notices]
[Pages 20278-20280]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-08542]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74687; File No. SR-ICC-2015-007]


Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of 
Filing of Proposed Rule Change To Provide for the Clearance of 
Additional Western European Sovereign Single Names

April 9, 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 April 7, 2015, 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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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 rules that will 
provide the basis for ICC to clear additional credit default swap 
contracts. Specifically, ICC is proposing to amend Subchapter 26I of 
its rules to provide for the clearance of additional Standard Western 
European Sovereign CDS contracts (collectively, ``SWES Contracts''). 
ICC currently clears six SWES Contracts: the Republic of Ireland, the 
Italian Republic, the Portuguese Republic, the Kingdom of Spain, the 
Kingdom of Belgium, and the Republic of Austria. The proposed changes 
to the ICC Rules would provide for the clearance of additional SWES 
Contracts, specifically the Kingdom of the Netherlands, the Republic of 
Finland, the Kingdom of Sweden, and the Kingdom of Denmark.

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

    The purpose of the proposed rule change is to adopt rules that will 
provide the basis for ICC to clear additional credit default swap 
contracts. ICC currently clears six SWES Contracts: the Republic of 
Ireland, the Italian Republic, the Portuguese Republic, the Kingdom of 
Spain, the Kingdom of Belgium, and the Republic of Austria. ICC 
proposes amending Subchapter 26I of its Rules to provide for the 
clearance of additional SWES Contracts, specifically the Kingdom of the 
Netherlands, the Republic of Finland, the Kingdom of Sweden, and the 
Kingdom of Denmark. ICC plans to offer these additional SWES Contracts 
on the 2003 and 2014 ISDA Credit Derivatives Definitions. The addition 
of these SWES Contracts will benefit the market for credit default 
swaps by providing market participants the benefits of clearing, 
including reduction in counterparty risk and safeguarding of margin 
assets pursuant to clearing house rules.
    These additional SWES Contracts have terms consistent with the 
other SWES Contracts approved for clearing at ICC and governed by 
Subchapter 26I of the ICC Rules, namely the Republic of

[[Page 20279]]

Ireland, the Italian Republic, the Portuguese Republic, the Kingdom of 
Spain, the Kingdom of Belgium, and the Republic of Austria. Minor 
revisions to Subchapter 26I (Standard Western European Sovereign 
(``SWES'') Single Name) are made to provide for clearing the additional 
SWES Contracts and described as follows.
    Rule 26I-102 is modified to include the Kingdom of the Netherlands, 
the Republic of Finland, the Kingdom of Sweden, and the Kingdom of 
Denmark in the list of specific Eligible SWES Reference Entities to be 
cleared by ICC.
    ICC's Risk Management Framework has also been revised to provide 
enhancements to the General Wrong Way Risk (``GWWR'') methodology 
related to the clearance of additional SWES Contracts. The proposed 
changes to the ICC Risk Management Framework extend the GWWR framework 
to the portfolio level. Currently, there exists no Clearing 
Participant-level cumulative GWWR requirement incorporated in the Jump-
to-Default calculations. The uncollateralized WWR exposure of a Risk 
Factor needs to exceed its corresponding WWR threshold in order to 
trigger WWR collateralization. The proposed enhancement is introduced 
to account for the potential accumulation of portfolio WWR through Risk 
Factor specific WWR exposures. Under the proposed approach, if the 
cumulative uncollateralized exposure exceeds a pre-determined portfolio 
GWWR threshold, the amount above the threshold is collateralized.
    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 and to comply with the provisions of the Act and the rules 
and regulations thereunder. These contracts are similar to the SWES 
Contracts currently cleared by ICC, and the additional SWES Contracts 
will be cleared pursuant to ICC's existing clearing arrangements and 
related financial safeguards, protections and risk management 
procedures, except as described herein. The additional SWES Contracts 
will allow market participants an increased ability to manage risk. ICC 
believes that acceptance of the new contracts, on the terms and 
conditions set out in the ICC Rules, is consistent with the prompt and 
accurate clearance of and settlement of securities transactions and 
derivative agreements, contracts and transactions cleared by ICC, the 
safeguarding of securities and funds in the custody or control of ICC, 
and the protection of investors and the public interest, within the 
meaning of Section 17A(b)(3)(F) of the Act.\4\ ICC performed a 
comprehensive risk analysis related to the clearing of additional SWES 
Contracts and identified the potential for uncollateralized GWWR 
exposure as a new risk and accommodated for this risk in the ICC Risk 
Management Framework, as discussed herein. ICC identified no additional 
risk or systemic risk concerns introduced by clearing additional SWES 
Contracts, not accounted for by ICC's existing risk management 
procedures. As such, clearing the additional SWES Contracts is 
consistent with the requirement of promoting and protecting the public 
interest in Section 17A(b)(3)(F).\5\
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    \3\ 15 U.S.C. 78q-1(b)(3)(F).
    \4\ 15 U.S.C. 78q-1(b)(3)(F).
    \5\ Id.
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    Clearing of the additional SWES Contracts will also satisfy the 
requirements of Rule 17Ad-22.\6\ In particular, in terms of financial 
resources, ICC will apply its existing initial margin methodology to 
the additional contracts, with enhancements to the GWWR methodology 
discussed above. ICC believes that this model will provide sufficient 
initial margin requirements to cover its credit exposure to its 
clearing members from clearing such contracts, consistent with the 
requirements of Rule 17Ad-22(b)(2).\7\ In addition, ICC believes its 
Guaranty Fund, under its existing methodology, will, together with the 
required initial margin, provide sufficient financial resources to 
support the clearing of the additional contracts consistent with the 
requirements of Rule 17Ad-22(b)(3).\8\ ICC also believes that its 
existing operational and managerial resources will be sufficient for 
clearing of the additional contracts, consistent with the requirements 
of Rule 17Ad-22(d)(4),\9\ as the new contracts are substantially the 
same from an operational perspective as existing contracts. Similarly, 
ICC will use its existing settlement procedures and account structures 
for the new contracts, consistent with the requirements of Rule 17Ad-
22(d)(5), (12) and (15) \10\ as to the finality and accuracy of its 
daily settlement process and avoidance of the risk to ICC of settlement 
failures. ICC determined to accept the additional SWES Contracts for 
clearing in accordance with its governance process, which included 
review of the contracts and related risk management considerations (and 
the enhancements to the GWWR methodology discussed herein) by the ICC 
Risk Committee and approval by its Board. These governance arrangements 
are consistent with the requirements of Rule 17Ad-22(d)(8).\11\ 
Finally, ICC will apply its existing default management policies and 
procedures for the additional SWES Contracts. ICC believes that these 
procedures allow for 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 in respect of the 
additional single names, in accordance with Rule 17Ad-22(d)(11).\12\
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    \6\ 17 CFR 240.17Ad-22.
    \7\ 17 CFR 240.17Ad-22(b)(2).
    \8\ 17 CFR 240.17Ad-22(b)(3).
    \9\ 17 CFR 240.17Ad-22(d)(4).
    \10\ 17 CFR 240.17Ad-22(d)(5), (12) and (15).
    \11\ 17 CFR 240.17Ad-22(d)(8).
    \12\ 17 CFR 240.17Ad-22(d)(11).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The additional SWES Contracts will be available to all ICC 
Participants for clearing. The clearing of these additional SWES 
Contracts by ICC does not preclude the offering of the additional SWES 
Contracts for clearing by other market participants. Accordingly, ICC 
does not believe that clearance of the additional SWES Contracts will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.

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.

[[Page 20280]]

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 [email protected]. Please include 
File Number SR-ICC-2015-007 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-ICC-2015-007. 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/clear-credit/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-ICC-2015-007 
and should be submitted on or before May 6, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-08542 Filed 4-14-15; 8:45 am]
 BILLING CODE 8011-01-P