81 FR 14914 - Self-Regulatory Organizations; ICE Clear Credit LLC; Order Approving Proposed Rule Change To Provide for the Clearance of Certain Asia-Pacific Credit Default Swap Contracts

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 53 (March 18, 2016)

[Federal Register Volume 81, Number 53 (Friday, March 18, 2016)]
[Notices]
[Pages 14914-14916]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-06089]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77361; File No. SR-ICC-2016-002]


Self-Regulatory Organizations; ICE Clear Credit LLC; Order 
Approving Proposed Rule Change To Provide for the Clearance of Certain 
Asia-Pacific Credit Default Swap Contracts

March 14, 2016.

I. Introduction

    On January 27, 2016, ICE Clear Credit LLC (``ICC'') filed with the 
Securities and Exchange Commission (``Commission''), pursuant to 
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ 
and Rule 19b-4 thereunder,\2\ a proposed rule change (SR-ICC-2016-002) 
to provide the basis for ICC to clear certain Asia-Pacific credit 
default swap (``CDS'') contracts. On January 29, 2016, ICC filed 
Amendment No. 1 to the proposal.\3\ The proposed rule change, as 
amended, was published for comment in the Federal Register on February 
12, 2016.\4\ The Commission did not receive comments on the proposed 
rule change. For the reasons discussed below, the Commission is 
approving the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, ICC deleted a factual error in the 
originally filed proposal that stated that no changes would be made 
to ICC's Risk Management Framework. Amendment No. 1 amended and 
replaced the original filing in its entirety.
    \4\ Securities Exchange Act Release No. 34-77079 (February 8, 
2016), 81 FR 7613 (February 12, 2016) (SR-ICC-2016-002).
---------------------------------------------------------------------------

II. Description 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 certain Asia-Pacific CDS 
contracts. Specifically, ICC has proposed to amend Chapter 26 of the 
ICC Rulebook (``ICC Rules'') to add Subchapters 26J and 26L to provide 
for the clearance of iTraxx Asia/Pacific CDS contracts (``iTraxx Asia/
Pacific Contracts'') and Standard Asia/Pacific Sovereign CDS contracts 
(``SAS Contracts'', collectively with iTraxx Asia/Pacific Contracts 
``Asia-Pacific CDS Contracts''). The SAS Contracts will reference the 
Commonwealth of Australia, the Malaysian Federation, the People's 
Republic of China, the Republic of Indonesia, the Republic of Korea and 
the Republic of the Philippines.
    Additionally, ICC has proposed to amend the ICC End-of-Day Price 
Discovery Policies and Procedures to add two additional pricing windows 
to accommodate the submission of end-of-day prices relating to such 
Asia-Pacific CDS Contracts. Finally, ICC has proposed to amend the ICC 
Risk Management Framework to include the risk horizon utilized for 
instruments traded during Asia-Pacific hours and to amend the ICC Risk 
Management Model Description document to add Asia-Pacific to the list 
of regions to be considered in General Wrong Way Risk calculations.
    ICC has represented that the iTraxx Asia/Pacific Contracts have 
similar terms to the CDX North American IG/HY/XO CDS contracts (``CDX 
NA Contracts'') currently cleared by ICC and governed by Subchapter 26A 
of the ICC Rules, the CDX Emerging Markets CDS contracts (``CDX EM 
Contracts'') currently cleared by ICC and governed by Subchapter 26C of 
the ICC Rules, and the iTraxx Europe CDS contracts (``iTraxx Europe 
Contracts'') currently cleared by ICC and governed by Subchapter 26F of 
the ICC Rules. ICC asserts that the proposed rules found in Subchapter 
26J largely mirror the ICC Rules for CDX NA Contracts in Subchapter 
26A, CDX EM Contracts in Subchapter 26C, and iTraxx Europe Contracts in 
Subchapter 26F, with certain modifications that reflect differences in 
terms and market conventions between those contracts and iTraxx Asia/
Pacific Contracts. Additionally, iTraxx Asia/Pacific Contracts will be 
denominated in United States Dollars.
    ICC Rule 26J-102 (Definitions) will set forth the definitions used 
for the iTraxx Asia/Pacific Contracts. ICC has represented that the 
definitions are substantially the same as the definitions found in 
Subchapters 26A, 26C, and 26F of the ICC Rules, other than certain 
conforming changes.
    ICC Rules 26J-309 (Acceptance of iTraxx Asia/Pacific Untranched 
Contracts by ICE Clear Credit), 26J-315 (Terms of the Cleared iTraxx 
Asia/Pacific Untranched Contract), 26J-316 (Updating Index Version of 
Fungible Contracts After a Credit Event or a Succession Event; Updating 
Relevant Untranched Standard Terms Supplement), and 26J-317 (Terms of 
iTraxx Asia/Pacific Untranched Contracts) will reflect or incorporate 
the basic contract specifications for iTraxx Asia/Pacific Contracts 
and, according to ICC, are substantially the same as under Subchapters 
26A, 26C, and 26F of the ICC Rules.
    ICC has represented that SAS Contracts have similar terms to the 
Standard North American Corporate

[[Page 14915]]

Single Name CDS contracts (``SNAC Contracts'') currently cleared by ICC 
and governed by Subchapter 26B of the ICC Rules, the Standard Emerging 
Sovereign CDS contracts (``SES Contracts'') currently cleared by ICC 
and governed by Subchapter 26D of the ICC Rules, the Standard European 
Corporate Single Name CDS contracts (``STEC Contracts'') currently 
cleared at ICC and governed by Subchapter 26G of the ICC Rules, the 
Standard European Financial Corporate Single Name CDS Contracts 
(``STEFC Contracts'') currently cleared at ICC and governed by 
Subchapter 26H of the ICC Rules, and the Standard Western European 
Corporate Single Name CDS contracts (``SWES Contracts'') currently 
cleared by ICC and governed by Subchapter 26I of the ICC Rules. ICC 
asserts that the proposed rules found in Subchapter 26L largely mirror 
the ICC Rules for SNAC Contracts in Subchapter 26B, SES Contracts in 
Subchapter 26D, STEC Contracts in Subchapter 26G, STEFC Contracts in 
Subchapter 26H, and SWES Contracts in Subchapter 26I, with certain 
modifications that reflect differences in terms and market conventions 
between those contracts and SAS Contracts. Additionally, SAS Contracts 
will be denominated in United States Dollars.
    ICC Rule 26L-102 (Definitions) will set forth the definitions used 
for the SAS Contracts. ``Eligible SAS Reference Entities'' will be 
defined as ``each particular Reference Entity included in the List of 
Eligible SAS Reference Entities,'' which is a list maintained, updated 
and published from time to time by ICC containing certain specified 
information with respect to each reference entity. ICC is proposing to 
add the Commonwealth of Australia, the Malaysian Federation, the 
People's Republic of China, the Republic of Indonesia, the Republic of 
Korea and the Republic of the Philippines to its List of Eligible SAS 
Reference Entities. If ICC determines to add or remove additional SAS 
Contracts from the List of Eligible SAS Reference Entities, it has 
represented that it will seek approval from the Commission for such 
contracts (or for a class of product including such contracts) by a 
subsequent filing. ICC asserts that the remaining definitions are 
substantially the same as the definitions found in Subchapters 26B, 
26D, 26G, 26H, and 26I of the ICC Rules, other than certain conforming 
changes.
    ICC Rules 26L-203 (Restriction on Activity), 26L-206 (Notices 
Required of Participants with respect to SAS Contracts), 26L-303 (SAS 
Contract Adjustments), 26L-309 (Acceptance of SAS Contracts by ICE 
Clear Credit), 26L-315 (Terms of the Cleared SAS Contract), 26L-316 
(Relevant Physical Settlement Matrix Updates), 26L-502 (Specified 
Actions), and 26L-616 (Contract Modification) will reflect or 
incorporate the basic contract specifications for SAS Contracts and, 
according to ICC, are substantially the same as under Subchapters 26B, 
26D, 26G, 26H, and 26I of the ICC Rules.
    Additionally, ICC has proposed to amend the ICC End-of-Day Price 
Discovery Policies and Procedures to add two additional pricing windows 
to accommodate the submission of end-of-day prices relating to such 
Asia-Pacific CDS Contracts. Specifically, ICC has proposed adding one 
pricing window at the end of the Sydney trading day to determine prices 
for instruments primarily traded in Sydney hours and one pricing window 
at the end of the Singapore trading day to determine prices for 
instruments primarily traded in Singapore/Hong Kong hours. ICC has 
represented that it will apply the same price discovery methodology to 
all submission windows. ICC asserts that for easier comprehension, it 
also consolidated information regarding the timing of all pricing 
windows into a table in an appendix to the policy. Accordingly, ICC has 
proposed replacing references throughout the document to specific 
pricing window times with a reference to this table. ICC has also 
proposed removing a reference to end-of-day risk requirements, as ICC 
asserts that such information is more appropriately included in the 
Risk Management Framework.
    Finally, ICC has proposed amending the ICC Risk Management 
Framework to include the risk horizon utilized for instruments traded 
during Asia-Pacific hours and to amend the ICC Risk Management Model 
Description document to add Asia-Pacific to the list of regions to be 
considered in General Wrong Way Risk calculations.

III. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act \5\ directs the Commission to 
approve a proposed rule change of a self-regulatory organization if the 
Commission finds that the proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to such self-regulatory organization. Section 17A(b)(3)(F) 
of the Act \6\ 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 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 and, in general, to protect investors and the public 
interest.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78s(b)(2)(C).
    \6\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    The Commission finds that the proposed rule change is consistent 
with the requirements of Section 17A of the Act \7\ and the rules and 
regulations thereunder applicable to ICC. The proposed rule change will 
provide for the clearing of iTraxx Asia/Pacific Contracts and SAS 
Contracts referencing the Commonwealth of Australia, the Malaysian 
Federation, the People's Republic of China, the Republic of Indonesia, 
the Republic of Korea and the Republic of the Philippines. The iTraxx 
Asia/Pacific Contracts and SAS Contracts will be cleared pursuant to 
ICC's existing clearing arrangements and related financial safeguards, 
protections and risk management procedures, as modified by the proposed 
rule change. The Commission therefore finds that the proposed rule 
change is 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 assure the 
safeguarding of securities and funds which are in the custody or 
control of the clearing agency or for which it is responsible and, in 
general, to protect investors and the public interest.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

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 \8\ and the 
rules and regulations thereunder.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\9\ that the proposed rule change (File No. SR-ICC-2016-002) be, 
and hereby is, approved.\10\
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78s(b)(2).
    \10\ 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).


[[Page 14916]]


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

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
---------------------------------------------------------------------------

    \11\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-06089 Filed 3-17-16; 8:45 am]
BILLING CODE 8011-01-P