81 FR 30575 - Self-Regulatory Organizations; ICE Clear Europe Limited; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to Accounts Categories for Positions of Clearing Member Affiliates

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 95 (May 17, 2016)

[Federal Register Volume 81, Number 95 (Tuesday, May 17, 2016)]
[Notices]
[Pages 30575-30577]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-11539]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77809; File No. SR-ICEEU-2016-006]


Self-Regulatory Organizations; ICE Clear Europe Limited; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating to Accounts Categories for Positions of Clearing Member 
Affiliates

May 11, 2016.
    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 28 2016, ICE Clear Europe Limited (``ICE Clear Europe'' or 
``Clearing House'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule changes described in Items I, II and 
III below, which Items have been prepared 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)(i) \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.
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    \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)(i).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The principal purpose of the proposed changes is to clarify the 
account categories to be used for positions of affiliates of Clearing 
Members.

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.

[[Page 30576]]

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

1. Purpose
    ICE Clear Europe submits proposed amendments to its Clearing 
Procedures to clarify the account categories in which positions of 
affiliates of Clearing Members are to be maintained, in light of 
applicable US and EU regulatory requirements. ICE Clear Europe does not 
propose to amend its Rules in connection with these changes.
    Under CFTC rules, the positions of an affiliate of an FCM are 
considered ``proprietary'' for purposes of segregation requirements and 
thus cannot be held in a customer account.\5\ As a result, FCMs, 
including FCM/BD Clearing Members, have historically carried such 
positions in their proprietary accounts. However, under the European 
Market Infrastructure Regulation (``EMIR''),\6\ when applicable to ICE 
Clear Europe, a clearing member will be required to treat an affiliate 
as a client \7\ for various purposes, and accordingly positions of the 
affiliate should be held in a separate account from the proprietary 
positions of the clearing member.\8\ Accordingly, ICE Clear Europe 
proposes to establish new position-keeping accounts for use by FCM/BD 
Clearing Members for positions of their affiliates, which will be 
separate from the clearing member's own positions (and thus satisfy the 
EMIR requirement) but at the same time will not be customer accounts 
for purposes of applicable CFTC requirements. Although it is expected 
that these accounts will at present be principally relevant to F&O 
Contracts of affiliates of FCM/BD Clearing Members, the accounts would 
also be used for CDS Contracts of such persons, as and when ICE Clear 
Europe accepts such contracts cleared through FCM/BD Clearing Members.
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    \5\ See, e.g., 17 CFR 1.3(y), 17 CFR 1.20(e)(2).
    \6\ 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.
    \7\ EMIR Article 2(15). EMIR defines ``client'' as ``an 
undertaking with a contractual relationship with a clearing member 
of a CCP which enables that undertaking to clear its transactions 
with that CCP,'' which suggests that an affiliate can be a client of 
a clearing member. This understanding of a client is supported in 
other EU legislation such as MiFID (see Directive 2004/39/EC of the 
European Parliament and of the Council on 21 April 2004 on markets 
in financial instruments amending Council Directives 85/611/EEC and 
93/6/EEC and Directive 2000/12/EC of the European Parliament and of 
the Council and repealing Council Directive 93/22/EEC), and in UK 
case law where affiliates have consistently been treated as clients 
to whom regulatory obligations were owed. See Re Lehman Brothers 
International (Europe) (in administration) [2012] UKSC 6.
    \8\ EMIR Article 39(4).
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    Specifically, ICE Clear Europe proposes to amend paragraph 2.3(b) 
of the Clearing Procedures to establish new position-keeping accounts, 
labeled the ``F'' and ``R'' accounts, which will be required to be used 
for all positions of affiliates of FCM/BD Clearing Members. The ``F'' 
account will use a gross margin model (for positions in contracts 
margined on a gross basis under the Rules and Procedures); the ``R'' 
account will use a net margin model (for positions in contracts 
margined on a net basis under the Rules and Procedures). Both accounts 
will be treated as separate Proprietary Accounts for purposes of the 
Rules (and accordingly the accounts will not constitute Customer 
Accounts of the FCM/BD Clearing Member). New paragraph 2.3(f) has been 
added to provide a definition of ``affiliate'' for this purpose, based 
on the relevant definitions of proprietary accounts under CFTC rules.
    Paragraph 2.3 has also been revised to clarify the treatment of 
positions of affiliates of Non-FCM/BD Clearing Members. New paragraph 
2.3(f) also includes a definition of ``affiliate'' for this purpose, 
based on the EMIR definition of ``group.'' Conforming changes have been 
made to paragraph 2.3(b)(4) to use such definition. Additional 
clarifications have been made in paragraph 2.3(b)(5) as to the use by 
certain Non-FCM/BD Clearing Members of the ``T'' and ``K'' accounts (as 
separate Segregated Customer Omnibus Accounts for F&O or Segregated 
TTFCA Customer Omnibus Accounts for F&O) and of the ``F'' and ``R'' 
accounts as available for holding positions of their affiliates. 
Paragraph 2.3(c) has been revised to clarify that the Clearing House 
may establish additional position-keeping accounts for a Clearing 
Member to facilitate separate tracking of positions for each exchange 
non-clearing member for which the Clearing Member provides services. 
The revisions also clarify the treatment of such position-keeping 
accounts for exchange members as customer or proprietary, consistent 
with the requirements of the Rules and Clearing Procedures and 
applicable law.
    Amendments to paragraph 3.1(a) of the Clearing Procedures provide 
for the margining of the ``F'' and ``R'' accounts of FCM/BD Clearing 
members as separate Proprietary Accounts. The summary table following 
paragraph 3.2 of the Clearing Procedures has been amended to conform to 
the other changes made in the Clearing Procedures.
2. Statutory Basis
    ICE Clear Europe believes that the proposed amendments to the 
Clearing Procedures are consistent with the requirements of Section 17A 
of the Act \9\ and the regulations thereunder applicable to it.\10\ 
Section 17A(b)(3)(F) of the Act \11\ 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, 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 to protect investors and the public interest.
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    \9\ 15 U.S.C. 78q-1.
    \10\ 17 CFR 240.17Ad-22.
    \11\ 15 U.S.C. 78q-1(b)(3)(F).
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    The amendments are designed to clarify the treatment of positions 
of affiliates of Clearing Members in light of applicable legal and 
regulatory requirements. Specifically, for FCM/BD Clearing Members, the 
amendments establish separate accounts in which such positions must be 
held, in a manner that is consistent with both CFTC and EMIR 
requirements. Such accounts will allow positions of affiliates to be 
held separately from the Clearing Member's positions, consistent with 
the EMIR requirements, but will be treated as Proprietary Accounts 
under the Rules and Procedures, consistent with CFTC rules. The 
amendments also clarify the treatment of positions of affiliates of 
Non-FCM/BD Clearing Members, consistent with EMIR requirements. 
Overall, in ICE Clear Europe's view, the amendments will enhance its 
ability (and that of its Clearing Members) to track positions of 
Clearing Member affiliates and comply with relevant regulatory 
obligations. As a result, in ICE Clear Europe's view, the amendments 
will promote the prompt and accurate clearance and settlement of 
derivative transactions, are consistent with the safeguarding of funds 
and securities in the custody or control of ICE Clear Europe, and 
generally further the public interest. The amendments are therefore 
consistent with the requirements of Section 17A(b)(3)(F) of the Act 
\12\ and the regulations thereunder.\13\
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    \12\ 15 U.S.C. 78q-1(b)(3)(F).
    \13\ 17 CFR 240.17Ad-22.

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[[Page 30577]]

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

    ICE Clear Europe does not believe the proposed changes to the Rules 
discussed herein would have any adverse impact, or impose any burden, 
on competition not necessary or appropriate in furtherance of the 
purposes of the Act. The proposed amendments are intended to clarify 
the treatment of positions of affiliates of Clearing Member, consistent 
with applicable legal requirements. ICE Clear Europe does not believe 
the proposed amendments would adversely affect access to clearing by 
Clearing Members or their affiliates (or customers), adversely affect 
competition among Clearing Members or adversely affect the market for 
clearing services or limit market participants' choices for clearing 
transactions. Although the proposed amendments may impose additional 
compliance costs on Clearing Members, including because of the 
requirements to hold affiliate positions in separate accounts that are 
separately margined, ICE Clear Europe believes that such costs reflect, 
and are appropriate in light of, the legal requirements applicable to 
such positions. Although the amendments treat affiliate positions of 
FCM/BD Clearing Members and Non-FCM/BD Clearing Members differently in 
certain respects, in ICE Clear Europe's view such differences also 
result from the different legal frameworks applicable to such Clearing 
Members. As a result, ICE Clear Europe does not believe that the 
proposed amendments to the Clearing Procedures will impose any burden 
on competition not 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

    ICE Clear Europe has not solicited or received any written comments 
with respect to the proposed changes. 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)(i) \15\ 
thereunder. The amendments effect a change in an existing service of a 
registered clearing agency that does not adversely affect the 
safeguarding of securities or funds in the custody or control of the 
clearing agency or for which it is responsible, and does not 
significantly affect the respective rights or obligations of the 
clearing agency or persons using its clearing service, within the 
meaning of Rule 19b-4(f)(4)(i).\16\ As noted above, the amendments 
provide for a separate proprietary account to be used for positions of 
affiliates of FCM/BD Clearing Members (as opposed to combining such 
positions in the same account as the Clearing Member's own positions), 
in order to be consistent with both CFTC and EMIR requirements. The 
amendments also provide that such accounts will be margined separately. 
Certain other clarifications are made with respect to the accounts used 
for positions of affiliates of Non-FCM/BD Clearing Members. In ICE 
Clear Europe's view, these changes will not adversely affect the 
safeguarding of funds or securities in the custody or control of ICE 
Clear Europe, from the perspective of Clearing Members or their 
affiliates or customers. Although the amendments impose certain 
additional requirements on Clearing Members that carry positions on 
behalf of their affiliates in terms of the use of a separate account, 
ICE Clear Europe also believes that the amendments will not 
significantly affect the rights or obligations of ICE Clear Europe or 
Clearing Members using its clearing services. As a result, ICE Clear 
Europe views these amendments as falling within Rule 19b-
4(f)(4)(i).\17\
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(4)(i).
    \16\ 17 CFR 240.19b-4(f)(4)(i).
    \17\ 17 CFR 240.19b-4(f)(4)(i).
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    At any 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.

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-ICEEU-2016-006 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-2016-006. 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#rule-filings.
    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-2016-006 
and should be submitted on or before June 7, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-11539 Filed 5-16-16; 8:45 am]
 BILLING CODE 8011-01-P