81 FR 63831 - Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of Filing of Proposed Rule Change To Provide for the Clearance of Additional Credit Default Swap Contracts

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 180 (September 16, 2016)

[Federal Register Volume 81, Number 180 (Friday, September 16, 2016)]
[Notices]
[Pages 63831-63833]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-22257]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78818; File No. SR-ICC-2016-012]


Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of 
Filing of Proposed Rule Change To Provide for the Clearance of 
Additional Credit Default Swap Contracts

September 12, 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 August 29, 2016, 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 principal purpose of the proposed rule change is to revise the 
ICC Rulebook (the ``Rules'') to provide for the clearance of additional 
Standard Emerging Market Sovereign CDS contracts (collectively, ``EM 
Contracts''), 2003 ISDA Definitions of Standard Western European 
Sovereign CDS contracts (collectively, ``SWES Contracts''), and an 
additional Asia/Pacific Sovereign CDS contract (the ``Asia/Pacific 
Contract'').

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 believes the addition of these 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.
    ICC proposes amending subchapter 26D of its Rules to provide for 
the clearance of additional EM Contracts, specifically the Republic of 
Panama, Abu Dhabi, Dubai, the State of Israel and the State of Qatar. 
ICC plans to offer these additional EM Contracts on the 2003 and 2014 
ISDA Credit Derivatives Definitions.
    These additional EM Contracts have terms consistent with the other 
EM Contracts approved for clearing at ICC and governed by subchapter 
26D of the Rules. Minor revisions to Subchapter 26D (Standard Emerging 
Market Sovereign (``SES'') Single Name) are made to provide for 
clearing the additional EM Contracts. Specifically, in Rule 26D-102 
(Definitions), ``Eligible SES Reference Entities'' is modified to 
include the Republic of Panama, Abu Dhabi, Dubai, the State of Israel 
and the State of Qatar in the list of specific Eligible SES Reference 
Entities to be cleared by ICC.
    Additionally, ICC proposes amending subchapter 26I of its Rules to 
provide for the clearance of 2003 ISDA Definitions of SWES Contracts. 
ICC currently clears the 2014 ISDA Definitions of ten SWES Contracts,

[[Page 63832]]

namely the Republic of Ireland, the Italian Republic, the Portuguese 
Republic, the Kingdom of Spain, the Kingdom of Belgium, the Republic of 
Austria, the Kingdom of the Netherlands, the Federal Republic of 
Germany, the French Republic, and the United Kingdom of Great Britain 
and Northern Ireland. The proposed rule changes to subchapter 26I will 
allow ICC to offer clearing for the 2003 ISDA Definitions of these SWES 
Contracts.
    Minor revisions to subchapter 26I (Standard Western European 
(``SWES'') Single Name) are made to provide for clearing the 2003 ISDA 
Definitions of SWES Contracts. Specifically, in Rule 26I-102 
(Definitions), the definitions of ``Eligible SWES Reference 
Obligations'', ``List of Eligible SWES Reference Entities'' and ``SWES 
Contract Reference Obligations'' are updated to distinguish between the 
2003- and 2014-Type CDS Contracts, and the corresponding Applicable 
Credit Derivatives Definitions.\3\ Rule 26I-309 (Acceptance of SWES 
Contracts by ICE Clear Credit) is revised in part (c) to note that a 
CDS Participant may not submit a Trade for clearance as a SWES 
contract, and any such Trade shall not be a Confirming Trade, if the 
acceptance would be at a time when the CDS Participant (or any Non-
Participant Party for whom such CDS Participant is acting) is, or is an 
Affiliate of, the Eligible SWES Reference Entity for such SWES Contract 
or is subject to an agreement under which it is reasonably likely that 
the CDS Participant (or any such Non-Participant Party) will become, or 
will become an Affiliate of, the Eligible SWES Reference Entity for 
such SWES Contract. Rule 26I-309 is also revised in part (e) to address 
and distinguish between relevant successor or other events under both 
2003- and 2014-Type CDS Contracts, and the corresponding Applicable 
Credit Derivatives Definitions.
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    \3\ As defined in Rule 20-102 (Applicable Credit Derivatives 
Definitions).
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    Rule 26I-315 (Terms of the Cleared SWES Contract) is revised to 
provide reference to provisions of the proper ISDA Definitions, and 
corresponding changes to provision numbering are made as necessary. 
Rule 26I-315(h) is revised to refer to the Applicable Credit 
Derivatives Definitions and eligible Seniority Level, as appropriate.
    Defined terms in Rule 26I-316 (Physical Settlement Matrix Updates) 
are updated to refer specifically to SWES contracts. Rule 26I-616 
(Contract Modification) is revised to note that it shall not constitute 
a Contract Modification if the Board (or its designee) updates the List 
of Eligible SWES Reference Entities (and modifies the terms and 
conditions of related SWES Contracts) to give effect to determinations 
of Succession Events.
    Finally, ICC proposes amending subchapter 26L of its rules to 
provide for the clearance of an additional Asia/Pacific Contract, 
namely the Kingdom of Thailand. ICC plans to offer this contract on the 
2003 and 2014 ISDA Credit Derivatives Definitions.
    The additional Asia/Pacific Contract has terms consistent with the 
other Asia/Pacific Contracts approved for clearing at ICC and governed 
by subchapter 26L of the Rules. Minor revisions to subchapter 26L 
(Asia/Pacific Sovereign (``SAS'') Single Name) are made to provide for 
clearing the additional Asia/Pacific Contract. Specifically, in Rule 
26L-102 (Definitions), ``Eligible SAS Reference Entities'' is modified 
to include the Kingdom of Thailand in the list of specific Eligible SAS 
Reference Entities to be cleared by ICC.
    Section 17A(b)(3)(F) of the Act \4\ 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. The additional EM Contracts, Asia/Pacific 
Contract and the 2003 ISDA Definitions of SWES Contracts proposed for 
clearing are similar to the EM, SWES, and Asia/Pacific Contracts 
currently cleared by ICC, and will be cleared pursuant to ICC's 
existing clearing arrangements and related financial safeguards, 
protections and risk management procedures. Clearing of the additional 
EM Contracts, Asia/Pacific Contract and 2003 ISDA Definitions of SWES 
Contracts will allow market participants an increased ability to manage 
risk and ensure the safeguarding of margin assets pursuant to clearing 
house rules. ICC believes that acceptance of the new EM Contracts, 
Asia/Pacific Contract and 2003 ISDA Definitions of SWES Contracts, on 
the terms and conditions set out in the 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.\5\
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    \4\ 15 U.S.C. 78q-1(b)(3)(F).
    \5\ 15 U.S.C. 78q-1(b)(3)(F).
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    Clearing of the additional EM Contracts, Asia/Pacific Contract and 
2003 ISDA Definitions of 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. 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 EM Contracts, Asia/
Pacific Contract and 2003 ISDA Definitions of SWES Contracts for 
clearing in accordance with its governance process, which included 
review of the contracts and related risk management considerations 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 EM Contracts, Asia/Pacific 
Contract and 2003 ISDA Definitions of 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

[[Page 63833]]

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 EM Contracts, Asia/Pacific Contract and 2003 ISDA 
Definitions of SWES Contracts will be available to all ICC participants 
for clearing. The clearing of these additional EM Contracts, Asia/
Pacific Contract and 2003 ISDA Definitions of SWES Contracts by ICC 
does not preclude the offering of the additional EM Contracts, Asia/
Pacific Contract and 2003 ISDA Definitions of SWES Contracts for 
clearing by other market participants. Accordingly, ICC does not 
believe that clearance of the additional EM Contracts, Asia/Pacific 
Contract and 2003 ISDA Definitions of 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.

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-2016-012 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-2016-012. 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-2016-012 
and should be submitted on or before October 7, 2016.

    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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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-22257 Filed 9-15-16; 8:45 am]
BILLING CODE 8011-01-P