Order Extending Temporary Conditional Exemptions Under the Securities Exchange Act of 1934 in Connection With Request on Behalf of ICE Clear Europe, Limited Related to Central Clearing of Credit Default Swaps, and Request for Comments, 22656-22663 [2010-9932]
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Federal Register / Vol. 75, No. 82 / Thursday, April 29, 2010 / Notices
Exchange Commission, Office of
Information and Regulatory Affairs,
Washington, DC 20503, and should also
send a copy of their comments to
Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090, and refer to File No. S7–
17–09. OMB is required to make a
decision concerning the collections of
information between 30 and 60 days
after publication of this document in the
Federal Register; therefore, comments
to OMB are best assured of having full
effect if OMB receives them within 30
days of this publication. The
Commission has submitted the
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OMB for approval. Requests for the
materials submitted to OMB by the
Commission with regard to these
collections of information should be in
writing, refer to File No. S7–17–09, and
be submitted to the Securities and
Exchange Commission, Office of
Investor Education and Advocacy, 100 F
Street, NE., Washington, DC 20549–
0213.
By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010–9931 Filed 4–28–10; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–61973; File No. S7–16–09]
Order Extending Temporary
Conditional Exemptions Under the
Securities Exchange Act of 1934 in
Connection With Request on Behalf of
ICE Clear Europe, Limited Related to
Central Clearing of Credit Default
Swaps, and Request for Comments
April 23, 2010.
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I. Introduction
The Securities and Exchange
Commission (‘‘Commission’’) has taken
multiple actions 1 designed to address
1 See generally Securities Exchange Act Release
No. 60372 (Jul. 23, 2009), 74 FR 37748 (Jul. 29,
2009) (temporary exemptions in connection with
CDS clearing by ICE Clear Europe Limited) (‘‘2009
ICE Clear Europe order’’); Securities Exchange Act
Release No. 60373 (Jul. 23, 2009), 74 FR 37740 (Jul.
29, 2009) and Securities Exchange Act Release No.
61975 (Apr. 23, 2010) (temporary exemptions in
connection with CDS clearing by Eurex Clearing
AG); Securities Exchange Act Release No. 59578
(Mar. 13, 2009), 74 FR 11781 (Mar. 19, 2009),
Securities Exchange Act Release No. 61164 (Dec.
14, 2009), 74 FR 67258 (Dec. 18, 2009) and
Securities Exchange Act Release No. 61803 (Mar.
30, 2010), 75 FR 17181 (Apr. 5, 2010) (temporary
exemptions in connection with CDS clearing by
Chicago Mercantile Exchange Inc.); Securities
Exchange Act Release No. 59527 (Mar. 6, 2009), 74
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concerns related to the market in credit
default swaps (‘‘CDS’’).2 The over-thecounter (‘‘OTC’’) market for CDS has
been a source of particular concern to us
and other financial regulators, and we
have recognized that facilitating the
establishment of central counterparties
(‘‘CCPs’’) for CDS can play an important
role in reducing the counterparty risks
inherent in the CDS market, and thus
can help mitigate potential systemic
impact. We have therefore found that
taking action to help foster the prompt
development of CCPs, including
granting temporary conditional
exemptions from certain provisions of
the Federal securities laws, is in the
public interest.3
The Commission’s authority over the
OTC market for CDS is limited.
Specifically, section 3A of the Securities
FR 10791 (Mar. 12, 2009), Securities Exchange Act
Release No. 61119 (Dec. 4, 2009), 74 FR 65554 (Dec.
10, 2009) and Securities Exchange Act Release No.
61662 (Mar. 5, 2010), 75 FR 11589 (Mar. 11, 2010)
(temporary exemptions in connection with CDS
clearing by ICE Trust US LLC); Securities Exchange
Act Release No. 59164 (Dec. 24, 2008), 74 FR 139
(Jan. 2, 2009) (temporary exemptions in connection
with CDS clearing by LIFFE A&M and LCH.Clearnet
Ltd.) and other Commission actions discussed in
several of these orders.
In addition, we have issued interim final
temporary rules that provide exemptions under the
Securities Act of 1933 and the Securities Exchange
Act of 1934 for CDS to facilitate the operation of
one or more central counterparties for the CDS
market. See Securities Act Release No. 8999 (Jan.
14, 2009), 74 FR 3967 (Jan. 22, 2009) (initial
approval); Securities Act Release No. 9063 (Sep. 14,
2009), 74 FR 47719 (Sep. 17, 2009) (extension until
Nov. 30, 2010).
Further, the Commission provided temporary
exemptions in connection with Sections 5 and 6 of
the Securities Exchange Act of 1934 for transactions
in CDS; these exemptions expired on March 24,
2010. See Securities Exchange Act Release No.
59165 (Dec. 24, 2008), 74 FR 133 (Jan. 2, 2009)
(initial exemption); Securities Exchange Act Release
No. 60718 (Sep. 25, 2009), 74 FR 50862 (Oct. 1,
2009) (extension until Mar. 24, 2010).
2 A CDS is a bilateral contract between two
parties, known as counterparties. The value of this
financial contract is based on underlying
obligations of a single entity (‘‘reference entity’’) or
on a particular security or other debt obligation, or
an index of several such entities, securities, or
obligations. The obligation of a seller to make
payments under a CDS contract is triggered by a
default or other credit event as to such entity or
entities or such security or securities. Investors may
use CDS for a variety of reasons, including to offset
or insure against risk in their fixed-income
portfolios, to take positions in bonds or in segments
of the debt market as represented by an index, or
to take positions on the volatility in credit spreads
during times of economic uncertainty.
Growth in the CDS market has coincided with a
significant rise in the types and number of entities
participating in the CDS market. CDS were initially
created to meet the demand of banking institutions
looking to hedge and diversify the credit risk
attendant to their lending activities. However,
financial institutions such as insurance companies,
pension funds, securities firms, and hedge funds
have entered the CDS market.
3 See generally actions referenced in note 1,
supra.
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Exchange Act of 1934 (‘‘Exchange Act’’)
limits the Commission’s authority over
swap agreements, as defined in section
206A of the Gramm-Leach-Bliley Act.4
For those CDS that are swap agreements,
the exclusion from the definition of
security in section 3A of the Exchange
Act, and related provisions, will
continue to apply. The Commission’s
action today does not affect these CDS,
and this Order does not apply to them.
For those CDS that are not swap
agreements (‘‘non-excluded CDS’’), the
Commission’s action today provides
temporary conditional exemptions from
certain requirements of the Exchange
Act.
The Commission believes that using
well-regulated CCPs to clear
transactions in CDS provides a number
of benefits by helping to promote
efficiency and reduce risk in the CDS
market, by contributing to the goal of
market stability, and by requiring
maintenance of records of CDS
transactions that would aid the
Commission’s efforts to prevent and
detect fraud and other abusive market
practices.5
In the 2009 ICE Clear Europe Order,
the Commission provided temporary
conditional exemptions to ICE Clear
Europe, Limited (‘‘ICE Clear Europe’’)
and certain other parties to permit ICE
Clear Europe to clear and settle CDS
transactions.6 The current exemptions
4 15 U.S.C. 78c–1. Section 3A excludes both a
non-security-based and a security-based swap
agreement from the definition of ‘‘security’’ under
Section 3(a)(10) of the Exchange Act, 15 U.S.C.
78c(a)(10). Section 206A of the Gramm-Leach-Bliley
Act defines a ‘‘swap agreement’’ as ‘‘any agreement,
contract, or transaction between eligible contract
participants (as defined in section 1a(12) of the
Commodity Exchange Act * * *) * * * the
material terms of which (other than price and
quantity) are subject to individual negotiation.’’ 15
U.S.C. 78c note.
5 See generally actions referenced in note 1,
supra.
6 For purposes of this Order, ‘‘Cleared CDS’’
means a credit default swap that is submitted (or
offered, purchased, or sold on terms providing for
submission) to ICE Clear Europe, that is offered
only to, purchased only by, and sold only to eligible
contract participants (as defined in Section 1a(12)
of the Commodity Exchange Act as in effect on the
date of this Order (other than a person that is an
eligible contract participant under paragraph (C) of
that section)), and in which: (i) The reference entity,
the issuer of the reference security, or the reference
security is one of the following: (A) An entity
reporting under the Exchange Act, providing
Securities Act Rule 144A(d)(4) information, or
about which financial information is otherwise
publicly available; (B) a foreign private issuer
whose securities are listed outside the United States
and that has its principal trading market outside the
United States; (C) a foreign sovereign debt security;
(D) an asset-backed security, as defined in
Regulation AB, issued in a registered transaction
with publicly available distribution reports; or (E)
an asset-backed security issued or guaranteed by the
Federal National Mortgage Association (‘‘Fannie
Mae’’), the Federal Home Loan Mortgage
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are scheduled to expire on April 23,
2010, and ICE Clear Europe has
requested that the Commission extend
those exemptions.7
Based on the facts presented and the
representations made by ICE Clear
Europe,8 and for the reasons discussed
in this Order and subject to certain
conditions, the Commission is
extending each of the existing
exemptions connected with CDS
clearing by ICE Clear Europe: the
temporary conditional exemption
granted to ICE Clear Europe from
clearing agency registration under
Section 17A of the Exchange Act solely
to perform the functions of a clearing
agency for certain non-excluded CDS
transactions; the temporary conditional
exemption of ICE Clear Europe and
certain of its clearing members from the
registration requirements of Sections 5
and 6 of the Exchange Act solely in
connection with the calculation of
mark-to-market prices for non-excluded
CDS cleared by ICE Clear Europe; the
temporary conditional exemption of
eligible contract participants and others
from certain Exchange Act requirements
with respect to non-excluded CDS
cleared by ICE Clear Europe; and the
temporary exemption from certain
Exchange Act requirements granted to
registered broker-dealers. This extension
is temporary, and the exemptions will
expire on November 30, 2010.
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II. Discussion
In its request for an extension, ICE
Clear Europe represents that there have
been no material changes to the
operations of ICE Clear Europe and the
representations in the 2009 ICE Clear
Corporation (‘‘Freddie Mac’’) or the Government
National Mortgage Association (‘‘Ginnie Mae’’); or
(ii) the reference index is an index in which 80
percent or more of the index’s weighting is
comprised of the entities or securities described in
subparagraph (i). See definition in paragraph
III.(e)(1) of this Order. As discussed above, the
Commission’s action today does not affect CDS that
are swap agreements under Section 206A of the
Gramm-Leach-Bliley Act. See text at note 4, supra.
7 See Letter from Russell Sacks, Shearman &
Sterling LLP, to Elizabeth M. Murphy, Secretary,
Commission, April 23, 2010 (‘‘April 2010 Request’’).
8 See id. The exemptions we are granting today
are based on all of the representations made on
behalf of ICE Clear Europe, which incorporate
representations made on behalf of ICE Clear Europe
as part of the request that preceded our earlier
exemptions addressing CDS clearing by ICE Clear
Europe. We recognize, however, that there could be
legal uncertainty in the event that one or more of
the underlying representations were to become
inaccurate. Accordingly, if any of these exemptions
were to become unavailable by reason of an
underlying representation no longer being
materially accurate, the legal status of existing open
positions in non-excluded CDS that previously had
been cleared pursuant to the exemptions would
remain unchanged, but no new positions could be
established pursuant to the exemptions until all of
the underlying representations were again accurate.
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Europe Order remain true in all material
respects.9 These representations are
discussed in detail in the 2009 ICE Clear
Europe Order.
A. ICE Clear Europe’s CDS Clearing
Activities to Date
ICE Clear Europe has cleared
proprietary CDS transactions of its
clearing members since July 2009. As of
March 16, 2010, ICE Clear Europe had
cleared approximately ×1.4 trillion
notional amount of CDS contracts based
on indices of securities.
In December 2009, ICE Clear Europe
commenced clearing CDS contracts
based on individual reference entities or
securities. As of March 16, ICE Clear
Europe had cleared approximately ×99
billion notional amount of CDS
contracts based on individual reference
entities or securities.
B. Extended Temporary Conditional
Exemption From Clearing Agency
Registration Requirement
On July 23, 2009, in connection with
its efforts to facilitate the establishment
of one or more central counterparties
(‘‘CCP’’) for Cleared CDS, the
Commission issued the 2009 ICE Clear
Europe Order, which conditionally
exempted ICE Clear Europe from
clearing agency registration under
Section 17A of the Exchange Act on a
temporary basis. Subject to the
conditions in the 2009 ICE Clear Europe
Order, ICE Clear Europe is permitted to
act as a CCP for Cleared CDS by
novating trades of non-excluded CDS
that are securities and generating money
and settlement obligations for
participants without having to register
with the Commission as a clearing
agency. The 2009 ICE Clear Europe
Order is effective until April 23, 2010.
In the 2009 ICE Clear Europe Order,
the Commission recognized the need to
facilitate the prompt establishment of
ICE Clear Europe as a CCP for CDS
transactions. The Commission also
recognized the need to ensure that
important elements of Section 17A of
the Exchange Act,10 which sets forth the
framework for the regulation and
operation of the U.S. clearance and
settlement system for securities, apply
to the non-excluded CDS market.
Accordingly, the temporary exemption
in the 2009 ICE Clear Europe Order
were subject to a number of conditions
designed to enable Commission staff to
monitor ICE Clear Europe’s clearance
and settlement of CDS transactions.11
9 See
April 2010 Request, supra note 7.
U.S.C. 78q–1.
11 See Securities Exchange Act Release No. 60372
(Jul. 23, 2009), 74 FR 37748 (Jul. 29, 2009).
10 15
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Moreover, the temporary exemption in
the 2009 ICE Clear Europe Order in part
was based on ICE Clear Europe’s
representation that it met the standards
set forth in the Committee on Payment
and Settlement Systems (‘‘CPSS’’) and
International Organization of Securities
Commissions (‘‘IOSCO’’) report entitled:
Recommendations for Central
Counterparties (‘‘RCCP’’).12 The RCCP
establishes a framework that requires a
CCP to have: (i) The ability to facilitate
the prompt and accurate clearance and
settlement of CDS transactions and to
safeguard its users’ assets; and (ii) sound
risk management, including the ability
to appropriately determine and collect
clearing fund and monitor its users’
trading. This framework is generally
consistent with the requirements of
Section 17A of the Exchange Act.
The Commission believes that
continuing to facilitate the central
clearing of CDS transactions through a
temporary conditional exemption from
Section 17A will continue to provide
important risk management and
systemic benefits by avoiding an
interruption in those CCP clearance and
settlement services. Any interruption in
CCP clearance and settlement services
for CDS transactions would eliminate in
the future the benefits ICE Clear Europe
provides to the non-excluded CDS
market. Accordingly, and consistent
with our findings in the 2009 ICE Clear
Europe Order and for the reasons
described herein, we find pursuant to
Section 36 of the Exchange Act 13 that it
is necessary and appropriate in the
public interest and is consistent with
the protection of investors for the
Commission to extend, through
November 30, 2010, the relief provided
from the clearing agency registration
requirements of Section 17A by the
2009 ICE Clear Europe Order.
Our action today balances the aim of
facilitating ICE Clear Europe’s
continued service as a CCP for nonexcluded CDS transactions with
ensuring that important elements of
12 The RCCP was drafted by a joint task force
(‘‘Task Force’’) composed of representative members
of IOSCO and CPSS and published in November
2004. The Task Force consisted of securities
regulators and central bankers from 19 countries
and the European Union. The U.S. representatives
on the Task Force included staff from the
Commission, the Federal Reserve Board, and the
Commodity Futures Trading Commission.
13 15 U.S.C. 78mm. Section 36 of the Exchange
Act authorizes the Commission to conditionally or
unconditionally exempt any person, security, or
transaction, or any class or classes of persons,
securities, or transactions, from any provision or
provisions of the Exchange Act or any rule or
regulation thereunder, by rule, regulation, or order,
to the extent that such exemption is necessary or
appropriate in the public interest, and is consistent
with the protection of investors.
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Commission oversight are applied to the
non-excluded CDS market. The
temporary conditional exemptions will
permit the Commission to continue to
develop direct experience with the nonexcluded CDS market. During the
extended exemptive period, the
Commission will continue to monitor
closely the impact of the CCPs on the
CDS market. In particular, the
Commission will seek to assure itself
that ICE Clear Europe does not act in an
anticompetitive manner or indirectly
facilitate anticompetitive behavior with
respect to fees charged to members, and
the dissemination of market data.
This temporary conditional extension
of the 2009 ICE Clear Europe Order also
is designed to assure that—as ICE Clear
Europe has represented—information
will continue to be available to market
participants about the terms of the CDS
cleared by ICE Clear Europe, the
creditworthiness of ICE Clear Europe or
any guarantor, and the clearance and
settlement process for CDS.14 The
Commission believes continued
operation of ICE Clear Europe consistent
with the conditions of this Order will
facilitate the availability to market
participants of information that should
enable them to make better informed
investment decisions and better value
and evaluate their Cleared CDS and
counterparty exposures relative to a
market for CDS that is not centrally
cleared.
This temporary extension of the 2009
ICE Clear Europe Order is subject to a
number of conditions that are designed
to enable Commission staff to continue
to monitor ICE Clear Europe’s clearance
and settlement of CDS transactions and
help reduce risk in the CDS market.
These conditions require that ICE Clear
Europe: (i) Make available on its Web
site its annual audited financial
statements; (ii) preserve records related
to the conduct of its Cleared CDS
clearance and settlement services for at
least five years (in an easily accessible
place for the first two years); (iii) supply
information relating to its Cleared CDS
clearance and settlement services to the
Commission and provide access to the
Commission to conduct on-site
inspections of facilities, records and
personnel related to its Cleared CDS
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14 The
Commission believes that it is important in
the CDS market, as in the market for securities
generally, that parties to transactions should have
access to financial information that would allow
them to evaluate appropriately the risks relating to
a particular investment and make more informed
investment decisions. See generally Policy
Statement on Financial Market Developments, The
President’s Working Group on Financial Markets,
March 13, 2008, available at: https://www.treas.gov/
press/releases/reports/
pwgpolicystatemktturmoil_03122008.pdf.
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clearance and settlement services as
may be reasonably requested by the
Commission and provide access to the
Commission to conduct on-site
inspections of facilities, records, and
personnel related to its Cleared CDS
clearance and settlement services,
subject to cooperation with the FSA and
upon terms and conditions agreed
between the FSA and the Commission;
(iv) notify the Commission about
material disciplinary actions taken
against any of its members utilizing its
Cleared CDS clearance and settlement
services, and about the involuntary
termination of the membership of an
entity that is utilizing ICE Clear
Europe’s Cleared CDS clearance and
settlement services; (v) notify the
Commission not less than one day prior
to effectiveness or implementation of
changes to rules, procedures, and any
other material events affecting its
Cleared CDS clearance and settlement
services, or, in exigent circumstances, as
promptly as reasonably practicable
under the circumstances; (vi) provide
the Commission with reports prepared
by independent audit personnel that are
generated in accordance with risk
assessment of the areas set forth in the
Commission’s Automation Review
Policy Statements 15 and its annual
audited financial statements prepared
by independent audit personnel; and
(vii) provide notice to the Commission
regarding the suspension of services or
inability to operate facilities in
connection with Cleared CDS clearance
and settlement services at the same time
it provides notice to the FSA.
In addition, this temporary extension
of the 2009 ICE Clear Europe Order is
conditioned on ICE Clear Europe,
directly or indirectly, making available
to the public on terms that are fair and
reasonable and not unreasonably
discriminatory: (i) All end-of-day
settlement prices and any other prices
with respect to Cleared CDS that ICE
Clear Europe may establish to calculate
mark-to-market margin requirements for
ICE Clear Europe Clearing Members;
and (ii) any other pricing or valuation
information with respect to Cleared CDS
as is published or distributed by ICE
Clear Europe.16
15 See Automated Systems of Self-Regulatory
Organizations, Exchange Act Release No. 27445
(November 16, 1989), File No. S7–29–89, and
Automated Systems of Self-Regulatory
Organizations (II), Exchange Act Release No. 29185
(May 9, 1991), File No. S7–12–91.
16 As a CCP, ICE Clear Europe collects and
processes information about CDS transactions,
prices, and positions. Public availability of such
information can improve fairness, efficiency, and
competitiveness in the market. Moreover, with
pricing and valuation information relating to
Cleared CDS, market participants would be able to
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C. Extended Temporary Conditional
Exemption From Exchange Registration
Requirements
When we initially provided
exemptions in connection with CDS
clearing by ICE Clear Europe, we
granted a temporary conditional
exemption to ICE Clear Europe from the
requirements of sections 5 and 6 of the
Exchange Act, and the rules and
regulations thereunder, in connection
with ICE Clear Europe’s calculation of
mark-to-market prices for open
positions in Cleared CDS. We also
temporarily exempted ICE Clear Europe
participants from the prohibitions of
section 5 to the extent that they use ICE
Clear Europe to effect or report any
transaction in Cleared CDS in
connection with ICE Clear Europe’s
calculation of mark-to-market prices for
open positions in Cleared CDS. Section
5 of the Exchange Act contains certain
restrictions relating to the registration of
national securities exchanges,17 while
section 6 provides the procedures for
registering as a national securities
exchange.18
We granted these temporary
exemptions to facilitate the
establishment of ICE Clear Europe’s
end-of-day settlement price process. ICE
Clear Europe had represented that in
connection with its clearing and risk
management process it would calculate
an end-of-day settlement price for each
Cleared CDS in which an ICE Clear
Europe participant has a cleared
position, based on prices submitted by
the participants. As part of this mark-tomarket process, ICE Clear Europe has
periodically required its clearing
members to execute certain CDS trades
at the price at which certain quotations
of the clearing members lock or cross.
ICE Clear Europe represents that it
continues to periodically require
clearing members to execute certain
CDS trades in this manner.
As discussed above, we have found in
general that it is necessary or
appropriate in the public interest, and is
derive information about underlying securities and
indices, potentially improving the efficiency and
effectiveness of the securities markets.
17 In particular, section 5 states:
It shall be unlawful for any broker, dealer, or
exchange, directly or indirectly, to make use of the
mails or any means or instrumentality of interstate
commerce for the purpose of using any facility of
an exchange * * * to effect any transaction in a
security, or to report any such transactions, unless
such exchange (1) is registered as a national
securities exchange under section 6 of [the
Exchange Act], or (2) is exempted from such
registration * * * by reason of the limited volume
of transactions effected on such exchange * * * .
15 U.S.C. 78e.
18 15 U.S.C. 78f. Section 6 of the Exchange Act
also sets forth various requirements to which a
national securities exchange is subject.
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consistent with the protection of
investors, to facilitate continued CDS
clearing by ICE Clear Europe. Consistent
with that finding—and in reliance on
ICE Europe’s representation that the
end-of-day settlement pricing process,
including the periodically required
trading, is integral to its risk
management—we further find that it is
necessary or appropriate in the public
interest, and is consistent with the
protection of investors that we exercise
our authority under section 36 of the
Exchange Act to extend, through
November 30, 2010, ICE Clear Europe’s
temporary exemption from sections 5
and 6 of the Exchange Act in connection
with its calculation of mark-to-market
prices for open positions in Cleared
CDS, and ICE Clear Europe’s clearing
members’ temporary exemption from
section 5 with respect to such trading
activity.
The temporary exemption for ICE
Clear Europe will continue to be subject
to three conditions. First, ICE Clear
Europe must report the following
information with respect to its
calculation of mark-to-market prices for
Cleared CDS to the Commission within
30 days of the end of each quarter, and
preserve such reports during the life of
the enterprise and of any successor
enterprise:
• The total dollar volume of
transactions executed during the
quarter, broken down by reference
entity, security, or index; and
• The total unit volume and/or
notional amount executed during the
quarter, broken down by reference
entity, security, or index.
Second, ICE Clear Europe must
establish and maintain adequate
safeguards and procedures to protect
participants’ confidential trading
information. Such safeguards and
procedures shall include: (a) Limiting
access to the confidential trading
information of participants to those
employees of ICE Clear Europe who are
operating the system or responsible for
its compliance with this exemption or
any other applicable rules; and (b)
establishing and maintaining standards
controlling employees of ICE Clear
Europe trading for their own accounts.
ICE Clear Europe must establish and
maintain adequate oversight procedures
to ensure that the safeguards and
procedures established pursuant to this
condition are followed.19
19 We are making a technical modification to this
condition to provide that ICE Clear Europe must
‘‘establish and maintain’’ the applicable safeguards
and procedures (in lieu of the current exemption’s
use of terminology such as ‘‘adopt and implement’’)
to reflect the fact that ICE Clear Europe already is
relying on this settlement pricing process.
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Third, ICE Clear Europe must comply
with the conditions to the temporary
exemption from Section 17A of the
Exchange Act in this Order, given that
this exemption is granted in the context
of our goal of continuing to facilitate ICE
Clear Europe’s ability to act as a CCP for
non-excluded CDS, and given ICE Clear
Europe’s representation that the end-ofday settlement pricing process,
including the periodically required
trading, will enhance the reliability of
the submitted end-of-day prices.
The Commission also is continuing to
temporarily exempt each ICE Clear
Europe clearing member, through
November 30, 2010, from the
prohibition in Section 5 of the Exchange
Act to the extent that such ICE Clear
Europe clearing member uses any
facility of ICE Clear Europe to effect any
transaction in Cleared CDS, or to report
any such transaction, in connection
with ICE Clear Europe calculation of
mark-to-market prices for open
positions in Cleared CDS. Absent an
exemption, section 5 would prohibit
any ICE Clear Europe clearing member
that is a broker or dealer from effecting
transactions in Cleared CDS on ICE
Clear Europe, which will rely on this
Order for an exemption from exchange
registration. The Commission believes
that temporarily exempting ICE Clear
Europe clearing members from the
restriction in section 5 is necessary and
appropriate in the public interest and is
consistent with the protection of
investors because it will facilitate their
use of ICE Clear Europe’s CCP for
Cleared CDS, which for the reasons set
forth in this Order the Commission
believes to be beneficial. Without also
temporarily exempting ICE Clear Europe
clearing members from this section 5
requirement, the Commission’s
temporary exemption of ICE Clear
Europe from sections 5 and 6 of the
Exchange Act would be ineffective,
because ICE Clear Europe clearing
members that are brokers or dealers
would not be permitted to effect
transactions on ICE Clear Europe in
connection with the end-of-day
settlement price process.
D. Extended and Revised Temporary
Conditional General Exemption for ICE
Clear Europe and Certain Eligible
Contract Participants
As we recognized when we initially
provided temporary exemptions in
connection with CDS clearing by ICE
Clear Europe, applying the full panoply
of Exchange Act requirements to
participants in transactions in nonexcluded CDS likely would deter some
participants from using CCPs to clear
CDS transactions. We also recognized
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that it is important that the antifraud
provisions of the Exchange Act apply to
transactions in non-excluded CDS,
particularly given that OTC transactions
subject to individual negotiation that
qualify as security-based swap
agreements already are subject to those
provisions.20
As a result, we concluded that it is
appropriate in the public interest and
consistent with the protection of
investors to apply temporarily
substantially the same framework to
transactions by market participants in
non-excluded CDS that applies to
transactions in security-based swap
agreements. Consistent with that
conclusion, we temporarily exempted
ICE Clear Europe, and certain members
and eligible contract participants, from
a number of Exchange Act requirements,
subject to certain conditions, while
excluding certain enforcement-related
and other provisions from the scope of
the exemption.
We believe that continuing to
facilitate the central clearing of CDS
transactions by ICE Clear Europe
through this type of temporary
exemption will provide important risk
management benefits and systemic
benefits. Accordingly, pursuant to
Section 36 of the Exchange Act, the
Commission finds that it is necessary or
appropriate in the public interest and is
consistent with the protection of
investors to exercise its authority to
grant an exemption through November
30, 2010 from certain requirements
under the Exchange Act.
As before, this temporary conditional
exemption applies to ICE Clear Europe,
any ICE Clear Europe Clearing
20 While Section 3A of the Exchange Act excludes
‘‘swap agreements’’ from the definition of ‘‘security,’’
certain antifraud and insider trading provisions
under the Exchange Act explicitly apply to securitybased swap agreements. See (a) paragraphs (2)
through (5) of section 9(a), 15 U.S.C. 78i(a),
prohibiting the manipulation of security prices; (b)
section 10(b), 15 U.S.C. 78j(b), and underlying rules
prohibiting fraud, manipulation or insider trading
(but not prophylactic reporting or recordkeeping
requirements); (c) section 15(c)(1), 15 U.S.C.
78o(c)(1), which prohibits brokers and dealers from
using manipulative or deceptive devices; (d)
sections 16(a) and (b), 15 U.S.C. 78p(a) and (b),
which address disclosure by directors, officers and
principal stockholders, and short-swing trading by
those persons, and rules with respect to reporting
requirements under Section 16(a); (e) section 20(d),
15 U.S.C. 78t(d), providing for antifraud liability in
connection with certain derivative transactions; and
(f) section 21A(a)(1), 15 U.S.C. 78u–1(a)(1), related
to the Commission’s authority to impose civil
penalties for insider trading violations.
‘‘Security-based swap agreement’’ is defined in
Section 206B of the Gramm-Leach-Bliley Act as a
swap agreement in which a material term is based
on the price, yield, value, or volatility of any
security or any group or index of securities, or any
interest therein.
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Member 21 which is not a broker or
dealer registered under section 15(b) of
the Exchange Act (other than paragraph
(11) thereof), and any eligible contract
participants 22 other than: Eligible
contract participants that receive or
hold funds or securities for the purpose
of purchasing, selling, clearing, settling
or holding Cleared CDS positions for
other persons; 23 eligible contract
participants that are self-regulatory
organizations or eligible contract
participants that are registered brokers
or dealers.24
As before, under this temporary
conditional exemption, and solely with
respect to Cleared CDS, those persons
generally are exempt from the
provisions of the Exchange Act and the
rules and regulations thereunder that do
not apply to security-based swap
agreements. Thus, those persons would
still be subject to those Exchange Act
requirements that explicitly are
applicable in connection with securitybased swap agreements.25 In addition,
all provisions of the Exchange Act
related to the Commission’s
enforcement authority in connection
with violations or potential violations of
21 For purposes of this Order, an ‘‘ICE Clear
Europe Clearing Member’’ means any clearing
member of ICE Clear Europe that submits Cleared
CDS to ICE Clear Europe for clearance and
settlement exclusively (i) for its own account or (ii)
for the account of an affiliate that controls, is
controlled by, or is under common control with the
clearing member of ICE Clear Europe. See definition
in paragraph III.(e)(1) of this Order.
22 This exemption in general applies to eligible
contract participants, as defined in section 1a(12) of
the Commodity Exchange Act as in effect on the
date of this Order, other than persons that are
eligible contract participants under paragraph (C) of
that section.
23 Solely for purposes of this requirement, an
eligible contract participant would not be viewed as
receiving or holding funds or securities for the
purpose of purchasing, selling, clearing, settling, or
holding Cleared CDS positions for other persons, if
the other persons involved in the transaction would
not be considered ‘‘customers’’ of the eligible
contract participant under the analysis used for
determining whether certain persons would be
considered ‘‘customers’’ of a broker-dealer under
Exchange Act Rule 15c3–3(a)(1). For these
purposes, and for the purpose of the definition of
‘‘Cleared CDS,’’ the terms ‘‘purchasing’’ and ‘‘selling’’
mean the execution, termination (prior to its
scheduled maturity date), assignment, exchange, or
similar transfer or conveyance of, or extinguishing
the rights or obligations under, a Cleared CDS, as
the context may require. This is consistent with the
meaning of the terms ‘‘purchase’’ or ‘‘sale’’ under the
Exchange Act in the context of security-based swap
agreements. See Exchange Act Section 3A(b)(4).
24 A separate temporary exemption addresses the
Cleared CDS activities of registered broker-dealers.
See Part II.E, infra. Solely for purposes of this
Order, a registered broker-dealer, or a broker or
dealer registered under Section 15(b) of the
Exchange Act, does not refer to someone that would
otherwise be required to register as a broker or
dealer solely as a result of activities in Cleared CDS
in compliance with this Order.
25 See note 20, infra.
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such provisions would remain
applicable.26 In this way, the temporary
conditional exemption would apply the
same Exchange Act requirements in
connection with non-excluded CDS as
apply in connection with OTC credit
default swaps.
Consistent with the 2009 ICE Clear
Europe Order, this temporary
conditional exemption does not extend
to: The exchange registration
requirements of Exchange Act sections 5
and 6; 27 the clearing agency registration
requirements of Exchange Act section
17A; the requirements of Exchange Act
sections 12, 13, 14, 15(d), and 16; 28 the
Commission’s administrative
proceeding authority under paragraphs
(4) and (6) of Exchange Act section
15(b),29 and the rules and regulations
thereunder that apply to a broker or
dealer that is not registered with the
Commission; or certain provisions
related to government securities.30
We are modifying this temporary
conditional exemption by providing that
ICE Clear Europe clearing members
must be in material compliance with
ICE Clear Europe rules to be eligible to
take advantage of this exemption from
Exchange Act requirements. This should
26 Thus, for example, the Commission retains the
ability to investigate potential violations and bring
enforcement actions in the Federal courts as well
as in administrative proceedings, and to seek the
full panoply of remedies available in such cases.
27 These are subject to a separate temporary class
exemption. See note 1, supra. A national securities
exchange that effects transactions in Cleared CDS
would continue to be required to comply with all
requirements under the Exchange Act applicable to
such transactions. A national securities exchange
could form subsidiaries or affiliates that operate
exchanges exempt under that order. Any subsidiary
or affiliate of a registered exchange could not
integrate, or otherwise link, the exempt CDS
exchange with the registered exchange including
the premises or property of such exchange for
effecting or reporting a transaction without being
considered a ‘‘facility of the exchange.’’ See Section
3(a)(2), 15 U.S.C. 78c(a)(2).
This Order also includes a separate temporary
exemption from Sections 5 and 6 in connection
with the mark-to-market process of ICE Clear
Europe, discussed above, at note 17 and
accompanying text.
28 15 U.S.C. 78l, 78m, 78n, 78o(d), 78p. Eligible
contract participants and other persons instead
should refer to the interim final temporary rules
issued by the Commission. See note 1, supra.
29 Exchange Act Sections 15(b)(4) and 15(b)(6), 15
U.S.C. 78o(b)(4) and (b)(6), grant the Commission
authority to take action against broker-dealers and
associated persons in certain situations.
30 This exemption specifically does not extend to
the Exchange Act provisions applicable to
government securities, as set forth in Section 15C,
15 U.S.C. 78o–5, and its underlying rules and
regulations. The exemption also does not extend to
related definitions found at paragraphs (42) through
(45) of Section 3(a), 15 U.S.C. 78c(a). The
Commission does not have authority under Section
36 to issue exemptions in connection with those
provisions. See Exchange Act Section 36(b), 15
U.S.C. 78mm(b).
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promote compliance with the applicable
CCP rules.
E. Extended Temporary General
Exemption for Certain Registered
Broker-Dealers
The 2009 ICE Clear Europe Order
included a limited conditional
exemption from Exchange Act
requirements to registered brokerdealers in connection with their
activities involving Cleared CDS. In
crafting this temporary conditional
exemption, we balanced the need to
avoid creating disincentives to the
prompt use of CCPs against the critical
role that certain broker-dealers play in
promoting market integrity and
protecting customers (including brokerdealer customers that are not involved
with CDS transactions).
In light of the risk management and
systemic benefits in continuing to
facilitate CDS clearing by ICE Clear
Europe through targeted exemptions to
registered broker-dealers, the
Commission finds pursuant to Section
36 of the Exchange Act that it is
necessary or appropriate in the public
interest and is consistent with the
protection of investors to exercise its
authority to extend this temporary
registered broker-dealer exemption from
certain Exchange Act requirements
through November 30, 2010.31
Consistent with the temporary
exemptions discussed above, and solely
with respect to Cleared CDS, we are
temporarily exempting registered
broker-dealers from provisions of the
Exchange Act and the rules and
regulations thereunder that do not apply
to security-based swap agreements. As
discussed above, we are not excluding
registered broker-dealers from Exchange
Act provisions that explicitly apply in
connection with security-based swap
agreements or from related enforcement
authority provisions.32 As above, and
31 The temporary exemption addressed above
with regard to ICE Clear Europe, certain clearing
members and certain eligible contract participants
are not available to persons that are registered as
broker-dealers with the Commission (other than
those that are notice registered pursuant to
Exchange Act Section 15(b)(11)). Exchange Act
Section 15(b)(11) provides for notice registration of
certain persons that effect transactions in security
futures products. 15 U.S.C. 78o(b)(11).
32 See notes 20 and 26, supra. As noted above,
broker-dealers also would be subject to Section
15(c)(1) of the Exchange Act, which prohibits
brokers and dealers from using manipulative or
deceptive devices, because that provision explicitly
applies in connection with security-based swap
agreements. In addition, to the extent the Exchange
Act and any rule or regulation thereunder imposes
any other requirement on a broker-dealer with
respect to security-based swap agreements (e.g.,
requirements under Rule 17h-1T to maintain and
preserve written policies, procedures, or systems
concerning the broker or dealer’s trading positions
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for similar reasons, we are not
exempting registered broker-dealers
from: sections 5, 6, 12, 13, 14, 15(b)(4),
15(b)(6), 15(d), 16 and 17A of the
Exchange Act.33
Further we are not exempting
registered broker-dealers from the
following additional provisions under
the Exchange Act: (1) Section 7(c),34
regarding the unlawful extension of
credit by broker-dealers; (2) Section
15(c)(3),35 regarding the use of unlawful
or manipulative devices by brokerdealers; (3) Section 17(a),36 regarding
broker-dealer obligations to make, keep
and furnish information; (4) Section
17(b),37 regarding broker-dealer records
subject to examination; (5) Regulation
T,38 a Federal Reserve Board regulation
regarding extension of credit by brokerdealers; (6) Exchange Act Rule 15c3–1,
regarding broker-dealer net capital; (7)
Exchange Act Rule 15c3–3, regarding
broker-dealer reserves and custody of
securities; (8) Exchange Act Rules 17a–
3 through 17a–5, regarding records to be
made and preserved by broker-dealers
and reports to be made by brokerdealers; and (9) Exchange Act Rule 17a–
13, regarding quarterly security counts
to be made by certain exchange
members and broker-dealers.39
Registered broker-dealers must comply
with these provisions in connection
with their activities involving nonexcluded CDS because these provisions
protect investors, provide safeguards
with respect to the financial
responsibility and related practices of
broker-dealers, and safeguard against
fraud and abuse.40
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G. Solicitation of Comments
When we granted the 2009 ICE Clear
Europe Order, we requested comment
on all aspects of the exemptions. We
and risks, such as policies relating to restrictions or
limitations on trading financial instruments or
products), these requirements would continue to
apply to broker-dealers’ activities with respect to
Cleared CDS.
33 We also are not exempting those members from
provisions related to government securities, as
discussed above.
34 15 U.S.C. 78g(c).
35 15 U.S.C. 78o(c)(3).
36 15 U.S.C. 78q(a).
37 15 U.S.C. 78q(b).
38 12 CFR 220.1 et seq.
39 Solely for purposes of this temporary
exemption, in addition to the general requirements
under the referenced Exchange Act sections,
registered broker-dealers shall only be subject to the
enumerated rules under the referenced Exchange
Act sections.
40 See 15 U.S.C. 78o(c)(3) (directing the
Commission to establish minimum financial
responsibility requirements for broker-dealers,
including rules relating to the acceptance of
custody, the use of customers’ securities and the
carrying and use of customers’ deposits or credit
balances).
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received no comments in response. In
connection with this Order extending
the exemptions granted in connection
with CDS clearing by ICE Clear Europe,
we reiterate our request for comments
on all aspects of the exemptions.
Comments may be submitted by any
of the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/other.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number S7–16–09 on the subject line;
or
• Use the Federal eRulemaking Portal
(https://www.regulations.gov/). Follow
the instructions for submitting
comments.
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 S7–16–09. This file number
should be included on the subject line
if e-mail is used. To help us process and
review your comments more efficiently,
please use only one method. We will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/other.shtml). Comments are also
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
a.m. and 3 p.m. All comments received
will be posted without change; we do
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly.
III. Conclusion
It is hereby ordered, pursuant to
section 36(a) of the Exchange Act, that,
through November 30, 2010:
(a) Exemption from section 17A of the
Exchange Act.
ICE Clear Europe Limited (‘‘ICE Clear
Europe’’) shall be exempt from section
17A of the Exchange Act solely to
perform the functions of a clearing
agency for Cleared CDS (as defined in
paragraph (e)(1) of this Order), subject to
the following conditions:
(1) ICE Clear Europe shall make
available on its Web site its annual
audited financial statements.
(2) ICE Clear Europe shall keep and
preserve at least one copy of all
documents, including all
correspondence, memoranda, papers,
books, notices, accounts, and other such
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22661
records as shall be made or received by
it relating to its Cleared CDS clearance
and settlement services. These records
shall be kept for at least five years and
for the first two years shall be held in
an easily accessible place.
(3) ICE Clear Europe shall supply
information and periodic reports
relating to its Cleared CDS clearance
and settlement services as may be
reasonably requested by the
Commission and, subject to cooperation
with the FSA and upon such terms and
conditions as may be agreed between
the FSA and the Commission, shall
provide access to the Commission to
conduct on-site inspections of all
facilities (including automated systems
and systems environment), records, and
personnel related to ICE Clear Europe’s
Cleared CDS clearance and settlement
services.
(4) ICE Clear Europe shall notify the
Commission, on a monthly basis, of any
material disciplinary actions taken
against any of its members using its
Cleared CDS clearance and settlement
services, including the denial of
services, fines, or penalties. ICE Clear
Europe shall notify the Commission
promptly when ICE Clear Europe
terminates on an involuntary basis the
membership of an entity that is using
ICE Clear Europe’s Cleared CDS
clearance and settlement services. Both
notifications shall describe the facts and
circumstances that led to the ICE Clear
Europe’s disciplinary action.
(5) ICE Clear Europe shall notify the
Commission of all changes to its rules,
procedures, and any other material
events affecting its Cleared CDS
clearance and settlement services,
including its fee schedule and changes
to risk management practices, not less
than one day prior to effectiveness or
implementation of such changes or, in
exigent circumstances, as promptly as
reasonably practicable under the
circumstances. If ICE Clear Europe gives
notice to, or seeks approval from, the
FSA regarding any other changes to its
rules regarding its Cleared CDS
clearance and settlement services, ICE
Clear Europe will also provide notice to
the Commission. All such rule changes
will be posted on ICE Clear Europe’s
Web site. Such notifications will not be
deemed rule filings that require
Commission approval.
(6) ICE Clear Europe shall provide the
Commission with reports prepared by
independent audit personnel
concerning its Cleared CDS clearance
and settlement services that are
generated in accordance with risk
assessment of the areas set forth in the
Commission’s Automation Review
Policy Statements. ICE Clear Europe
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shall provide the Commission with
annual audited financial statements for
ICE Clear Europe prepared by
independent audit personnel.
(7) ICE Clear Europe shall notify the
Commission at the same time it notifies
the FSA in accordance with FSA REC
3.15 and FSA REC 3.16 regarding the
suspension of services or inability to
operate its facilities in connection with
its Cleared CDS clearance and
settlement services.
(8) ICE Clear Europe, directly or
indirectly, shall make available to the
public on terms that are fair and
reasonable and not unreasonably
discriminatory: (i) All end-of-day
settlement prices and any other prices
with respect to Cleared CDS that ICE
Clear Europe may establish to calculate
mark-to-market margin requirements for
ICE Clear Europe Clearing Members;
and (ii) any other pricing or valuation
information with respect to Cleared CDS
as is published or distributed by ICE
Clear Europe.
(b) Exemption from Sections 5 and 6
of the Exchange Act
(1) ICE Clear Europe shall be exempt
from the requirements of Sections 5 and
6 of the Exchange Act and the rules and
regulations thereunder in connection
with its calculation of mark-to-market
prices for open positions in Cleared
CDS, subject to the following
conditions:
(i) ICE Clear Europe shall report the
following information with respect to
the calculation of mark-to-market prices
for Cleared CDS to the Commission
within 30 days of the end of each
quarter, and preserve such reports
during the life of the enterprise and of
any successor enterprise:
(A) The total dollar volume of
transactions executed during the
quarter, broken down by reference
entity, security, or index; and
(B) The total unit volume and/or
notional amount executed during the
quarter, broken down by reference
entity, security, or index;
(ii) ICE Clear Europe shall establish
and maintain adequate safeguards and
procedures to protect members’
confidential trading information. Such
safeguards and procedures shall
include: (A) limiting access to the
confidential trading information of
members to those employees of ICE
Clear Europe who are operating the
system or responsible for its compliance
with this exemption or any other
applicable rules; and (B) establishing
and maintaining standards controlling
employees of ICE Clear Europe trading
for their own accounts. ICE Clear
Europe must establish and maintain
adequate oversight procedures to ensure
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that the safeguards and procedures
established pursuant to this condition
are followed; and
(iii) ICE Clear Europe shall satisfy the
conditions of the temporary exemption
from Section 17A of the Exchange Act
set forth in paragraphs (a)(1)–(8) of this
Order.
(2) Any ICE Clear Europe Clearing
Member shall be exempt from the
requirements of Section 5 of the
Exchange Act to the extent such ICE
Clear Europe Clearing Member uses any
facility of ICE Clear Europe to effect any
transaction in Cleared CDS, or to report
any such transaction, in connection
with ICE Clear Europe’s clearance and
risk management process for Cleared
CDS.
(c) Exemption for ICE Clear Europe,
ICE Clear Europe Clearing Members,
and certain eligible contract
participants.
(1) Persons eligible. The exemption in
paragraph (c)(2) is available to:
(i) ICE Clear Europe;
(ii) Any ICE Clear Europe Clearing
Member (as defined in paragraph (e)(2)
of this Order), which is not a broker or
dealer registered under Section 15(b) of
the Exchange Act (other than paragraph
(11) thereof); and
(iii) Any eligible contract participant
(as defined in Section 1a(12) of the
Commodity Exchange Act as in effect on
the date of this Order (other than a
person that is an eligible contract
participant under paragraph (C) of that
section)), other than: (A) An eligible
contract participant that receives or
holds funds or securities for the purpose
of purchasing, selling, clearing, settling,
or holding Cleared CDS positions for
other persons; (B) an eligible contract
participant that is a self-regulatory
organization, as that term is defined in
Section 3(a)(26) of the Exchange Act; or
(C) a broker or dealer registered under
Section 15(b) of the Exchange Act (other
than paragraph (11) thereof).
(2) Scope of exemption.
(i) In general. Subject to the
conditions specified in paragraph (c)(3)
of this subsection, such persons
generally shall, solely with respect to
Cleared CDS, be exempt from the
provisions of the Exchange Act and the
rules and regulations thereunder that do
not apply in connection with securitybased swap agreements. Accordingly,
under this exemption, those persons
would remain subject to those Exchange
Act requirements that explicitly are
applicable in connection with securitybased swap agreements (i.e., paragraphs
(2) through (5) of Section 9(a), Section
10(b), Section 15(c)(1), paragraphs (a)
and (b) of Section 16, Section 20(d) and
Section 21A(a)(1) and the rules
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thereunder that explicitly are applicable
to security-based swap agreements). All
provisions of the Exchange Act related
to the Commission’s enforcement
authority in connection with violations
or potential violations of such
provisions also remain applicable.
(ii) Exclusions from exemption. The
exemption in paragraph (c)(2)(i),
however, does not extend to the
following provisions under the
Exchange Act:
(A) Paragraphs (42), (43), (44), and
(45) of Section 3(a);
(B) Section 5;
(C) Section 6;
(D) Section 12 and the rules and
regulations thereunder;
(E) Section 13 and the rules and
regulations thereunder;
(F) Section 14 and the rules and
regulations thereunder;
(G) Paragraphs (4) and (6) of Section
15(b);
(H) Section 15(d) and the rules and
regulations thereunder;
(I) Section 15C and the rules and
regulations thereunder;
(J) Section 16 and the rules and
regulations thereunder; and
(K) Section 17A (other than as
provided in paragraph (a)).
(3) Conditions for ICE Clear Europe
Clearing Members. Any ICE Clear
Europe Clearing Members relying on
this exemption must be in material
compliance with the rules of ICE Clear
Europe.
(d) Exemption for certain registered
broker-dealers.
A broker or dealer registered under
Section 15(b) of the Exchange Act (other
than paragraph (11) thereof) shall be
exempt from the provisions of the
Exchange Act and the rules and
regulations thereunder specified in
paragraph (c)(2), solely with respect to
Cleared CDS, except:
(1) Section 7(c);
(2) Section 15(c)(3);
(3) Section 17(a);
(4) Section 17(b);
(5) Regulation T, 12 CFR 200.1 et seq.;
(6) Rule 15c3–1;
(7) Rule 15c3–3;
(8) Rule 17a–3;
(9) Rule 17a–4;
(10) Rule 17a–5; and
(11) Rule 17a–13.
(e) Definitions.
For purposes of this Order:
(1) ‘‘Cleared CDS’’ shall mean a credit
default swap that is submitted (or
offered, purchased, or sold on terms
providing for submission) to ICE Clear
Europe, that is offered only to,
purchased only by, and sold only to
eligible contract participants (as defined
in Section 1a(12) of the Commodity
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Exchange Act as in effect on the date of
this Order (other than a person that is
an eligible contract participant under
paragraph (C) of that section)), and in
which:
(i) The reference entity, the issuer of
the reference security, or the reference
security is one of the following:
(A) An entity reporting under the
Exchange Act, providing Securities Act
Rule 144A(d)(4) information, or about
which financial information is
otherwise publicly available;
(B) A foreign private issuer whose
securities are listed outside the United
States and that has its principal trading
market outside the United States;
(C) A foreign sovereign debt security;
(D) An asset-backed security, as
defined in Regulation AB, issued in a
registered transaction with publicly
available distribution reports; or
(E) An asset-backed security issued or
guaranteed by Fannie Mae, Freddie Mac
or Ginnie Mae; or
(ii) The reference index is an index in
which 80 percent or more of the index’s
weighting is comprised of the entities or
securities described in subparagraph (i).
(2) ‘‘ICE Clear Europe Clearing
Member’’ shall mean any clearing
member of ICE Clear Europe that
submits Cleared CDS to ICE Clear
Europe for clearance and settlement
exclusively (i) for its own account or (ii)
for the account of an affiliate that
controls, is controlled by, or is under
common control with the clearing
member of ICE Clear Europe.
By the Commission.
Elizabeth M. Murphy,
Secretary.
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–61954; File No. SR–
NYSEArca–2010–22]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change Relating to Listing of the
Teucrium Corn Fund
mstockstill on DSKH9S0YB1PROD with NOTICES
April 21, 2010.
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 March
31, 2010, NYSE Arca, Inc. (‘‘Exchange’’
or ‘‘NYSE Arca’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
VerDate Mar<15>2010
16:19 Apr 28, 2010
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to list and
trade shares of the Teucrium Corn Fund
under NYSE Arca Equities Rule 8.200.
The text of the proposed rule change is
available at the Exchange, the
Commission’s Public Reference Room,
and https://www.nyse.com.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization 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 those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
[FR Doc. 2010–9932 Filed 4–28–10; 8:45 am]
1 15
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
Jkt 220001
NYSE Arca Equities Rule 8.200,
Commentary .02 permits the trading of
Trust Issued Receipts (‘‘TIRs’’) either by
listing or pursuant to unlisted trading
privileges (‘‘UTP’’).3 The Exchange
proposes to list and trade shares
(‘‘Shares’’) of the Teucrium Corn Fund
(‘‘Fund’’) pursuant to NYSE Arca
Equities Rule 8.200.
The Exchange notes that the
Commission has previously approved
the listing and trading of other issues of
Trust Issued Receipts on the American
Stock Exchange LLC,4 trading on NYSE
Arca pursuant to unlisted trading
3 Commentary .02 to NYSE Arca Equities Rule
8.200 applies to TIRs that invest in ‘‘Financial
Instruments’’. The term ‘‘Financial Instruments,’’ as
defined in Commentary .02(b)(4) to NYSE Arca
Equities Rule 8.200, means any combination of
investments, including cash; securities; options on
securities and indices; futures contracts; options on
futures contracts; forward contracts; equity caps,
collars and floors; and swap agreements.
4 See, e.g., Securities Exchange Act Release No.
58161 (July 15, 2008), 73 FR 42380 (July 21, 2008)
(SR–Amex–2008–39).
PO 00000
Frm 00114
Fmt 4703
Sfmt 4703
22663
privileges (‘‘UTP’’),5 and listing on NYSE
Arca.6 In addition, the Commission has
approved other exchange-traded fundlike products linked to the performance
of underlying commodities.7
Overview of the Fund
The Shares represent beneficial
ownership interests in the Fund, as
described in the Registration Statement
for the Fund.8 The Fund is a commodity
pool that is a series of the Teucrium
Commodity Trust (‘‘Trust’’), a Delaware
statutory trust. The Fund is managed
and controlled by Teucrium Trading,
LLC (‘‘Sponsor’’). The Sponsor is a
Delaware limited liability company that
is registered as a commodity pool
operator (‘‘CPO’’) with the Commodity
Futures Trading Commission (‘‘CFTC’’)
and is a member of the National Futures
Association.
According to the Registration
Statement, the investment objective of
the Fund is to have the daily changes in
percentage terms of the Fund’s net asset
value (‘‘NAV’’) per Share reflect the
daily changes in percentage terms of a
weighted average of the closing
settlement prices for three futures
contracts for corn (‘‘Corn Futures
Contracts’’) that are traded on the
Chicago Board of Trade (‘‘CBOT’’),
specifically (1) The second-to-expire
CBOT Corn Futures Contract, weighted
35%, (2) the third-to-expire CBOT Corn
Futures Contract, weighted 30%, and (3)
the CBOT Corn Futures Contract
expiring in the December following the
expiration month of the third-to-expire
contract, weighted 35%, less the Fund’s
expenses.9 (This weighted average of the
5 See, e.g., Securities Exchange Act Release No.
58163 [sic] (July 15, 2008), 73 FR 42391 (July 21,
2008) (SR–NYSEArca–2008–73).
6 See, e.g., Securities Exchange Act Release No.
58457 (September 3, 2008), 73 FR 52711 (September
10, 2008) (SR–NYSEArca–2008–91).
7 See, e.g., Securities Exchange Act Release Nos.
57456 (March 7, 2008), 73 FR 13599 (March 13,
2008) (SR–NYSEArca–2007–91) (order granting
accelerated approval for NYSE Arca listing the
iShares GS Commodity Trusts); 59781 (April 17,
2009), 74 FR 18771 (April 24, 2009) (SR–
NYSEArca–2009–28) (order granting accelerated
approval for NYSE Arca listing the ETFS Silver
Trust); 59895 (May 8, 2009), 74 FR 22993 (May 15,
2009) (SR–NYSEArca–2009–40) (order granting
accelerated approval for NYSE Arca listing the
ETFS Gold Trust); 61219 (December 22, 2009), 74
FR 68886 (December 29, 2009) (order approving
listing on NYSE Arca of the ETFS Platinum Trust).
8 See Amendment No. 3 to the Registration
Statement on Form S–1 for Teucrium Commodity
Trust, dated March 29, 2010 (File No. 333–162033)
(‘‘Registration Statement’’). The discussion herein
relating to the Trust and the Shares is based on the
Registration Statement.
9 Corn Futures Contracts traded on the CBOT
expire on a specified day in five different months:
March, May, July, September and December. In
terms of the Benchmark, in June of a given year, the
E:\FR\FM\29APN1.SGM
Continued
29APN1
]]>Agencies
[Federal Register Volume 75, Number 82 (Thursday, April 29, 2010)]
[Notices]
[Pages 22656-22663]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-9932]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-61973; File No. S7-16-09]
Order Extending Temporary Conditional Exemptions Under the
Securities Exchange Act of 1934 in Connection With Request on Behalf of
ICE Clear Europe, Limited Related to Central Clearing of Credit Default
Swaps, and Request for Comments
April 23, 2010.
I. Introduction
The Securities and Exchange Commission (``Commission'') has taken
multiple actions \1\ designed to address concerns related to the market
in credit default swaps (``CDS'').\2\ The over-the-counter (``OTC'')
market for CDS has been a source of particular concern to us and other
financial regulators, and we have recognized that facilitating the
establishment of central counterparties (``CCPs'') for CDS can play an
important role in reducing the counterparty risks inherent in the CDS
market, and thus can help mitigate potential systemic impact. We have
therefore found that taking action to help foster the prompt
development of CCPs, including granting temporary conditional
exemptions from certain provisions of the Federal securities laws, is
in the public interest.\3\
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\1\ See generally Securities Exchange Act Release No. 60372
(Jul. 23, 2009), 74 FR 37748 (Jul. 29, 2009) (temporary exemptions
in connection with CDS clearing by ICE Clear Europe Limited) (``2009
ICE Clear Europe order''); Securities Exchange Act Release No. 60373
(Jul. 23, 2009), 74 FR 37740 (Jul. 29, 2009) and Securities Exchange
Act Release No. 61975 (Apr. 23, 2010) (temporary exemptions in
connection with CDS clearing by Eurex Clearing AG); Securities
Exchange Act Release No. 59578 (Mar. 13, 2009), 74 FR 11781 (Mar.
19, 2009), Securities Exchange Act Release No. 61164 (Dec. 14,
2009), 74 FR 67258 (Dec. 18, 2009) and Securities Exchange Act
Release No. 61803 (Mar. 30, 2010), 75 FR 17181 (Apr. 5, 2010)
(temporary exemptions in connection with CDS clearing by Chicago
Mercantile Exchange Inc.); Securities Exchange Act Release No. 59527
(Mar. 6, 2009), 74 FR 10791 (Mar. 12, 2009), Securities Exchange Act
Release No. 61119 (Dec. 4, 2009), 74 FR 65554 (Dec. 10, 2009) and
Securities Exchange Act Release No. 61662 (Mar. 5, 2010), 75 FR
11589 (Mar. 11, 2010) (temporary exemptions in connection with CDS
clearing by ICE Trust US LLC); Securities Exchange Act Release No.
59164 (Dec. 24, 2008), 74 FR 139 (Jan. 2, 2009) (temporary
exemptions in connection with CDS clearing by LIFFE A&M and
LCH.Clearnet Ltd.) and other Commission actions discussed in several
of these orders.
In addition, we have issued interim final temporary rules that
provide exemptions under the Securities Act of 1933 and the
Securities Exchange Act of 1934 for CDS to facilitate the operation
of one or more central counterparties for the CDS market. See
Securities Act Release No. 8999 (Jan. 14, 2009), 74 FR 3967 (Jan.
22, 2009) (initial approval); Securities Act Release No. 9063 (Sep.
14, 2009), 74 FR 47719 (Sep. 17, 2009) (extension until Nov. 30,
2010).
Further, the Commission provided temporary exemptions in
connection with Sections 5 and 6 of the Securities Exchange Act of
1934 for transactions in CDS; these exemptions expired on March 24,
2010. See Securities Exchange Act Release No. 59165 (Dec. 24, 2008),
74 FR 133 (Jan. 2, 2009) (initial exemption); Securities Exchange
Act Release No. 60718 (Sep. 25, 2009), 74 FR 50862 (Oct. 1, 2009)
(extension until Mar. 24, 2010).
\2\ A CDS is a bilateral contract between two parties, known as
counterparties. The value of this financial contract is based on
underlying obligations of a single entity (``reference entity'') or
on a particular security or other debt obligation, or an index of
several such entities, securities, or obligations. The obligation of
a seller to make payments under a CDS contract is triggered by a
default or other credit event as to such entity or entities or such
security or securities. Investors may use CDS for a variety of
reasons, including to offset or insure against risk in their fixed-
income portfolios, to take positions in bonds or in segments of the
debt market as represented by an index, or to take positions on the
volatility in credit spreads during times of economic uncertainty.
Growth in the CDS market has coincided with a significant rise
in the types and number of entities participating in the CDS market.
CDS were initially created to meet the demand of banking
institutions looking to hedge and diversify the credit risk
attendant to their lending activities. However, financial
institutions such as insurance companies, pension funds, securities
firms, and hedge funds have entered the CDS market.
\3\ See generally actions referenced in note 1, supra.
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The Commission's authority over the OTC market for CDS is limited.
Specifically, section 3A of the Securities Exchange Act of 1934
(``Exchange Act'') limits the Commission's authority over swap
agreements, as defined in section 206A of the Gramm-Leach-Bliley
Act.\4\ For those CDS that are swap agreements, the exclusion from the
definition of security in section 3A of the Exchange Act, and related
provisions, will continue to apply. The Commission's action today does
not affect these CDS, and this Order does not apply to them. For those
CDS that are not swap agreements (``non-excluded CDS''), the
Commission's action today provides temporary conditional exemptions
from certain requirements of the Exchange Act.
---------------------------------------------------------------------------
\4\ 15 U.S.C. 78c-1. Section 3A excludes both a non-security-
based and a security-based swap agreement from the definition of
``security'' under Section 3(a)(10) of the Exchange Act, 15 U.S.C.
78c(a)(10). Section 206A of the Gramm-Leach-Bliley Act defines a
``swap agreement'' as ``any agreement, contract, or transaction
between eligible contract participants (as defined in section 1a(12)
of the Commodity Exchange Act * * *) * * * the material terms of
which (other than price and quantity) are subject to individual
negotiation.'' 15 U.S.C. 78c note.
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The Commission believes that using well-regulated CCPs to clear
transactions in CDS provides a number of benefits by helping to promote
efficiency and reduce risk in the CDS market, by contributing to the
goal of market stability, and by requiring maintenance of records of
CDS transactions that would aid the Commission's efforts to prevent and
detect fraud and other abusive market practices.\5\
---------------------------------------------------------------------------
\5\ See generally actions referenced in note 1, supra.
---------------------------------------------------------------------------
In the 2009 ICE Clear Europe Order, the Commission provided
temporary conditional exemptions to ICE Clear Europe, Limited (``ICE
Clear Europe'') and certain other parties to permit ICE Clear Europe to
clear and settle CDS transactions.\6\ The current exemptions
[[Page 22657]]
are scheduled to expire on April 23, 2010, and ICE Clear Europe has
requested that the Commission extend those exemptions.\7\
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\6\ For purposes of this Order, ``Cleared CDS'' means a credit
default swap that is submitted (or offered, purchased, or sold on
terms providing for submission) to ICE Clear Europe, that is offered
only to, purchased only by, and sold only to eligible contract
participants (as defined in Section 1a(12) of the Commodity Exchange
Act as in effect on the date of this Order (other than a person that
is an eligible contract participant under paragraph (C) of that
section)), and in which: (i) The reference entity, the issuer of the
reference security, or the reference security is one of the
following: (A) An entity reporting under the Exchange Act, providing
Securities Act Rule 144A(d)(4) information, or about which financial
information is otherwise publicly available; (B) a foreign private
issuer whose securities are listed outside the United States and
that has its principal trading market outside the United States; (C)
a foreign sovereign debt security; (D) an asset-backed security, as
defined in Regulation AB, issued in a registered transaction with
publicly available distribution reports; or (E) an asset-backed
security issued or guaranteed by the Federal National Mortgage
Association (``Fannie Mae''), the Federal Home Loan Mortgage
Corporation (``Freddie Mac'') or the Government National Mortgage
Association (``Ginnie Mae''); or (ii) the reference index is an
index in which 80 percent or more of the index's weighting is
comprised of the entities or securities described in subparagraph
(i). See definition in paragraph III.(e)(1) of this Order. As
discussed above, the Commission's action today does not affect CDS
that are swap agreements under Section 206A of the Gramm-Leach-
Bliley Act. See text at note 4, supra.
\7\ See Letter from Russell Sacks, Shearman & Sterling LLP, to
Elizabeth M. Murphy, Secretary, Commission, April 23, 2010 (``April
2010 Request'').
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Based on the facts presented and the representations made by ICE
Clear Europe,\8\ and for the reasons discussed in this Order and
subject to certain conditions, the Commission is extending each of the
existing exemptions connected with CDS clearing by ICE Clear Europe:
the temporary conditional exemption granted to ICE Clear Europe from
clearing agency registration under Section 17A of the Exchange Act
solely to perform the functions of a clearing agency for certain non-
excluded CDS transactions; the temporary conditional exemption of ICE
Clear Europe and certain of its clearing members from the registration
requirements of Sections 5 and 6 of the Exchange Act solely in
connection with the calculation of mark-to-market prices for non-
excluded CDS cleared by ICE Clear Europe; the temporary conditional
exemption of eligible contract participants and others from certain
Exchange Act requirements with respect to non-excluded CDS cleared by
ICE Clear Europe; and the temporary exemption from certain Exchange Act
requirements granted to registered broker-dealers. This extension is
temporary, and the exemptions will expire on November 30, 2010.
---------------------------------------------------------------------------
\8\ See id. The exemptions we are granting today are based on
all of the representations made on behalf of ICE Clear Europe, which
incorporate representations made on behalf of ICE Clear Europe as
part of the request that preceded our earlier exemptions addressing
CDS clearing by ICE Clear Europe. We recognize, however, that there
could be legal uncertainty in the event that one or more of the
underlying representations were to become inaccurate. Accordingly,
if any of these exemptions were to become unavailable by reason of
an underlying representation no longer being materially accurate,
the legal status of existing open positions in non-excluded CDS that
previously had been cleared pursuant to the exemptions would remain
unchanged, but no new positions could be established pursuant to the
exemptions until all of the underlying representations were again
accurate.
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II. Discussion
In its request for an extension, ICE Clear Europe represents that
there have been no material changes to the operations of ICE Clear
Europe and the representations in the 2009 ICE Clear Europe Order
remain true in all material respects.\9\ These representations are
discussed in detail in the 2009 ICE Clear Europe Order.
---------------------------------------------------------------------------
\9\ See April 2010 Request, supra note 7.
---------------------------------------------------------------------------
A. ICE Clear Europe's CDS Clearing Activities to Date
ICE Clear Europe has cleared proprietary CDS transactions of its
clearing members since July 2009. As of March 16, 2010, ICE Clear
Europe had cleared approximately [euroi]1.4 trillion notional amount of
CDS contracts based on indices of securities.
In December 2009, ICE Clear Europe commenced clearing CDS contracts
based on individual reference entities or securities. As of March 16,
ICE Clear Europe had cleared approximately [euroi]99 billion notional
amount of CDS contracts based on individual reference entities or
securities.
B. Extended Temporary Conditional Exemption From Clearing Agency
Registration Requirement
On July 23, 2009, in connection with its efforts to facilitate the
establishment of one or more central counterparties (``CCP'') for
Cleared CDS, the Commission issued the 2009 ICE Clear Europe Order,
which conditionally exempted ICE Clear Europe from clearing agency
registration under Section 17A of the Exchange Act on a temporary
basis. Subject to the conditions in the 2009 ICE Clear Europe Order,
ICE Clear Europe is permitted to act as a CCP for Cleared CDS by
novating trades of non-excluded CDS that are securities and generating
money and settlement obligations for participants without having to
register with the Commission as a clearing agency. The 2009 ICE Clear
Europe Order is effective until April 23, 2010.
In the 2009 ICE Clear Europe Order, the Commission recognized the
need to facilitate the prompt establishment of ICE Clear Europe as a
CCP for CDS transactions. The Commission also recognized the need to
ensure that important elements of Section 17A of the Exchange Act,\10\
which sets forth the framework for the regulation and operation of the
U.S. clearance and settlement system for securities, apply to the non-
excluded CDS market. Accordingly, the temporary exemption in the 2009
ICE Clear Europe Order were subject to a number of conditions designed
to enable Commission staff to monitor ICE Clear Europe's clearance and
settlement of CDS transactions.\11\ Moreover, the temporary exemption
in the 2009 ICE Clear Europe Order in part was based on ICE Clear
Europe's representation that it met the standards set forth in the
Committee on Payment and Settlement Systems (``CPSS'') and
International Organization of Securities Commissions (``IOSCO'') report
entitled: Recommendations for Central Counterparties (``RCCP'').\12\
The RCCP establishes a framework that requires a CCP to have: (i) The
ability to facilitate the prompt and accurate clearance and settlement
of CDS transactions and to safeguard its users' assets; and (ii) sound
risk management, including the ability to appropriately determine and
collect clearing fund and monitor its users' trading. This framework is
generally consistent with the requirements of Section 17A of the
Exchange Act.
---------------------------------------------------------------------------
\10\ 15 U.S.C. 78q-1.
\11\ See Securities Exchange Act Release No. 60372 (Jul. 23,
2009), 74 FR 37748 (Jul. 29, 2009).
\12\ The RCCP was drafted by a joint task force (``Task Force'')
composed of representative members of IOSCO and CPSS and published
in November 2004. The Task Force consisted of securities regulators
and central bankers from 19 countries and the European Union. The
U.S. representatives on the Task Force included staff from the
Commission, the Federal Reserve Board, and the Commodity Futures
Trading Commission.
---------------------------------------------------------------------------
The Commission believes that continuing to facilitate the central
clearing of CDS transactions through a temporary conditional exemption
from Section 17A will continue to provide important risk management and
systemic benefits by avoiding an interruption in those CCP clearance
and settlement services. Any interruption in CCP clearance and
settlement services for CDS transactions would eliminate in the future
the benefits ICE Clear Europe provides to the non-excluded CDS market.
Accordingly, and consistent with our findings in the 2009 ICE Clear
Europe Order and for the reasons described herein, we find pursuant to
Section 36 of the Exchange Act \13\ that it is necessary and
appropriate in the public interest and is consistent with the
protection of investors for the Commission to extend, through November
30, 2010, the relief provided from the clearing agency registration
requirements of Section 17A by the 2009 ICE Clear Europe Order.
---------------------------------------------------------------------------
\13\ 15 U.S.C. 78mm. Section 36 of the Exchange Act authorizes
the Commission to conditionally or unconditionally exempt any
person, security, or transaction, or any class or classes of
persons, securities, or transactions, from any provision or
provisions of the Exchange Act or any rule or regulation thereunder,
by rule, regulation, or order, to the extent that such exemption is
necessary or appropriate in the public interest, and is consistent
with the protection of investors.
---------------------------------------------------------------------------
Our action today balances the aim of facilitating ICE Clear
Europe's continued service as a CCP for non-excluded CDS transactions
with ensuring that important elements of
[[Page 22658]]
Commission oversight are applied to the non-excluded CDS market. The
temporary conditional exemptions will permit the Commission to continue
to develop direct experience with the non-excluded CDS market. During
the extended exemptive period, the Commission will continue to monitor
closely the impact of the CCPs on the CDS market. In particular, the
Commission will seek to assure itself that ICE Clear Europe does not
act in an anticompetitive manner or indirectly facilitate
anticompetitive behavior with respect to fees charged to members, and
the dissemination of market data.
This temporary conditional extension of the 2009 ICE Clear Europe
Order also is designed to assure that--as ICE Clear Europe has
represented--information will continue to be available to market
participants about the terms of the CDS cleared by ICE Clear Europe,
the creditworthiness of ICE Clear Europe or any guarantor, and the
clearance and settlement process for CDS.\14\ The Commission believes
continued operation of ICE Clear Europe consistent with the conditions
of this Order will facilitate the availability to market participants
of information that should enable them to make better informed
investment decisions and better value and evaluate their Cleared CDS
and counterparty exposures relative to a market for CDS that is not
centrally cleared.
---------------------------------------------------------------------------
\14\ The Commission believes that it is important in the CDS
market, as in the market for securities generally, that parties to
transactions should have access to financial information that would
allow them to evaluate appropriately the risks relating to a
particular investment and make more informed investment decisions.
See generally Policy Statement on Financial Market Developments, The
President's Working Group on Financial Markets, March 13, 2008,
available at: https://www.treas.gov/press/releases/reports/pwgpolicystatemktturmoil_03122008.pdf.
---------------------------------------------------------------------------
This temporary extension of the 2009 ICE Clear Europe Order is
subject to a number of conditions that are designed to enable
Commission staff to continue to monitor ICE Clear Europe's clearance
and settlement of CDS transactions and help reduce risk in the CDS
market. These conditions require that ICE Clear Europe: (i) Make
available on its Web site its annual audited financial statements; (ii)
preserve records related to the conduct of its Cleared CDS clearance
and settlement services for at least five years (in an easily
accessible place for the first two years); (iii) supply information
relating to its Cleared CDS clearance and settlement services to the
Commission and provide access to the Commission to conduct on-site
inspections of facilities, records and personnel related to its Cleared
CDS clearance and settlement services as may be reasonably requested by
the Commission and provide access to the Commission to conduct on-site
inspections of facilities, records, and personnel related to its
Cleared CDS clearance and settlement services, subject to cooperation
with the FSA and upon terms and conditions agreed between the FSA and
the Commission; (iv) notify the Commission about material disciplinary
actions taken against any of its members utilizing its Cleared CDS
clearance and settlement services, and about the involuntary
termination of the membership of an entity that is utilizing ICE Clear
Europe's Cleared CDS clearance and settlement services; (v) notify the
Commission not less than one day prior to effectiveness or
implementation of changes to rules, procedures, and any other material
events affecting its Cleared CDS clearance and settlement services, or,
in exigent circumstances, as promptly as reasonably practicable under
the circumstances; (vi) provide the Commission with reports prepared by
independent audit personnel that are generated in accordance with risk
assessment of the areas set forth in the Commission's Automation Review
Policy Statements \15\ and its annual audited financial statements
prepared by independent audit personnel; and (vii) provide notice to
the Commission regarding the suspension of services or inability to
operate facilities in connection with Cleared CDS clearance and
settlement services at the same time it provides notice to the FSA.
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\15\ See Automated Systems of Self-Regulatory Organizations,
Exchange Act Release No. 27445 (November 16, 1989), File No. S7-29-
89, and Automated Systems of Self-Regulatory Organizations (II),
Exchange Act Release No. 29185 (May 9, 1991), File No. S7-12-91.
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In addition, this temporary extension of the 2009 ICE Clear Europe
Order is conditioned on ICE Clear Europe, directly or indirectly,
making available to the public on terms that are fair and reasonable
and not unreasonably discriminatory: (i) All end-of-day settlement
prices and any other prices with respect to Cleared CDS that ICE Clear
Europe may establish to calculate mark-to-market margin requirements
for ICE Clear Europe Clearing Members; and (ii) any other pricing or
valuation information with respect to Cleared CDS as is published or
distributed by ICE Clear Europe.\16\
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\16\ As a CCP, ICE Clear Europe collects and processes
information about CDS transactions, prices, and positions. Public
availability of such information can improve fairness, efficiency,
and competitiveness in the market. Moreover, with pricing and
valuation information relating to Cleared CDS, market participants
would be able to derive information about underlying securities and
indices, potentially improving the efficiency and effectiveness of
the securities markets.
---------------------------------------------------------------------------
C. Extended Temporary Conditional Exemption From Exchange Registration
Requirements
When we initially provided exemptions in connection with CDS
clearing by ICE Clear Europe, we granted a temporary conditional
exemption to ICE Clear Europe from the requirements of sections 5 and 6
of the Exchange Act, and the rules and regulations thereunder, in
connection with ICE Clear Europe's calculation of mark-to-market prices
for open positions in Cleared CDS. We also temporarily exempted ICE
Clear Europe participants from the prohibitions of section 5 to the
extent that they use ICE Clear Europe to effect or report any
transaction in Cleared CDS in connection with ICE Clear Europe's
calculation of mark-to-market prices for open positions in Cleared CDS.
Section 5 of the Exchange Act contains certain restrictions relating to
the registration of national securities exchanges,\17\ while section 6
provides the procedures for registering as a national securities
exchange.\18\
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\17\ In particular, section 5 states:
It shall be unlawful for any broker, dealer, or exchange,
directly or indirectly, to make use of the mails or any means or
instrumentality of interstate commerce for the purpose of using any
facility of an exchange * * * to effect any transaction in a
security, or to report any such transactions, unless such exchange
(1) is registered as a national securities exchange under section 6
of [the Exchange Act], or (2) is exempted from such registration * *
* by reason of the limited volume of transactions effected on such
exchange * * * .
15 U.S.C. 78e.
\18\ 15 U.S.C. 78f. Section 6 of the Exchange Act also sets
forth various requirements to which a national securities exchange
is subject.
---------------------------------------------------------------------------
We granted these temporary exemptions to facilitate the
establishment of ICE Clear Europe's end-of-day settlement price
process. ICE Clear Europe had represented that in connection with its
clearing and risk management process it would calculate an end-of-day
settlement price for each Cleared CDS in which an ICE Clear Europe
participant has a cleared position, based on prices submitted by the
participants. As part of this mark-to-market process, ICE Clear Europe
has periodically required its clearing members to execute certain CDS
trades at the price at which certain quotations of the clearing members
lock or cross. ICE Clear Europe represents that it continues to
periodically require clearing members to execute certain CDS trades in
this manner.
As discussed above, we have found in general that it is necessary
or appropriate in the public interest, and is
[[Page 22659]]
consistent with the protection of investors, to facilitate continued
CDS clearing by ICE Clear Europe. Consistent with that finding--and in
reliance on ICE Europe's representation that the end-of-day settlement
pricing process, including the periodically required trading, is
integral to its risk management--we further find that it is necessary
or appropriate in the public interest, and is consistent with the
protection of investors that we exercise our authority under section 36
of the Exchange Act to extend, through November 30, 2010, ICE Clear
Europe's temporary exemption from sections 5 and 6 of the Exchange Act
in connection with its calculation of mark-to-market prices for open
positions in Cleared CDS, and ICE Clear Europe's clearing members'
temporary exemption from section 5 with respect to such trading
activity.
The temporary exemption for ICE Clear Europe will continue to be
subject to three conditions. First, ICE Clear Europe must report the
following information with respect to its calculation of mark-to-market
prices for Cleared CDS to the Commission within 30 days of the end of
each quarter, and preserve such reports during the life of the
enterprise and of any successor enterprise:
The total dollar volume of transactions executed during
the quarter, broken down by reference entity, security, or index; and
The total unit volume and/or notional amount executed
during the quarter, broken down by reference entity, security, or
index.
Second, ICE Clear Europe must establish and maintain adequate
safeguards and procedures to protect participants' confidential trading
information. Such safeguards and procedures shall include: (a) Limiting
access to the confidential trading information of participants to those
employees of ICE Clear Europe who are operating the system or
responsible for its compliance with this exemption or any other
applicable rules; and (b) establishing and maintaining standards
controlling employees of ICE Clear Europe trading for their own
accounts. ICE Clear Europe must establish and maintain adequate
oversight procedures to ensure that the safeguards and procedures
established pursuant to this condition are followed.\19\
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\19\ We are making a technical modification to this condition to
provide that ICE Clear Europe must ``establish and maintain'' the
applicable safeguards and procedures (in lieu of the current
exemption's use of terminology such as ``adopt and implement'') to
reflect the fact that ICE Clear Europe already is relying on this
settlement pricing process.
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Third, ICE Clear Europe must comply with the conditions to the
temporary exemption from Section 17A of the Exchange Act in this Order,
given that this exemption is granted in the context of our goal of
continuing to facilitate ICE Clear Europe's ability to act as a CCP for
non-excluded CDS, and given ICE Clear Europe's representation that the
end-of-day settlement pricing process, including the periodically
required trading, will enhance the reliability of the submitted end-of-
day prices.
The Commission also is continuing to temporarily exempt each ICE
Clear Europe clearing member, through November 30, 2010, from the
prohibition in Section 5 of the Exchange Act to the extent that such
ICE Clear Europe clearing member uses any facility of ICE Clear Europe
to effect any transaction in Cleared CDS, or to report any such
transaction, in connection with ICE Clear Europe calculation of mark-
to-market prices for open positions in Cleared CDS. Absent an
exemption, section 5 would prohibit any ICE Clear Europe clearing
member that is a broker or dealer from effecting transactions in
Cleared CDS on ICE Clear Europe, which will rely on this Order for an
exemption from exchange registration. The Commission believes that
temporarily exempting ICE Clear Europe clearing members from the
restriction in section 5 is necessary and appropriate in the public
interest and is consistent with the protection of investors because it
will facilitate their use of ICE Clear Europe's CCP for Cleared CDS,
which for the reasons set forth in this Order the Commission believes
to be beneficial. Without also temporarily exempting ICE Clear Europe
clearing members from this section 5 requirement, the Commission's
temporary exemption of ICE Clear Europe from sections 5 and 6 of the
Exchange Act would be ineffective, because ICE Clear Europe clearing
members that are brokers or dealers would not be permitted to effect
transactions on ICE Clear Europe in connection with the end-of-day
settlement price process.
D. Extended and Revised Temporary Conditional General Exemption for ICE
Clear Europe and Certain Eligible Contract Participants
As we recognized when we initially provided temporary exemptions in
connection with CDS clearing by ICE Clear Europe, applying the full
panoply of Exchange Act requirements to participants in transactions in
non-excluded CDS likely would deter some participants from using CCPs
to clear CDS transactions. We also recognized that it is important that
the antifraud provisions of the Exchange Act apply to transactions in
non-excluded CDS, particularly given that OTC transactions subject to
individual negotiation that qualify as security-based swap agreements
already are subject to those provisions.\20\
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\20\ While Section 3A of the Exchange Act excludes ``swap
agreements'' from the definition of ``security,'' certain antifraud
and insider trading provisions under the Exchange Act explicitly
apply to security-based swap agreements. See (a) paragraphs (2)
through (5) of section 9(a), 15 U.S.C. 78i(a), prohibiting the
manipulation of security prices; (b) section 10(b), 15 U.S.C.
78j(b), and underlying rules prohibiting fraud, manipulation or
insider trading (but not prophylactic reporting or recordkeeping
requirements); (c) section 15(c)(1), 15 U.S.C. 78o(c)(1), which
prohibits brokers and dealers from using manipulative or deceptive
devices; (d) sections 16(a) and (b), 15 U.S.C. 78p(a) and (b), which
address disclosure by directors, officers and principal
stockholders, and short-swing trading by those persons, and rules
with respect to reporting requirements under Section 16(a); (e)
section 20(d), 15 U.S.C. 78t(d), providing for antifraud liability
in connection with certain derivative transactions; and (f) section
21A(a)(1), 15 U.S.C. 78u-1(a)(1), related to the Commission's
authority to impose civil penalties for insider trading violations.
``Security-based swap agreement'' is defined in Section 206B of
the Gramm-Leach-Bliley Act as a swap agreement in which a material
term is based on the price, yield, value, or volatility of any
security or any group or index of securities, or any interest
therein.
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As a result, we concluded that it is appropriate in the public
interest and consistent with the protection of investors to apply
temporarily substantially the same framework to transactions by market
participants in non-excluded CDS that applies to transactions in
security-based swap agreements. Consistent with that conclusion, we
temporarily exempted ICE Clear Europe, and certain members and eligible
contract participants, from a number of Exchange Act requirements,
subject to certain conditions, while excluding certain enforcement-
related and other provisions from the scope of the exemption.
We believe that continuing to facilitate the central clearing of
CDS transactions by ICE Clear Europe through this type of temporary
exemption will provide important risk management benefits and systemic
benefits. Accordingly, pursuant to Section 36 of the Exchange Act, the
Commission finds that it is necessary or appropriate in the public
interest and is consistent with the protection of investors to exercise
its authority to grant an exemption through November 30, 2010 from
certain requirements under the Exchange Act.
As before, this temporary conditional exemption applies to ICE
Clear Europe, any ICE Clear Europe Clearing
[[Page 22660]]
Member \21\ which is not a broker or dealer registered under section
15(b) of the Exchange Act (other than paragraph (11) thereof), and any
eligible contract participants \22\ other than: Eligible contract
participants that receive or hold funds or securities for the purpose
of purchasing, selling, clearing, settling or holding Cleared CDS
positions for other persons; \23\ eligible contract participants that
are self-regulatory organizations or eligible contract participants
that are registered brokers or dealers.\24\
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\21\ For purposes of this Order, an ``ICE Clear Europe Clearing
Member'' means any clearing member of ICE Clear Europe that submits
Cleared CDS to ICE Clear Europe for clearance and settlement
exclusively (i) for its own account or (ii) for the account of an
affiliate that controls, is controlled by, or is under common
control with the clearing member of ICE Clear Europe. See definition
in paragraph III.(e)(1) of this Order.
\22\ This exemption in general applies to eligible contract
participants, as defined in section 1a(12) of the Commodity Exchange
Act as in effect on the date of this Order, other than persons that
are eligible contract participants under paragraph (C) of that
section.
\23\ Solely for purposes of this requirement, an eligible
contract participant would not be viewed as receiving or holding
funds or securities for the purpose of purchasing, selling,
clearing, settling, or holding Cleared CDS positions for other
persons, if the other persons involved in the transaction would not
be considered ``customers'' of the eligible contract participant
under the analysis used for determining whether certain persons
would be considered ``customers'' of a broker-dealer under Exchange
Act Rule 15c3-3(a)(1). For these purposes, and for the purpose of
the definition of ``Cleared CDS,'' the terms ``purchasing'' and
``selling'' mean the execution, termination (prior to its scheduled
maturity date), assignment, exchange, or similar transfer or
conveyance of, or extinguishing the rights or obligations under, a
Cleared CDS, as the context may require. This is consistent with the
meaning of the terms ``purchase'' or ``sale'' under the Exchange Act
in the context of security-based swap agreements. See Exchange Act
Section 3A(b)(4).
\24\ A separate temporary exemption addresses the Cleared CDS
activities of registered broker-dealers. See Part II.E, infra.
Solely for purposes of this Order, a registered broker-dealer, or a
broker or dealer registered under Section 15(b) of the Exchange Act,
does not refer to someone that would otherwise be required to
register as a broker or dealer solely as a result of activities in
Cleared CDS in compliance with this Order.
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As before, under this temporary conditional exemption, and solely
with respect to Cleared CDS, those persons generally are exempt from
the provisions of the Exchange Act and the rules and regulations
thereunder that do not apply to security-based swap agreements. Thus,
those persons would still be subject to those Exchange Act requirements
that explicitly are applicable in connection with security-based swap
agreements.\25\ In addition, all provisions of the Exchange Act related
to the Commission's enforcement authority in connection with violations
or potential violations of such provisions would remain applicable.\26\
In this way, the temporary conditional exemption would apply the same
Exchange Act requirements in connection with non-excluded CDS as apply
in connection with OTC credit default swaps.
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\25\ See note 20, infra.
\26\ Thus, for example, the Commission retains the ability to
investigate potential violations and bring enforcement actions in
the Federal courts as well as in administrative proceedings, and to
seek the full panoply of remedies available in such cases.
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Consistent with the 2009 ICE Clear Europe Order, this temporary
conditional exemption does not extend to: The exchange registration
requirements of Exchange Act sections 5 and 6; \27\ the clearing agency
registration requirements of Exchange Act section 17A; the requirements
of Exchange Act sections 12, 13, 14, 15(d), and 16; \28\ the
Commission's administrative proceeding authority under paragraphs (4)
and (6) of Exchange Act section 15(b),\29\ and the rules and
regulations thereunder that apply to a broker or dealer that is not
registered with the Commission; or certain provisions related to
government securities.\30\
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\27\ These are subject to a separate temporary class exemption.
See note 1, supra. A national securities exchange that effects
transactions in Cleared CDS would continue to be required to comply
with all requirements under the Exchange Act applicable to such
transactions. A national securities exchange could form subsidiaries
or affiliates that operate exchanges exempt under that order. Any
subsidiary or affiliate of a registered exchange could not
integrate, or otherwise link, the exempt CDS exchange with the
registered exchange including the premises or property of such
exchange for effecting or reporting a transaction without being
considered a ``facility of the exchange.'' See Section 3(a)(2), 15
U.S.C. 78c(a)(2).
This Order also includes a separate temporary exemption from
Sections 5 and 6 in connection with the mark-to-market process of
ICE Clear Europe, discussed above, at note 17 and accompanying text.
\28\ 15 U.S.C. 78l, 78m, 78n, 78o(d), 78p. Eligible contract
participants and other persons instead should refer to the interim
final temporary rules issued by the Commission. See note 1, supra.
\29\ Exchange Act Sections 15(b)(4) and 15(b)(6), 15 U.S.C.
78o(b)(4) and (b)(6), grant the Commission authority to take action
against broker-dealers and associated persons in certain situations.
\30\ This exemption specifically does not extend to the Exchange
Act provisions applicable to government securities, as set forth in
Section 15C, 15 U.S.C. 78o-5, and its underlying rules and
regulations. The exemption also does not extend to related
definitions found at paragraphs (42) through (45) of Section 3(a),
15 U.S.C. 78c(a). The Commission does not have authority under
Section 36 to issue exemptions in connection with those provisions.
See Exchange Act Section 36(b), 15 U.S.C. 78mm(b).
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We are modifying this temporary conditional exemption by providing
that ICE Clear Europe clearing members must be in material compliance
with ICE Clear Europe rules to be eligible to take advantage of this
exemption from Exchange Act requirements. This should promote
compliance with the applicable CCP rules.
E. Extended Temporary General Exemption for Certain Registered Broker-
Dealers
The 2009 ICE Clear Europe Order included a limited conditional
exemption from Exchange Act requirements to registered broker-dealers
in connection with their activities involving Cleared CDS. In crafting
this temporary conditional exemption, we balanced the need to avoid
creating disincentives to the prompt use of CCPs against the critical
role that certain broker-dealers play in promoting market integrity and
protecting customers (including broker-dealer customers that are not
involved with CDS transactions).
In light of the risk management and systemic benefits in continuing
to facilitate CDS clearing by ICE Clear Europe through targeted
exemptions to registered broker-dealers, the Commission finds pursuant
to Section 36 of the Exchange Act that it is necessary or appropriate
in the public interest and is consistent with the protection of
investors to exercise its authority to extend this temporary registered
broker-dealer exemption from certain Exchange Act requirements through
November 30, 2010.\31\
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\31\ The temporary exemption addressed above with regard to ICE
Clear Europe, certain clearing members and certain eligible contract
participants are not available to persons that are registered as
broker-dealers with the Commission (other than those that are notice
registered pursuant to Exchange Act Section 15(b)(11)). Exchange Act
Section 15(b)(11) provides for notice registration of certain
persons that effect transactions in security futures products. 15
U.S.C. 78o(b)(11).
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Consistent with the temporary exemptions discussed above, and
solely with respect to Cleared CDS, we are temporarily exempting
registered broker-dealers from provisions of the Exchange Act and the
rules and regulations thereunder that do not apply to security-based
swap agreements. As discussed above, we are not excluding registered
broker-dealers from Exchange Act provisions that explicitly apply in
connection with security-based swap agreements or from related
enforcement authority provisions.\32\ As above, and
[[Page 22661]]
for similar reasons, we are not exempting registered broker-dealers
from: sections 5, 6, 12, 13, 14, 15(b)(4), 15(b)(6), 15(d), 16 and 17A
of the Exchange Act.\33\
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\32\ See notes 20 and 26, supra. As noted above, broker-dealers
also would be subject to Section 15(c)(1) of the Exchange Act, which
prohibits brokers and dealers from using manipulative or deceptive
devices, because that provision explicitly applies in connection
with security-based swap agreements. In addition, to the extent the
Exchange Act and any rule or regulation thereunder imposes any other
requirement on a broker-dealer with respect to security-based swap
agreements (e.g., requirements under Rule 17h-1T to maintain and
preserve written policies, procedures, or systems concerning the
broker or dealer's trading positions and risks, such as policies
relating to restrictions or limitations on trading financial
instruments or products), these requirements would continue to apply
to broker-dealers' activities with respect to Cleared CDS.
\33\ We also are not exempting those members from provisions
related to government securities, as discussed above.
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Further we are not exempting registered broker-dealers from the
following additional provisions under the Exchange Act: (1) Section
7(c),\34\ regarding the unlawful extension of credit by broker-dealers;
(2) Section 15(c)(3),\35\ regarding the use of unlawful or manipulative
devices by broker-dealers; (3) Section 17(a),\36\ regarding broker-
dealer obligations to make, keep and furnish information; (4) Section
17(b),\37\ regarding broker-dealer records subject to examination; (5)
Regulation T,\38\ a Federal Reserve Board regulation regarding
extension of credit by broker-dealers; (6) Exchange Act Rule 15c3-1,
regarding broker-dealer net capital; (7) Exchange Act Rule 15c3-3,
regarding broker-dealer reserves and custody of securities; (8)
Exchange Act Rules 17a-3 through 17a-5, regarding records to be made
and preserved by broker-dealers and reports to be made by broker-
dealers; and (9) Exchange Act Rule 17a-13, regarding quarterly security
counts to be made by certain exchange members and broker-dealers.\39\
Registered broker-dealers must comply with these provisions in
connection with their activities involving non-excluded CDS because
these provisions protect investors, provide safeguards with respect to
the financial responsibility and related practices of broker-dealers,
and safeguard against fraud and abuse.\40\
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\34\ 15 U.S.C. 78g(c).
\35\ 15 U.S.C. 78o(c)(3).
\36\ 15 U.S.C. 78q(a).
\37\ 15 U.S.C. 78q(b).
\38\ 12 CFR 220.1 et seq.
\39\ Solely for purposes of this temporary exemption, in
addition to the general requirements under the referenced Exchange
Act sections, registered broker-dealers shall only be subject to the
enumerated rules under the referenced Exchange Act sections.
\40\ See 15 U.S.C. 78o(c)(3) (directing the Commission to
establish minimum financial responsibility requirements for broker-
dealers, including rules relating to the acceptance of custody, the
use of customers' securities and the carrying and use of customers'
deposits or credit balances).
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G. Solicitation of Comments
When we granted the 2009 ICE Clear Europe Order, we requested
comment on all aspects of the exemptions. We received no comments in
response. In connection with this Order extending the exemptions
granted in connection with CDS clearing by ICE Clear Europe, we
reiterate our request for comments on all aspects of the exemptions.
Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/other.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number S7-16-09 on the subject line; or
Use the Federal eRulemaking Portal (https://www.regulations.gov/). Follow the instructions for submitting comments.
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 S7-16-09. This file number
should be included on the subject line if e-mail is used. To help us
process and review your comments more efficiently, please use only one
method. We will post all comments on the Commission's Internet Web site
(https://www.sec.gov/rules/other.shtml). Comments are also 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 a.m. and 3 p.m. All comments received will
be posted without change; we do not edit personal identifying
information from submissions. You should submit only information that
you wish to make available publicly.
III. Conclusion
It is hereby ordered, pursuant to section 36(a) of the Exchange
Act, that, through November 30, 2010:
(a) Exemption from section 17A of the Exchange Act.
ICE Clear Europe Limited (``ICE Clear Europe'') shall be exempt
from section 17A of the Exchange Act solely to perform the functions of
a clearing agency for Cleared CDS (as defined in paragraph (e)(1) of
this Order), subject to the following conditions:
(1) ICE Clear Europe shall make available on its Web site its
annual audited financial statements.
(2) ICE Clear Europe shall keep and preserve at least one copy of
all documents, including all correspondence, memoranda, papers, books,
notices, accounts, and other such records as shall be made or received
by it relating to its Cleared CDS clearance and settlement services.
These records shall be kept for at least five years and for the first
two years shall be held in an easily accessible place.
(3) ICE Clear Europe shall supply information and periodic reports
relating to its Cleared CDS clearance and settlement services as may be
reasonably requested by the Commission and, subject to cooperation with
the FSA and upon such terms and conditions as may be agreed between the
FSA and the Commission, shall provide access to the Commission to
conduct on-site inspections of all facilities (including automated
systems and systems environment), records, and personnel related to ICE
Clear Europe's Cleared CDS clearance and settlement services.
(4) ICE Clear Europe shall notify the Commission, on a monthly
basis, of any material disciplinary actions taken against any of its
members using its Cleared CDS clearance and settlement services,
including the denial of services, fines, or penalties. ICE Clear Europe
shall notify the Commission promptly when ICE Clear Europe terminates
on an involuntary basis the membership of an entity that is using ICE
Clear Europe's Cleared CDS clearance and settlement services. Both
notifications shall describe the facts and circumstances that led to
the ICE Clear Europe's disciplinary action.
(5) ICE Clear Europe shall notify the Commission of all changes to
its rules, procedures, and any other material events affecting its
Cleared CDS clearance and settlement services, including its fee
schedule and changes to risk management practices, not less than one
day prior to effectiveness or implementation of such changes or, in
exigent circumstances, as promptly as reasonably practicable under the
circumstances. If ICE Clear Europe gives notice to, or seeks approval
from, the FSA regarding any other changes to its rules regarding its
Cleared CDS clearance and settlement services, ICE Clear Europe will
also provide notice to the Commission. All such rule changes will be
posted on ICE Clear Europe's Web site. Such notifications will not be
deemed rule filings that require Commission approval.
(6) ICE Clear Europe shall provide the Commission with reports
prepared by independent audit personnel concerning its Cleared CDS
clearance and settlement services that are generated in accordance with
risk assessment of the areas set forth in the Commission's Automation
Review Policy Statements. ICE Clear Europe
[[Page 22662]]
shall provide the Commission with annual audited financial statements
for ICE Clear Europe prepared by independent audit personnel.
(7) ICE Clear Europe shall notify the Commission at the same time
it notifies the FSA in accordance with FSA REC 3.15 and FSA REC 3.16
regarding the suspension of services or inability to operate its
facilities in connection with its Cleared CDS clearance and settlement
services.
(8) ICE Clear Europe, directly or indirectly, shall make available
to the public on terms that are fair and reasonable and not
unreasonably discriminatory: (i) All end-of-day settlement prices and
any other prices with respect to Cleared CDS that ICE Clear Europe may
establish to calculate mark-to-market margin requirements for ICE Clear
Europe Clearing Members; and (ii) any other pricing or valuation
information with respect to Cleared CDS as is published or distributed
by ICE Clear Europe.
(b) Exemption from Sections 5 and 6 of the Exchange Act
(1) ICE Clear Europe shall be exempt from the requirements of
Sections 5 and 6 of the Exchange Act and the rules and regulations
thereunder in connection with its calculation of mark-to-market prices
for open positions in Cleared CDS, subject to the following conditions:
(i) ICE Clear Europe shall report the following information with
respect to the calculation of mark-to-market prices for Cleared CDS to
the Commission within 30 days of the end of each quarter, and preserve
such reports during the life of the enterprise and of any successor
enterprise:
(A) The total dollar volume of transactions executed during the
quarter, broken down by reference entity, security, or index; and
(B) The total unit volume and/or notional amount executed during
the quarter, broken down by reference entity, security, or index;
(ii) ICE Clear Europe shall establish and maintain adequate
safeguards and procedures to protect members' confidential trading
information. Such safeguards and procedures shall include: (A) limiting
access to the confidential trading information of members to those
employees of ICE Clear Europe who are operating the system or
responsible for its compliance with this exemption or any other
applicable rules; and (B) establishing and maintaining standards
controlling employees of ICE Clear Europe trading for their own
accounts. ICE Clear Europe must establish and maintain adequate
oversight procedures to ensure that the safeguards and procedures
established pursuant to this condition are followed; and
(iii) ICE Clear Europe shall satisfy the conditions of the
temporary exemption from Section 17A of the Exchange Act set forth in
paragraphs (a)(1)-(8) of this Order.
(2) Any ICE Clear Europe Clearing Member shall be exempt from the
requirements of Section 5 of the Exchange Act to the extent such ICE
Clear Europe Clearing Member uses any facility of ICE Clear Europe to
effect any transaction in Cleared CDS, or to report any such
transaction, in connection with ICE Clear Europe's clearance and risk
management process for Cleared CDS.
(c) Exemption for ICE Clear Europe, ICE Clear Europe Clearing
Members, and certain eligible contract participants.
(1) Persons eligible. The exemption in paragraph (c)(2) is
available to:
(i) ICE Clear Europe;
(ii) Any ICE Clear Europe Clearing Member (as defined in paragraph
(e)(2) of this Order), which is not a broker or dealer registered under
Section 15(b) of the Exchange Act (other than paragraph (11) thereof);
and
(iii) Any eligible contract participant (as defined in Section
1a(12) of the Commodity Exchange Act as in effect on the date of this
Order (other than a person that is an eligible contract participant
under paragraph (C) of that section)), other than: (A) An eligible
contract participant that receives or holds funds or securities for the
purpose of purchasing, selling, clearing, settling, or holding Cleared
CDS positions for other persons; (B) an eligible contract participant
that is a self-regulatory organization, as that term is defined in
Section 3(a)(26) of the Exchange Act; or (C) a broker or dealer
registered under Section 15(b) of the Exchange Act (other than
paragraph (11) thereof).
(2) Scope of exemption.
(i) In general. Subject to the conditions specified in paragraph
(c)(3) of this subsection, such persons generally shall, solely with
respect to Cleared CDS, be exempt from the provisions of the Exchange
Act and the rules and regulations thereunder that do not apply in
connection with security-based swap agreements. Accordingly, under this
exemption, those persons would remain subject to those Exchange Act
requirements that explicitly are applicable in connection with
security-based swap agreements (i.e., paragraphs (2) through (5) of
Section 9(a), Section 10(b), Section 15(c)(1), paragraphs (a) and (b)
of Section 16, Section 20(d) and Section 21A(a)(1) and the rules
thereunder that explicitly are applicable to security-based swap
agreements). All provisions of the Exchange Act related to the
Commission's enforcement authority in connection with violations or
potential violations of such provisions also remain applicable.
(ii) Exclusions from exemption. The exemption in paragraph
(c)(2)(i), however, does not extend to the following provisions under
the Exchange Act:
(A) Paragraphs (42), (43), (44), and (45) of Section 3(a);
(B) Section 5;
(C) Section 6;
(D) Section 12 and the rules and regulations thereunder;
(E) Section 13 and the rules and regulations thereunder;
(F) Section 14 and the rules and regulations thereunder;
(G) Paragraphs (4) and (6) of Section 15(b);
(H) Section 15(d) and the rules and regulations thereunder;
(I) Section 15C and the rules and regulations thereunder;
(J) Section 16 and the rules and regulations thereunder; and
(K) Section 17A (other than as provided in paragraph (a)).
(3) Conditions for ICE Clear Europe Clearing Members. Any ICE Clear
Europe Clearing Members relying on this exemption must be in material
compliance with the rules of ICE Clear Europe.
(d) Exemption for certain registered broker-dealers.
A broker or dealer registered under Section 15(b) of the Exchange
Act (other than paragraph (11) thereof) shall be exempt from the
provisions of the Exchange Act and the rules and regulations thereunder
specified in paragraph (c)(2), solely with respect to Cleared CDS,
except:
(1) Section 7(c);
(2) Section 15(c)(3);
(3) Section 17(a);
(4) Section 17(b);
(5) Regulation T, 12 CFR 200.1 et seq.;
(6) Rule 15c3-1;
(7) Rule 15c3-3;
(8) Rule 17a-3;
(9) Rule 17a-4;
(10) Rule 17a-5; and
(11) Rule 17a-13.
(e) Definitions.
For purposes of this Order:
(1) ``Cleared CDS'' shall mean a credit default swap that is
submitted (or offered, purchased, or sold on terms providing for
submission) to ICE Clear Europe, that is offered only to, purchased
only by, and sold only to eligible contract participants (as defined in
Section 1a(12) of the Commodity
[[Page 22663]]
Exchange Act as in effect on the date of this Order (other than a
person that is an eligible contract participant under paragraph (C) of
that section)), and in which:
(i) The reference entity, the issuer of the reference security, or
the reference security is one of the following:
(A) An entity reporting under the Exchange Act, providing
Securities Act Rule 144A(d)(4) information, or about which financial
information is otherwise publicly available;
(B) A foreign private issuer whose securities are listed outside
the United States and that has its principal trading market outside the
United States;
(C) A foreign sovereign debt security;
(D) An asset-backed security, as defined in Regulation AB, issued
in a registered transaction with publicly available distribution
reports; or
(E) An asset-backed security issued or guaranteed by Fannie Mae,
Freddie Mac or Ginnie Mae; or
(ii) The reference index is an index in which 80 percent or more of
the index's weighting is comprised of the entities or securities
described in subparagraph (i).
(2) ``ICE Clear Europe Clearing Member'' shall mean any clearing
member of ICE Clear Europe that submits Cleared CDS to ICE Clear Europe
for clearance and settlement exclusively (i) for its own account or
(ii) for the account of an affiliate that controls, is controlled by,
or is under common control with the clearing member of ICE Clear
Europe.
By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-9932 Filed 4-28-10; 8:45 am]
BILLING CODE 8011-01-P
