Self-Regulatory Organizations; ICE Clear Credit LLC; Order Approving Proposed Rule Change To Add Rules Related to the Clearing of Emerging Markets Sovereigns, 65763-65765 [2011-27380]
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14, 2011) (‘‘AOG’’).
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tkelley on DSK3SPTVN1PROD with NOTICES
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[FR Doc. 2011–27328 Filed 10–21–11; 8:45 am]
41 17
CFR 200.30–3(a)(12).
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65763
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–65588; File No. SR–ICC–
2011–01]
Self-Regulatory Organizations; ICE
Clear Credit LLC; Order Approving
Proposed Rule Change To Add Rules
Related to the Clearing of Emerging
Markets Sovereigns
October 18, 2011.
I. Introduction
On August 30, 2011, ICE Clear Credit
LLC (‘‘ICC’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change SR–ICC–2011–01 pursuant to
Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder.2 The proposed rule
change was published for comment in
the Federal Register on September 9,
2011.3 The Commission received no
comment letters regarding the proposal.
For the reasons discussed below, the
Commission is granting approval of the
proposed rule change.
II. Description
This rule change will amend Chapter
26 of ICC’s rules to add Sections 26D
and 26E to provide for the clearance of
Emerging Markets Standard Sovereign
CDS Contracts (‘‘SES Contracts’’). ICC
will clear SES Contracts on four
sovereign reference entities: the
Federative Republic of Brazil, the
United Mexican States, the Bolivian
Republic of Venezuela, and the
Argentine Republic. If ICC determines to
list additional SES Contracts, it will
seek approval from the Commission for
such contracts (or for a class of product
including such contracts) by a
subsequent filing with the Commission.
SES Contracts have similar terms to
the North American Corporate CDS
Contracts (‘‘Corporate Single Name CDS
Contracts’’) currently cleared by ICC and
governed by Section 26B of the ICC
rules. Accordingly, proposed rules in
Section 26D largely mirror the ICC rules
for Corporate Single Name CDS
Contracts in Section 26B, with certain
modifications that reflect differences in
terms and market conventions between
SES Contracts and Corporate Single
Name CDS Contracts. In the event that
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 Securities Exchange Act Release No. 34–65259
(September 2, 2011), 76 FR 55984 (September 9,
2011). In its filing with the Commission, ICC
included statements concerning the purpose of and
basis for the proposed rule change. The text of these
statements are incorporated into the discussion of
the proposed rule change in Section II below.
2 17
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65764
Federal Register / Vol. 76, No. 205 / Monday, October 24, 2011 / Notices
a clearing participant is domiciled in a
country that is the reference entity for
an SES Contract, ICC will not permit the
clearing participant to clear such SES
Contract.
Rule 26D–102 (Definitions) sets forth
the definitions used for SES Contracts.
An ‘‘Eligible SES Reference Entity’’ is
defined as ‘‘each particular Reference
Entity included from time to time in the
List of Eligible Reference Entities,’’
which is a list maintained, updated and
published from time to time by ICC
containing certain specified information
with respect to each reference entity.4
The Eligible SES Reference Entities will
at present be limited to the four Latin
American sovereigns listed above.
Certain substantive changes have also
been made to the definition of ‘‘List of
Eligible SES Reference Entities’’ (as
compared to the corresponding
definition in Section 26B), due to the
fact that certain terms and elections for
Corporate Single Name CDS Contracts
are not applicable to SES Contracts.
These include (i) The need for an
election as to whether ‘‘Restructuring’’
is an eligible ‘‘Credit Event’’ (it is by
market convention applicable to all SES
Contracts, whereas it is generally not
applicable to Corporate Single Name
CDS Contracts) and (ii) the applicability
of certain International Swaps and
Derivatives Association (‘‘ISDA’’)
supplements that may apply to
Corporate Single Name CDS Contracts
but do not apply to SES Contracts,
including the 2005 Monoline
Supplement, the ISDA Additional
Provisions for a Secured Deliverable
Obligation Characteristic, and the ISDA
Additional Provisions for Reference
Entities with Delivery Restrictions.
According to ICC, SES Contracts will
only be denominated in U.S. Dollars.
The remaining definitions are
substantially the same as the definitions
found in ICC Section 26B, other than
with respect to certain conforming
changes.
Rules 26D–203 (Restriction on
Activity), 26D–206 (Notices Required of
Participants with respect to SES
Contracts), 26D–303 (SES Contract
Adjustments), 26D–309 (Acceptance of
SES Contracts by ICE Trust), 26D–315
(Terms of the Cleared SES Contract),
26D–316 (Relevant Physical Settlement
Matrix Updates), 26D–502 (Specified
Actions), and 26D–616 (Contract
Modification) reflect or incorporate the
basic contract specifications for SES
Contracts and are substantially the same
4 Similar to the index credit default swap (‘‘CDS’’)
contracts and Corporate Single Name CDS Contracts
that ICC currently clears, ICC will accept for
clearing sovereign CDS contracts denominated in
U.S. Dollars only.
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15:34 Oct 21, 2011
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as the corresponding provisions
applicable to Corporate Single Name
CDS Contracts in Section 26B of ICC
rules, other than with respect to certain
conforming changes. For the avoidance
of doubt, ICC will not accept a trade for
clearance and settlement if at the time
of submission or acceptance of the trade
or at the time of novation the CDS
Participant submitting the trade is
domiciled in the country of the Eligible
SES Reference Entity for such SES
Contract.
In addition to various non-substantive
conforming changes, the proposed rules
differ from the existing rules for
Corporate Single Name CDS Contracts
in that the contract terms in Rule 26D–
315 incorporate the relevant published
ISDA physical settlement matrix terms
for Standard Latin American Sovereign
transactions, rather than Standard North
American Corporate transactions, and,
as noted in the preceding paragraph, to
account for certain elections and
supplements used for Corporate Single
Name CDS Contracts that are not
applicable to SES Contracts.
New Section 26E (CDS Restructuring
Rules) provides rules applicable to
cleared Contracts in the event of a
restructuring credit event. Corporate
Single Name CDS Contracts currently
cleared by ICC are generally not subject
to these restructuring rules. Unlike other
credit events, following a restructuring
credit event, parties to a cleared SES
Contract must determine whether or not
to trigger their credit protection. To
facilitate this election while permitting
ICC to maintain a matched book of
cleared Contracts, Section 26E provides
that protection buyers and protection
sellers under a Restructuring CDS
Contract (defined as a CDS Contract
where a restructuring credit event has
occurred) will be matched into pairs,
each referred to as a ‘‘Matched
Restructuring Pair,’’ by ICC for purposes
of sending and receiving such triggering
notices. Rule 26E–102 sets forth the
definitions used throughout Section 26E
in connection with a restructuring credit
event.
The procedures for creation of
Matched Restructuring Pairs are set
forth in Rule 26E–103 (Allocation of
Matched Restructuring Pairs). Following
the announcement that a restructuring
credit event has occurred with respect
to an SES Contract, ICC will match each
protection seller in that contract with
one or more protection buyers in that
contract, such that the notional amount
of the contract of each protection seller
is fully allocated to one or more
protection buyers. In order to be
matched, positions in an SES Contract
must be of the same type (i.e., having
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the same reference entity, tenor,
reference obligation, fixed rate, and
relevant physical settlement matrix).
The mechanics associated with the
delivery and receipt of notices by
clearing participants under Matched
Restructuring Pairs are set forth in Rule
26E–104 (Matched Restructuring Pairs;
Designations and Notices). This rule
provides that once ICC has created the
Matched Restructuring Pairs, ICC will
be deemed to have designated the
matched CDS buyer and matched CDS
seller as its designee to receive and
deliver credit event notices in relation
to the Restructuring CDS Contract. The
rule also contains a mechanism for
notifying ICC of disputes with respect to
such notices.
Finally, Rule 26E–105 (Separation of
Matched Restructuring Pairs) addresses
situations where an announcement of a
restructuring credit event is followed by
a determination that such event did not
in fact occur.5 The rule provides that if
ICC has not matched buyers with sellers
to form a Matched Restructuring Pair,
then ICC will not do so. If ICC has
matched sellers with buyers to form a
Matched Restructuring Pair, but
settlement (either auction settlement or
fallback physical settlement) has not
occurred, then ICC will reverse the
matching. If fallback physical settlement
is applicable, ICC will not reverse any
matching to the extent that the matched
CDS buyer or matched CDS seller has
given notice to ICC that the parties have
settled the relevant matched CDS
contract within one Business Day
following delivery of the matching
reversal notice. If a CDS contract is
reversed, ICC will recalculate the
margin accordingly.
ICC believes that clearance of SES
Contracts will facilitate the prompt and
accurate settlement of security-based
swaps and contribute to the
safeguarding of securities and funds
associated with security-based swap
transactions.6
5 Determination of a credit event and a
subsequent determination that a credit event did
not occur are made by the ISDA relevant credit
derivatives determinations committee (‘‘DC’’), or, in
the event a request has been submitted to the
relevant DC and ISDA has publicly announced that
the relevant DC has resolved not to determine the
answer, by the appropriate ICE Clear Credit
Regional CDS Committee.
6 ICC has performed a variety of empirical
analyses related to clearing of SES Contracts on
sovereign reference entities, including back tests
and stress tests using actual clearing participant
portfolios (with respect to the stress tests) combined
with hypothetical positions in sovereign CDS
contracts based on data retrieved from the
Depository Trust Clearing Corporation’s Trade
Information Warehouse and through interaction
with ICC’s Trade Advisory Committee.
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tkelley on DSK3SPTVN1PROD with NOTICES
III. Discussion
Section 19(b)(2)(B) of the Act directs
the Commission to approve a proposed
rule change of a self-regulatory
organization if it finds that such
proposed rule change is consistent with
the requirements of the Act and the
rules and regulations thereunder
applicable to such organization.7 For
example, Section 17A(b)(3)(F) of the
Act 8 requires, among other things, that
the rules of a clearing agency be
designed to remove impediments to and
perfect the mechanism of a national
system for the prompt and accurate
clearance and settlement of securities
transactions and to assure the
safeguarding of securities and funds in
the custody or control of the clearing
agency or for which it is responsible.
If approved, the proposed rule change
would for the first time permit a
Commission-registered clearing agency
to clear sovereign CDS contracts, and
ICC has informed the Commission that
it intends to introduce clearing of SES
Contracts on four sovereign reference
entities (the Federative Republic of
Brazil, the United Mexican States, the
Bolivian Republic of Venezuela, and the
Argentine Republic) products promptly
after obtaining Commission approval.
By bringing additional products into
clearing, the Commission believes the
proposed rule change is consistent with
the requirements of the Act in that it
would contribute to the national system
for the prompt and accurate clearance
and settlement of securities
transactions.
Given the particular characteristics of
the products proposed to be cleared, the
Commission also carefully considered
ICC’s ability to clear SES Contracts in a
safe and sound manner. After
considering the representations made by
ICC regarding its belief that the
clearance of SES Contracts will
contribute to the safeguarding of
securities and funds associated with
security-based swap transactions based
on its analysis,9 the Commission
believes that the proposed rule change
is consistent with Section 17A(b)(3)(F)
of the Act, including ICC’s obligation to
ensure that its rules be designed to
assure the safeguarding of securities and
funds in the custody or control of the
clearing agency or for which it is
responsible.
IV. Conclusion
On the basis of the foregoing, the
Commission finds that the proposal is
consistent with the requirements of the
7 15
U.S.C. 78s(b)(2)(B).
U.S.C. 78q–1(b)(3)(F).
9 Supra note 6.
8 15
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15:34 Oct 21, 2011
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Act and in particular with the
requirements of Section 17A of the
Act 10 and the rules and regulations
thereunder.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,11 that the
proposed rule change (File No. SR–ICC–
2011–01) be, and hereby is, approved.12
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.13
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2011–27380 Filed 10–21–11; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–65587; File No. SR–
NASDAQ–2011–144]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change Relating to the
Establishment of a Direct Market Data
Product, NASDAQ Options Trade
Outline (‘‘NOTO’’)
October 18, 2011.
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 October
12, 2011, The NASDAQ Stock Market
LLC (‘‘NASDAQ’’ or ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the Exchange.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
The Exchange proposes to establish a
direct market data product, NASDAQ
Options Trade Outline (‘‘NOTO’’).
The text of the proposed rule change
is available on the Exchange’s Web site
at https://
www.nasdaq.cchwallstreet.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
10 15
U.S.C. 78q–1.
U.S.C. 78s(b)(2).
12 In approving the proposed rule change, the
Commission considered the proposal’s impact on
efficiency, competition and capital formation. 15
U.S.C. 78c(f).
13 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
11 15
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65765
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
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
change is to establish the NOTO market
data product. NOTO is a market data
product offered by the Exchange that is
designed to provide proprietary
electronic trade data to subscribers.
NOTO is available as either an ‘‘End-ofDay’’ data product or an ‘‘Intra-Day’’
data product, as described more fully
below. NOTO is available to any person
who wishes to subscribe to it, regardless
of whether or not they are a member of
the Exchange. NOTO is available only
for internal use and distribution by
subscribers.
Data Included in NOTO
NOTO provides information about the
activity of a particular option series
during a particular trading session.
NOTO subscribers will receive the
following data:
• Aggregate number of buy and sell
transactions in the affected series;
• Aggregate volume traded
electronically on the Exchange in the
affected series;
• Aggregate number of trades effected
on the Exchange to open a position; 3
• Aggregate number of trades effected
on the Exchange to close a position; 4
3 NOTO will provide subscribers with the
aggregate number of ‘‘opening purchase
transactions’’ in the affected series. An opening
purchase transaction is an Exchange options
transaction in which the purchaser’s intention is to
create or increase a long position in the series of
options involved in such transaction. NOTO will
also provide subscribers with the aggregate number
of ‘‘opening writing transactions.’’ An opening
writing transaction is an Exchange options
transaction in which the seller’s (writer’s) intention
is to create or increase a short position in the series
of options involved in such transaction.
4 NOTO will provide subscribers with the
aggregate number of ‘‘closing purchase
transactions’’ in the affected series. A closing
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]]>Agencies
[Federal Register Volume 76, Number 205 (Monday, October 24, 2011)]
[Notices]
[Pages 65763-65765]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-27380]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-65588; File No. SR-ICC-2011-01]
Self-Regulatory Organizations; ICE Clear Credit LLC; Order
Approving Proposed Rule Change To Add Rules Related to the Clearing of
Emerging Markets Sovereigns
October 18, 2011.
I. Introduction
On August 30, 2011, ICE Clear Credit LLC (``ICC'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change SR-ICC-2011-01 pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder.\2\ The
proposed rule change was published for comment in the Federal Register
on September 9, 2011.\3\ The Commission received no comment letters
regarding the proposal. For the reasons discussed below, the Commission
is granting approval of the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 34-65259 (September 2,
2011), 76 FR 55984 (September 9, 2011). In its filing with the
Commission, ICC included statements concerning the purpose of and
basis for the proposed rule change. The text of these statements are
incorporated into the discussion of the proposed rule change in
Section II below.
---------------------------------------------------------------------------
II. Description
This rule change will amend Chapter 26 of ICC's rules to add
Sections 26D and 26E to provide for the clearance of Emerging Markets
Standard Sovereign CDS Contracts (``SES Contracts''). ICC will clear
SES Contracts on four sovereign reference entities: the Federative
Republic of Brazil, the United Mexican States, the Bolivian Republic of
Venezuela, and the Argentine Republic. If ICC determines to list
additional SES Contracts, it will seek approval from the Commission for
such contracts (or for a class of product including such contracts) by
a subsequent filing with the Commission.
SES Contracts have similar terms to the North American Corporate
CDS Contracts (``Corporate Single Name CDS Contracts'') currently
cleared by ICC and governed by Section 26B of the ICC rules.
Accordingly, proposed rules in Section 26D largely mirror the ICC rules
for Corporate Single Name CDS Contracts in Section 26B, with certain
modifications that reflect differences in terms and market conventions
between SES Contracts and Corporate Single Name CDS Contracts. In the
event that
[[Page 65764]]
a clearing participant is domiciled in a country that is the reference
entity for an SES Contract, ICC will not permit the clearing
participant to clear such SES Contract.
Rule 26D-102 (Definitions) sets forth the definitions used for SES
Contracts. An ``Eligible SES Reference Entity'' is defined as ``each
particular Reference Entity included from time to time in the List of
Eligible Reference Entities,'' which is a list maintained, updated and
published from time to time by ICC containing certain specified
information with respect to each reference entity.\4\ The Eligible SES
Reference Entities will at present be limited to the four Latin
American sovereigns listed above. Certain substantive changes have also
been made to the definition of ``List of Eligible SES Reference
Entities'' (as compared to the corresponding definition in Section
26B), due to the fact that certain terms and elections for Corporate
Single Name CDS Contracts are not applicable to SES Contracts. These
include (i) The need for an election as to whether ``Restructuring'' is
an eligible ``Credit Event'' (it is by market convention applicable to
all SES Contracts, whereas it is generally not applicable to Corporate
Single Name CDS Contracts) and (ii) the applicability of certain
International Swaps and Derivatives Association (``ISDA'') supplements
that may apply to Corporate Single Name CDS Contracts but do not apply
to SES Contracts, including the 2005 Monoline Supplement, the ISDA
Additional Provisions for a Secured Deliverable Obligation
Characteristic, and the ISDA Additional Provisions for Reference
Entities with Delivery Restrictions. According to ICC, SES Contracts
will only be denominated in U.S. Dollars. The remaining definitions are
substantially the same as the definitions found in ICC Section 26B,
other than with respect to certain conforming changes.
---------------------------------------------------------------------------
\4\ Similar to the index credit default swap (``CDS'') contracts
and Corporate Single Name CDS Contracts that ICC currently clears,
ICC will accept for clearing sovereign CDS contracts denominated in
U.S. Dollars only.
---------------------------------------------------------------------------
Rules 26D-203 (Restriction on Activity), 26D-206 (Notices Required
of Participants with respect to SES Contracts), 26D-303 (SES Contract
Adjustments), 26D-309 (Acceptance of SES Contracts by ICE Trust), 26D-
315 (Terms of the Cleared SES Contract), 26D-316 (Relevant Physical
Settlement Matrix Updates), 26D-502 (Specified Actions), and 26D-616
(Contract Modification) reflect or incorporate the basic contract
specifications for SES Contracts and are substantially the same as the
corresponding provisions applicable to Corporate Single Name CDS
Contracts in Section 26B of ICC rules, other than with respect to
certain conforming changes. For the avoidance of doubt, ICC will not
accept a trade for clearance and settlement if at the time of
submission or acceptance of the trade or at the time of novation the
CDS Participant submitting the trade is domiciled in the country of the
Eligible SES Reference Entity for such SES Contract.
In addition to various non-substantive conforming changes, the
proposed rules differ from the existing rules for Corporate Single Name
CDS Contracts in that the contract terms in Rule 26D-315 incorporate
the relevant published ISDA physical settlement matrix terms for
Standard Latin American Sovereign transactions, rather than Standard
North American Corporate transactions, and, as noted in the preceding
paragraph, to account for certain elections and supplements used for
Corporate Single Name CDS Contracts that are not applicable to SES
Contracts.
New Section 26E (CDS Restructuring Rules) provides rules applicable
to cleared Contracts in the event of a restructuring credit event.
Corporate Single Name CDS Contracts currently cleared by ICC are
generally not subject to these restructuring rules. Unlike other credit
events, following a restructuring credit event, parties to a cleared
SES Contract must determine whether or not to trigger their credit
protection. To facilitate this election while permitting ICC to
maintain a matched book of cleared Contracts, Section 26E provides that
protection buyers and protection sellers under a Restructuring CDS
Contract (defined as a CDS Contract where a restructuring credit event
has occurred) will be matched into pairs, each referred to as a
``Matched Restructuring Pair,'' by ICC for purposes of sending and
receiving such triggering notices. Rule 26E-102 sets forth the
definitions used throughout Section 26E in connection with a
restructuring credit event.
The procedures for creation of Matched Restructuring Pairs are set
forth in Rule 26E-103 (Allocation of Matched Restructuring Pairs).
Following the announcement that a restructuring credit event has
occurred with respect to an SES Contract, ICC will match each
protection seller in that contract with one or more protection buyers
in that contract, such that the notional amount of the contract of each
protection seller is fully allocated to one or more protection buyers.
In order to be matched, positions in an SES Contract must be of the
same type (i.e., having the same reference entity, tenor, reference
obligation, fixed rate, and relevant physical settlement matrix).
The mechanics associated with the delivery and receipt of notices
by clearing participants under Matched Restructuring Pairs are set
forth in Rule 26E-104 (Matched Restructuring Pairs; Designations and
Notices). This rule provides that once ICC has created the Matched
Restructuring Pairs, ICC will be deemed to have designated the matched
CDS buyer and matched CDS seller as its designee to receive and deliver
credit event notices in relation to the Restructuring CDS Contract. The
rule also contains a mechanism for notifying ICC of disputes with
respect to such notices.
Finally, Rule 26E-105 (Separation of Matched Restructuring Pairs)
addresses situations where an announcement of a restructuring credit
event is followed by a determination that such event did not in fact
occur.\5\ The rule provides that if ICC has not matched buyers with
sellers to form a Matched Restructuring Pair, then ICC will not do so.
If ICC has matched sellers with buyers to form a Matched Restructuring
Pair, but settlement (either auction settlement or fallback physical
settlement) has not occurred, then ICC will reverse the matching. If
fallback physical settlement is applicable, ICC will not reverse any
matching to the extent that the matched CDS buyer or matched CDS seller
has given notice to ICC that the parties have settled the relevant
matched CDS contract within one Business Day following delivery of the
matching reversal notice. If a CDS contract is reversed, ICC will
recalculate the margin accordingly.
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\5\ Determination of a credit event and a subsequent
determination that a credit event did not occur are made by the ISDA
relevant credit derivatives determinations committee (``DC''), or,
in the event a request has been submitted to the relevant DC and
ISDA has publicly announced that the relevant DC has resolved not to
determine the answer, by the appropriate ICE Clear Credit Regional
CDS Committee.
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ICC believes that clearance of SES Contracts will facilitate the
prompt and accurate settlement of security-based swaps and contribute
to the safeguarding of securities and funds associated with security-
based swap transactions.\6\
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\6\ ICC has performed a variety of empirical analyses related to
clearing of SES Contracts on sovereign reference entities, including
back tests and stress tests using actual clearing participant
portfolios (with respect to the stress tests) combined with
hypothetical positions in sovereign CDS contracts based on data
retrieved from the Depository Trust Clearing Corporation's Trade
Information Warehouse and through interaction with ICC's Trade
Advisory Committee.
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[[Page 65765]]
III. Discussion
Section 19(b)(2)(B) of the Act directs the Commission to approve a
proposed rule change of a self-regulatory organization if it finds that
such proposed rule change is consistent with the requirements of the
Act and the rules and regulations thereunder applicable to such
organization.\7\ For example, Section 17A(b)(3)(F) of the Act \8\
requires, among other things, that the rules of a clearing agency be
designed to remove impediments to and perfect the mechanism of a
national system for the prompt and accurate clearance and settlement of
securities transactions and to assure the safeguarding of securities
and funds in the custody or control of the clearing agency or for which
it is responsible.
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\7\ 15 U.S.C. 78s(b)(2)(B).
\8\ 15 U.S.C. 78q-1(b)(3)(F).
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If approved, the proposed rule change would for the first time
permit a Commission-registered clearing agency to clear sovereign CDS
contracts, and ICC has informed the Commission that it intends to
introduce clearing of SES Contracts on four sovereign reference
entities (the Federative Republic of Brazil, the United Mexican States,
the Bolivian Republic of Venezuela, and the Argentine Republic)
products promptly after obtaining Commission approval. By bringing
additional products into clearing, the Commission believes the proposed
rule change is consistent with the requirements of the Act in that it
would contribute to the national system for the prompt and accurate
clearance and settlement of securities transactions.
Given the particular characteristics of the products proposed to be
cleared, the Commission also carefully considered ICC's ability to
clear SES Contracts in a safe and sound manner. After considering the
representations made by ICC regarding its belief that the clearance of
SES Contracts will contribute to the safeguarding of securities and
funds associated with security-based swap transactions based on its
analysis,\9\ the Commission believes that the proposed rule change is
consistent with Section 17A(b)(3)(F) of the Act, including ICC's
obligation to ensure that its rules be designed to assure the
safeguarding of securities and funds in the custody or control of the
clearing agency or for which it is responsible.
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\9\ Supra note 6.
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IV. Conclusion
On the basis of the foregoing, the Commission finds that the
proposal is consistent with the requirements of the Act and in
particular with the requirements of Section 17A of the Act \10\ and the
rules and regulations thereunder.
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\10\ 15 U.S.C. 78q-1.
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\11\ that the proposed rule change (File No. SR-ICC-2011-01) be,
and hereby is, approved.\12\
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\11\ 15 U.S.C. 78s(b)(2).
\12\ In approving the proposed rule change, the Commission
considered the proposal's impact on efficiency, competition and
capital formation. 15 U.S.C. 78c(f).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-27380 Filed 10-21-11; 8:45 am]
BILLING CODE 8011-01-P
