Self-Regulatory Organizations; ICE Clear Europe Limited; Notice of Filing of Proposed Rule Change, and Amendment No. 1 Thereto, to Clear Contracts Traded on the LIFFE Administration and Management Market, 32287-32292 [2013-12704]
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Federal Register / Vol. 78, No. 103 / Wednesday, May 29, 2013 / Notices
5. The Investing Fund Advisor, or
Trustee or Sponsor, as applicable, will
waive fees otherwise payable to it by the
Investing Fund in an amount at least
equal to any compensation (including
fees received pursuant to any plan
adopted by a Fund under rule 12b–1
under the Act) received from a Fund by
the Investing Fund Advisor, or Trustee
or Sponsor, or an affiliated person of the
Investing Fund Advisor, or Trustee or
Sponsor, other than any advisory fees
paid to the Investing Fund Advisor, or
Trustee, or Sponsor, or its affiliated
person by the Fund, in connection with
the investment by the Investing Fund in
the Fund. Any Investing Fund SubAdvisor will waive fees otherwise
payable to the Investing Fund SubAdvisor, directly or indirectly, by the
Investing Management Company in an
amount at least equal to any
compensation received from a Fund by
the Investing Fund Sub-Advisor, or an
affiliated person of the Investing Fund
Sub-Advisor, other than any advisory
fees paid to the Investing Fund SubAdvisor or its affiliated person by the
Fund, in connection with the
investment by the Investing
Management Company in the Fund
made at the direction of the Investing
Fund Sub-Advisor. In the event that the
Investing Fund Sub-Advisor waives
fees, the benefit of the waiver will be
passed through to the Investing
Management Company.
6. No Investing Fund or Investing
Fund Affiliate (except to the extent it is
acting in its capacity as an investment
adviser to a Fund) will cause a Fund to
purchase a security in an Affiliated
Underwriting.
7. The Board of a Fund, including a
majority of the independent directors or
trustees, will adopt procedures
reasonably designed to monitor any
purchases of securities by the Fund in
an Affiliated Underwriting, once an
investment by an Investing Fund in the
securities of the Fund exceeds the limit
of section 12(d)(1)(A)(i) of the Act,
including any purchases made directly
from an Underwriting Affiliate. The
Board will review these purchases
periodically, but no less frequently than
annually, to determine whether the
purchases were influenced by the
investment by the Investing Fund in the
Fund. The Board will consider, among
other things: (i) Whether the purchases
were consistent with the investment
objectives and policies of the Fund; (ii)
how the performance of securities
purchased in an Affiliated Underwriting
compares to the performance of
comparable securities purchased during
a comparable period of time in
underwritings other than Affiliated
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Underwritings or to a benchmark such
as a comparable market index; and (iii)
whether the amount of securities
purchased by the Fund in Affiliated
Underwritings and the amount
purchased directly from an
Underwriting Affiliate have changed
significantly from prior years. The
Board will take any appropriate actions
based on its review, including, if
appropriate, the institution of
procedures designed to ensure that
purchases of securities in Affiliated
Underwritings are in the best interest of
shareholders.
8. Each Fund will maintain and
preserve permanently in an easily
accessible place a written copy of the
procedures described in the preceding
condition, and any modifications to
such procedures, and will maintain and
preserve for a period of not less than six
years from the end of the fiscal year in
which any purchase in an Affiliated
Underwriting occurred, the first two
years in an easily accessible place, a
written record of each purchase of
securities in Affiliated Underwritings
once an investment by an Investing
Fund in the securities of the Fund
exceeds the limit of section
12(d)(1)(A)(i) of the Act, setting forth
from whom the securities were
acquired, the identity of the
underwriting syndicate’s members, the
terms of the purchase, and the
information or materials upon which
the Board’s determinations were made.
9. Before investing in a Fund in
excess of the limits in section
12(d)(1)(A), an Investing Fund will
execute an FOF Participation Agreement
with the Fund stating, without
limitation, that their respective boards
of directors or trustees and their
investment advisers, or Trustee and
Sponsor, as applicable, understand the
terms and conditions of the order, and
agree to fulfill their responsibilities
under the order. At the time of its
investment in shares of a Fund in excess
of the limit in section 12(d)(1)(A)(i), an
Investing Fund will notify the Fund of
the investment. At such time, the
Investing Fund will also transmit to the
Fund a list of the names of each
Investing Fund Affiliate and
Underwriting Affiliate. The Investing
Fund will notify the Fund of any
changes to the list as soon as reasonably
practicable after a change occurs. The
Fund and the Investing Fund will
maintain and preserve a copy of the
order, the FOF Participation Agreement,
and the list with any updated
information for the duration of the
investment and for a period of not less
than six years thereafter, the first two
years in an easily accessible place.
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10. Before approving any advisory
contract under section 15 of the Act, the
board of directors or trustees of each
Investing Management Company,
including a majority of the independent
directors or trustees, will find that the
advisory fees charged under such
contract are based on services provided
that will be in addition to, rather than
duplicative of, the services provided
under the advisory contract(s) of any
Fund in which the Investing
Management Company may invest.
These findings and their basis will be
recorded fully in the minute books of
the appropriate Investing Management
Company.
11. Any sales charges and/or service
fees charged with respect to shares of an
Investing Fund will not exceed the
limits applicable to a fund of funds as
set forth in NASD Conduct Rule 2830.
12. No Fund relying on the section
12(d)(1) Relief will acquire securities of
any investment company or company
relying on section 3(c)(1) or 3(c)(7) of
the Act in excess of the limits contained
in section 12(d)(1)(A) of the Act, except
to the extent permitted by exemptive
relief from the Commission permitting
the Fund to purchase shares of other
investment companies for short-term
cash management purposes.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–12637 Filed 5–28–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–69628; File No. SR–ICEEU–
2013–09]
Self-Regulatory Organizations; ICE
Clear Europe Limited; Notice of Filing
of Proposed Rule Change, and
Amendment No. 1 Thereto, to Clear
Contracts Traded on the LIFFE
Administration and Management
Market
May 23, 2013.
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 May 13,
2013, ICE Clear Europe Limited (‘‘ICE
Clear Europe’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change, as modified by Amendment No.
1, and as described in Items I, II, and III
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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below, which Items have been prepared
primarily by ICE Clear Europe.3 The
Commission is publishing this notice to
solicit comments on the proposed
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
tkelley on DSK3SPTVN1PROD with NOTICES
ICE Clear Europe submits revised
Parts 1, 2, 4, 5, 7, 8, 11, and 12 and new
Part 18 of its Rules (along with other
clarifying and conforming Rule
amendments) and revisions to its
Finance Procedures, Clearing
Procedures, Delivery Procedures and
Membership Procedures. As announced
on December 20, 2012, ICE Clear Europe
has agreed to act as the clearing
organization for futures and option
contracts traded on LIFFE
Administration and Management, a
recognized investment exchange under
the UK Financial Services and Markets
Act of 2000, including those processed
through LIFFE Administration and
Management’s Bclear service. BClear is
the service operated by LIFFE, which
enables LIFFE Clearing Members to
report certain bilaterally agreed off
exchange trades to LIFFE, for the
purposes of the LIFFE Rules. Upon
trades being reported they will be
eligible for clearing by ICE Clear Europe
as a LIFFE Block Transaction under the
ICE Clear Europe Rules.
The LIFFE contracts (‘‘LIFFE
Contracts’’) that are proposed to be
cleared by ICE Clear Europe include
interest rate and government bond
futures and options, certain agricultural
futures and options, and futures and
options on underlying equity securities
and equity indices.
With respect to LIFFE Contracts that
constitute securities for purposes of the
U.S. securities laws (i.e., LIFFE futures
and options on equity securities) (the
‘‘LIFFE securities products’’), LIFFE
does not permit direct access by U.S.
persons (including U.S. LIFFE members)
to its trading facility for purposes of
trading such products. In addition, only
certain LIFFE securities products are
made available for trading indirectly by
U.S. persons, in accordance with
applicable U.S. legal and regulatory
3 On May 22, 2013, ICE Clear Europe submitted
Amendment No. 1 to the proposed rule change to,
among other things, clarify the scope of products
proposed to be cleared, add new Rule 207(f)
prohibiting FCM/BD Clearing Members and other
Clearing Members organized in the U.S. from
clearing LIFFE Contracts that are futures or options
on underlying U.S. securities, add additional
clarification surrounding the operation of the
combined F&O Guaranty Fund and the margining
of LIFFE Contracts, and supplement the statutory
basis for the proposed rule change.
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requirements.4 (Attached in Exhibit 5
hereto is a list of LIFFE securities
products proposed to be cleared by ICE
Clear Europe.) Consistent with these
arrangements and U.S. legal and
regulatory restrictions, ICE Clear Europe
proposes to adopt new rule 207(f),
which provides that FCM/BD Clearing
Members and other clearing members of
ICE Clear Europe that are organized in
the United States will not be permitted
to clear LIFFE Contracts that are futures
or options on underlying U.S. securities
(other than futures contracts on broadbased security indices). In addition to
adopting this Rule, ICE Clear Europe
will notify clearing members of these
restrictions and is adopting procedures
for monitoring and enforcing
compliance by clearing members with
these restrictions.
ICE Clear Europe’s clearing activities
with respect to the LIFFE securities
products, and in particular those
involving U.S. securities, will be
conducted outside the United States. As
noted above, all Clearing Members
entitled to clear products involving U.S.
securities will be located outside the
United States. In addition, the internal
ICE Clear Europe financial, managerial,
operational and similar resources
dedicated to the clearing function for
LIFFE securities products are located in
the United Kingdom or otherwise
outside the United States. Specifically,
the ICE Clear Europe management team
and risk management personnel are
located in London. There will be a
dedicated LIFFE Risk Manager
supported by a team of risk analysts in
place on, or after, 1 July 2013, and
further resources within the Operations,
Corporate Development, Finance and
Treasury Departments all situated in
London.
ICE Clear Europe itself does not have
employees or offices located in the
United States. ICE Clear Europe is
recognized as an interbank payment
system by the Bank of England under
the Banking Act 2009 in the UK.
Physical settlement of any LIFFE
securities products will also occur
through facilities outside the United
States, in particular through the
Euroclear UK and Ireland systems as
well as other European Central
Securities Depositories (CSDs). ICE
Clear Europe does obtain certain
information technology services from its
U.S. affiliates pursuant to intercompany
services agreements. However, all
clearing personnel and decision-making,
4 See, e.g., SEC No-Action Letter to LIFFE A&M,
dated July 29, 2009; SEC No-Action Letter to LIFFE
A&M, dated March 6, 1996; SEC No-Action Letter
to LIFFE A&M, dated May 1, 1992.
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including supervision of such
information technology services by ICE
Clear Europe, remains in London, and
those U.S. affiliates do not have any
other role in ICE Clear Europe’ clearing
operations for the LIFFE securities
products.
The clearing of the LIFFE Contracts,
including the LIFFE securities products,
will be supported by the F&O Guaranty
Fund. The F&O Guaranty Fund replaces
the existing Energy Guaranty Fund, and
will support the clearing of both the
existing energy futures and options
products cleared by ICE Clear Europe
and the LIFFE Contracts. (The F&O
Guaranty Fund will not support the
clearing of credit default swap (‘‘CDS’’)
or FX products cleared at ICE Clear
Europe, and the CDS and FX Guaranty
Funds will not support the clearing of
energy or LIFFE contracts.) The F&O
Guaranty Fund will be divided into two
segments, an energy clearing segment
and a LIFFE clearing segment, each of
which is primarily allocated to losses
from products in that segment and
secondarily to losses from products in
the other segment, as discussed below.
The size of each segment will be
determined separately based on ICE
Clear Europe’s risk assessment of the
energy and LIFFE products,
respectively, and each segment will be
separately stress-tested in accordance
with the clearing house’s risk
management policies and procedures.
The energy segment will initially be the
same size as the existing Energy
Guaranty Fund, approximately USD650
million. The LIFFE clearing segment is
expected to initially be approximately
GBP370 million (the exact size will be
determined prior to the commencement
of LIFFE Contract clearing).
In the event of a default of a clearing
member for which ICE Clear Europe
needs to apply the F&O Guaranty Fund
in accordance with the risk waterfall
under the Rules, the energy segment
will be applied first to losses resulting
from cleared energy products, and the
LIFFE segment will be applied first to
losses resulting from cleared LIFFE
Contracts. Once a segment has been
exhausted by losses in its product
category, remaining assets from the
other segment may be applied to those
losses.
The purpose of the rule and
procedure changes is to implement this
clearing relationship. The other
proposed changes in the Rules and
procedures reflect conforming changes
to definitions and related provisions
and other drafting clarifications and
updates, as noted below. In order to
effect these amendments, the Finance
Procedures have been updated more
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generally, and the Finance Procedures
and Delivery Procedures have been
updated to reflect changes in EU Law
with respect to Registry Regulations and
the emissions markets operated by ICE
Futures Europe.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, ICE
Clear Europe included statements
concerning the purpose of and basis for
the proposed rule change 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. ICE
Clear Europe has prepared summaries,
set forth in sections A, B, and C below,
of the significant aspects of these
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
(a) Purpose
ICE Clear Europe submits revised
Parts 1, 2, 4, 7, 8, 11, and 12 and new
Part 18 of its Rules (along with other
clarifying and conforming Rule
amendments) and revisions to its
Finance Procedures, Clearing
Procedures, Delivery Procedures and
Membership Procedures. As announced
on December 20, 2012, ICE Clear Europe
has agreed to act as the clearing
organization for futures and option
contracts traded on LIFFE
Administration and Management, a
recognized investment exchange under
the UK Financial Services and Markets
Act of 2000. The purpose of the rule and
procedure changes is to implement this
clearing relationship. The other
proposed changes in the Rules and
procedures reflect conforming changes
to definitions and related provisions
and other drafting clarifications, and do
not affect the substance of the Rules and
procedures. The text of the proposed
rule and procedure amendments are
attached, with additions underlined and
deletions in strikethrough text.
tkelley on DSK3SPTVN1PROD with NOTICES
Rules
The amendments revise Part 1 of the
Rules, in which Rule 101, which
provides definitions for certain terms, is
modified to add new defined terms and
revise existing definitions. Included in
the changes to Rule 101 are the
designation of LIFFE as a Market for
which ICE Clear Europe provides
clearing services, the addition of
defined terms and other revisions to
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cover LIFFE Contracts and the creation
of a new category ‘‘F&O Contracts’’ that
will include Energy Contracts and
LIFFE Contracts (and related
definitions). The Energy Guaranty Fund
will be redesignated as the F&O
Guaranty Fund, which fund will be subdivided with respect to Energy
Contracts and LIFFE Contracts as
discussed above.
Part 2 of the Rules has been revised
to address requirements for LIFFE
Clearing Members and other conforming
changes. New Rule 207(f) would be
adopted to prohibit U.S. clearing
members from clearing LIFFE securities
products involving underlying U.S.
securities.
Part 3 of the Rules contain certain
conforming changes.
Changes to Part 4 of the Rules address
the submission of LIFFE Contracts for
clearing and related matters. A new
Rule 410 has been added to set out a
framework for Link Agreements, which
are generally defined as agreements
entered into between ICE Clear Europe
and another exchange for which ICE
Clear Europe does not otherwise
provide clearing services that provides
for the transfer of contracts to or from
that exchange (or its clearing house) to
ICE Clear Europe. LIFFE currently has
link arrangements with Tokyo Financial
Exchange Inc. and Tokyo Stock
Exchange Inc., which exchanges would
constitute ‘‘Participating Exchanges’’
pursuant to the new Rules.
Part 5 of the Rules, which addresses
margin requirements, contains certain
conforming changes. Margin
requirements for LIFFE Contracts will
be calculated using the SPAN®1 v4
algorithm,5 with modifications for
concentration charges and a trinomial
model used with respect to certain
LIFFE option transactions. ICE Clear
Europe will determine the margin
parameters used in the SPAN algorithm
for LIFFE Contracts cleared by ICE Clear
Europe, and make appropriate
modifications to those parameters from
time to time, within the framework of
the margin requirement policy approved
by the ICEU F&O Risk Committee. The
margin parameters applicable from time
to time will be issued and amended by
ICE Clear Europe via a circular posted
on its Web site.
Part 6 of the Rules contain no
changes.
The amendments revise Part 7 of the
Rules, which deals with settlement and
delivery of futures, to address
5 SPAN is a registered trademark of Chicago
Mercantile Exchange Inc. and used by ICE Clear
Europe under license. SPAN is a risk evaluation
and margin framework algorithm.
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settlement of LIFFE Contracts.
Specifically, Rule 703 has been
amended to address the treatment of
tenders delivered in relation to Futures
that are not settled in cash.
Additionally, Rule 704, which deals
with the credit and debit of accounts,
has been amended to provide that any
payment or other allowance payable by
or to either the Buyer or Seller under the
terms of the Contract shall be paid by
or to the Clearing House for onward
payment to the Buyer or Seller, as the
case may be.
The amendments revise Part 8 of the
Rules, which deals with Options, to
provide additional terms with respect to
the exercise of option contracts other
than options on futures. Specifically,
new Rule 806 provides that upon
exercise of any Option with a
Deliverable which is not a Future, a
Contract for the sale and purchase of the
relevant Deliverable (a ‘‘Contract of
Sale’’) at the Strike Price (or such other
price as is required pursuant to the
Contract Terms) will arise pursuant to
Rule 401 and in accordance with the
Contract Terms for the Option and
applicable Market Rules. Additionally,
new Rule 806 provides that upon such
Contract of Sale or Contracts of Sale
having arisen and all necessary
payments having been made by the
Clearing Member and Clearing House
pursuant to the Clearing Procedures, the
rights, obligations and liabilities of the
Clearing House and the relevant
Clearing Member in respect of the
Option shall be satisfied and the Option
shall be terminated.
The amendments to Part 8 of the
Rules also include the addition of new
Rule 809, which clarifies the delivery
and settlement procedures with respect
to Contracts of Sale arising from
Options. Pursuant to new Rule 809, the
Clearing House has the authority to
direct a Clearing Member, who is a
seller under a Contract of Sale subject to
delivery, to deliver the Deliverable
under such Contract to another Clearing
Member that is a buyer. New Rule 809
further provides that if a buyer under a
Contract of Sale rejects a Deliverable
delivered to it, the Clearing House as
buyer under the back-to-back Contract
with the Seller shall be entitled, if to do
so would be in accordance with the
applicable Contract Terms, to take the
same action as against the seller under
the equivalent Contract and the Clearing
House shall not be deemed to have
accepted such delivery until the
relevant buyer has accepted delivery
under the first Contract.
New Rule 810 addresses the cash
settlement terms of Options with
Deliverables other than Futures. New
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tkelley on DSK3SPTVN1PROD with NOTICES
Rule 811 provides that the Clearing
House shall make any necessary credits
or debits to or from Clearing Members’
Proprietary Margin Account and
Customer Margin Accounts, as
appropriate, arising as a result of each
cash settlement and delivery in
accordance with Part 3 of the Rules.
Part 9 of the Rules contain certain
conforming changes.
Part 10 of the Rules contain no
changes.
The amendments revise Part 11 of the
Rules, which deals with the Guaranty
Funds. The clearing of LIFFE Contracts
will be supported by the existing Energy
Guaranty Fund, which will be redesignated the ‘‘F&O Guaranty Fund.’’
Contributions to the F&O Guaranty
Fund will be primarily allocated to
losses from either Energy Contracts or
LIFFE Contracts, and secondarily
allocated to the other such class of
Contracts, as set forth in Rule 1103 and
as discussed above.
The amendments also revise Part 12
of the Rules, which addresses UK
Settlement Finality Regulations and the
Companies Act 1989. Conforming
changes have been made to incorporate
LIFFE Contracts in the provisions
addressing various categories of transfer
orders.
The amendments include a new Part
18 of the Rules, which provide for
transitional provisions concerning the
novation of open contracts with LIFFE
A&M and LCH.Clearnet Limited, under
LIFFE A&M’s existing clearing
arrangements, to ICE Clear Europe,
under the new clearing relationship,
and the transfer of Clearing Member
cash and securities from LCH.Clearnet
Limited to ICE Clear Europe.
Membership Procedures
ICE Clear Europe Limited also
submits revised Membership
Procedures. ICE Clear Europe’s
Membership Procedures have been
updated to provide for the clearing of
LIFFE Contracts and to reflect a new
membership category, ‘‘F&O Clearing
Members’’, which identify Clearing
Members seeking to clear LIFFE
Contracts as well as existing Energy
Clearing Members. The amendments
reflect various other updates and
changes to conform to other provisions
of the Rules and procedures. In Section
4 (‘‘Matters Requiring Notification by
Clearing Members’’), the chart governing
all notifications, their timing and their
form requirements have been generally
updated to address the changes to the
numbering of provisions and otherwise
to reflect the latest version of ICE Clear’s
Clearing Rules. New subsections G
(‘‘Clearing Procedures’’), H (‘‘Finance
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Procedures’’), I (‘‘Complaint Resolution
Procedures’’) and J (‘‘Business
Continuity Procedures’’) have also been
added, reflecting the notifications,
timing and form requirements contained
in such procedures.
Finance Procedures
ICE Clear Europe also submits revised
Parts 2, 3, 4, 5, 6 and 9 of its Finance
Procedures, which reflect general
updates as well as changes to the
clearing of LIFFE Contracts.
Section 2.1 has been revised to clarify
the currencies supported by ICE Clear
Europe in various contexts. Initial and
Original Margin obligations may be met
only in USD, GBP and EUR currency.
CAD, CHF and SEK currency may be
used by Clearing Members only for the
receipt of income on non-cash Permitted
Cover with coupons payable in those
currencies. CAD may also be used for
Variation Margin and settlement
payments only for Energy Contracts
which settle in CAD. Certain additional
currencies may be used for Variation
Margin and settlement payments for
LIFFE Contracts which settle in such
currencies.
Similarly, Section 3.7 has been
amended to clarify that currencies
eligible for Triparty Collateral for
Original or Initial Margin are limited to
USD, GBP and EUR.
Section 4.1 governing currency
requirements for the accounts of the
Clearing Members has been slightly
modified: All F&O Clearing Members
must have an account, denominated in
USD; all CDS Clearing Members must
have an account denominated in EUR;
all F&O Clearing Members must
additionally have at least one further
account denominated in either GBP or
EUR; all CDS Clearing Members must
additionally have at least one further
account denominated in either GBP or
USD; a Clearing Member which has an
Open Contract Position in a contract for
which EUR, GBP, USD or CAD is the
settlement currency must have an
account denominated in such currency;
a Clearing Member which transfers noncash Permitted Cover to the Clearing
House which pays a coupon, interest or
redemptions in USD, EUR, GBP, CAD,
CHF or SEK must have an account in
that currency; and an F&O Clearing
Member that is a LIFFE Clearing
Member and is party to LIFFE Contracts
which settle in CAD, CHF, CZK, DKK,
HUF, JPY, NOK, PLN, SEK or TRY must
have an account in each such currency.
The procedures of the assured
payment system have been updated
under Section 5.5 of the Finance
Procedures to conform to changes
recently made to Rule 301(f) regarding
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the liability of Clearing Members for the
remittance of funds through Approved
Financial Institutions.
Section 6.1(h), which addresses the
various payments that may be included
in a cash transfer, has been modified to
address intra-day call of additional
Initial or Original Margin Call, the
proceeds of which may be applied
against future Variation Margin or Markto-Market Margin calls. Intra-day Calls
will now only be processed in USD,
GBP or EUR. Section 6.1(h)(vi) has been
revised to address general procedures
for rebates, fee discounts and incentive
programs that the Clearing House may
adopt from time to time. In addition, the
provisions on Currency Holidays and
payments on other currencies, Section
6.1(h)(viii), have also been updated and
now include language on Force Majeure
Events and Financial Emergencies.
In Section 9, the definitions relating
to the use of Emission Allowances and
Permitted Cover have been updated to
reflect changes in EU Law with respect
to Registry Regulations. Certain
conforming changes are made in Part 10
of the Finance Procedures. Finally,
Section 12.1 has been revised to reflect
the sub-categories of Letters of Credit
that might be used to satisfy Original
Margin, being a ‘‘Standard Letter of
Credit’’ and a ‘‘Pass-Through Letter of
Credit’’. The relevant forms of the
Letters of Credit have also been updated
in Section 12.4.
Clearing Procedures
ICE Clear Europe submits its revised
Clearing Procedures. ICE Clear Europe’s
Clearing Procedures have been updated
to provide for the clearing of LIFFE
Contracts as well as certain other
updates and confirmations.
Accordingly, amendments have been
made to the provisions relating to ICE
Clear Europe’s post-trade
administration, clearing and settlement
systems, position management and
position accounts in Sections 1, 2 and
3, respectively.
Delivery Procedures
ICE Clear Europe submits its revised
Delivery Procedures. ICE Clear Europe’s
Delivery Procedures have been amended
to provide for the delivery of LIFFE
Contracts. The following provisions
have been added to the Delivery
Procedures, which set out the new
delivery arrangements:
• Section 8 (‘‘Alternative Delivery
Procedure: LIFFE White Sugar and Raw
Sugar’’);
• Section 17 (‘‘LIFFE Guardian’’),
which describes the LIFFE Guardian
electronic grading and delivery system
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which will be used in certain LIFFE
deliveries; and
Parts I–Q, which set out the delivery
arrangements for the additional LIFFE
Contracts as follows:
Æ Part I: ‘‘LIFFE Cocoa Contracts’’
Æ Part J: ‘‘LIFFE Coffee Contracts’’
Æ Part K: ‘‘LIFFE White Sugar
Contracts’’
Æ Part L ‘‘LIFFE Wheat Contracts’’
Æ Part M: ‘‘LIFFE Deliveries’’
Æ Part N: ‘‘LIFFE Common Delivery
Procedures’’
Æ Part O: ‘‘LIFFE Gilt Contracts’’
Æ Part P: ‘‘LIFFE Japanese Government
Bond Contracts’’
Æ Part Q: ‘‘LIFFE Equity Futures/
Options’’
Further, the Schedule of Forms and
Reports has been updated and lists
additional delivery forms used for the
LIFFE Contracts.
Part A of the Delivery Procedures
relating to emissions contracts has also
been amended, reflecting changes to EU
legislation, certain new emission
contracts previously launched by ICE
Futures Europe and the use of a single
EU registry together with additional
conforming and updating changes to the
Delivery Procedures generally.
(b) Statutory Basis
ICE Clear Europe believes that the
proposed rule and procedure changes
are consistent with the requirements of
Section 17A of the Act 6 and the
regulations thereunder applicable to it,
including the standards under Rule
17Ad–22.7 The amendments will
provide for clearing of LIFFE Contracts
by ICE Clear Europe, consistent with
ICE Clear Europe’s existing clearing
arrangements and related financial
safeguards, protections and risk
management procedures, as discussed
herein. Acceptance of LIFFE Contracts
for clearing, and conditions set out in
these rule and procedure amendments,
will promote the prompt and accurate
clearance of and settlement of securities
transactions, the safeguarding of
securities and funds in the custody or
control of ICE Clear Europe and the
protection of investors and the public
interest, within the meaning of Section
17A(b)(3)(F) of the Act.8 The proposed
amendments do not impact ICE Clear
Europe’s financial resources devoted to
its security-based swap related (i.e.,
credit default swap) clearing business.
Clearing of LIFFE Contracts will satisfy
relevant requirements of Rule 17Ad–
22,9 as discussed below.
U.S.C. 78q–1.
CFR 240.17Ad–22.
8 15 U.S.C. 78q–1(b)(3)(F).
9 17 CFR 240.17Ad–22.
Financial Resources. As discussed
above, ICE Clear Europe has structured
the F&O Guaranty Fund to provide
sufficient additional financial resources
to support the clearing of LIFFE
Contracts consistent with the
requirements of Rule 17Ad–22.10 The
proposed amendments do not impact
ICE Clear Europe’s financial resources
devoted to its security-based swap
related (i.e., credit default swap)
clearing business. Moreover, new
policies were approved covering margin
requirements, mark-to-market margin,
capital to margin, membership, internal
rating, backtesting, wrong-way risk,
concentration charges, intraday margin
and stress testing in respect of the LIFFE
A&M clearing relationship. Relevant
models applicable to the clearing of
LIFFE Contracts were subjected to
independent validation as required by
ICE Clear Europe’s model governance
framework.
Operational Resources. ICE Clear
Europe believes it will have the
operational and managerial capacity to
clear the LIFFE Contracts as of the
commencement of clearing, consistent
with the requirements of Rule 17Ad–
22(d)(4).11 Staffing levels and resources
at ICE Clear Europe related to
operational and technology needs for
the clearing of LIFFE Contracts will be
subject to ongoing review. ICE Clear
Europe believes that its existing systems
are appropriately scalable to handle the
expected increase in volume. ICE Clear
Europe may also enter into services
arrangements with LIFFE A&M from
time to time in connection with the
clearing of LIFFE Contracts, under
which LIFFE A&M or its personnel may
assist with certain clearing functions,
particularly with respect to contracts
that go to delivery.
Participant Requirements. ICE Clear
Europe believes that the Amendments
and the clearing of LIFFE Contracts are
consistent with the requirements of Rule
17Ad–22(d)(2) 12 to provide fair and
open access through participation
requirements that are objective and
publicly disclosed. ICE Clear Europe
believes that the Amendments establish
fair and objective criteria for the
eligibility to clear LIFFE Contracts. ICE
Clear Europe clearing membership is
available to participants that meet such
criteria. ICE Clear Europe clearing
members that wish to clear LIFFE
Contracts will have to satisfy the
financial resources requirements to clear
these products and continue to do so in
order to preserve their eligibility to clear
6 15
7 17
VerDate Mar<15>2010
18:07 May 28, 2013
LIFFE Contracts. Clearing member
compliance with the requirements to
clear LIFFE Contracts will be monitored
by ICE Clear Europe.
Settlement. ICE Clear Europe believes
that the Amendments will improve the
finality and accuracy of its daily
settlement process and reduce the risk
to ICE Clear Europe of settlement
failures, consistent with the
requirements of Rule 17Ad–22(d)(5),
(12) and (15).13 The proposed
Amendments require ICE Clear Europe
clearing members that clear LIFFE
Contracts to maintain accounts at
approved financial institutions and that
are denominated in the settlement
currency of the LIFFE Contracts such
clearing member clears. Also, the
Finance Procedures Amendments
clarify the steps a clearing member (and
its approved financial institutions) must
take in order for the clearing member’s
obligations to pay ICE Clear Europe to
be deemed satisfied and complete.
Likewise, the proposed Amendments
to the delivery procedures clarify the
obligations of ICE Clear Europe and its
clearing members in respect of
physically-settled LIFFE Contracts. The
proposed Amendments contemplate
that ICE Clear Europe may, from time to
time, enter into clearing services
arrangements with LIFFE A&M, in
respect of LIFFE Contracts, pursuant to
which certain functions may be
performed by LIFFE A&M for ICE Clear
Europe. In general, the terms to be
added to the ICE Clear Europe delivery
procedures in large part reflect the terms
currently applicable to the LIFFE
Contracts under their existing clearing
arrangements.
ICE Clear Europe believes these
changes are thus in furtherance of, and
are consistent with, the requirements of
Rule 17Ad–22 14 and will facilitate the
continued operation of the clearing
house’s settlement process. ICE Clear
Europe believes that its Rules and
procedures related to settlements
(including physical settlements), as
amended, appropriately identify and
manage the risks associated with
settlements under LIFFE Contracts.
Default Procedures. ICE Clear Europe
believes that the Rules and its relevant
procedures allow for it to take timely
action to contain losses and liquidity
pressures and to continue meeting its
obligations in the event of clearing
member insolvencies or defaults,
including in respect of LIFFE Contracts,
10 Id.
11 Id.
13 Id.
12 Id.
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in accordance with Rule 17Ad–
22(d)(11).15
B. Self-Regulatory Organization’s
Statement on Burden on Competition
ICE Clear Europe does not believe the
proposed rule changes would have any
impact, or impose any burden, on
competition. LIFFE A&M is an
established market for the LIFFE
Contracts, and ICE Clear Europe does
not anticipate that its becoming the
clearing house for the LIFFE Contracts
will adversely affect the trading market
for those contracts on LIFFE A&M.
Moreover, ICE Clear Europe has
established fair and objective criteria for
eligibility to clear LIFFE Contracts, and
accordingly ICE Clear Europe does not
believe that the proposed rule changes
will impose any burden on competition
among clearing members.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
Written comments relating to the rule
changes have been solicited and one
comment has been received to date but
was not in connection with the specific
rule and procedure changes. ICE Clear
Europe will notify the Commission of
any written comments received by ICE
Clear Europe.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) by order approve or disapprove
the proposed rule change or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
tkelley on DSK3SPTVN1PROD with NOTICES
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
15 Id.
VerDate Mar<15>2010
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml) or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–ICEEU–2013–09 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–ICEEU–2013–09. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filings also will be available for
inspection and copying at the principal
office of ICE Clear Europe and on ICE
Clear Europe’s Web site at https://
www.theice.com/publicdocs/
regulatory_filings/
ICEU_SEC_051313_3.pdf.
All comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File
Number SR–ICEEU–2013–09 and
should be submitted on or before June
19, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.16
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–12704 Filed 5–28–13; 8:45 am]
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–69620; File No. SR–NSCC–
2013–02]
Self-Regulatory Organizations;
National Securities Clearing
Corporation; Notice of Filing
Amendment No. 1 and Designation of
a Longer Period for Commission
Action on Proposed Rule Change, as
Modified by Amendment No. 1, To
Institute Supplemental Liquidity
Deposits to Its Clearing Fund Designed
To Increase Liquidity Resources To
Meet Its Liquidity Needs
May 22, 2013.
On March 21, 2013, National
Securities Clearing Corporation
(‘‘NSCC’’) filed with the Securities and
Exchange Commission (‘‘Commission’’)
proposed rule change SR–NSCC–2013–
02 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 April 10, 2013.3 As of May
17, 2013, the Commission had received
eight comment letters on the proposal
contained in the proposed rule change
and its related advance notice.4
Pursuant to Section 19(b)(1) of the Act 5
and Rule 19b-4 thereunder,6 notice is
hereby given that on April 19, 2013,
NSCC filed with the Commission
Amendment No. 1 to the proposed rule
change. Amendment No. 1 revised
NSCC’s original proposed rule change
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4. NSCC also filed the proposal
contained in the proposed rule change, as modified
by Amendment No. 1, as an advance notice (File
No. SR–NSCC–2013–802) pursuant to Section
806(e)(1) of the Payment, Clearing, and Settlement
Supervision Act of 2010 and Rule 19b–4(n)(1)(i)
thereunder. See Release No. 34–69451 (Apr. 25,
2013), 78 FR 25496 (May 1, 2013). On May 20,
2013, the Commission extended the period of
review of the advance notice so that the
Commission shall have until July 19, 2013 to issue
an objection or non-objection to the advance notice.
Release No. 34–69605 (May 20, 2013). The proposal
shall not take effect until all regulatory actions
required with respect to the proposal are
completed.
3 Release No. 34–69313 (Apr. 4, 2013), 78 FR
21487 (Apr. 10, 2013).
4 See Comments Received on File Nos. SR–
NSCC–2013–802 (https://sec.gov/comments/sr-nscc2013-802/nscc2013802.shtml) and SR–NSCC–2013–
02 (https://sec.gov/comments/sr-nscc-2013-02/
nscc201302.shtml). Since the proposal contained in
the proposed rule change was also filed as an
advance notice, see Release No. 34–69451, supra
note 2, the Commission is considering all public
comments received on the proposal regardless of
whether the comments are submitted to the
proposed rule change (File No. SR–NSCC–2013–02)
or the advance notice (File No. SR–NSCC–2013–
802).
5 15 U.S.C. 78s(b)(1).
6 17 CFR 240.19b–4.
2 17
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[Federal Register Volume 78, Number 103 (Wednesday, May 29, 2013)]
[Notices]
[Pages 32287-32292]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-12704]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69628; File No. SR-ICEEU-2013-09]
Self-Regulatory Organizations; ICE Clear Europe Limited; Notice
of Filing of Proposed Rule Change, and Amendment No. 1 Thereto, to
Clear Contracts Traded on the LIFFE Administration and Management
Market
May 23, 2013.
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 May 13, 2013, ICE Clear Europe Limited (``ICE Clear Europe'') filed
with the Securities and Exchange Commission (``Commission'') the
proposed rule change, as modified by Amendment No. 1, and as described
in Items I, II, and III
[[Page 32288]]
below, which Items have been prepared primarily by ICE Clear Europe.\3\
The Commission is publishing this notice to solicit comments on the
proposed change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ On May 22, 2013, ICE Clear Europe submitted Amendment No. 1
to the proposed rule change to, among other things, clarify the
scope of products proposed to be cleared, add new Rule 207(f)
prohibiting FCM/BD Clearing Members and other Clearing Members
organized in the U.S. from clearing LIFFE Contracts that are futures
or options on underlying U.S. securities, add additional
clarification surrounding the operation of the combined F&O Guaranty
Fund and the margining of LIFFE Contracts, and supplement the
statutory basis for the proposed rule change.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
ICE Clear Europe submits revised Parts 1, 2, 4, 5, 7, 8, 11, and 12
and new Part 18 of its Rules (along with other clarifying and
conforming Rule amendments) and revisions to its Finance Procedures,
Clearing Procedures, Delivery Procedures and Membership Procedures. As
announced on December 20, 2012, ICE Clear Europe has agreed to act as
the clearing organization for futures and option contracts traded on
LIFFE Administration and Management, a recognized investment exchange
under the UK Financial Services and Markets Act of 2000, including
those processed through LIFFE Administration and Management's Bclear
service. BClear is the service operated by LIFFE, which enables LIFFE
Clearing Members to report certain bilaterally agreed off exchange
trades to LIFFE, for the purposes of the LIFFE Rules. Upon trades being
reported they will be eligible for clearing by ICE Clear Europe as a
LIFFE Block Transaction under the ICE Clear Europe Rules.
The LIFFE contracts (``LIFFE Contracts'') that are proposed to be
cleared by ICE Clear Europe include interest rate and government bond
futures and options, certain agricultural futures and options, and
futures and options on underlying equity securities and equity indices.
With respect to LIFFE Contracts that constitute securities for
purposes of the U.S. securities laws (i.e., LIFFE futures and options
on equity securities) (the ``LIFFE securities products''), LIFFE does
not permit direct access by U.S. persons (including U.S. LIFFE members)
to its trading facility for purposes of trading such products. In
addition, only certain LIFFE securities products are made available for
trading indirectly by U.S. persons, in accordance with applicable U.S.
legal and regulatory requirements.\4\ (Attached in Exhibit 5 hereto is
a list of LIFFE securities products proposed to be cleared by ICE Clear
Europe.) Consistent with these arrangements and U.S. legal and
regulatory restrictions, ICE Clear Europe proposes to adopt new rule
207(f), which provides that FCM/BD Clearing Members and other clearing
members of ICE Clear Europe that are organized in the United States
will not be permitted to clear LIFFE Contracts that are futures or
options on underlying U.S. securities (other than futures contracts on
broad-based security indices). In addition to adopting this Rule, ICE
Clear Europe will notify clearing members of these restrictions and is
adopting procedures for monitoring and enforcing compliance by clearing
members with these restrictions.
---------------------------------------------------------------------------
\4\ See, e.g., SEC No-Action Letter to LIFFE A&M, dated July 29,
2009; SEC No-Action Letter to LIFFE A&M, dated March 6, 1996; SEC
No-Action Letter to LIFFE A&M, dated May 1, 1992.
---------------------------------------------------------------------------
ICE Clear Europe's clearing activities with respect to the LIFFE
securities products, and in particular those involving U.S. securities,
will be conducted outside the United States. As noted above, all
Clearing Members entitled to clear products involving U.S. securities
will be located outside the United States. In addition, the internal
ICE Clear Europe financial, managerial, operational and similar
resources dedicated to the clearing function for LIFFE securities
products are located in the United Kingdom or otherwise outside the
United States. Specifically, the ICE Clear Europe management team and
risk management personnel are located in London. There will be a
dedicated LIFFE Risk Manager supported by a team of risk analysts in
place on, or after, 1 July 2013, and further resources within the
Operations, Corporate Development, Finance and Treasury Departments all
situated in London.
ICE Clear Europe itself does not have employees or offices located
in the United States. ICE Clear Europe is recognized as an interbank
payment system by the Bank of England under the Banking Act 2009 in the
UK. Physical settlement of any LIFFE securities products will also
occur through facilities outside the United States, in particular
through the Euroclear UK and Ireland systems as well as other European
Central Securities Depositories (CSDs). ICE Clear Europe does obtain
certain information technology services from its U.S. affiliates
pursuant to intercompany services agreements. However, all clearing
personnel and decision-making, including supervision of such
information technology services by ICE Clear Europe, remains in London,
and those U.S. affiliates do not have any other role in ICE Clear
Europe' clearing operations for the LIFFE securities products.
The clearing of the LIFFE Contracts, including the LIFFE securities
products, will be supported by the F&O Guaranty Fund. The F&O Guaranty
Fund replaces the existing Energy Guaranty Fund, and will support the
clearing of both the existing energy futures and options products
cleared by ICE Clear Europe and the LIFFE Contracts. (The F&O Guaranty
Fund will not support the clearing of credit default swap (``CDS'') or
FX products cleared at ICE Clear Europe, and the CDS and FX Guaranty
Funds will not support the clearing of energy or LIFFE contracts.) The
F&O Guaranty Fund will be divided into two segments, an energy clearing
segment and a LIFFE clearing segment, each of which is primarily
allocated to losses from products in that segment and secondarily to
losses from products in the other segment, as discussed below. The size
of each segment will be determined separately based on ICE Clear
Europe's risk assessment of the energy and LIFFE products,
respectively, and each segment will be separately stress-tested in
accordance with the clearing house's risk management policies and
procedures. The energy segment will initially be the same size as the
existing Energy Guaranty Fund, approximately USD650 million. The LIFFE
clearing segment is expected to initially be approximately GBP370
million (the exact size will be determined prior to the commencement of
LIFFE Contract clearing).
In the event of a default of a clearing member for which ICE Clear
Europe needs to apply the F&O Guaranty Fund in accordance with the risk
waterfall under the Rules, the energy segment will be applied first to
losses resulting from cleared energy products, and the LIFFE segment
will be applied first to losses resulting from cleared LIFFE Contracts.
Once a segment has been exhausted by losses in its product category,
remaining assets from the other segment may be applied to those losses.
The purpose of the rule and procedure changes is to implement this
clearing relationship. The other proposed changes in the Rules and
procedures reflect conforming changes to definitions and related
provisions and other drafting clarifications and updates, as noted
below. In order to effect these amendments, the Finance Procedures have
been updated more
[[Page 32289]]
generally, and the Finance Procedures and Delivery Procedures have been
updated to reflect changes in EU Law with respect to Registry
Regulations and the emissions markets operated by ICE Futures Europe.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, ICE Clear Europe included
statements concerning the purpose of and basis for the proposed rule
change 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. ICE Clear Europe has prepared summaries,
set forth in sections A, B, and C below, of the significant aspects of
these statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
(a) Purpose
ICE Clear Europe submits revised Parts 1, 2, 4, 7, 8, 11, and 12
and new Part 18 of its Rules (along with other clarifying and
conforming Rule amendments) and revisions to its Finance Procedures,
Clearing Procedures, Delivery Procedures and Membership Procedures. As
announced on December 20, 2012, ICE Clear Europe has agreed to act as
the clearing organization for futures and option contracts traded on
LIFFE Administration and Management, a recognized investment exchange
under the UK Financial Services and Markets Act of 2000. The purpose of
the rule and procedure changes is to implement this clearing
relationship. The other proposed changes in the Rules and procedures
reflect conforming changes to definitions and related provisions and
other drafting clarifications, and do not affect the substance of the
Rules and procedures. The text of the proposed rule and procedure
amendments are attached, with additions underlined and deletions in
strikethrough text.
Rules
The amendments revise Part 1 of the Rules, in which Rule 101, which
provides definitions for certain terms, is modified to add new defined
terms and revise existing definitions. Included in the changes to Rule
101 are the designation of LIFFE as a Market for which ICE Clear Europe
provides clearing services, the addition of defined terms and other
revisions to cover LIFFE Contracts and the creation of a new category
``F&O Contracts'' that will include Energy Contracts and LIFFE
Contracts (and related definitions). The Energy Guaranty Fund will be
redesignated as the F&O Guaranty Fund, which fund will be sub-divided
with respect to Energy Contracts and LIFFE Contracts as discussed
above.
Part 2 of the Rules has been revised to address requirements for
LIFFE Clearing Members and other conforming changes. New Rule 207(f)
would be adopted to prohibit U.S. clearing members from clearing LIFFE
securities products involving underlying U.S. securities.
Part 3 of the Rules contain certain conforming changes.
Changes to Part 4 of the Rules address the submission of LIFFE
Contracts for clearing and related matters. A new Rule 410 has been
added to set out a framework for Link Agreements, which are generally
defined as agreements entered into between ICE Clear Europe and another
exchange for which ICE Clear Europe does not otherwise provide clearing
services that provides for the transfer of contracts to or from that
exchange (or its clearing house) to ICE Clear Europe. LIFFE currently
has link arrangements with Tokyo Financial Exchange Inc. and Tokyo
Stock Exchange Inc., which exchanges would constitute ``Participating
Exchanges'' pursuant to the new Rules.
Part 5 of the Rules, which addresses margin requirements, contains
certain conforming changes. Margin requirements for LIFFE Contracts
will be calculated using the SPAN[supreg]1 v4 algorithm,\5\ with
modifications for concentration charges and a trinomial model used with
respect to certain LIFFE option transactions. ICE Clear Europe will
determine the margin parameters used in the SPAN algorithm for LIFFE
Contracts cleared by ICE Clear Europe, and make appropriate
modifications to those parameters from time to time, within the
framework of the margin requirement policy approved by the ICEU F&O
Risk Committee. The margin parameters applicable from time to time will
be issued and amended by ICE Clear Europe via a circular posted on its
Web site.
---------------------------------------------------------------------------
\5\ SPAN is a registered trademark of Chicago Mercantile
Exchange Inc. and used by ICE Clear Europe under license. SPAN is a
risk evaluation and margin framework algorithm.
---------------------------------------------------------------------------
Part 6 of the Rules contain no changes.
The amendments revise Part 7 of the Rules, which deals with
settlement and delivery of futures, to address settlement of LIFFE
Contracts. Specifically, Rule 703 has been amended to address the
treatment of tenders delivered in relation to Futures that are not
settled in cash. Additionally, Rule 704, which deals with the credit
and debit of accounts, has been amended to provide that any payment or
other allowance payable by or to either the Buyer or Seller under the
terms of the Contract shall be paid by or to the Clearing House for
onward payment to the Buyer or Seller, as the case may be.
The amendments revise Part 8 of the Rules, which deals with
Options, to provide additional terms with respect to the exercise of
option contracts other than options on futures. Specifically, new Rule
806 provides that upon exercise of any Option with a Deliverable which
is not a Future, a Contract for the sale and purchase of the relevant
Deliverable (a ``Contract of Sale'') at the Strike Price (or such other
price as is required pursuant to the Contract Terms) will arise
pursuant to Rule 401 and in accordance with the Contract Terms for the
Option and applicable Market Rules. Additionally, new Rule 806 provides
that upon such Contract of Sale or Contracts of Sale having arisen and
all necessary payments having been made by the Clearing Member and
Clearing House pursuant to the Clearing Procedures, the rights,
obligations and liabilities of the Clearing House and the relevant
Clearing Member in respect of the Option shall be satisfied and the
Option shall be terminated.
The amendments to Part 8 of the Rules also include the addition of
new Rule 809, which clarifies the delivery and settlement procedures
with respect to Contracts of Sale arising from Options. Pursuant to new
Rule 809, the Clearing House has the authority to direct a Clearing
Member, who is a seller under a Contract of Sale subject to delivery,
to deliver the Deliverable under such Contract to another Clearing
Member that is a buyer. New Rule 809 further provides that if a buyer
under a Contract of Sale rejects a Deliverable delivered to it, the
Clearing House as buyer under the back-to-back Contract with the Seller
shall be entitled, if to do so would be in accordance with the
applicable Contract Terms, to take the same action as against the
seller under the equivalent Contract and the Clearing House shall not
be deemed to have accepted such delivery until the relevant buyer has
accepted delivery under the first Contract.
New Rule 810 addresses the cash settlement terms of Options with
Deliverables other than Futures. New
[[Page 32290]]
Rule 811 provides that the Clearing House shall make any necessary
credits or debits to or from Clearing Members' Proprietary Margin
Account and Customer Margin Accounts, as appropriate, arising as a
result of each cash settlement and delivery in accordance with Part 3
of the Rules.
Part 9 of the Rules contain certain conforming changes.
Part 10 of the Rules contain no changes.
The amendments revise Part 11 of the Rules, which deals with the
Guaranty Funds. The clearing of LIFFE Contracts will be supported by
the existing Energy Guaranty Fund, which will be re-designated the
``F&O Guaranty Fund.'' Contributions to the F&O Guaranty Fund will be
primarily allocated to losses from either Energy Contracts or LIFFE
Contracts, and secondarily allocated to the other such class of
Contracts, as set forth in Rule 1103 and as discussed above.
The amendments also revise Part 12 of the Rules, which addresses UK
Settlement Finality Regulations and the Companies Act 1989. Conforming
changes have been made to incorporate LIFFE Contracts in the provisions
addressing various categories of transfer orders.
The amendments include a new Part 18 of the Rules, which provide
for transitional provisions concerning the novation of open contracts
with LIFFE A&M and LCH.Clearnet Limited, under LIFFE A&M's existing
clearing arrangements, to ICE Clear Europe, under the new clearing
relationship, and the transfer of Clearing Member cash and securities
from LCH.Clearnet Limited to ICE Clear Europe.
Membership Procedures
ICE Clear Europe Limited also submits revised Membership
Procedures. ICE Clear Europe's Membership Procedures have been updated
to provide for the clearing of LIFFE Contracts and to reflect a new
membership category, ``F&O Clearing Members'', which identify Clearing
Members seeking to clear LIFFE Contracts as well as existing Energy
Clearing Members. The amendments reflect various other updates and
changes to conform to other provisions of the Rules and procedures. In
Section 4 (``Matters Requiring Notification by Clearing Members''), the
chart governing all notifications, their timing and their form
requirements have been generally updated to address the changes to the
numbering of provisions and otherwise to reflect the latest version of
ICE Clear's Clearing Rules. New subsections G (``Clearing
Procedures''), H (``Finance Procedures''), I (``Complaint Resolution
Procedures'') and J (``Business Continuity Procedures'') have also been
added, reflecting the notifications, timing and form requirements
contained in such procedures.
Finance Procedures
ICE Clear Europe also submits revised Parts 2, 3, 4, 5, 6 and 9 of
its Finance Procedures, which reflect general updates as well as
changes to the clearing of LIFFE Contracts.
Section 2.1 has been revised to clarify the currencies supported by
ICE Clear Europe in various contexts. Initial and Original Margin
obligations may be met only in USD, GBP and EUR currency. CAD, CHF and
SEK currency may be used by Clearing Members only for the receipt of
income on non-cash Permitted Cover with coupons payable in those
currencies. CAD may also be used for Variation Margin and settlement
payments only for Energy Contracts which settle in CAD. Certain
additional currencies may be used for Variation Margin and settlement
payments for LIFFE Contracts which settle in such currencies.
Similarly, Section 3.7 has been amended to clarify that currencies
eligible for Triparty Collateral for Original or Initial Margin are
limited to USD, GBP and EUR.
Section 4.1 governing currency requirements for the accounts of the
Clearing Members has been slightly modified: All F&O Clearing Members
must have an account, denominated in USD; all CDS Clearing Members must
have an account denominated in EUR; all F&O Clearing Members must
additionally have at least one further account denominated in either
GBP or EUR; all CDS Clearing Members must additionally have at least
one further account denominated in either GBP or USD; a Clearing Member
which has an Open Contract Position in a contract for which EUR, GBP,
USD or CAD is the settlement currency must have an account denominated
in such currency; a Clearing Member which transfers non-cash Permitted
Cover to the Clearing House which pays a coupon, interest or
redemptions in USD, EUR, GBP, CAD, CHF or SEK must have an account in
that currency; and an F&O Clearing Member that is a LIFFE Clearing
Member and is party to LIFFE Contracts which settle in CAD, CHF, CZK,
DKK, HUF, JPY, NOK, PLN, SEK or TRY must have an account in each such
currency.
The procedures of the assured payment system have been updated
under Section 5.5 of the Finance Procedures to conform to changes
recently made to Rule 301(f) regarding the liability of Clearing
Members for the remittance of funds through Approved Financial
Institutions.
Section 6.1(h), which addresses the various payments that may be
included in a cash transfer, has been modified to address intra-day
call of additional Initial or Original Margin Call, the proceeds of
which may be applied against future Variation Margin or Mark-to-Market
Margin calls. Intra-day Calls will now only be processed in USD, GBP or
EUR. Section 6.1(h)(vi) has been revised to address general procedures
for rebates, fee discounts and incentive programs that the Clearing
House may adopt from time to time. In addition, the provisions on
Currency Holidays and payments on other currencies, Section
6.1(h)(viii), have also been updated and now include language on Force
Majeure Events and Financial Emergencies.
In Section 9, the definitions relating to the use of Emission
Allowances and Permitted Cover have been updated to reflect changes in
EU Law with respect to Registry Regulations. Certain conforming changes
are made in Part 10 of the Finance Procedures. Finally, Section 12.1
has been revised to reflect the sub-categories of Letters of Credit
that might be used to satisfy Original Margin, being a ``Standard
Letter of Credit'' and a ``Pass-Through Letter of Credit''. The
relevant forms of the Letters of Credit have also been updated in
Section 12.4.
Clearing Procedures
ICE Clear Europe submits its revised Clearing Procedures. ICE Clear
Europe's Clearing Procedures have been updated to provide for the
clearing of LIFFE Contracts as well as certain other updates and
confirmations. Accordingly, amendments have been made to the provisions
relating to ICE Clear Europe's post-trade administration, clearing and
settlement systems, position management and position accounts in
Sections 1, 2 and 3, respectively.
Delivery Procedures
ICE Clear Europe submits its revised Delivery Procedures. ICE Clear
Europe's Delivery Procedures have been amended to provide for the
delivery of LIFFE Contracts. The following provisions have been added
to the Delivery Procedures, which set out the new delivery
arrangements:
Section 8 (``Alternative Delivery Procedure: LIFFE White
Sugar and Raw Sugar'');
Section 17 (``LIFFE Guardian''), which describes the LIFFE
Guardian electronic grading and delivery system
[[Page 32291]]
which will be used in certain LIFFE deliveries; and
Parts I-Q, which set out the delivery arrangements for the
additional LIFFE Contracts as follows:
[cir] Part I: ``LIFFE Cocoa Contracts''
[cir] Part J: ``LIFFE Coffee Contracts''
[cir] Part K: ``LIFFE White Sugar Contracts''
[cir] Part L ``LIFFE Wheat Contracts''
[cir] Part M: ``LIFFE Deliveries''
[cir] Part N: ``LIFFE Common Delivery Procedures''
[cir] Part O: ``LIFFE Gilt Contracts''
[cir] Part P: ``LIFFE Japanese Government Bond Contracts''
[cir] Part Q: ``LIFFE Equity Futures/Options''
.Further, the Schedule of Forms and Reports has been updated and
lists additional delivery forms used for the LIFFE Contracts.
Part A of the Delivery Procedures relating to emissions contracts
has also been amended, reflecting changes to EU legislation, certain
new emission contracts previously launched by ICE Futures Europe and
the use of a single EU registry together with additional conforming and
updating changes to the Delivery Procedures generally.
(b) Statutory Basis
ICE Clear Europe believes that the proposed rule and procedure
changes are consistent with the requirements of Section 17A of the Act
\6\ and the regulations thereunder applicable to it, including the
standards under Rule 17Ad-22.\7\ The amendments will provide for
clearing of LIFFE Contracts by ICE Clear Europe, consistent with ICE
Clear Europe's existing clearing arrangements and related financial
safeguards, protections and risk management procedures, as discussed
herein. Acceptance of LIFFE Contracts for clearing, and conditions set
out in these rule and procedure amendments, will promote the prompt and
accurate clearance of and settlement of securities transactions, the
safeguarding of securities and funds in the custody or control of ICE
Clear Europe and the protection of investors and the public interest,
within the meaning of Section 17A(b)(3)(F) of the Act.\8\ The proposed
amendments do not impact ICE Clear Europe's financial resources devoted
to its security-based swap related (i.e., credit default swap) clearing
business. Clearing of LIFFE Contracts will satisfy relevant
requirements of Rule 17Ad-22,\9\ as discussed below.
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\6\ 15 U.S.C. 78q-1.
\7\ 17 CFR 240.17Ad-22.
\8\ 15 U.S.C. 78q-1(b)(3)(F).
\9\ 17 CFR 240.17Ad-22.
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Financial Resources. As discussed above, ICE Clear Europe has
structured the F&O Guaranty Fund to provide sufficient additional
financial resources to support the clearing of LIFFE Contracts
consistent with the requirements of Rule 17Ad-22.\10\ The proposed
amendments do not impact ICE Clear Europe's financial resources devoted
to its security-based swap related (i.e., credit default swap) clearing
business. Moreover, new policies were approved covering margin
requirements, mark-to-market margin, capital to margin, membership,
internal rating, backtesting, wrong-way risk, concentration charges,
intraday margin and stress testing in respect of the LIFFE A&M clearing
relationship. Relevant models applicable to the clearing of LIFFE
Contracts were subjected to independent validation as required by ICE
Clear Europe's model governance framework.
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\10\ Id.
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Operational Resources. ICE Clear Europe believes it will have the
operational and managerial capacity to clear the LIFFE Contracts as of
the commencement of clearing, consistent with the requirements of Rule
17Ad-22(d)(4).\11\ Staffing levels and resources at ICE Clear Europe
related to operational and technology needs for the clearing of LIFFE
Contracts will be subject to ongoing review. ICE Clear Europe believes
that its existing systems are appropriately scalable to handle the
expected increase in volume. ICE Clear Europe may also enter into
services arrangements with LIFFE A&M from time to time in connection
with the clearing of LIFFE Contracts, under which LIFFE A&M or its
personnel may assist with certain clearing functions, particularly with
respect to contracts that go to delivery.
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\11\ Id.
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Participant Requirements. ICE Clear Europe believes that the
Amendments and the clearing of LIFFE Contracts are consistent with the
requirements of Rule 17Ad-22(d)(2) \12\ to provide fair and open access
through participation requirements that are objective and publicly
disclosed. ICE Clear Europe believes that the Amendments establish fair
and objective criteria for the eligibility to clear LIFFE Contracts.
ICE Clear Europe clearing membership is available to participants that
meet such criteria. ICE Clear Europe clearing members that wish to
clear LIFFE Contracts will have to satisfy the financial resources
requirements to clear these products and continue to do so in order to
preserve their eligibility to clear LIFFE Contracts. Clearing member
compliance with the requirements to clear LIFFE Contracts will be
monitored by ICE Clear Europe.
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\12\ Id.
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Settlement. ICE Clear Europe believes that the Amendments will
improve the finality and accuracy of its daily settlement process and
reduce the risk to ICE Clear Europe of settlement failures, consistent
with the requirements of Rule 17Ad-22(d)(5), (12) and (15).\13\ The
proposed Amendments require ICE Clear Europe clearing members that
clear LIFFE Contracts to maintain accounts at approved financial
institutions and that are denominated in the settlement currency of the
LIFFE Contracts such clearing member clears. Also, the Finance
Procedures Amendments clarify the steps a clearing member (and its
approved financial institutions) must take in order for the clearing
member's obligations to pay ICE Clear Europe to be deemed satisfied and
complete.
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\13\ Id.
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Likewise, the proposed Amendments to the delivery procedures
clarify the obligations of ICE Clear Europe and its clearing members in
respect of physically-settled LIFFE Contracts. The proposed Amendments
contemplate that ICE Clear Europe may, from time to time, enter into
clearing services arrangements with LIFFE A&M, in respect of LIFFE
Contracts, pursuant to which certain functions may be performed by
LIFFE A&M for ICE Clear Europe. In general, the terms to be added to
the ICE Clear Europe delivery procedures in large part reflect the
terms currently applicable to the LIFFE Contracts under their existing
clearing arrangements.
ICE Clear Europe believes these changes are thus in furtherance of,
and are consistent with, the requirements of Rule 17Ad-22 \14\ and will
facilitate the continued operation of the clearing house's settlement
process. ICE Clear Europe believes that its Rules and procedures
related to settlements (including physical settlements), as amended,
appropriately identify and manage the risks associated with settlements
under LIFFE Contracts.
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\14\ Id.
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Default Procedures. ICE Clear Europe believes that the Rules and
its relevant procedures allow for it to take timely action to contain
losses and liquidity pressures and to continue meeting its obligations
in the event of clearing member insolvencies or defaults, including in
respect of LIFFE Contracts,
[[Page 32292]]
in accordance with Rule 17Ad-22(d)(11).\15\
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\15\ Id.
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B. Self-Regulatory Organization's Statement on Burden on Competition
ICE Clear Europe does not believe the proposed rule changes would
have any impact, or impose any burden, on competition. LIFFE A&M is an
established market for the LIFFE Contracts, and ICE Clear Europe does
not anticipate that its becoming the clearing house for the LIFFE
Contracts will adversely affect the trading market for those contracts
on LIFFE A&M. Moreover, ICE Clear Europe has established fair and
objective criteria for eligibility to clear LIFFE Contracts, and
accordingly ICE Clear Europe does not believe that the proposed rule
changes will impose any burden on competition among clearing members.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
Written comments relating to the rule changes have been solicited
and one comment has been received to date but was not in connection
with the specific rule and procedure changes. ICE Clear Europe will
notify the Commission of any written comments received by ICE Clear
Europe.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve or disapprove the proposed rule change or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml) or
Send an email to rule-comments@sec.gov. Please include
File Number SR-ICEEU-2013-09 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-ICEEU-2013-09. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such filings also will be available
for inspection and copying at the principal office of ICE Clear Europe
and on ICE Clear Europe's Web site at https://www.theice.com/publicdocs/regulatory_filings/ICEU_SEC_051313_3.pdf.
All comments received will be posted without change; the Commission
does not edit personal identifying information from submissions. You
should submit only information that you wish to make available
publicly. All submissions should refer to File Number SR-ICEEU-2013-09
and should be submitted on or before June 19, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-12704 Filed 5-28-13; 8:45 am]
BILLING CODE 8011-01-P
