Self-Regulatory Organizations; ICE Clear Credit LLC; Order Approving Proposed Rule Change Relating to Physical Settlement of CDS Contracts, 27798-27801 [2015-11595]
Download as PDF
<![CDATA[
27798
Federal Register / Vol. 80, No. 93 / Thursday, May 14, 2015 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.27
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015–11603 Filed 5–13–15; 8:45 am]
BILLING CODE 8011–01–P
Please direct your written comments
to Pamela Dyson, Director/Chief
Information Officer, Securities and
Exchange Commission, c/o Remi PavlikSimon, 100 F Street NE., Washington,
DC 20549, or send an email to: PRA_
Mailbox@sec.gov.
Dated: May 8, 2015.
Robert W. Errett,
Deputy Secretary.
SECURITIES AND EXCHANGE
COMMISSION
[FR Doc. 2015–11597 Filed 5–13–15; 8:45 am]
BILLING CODE 8011–01–P
Upon Written Request Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services,
100 F Street NE., Washington, DC
20549–2736.
SECURITIES AND EXCHANGE
COMMISSION
Extension:
Form 12b–25. SEC File No. 270–71, OMB
Control No. 3235–0058.
tkelley on DSK3SPTVN1PROD with NOTICES
Proposed Collection; Comment
Request
Self-Regulatory Organizations; ICE
Clear Credit LLC; Order Approving
Proposed Rule Change Relating to
Physical Settlement of CDS Contracts
Notice is hereby given that, pursuant
to the Paperwork Reduction Act of 1995
(44 U.S.C. 3501 et seq.), the Securities
and Exchange Commission
(‘‘Commission’’) is soliciting comments
on the collection of information
summarized below. The Commission
plans to submit this existing collection
of information to the Office of
Management and Budget for extension
and approval.
The purpose of Form 12b–25 (17 CFR
240.12b–25) is to provide notice to the
Commission and the marketplace that a
public company will be unable to timely
file a required periodic report or
transition report pursuant to the
Securities Exchange Act of 1934 (15
U.S.C. 78a et seq.). If all the filing
conditions of the form are satisfied, the
company is granted an automatic filing
extension. Approximately 4,456
registrants file Form 12b–25 and it takes
approximately 2.5 hours per response
for a total of 11,140 burden hours.
Written comments are invited on: (a)
Whether this proposed collection of
information is necessary for the proper
performance of the functions of the
agency, including whether the
information will have practical utility;
(b) the accuracy of the agency’s estimate
of the burden imposed by the collection
of information; (c) ways to enhance the
quality, utility, and clarity of the
information collected; and (d) ways to
minimize the burden of the collection of
information on respondents, including
through the use of automated collection
techniques or other forms of information
technology. Consideration will be given
to comments and suggestions submitted
in writing within 60 days of this
publication.
27 17
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
17:59 May 13, 2015
Jkt 235001
[Release No. 34–74917; File No. SR–ICC–
2015–004]
May 8, 2015.
I. Introduction
On March 11, 2015, ICE Clear Credit
LLC (‘‘ICC’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change SR–ICC–2015–004 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 March 27,
2015.3 The Commission received one
comment.4 For the reasons discussed
below, the Commission is approving the
proposed rule change.
II. Description of the Proposed Rule
Change
ICC proposes to amend its rules to
modify the terms and conditions for
physical settlement of cleared CDS
Contracts, and to adopt certain new
delivery procedures relating to physical
settlement.
Under the current terms of the ICC
Clearing Rules (‘‘ICC Rules’’), upon the
occurrence of a credit event under a
cleared CDS Contract, the contract is
typically settled in cash in accordance
with the terms of the ICC Rules, which
incorporate the applicable ISDA Credit
Derivatives Definitions (the ‘‘ISDA
Definitions’’) and the market-standard
credit default swap auction
methodology for determining the cash
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 Securities Exchange Act Release No. 34–74563
(Mar. 23, 2015), 80 FR 16471 (Mar. 27, 2015) (File
No. SR–ICC–2015–004).
4 See Comment from Kermit Kubitz, dated April
17, 2015, available at https://www.sec.gov/
comments/sr-icc-2015-004/icc2015004-1.htm.
settlement price. However, in certain
circumstances, such as where the Credit
Derivatives Determinations Committee
decides not to hold a cash settlement
auction for a particular credit event, or
such an auction is cancelled under the
terms of the auction methodology
(including because of a failure to
determine the auction settlement price),
the CDS Contracts provide for a fallback
settlement method of physical
settlement. Under physical settlement of
a CDS contract generally, the protection
buyer will be entitled to deliver one or
more qualifying deliverable obligations
to the protection seller, in which case
the protection seller will be required to
pay the protection buyer a defined
physical settlement amount. Under the
current ICC Rules, if physical settlement
applies,5 ICC will match clearing
participants (‘‘Participants’’) that are
protection buyers with Participants that
are protection sellers in the relevant
contract, and the two Participants will
be responsible for effecting physical
settlement between them. ICC does not
itself perform or guarantee performance
of physical settlement between the
matched Participants. Once matching
occurs, the contract is purely a bilateral
contract between the matched
Participants, and ICC has no further
rights or obligations with respect to the
contract. ICC does, however, collect and
hold physical settlement margin as
collateral agent on behalf of the
protection buyer to secure the
protection seller’s obligations to the
protection buyer under physical
settlement.
ICC proposes to amend the ICC Rules
relating to physical settlement such that
ICC will be responsible for financial
performance of physical settlement. ICC
notes that under the amended approach,
it would still require payments and
deliveries in the ordinary course under
physical settlement to be made directly
between the matched buying Participant
and selling Participant, with ICC only
being obligated to make direct payments
in the case of certain defined settlement
failure scenarios. ICC believes that this
proposed rule change will further the
general policy goals of central clearing
for CDS transactions, and is consistent
with ICC’s financial resources, risk
management procedures and
operational capabilities.6
ICC proposes to make certain
amendments to Chapters 1, 4, 5, 21 and
22 of the ICC Rules. ICC also proposes
2 17
PO 00000
Frm 00171
Fmt 4703
Sfmt 4703
5 ICC notes that to date, physical settlement has
not been necessary for any of the CDS Contracts
cleared by ICC.
6 ICC notes that a substantially similar approach
to physical settlement is used in the ICE Clear
Europe Limited CDS clearing service.
E:\FR\FM\14MYN1.SGM
14MYN1
tkelley on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 80, No. 93 / Thursday, May 14, 2015 / Notices
to adopt a related set of Delivery
Procedures and Physical Settlement and
Notices Terms. Furthermore, ICC also
proposes to make certain related and
conforming changes to its Risk
Management Framework. All
capitalized terms not defined herein are
defined in the ICC Rules.
In Chapter 1 of the ICC Rules, ICC
proposes to amend the definition of
‘‘Client-Related Initial Margin’’ so that it
now includes Physical Settlement
Margin collected with respect to ClientRelated Positions. As discussed below,
according to ICC, such Physical
Settlement Margin is intended to secure
the obligations of a Participant to ICC in
connection with physical settlement.
Similarly, in Rule 403, ICC proposes to
amend the definition of ‘‘Physical
Settlement Margin’’ to refer to such
obligations to ICC (as opposed to the
obligations to the matched Participant
under the current ICC Rules). In Rule
502(b), a conforming reference to
Physical Settlement Margin will be
updated. A conforming change is also
made in Rule 2101–02(a)(iv).
ICC proposes changes to Chapter 22
(which covers physical settlement) by
adding a new Rule 2200 with
definitions relating to the revised
physical settlement provisions,
including ‘‘Matched Delivery Buyer’’
and ‘‘Matched Delivery Seller,’’ and the
related terms ‘‘Matched Delivery
Contract,’’ ‘‘Matched Delivery Buyer
Contract,’’ ‘‘Matched Delivery Seller
Contract’’ and ‘‘MP Delivery Amount.’’
As discussed below, these terms are
used in connection with the matching of
buying Participants and selling
Participants in the revised settlement
procedures. A new definition of ‘‘Asset
Package Delivery Notice’’ has also been
added to address notices in connection
with Asset Package delivery under the
2014 ISDA Credit Derivatives
Definitions (the ‘‘2014 ISDA
Definitions’’).
According to ICC, Rule 2201(a), which
provides for matching of buying
Participants and selling Participants
into a Matched Delivery Pair in the case
of physical settlement, will be revised to
address scenarios where a Participant’s
CDS contracts must be split and
matched with multiple other
Participants for purposes of physical
settlement. Conforming changes to use
applicable defined terms (such as
Relevant Restructuring Credit Event)
will also be made. Rule 2201(b), which
addresses delivery of certain notices
between a Matched Delivery Pair, will
be revised to include references to Asset
Package Delivery Notices. Rule 2201(c)
will be deleted at the request of
Participants as being inconsistent with
VerDate Sep<11>2014
17:59 May 13, 2015
Jkt 235001
the terms of uncleared CDS and
unnecessary in light of the provisions of
the ISDA Definitions and Rule 2202.
ICC also proposes changes to Rule
2202, which addresses resolution of
disputes related to permissible
deliverable obligations, in order to
incorporate the concept of Asset
Package Delivery under the 2014 ISDA
Definitions, as well as related concepts
of Prior Deliverable Obligations,
Package Observable Bonds and Asset
Package Delivery Notices. Rules 2202(b)
and (c) will also be revised to address
the consequences of a selling
Participant’s refusal to accept delivery
of a particular obligation, including for
the offsetting transaction between ICC
and the buying Participant.
Rule 2203 will be replaced with new
provisions addressing ICC’s role in
physical settlement. When a Matched
Delivery Pair is established, the CDS
Contract between the Matched Delivery
Buyer and ICC will be referred to as the
Matched Delivery Buyer Contract, and
the corresponding CDS Contract
between ICC and the Matched Delivery
Seller will be referred to as the Matched
Delivery Seller Contract. Under the
revised physical settlement approach,
ICC intends to remain party to each
such contract, but will require certain
notices, payments and deliveries to take
place directly between the Matched
Delivery Buyer and Matched Delivery
Seller. Accordingly, under Rule 2203(a),
for each Matched Delivery Buyer
Contract, ICC will designate the
Matched Delivery Seller to receive on
ICC’s behalf notices and deliveries from
the Matched Delivery Buyer and to
make payments on ICC’s behalf to the
Matched Delivery Buyer. Similarly,
under Rule 2203(b), for each Matched
Delivery Seller Contract, ICC will
designate the Matched Delivery Buyer to
deliver on ICC’s behalf notices and
deliveries to the Matched Delivery
Seller, and to receive on ICC’s behalf
payments from the Matched Delivery
Seller. The result is that notices,
payments and deliveries will be made
directly between the Matched Delivery
Buyer and Matched Delivery Seller, in
satisfaction of the parties and ICC’s
respective obligations under both the
Matched Delivery Buyer Contract and
Matched Delivery Seller Contract. Rule
2203(c) further clarifies that the exercise
of rights by Matched Delivery Buyer
against ICC will be deemed the exercise
by ICC of the corresponding rights
against Matched Delivery Seller, and
vice versa. Rules 2203(d) and (e) will
provide for copies of relevant notices to
be provided to ICC, as well as notice of
the completion of settlement between
the Matched Delivery Buyer and
PO 00000
Frm 00172
Fmt 4703
Sfmt 4703
27799
Matched Delivery Seller. Rule 2203(f)
will clarify the obligations of the
respective parties to a Matched Delivery
Contract, and address a scenario where
an Asset Package being delivered is
deemed to have a value of zero under
the 2014 ISDA Definitions. Rule 2203(g)
will allocate costs and expenses that
may be incurred by ICC in connection
with physical settlement.
Rule 2204, as revised, will address
physical settlement of certain
deliverable obligations that do not settle
in the ordinary course on a deliveryversus-payment basis (‘‘Non-DVP
Obligations’’). The rule establishes a
procedure under which the Matched
Delivery Seller will pay the physical
settlement amount owed to ICC, which
in turn will not pay such amount to the
Matched Delivery Buyer until ICC
receives notice that the obligation has
been received by the Matched Delivery
Seller from the Matched Delivery Buyer.
If the obligation is not delivered, the
physical settlement amount will be
returned to the Matched Delivery Seller.
ICC states that Rule 2205 will address
settlement failures by the Matched
Delivery Seller or Matched Delivery
Buyer. Under subsection (a), if the
Matched Delivery Seller fails to pay the
physical settlement amount when due,
the Matched Delivery Buyer Contract
will be cash settled as between the
Matched Delivery Buyer and ICC. ICC
thus will not be obligated to take
delivery of the relevant deliverable
obligations (and dispose of them in a
situation where the Matched Delivery
Seller has failed to perform), but will
compensate the Matched Delivery Buyer
for the value of the Matched Delivery
Buyer Contract through the cash
settlement process. Pursuant to
subsection (b), ICC may, in addition to
its other default remedies, terminate the
Matched Delivery Seller Contract, in
which case the Matched Delivery Seller
will owe ICC an amount equal to the
cash settlement amount ICC paid the
Matched Delivery Buyer, together with
other losses and expenses incurred by
ICC as a result of the failure. Rule
2205(c) provides that, consistent with
the terms of the ISDA Definitions
applicable to a protection buyer
generally, any failure by ICC to deliver
any deliverable obligations to the
Matched Delivery Seller (including as a
result of a failure by the Matched
Delivery Buyer to make a delivery) will
not constitute a default by ICC, and the
Matched Delivery Seller’s sole remedy
will be as set forth in the Matched
Delivery Seller Contract (which may
include, for example, buy-in remedies of
the Matched Delivery Seller). ICC will
not have any obligation to purchase or
E:\FR\FM\14MYN1.SGM
14MYN1
tkelley on DSK3SPTVN1PROD with NOTICES
27800
Federal Register / Vol. 80, No. 93 / Thursday, May 14, 2015 / Notices
acquire deliverable obligations (other
than in settlement of the Matched
Delivery Buyer Contract) in order to
settle the Matched Delivery Seller
Contract. In the event of a delivery
failure by a Matched Delivery Buyer,
such party will be liable to ICC for any
costs incurred by ICC in settling the
corresponding Matched Delivery Seller
Contract (in addition to ICC’s other
remedies for a default).
According to ICC, the changes to Rule
2206 are to cover certain other, nondefault scenarios in which physical
settlement fails to occur. Under Rules
2206(a) and (b), if physical settlement of
the Matched Buyer Delivery Contract
does not occur because the deliverable
obligation is in less than the relevant
minimum denomination or the Matched
Delivery Seller is not a permitted
transferee of the obligation, the failure
will be treated as an illegality or
impossibility outside of the parties’
control, which will result in cash
settlement 7 under the ISDA Definitions.
In this and other scenarios where a cash
settlement fallback applies, the same
cash settlement amount will apply to
both the Matched Delivery Buyer
Contract and Matched Delivery Seller
Contract under Rule 2206(c). Similarly,
in the case of a buy-in, the same buyin price will apply to both contracts.
Rule 2206(d) will provide for cash
settlement of both the Matched Delivery
Buyer Contract and Matched Delivery
Seller Contract in certain cases where
delivery does not occur between the
Matched Delivery Buyer and the
customer for which it is acting. Rule
2206(e) specifies the date of any cash
settlement and provides for notice of the
relevant amount owed.
According to ICC, Rule 2207(a) will
provide for certain standard
representations and related provisions
for physical settlement in the ISDA
Definitions to apply as between the
Matched Delivery Buyer and Matched
Delivery Seller, and will clarify ICC’s
authority to designate a Participant to
make or receive physical settlement on
its behalf as provided in Rules 2203 and
2204 for purposes of Section 9.2(c)(iv) of
the 2003 ISDA Credit Derivatives
Definitions or Section 11.2(c)(iv) of the
2014 ISDA Definitions, even though the
Participant is not its Affiliate. Rule
2207(b) will clarify certain procedures
for obtaining price quotations for the
relevant deliverable obligations in the
7 Cash settlement in this context is different from
the auction cash settlement that normally applies to
CDS contracts under the ISDA Definitions, and is
based on price quotations obtained by the relevant
party to the contract for the obligation or obligations
that cannot be delivered.
VerDate Sep<11>2014
17:59 May 13, 2015
Jkt 235001
event that a cash settlement fallback
applies.
Rule 2208 will allow the Matched
Delivery Buyer and Matched Delivery
Seller to settle their rights and
obligations as to physical settlement
through an alternative arrangement
agreed between them (referred to as a
‘‘CADP’’), in lieu of settlement pursuant
to Chapter 22 of the ICC Rules. If they
so agree, ICC will have no obligation in
respect of such alternative arrangement.
Rules 2209(a) and (c) will provide that
margin (including physical settlement
margin) will continue to be called and
held through settlement. Rule 2209(b)
will provide that ICC will apply
physical settlement margin to satisfy the
Matched Delivery Seller’s obligation to
pay the physical settlement amount, and
call such seller for any shortfall.
ICC also proposes to adopt Delivery
Procedures that will further specify
certain operational and other details for
the physical settlement process.
According to ICC, Paragraph 1 will
provide certain definitions used in the
Delivery Procedures. Paragraph 3.2 will
set out certain requirements for
providing notices in connection with
physical settlement. Paragraphs 3.3(a)–
(e) will establish the procedures and
timetable for ICC to allocate Matched
Delivery Pairs and notify Participants
accordingly. Paragraph 3.3(g) will
address additional procedures
concerning delivery of notices by
Participants in connection with physical
settlement, including as to relevant
notice deadlines, requirements for
providing copies of notices to ICC,
treatment of late notices and procedures
for disputes involving notices.
Paragraph 4 of the Delivery Procedures
will specify certain deadlines in
connection with the physical settlement
of Non-DVP Obligations under Rule
2204. Finally, Paragraph 5 will specify
the deadline for notices that parties
have elected a CADP.
ICC also proposes to adopt a set of
Physical Settlement and Notices Terms
(‘‘Notices Terms’’) with respect to
physical settlement. The Notices Terms
are intended to set forth a uniform set
of communications between a
Participant and its customer in
connection with physical settlement,
including delivery of physical
settlement notices and delivery and
receipt of deliverable obligations as
between the Participant and its
customer. The Notices Terms will also
address the operation of certain cash
settlement and other fallbacks as
between the Participant and its
customer. The Notices Terms do not
bind ICC and do not form part of the ICC
Rules or ICC Procedures. The Notices
PO 00000
Frm 00173
Fmt 4703
Sfmt 4703
Terms are published for the
convenience and use of Participants and
their customers, and are designed to be
incorporated by reference in customer
clearing documentation. However, a
Participant and its customer may agree
to vary the Notices Terms.
ICC also proposes to make certain
changes to its Risk Management
Framework to accommodate the changes
relating to physical settlement that are
being made to the ICC Rules and
procedures as set forth herein. As
revised, the Risk Management
Framework reflects ICC’s obligations in
respect of physical settlement as
provided in the amended ICC Rules and
procedures. It will set out the steps in
the physical settlement process to be
taken by ICC if physical settlement
applies, including the matching of
Participants into Matched Delivery
Pairs, consistent with the ICC Rules and
procedures. The revisions also address
the calculation, collection and use of
margin (including physical settlement
margin) where physical settlement
applies.
III. Comments
The Commission received one
comment concerning the proposed rule
change. In this comment, the
commenter expresses concern that ICC’s
proposed rule change to guarantee the
financial performance of physical
settlement, in addition to its existing
guarantee of cash settlement, would add
additional complexity to ICC’s clearing
business, particularly during times of
financial stress. The commenter
addresses three issues with the
proposal. First, the commenter suggests
that the ‘‘process, financial assets and
liabilities, and legal obligations of all
parties must be well understood,’’ 8 both
by ICC and the Commission. Second,
‘‘the SEC should have some periodic
report on [ICC’s] financial assets,
potential obligations or value at risk,
and ability to perform under normal or
adverse circumstances.’’ 9 Finally, the
commenter seeks assurance that the SEC
would assess the impact ICC’s guarantee
of ‘‘physical clearing on market
participants’’ in reducing those
participants’ ‘‘financial commitment’’ or
leverage.10 The commenter did not
opine on any particular aspects of the
proposed rule change beyond these
general statements.
8 Comment from Kermit Kubitz, dated April 17,
2015, available at https://www.sec.gov/comments/
sr-icc-2015-004/icc2015004-1.htm.
9 Id.
10 Id.
E:\FR\FM\14MYN1.SGM
14MYN1
Federal Register / Vol. 80, No. 93 / Thursday, May 14, 2015 / Notices
tkelley on DSK3SPTVN1PROD with NOTICES
IV. Discussion and Commission
Findings
Section 19(b)(2)(C) of the Act 11
directs the Commission to approve a
proposed rule change of a selfregulatory organization if the
Commission finds that such proposed
rule change is consistent with the
requirements of the Act and the rules
and regulations thereunder applicable to
such self-regulatory organization.
Section 17A(b)(3)(F) of the Act 12
requires, among other things, that the
rules of a clearing agency are designed
to promote the prompt and accurate
clearance and settlement of securities
transactions and, to the extent
applicable, derivative agreements,
contracts, and transactions, to assure the
safeguarding of securities and funds
which are in the custody or control of
the clearing agency or for which it is
responsible and, in general, to protect
investors and the public interest.
Rules 17Ad–22(b)(2–3) 13 require each
registered clearing agency that performs
central counterparty services to
establish, implement, maintain and
enforce written policies and procedures
reasonably designed to use margin
requirements to limit its credit
exposures to participants under normal
market conditions and use risk-based
models and parameters to set margin
requirements and review such margin
requirements and the related risk-based
models and parameters at least monthly,
and maintain sufficient financial
resources to withstand, at a minimum,
a default by the two participant families
to which it has the largest exposures in
extreme but plausible market
conditions, in its capacity as a central
counterparty for security based swaps.
Rule 17Ad–22(d)(15) 14 requires each
registered clearing agency to establish,
implement, maintain and enforce
written policies and procedures
reasonably designed to state to its
participants the clearing agency’s
obligations with respect to physical
deliveries and identify and manage the
risks from these obligations.
The Commission finds that the
modification of the terms and
conditions for physical settlement of
cleared CDS Contracts and the adoption
of certain new delivery procedures
relating to physical settlement is
consistent with the requirements of
Section 17A of the Act 15 and the
11 15
U.S.C. 78s(b)(2)(C).
U.S.C. 78q–1(b)(3)(F).
13 17 CFR 240.17Ad–22(b)(2–3).
14 17 CFR 240.17Ad–22(d)(15).
15 15 U.S.C. 78q–1.
12 15
VerDate Sep<11>2014
17:59 May 13, 2015
Jkt 235001
regulations thereunder applicable to
ICC.
The proposed rule change will
provide greater certainty and timeliness
with respect to the clearance and
settlement of CDS transactions in
circumstances where physical
settlement applies. Although physical
settlement applies only rarely, and as a
fallback to the normal procedure for
cash settlement, the proposed rule
change will prevent Participants from
being exposed to the credit risk of other
Participants with respect to the financial
performance of physical settlement by
guaranteeing timely payment of
settlement amounts that are due to a
non-defaulting party. As a result, the
Commission believes the proposed rule
change will promote the prompt and
accurate clearing and settlement of CDS
contracts, and, in general, protect
investors and the public interest
consistent with the requirements of
Section 17A(b)(3)(F) of the Act.16
Moreover, the proposed rule change
will require ICC to collect Physical
Settlement Margin 17 (in addition to
initial and variation margin) to cover the
specific obligations of each Matched
Delivery Seller to the clearinghouse
with respect to physical settlement.
Therefore, the Commission believes ICC
will be able to maintain financial
resources sufficient to support its
clearing operations, including
operations under the amended physical
settlement procedures, in a manner
consistent with the requirements of Rule
17Ad–22(b)(2–3).18 Furthermore, ICC
proposes to amend text of ICC Rules
2203(a)—(g), to address the legal
obligations that arise between
Participants when settling a CDS
Contract that is to be physically settled,
with corresponding changes to its
Delivery Procedures. The Commission
believes that ICC’s Rules, as amended,
establish ICC’s and Participants’
obligations for performance (including
financial performance) of physically
settled contracts, the procedures for
settlement and the mechanism for ICC
16 15
U.S.C. 78q–1(b)(3)(F).
Physical Settlement Margin is calculated as
the notional value minus the estimated value of the
deliverable obligation and collected from the
Matched Delivery Seller and held by ICC until such
time the Matched Delivery Buyer and the Matched
Delivery Seller as a pair confirm that settlement has
been occurred. Physical Settlement Margin is not
collected from the Matched Delivery Buyer. The
estimated value of the deliverable obligation will be
determined by ICC using a ‘‘haircut’’ approach. ICC
will use the price of the cheapest-to-deliver bond
as the basis for the ‘‘haircut’’ estimation. However,
if reliable pricing is not available, ICC reserves the
right to determine a price of zero and therefore
charge the full notional amount as the Physical
Settlement Margin to the seller.
18 17 CFR 240.17Ad–22(b)(2–3).
17 The
PO 00000
Frm 00174
Fmt 4703
Sfmt 4703
27801
to effect settlement in cash without
having to acquire or dispose of the
underlying deliverable obligations,
consistent with the requirements of Rule
17Ad–22(d)(15).19
V. 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 20 and the rules and regulations
thereunder.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,21 that the
proposed rule change (SR–ICC–2015–
004) be, and hereby is, approved.22
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.23
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015–11595 Filed 5–13–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–74915; File No. SR–
NASDAQ–2015–054]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend
Chapter V, Section 6
May 8, 2015.
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 7,
2015, The NASDAQ Stock Market LLC
(‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I and
II 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 amend
Chapter V, Regulation of Trading on
19 17
CFR 240.17Ad–22(d)(15).
U.S.C. 78q–1.
21 15 U.S.C. 78s(b)(2).
22 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).
23 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
20 15
E:\FR\FM\14MYN1.SGM
14MYN1
]]>Agencies
[Federal Register Volume 80, Number 93 (Thursday, May 14, 2015)]
[Notices]
[Pages 27798-27801]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-11595]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-74917; File No. SR-ICC-2015-004]
Self-Regulatory Organizations; ICE Clear Credit LLC; Order
Approving Proposed Rule Change Relating to Physical Settlement of CDS
Contracts
May 8, 2015.
I. Introduction
On March 11, 2015, ICE Clear Credit LLC (``ICC'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change SR-ICC-2015-004 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 March 27, 2015.\3\ The Commission received one comment.\4\ For the
reasons discussed below, the Commission is approving the proposed rule
change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 34-74563 (Mar. 23,
2015), 80 FR 16471 (Mar. 27, 2015) (File No. SR-ICC-2015-004).
\4\ See Comment from Kermit Kubitz, dated April 17, 2015,
available at https://www.sec.gov/comments/sr-icc-2015-004/icc2015004-1.htm.
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
ICC proposes to amend its rules to modify the terms and conditions
for physical settlement of cleared CDS Contracts, and to adopt certain
new delivery procedures relating to physical settlement.
Under the current terms of the ICC Clearing Rules (``ICC Rules''),
upon the occurrence of a credit event under a cleared CDS Contract, the
contract is typically settled in cash in accordance with the terms of
the ICC Rules, which incorporate the applicable ISDA Credit Derivatives
Definitions (the ``ISDA Definitions'') and the market-standard credit
default swap auction methodology for determining the cash settlement
price. However, in certain circumstances, such as where the Credit
Derivatives Determinations Committee decides not to hold a cash
settlement auction for a particular credit event, or such an auction is
cancelled under the terms of the auction methodology (including because
of a failure to determine the auction settlement price), the CDS
Contracts provide for a fallback settlement method of physical
settlement. Under physical settlement of a CDS contract generally, the
protection buyer will be entitled to deliver one or more qualifying
deliverable obligations to the protection seller, in which case the
protection seller will be required to pay the protection buyer a
defined physical settlement amount. Under the current ICC Rules, if
physical settlement applies,\5\ ICC will match clearing participants
(``Participants'') that are protection buyers with Participants that
are protection sellers in the relevant contract, and the two
Participants will be responsible for effecting physical settlement
between them. ICC does not itself perform or guarantee performance of
physical settlement between the matched Participants. Once matching
occurs, the contract is purely a bilateral contract between the matched
Participants, and ICC has no further rights or obligations with respect
to the contract. ICC does, however, collect and hold physical
settlement margin as collateral agent on behalf of the protection buyer
to secure the protection seller's obligations to the protection buyer
under physical settlement.
---------------------------------------------------------------------------
\5\ ICC notes that to date, physical settlement has not been
necessary for any of the CDS Contracts cleared by ICC.
---------------------------------------------------------------------------
ICC proposes to amend the ICC Rules relating to physical settlement
such that ICC will be responsible for financial performance of physical
settlement. ICC notes that under the amended approach, it would still
require payments and deliveries in the ordinary course under physical
settlement to be made directly between the matched buying Participant
and selling Participant, with ICC only being obligated to make direct
payments in the case of certain defined settlement failure scenarios.
ICC believes that this proposed rule change will further the general
policy goals of central clearing for CDS transactions, and is
consistent with ICC's financial resources, risk management procedures
and operational capabilities.\6\
---------------------------------------------------------------------------
\6\ ICC notes that a substantially similar approach to physical
settlement is used in the ICE Clear Europe Limited CDS clearing
service.
---------------------------------------------------------------------------
ICC proposes to make certain amendments to Chapters 1, 4, 5, 21 and
22 of the ICC Rules. ICC also proposes
[[Page 27799]]
to adopt a related set of Delivery Procedures and Physical Settlement
and Notices Terms. Furthermore, ICC also proposes to make certain
related and conforming changes to its Risk Management Framework. All
capitalized terms not defined herein are defined in the ICC Rules.
In Chapter 1 of the ICC Rules, ICC proposes to amend the definition
of ``Client-Related Initial Margin'' so that it now includes Physical
Settlement Margin collected with respect to Client-Related Positions.
As discussed below, according to ICC, such Physical Settlement Margin
is intended to secure the obligations of a Participant to ICC in
connection with physical settlement. Similarly, in Rule 403, ICC
proposes to amend the definition of ``Physical Settlement Margin'' to
refer to such obligations to ICC (as opposed to the obligations to the
matched Participant under the current ICC Rules). In Rule 502(b), a
conforming reference to Physical Settlement Margin will be updated. A
conforming change is also made in Rule 2101-02(a)(iv).
ICC proposes changes to Chapter 22 (which covers physical
settlement) by adding a new Rule 2200 with definitions relating to the
revised physical settlement provisions, including ``Matched Delivery
Buyer'' and ``Matched Delivery Seller,'' and the related terms
``Matched Delivery Contract,'' ``Matched Delivery Buyer Contract,''
``Matched Delivery Seller Contract'' and ``MP Delivery Amount.'' As
discussed below, these terms are used in connection with the matching
of buying Participants and selling Participants in the revised
settlement procedures. A new definition of ``Asset Package Delivery
Notice'' has also been added to address notices in connection with
Asset Package delivery under the 2014 ISDA Credit Derivatives
Definitions (the ``2014 ISDA Definitions'').
According to ICC, Rule 2201(a), which provides for matching of
buying Participants and selling Participants into a Matched Delivery
Pair in the case of physical settlement, will be revised to address
scenarios where a Participant's CDS contracts must be split and matched
with multiple other Participants for purposes of physical settlement.
Conforming changes to use applicable defined terms (such as Relevant
Restructuring Credit Event) will also be made. Rule 2201(b), which
addresses delivery of certain notices between a Matched Delivery Pair,
will be revised to include references to Asset Package Delivery
Notices. Rule 2201(c) will be deleted at the request of Participants as
being inconsistent with the terms of uncleared CDS and unnecessary in
light of the provisions of the ISDA Definitions and Rule 2202.
ICC also proposes changes to Rule 2202, which addresses resolution
of disputes related to permissible deliverable obligations, in order to
incorporate the concept of Asset Package Delivery under the 2014 ISDA
Definitions, as well as related concepts of Prior Deliverable
Obligations, Package Observable Bonds and Asset Package Delivery
Notices. Rules 2202(b) and (c) will also be revised to address the
consequences of a selling Participant's refusal to accept delivery of a
particular obligation, including for the offsetting transaction between
ICC and the buying Participant.
Rule 2203 will be replaced with new provisions addressing ICC's
role in physical settlement. When a Matched Delivery Pair is
established, the CDS Contract between the Matched Delivery Buyer and
ICC will be referred to as the Matched Delivery Buyer Contract, and the
corresponding CDS Contract between ICC and the Matched Delivery Seller
will be referred to as the Matched Delivery Seller Contract. Under the
revised physical settlement approach, ICC intends to remain party to
each such contract, but will require certain notices, payments and
deliveries to take place directly between the Matched Delivery Buyer
and Matched Delivery Seller. Accordingly, under Rule 2203(a), for each
Matched Delivery Buyer Contract, ICC will designate the Matched
Delivery Seller to receive on ICC's behalf notices and deliveries from
the Matched Delivery Buyer and to make payments on ICC's behalf to the
Matched Delivery Buyer. Similarly, under Rule 2203(b), for each Matched
Delivery Seller Contract, ICC will designate the Matched Delivery Buyer
to deliver on ICC's behalf notices and deliveries to the Matched
Delivery Seller, and to receive on ICC's behalf payments from the
Matched Delivery Seller. The result is that notices, payments and
deliveries will be made directly between the Matched Delivery Buyer and
Matched Delivery Seller, in satisfaction of the parties and ICC's
respective obligations under both the Matched Delivery Buyer Contract
and Matched Delivery Seller Contract. Rule 2203(c) further clarifies
that the exercise of rights by Matched Delivery Buyer against ICC will
be deemed the exercise by ICC of the corresponding rights against
Matched Delivery Seller, and vice versa. Rules 2203(d) and (e) will
provide for copies of relevant notices to be provided to ICC, as well
as notice of the completion of settlement between the Matched Delivery
Buyer and Matched Delivery Seller. Rule 2203(f) will clarify the
obligations of the respective parties to a Matched Delivery Contract,
and address a scenario where an Asset Package being delivered is deemed
to have a value of zero under the 2014 ISDA Definitions. Rule 2203(g)
will allocate costs and expenses that may be incurred by ICC in
connection with physical settlement.
Rule 2204, as revised, will address physical settlement of certain
deliverable obligations that do not settle in the ordinary course on a
delivery-versus-payment basis (``Non-DVP Obligations''). The rule
establishes a procedure under which the Matched Delivery Seller will
pay the physical settlement amount owed to ICC, which in turn will not
pay such amount to the Matched Delivery Buyer until ICC receives notice
that the obligation has been received by the Matched Delivery Seller
from the Matched Delivery Buyer. If the obligation is not delivered,
the physical settlement amount will be returned to the Matched Delivery
Seller.
ICC states that Rule 2205 will address settlement failures by the
Matched Delivery Seller or Matched Delivery Buyer. Under subsection
(a), if the Matched Delivery Seller fails to pay the physical
settlement amount when due, the Matched Delivery Buyer Contract will be
cash settled as between the Matched Delivery Buyer and ICC. ICC thus
will not be obligated to take delivery of the relevant deliverable
obligations (and dispose of them in a situation where the Matched
Delivery Seller has failed to perform), but will compensate the Matched
Delivery Buyer for the value of the Matched Delivery Buyer Contract
through the cash settlement process. Pursuant to subsection (b), ICC
may, in addition to its other default remedies, terminate the Matched
Delivery Seller Contract, in which case the Matched Delivery Seller
will owe ICC an amount equal to the cash settlement amount ICC paid the
Matched Delivery Buyer, together with other losses and expenses
incurred by ICC as a result of the failure. Rule 2205(c) provides that,
consistent with the terms of the ISDA Definitions applicable to a
protection buyer generally, any failure by ICC to deliver any
deliverable obligations to the Matched Delivery Seller (including as a
result of a failure by the Matched Delivery Buyer to make a delivery)
will not constitute a default by ICC, and the Matched Delivery Seller's
sole remedy will be as set forth in the Matched Delivery Seller
Contract (which may include, for example, buy-in remedies of the
Matched Delivery Seller). ICC will not have any obligation to purchase
or
[[Page 27800]]
acquire deliverable obligations (other than in settlement of the
Matched Delivery Buyer Contract) in order to settle the Matched
Delivery Seller Contract. In the event of a delivery failure by a
Matched Delivery Buyer, such party will be liable to ICC for any costs
incurred by ICC in settling the corresponding Matched Delivery Seller
Contract (in addition to ICC's other remedies for a default).
According to ICC, the changes to Rule 2206 are to cover certain
other, non-default scenarios in which physical settlement fails to
occur. Under Rules 2206(a) and (b), if physical settlement of the
Matched Buyer Delivery Contract does not occur because the deliverable
obligation is in less than the relevant minimum denomination or the
Matched Delivery Seller is not a permitted transferee of the
obligation, the failure will be treated as an illegality or
impossibility outside of the parties' control, which will result in
cash settlement \7\ under the ISDA Definitions. In this and other
scenarios where a cash settlement fallback applies, the same cash
settlement amount will apply to both the Matched Delivery Buyer
Contract and Matched Delivery Seller Contract under Rule 2206(c).
Similarly, in the case of a buy-in, the same buy-in price will apply to
both contracts. Rule 2206(d) will provide for cash settlement of both
the Matched Delivery Buyer Contract and Matched Delivery Seller
Contract in certain cases where delivery does not occur between the
Matched Delivery Buyer and the customer for which it is acting. Rule
2206(e) specifies the date of any cash settlement and provides for
notice of the relevant amount owed.
---------------------------------------------------------------------------
\7\ Cash settlement in this context is different from the
auction cash settlement that normally applies to CDS contracts under
the ISDA Definitions, and is based on price quotations obtained by
the relevant party to the contract for the obligation or obligations
that cannot be delivered.
---------------------------------------------------------------------------
According to ICC, Rule 2207(a) will provide for certain standard
representations and related provisions for physical settlement in the
ISDA Definitions to apply as between the Matched Delivery Buyer and
Matched Delivery Seller, and will clarify ICC's authority to designate
a Participant to make or receive physical settlement on its behalf as
provided in Rules 2203 and 2204 for purposes of Section 9.2(c)(iv) of
the 2003 ISDA Credit Derivatives Definitions or Section 11.2(c)(iv) of
the 2014 ISDA Definitions, even though the Participant is not its
Affiliate. Rule 2207(b) will clarify certain procedures for obtaining
price quotations for the relevant deliverable obligations in the event
that a cash settlement fallback applies.
Rule 2208 will allow the Matched Delivery Buyer and Matched
Delivery Seller to settle their rights and obligations as to physical
settlement through an alternative arrangement agreed between them
(referred to as a ``CADP''), in lieu of settlement pursuant to Chapter
22 of the ICC Rules. If they so agree, ICC will have no obligation in
respect of such alternative arrangement.
Rules 2209(a) and (c) will provide that margin (including physical
settlement margin) will continue to be called and held through
settlement. Rule 2209(b) will provide that ICC will apply physical
settlement margin to satisfy the Matched Delivery Seller's obligation
to pay the physical settlement amount, and call such seller for any
shortfall.
ICC also proposes to adopt Delivery Procedures that will further
specify certain operational and other details for the physical
settlement process. According to ICC, Paragraph 1 will provide certain
definitions used in the Delivery Procedures. Paragraph 3.2 will set out
certain requirements for providing notices in connection with physical
settlement. Paragraphs 3.3(a)-(e) will establish the procedures and
timetable for ICC to allocate Matched Delivery Pairs and notify
Participants accordingly. Paragraph 3.3(g) will address additional
procedures concerning delivery of notices by Participants in connection
with physical settlement, including as to relevant notice deadlines,
requirements for providing copies of notices to ICC, treatment of late
notices and procedures for disputes involving notices. Paragraph 4 of
the Delivery Procedures will specify certain deadlines in connection
with the physical settlement of Non-DVP Obligations under Rule 2204.
Finally, Paragraph 5 will specify the deadline for notices that parties
have elected a CADP.
ICC also proposes to adopt a set of Physical Settlement and Notices
Terms (``Notices Terms'') with respect to physical settlement. The
Notices Terms are intended to set forth a uniform set of communications
between a Participant and its customer in connection with physical
settlement, including delivery of physical settlement notices and
delivery and receipt of deliverable obligations as between the
Participant and its customer. The Notices Terms will also address the
operation of certain cash settlement and other fallbacks as between the
Participant and its customer. The Notices Terms do not bind ICC and do
not form part of the ICC Rules or ICC Procedures. The Notices Terms are
published for the convenience and use of Participants and their
customers, and are designed to be incorporated by reference in customer
clearing documentation. However, a Participant and its customer may
agree to vary the Notices Terms.
ICC also proposes to make certain changes to its Risk Management
Framework to accommodate the changes relating to physical settlement
that are being made to the ICC Rules and procedures as set forth
herein. As revised, the Risk Management Framework reflects ICC's
obligations in respect of physical settlement as provided in the
amended ICC Rules and procedures. It will set out the steps in the
physical settlement process to be taken by ICC if physical settlement
applies, including the matching of Participants into Matched Delivery
Pairs, consistent with the ICC Rules and procedures. The revisions also
address the calculation, collection and use of margin (including
physical settlement margin) where physical settlement applies.
III. Comments
The Commission received one comment concerning the proposed rule
change. In this comment, the commenter expresses concern that ICC's
proposed rule change to guarantee the financial performance of physical
settlement, in addition to its existing guarantee of cash settlement,
would add additional complexity to ICC's clearing business,
particularly during times of financial stress. The commenter addresses
three issues with the proposal. First, the commenter suggests that the
``process, financial assets and liabilities, and legal obligations of
all parties must be well understood,'' \8\ both by ICC and the
Commission. Second, ``the SEC should have some periodic report on
[ICC's] financial assets, potential obligations or value at risk, and
ability to perform under normal or adverse circumstances.'' \9\
Finally, the commenter seeks assurance that the SEC would assess the
impact ICC's guarantee of ``physical clearing on market participants''
in reducing those participants' ``financial commitment'' or
leverage.\10\ The commenter did not opine on any particular aspects of
the proposed rule change beyond these general statements.
---------------------------------------------------------------------------
\8\ Comment from Kermit Kubitz, dated April 17, 2015, available
at https://www.sec.gov/comments/sr-icc-2015-004/icc2015004-1.htm.
\9\ Id.
\10\ Id.
---------------------------------------------------------------------------
[[Page 27801]]
IV. Discussion and Commission Findings
Section 19(b)(2)(C) of the Act \11\ directs the Commission to
approve a proposed rule change of a self-regulatory organization if the
Commission finds that such proposed rule change is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to such self-regulatory organization. Section 17A(b)(3)(F)
of the Act \12\ requires, among other things, that the rules of a
clearing agency are designed to promote the prompt and accurate
clearance and settlement of securities transactions and, to the extent
applicable, derivative agreements, contracts, and transactions, to
assure the safeguarding of securities and funds which are in the
custody or control of the clearing agency or for which it is
responsible and, in general, to protect investors and the public
interest.
---------------------------------------------------------------------------
\11\ 15 U.S.C. 78s(b)(2)(C).
\12\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
Rules 17Ad-22(b)(2-3) \13\ require each registered clearing agency
that performs central counterparty services to establish, implement,
maintain and enforce written policies and procedures reasonably
designed to use margin requirements to limit its credit exposures to
participants under normal market conditions and use risk-based models
and parameters to set margin requirements and review such margin
requirements and the related risk-based models and parameters at least
monthly, and maintain sufficient financial resources to withstand, at a
minimum, a default by the two participant families to which it has the
largest exposures in extreme but plausible market conditions, in its
capacity as a central counterparty for security based swaps.
---------------------------------------------------------------------------
\13\ 17 CFR 240.17Ad-22(b)(2-3).
---------------------------------------------------------------------------
Rule 17Ad-22(d)(15) \14\ requires each registered clearing agency
to establish, implement, maintain and enforce written policies and
procedures reasonably designed to state to its participants the
clearing agency's obligations with respect to physical deliveries and
identify and manage the risks from these obligations.
---------------------------------------------------------------------------
\14\ 17 CFR 240.17Ad-22(d)(15).
---------------------------------------------------------------------------
The Commission finds that the modification of the terms and
conditions for physical settlement of cleared CDS Contracts and the
adoption of certain new delivery procedures relating to physical
settlement is consistent with the requirements of Section 17A of the
Act \15\ and the regulations thereunder applicable to ICC.
---------------------------------------------------------------------------
\15\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------
The proposed rule change will provide greater certainty and
timeliness with respect to the clearance and settlement of CDS
transactions in circumstances where physical settlement applies.
Although physical settlement applies only rarely, and as a fallback to
the normal procedure for cash settlement, the proposed rule change will
prevent Participants from being exposed to the credit risk of other
Participants with respect to the financial performance of physical
settlement by guaranteeing timely payment of settlement amounts that
are due to a non-defaulting party. As a result, the Commission believes
the proposed rule change will promote the prompt and accurate clearing
and settlement of CDS contracts, and, in general, protect investors and
the public interest consistent with the requirements of Section
17A(b)(3)(F) of the Act.\16\
---------------------------------------------------------------------------
\16\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
Moreover, the proposed rule change will require ICC to collect
Physical Settlement Margin \17\ (in addition to initial and variation
margin) to cover the specific obligations of each Matched Delivery
Seller to the clearinghouse with respect to physical settlement.
Therefore, the Commission believes ICC will be able to maintain
financial resources sufficient to support its clearing operations,
including operations under the amended physical settlement procedures,
in a manner consistent with the requirements of Rule 17Ad-22(b)(2-
3).\18\ Furthermore, ICC proposes to amend text of ICC Rules 2203(a)--
(g), to address the legal obligations that arise between Participants
when settling a CDS Contract that is to be physically settled, with
corresponding changes to its Delivery Procedures. The Commission
believes that ICC's Rules, as amended, establish ICC's and
Participants' obligations for performance (including financial
performance) of physically settled contracts, the procedures for
settlement and the mechanism for ICC to effect settlement in cash
without having to acquire or dispose of the underlying deliverable
obligations, consistent with the requirements of Rule 17Ad-
22(d)(15).\19\
---------------------------------------------------------------------------
\17\ The Physical Settlement Margin is calculated as the
notional value minus the estimated value of the deliverable
obligation and collected from the Matched Delivery Seller and held
by ICC until such time the Matched Delivery Buyer and the Matched
Delivery Seller as a pair confirm that settlement has been occurred.
Physical Settlement Margin is not collected from the Matched
Delivery Buyer. The estimated value of the deliverable obligation
will be determined by ICC using a ``haircut'' approach. ICC will use
the price of the cheapest-to-deliver bond as the basis for the
``haircut'' estimation. However, if reliable pricing is not
available, ICC reserves the right to determine a price of zero and
therefore charge the full notional amount as the Physical Settlement
Margin to the seller.
\18\ 17 CFR 240.17Ad-22(b)(2-3).
\19\ 17 CFR 240.17Ad-22(d)(15).
---------------------------------------------------------------------------
V. 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 \20\ and the
rules and regulations thereunder.
---------------------------------------------------------------------------
\20\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\21\ that the proposed rule change (SR-ICC-2015-004) be, and hereby
is, approved.\22\
---------------------------------------------------------------------------
\21\ 15 U.S.C. 78s(b)(2).
\22\ 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).
\23\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-11595 Filed 5-13-15; 8:45 am]
BILLING CODE 8011-01-P
