Self-Regulatory Organizations; ICE Clear Europe Limited; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to Additions to Permitted Cover, 17529-17532 [2016-06992]

Download as PDF Federal Register / Vol. 81, No. 60 / Tuesday, March 29, 2016 / Notices Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– NYSEMKT–2016–41 on the subject line. Paper Comments mstockstill on DSK4VPTVN1PROD with NOTICES • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NYSEMKT–2016–41. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (http://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. 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– NYSEMKT–2016–41, and should be submitted on or before April 19, 2016. VerDate Sep<11>2014 19:43 Mar 28, 2016 Jkt 238001 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.18 Brent J. Fields, Secretary. [FR Doc. 2016–06999 Filed 3–28–16; 8:45 am] 17529 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–77427; File No. SR–ICEEU– 2016–003] SECURITIES AND EXCHANGE COMMISSION Self-Regulatory Organizations; ICE Clear Europe Limited; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to Additions to Permitted Cover Sunshine Act Meeting March 23, 2016. BILLING CODE 8011–01–P Notice is hereby given, pursuant to the provisions of the Government in the Sunshine Act, Public Law 94–409, that the Securities and Exchange Commission will hold a Closed Meeting on Thursday, March 31, 2016 at 2:00 p.m. Commissioners, Counsel to the Commissioners, the Secretary to the Commission, and recording secretaries will attend the Closed Meeting. Certain staff members who have an interest in the matters also may be present. The General Counsel of the Commission, or her designee, has certified that, in her opinion, one or more of the exemptions set forth in 5 U.S.C. 552b(c)(3), (5), (7), 9(B) and (10) and 17 CFR 200.402(a)(3), (5), (7), 9(ii) and (10), permit consideration of the scheduled matter at the Closed Meeting. Commissioner Stein, as duty officer, voted to consider the items listed for the Closed Meeting in closed session. The subject matter of the Closed Meeting will be: Institution and settlement of injunctive actions; Institution and settlement of administrative proceedings; and Other matters relating to enforcement proceedings. At times, changes in Commission priorities require alterations in the scheduling of meeting items. For further information and to ascertain what, if any, matters have been added, deleted or postponed, please contact the Office of the Secretary at (202) 551–5400. Dated: March 24, 2016. Brent J. Fields, Secretary. [FR Doc. 2016–07108 Filed 3–25–16; 11:15 am] Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on March 11, 2016, ICE Clear Europe Limited (‘‘ICE Clear Europe’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule changes described in Items I, II and III below, which Items have been prepared primarily by ICE Clear Europe. ICE Clear Europe filed the proposal pursuant to section 19(b)(3)(A) of the Act,3 and Rule 19b–4(f)(4)(ii)4 thereunder, so that the proposal was effective upon filing with the Commission. 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 Substance of the Proposed Rule Change The principal purpose of the changes is to permit F&O Clearing Members of ICE Clear Europe to provide qualifying high-grade corporate and other nonsovereign or ‘‘semi-government’’ bonds (‘‘Non-Sovereign Permitted Cover’’) to ICE Clear Europe as Permitted Cover to satisfy original margin requirements for the F&O product category. 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. 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 most significant aspects of such statements. BILLING CODE 8011–01–P 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A). 4 17 CFR 240.19b–4(f)(4)(ii). 2 17 18 17 PO 00000 CFR 200.30–3(a)(12). Frm 00105 Fmt 4703 Sfmt 4703 E:\FR\FM\29MRN1.SGM 29MRN1 17530 Federal Register / Vol. 81, No. 60 / Tuesday, March 29, 2016 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of the rule changes is to permit F&O Clearing Members of ICE Clear Europe to provide qualifying NonSovereign Permitted Cover to ICE Clear Europe to satisfy original margin requirements for the F&O product category. Non-Sovereign Permitted Cover will be limited to high grade (i.e., rated ‘‘AA’’ equivalent and above) public sector, agency, municipal and corporate bonds meeting certain criteria, as discussed herein. ICE Clear Europe intends to commence accepting the Non-Sovereign Permitted Cover once all necessary regulatory approvals have been obtained. ICE Clear Europe believes that the changes will provide F&O Clearing Members access to a broader range of eligible collateral to support their margin obligations (and thus their clearing business), while continuing to satisfy the Clearing House’s financial resources and risk management requirements. In order to simplify the operational aspects of holding non-sovereign bonds (including addressing corporate actions), the Non-Sovereign Permitted Cover may be posted by F&O Clearing Members to ICE Clear Europe only through triparty accounts at Euroclear or Clearstream Banking in accordance with the Finance Procedures. Under existing procedures for the use of triparty collateral service providers, the service provider is responsible for allowing only bonds that meet ICE Clear Europe’s acceptable collateral requirements to be transferred into the triparty account by the F&O Clearing Member. ICE Clear Europe will thus inform the triparty collateral service providers of the detailed criteria for eligible NonSovereign Permitted Cover, and expect the triparty collateral service provider to reflect those criteria in its systems for accepting triparty collateral. ICE Clear Europe then monitors collateral in the triparty account periodically during the day. Consistent with its Collateral and Haircut Policy, ICE Clear Europe will continue to impose absolute and relative limits on the various types of Permitted Cover provided by F&O Clearing Members, including the Non-Sovereign Permitted Cover. Rather than publish a specific list of acceptable Non-Sovereign Permitted Cover, ICE Clear Europe proposes to establish a set of credit, liquidity, pricing, currency, structural and other criteria applicable to Non-Sovereign Permitted Cover. Bonds that meet the VerDate Sep<11>2014 19:43 Mar 28, 2016 Jkt 238001 criteria may be accepted as NonSovereign Permitted Cover. All NonSovereign Permitted Cover must be rated at least ‘‘AA’’ (or equivalent). ICE Clear Europe will periodically review issuers of Non-Sovereign Permitted Cover and decline to continue to accept bonds issued by an entity that falls below the AA equivalent for corporate issuance. The issuer of Non-Sovereign Permitted Cover (other than certain public sector debt) must also have an equity listing or a credit spread. For public sector debt that is either a fully or implicitly guaranteed ‘‘state’’ bond ¨ (e.g., Deutsche Bundeslander bonds), ICE Clear Europe will generally look to the rating of the relevant ultimate sovereign (e.g., German (Federal) Sovereign Bonds) but may consider a higher haircut to reflect a wider bid-ask spread and reduced relative and absolute limits. The Non-Sovereign Permitted Cover must not be issued by a Clearing Member (or affiliate of a Clearing Member). In addition, Non-Sovereign Permitted Cover must not be issued by any entity linked to the energy market as determined by the Clearing House. The Non-Sovereign Permitted Cover must be fixed coupon or floating rate only, with no derivative aspects to its pricing and with no embedded caps or floors with respect to its price or coupon. In addition, covered bonds are not eligible. The Non-Sovereign Permitted Cover cannot be subject to any regulatory or legal constraint or third party claims that impair liquidation. The Non-Sovereign Permitted Cover must be redeemable only in a single currency, which must be one of EUR, USD, CHF, GBP, JPY, CAD, SEK, or NOK. In terms of liquidity, the issue size of the particular bond to be used as NonSovereign Permitted Cover must be at least USD 500 million. In addition to any otherwise applicable relative and absolute limits under the Collateral and Haircut Policy, ICE Clear Europe will accept a maximum of five percent of the total outstanding bond issuance of the issuer of any Non-Sovereign Permitted Cover for any single F&O Clearing Member’s (and its affiliates’) original margin requirement. The absolute maximum amount acceptable of NonSovereign Permitted Cover of any single bond issue from any F&O Clearing Member (and its affiliated Clearing Members) is ten percent of that issue. The maximum amount of NonSovereign Permitted Cover provided by an F&O Clearing Member (and its affiliated Clearing Members) may not exceed USD 50 million or its equivalent. As an additional limit, an F&O Clearing PO 00000 Frm 00106 Fmt 4703 Sfmt 4703 Member’s use of Non-Sovereign Permitted Cover will be limited to twenty-five percent of its total F&O margin requirement. Valuations of Non-Sovereign Permitted Cover will be made at end of day by the triparty collateral service provider. For public sector NonSovereign Permitted Cover (such as semi-government bonds and agency bonds), ICE Clear Europe will use the same pricing procedures as used for sovereign bonds. In terms of corporate bonds, while ICE Clear Europe anticipates that ‘‘AA’’ grade bonds will have readily available pricing, ICE Clear Europe will take additional steps to limit the use of illiquid bonds (for which pricing may be less available). Specifically, ICE Clear Europe will decline to accept those corporate bonds that breach 40 percent of haircut levels in the last ten days. In addition, where corporate bonds are not repriced on a regular basis (such as where the price has been unchanged for 3 or more days in a row under normal market conditions), ICE Clear Europe will review the continued acceptance of such bonds. Non-Sovereign Permitted Cover comprising semi-government and agency bonds will be managed in the same manner as the relevant sovereign bonds (i.e., added to the same absolute and relative limit applicable to such sovereign bonds under the ICE Clear Europe Collateral and Haircut Policy). ICE Clear Europe proposes to manage general wrong-way risk (‘‘WWR’’) with respect to corporate Non-Sovereign Permitted Cover in line with its existing WWR policy in its Collateral and Haircut Policy, such that a threshold per Clearing Member is established relative to member capital (currently 2.5% of capital). If a Clearing Member has a short equity position in excess of the threshold, it will be required to remove the Non-Sovereign Permitted Cover that presents WWR with respect to that position. As set forth in Exhibit 5, ICE Clear Europe has revised its List of Permitted Cover to incorporate the criteria for Non-Sovereign Permitted Cover.5 2. Statutory Basis ICE Clear Europe has identified the Non-Sovereign Permitted Cover as encompassing types of assets that would be appropriate for Clearing Members to 5 As a result of the addition of such criteria, which will only apply to initial margin for F&O Contracts, ICE Clear Europe will hereafter maintain and publish separate Lists of Permitted Cover for F&O Contracts and CDS Contracts. The List of Permitted Cover for CDS Contracts is unchanged from the current List of Permitted Cover. E:\FR\FM\29MRN1.SGM 29MRN1 Federal Register / Vol. 81, No. 60 / Tuesday, March 29, 2016 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES post in order to meet original margin requirements for the F&O product category. ICE Clear Europe believes that accepting the Non-Sovereign Permitted Cover is consistent with the requirements of section 17A of the Act 6 and the regulations thereunder applicable to it, and is consistent with the prompt and accurate clearance of and settlement of securities transactions and, to the extent applicable, derivative agreements, contracts and transactions, the safeguarding of securities and funds in the custody or control of ICE Clear Europe or for which it is responsible, and the protection of investors and the public interest, within the meaning of section 17A(b)(3)(F) of the Act.7 Although it has not previously accepted collateral of the type of the Non-Sovereign Permitted Cover, ICE Clear Europe has developed a detailed set of criteria addressing credit risk, liquidity risk, structure, pricing, wrong way risk and other relevant factors for these instruments. ICE Clear Europe has further analyzed the trading characteristics and volatility of instruments that may qualify as NonSovereign Permitted Cover. As a result, ICE Clear Europe believes that the qualifying Non-Sovereign Permitted Cover will have characteristics that are appropriate for use as Permitted Cover for a Clearing Member’s obligations in respect of original margin for F&O contracts. ICE Clear Europe will impose haircuts and limitations on the NonSovereign Permitted Cover under its Collateral and Haircut Policy, and will review and update such haircuts and limitations under that policy as necessary. Taken together, these criteria and related haircuts and limitations will restrict Non-Sovereign Permitted Cover to instruments that have a stable value and present low credit risk and volatility. As such, acceptance of such Permitted Cover is, in ICE Clear Europe’s view, consistent with the financial resources and risk management requirements of the Clearing House. For the reasons noted above, ICE Clear Europe believes that the acceptance of the Non-Sovereign Permitted Cover is consistent with the requirements of section 17A of the Act and regulations thereunder applicable to it. B. Self-Regulatory Organization’s Statement on Burden on Competition ICE Clear Europe does not believe the proposed amendments would have any impact, or impose any burden, on competition not necessary or 6 15 7 15 U.S.C. 78q–1. U.S.C. 78q–1(b)(3)(F). VerDate Sep<11>2014 19:43 Mar 28, 2016 appropriate in furtherance of the purposes of the Act. The proposed changes will provide additional flexibility to F&O Clearing Members by allowing them to use, on an optional basis, Non-Sovereign Permitted Cover (in addition to existing forms of Permitted Cover) to satisfy F&O original margin obligations. The changes will thus allow F&O Clearing Members access to a broader pool of potential collateral that may be used to satisfy margin obligations. As a result, ICE Clear Europe does not believe the changes will adversely affect the cost to clearing members or other market participants of clearing services. The changes will otherwise not affect the terms or conditions of any cleared contract or the standards or requirements for participation in or use of the Clearing House. Accordingly, the changes should not, in the Clearing House’s view, affect the availability of clearing or access to clearing services. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others Written comments relating to the proposed changes to the rules have not been solicited or received. 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 The foregoing rule change has become effective upon filing pursuant to section 19(b)(3)(A) 8 of the Act and Rule 19b– 4(f)(4)(ii) 9 thereunder because it effects a change in an existing service of a registered clearing agency that primarily affects the clearing operations of the clearing agency with respect to products that are not securities, including futures that are not security futures, swaps that are not security-based swaps or mixed swaps, and forwards that are not security forwards, and does not significantly affect any securities clearing operations of the clearing agency or any rights or obligations of the clearing agency with respect to securities clearing or persons using such securities-clearing service. At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, 8 15 9 17 Jkt 238001 PO 00000 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(4)(ii). Frm 00107 Fmt 4703 Sfmt 4703 17531 or otherwise in furtherance of the purposes of the Act. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml) or • Send an email to rule-comments@ sec.gov. Please include File Number SR– ICEEU–2016–003 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–ICEEU–2016–003. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (http://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street, NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filings will also be available for inspection and copying at the principal office of ICE Clear Europe and on ICE Clear Europe’s Web site at https:// www.theice.com/clear-europe/ regulation#rule-filings. 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–2016–003 and should be submitted on or before April 19, 2016. E:\FR\FM\29MRN1.SGM 29MRN1 17532 Federal Register / Vol. 81, No. 60 / Tuesday, March 29, 2016 / Notices For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.10 Brent J. Fields, Secretary. the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements. [FR Doc. 2016–06992 Filed 3–28–16; 8:45 am] A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–77434; File No. SR–NYSE– 2016–23] Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending Rule 13 to Expand the Availability of SelfTrade Prevention Modifiers to NonAlgorithmically Entered Floor Broker Interest March 23, 2016. Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b-4 thereunder,2 notice is hereby given that on March 15, 2016, New York Stock Exchange LLC (‘‘NYSE’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Rule 13 to expand the availability of self-trade prevention (‘‘STP’’) modifiers to non-algorithmically entered Floor broker interest. The proposed rule change is available on the Exchange’s Web site at www.nyse.com, at the principal office of the Exchange, and at the Commission’s Public Reference Room. mstockstill on DSK4VPTVN1PROD with NOTICES II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at 10 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Sep<11>2014 19:43 Mar 28, 2016 Jkt 238001 1. Purpose The Exchange proposes to amend Rule 13 to expand the availability of STP modifiers to non-algorithmically entered e-Quotes, pegging e-Quotes, and g-Quotes. STP modifiers are designed to prevent two orders from the same market participant identifier (‘‘MPID’’) assigned to a member organization from executing against each other. Use of the STP modifiers is optional and is not automatically implemented by the Exchange. Rather, a member organization can choose to add a STP modifier on eligible orders. The STP modifier on the incoming order determines the interaction between two orders marked with STP modifiers and whether the incoming or the resting order would cancel. Both the buy and the sell order must include an STP modifier in order to prevent a trade from occurring and to effect a cancel instruction.3 Currently, under Rule 13(f)(3)(B), STP modifiers are available for Limit Orders and Market Orders entered by off-Floor participants, and for e-Quotes, pegging e-Quotes, and gQuotes sent to the matching engine by an algorithm on behalf of a Floor broker. The Exchange amended Rule 13 to add STP modifiers in 2013.4 At the time, the supporting technology was not compatible with Floor broker systems and the Exchange chose to deploy STP modifiers for other market participants while it performed the technical modifications required for the use of STP modifiers for Floor brokers.5 The Exchange later made STP modifiers available for algorithms used by Floor brokers to route interest to the Exchange’s matching engine, but the technology supporting STP modifiers was still incompatible with all Floor broker systems.6 Now that the technology to extend STP modifiers to all Floor broker systems is available, the Exchange proposes to delete the clause 3 See Rule 13(f)(3)(A); Securities Exchange Act Release No. 69102 (Mar. 11, 2013), 78 FR 16561 (Mar. 15, 2013) (SR–NYSE–2013–17). 4 See Securities Exchange Act Release No. 69102, 78 FR at 16561. 5 See id. 6 See Securities Exchange Act Release No. 69502 (May 2, 2013), 78 FR 26818 (May 8, 2013) (SR– NYSE–2013–30). PO 00000 Frm 00108 Fmt 4703 Sfmt 4703 ‘‘sent to the matching engine by an algorithm on behalf of a Floor broker’’ in Rule 13 to make STP modifiers available for eQuotes, pegging e-Quotes, and g-Quotes without limitation. No other changes are proposed to Rule 13. Because of the technology changes associated with this rule proposal, the Exchange will announce the implementation date in a Trader Update. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with section 6(b) of the Act,7 in general, and furthers the objectives of section 6(b)(5) of the Act,8 in particular, because it is designed to prevent fraudulent and manipulative acts and practices, promote just and equitable principles of trade, remove impediments to and perfect the mechanism of a free and open market and a national market system, and protect investors and the public interest. In particular, the Exchange believes that extending STP modifiers to non-algorithmically entered Floor broker interest would provide Floor brokers with an additional opportunity to prevent unintended executions by Floor broker customers with themselves or the potential for ‘‘wash sales’’ that may occur as a result of the velocity of trading in today’s high-speed marketplace, thereby removing impediments to and perfecting the mechanism of a free and open market. The Exchange notes that STP modifiers would not alleviate, or otherwise exempt, broker-dealers from their best execution obligations. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange believes that the proposal would provide Floor brokers with an additional opportunity to prevent unintended self-trades from occurring. The Exchange notes that it operates in a highly competitive market in which market participants can readily direct order flow to competing venues offering similar functionality. Many competing venues offer similar functionality to market participants. To this end, the Exchange is proposing a market enhancement to provide greater protections from inadvertent executions, and encourage market participants to trade on the Exchange. 7 15 8 15 U.S.C. 78f(b). U.S.C. 78f(b)(5). E:\FR\FM\29MRN1.SGM 29MRN1

Agencies

[Federal Register Volume 81, Number 60 (Tuesday, March 29, 2016)]
[Notices]
[Pages 17529-17532]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-06992]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77427; File No. SR-ICEEU-2016-003]


Self-Regulatory Organizations; ICE Clear Europe Limited; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating to Additions to Permitted Cover

March 23, 2016.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on March 11, 2016, ICE Clear Europe Limited (``ICE Clear Europe'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule changes described in Items I, II and III below, which 
Items have been prepared primarily by ICE Clear Europe. ICE Clear 
Europe filed the proposal pursuant to section 19(b)(3)(A) of the 
Act,\3\ and Rule 19b-4(f)(4)(ii)\4\ thereunder, so that the proposal 
was effective upon filing with the Commission. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(4)(ii).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The principal purpose of the changes is to permit F&O Clearing 
Members of ICE Clear Europe to provide qualifying high-grade corporate 
and other non-sovereign or ``semi-government'' bonds (``Non-Sovereign 
Permitted Cover'') to ICE Clear Europe as Permitted Cover to satisfy 
original margin requirements for the F&O product category.

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. 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 most significant 
aspects of such statements.

[[Page 17530]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the rule changes is to permit F&O Clearing Members 
of ICE Clear Europe to provide qualifying Non-Sovereign Permitted Cover 
to ICE Clear Europe to satisfy original margin requirements for the F&O 
product category. Non-Sovereign Permitted Cover will be limited to high 
grade (i.e., rated ``AA'' equivalent and above) public sector, agency, 
municipal and corporate bonds meeting certain criteria, as discussed 
herein. ICE Clear Europe intends to commence accepting the Non-
Sovereign Permitted Cover once all necessary regulatory approvals have 
been obtained. ICE Clear Europe believes that the changes will provide 
F&O Clearing Members access to a broader range of eligible collateral 
to support their margin obligations (and thus their clearing business), 
while continuing to satisfy the Clearing House's financial resources 
and risk management requirements.
    In order to simplify the operational aspects of holding non-
sovereign bonds (including addressing corporate actions), the Non-
Sovereign Permitted Cover may be posted by F&O Clearing Members to ICE 
Clear Europe only through triparty accounts at Euroclear or Clearstream 
Banking in accordance with the Finance Procedures. Under existing 
procedures for the use of triparty collateral service providers, the 
service provider is responsible for allowing only bonds that meet ICE 
Clear Europe's acceptable collateral requirements to be transferred 
into the triparty account by the F&O Clearing Member. ICE Clear Europe 
will thus inform the triparty collateral service providers of the 
detailed criteria for eligible Non-Sovereign Permitted Cover, and 
expect the triparty collateral service provider to reflect those 
criteria in its systems for accepting triparty collateral. ICE Clear 
Europe then monitors collateral in the triparty account periodically 
during the day. Consistent with its Collateral and Haircut Policy, ICE 
Clear Europe will continue to impose absolute and relative limits on 
the various types of Permitted Cover provided by F&O Clearing Members, 
including the Non-Sovereign Permitted Cover.
    Rather than publish a specific list of acceptable Non-Sovereign 
Permitted Cover, ICE Clear Europe proposes to establish a set of 
credit, liquidity, pricing, currency, structural and other criteria 
applicable to Non-Sovereign Permitted Cover. Bonds that meet the 
criteria may be accepted as Non-Sovereign Permitted Cover. All Non-
Sovereign Permitted Cover must be rated at least ``AA'' (or 
equivalent). ICE Clear Europe will periodically review issuers of Non-
Sovereign Permitted Cover and decline to continue to accept bonds 
issued by an entity that falls below the AA equivalent for corporate 
issuance. The issuer of Non-Sovereign Permitted Cover (other than 
certain public sector debt) must also have an equity listing or a 
credit spread. For public sector debt that is either a fully or 
implicitly guaranteed ``state'' bond (e.g., Deutsche Bundesl[auml]nder 
bonds), ICE Clear Europe will generally look to the rating of the 
relevant ultimate sovereign (e.g., German (Federal) Sovereign Bonds) 
but may consider a higher haircut to reflect a wider bid-ask spread and 
reduced relative and absolute limits.
    The Non-Sovereign Permitted Cover must not be issued by a Clearing 
Member (or affiliate of a Clearing Member). In addition, Non-Sovereign 
Permitted Cover must not be issued by any entity linked to the energy 
market as determined by the Clearing House. The Non-Sovereign Permitted 
Cover must be fixed coupon or floating rate only, with no derivative 
aspects to its pricing and with no embedded caps or floors with respect 
to its price or coupon. In addition, covered bonds are not eligible. 
The Non-Sovereign Permitted Cover cannot be subject to any regulatory 
or legal constraint or third party claims that impair liquidation. The 
Non-Sovereign Permitted Cover must be redeemable only in a single 
currency, which must be one of EUR, USD, CHF, GBP, JPY, CAD, SEK, or 
NOK.
    In terms of liquidity, the issue size of the particular bond to be 
used as Non-Sovereign Permitted Cover must be at least USD 500 million. 
In addition to any otherwise applicable relative and absolute limits 
under the Collateral and Haircut Policy, ICE Clear Europe will accept a 
maximum of five percent of the total outstanding bond issuance of the 
issuer of any Non-Sovereign Permitted Cover for any single F&O Clearing 
Member's (and its affiliates') original margin requirement. The 
absolute maximum amount acceptable of Non-Sovereign Permitted Cover of 
any single bond issue from any F&O Clearing Member (and its affiliated 
Clearing Members) is ten percent of that issue. The maximum amount of 
Non-Sovereign Permitted Cover provided by an F&O Clearing Member (and 
its affiliated Clearing Members) may not exceed USD 50 million or its 
equivalent. As an additional limit, an F&O Clearing Member's use of 
Non-Sovereign Permitted Cover will be limited to twenty-five percent of 
its total F&O margin requirement.
    Valuations of Non-Sovereign Permitted Cover will be made at end of 
day by the triparty collateral service provider. For public sector Non-
Sovereign Permitted Cover (such as semi-government bonds and agency 
bonds), ICE Clear Europe will use the same pricing procedures as used 
for sovereign bonds. In terms of corporate bonds, while ICE Clear 
Europe anticipates that ``AA'' grade bonds will have readily available 
pricing, ICE Clear Europe will take additional steps to limit the use 
of illiquid bonds (for which pricing may be less available). 
Specifically, ICE Clear Europe will decline to accept those corporate 
bonds that breach 40 percent of haircut levels in the last ten days. In 
addition, where corporate bonds are not repriced on a regular basis 
(such as where the price has been unchanged for 3 or more days in a row 
under normal market conditions), ICE Clear Europe will review the 
continued acceptance of such bonds.
    Non-Sovereign Permitted Cover comprising semi-government and agency 
bonds will be managed in the same manner as the relevant sovereign 
bonds (i.e., added to the same absolute and relative limit applicable 
to such sovereign bonds under the ICE Clear Europe Collateral and 
Haircut Policy). ICE Clear Europe proposes to manage general wrong-way 
risk (``WWR'') with respect to corporate Non-Sovereign Permitted Cover 
in line with its existing WWR policy in its Collateral and Haircut 
Policy, such that a threshold per Clearing Member is established 
relative to member capital (currently 2.5% of capital). If a Clearing 
Member has a short equity position in excess of the threshold, it will 
be required to remove the Non-Sovereign Permitted Cover that presents 
WWR with respect to that position.
    As set forth in Exhibit 5, ICE Clear Europe has revised its List of 
Permitted Cover to incorporate the criteria for Non-Sovereign Permitted 
Cover.\5\
---------------------------------------------------------------------------

    \5\ As a result of the addition of such criteria, which will 
only apply to initial margin for F&O Contracts, ICE Clear Europe 
will hereafter maintain and publish separate Lists of Permitted 
Cover for F&O Contracts and CDS Contracts. The List of Permitted 
Cover for CDS Contracts is unchanged from the current List of 
Permitted Cover.
---------------------------------------------------------------------------

2. Statutory Basis
    ICE Clear Europe has identified the Non-Sovereign Permitted Cover 
as encompassing types of assets that would be appropriate for Clearing 
Members to

[[Page 17531]]

post in order to meet original margin requirements for the F&O product 
category. ICE Clear Europe believes that accepting the Non-Sovereign 
Permitted Cover is consistent with the requirements of section 17A of 
the Act \6\ and the regulations thereunder applicable to it, and is 
consistent with the prompt and accurate clearance of and settlement of 
securities transactions and, to the extent applicable, derivative 
agreements, contracts and transactions, the safeguarding of securities 
and funds in the custody or control of ICE Clear Europe or for which it 
is responsible, and the protection of investors and the public 
interest, within the meaning of section 17A(b)(3)(F) of the Act.\7\
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78q-1.
    \7\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    Although it has not previously accepted collateral of the type of 
the Non-Sovereign Permitted Cover, ICE Clear Europe has developed a 
detailed set of criteria addressing credit risk, liquidity risk, 
structure, pricing, wrong way risk and other relevant factors for these 
instruments. ICE Clear Europe has further analyzed the trading 
characteristics and volatility of instruments that may qualify as Non-
Sovereign Permitted Cover. As a result, ICE Clear Europe believes that 
the qualifying Non-Sovereign Permitted Cover will have characteristics 
that are appropriate for use as Permitted Cover for a Clearing Member's 
obligations in respect of original margin for F&O contracts. ICE Clear 
Europe will impose haircuts and limitations on the Non-Sovereign 
Permitted Cover under its Collateral and Haircut Policy, and will 
review and update such haircuts and limitations under that policy as 
necessary. Taken together, these criteria and related haircuts and 
limitations will restrict Non-Sovereign Permitted Cover to instruments 
that have a stable value and present low credit risk and volatility. As 
such, acceptance of such Permitted Cover is, in ICE Clear Europe's 
view, consistent with the financial resources and risk management 
requirements of the Clearing House.
    For the reasons noted above, ICE Clear Europe believes that the 
acceptance of the Non-Sovereign Permitted Cover is consistent with the 
requirements of section 17A of the Act and regulations thereunder 
applicable to it.

B. Self-Regulatory Organization's Statement on Burden on Competition

    ICE Clear Europe does not believe the proposed amendments would 
have any impact, or impose any burden, on competition not necessary or 
appropriate in furtherance of the purposes of the Act. The proposed 
changes will provide additional flexibility to F&O Clearing Members by 
allowing them to use, on an optional basis, Non-Sovereign Permitted 
Cover (in addition to existing forms of Permitted Cover) to satisfy F&O 
original margin obligations. The changes will thus allow F&O Clearing 
Members access to a broader pool of potential collateral that may be 
used to satisfy margin obligations. As a result, ICE Clear Europe does 
not believe the changes will adversely affect the cost to clearing 
members or other market participants of clearing services. The changes 
will otherwise not affect the terms or conditions of any cleared 
contract or the standards or requirements for participation in or use 
of the Clearing House. Accordingly, the changes should not, in the 
Clearing House's view, affect the availability of clearing or access to 
clearing services.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    Written comments relating to the proposed changes to the rules have 
not been solicited or received. 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

    The foregoing rule change has become effective upon filing pursuant 
to section 19(b)(3)(A) \8\ of the Act and Rule 19b-4(f)(4)(ii) \9\ 
thereunder because it effects a change in an existing service of a 
registered clearing agency that primarily affects the clearing 
operations of the clearing agency with respect to products that are not 
securities, including futures that are not security futures, swaps that 
are not security-based swaps or mixed swaps, and forwards that are not 
security forwards, and does not significantly affect any securities 
clearing operations of the clearing agency or any rights or obligations 
of the clearing agency with respect to securities clearing or persons 
using such securities-clearing service. At any time within 60 days of 
the filing of the proposed rule change, the Commission summarily may 
temporarily suspend such rule change if it appears to the Commission 
that such action is necessary or appropriate in the public interest, 
for the protection of investors, or otherwise in furtherance of the 
purposes of the Act.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(4)(ii).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml) or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-ICEEU-2016-003 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-ICEEU-2016-003. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filings will also be available 
for inspection and copying at the principal office of ICE Clear Europe 
and on ICE Clear Europe's Web site at https://www.theice.com/clear-europe/regulation#rule-filings.
    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-2016-003 
and should be submitted on or before April 19, 2016.


[[Page 17532]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
---------------------------------------------------------------------------

    \10\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Brent J. Fields,
Secretary.
[FR Doc. 2016-06992 Filed 3-28-16; 8:45 am]
 BILLING CODE 8011-01-P