[Federal Register Volume 77, Number 56 (Thursday, March 22, 2012)]
[Notices]
[Pages 16883-16888]
[FR Doc No: 2012-6863]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66614; File No. SR-ISE-2012-22]

Self-Regulatory Organizations; International Securities Exchange,
LLC; Notice of Filing of Proposed Rule Change To Add an Index Option
Product for Trading on the Exchange

March 16, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on March 9, 2012, the International Securities Exchange, LLC (the
``Exchange'' or the ``ISE'') filed with the Securities and Exchange
Commission (``Commission'') the proposed rule change as described in
Items I and II below, which items have been prepared by the self-
regulatory organization. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange is proposing to amend its rules to trade options on
the ISE Max SPY TM Index (``ISE Max SPY''), a newly-
developed, ISE proprietary index (patent pending). The ISE Max SPY is
designed to represent 10 times the value of the published prices in the
SPDR[supreg] S&P 500[supreg] ETF Trust. The Exchange also proposes to
list and trade long-term options on the ISE Max SPY. Options on the Max
SPY will be p.m. cash-settled and will have European-style exercise
provisions.
    The text of the proposed rule change is available on the Exchange's
Internet Web site at http://www.ise.com, at the principal office of the
Exchange, and at the Commission's Public Reference Room.

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 these statements may be examined at
the places specified in Item IV below. The self-regulatory organization
has prepared summaries, set forth in sections A, B and C below, of the
most significant aspects of such statements.

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

1. Purpose
    The Exchange proposes to amend its Rules 2001, 2004 and 2009 to
provide for the listing and trading of options on the ISE Max SPY
TM index, a newly-developed, ISE proprietary index (patent
pending). The ISE Max SPY is designed to represent 10 times the value
of the published share prices in the SPDR[supreg] S&P 500[supreg] ETF
Trust. In addition to options on the ISE Max SPY, the Exchange may list
long-term options on ISE Max SPY.\3\ Options on the ISE Max SPY will be
P.M. cash-settled and will have European-style exercise provisions.
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    \3\ Under ISE Rule 2009(b), ``Long-Term Index Options Series,''
the Exchange may list long-term options that expire from 12 to 60
months from the date of issuance.
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    The ISE Max SPY Index is constructed using the share prices of the
SPDR[supreg] S&P 500[supreg] ETF Trust (the ``Trust'', which is
commonly known by its exchange symbol ``SPY''). According to the
Trust's prospectus, SPY is based on the S&P 500[supreg], which is a
capitalization-weighted index of 500 stocks from a broad range of
industries. The component stocks are weighted according to the total
market value of their outstanding shares. The impact of a component's
price change is proportional to the issue's total market share value,
which is the share price times the number of shares outstanding. These
are all summed for all 500 stocks and divided by a predetermined base
value. The base value for the S&P 500[supreg] is adjusted to reflect
changes in capitalization resulting from, among other things, mergers,
acquisitions, stock rights and substitutions. The ISE Max SPY is
calculated by multiplying the share prices of SPY by a factor of 10 and
rounding to the tenths place. For example, if the share price for SPY
is

112.35 then the ISE Max SPY value would yield a value of 1123.50 for
the ISE Max SPY.
    The Exchange believes that the proposed product would benefit
investors in several ways. First, the European exercise style will
allow investors to engage in certain trading strategies involving in-
the-money options without the risk of being assigned prior to
expiration. The Exchange also notes that options with a European
exercise style may exhibit lower premiums than those with an American
exercise style, all other terms being equal, because the risks of early
assignment may contribute to higher prices for options with an American
style exercise. Further, the cash-settlement feature would allow
investors to retain their existing underlying equity or exchange-traded
fund (``ETF'') positions if they engage in short options strategies, as
opposed to physically-settled options that also have American style
exercise where an assignment could require an investor to adjust its
portfolio in the underlying shares.
    The Exchange also believes that a large underlying index would
appeal to market participants that have different investment goals. For
example, a smaller index size would appeal to investors seeking lower-
priced options, while a larger index size would appeal to investors
seeking to reduce their transaction costs by having to purchase fewer
contracts.
    As proposed, the proposal would become effective on a pilot program
basis for a period of fourteen months. If the Exchange were to propose
an extension of the program or should the Exchange propose to make the
program permanent, then the Exchange would submit a filing proposing
such amendments to the program. The Exchange notes that any positions
established under the pilot would not be impacted by the expiration of
the pilot. For example, a position in a p.m.-settled series that
expires beyond the conclusion of the pilot period could be established
during the 14-month pilot. If the pilot program were not extended, then
the position could continue to exist. However, the Exchange notes that
any further trading in the series would be restricted to transactions
where at least one side of the trade is a closing transaction.
    As part of the pilot program, the Exchange would also submit a
pilot program report to the Commission at least two months prior to the
expiration date of the program (the ``annual report''). As described
below, the annual report would contain an analysis of volume, open
interest and trading patterns. The analysis would examine trading in
the proposed option product as well as trading in the securities that
comprise the S&P 500[supreg] index. In addition, for series that exceed
certain minimum open interest parameters, the annual report would
provide analysis of index price volatility and share trading activity.
The annual report would be provided to the Commission on a confidential
basis.
    The annual report would contain the following volume and open
interest data:
    (1) Monthly volume aggregated for all trades;
    (2) monthly volume aggregated by expiration date;
    (3) monthly volume for each individual series;
    (4) month-end open interest aggregated for all series;
    (5) month-end open interest for all series aggregated by expiration
data [sic]; and
    (6) month-end open interest for each individual series.
    In addition to the annual report, the Exchange would provide the
Commission with interim reports of the information listed in Items (1)
through (6) above periodically as required by the Commission while the
pilot is in effect. These interim reports would also be provided on a
confidential basis. Additionally, the annual report would contain the
following analysis of trading patterns in Expiration Friday, p.m.-
settled ISE Max SPY options series in the pilot:
    (1) A time series analysis of open interest; and
    (2) An analysis of the distribution of trade sizes.
    Also, for series that exceed certain minimum parameters, the annual
report would contain the following analysis related to index price
changes and underlying share trading volume at the close on Expiration
Fridays:
    (1) A comparison of index price changes at the close of trading on
a given Expiration Friday with comparable price changes from a control
sample. The data would include a calculation of percentage price
changes for various time intervals and compare that information to the
respective control sample. Raw percentage price change data as well as
percentage price change data normalized for prevailing market
volatility, as measured by the CBOE Volatility Index (VIX), would be
provided; and
    (2) A calculation of share volume of a sample set of the component
securities representing an upper limit on share trading that could be
attributable to expiring in-the-money series. The data would include a
comparison of the calculated share volume for securities in the sample
set to the average daily trading volumes of those securities over a
sample period.
    The minimum open interest parameters, control sample, time
intervals, method for randomly selecting the component securities, and
sample periods would be determined by the Exchange and the Commission.
Index Design and Composition
    The ISE Max SPY Index is designed to provide larger scale exposure
to, and is calculated using, the share prices of SPY. Each Trust unit,
(i.e., each share of SPY) represents an undivided ownership interest in
the Trust. Shares of SPY trade like any other equity security, and are
listed and traded on NYSE Arca.
    As discussed above, the ISE Max SPY is calculated by multiplying
the share prices of SPY by a factor of 10 and rounding to the tenths
place. For example, if the share price for SPY is 112.35 then the ISE
Max SPY value would yield a value of 1123.50 for the ISE Max SPY.
Index Calculation and Index Maintenance
    Real-time index levels for the ISE Max SPY shall be calculated by
ISE or its agent, and shall be disseminated by ISE every 15 seconds
during the Exchange's regular trading hours to market information
vendors via the Options Price Reporting Authority (``OPRA'').\4\ The
settlement value for the ISE Max SPY Index is calculated using the Net
Asset Value (``NAV'') of the fund, as calculated by the Exchange, on a
per share basis, times ten.\5\ The NAV of an ETF is the per-share
dollar amount of the fund which is calculated by dividing the total
value of all the securities in its portfolio, less any liabilities, by
the number of fund shares outstanding. In general, equity ETFs use the
closing

prices of each of the fund's holdings to determine the total value of
all the securities in its portfolio. In the case of SPY, the closing
prices of the portfolio securities are determined by the closing
auction processes of the NYSE for each of those securities.
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    \4\ The Exchange will also disseminate these values to its
members.
    \5\ The settlement value that the Exchange calculates may be
different from the NAV published by the trustee of the Trust.
According to the prospectus of the Trust, the trustee may deem
prices of the Trust's portfolio securities to be inappropriate, and
may use the prices of another market other than the NYSE, or may
appraise the value of the securities itself. Additionally, the Trust
uses the NYSE's closing prices of all the portfolio securities even
though several of those securities are not listed on the NYSE (as of
the close on February 24, 2012, one hundred components of the SPY
portfolio, which represented 20% of the total portfolio count and
21.74% of the weighting, were listed on Nasdaq). In calculating ISE
Max SPY, the Exchange uses the published closing prices from the
primary market of those securities.
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    The Exchange will also notify the staff of the Division of Trading
and Markets of the Commission immediately in the event values of the
ISE Max SPY Index are not disseminated every 15 seconds by a widely
available source. In the event the ISE Max SPY Index ceases to be
maintained or calculated, or its values are not disseminated every 15
seconds by a widely available source, the Exchange will not list any
additional series for trading and will limit all transactions in such
options to closing transactions only for the purpose of maintaining a
fair and orderly market and protecting investors.
Exercise and Settlement Value
    Options on the ISE Max SPY will expire on the Saturday following
the third Friday of the expiration month. Trading in options on the ISE
Max SPY will normally cease at 4:15 p.m. (EST), except for expiring
contracts, which will cease trading at 4 p.m. (EST) on the Friday
preceding an expiration Saturday. Non-expiring contracts will continue
to trade until 4:15 p.m. (EST). The index value for exercise of the ISE
Max SPY options will be calculated by ISE based on the NAV of the fund,
on a per share basis, times ten.
    The Commission recently determined that it was appropriate to
reintroduce p.m.-settlement to cash-settled index options when it
approved C2 Options Exchange, Incorporated's (``C2'') SPXPM.\6\ As
discussed above, settlement value of the ISE Max SPY utilizes the
prices of the stocks held in the SPDR[supreg] S&P 500[supreg] ETF
Trust. These stocks are also used in the calculation of the S&P
500[supreg] index underlying C2's SPXPM. Therefore, all the arguments
supporting p.m.-settlement in the order approving SPXPM apply here.
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    \6\ See Securities Exchange Act Release No. 65256 (September 2,
2011), 76 FR 55969 (September 9, 2011) (SR-C2-2011-008) (``SPXPM
Filing'').
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Reintroduction of P.M. Settlement
    When cash-settled \7\ index options were first introduced in the
1980s, they generally utilized closing-price settlement procedures
(i.e., p.m.-settlement).\8\ The Commission became concerned about the
impact of p.m.-settlement on cash-settled index options on the markets
for the underlying stocks at the close on expiration Fridays.\9\ These
concerns were heightened during the quarterly expirations of the third
Friday of March, June, September and December when options, index
futures, and options on index futures all expire simultaneously. P.m.-
settlement was believed to have contributed to above average volume and
added market volatility on those days, which sometimes led to sharp
price movements during the last hour of trading.\10\ As a consequence,
the close of trading on the quarterly expiration Friday became known as
the ``triple witching hour.'' Besides contributing to investor anxiety,
heightened volatility during the expiration periods created the
opportunity for manipulation and other abusive trading practices in
anticipation of the liquidity constraints.\11\
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    \7\ The seller of a ``cash settled'' index option pays out the
cash value of the applicable index on expiration or exercise. A
``physically settled'' option, like equity and ETF options, involves
the transfer of the underlying asset rather than cash. See
Characteristics and Risks of Standardized Options, available at:
http://www.theocc.com/components/docs/riskstoc.pdf, for a discussion
of settlement.
    \8\ The exercise settlement value for a p.m.-settled index
option is generally determined by reference to the reported level of
the index as derived from the closing prices of the component
securities (generally based on the closing prices as reported by the
primary exchange on which the stock is listed) on the last business
day before expiration (e.g., the Friday before Saturday expiration).
See Characteristics and Risks of Standardized Options, available at:
http://www.theocc.com/components/docs/riskstoc.pdf, for a discussion
of settlement value.
    \9\ See, e.g., Securities Exchange Act Release Nos. 45956 (May
17, 2002), 67 FR 36740 (May 24, 2002) (adopting release concerning
cash settlement and regulatory halt requirements for security
futures products) (``Regulators and self-regulators were concerned
that the liquidity constraints faced by the securities markets to
accommodate expiration related buy or sell programs at the market
close on expiration Fridays could exacerbate ongoing market swings
during an expiration and could provide opportunities for entities to
anticipate these pressures and enter orders as part of manipulative
or abusive trading practices designed to artificially drive up or
down share prices.''); 24367 (April 17, 1987), 52 FR 13890 (April
27, 1987) (SR-CBOE-87-11) (order approving a proposal for S&P 500
index options with an exercise settlement value based on an index
value derived from opening, rather than closing, prices); and 32868
(September 10, 1993), 58 FR 48687 (September 10, 1993) (notice of
filing and order granting accelerated approval of proposed rule
change by the New York Stock Exchange, Inc. (``NYSE'') relating to
changes in auxiliary closing procedures for expiration days)
(stating, ``[a]s long as some index derivative products continue to
expire based on closing stock prices on expiration Fridays, the
Commission agrees with the NYSE that such procedures are necessary
to provide a mechanism to handle the potential large imbalances that
can be engendered by firms unwinding index derivative related
positions''). The cash settlement provisions of stock index futures
and options contracts facilitated the growth of sizeable index
arbitrage activities by firms and professional traders and made it
relatively easy for arbitrageurs to buy or sell the underlying
stocks at or near the market close on expiration Fridays (i.e., the
third Friday of the expiration month) in order to ``unwind''
arbitrage-related positions. These types of unwinding programs at
the close on expiration Fridays often severely strained the
liquidity of the securities markets as the markets, and in
particular the specialists on the NYSE, faced pressure to attract
contra-side interest in the limited time that was permitted to
establish closing prices. See Securities Exchange Act Release No.
44743 (August 24, 2001), 66 FR 45904 (August 30, 2001) (File No. S7-
15-01) (proposing release concerning cash settlement and regulatory
halt requirements for security futures products).
    \10\ See, e.g., Securities Exchange Act Release Nos. 24276
(March 27, 1987); 52 FR 10836 (April 3, 1987) (notice of filing and
order granting accelerated approval to a proposed rule change by the
NYSE relating to opening price settlement of expiring NYSE Composite
and Beta Index options); 37894 (October 30, 1996), 61 FR 6987 [sic]
(November 5, 1996) (notice of filing and order granting accelerated
approval of proposed rule change by the NYSE permanently approving
the expiration day auxiliary closing procedures pilot program); and
45956 (May 17, 2002), 67 FR 36740 (May 24, 2002) (adopting release
concerning cash settlement and regulatory halt requirements for
security futures products) (reaffirming the Commission's view of the
advantages of a.m. settlement). See also Hans Stoll and Robert
Whaley, Expiration Day Effects of Index Options & Futures (March 15,
1986) (noting that share volume on the NYSE was much higher in the
last hour of a quarterly expiration Friday when both options and
futures expire than on non-expiration Fridays).
    \11\ See, e.g., Securities Exchange Act Release No. 45956 (May
17, 2002), 67 FR 36740 (May 24, 2002) (adopting release concerning
cash settlement and regulatory halt requirements for security
futures products) (explaining that entities could take advantage of
illiquidity resulting from the unwinding of arbitrage-related
positions on expiration Fridays to manipulate share prices).
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    In light of the concerns with p.m.-settlement and to help
ameliorate the price effects associated with expirations of p.m.-
settled, cash-settled index products, in 1987, the Commodity Futures
Trading Commission (``CFTC'') approved a rule change by the Chicago
Mercantile Exchange to provide for a.m.-settlement for index futures,
including futures on the S&P 500[supreg] index.\12\ The Commission
subsequently approved a rule change by the Chicago Board Options
Exchange (``CBOE'') to list and trade a.m.-settled S&P 500[supreg]
index options.\13\ In 1992, the

Commission approved CBOE's proposal to transition all of its European-
style cash-settled options on the S&P 500[reg] index to a.m.-
settlement.\14\ Thereafter, the Commission approved proposals by the
options markets to transfer most of their cash-settled index products
to a.m.-settlement.\15\
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    \12\ See Proposed Amendments Relating to the Standard and Poor's
500, the Standard and Poor's 100 and the Standard Poor's OTC Stock
Price Index Futures Contract, 51 FR 47053 (December 30, 1986)
(notice of proposed rule change from the Chicago Mercantile
Exchange). See also Securities Exchange Act Release No. 24367 (April
17, 1987), 52 FR 13890 (April 27, 1987) (SR-CBOE-87-11) (noting that
the Chicago Mercantile Exchange moved the S&P 500[supreg] futures
contract's settlement value to opening prices on the delivery date).
The exercise settlement value for an a.m.-settled index option is
determined by reference to the reported level of the index as
derived from the opening prices of the component securities on the
business day before expiration.
    \13\ See Securities Exchange Act Release No. 24367 (April 17,
1987), 52 FR 13890 (April 27, 1987) (SR-CBOE-87-11) (order approving
a proposal for S&P 500 index options with an exercise settlement
value based on an index value derived from opening, rather than
closing, prices). At the time it approved CBOE's introduction of
a.m.-settlement for cash settled index options, the Commission
identified two benefits to a.m.-settlement for cash-settled index
options. See Securities Exchange Act Release No. 30944 (July 21,
1992), 57 FR 33376 (July 28, 1992) (SR-CBOE-92-09). First, it
provides additional time to test price discovery, as market
participants have the remainder of the regular trading day to adjust
to opening session price movements and determine whether those
movements reflect changes in fundamental values or short-term supply
and demand conditions. Second, it provides more opportunity to trade
out of positions acquired during the opening auction. In this
respect, attracting contra-side interest to a single-priced auction
to offset an order imbalance (such as those attributable to index
arbitrage) may more readily be achieved in an opening auction on
Friday morning than a closing auction on Friday afternoon because
the morning session allows market participants that have provided
that liquidity to have the remainder of the regular trading day to
liquidate their positions. In contrast, positions acquired in a
Friday afternoon closing auction generally cannot be liquidated as
readily and efficiently until the following Monday. Holding
positions overnight, or over a weekend, may entail greater risk than
holding intraday positions. To accept such risk (real or perceived),
market participants generally will require a greater premium, which
may translate into greater price concessions, and thus lead to
greater volatility in the closing auction. In other words, a
consequence of p.m.-settlement may be enhanced volatility at the
close. See, e.g., Securities Exchange Act Release No. 44743 (August
24, 2001), 66 FR 45904 at 45908 (August 30, 2001) (``Steep discounts
(premiums) were necessary in part because traders who bought (sold)
stocks to offset unwinding programs had to maintain their newly
acquired long (short) positions over the weekend--during which time
they were subject to considerable market risk.'').
    \14\ See Securities Exchange Act Release No. 30944 (July 21,
1992), 57 FR 33376 (July 28, 1992) (SR-CBOE-92-09) (order approving
CBOE's proposal relating to position limits for SPX index options
based on the opening price of component securities).
    \15\ CBOE's index options on the S&P 100[supreg] (OEX), however,
kept their p.m.-settlement. See Securities Exchange Act Release No.
30944 (July 21, 1992), 57 FR 33376 (July 28, 1992) (SR-CBOE-92-09).
No futures or options on futures trade on the S&P 100 index. Other
types of options utilize p.m.-settlement, including physically-
settled single-stock options and options on ETFs.
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    The Commission and the CFTC noted the benefits of a.m.-settlement
in a 2001 joint release concerning securities futures, where they
observed that ``the widespread adoption of opening-price settlement
procedures in index futures and options has served to mitigate the
liquidity strains that had previously been experienced in the
securities markets on expirations.'' \16\
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    \16\ See Securities Exchange Act Release No. 44743 (August 24,
2001), 66 FR 45904 at 45908 (August 30, 2001) (proposing release for
a joint rule between the Commission and the CFTC generally
stipulating, among other provisions, that the final settlement price
for each cash-settled security futures product fairly reflect the
opening price of the underlying security or securities). See also
Securities Exchange Act Release No. 45956 (May 17, 2002), 67 FR
36740 at 36741-42 (May 24, 2002) (adopting release concerning cash
settlement and regulatory halt requirements for security futures
products in which the Commission reaffirmed the advantages of a.m.-
settlement) (``[O]pening price settlement procedures offered several
features that enabled the securities markets to better handle
expiration-related unwinding programs.'').
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    Since 1992, the Commission has approved proposals that provide for
cash-settled index options with p.m.-settlement on a limited basis for
options products that generally are characterized by lower relative
volume and that generally do not involve settlement on the third Friday
of a month.\17\ At the time of each approval, the Commission stated
that limited approvals on a pilot basis would allow the exchange and
the Commission to monitor the potential for adverse market effects and
modify or terminate the pilots, if necessary. Notably, with the
exception of FLEX Index options, these recently-approved p.m.-settled
contracts do not involve expiration on the third Friday of the month.
These new contracts, including FLEX, have also been characterized by
limited volume, and would not be expected to have a pronounced effect
on volatility in the underlying securities at the close as a result.
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    \17\ In particular, in 1993, the Commission approved CBOE's
proposal to list and trade p.m.-settled, cash-settled options on
certain broad-based indexes expiring on the first business day of
the month following the end of each calendar quarter (``Quarterly
Index Expirations''). See Securities Exchange Act Release No. 31800
(February 1, 1993), 58 FR 7274 (February 5, 1993) (SR-CBOE-92-13).
In 2006, the Commission approved, on a pilot basis, CBOE's listing
of p.m.-settled index options expiring on the last business day of a
calendar quarter (``Quarterly Options Series''). See Securities
Exchange Act Release No. 54123 (July 11, 2006), 71 FR 40558 (July
17, 2006) (SR-CBOE-2006-65). In January 2010, the Commission
approved CBOE's listing of p.m.-settled FLEX options on a pilot
basis. See Securities Exchange Act Release No. 61439 (January 28,
2010), 75 FR 5831 (February 4, 2010) (SR-CBOE-2009-087) (order
approving rule change to establish a pilot program to modify FLEX
option exercise settlement values and minimum value sizes). FLEX
options provide investors with the ability to customize basic option
features including size, expiration date, exercise style, and
certain exercise prices. Prior to 2010, only a.m.-settlement based
on opening prices of the underlying components of an index could be
used to settle a FLEX index option if it expired on, or within two
business days of, a third-Friday-of-the month expiration (``Blackout
Period''). Last year, the Commission approved a pilot program to
permit FLEX index options with p.m.-settlement that expire within
the Blackout Period. See Securities Exchange Act Release No. 61439
(January 28, 2010), 75 FR 5831 (February 4, 2010) (SR-CBOE-2009-
087). In September 2010, the Commission approved CBOE's listing of
p.m.-settled End of Week expirations (expiring on each Friday, other
than the third Friday) and End of Month expirations (expiring on the
last trading day of the month) for options on broad-based indexes,
also on a pilot basis. See Securities Exchange Act Release No. 62911
(September 14, 2010), 75 FR 57539 (September 21, 2010) (SR-CBOE-
2009-075).
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    The concerns from 18 years ago that led to the transition to a.m.-
settlement for index derivatives have been largely mitigated.
Expiration pressure in the underlying cash markets at the close has
been greatly reduced with the advent of multiple primary listing and
unlisted trading privilege markets and trading is now widely dispersed
among many market centers. Further, opening procedures in the 1990s
were deemed acceptable to mitigate one-sided order flow driven by index
option expiration and that [sic] today's more sophisticated automated
closing procedures should afford a similar, if not greater, level of
comfort. Specifically, many markets, notably The NASDAQ Stock Market
LLC (``Nasdaq'') and the NYSE, now utilize automated closing cross
procedures and have closing order types that facilitate orderly
closings, and that [sic] these closing procedures are well equipped to
mitigate imbalance pressure at the close. In addition, ISE believes
that after-hours trading now provides market participants with an
alternative to help offset market-on-close imbalances.
    Also, as noted in the SPXPM Filing, for roughly five years (1987-
1992) CBOE listed both a.m.- and p.m.-settled SPX and did not observe
any related market disruptions during that period in connection with
the dual a.m./p.m.-settlement.\18\ Finally, ISE believes that p.m.-
settled options predominate in the over-the-counter (``OTC'') market,
and ISE is not aware of any adverse effects in the underlying cash
markets attributable to the considerable volume of OTC trading. ISE is
merely trying to offer a p.m.-settled product in an exchange
environment which offers the benefit of added transparency, price
discovery and stability. The ISE asserts that given the changes since
the 1980s, concerns with p.m.-settlement are not applicable in today's
market because closing procedures on the cash equities markets have
become more automated with real time data feeds that are distributed to
a wider array of market participants.
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    \18\ See SPXPM Filing, supra note 6, at 55974.
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    Finally, in the SPXPM Filing, C2 estimates that 95% of OTC options
based on the S&P 500[supreg] index are p.m.-settled,\19\ therefore ISE
Max SPY will attract some of that trading interest. ISE notes that
doing so would be consistent with the objectives of the Dodd-Frank Wall
Street Reform and Consumer Protection Act and could help mitigate

counterparty risks faced by OTC market participants.
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    \19\ Id. At 55975.
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Contract Specifications
    The contract specifications for options on the ISE Max SPY are set
forth in Exhibit 3-2. Options on the ISE Max SPY are European-style and
p.m.-settled. The Exchange's standard trading hours for broad-based
index options (9:30 a.m. to 4:15 p.m., New York time), as set forth in
Rule 2008(a), will apply to the trading of options on the ISE Max SPY.
Exchange rules that are applicable to the trading of options on broad-
based indexes will also apply to the trading of ISE Max SPY
options.\20\ Specifically, the trading of ISE Max SPY options will be
subject to, among others, Exchange rules governing margin requirements
and trading halt procedures for index options. Further, ISE Max SPY
options shall be quoted and traded in U.S. dollars.
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    \20\ See ISE Rules 2000 through 2013.
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    For options on the ISE Max SPY, the Exchange proposes that there
would be no position limits since the index is based on the published
prices of the stocks held in the SPDR[supreg] S&P 500[supreg] ETF
Trust.\21\ As discussed above, C2 received approval to list and trade
cash-settled S&P 500[supreg] index options with no position limits.\22\
The Exchange believes that ISE Max SPY should have no position limits
for the same reasons suggested by C2 for SPXPM.\23\ The settlement
value calculated by ISE would use the portfolio components of the SPY
Trust, which are the same as the components of the S&P 500[supreg]
index. C2 has stated that the settlement value it is using for SPXPM is
based on the closing value of the S&P 500[supreg] which is calculated
using the closing prices of the index components. Similarly, ISE would
be calculating the settlement value using the published closing prices
of the portfolio securities of the SPDR[supreg] S&P 500[supreg] ETF
Trust, thereby benefitting from the same considerable aggregate
capitalization.
---------------------------------------------------------------------------

    \21\ There would be reporting requirements pursuant to Rule 415,
Reports Related to Position Limits.
    \22\ See note 6.
    \23\ Id.
---------------------------------------------------------------------------

    To determine appropriate position limits for this product, the
Commission requested that the Exchange apply a model, such as the Dutt-
Harris model,\24\ whereby the authors developed a model to determine
appropriate position limits for cash settled index derivatives. The
authors concluded that position limits are not as important for broad-
based index derivative contracts that are cash settled because they are
composed of highly liquid and well-followed securities. As such, the
authors note that it would require very high trading volumes to
manipulate the underlying securities and, consequently, any attempted
manipulation would be more easily detectable and prosecutable. The
position limits suggested by the Dutt-Harris model for an S&P
500[supreg]-based index option would be so large as to be irrelevant
and position limits of such magnitude would attract scrutiny from
surveillance systems that would, as a consequence, serve as an
effective substitute for position limits. The premise of this
conclusion is based upon the broad range and deep liquidity of
securities that comprise the S&P 500[supreg], which are the same
portfolio securities whose published prices are used to calculate the
settlement value of the ISE Max SPY.
---------------------------------------------------------------------------

    \24\ See The Journal of Futures Markets, Vol. 25, no. 10, 945-
965 (2005) (Position Limits for Cash-Settled Derivative Contracts by
Hans R. Dutt and Lawrence E. Harris) (``Dutt-Harris Paper'').
---------------------------------------------------------------------------

    The Exchange believes that the existing surveillance procedures and
reporting requirements at ISE, other options exchanges, and at the
clearing firms are capable of properly identifying unusual and/or
illegal trading activity. In addition, routine oversight inspections of
the Exchange's regulatory programs by the Commission have not uncovered
any material inconsistencies or shortcomings in the manner in which the
Exchange's market surveillance is conducted. These procedures utilize
daily monitoring of market movements via automated surveillance
techniques to identify unusual activity in both options and underlying
stocks.\25\ Accordingly, ISE's market surveillance has been and will
continue to be rigorous and more than adequate to address any
manipulation concerns.
---------------------------------------------------------------------------

    \25\ These procedures have been effective for the surveillance
of SPY options trading and will continue to be employed.
---------------------------------------------------------------------------

    The Exchange proposes to apply broad-based index margin
requirements for the purchase and sale of options on the ISE Max SPY.
Accordingly, purchases of put or call options with 9 months or less
until expiration must be paid for in full. Writers of uncovered put or
call options must deposit/maintain 100% of the option proceeds, plus
15% of the aggregate contract value (current index level x $100), less
any out-of-the-money amount, subject to a minimum of the option
proceeds plus 10% of the aggregate contract value for call options and
a minimum of the option proceeds plus 10% of the aggregate exercise
price amount for put options.
    The Exchange proposes to set minimum strike price intervals for ISE
Max SPY options at 1 point intervals. The minimum tick size for series
trading below $3 shall be $0.05, and for series trading at or above $3
shall be $0.10.
    The Exchange proposes to list options on the ISE Max SPY in the
twelve consecutive near-term expiration months.\26\ In addition, long-
term option series having up to sixty months to expiration may be
traded.\27\ The trading of long-term ISE Max SPY options shall also be
subject to the same rules that govern the trading of all the Exchange's
index options, including sales practice rules, margin requirements, and
trading rules.
---------------------------------------------------------------------------

    \26\ See Rule 2009(a)(3).
    \27\ See Rule 2009(b)(1).
---------------------------------------------------------------------------

    Chapter 6 of the Exchange's rules is designed to protect public
customer trading and shall apply to the trading of options on the ISE
Max SPY. Specifically, ISE Rules 608(a) and (b) prohibit Members from
accepting a customer order to purchase or write an option unless such
customer's account has been approved in writing by a designated Options
Principal of the Member. Additionally, ISE's Rule 610 regarding
suitability is designed to ensure that options are only sold to
customers capable of evaluating and bearing the risks associated with
trading in this instrument. Further, ISE Rule 611 permits members to
exercise discretionary power with respect to trading options in a
customer's account only if the Member has received prior written
authorization from the customer and the account had been accepted in
writing by a designated Options Principal. ISE Rule 611 also requires
designated Options Principals or Representatives of a Member to approve
and initial each discretionary order on the day the discretionary order
is entered. Finally, ISE Rule 609, Supervision of Accounts, Rule 612,
Confirmation to Customers, and Rule 616, Delivery of Current Options
Disclosure Documents and Prospectus, will also apply to trading in of
[sic] options on the ISE Max SPY.
Surveillance and Capacity
    The Exchange represents that it has an adequate surveillance
program in place for options traded on the ISE Max SPY. The ISE Market
Surveillance Department conducts routine surveillance in approximately
30 discrete areas. Index products and their respective symbols are
integrated into the Exchange's existing surveillance system
architecture and are thus subject to the relevant surveillance
processes.

This is true for both surveillance system processing and manual
processes that support the ISE's surveillance program.
    Finally, the Exchange has the necessary systems capacity to support
new options series that will result from the introduction of options on
the ISE Max SPY, including Leaps.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act in general, and the rules and regulations
thereunder, and, in particular, the requirements of Section 6(b) of the
Act.\28\ In particular, the Exchange believes the proposed rule change
is consistent with Section 6(b)(5) \29\ requirements that the rules of
an exchange [sic] designed to promote just and equitable principles of
trade, to remove impediments to and to perfect the mechanism for a free
and open market and a national market system, and in general, to
protect investors and the public interest. The Exchange believes that
p.m.-settlement for the subject index option in the manner proposed
does not raise any meaningful regulatory concerns. Further, the
Exchange believes that the proposal will not adversely impact fair and
orderly markets on expiration Fridays for the underlying stocks
comprising SPY. As discussed in Section (a) of Item 3 of this filing
(the purpose section), the handling of orders at the close on the stock
markets has matured considerably since concerns were initially raised
in the late 1980s. Additionally, the proposed rule change would provide
Members and investors with additional opportunities to trade S&P
500[supreg] options with a p.m.-settlement feature in an exchange
environment and subject to transparent exchange-based rules, and that
[sic] investors would also benefit from the opportunity to trade in
association with this product on Expiration Fridays thereby removing
impediments to a free and open market consistent with the Act.
---------------------------------------------------------------------------

    \28\ 15 U.S.C. 78f(b).
    \29\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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

    The proposed rule change does not impose any burden on competition
that is not necessary or appropriate in furtherance of the purposes of
the Act.

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

    The Exchange has not solicited, and does not intend to solicit,
comments on this proposed rule change. The Exchange has not received
any unsolicited written comments from members or other interested
parties.

III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

    Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule
change should be disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File Number SR-ISE-2012-22 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-ISE-2012-22. 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
a.m. and 3 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-ISE-2012-22 and should be
submitted on or before April 12, 2012.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\30\
---------------------------------------------------------------------------

    \30\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-6863 Filed 3-21-12; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 78, Number 128 (Wednesday, July 3, 2013)]
[Notices]
[Pages 40243-40248]
[FR Doc No: 2013-15999]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69888; File No. SR-ICEEU-2013-09]

Self-Regulatory Organizations; ICE Clear Europe Limited; Notice
of Filing of Amendment No. 3 and Order Approving Proposed Rule Change,
as Modified by Amendment Nos. 1, 2 and 3 Thereto, To Clear Contracts
Traded on the LIFFE Administration and Management Market

June 28, 2013.

I. Introduction

    On May 13, 2013, ICE Clear Europe Limited (``ICE Clear Europe'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change SR-ICEEU-2013-09 pursuant to Section 19(b)(1) of
the Securities Exchange Act of 1934 (``Act'' or ``Exchange Act'') \1\
and Rule 19b-4 thereunder \2\ to implement a clearing relationship in
which ICE Clear Europe will clear contracts traded on the LIFFE
Administration and Management (``LIFFE A&M'') market \3\ (``LIFFE
Contracts'').\4\ On May 22, 2013, ICE Clear Europe filed Amendment No.
1 to the proposed rule change.\5\ Notice of the proposed rule change,
as modified by Amendment No. 1 thereto, was published for comment in
the Federal Register on May 29, 2013.\6\ On June 4, 2013, ICE Clear
Europe filed Amendment No. 2 to the proposed rule change.\7\ Notice of
Amendment No. 2 to the proposed rule change was published for comment
in the Federal Register on June 12, 2013.\8\ On June 20, 2013, ICE
Clear Europe filed Amendment No. 3 to the proposed rule change.\9\
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ LIFFE A&M is a recognized investment exchange under the UK
Financial Services and Markets Act of 2000.
    \4\ The LIFFE Contracts include interest rate and government
bond futures and options, certain agricultural futures and options,
and futures and options on underlying equity securities and equity
indices.
    \5\ In Amendment No. 1, ICE Clear Europe, among other things,
clarified the scope of products proposed to be cleared, added new
Rule 207(f) prohibiting its U.S. Clearing Members from clearing
LIFFE Contracts that are futures or options on underlying U.S.
securities, added additional clarification surrounding the operation
of the combined F&O Guaranty Fund and the margining of LIFFE
Contracts, and supplemented the statutory basis for the proposed
rule change.
    \6\ Exchange Act Release No. 69628 (May 23, 2013), 78 FR 32287
(May 29, 2013) (SR-ICEEU-2013-09).
    \7\ In Amendment No. 2, ICE Clear Europe elaborated on certain
aspects of the proposed clearing activities as they relate to LIFFE
Contracts that are securities products and made a partial amendment
to certain rules and procedures that would clarify the
considerations under which certain margin and risk management
requirements would be established and modified from time to time.
    \8\ Exchange Act Release No. 69703 (Jun. 5, 2013), 78 FR 35335
(Jun. 12, 2013) (SR-ICEEU-2013-09).
    \9\ In Amendment No. 3, ICE Clear Europe modified proposed Rule
207(f) to further define the persons that are subject to the
restriction from clearing U.S. securities to include any Clearing
Member having a U.S. residence, based upon the location of its
executive office or principal place of business, including, without
limitation, (i) a U.S. bank (as defined by Section 3(a)(6) of the
Exchange Act) and (ii) a foreign branch of a U.S. bank or U.S.
registered broker-dealer. The amendment is technical in nature and
meant to clarify the scope of Rule 207(f) so that it is consistent
with prior Commission actions. See infra n. 11 and accompanying
text. Amendment No. 3 therefore did not require an additional
comment period. The initial rule filing and all subsequent
amendments filed are collectively referred to hereinafter as the
``Proposal.''
---------------------------------------------------------------------------

    The Commission did not receive comments on the proposed rule
change. This order approves the proposed rule change, as modified by
Amendment Nos. 1, 2 and 3.

II. Description of the Proposed Rule Change

A. Background

    As announced on December 20, 2012, ICE Clear Europe has agreed to
act as the clearing organization for futures and option contracts
traded on LIFFE A&M, including contracts traded over-the-counter and
processed through LIFFE A&M's BClear service.\10\ The LIFFE Contracts
proposed to be cleared by ICE Clear Europe include instruments that
constitute securities for the purposes of U.S. securities laws (``LIFFE
Securities Products''), including U.S. securities, which for purposes
of the Proposal, include futures or options on underlying U.S. equities
and equity indices. The purpose of the Proposal is to implement this
clearing relationship.
---------------------------------------------------------------------------

    \10\ BClear is a service operated by LIFFE A&M, which enables
LIFFE A&M Clearing Members to report certain bilaterally agreed off-
exchange trades to LIFFE A&M. After ICE Clear Europe launches its
clearing business for LIFFE A&M, trades would be eligible for
clearing by ICE Clear Europe upon being reported.
---------------------------------------------------------------------------

    In the Proposal, ICE Clear Europe submitted revised Parts 1, 2, 4,
5, 7, 8, 11, and 12 and new Part 18 of the ICE Clear Europe Clearing
Rules (``Rules'') (along with other clarifying and conforming Rule
amendments) and revisions to its Finance Procedures, Clearing
Procedures, Delivery Procedures and Membership Procedures. The other
proposed changes in the Rules and procedures reflect conforming changes
to definitions and related provisions and other drafting
clarifications, and do not affect the substance of the Rules and
procedures.

B. ICE Clear Europe Clearing Rules

    The Proposal revises Part 1 of the Rules, in which Rule 101, which
provides definitions for certain terms, is modified to add new defined
terms and revise existing definitions. Included in the changes to Rule
101 are the designation of LIFFE A&M as a Market for which ICE Clear
Europe provides clearing services, the addition of defined terms and
other revisions to cover LIFFE Contracts and the creation of a new
category ``F&O Contracts'' that will include Energy Contracts and LIFFE
Contracts (and related definitions). The Energy Guaranty Fund will be
re-designated as the F&O Guaranty Fund, which fund will be sub-divided
with respect to Energy Contracts and LIFFE Contracts.
    Part 2 of the Rules has been revised to address requirements for
LIFFE Clearing Members and other conforming changes. New Rule 207(f),
as modified by Amendment No. 3 of the Proposal,

would be adopted to provide that Clearing Members that are U.S. persons
will not be permitted to clear LIFFE Contracts that are futures or
options on underlying U.S. securities (other than futures contracts on
broad-based security indices). Specifically, Rule 207(f) defines the
persons that are subject to this restriction to include any (i) FCM/BD
Clearing Members; (ii) other Clearing Members that are organized in the
United States of America; and (iii) other Clearing Members having a
U.S. residence, based upon the location of their executive office or
principal place of business, including, without limitation, (a) a U.S.
bank (as defined by Section 3(a)(6) of the Exchange Act) and (b) a
foreign branch of a U.S. bank or U.S. registered broker-dealer. As
modified by Amendment No. 3, the proposed rule would restrict the
clearing of U.S. securities by U.S. participants consistent with prior
Commission actions.\11\ In furtherance of this restriction, ICE Clear
Europe, together with LIFFE A&M, will implement operational controls to
restrict the activities of U.S. Clearing Members. Specifically, the
clearing system to be used for the LIFFE Securities Products will have
market access controls that prevent U.S. Clearing Members from creating
or holding cleared positions in LIFFE Securities Products involving
underlying U.S. securities. This is intended to prevent U.S. Clearing
Members from engaging in any clearing-related activity (including give-
ups or take-ups) in respect of those products. Furthermore, when a new
U.S. clearing member is approved for clearing, LIFFE A&M and ICE Clear
Europe will take the necessary steps in their respective systems to
implement these access controls prior to granting the new member access
to the clearing system.
---------------------------------------------------------------------------

    \11\ See, e.g., Morgan Guaranty Trust Company of New York,
Brussels Office, as Operator of the Euroclear System, Order
Approving Application for Exemption From Registration as a Clearing
Agency, Exchange Act Release No. 39643 (Feb. 11, 1998), 63 FR 8232
(Feb. 18, 1998) (``Euroclear Order'') at n. 62 (defining ``U.S.
participant'' in the context of granting an exemption from
registration as a clearing agency under Section 17A in connection
with performing the functions of a clearing agency for transactions
involving U.S. government and agency securities for U.S.
participants).
---------------------------------------------------------------------------

    Part 3 of the Rules contain certain conforming changes.
    Changes to Part 4 of the Rules address the submission of LIFFE
Contracts for clearing and related matters. A new Rule 410 has been
added to set out a framework for Link Agreements, which are generally
defined as agreements entered into between ICE Clear Europe and another
exchange for which ICE Clear Europe does not otherwise provide clearing
services that provides for the transfer of contracts to or from that
exchange (or its clearing house) to ICE Clear Europe. LIFFE A&M
currently has link arrangements with Tokyo Financial Exchange Inc. and
Tokyo Stock Exchange Inc., which exchanges would constitute
``Participating Exchanges'' pursuant to the new Rules.
    The Proposal revises Part 5 of the Rules, which addresses margin
requirements. Existing Rule 502(d) addresses a number of margin
requirements, including the assets eligible to be provided as Margin or
Permitted Cover, and existing Rule 502(e) addresses haircuts that the
clearing house may apply to such assets. Under the existing Rules,
changes to such requirements may be determined by the clearing house
from time to time and notified by Circular (which will also be posted
on the clearing house's Web site). ICE Clear Europe proposes to add a
new Rule 502(k) to provide that for F&O Contracts, changes to the
matters set forth in Rules 502(d) and (e), including assets eligible as
Margin or Permitted Cover and the haircuts established with respect to
such assets, will be based on an analysis of appropriate factors as
determined by the clearing house. These factors will include, without
limitation, historical and implied price volatility of those assets,
current and anticipated conditions in the market for those assets,
spreads and correlations between assets, liquidity in the trading
market for those assets, composition of the relevant market, default
risk (including sovereign risk) with respect to those assets, relevant
foreign exchange market conditions and other relevant information as
determined by ICE Clear Europe. Consistent with its existing policies
and procedures, ICE Clear Europe regularly reviews its current eligible
Margin and Permitted Cover assets and related haircuts and makes any
necessary adjustments.
    Part 6 of the Rules contain no changes.
    The Proposal revises Part 7 of the Rules, which deals with
settlement and delivery of futures, to address settlement of LIFFE
Contracts. Specifically, Rule 703 has been amended to address the
treatment of tenders delivered in relation to Futures that are not
settled in cash. Additionally, Rule 704, which deals with the credit
and debit of accounts, has been amended to provide that any payment or
other allowance payable by or to either the Buyer or Seller under the
terms of the Contract shall be paid by or to the Clearing House for
onward payment to the Buyer or Seller, as the case may be.
    The Proposal revises Part 8 of the Rules, which deals with Options,
to provide additional terms with respect to the exercise of option
contracts other than options on futures. Specifically, new Rule 806
provides that upon exercise of any Option with a Deliverable which is
not a Future, a Contract for the sale and purchase of the relevant
Deliverable (a ``Contract of Sale'') at the Strike Price (or such other
price as is required pursuant to the Contract Terms) will arise
pursuant to Rule 401 and in accordance with the Contract Terms for the
Option and applicable Market Rules. Additionally, new Rule 806 provides
that upon such Contract of Sale or Contracts of Sale having arisen and
all necessary payments having been made by the Clearing Member and
Clearing House pursuant to the Clearing Procedures, the rights,
obligations and liabilities of the Clearing House and the relevant
Clearing Member in respect of the Option shall be satisfied and the
Option shall be terminated.
    The Proposal revises Part 8 of the Rules to include the addition of
new Rule 809, which clarifies the delivery and settlement procedures
with respect to Contracts of Sale arising from Options. Pursuant to new
Rule 809, the Clearing House has the authority to direct a Clearing
Member, who is a Seller under a Contract of Sale subject to delivery,
to deliver the Deliverable under such Contract to another Clearing
Member that is a Buyer. New Rule 809 further provides that if a Buyer
under a Contract of Sale rejects a Deliverable delivered to it, the
Clearing House as Buyer under the back-to-back Contract with the Seller
shall be entitled, if to do so would be in accordance with the
applicable Contract Terms, to take the same action as against the
Seller under the equivalent Contract and the Clearing House shall not
be deemed to have accepted such delivery until the relevant Buyer has
accepted delivery under the first Contract.
    New Rule 810 addresses the cash settlement terms of Options with
Deliverables other than Futures. New Rule 811 provides that the
Clearing House shall make any necessary credits or debits to or from
Clearing Members' Proprietary Margin Account and Customer Margin
Accounts, as appropriate, arising as a result of each cash settlement
and delivery in accordance with Part 3 of the Rules.
    Part 9 of the Rules contain certain conforming changes.
    Part 10 of the Rules contain no changes.

    The Proposal revises Part 11 of the Rules, which deals with the
Guaranty Funds. The clearing of LIFFE Contracts will be supported by
the existing Energy Guaranty Fund, which will be re-designated the
``F&O Guaranty Fund.'' Contributions to the F&O Guaranty Fund will be
primarily allocated to losses from either Energy Contracts or LIFFE
Contracts, and secondarily allocated to the other such class of
Contracts, as set forth in Rule 1103. The size of each segment will be
determined separately based on ICE Clear Europe's risk assessment of
the Energy Contracts and LIFFE Contracts, respectively, and each
segment will be separately stress-tested in accordance with the
clearing house's risk management policies and procedures. In the event
of a default of a clearing member for which ICE Clear Europe needs to
apply the F&O Guaranty Fund in accordance with the risk waterfall under
the Rules, the energy segment will be applied first to losses resulting
from Energy Contracts, and the LIFFE segment will be applied first to
losses resulting from cleared LIFFE Contracts. Once a segment has been
exhausted by losses in its product category, remaining assets from the
other segment may be applied to those losses.
    The Proposal also revises Part 12 of the Rules, which addresses UK
Settlement Finality Regulations and the Companies Act 1989. Conforming
changes have been made to incorporate LIFFE Contracts in the provisions
addressing various categories of transfer orders.
    The Proposal includes a new Part 18 of the Rules, which provide for
transitional provisions concerning the novation of open contracts with
LIFFE A&M and LCH.Clearnet Limited, under LIFFE A&M's existing clearing
arrangements, to ICE Clear Europe, under the new clearing relationship,
and the transfer of Clearing Member cash and securities from
LCH.Clearnet Limited to ICE Clear Europe.

C. ICE Clear Europe Procedures

Membership Procedures
    The Proposal updates ICE Clear Europe's Membership Procedures to
provide for the clearing of LIFFE Contracts and to reflect a new
membership category, ``F&O Clearing Members'', which identify Clearing
Members seeking to clear LIFFE Contracts as well as existing Energy
Clearing Members. The amendments reflect various other updates and
changes to conform to other provisions of the Rules and procedures. In
Section 4 (``Matters Requiring Notification by Clearing Members''), the
chart governing all notifications, their timing and their form
requirements have been generally updated to address the changes to the
numbering of provisions and otherwise to reflect the latest version of
ICE Clear Europe's Clearing Rules. New subsections G (``Clearing
Procedures''), H (``Finance Procedures''), I (``Complaint Resolution
Procedures'') and J (``Business Continuity Procedures'') have also been
added, reflecting the notifications, timing and form requirements
contained in such procedures.
Finance Procedures
    The Proposal also contains revisions to Parts 2, 3, 4, 5, 6, 9 and
13 of ICE Clear Europe's Finance Procedures, which reflect general
updates as well as changes to the clearing of LIFFE Contracts.
    Section 2.1 has been revised to clarify the currencies supported by
ICE Clear Europe in various contexts. Initial and Original Margin
obligations may be met only in USD, GBP and EUR currency. CAD, CHF and
SEK currency may be used by Clearing Members only for the receipt of
income on non-cash Permitted Cover with coupons payable in those
currencies. CAD may also be used for Variation Margin and settlement
payments only for Energy Contracts which settle in CAD. Certain
additional currencies may be used for Variation Margin and settlement
payments for LIFFE Contracts which settle in such currencies.
    Similarly, Section 3.7 has been amended to clarify that currencies
eligible for Triparty Collateral for Original or Initial Margin are
limited to USD, GBP and EUR.
    Section 4.1 governing currency requirements for the accounts of the
Clearing Members has been slightly modified: all F&O Clearing Members
must have an account, denominated in USD; all CDS Clearing Members must
have an account denominated in EUR; all F&O Clearing Members must
additionally have at least one further account denominated in either
GBP or EUR; all CDS Clearing Members must additionally have at least
one further account denominated in either GBP or USD; a Clearing Member
which has an Open Contract Position in a contract for which EUR, GBP,
USD or CAD is the settlement currency must have an account denominated
in such currency; a Clearing Member which transfers non-cash Permitted
Cover to the Clearing House which pays a coupon, interest or
redemptions in USD, EUR, GBP, CAD, CHF or SEK must have an account in
that currency; and an F&O Clearing Member that is a LIFFE Clearing
Member and is party to LIFFE Contracts which settle in CAD, CHF, CZK,
DKK, HUF, JPY, NOK, PLN, SEK or TRY must have an account in each such
currency.
    The procedures of the assured payment system have been updated
under Section 5.5 of the Finance Procedures to conform to changes
recently made to Rule 301(f) regarding the liability of Clearing
Members for the remittance of funds through Approved Financial
Institutions.
    Section 6.1(h), which addresses the various payments that may be
included in a cash transfer, has been modified to address intra-day
call of additional Initial or Original Margin Call, the proceeds of
which may be applied against future Variation Margin or Mark-to-Market
Margin calls. Intra-day Calls will now only be processed in USD, GBP or
EUR. Section 6.1(h)(vi) has been revised to address general procedures
for rebates, fee discounts and incentive programs that the Clearing
House may adopt from time to time. In addition, the provisions on
Currency Holidays and payments on other currencies, Section
6.1(h)(viii), have also been updated and now include language on Force
Majeure Events and Financial Emergencies.
    In Section 9, the definitions relating to the use of Emission
Allowances and Permitted Cover have been updated to reflect changes in
EU Law with respect to Registry Regulations. Certain conforming changes
are made in Part 10 of the Finance Procedures. Finally, Section 12.1
has been revised to reflect the sub-categories of Letters of Credit
that might be used to satisfy Original Margin, being a ``Standard
Letter of Credit'' and a ``Pass-Through Letter of Credit''. The
relevant forms of the Letters of Credit have also been updated in
Section 12.4.
    Section 13.6 of the Finance Procedures addresses the determination
and change of original margin rates from time to time. Margin
requirements for LIFFE Contracts will be calculated using the
SPAN[supreg]1 v4 algorithm,\12\ with modifications for concentration
charges and a trinomial model used with respect to certain LIFFE A&M
option transactions. ICE Clear Europe will determine the margin
parameters used in the SPAN algorithm for LIFFE Contracts cleared by
ICE Clear Europe, and make appropriate modifications to those
parameters from time to time, within the framework of the margin
requirement policy approved by the

ICEEU F&O Risk Committee. As set forth in existing Section 13.6, ICE
Clear Europe regularly reviews its margin rates in light of market
conditions and makes appropriate modifications. ICE Clear Europe
proposes to amend Section 13.6 to provide that changes to original
margin rates for F&O Contracts will be based on an analysis of
appropriate factors as determined by the clearing house. These include
market prices, historical and implied volatilities of relevant
contracts, spreads and correlations between related commodities, other
current and anticipated conditions (including liquidity) in the market
for the contracts and other relevant information as determined by ICE
Clear Europe. ICE Clear Europe believes that Section 13.6 provides it
the flexibility to adjust the calculation of margin rates in order to
react to changes in market conditions, particularly changes in
volatility. These changes may occur suddenly, and failure to update
margin rates to take into account such changes may lead to insufficient
margin being collected by the clearing house. The proposed revisions to
Section 13.7 of the Finance Procedures are substantially the same as
the amendments to Rule 502(k), and are being made for the reasons
discussed above in connection with that rule change.
---------------------------------------------------------------------------

    \12\ SPAN is a registered trademark of Chicago Mercantile
Exchange Inc. and used by ICE Clear Europe under license. SPAN is a
risk evaluation and margin framework algorithm.
---------------------------------------------------------------------------

Clearing Procedures
    The Proposal also updates ICE Clear Europe's Clearing Procedures to
provide for the clearing of LIFFE Contracts as well as certain other
updates and confirmations. Accordingly, amendments have been made to
the provisions relating to ICE Clear Europe's post-trade
administration, clearing and settlement systems, position management
and position accounts in Sections 1, 2 and 3, respectively.
Delivery Procedures
    The Proposal revises ICE Clear Europe's Delivery Procedures to
provide for the delivery of LIFFE Contracts. The following provisions
have been added to the Delivery Procedures, which set out the new
delivery arrangements:
     Section 8 (``Alternative Delivery Procedure: LIFFE White
Sugar and Raw Sugar'');
     Section 17 (``LIFFE Guardian''), which describes the LIFFE
Guardian electronic grading and delivery system which will be used in
certain LIFFE deliveries; and
     Parts I-Q, which set out the delivery arrangements for the
additional LIFFE Contracts as follows:

 Part I: ``LIFFE Cocoa Contracts''
 Part J: ``LIFFE Coffee Contracts''
 Part K: ``LIFFE White Sugar Contracts''
 Part L ``LIFFE Wheat Contracts''
 Part M: ``LIFFE Deliveries''
 Part N: ``LIFFE Common Delivery Procedures''
 Part O: ``LIFFE Gilt Contracts''
 Part P: ``LIFFE Japanese Government Bond Contracts''
 Part Q: ``LIFFE Equity Futures/Options''.

    Further, the Schedule of Forms and Reports has been updated and
lists additional delivery forms used for the LIFFE Contracts.
    Part A of the Delivery Procedures relating to emissions contracts
has also been amended, reflecting changes to EU legislation, certain
new emission contracts previously launched by ICE Futures Europe and
the use of a single EU registry together with additional conforming and
updating changes to the Delivery Procedures generally.
    ICE Clear Europe believes that the proposed rule and procedure
changes are consistent with the requirements of Section 17A of the Act
\13\ and the regulations thereunder applicable to it, including the
standards under Rule 17Ad-22.\14\ The amendments will provide for
clearing of LIFFE Contracts by ICE Clear Europe, consistent with ICE
Clear Europe's existing clearing arrangements and related financial
safeguards, protections and risk management procedures, as discussed
herein. ICE Clear Europe believes acceptance of LIFFE Contracts for
clearing, and conditions set out in these rule and procedure
amendments, will promote the prompt and accurate clearance of and
settlement of securities transactions, the safeguarding of securities
and funds in the custody or control of ICE Clear Europe and the
protection of investors and the public interest, within the meaning of
Section 17A(b)(3)(F) of the Act.\15\ The proposed amendments do not
impact ICE Clear Europe's financial resources devoted to its security-
based swap related (i.e., credit default swap) clearing business. ICE
Clear Europe believes the clearing of LIFFE Contracts will satisfy
relevant requirements of Rule 17Ad-22,\16\ as discussed below.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78q-1.
    \14\ 17 CFR 240.17Ad-22.
    \15\ 15 U.S.C. 78q-1(b)(3)(F).
    \16\ 17 CFR 240.17Ad-22.
---------------------------------------------------------------------------

    Financial Resources. As discussed above, ICE Clear Europe believes
it has structured the F&O Guaranty Fund to provide sufficient
additional financial resources to support the clearing of LIFFE
Contracts consistent with the requirements of Rule 17Ad-22.\17\ The
proposed amendments do not impact ICE Clear Europe's financial
resources devoted to its security-based swap related (i.e., credit
default swap) clearing business. Moreover, new policies were approved
covering margin requirements, mark-to-market margin, capital to margin,
membership, internal rating, backtesting, wrong-way risk, concentration
charges, intraday margin and stress testing in respect of the LIFFE A&M
clearing relationship. Relevant models applicable to the clearing of
LIFFE Contracts were subjected to independent validation as required by
ICE Clear Europe's model governance framework.
---------------------------------------------------------------------------

    \17\ Id.
---------------------------------------------------------------------------

    Operational Resources. ICE Clear Europe believes it will have the
operational and managerial capacity to clear the LIFFE Contracts as of
the commencement of clearing, consistent with the requirements of Rule
17Ad-22(d)(4).\18\ Staffing levels and resources at ICE Clear Europe
related to operational and technology needs for the clearing of LIFFE
Contracts will be subject to ongoing review. ICE Clear Europe believes
that its existing systems are appropriately scalable to handle the
expected increase in volume. ICE Clear Europe may also enter into
services arrangements with LIFFE A&M from time to time in connection
with the clearing of LIFFE Contracts, under which LIFFE A&M or its
personnel may assist with certain clearing functions, particularly with
respect to contracts that go to delivery.
---------------------------------------------------------------------------

    \18\ 17 CFR 240.17Ad-22(d)(4).
---------------------------------------------------------------------------

    Participant Requirements. ICE Clear Europe believes that the
Proposal and the clearing of LIFFE Contracts are consistent with the
requirements of Rule 17Ad-22(d)(2) \19\ to provide fair and open access
through participation requirements that are objective and publicly
disclosed. ICE Clear Europe believes that the Proposal establishes fair
and objective criteria for the eligibility to clear LIFFE Contracts.
ICE Clear Europe clearing membership is available to participants that
meet such criteria. ICE Clear Europe Clearing Members that wish to
clear LIFFE Contracts will have to satisfy the financial resources
requirements to clear these products and continue to do so in order to
preserve their eligibility to clear LIFFE Contracts. Clearing Member
compliance with the requirements to clear LIFFE Contracts will be
monitored by ICE Clear Europe.
---------------------------------------------------------------------------

    \19\ 17 CFR 240.17Ad-22(d)(2).
---------------------------------------------------------------------------

    Settlement. ICE Clear Europe believes that the Proposal will
improve the

finality and accuracy of its daily settlement process and reduce the
risk to ICE Clear Europe of settlement failures, consistent with the
requirements of Rule 17Ad-22(d)(5), (12) and (15).\20\ The Proposal
would require ICE Clear Europe Clearing Members that clear LIFFE
Contracts to maintain accounts at approved financial institutions and
that are denominated in the settlement currency of the LIFFE Contracts
such Clearing Member clears. Also, the proposed amendments to the
Finance Procedures clarify the steps a Clearing Member (and its
approved financial institutions) must take in order for the Clearing
Member's obligations to pay ICE Clear Europe to be deemed satisfied and
complete.
---------------------------------------------------------------------------

    \20\ 17 CFR 240.17Ad-22(d)(5), (12) and (15).
---------------------------------------------------------------------------

    Likewise, the proposed amendments to the Delivery Procedures
clarify the obligations of ICE Clear Europe and its Clearing Members in
respect of physically-settled LIFFE Contracts. The Proposal
contemplates that ICE Clear Europe may, from time to time, enter into
clearing services arrangements with LIFFE A&M, in respect of LIFFE
Contracts, pursuant to which certain functions may be performed by
LIFFE A&M for ICE Clear Europe. In general, the terms to be added to
the ICE Clear Europe Delivery Procedures in large part reflect the
terms currently applicable to the LIFFE Contracts under their existing
clearing arrangements.
    ICE Clear Europe believes these changes are thus in furtherance of,
and are consistent with, the requirements of Rule 17Ad-22 \21\ and will
facilitate the continued operation of the clearing house's settlement
process. ICE Clear Europe believes that its Rules and procedures
related to settlements (including physical settlements), as amended,
appropriately identify and manage the risks associated with settlements
under LIFFE Contracts.
---------------------------------------------------------------------------

    \21\ 17 CFR 240.17Ad-22.
---------------------------------------------------------------------------

    Default Procedures. ICE Clear Europe believes that the Rules and
its relevant procedures allow for it to take timely action to contain
losses and liquidity pressures and to continue meeting its obligations
in the event of Clearing Member insolvencies or defaults, including in
respect of LIFFE Contracts, in accordance with Rule 17Ad-22(d)(11).\22\

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

    \22\ 17 CFR 240.17Ad-22(d)(11).
---------------------------------------------------------------------------

III. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act \23\ directs the Commission to
approve a proposed rule change of a self-regulatory organization if it
finds that such proposed rule change is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to such organization. Section 17A(b)(1) of the Act \24\
prohibits any clearing agency from directly or indirectly making use of
the mails or any means or instrumentality of interstate commerce to
perform the functions of a clearing agency with respect to any security
(other than an exempted security), unless it is registered with the
Commission. Section 17A(b)(3)(F) of the Act \25\ requires, among other
things, that the rules of a clearing agency be 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.
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78s(b)(2)(C).
    \24\ 15 U.S.C. 78q-1(b)(1).
    \25\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    After careful review, the Commission finds that the Proposal, in
conjunction with exemptive relief granted by the Commission to ICE
Clear Europe (the ``Exemptive Order''),\26\ is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a registered clearing agency. Specifically, the
Commission finds that the Proposal, in conjunction with the Exemptive
Order, is consistent with the requirement of Section 17A(b)(1) of the
Act \27\ regarding clearing agency registration. Section 17A(b)(1) of
the Exchange Act requires a clearing agency that makes use of the mails
or any means or instrumentality of interstate commerce to perform the
functions of a clearing agency with respect to any security (other than
an exempted security) to register with the Commission, unless an
exemption is granted by the Commission. The Commission has required a
foreign clearing agency to register or obtain an exemption from
clearing agency registration if the foreign clearing agency provides
clearance and settlement services for U.S. securities directly to U.S.
persons.\28\
---------------------------------------------------------------------------

    \26\ Order Pursuant to Section 17A of the Securities Exchange
Act of 1934 Granting Exemption from the Clearing Agency Registration
Requirement under Section 17A(b) of the Exchange Act for ICE Clear
Europe Limited in Connection With its Proposal to Clear Contracts
Traded on the LIFFE Administration and Management Market, Exchange
Act Release No. 34-69872 (Jun. 27, 2013), 78 FR ------ (July ------,
2013).
    \27\ 15 U.S.C. 78q-1(b)(1).
    \28\ See, e.g., Order Approving Application for Exemption from
Registration as a Clearing Agency, Exchange Act Release No. 38328
(Feb. 24, 1997), 62 FR 9225 (Feb. 28, 1997) (granting an exemption
from registration as a clearing agency under Section 17A in
connection with performing the functions of a clearing agency with
respect to transactions involving U.S. government and agency
securities for U.S. entities); Euroclear Order, supra n. 11; and
Order Approving Application to Modify an Existing Exemption from
Clearing Agency Registration, Exchange Act Release No. 43775 (Dec.
28, 2000), 66 FR 819 (Jan. 4, 2001) (replacing MGT-Brussels with
Euroclear Bank as operator of the Euroclear System).
---------------------------------------------------------------------------

    ICE Clear Europe is a foreign clearing agency registered in the
U.S. solely for the purpose of clearing SBS. In light of the
Commission's precedents pertaining to registration requirements for
foreign clearing agencies, ICE Clear Europe has proposed to amend its
Rules to include new ICE Clear Europe Rule 207(f), which would prohibit
Clearing Members that are U.S. participants \29\ from clearing U.S.
securities. In addition, ICE Clear Europe has developed policies and
procedures to enforce proposed Rule 207(f), including market access
controls that prevent U.S. participants from creating or holding
cleared positions in U.S. securities and, consequently, from engaging
in any clearing-related activity (including give-ups or take-ups in
respect of those products). In addition, when a new U.S. participant is
approved for clearing, LIFFE A&M and ICE Clear Europe will be jointly
responsible to ensure that these access limitations are properly in
place.
---------------------------------------------------------------------------

    \29\ The term ``U.S. participant'' was previously defined for
the limited purposes of a clearing agency exemptive order as a
person having a U.S. residence, based upon the location of its
executive office or principal place of business, including, without
limitation, (i) a U.S. bank (as defined by Section 3(a)(6) of the
Exchange Act), (ii) a foreign branch of a U.S. bank or U.S.
registered broker-dealer, and (iii) any broker-dealer registered as
such with the Commission even if such broker-dealer does not have a
U.S. residence. See Euroclear Order, supra n. 11, at n. 62.
Consistent with this definition of U.S. participant, ICE Clear
Europe's Proposal contains rule changes that would prohibit a person
(i) that is a FCM/BD, (ii) organized in the United States of
America, or (iii) having a U.S. residence, based on the location of
its executive office or principal place of business, including,
without limitation, a U.S. bank (as defined by Section 3(a)(6) of
the Exchange Act) or a foreign branch of a U.S. bank or U.S.
registered broker-dealer, from participating in clearing U.S.
securities.
---------------------------------------------------------------------------

    Notwithstanding new ICE Clear Europe Rule 207(f) and its attendant
policies and procedures and operational controls, the Commission
believes that the proposed clearing of the LIFFE Securities Products
would exceed the scope of activities permitted by ICE Clear Europe's
registration solely to clear SBS under Section 17A(l) of the Exchange
Act. Thus, ICE Clear Europe must register or seek an exemption from
registration as a clearing agency under Section 17A(b) of the Exchange
Act in

order to provide clearing services for the LIFFE Securities Products.
Accordingly, ICE Clear Europe has submitted, and the Commission has
granted, ICE Clear Europe's application for exemptive relief from
clearing agency registration under Section 17A(b) of the Exchange Act
and Rule 17Ab2-1 thereunder solely with respect to ICE Clear Europe's
provision of clearance and settlement services for LIFFE Securities
Products.\30\ Given the Exemptive Order,\31\ the Commission finds that
the Proposal is consistent with the requirement of Section 17A(b)(1) of
the Act \32\ regarding clearing agency registration.
---------------------------------------------------------------------------

    \30\ ICE Clear Europe's Form CA-1 incorporates a letter from
Paul Swann, President, ICE Clear Europe, to Elizabeth Murphy,
Secretary, SEC, dated June 11, 2013, requesting exemptive relief
from clearing agency registration in connection with the clearing of
LIFFE Securities Products.
    \31\ Supra n. 26.
    \32\ 15 U.S.C. 78q-1(b)(1).
---------------------------------------------------------------------------

    In addition, the Commission finds that the Proposal is consistent
with the requirement of the Exchange Act with respect to promoting the
prompt and accurate clearance and settlement of securities transactions
and, to the extent applicable, derivative agreements, contracts, and
transactions. The Proposal contains provisions designed to permit and
facilitate LIFFE Contracts to be transitioned to and cleared on an
ongoing basis by ICE Clear Europe, including changes to ICE Clear
Europe's Rules, as well as its Finance Procedures, Clearing Procedures,
Delivery Procedures, and Membership Procedures.
    In addition, the Commission finds that the Proposal is consistent
with the requirements of Section 17A(b)(3)(F) of the Act \33\ regarding
the safeguarding of securities and funds which are in the custody or
control of the clearing agency or for which it is responsible. Among
other things, the Proposal revises margin requirements, establishes the
F&O Guaranty Fund to accommodate the clearing of both LIFFE contracts
and ICE Clear Europe's existing Energy Contracts, and revises ICE Clear
Europe's risk management framework with respect to LIFFE contracts. The
Proposal includes new policies covering margin requirements, mark-to-
market margin, capital to margin, membership, internal rating,
backtesting, wrong-way risk, concentration charges, intraday margin and
stress testing in respect of the LIFFE A&M clearing relationship.
Relevant models applicable to the clearing of LIFFE Contracts were
subjected to independent validation as required by ICE Clear Europe's
model governance framework.
---------------------------------------------------------------------------

    \33\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

IV. Conclusion

    On the basis of the foregoing, the Commission finds that the
Proposal is consistent with the requirements of the Act and in
particular with the requirements of Section 17A of the Act \34\ and the
rules and regulations thereunder.
---------------------------------------------------------------------------

    \34\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\35\ that the proposed rule change (File No. SR-ICEEU-2013-09) be,
and hereby is, approved.\36\
---------------------------------------------------------------------------

    \35\ 15 U.S.C. 78s(b)(2).
    \36\ In approving this proposed rule change the Commission has
considered the proposed rule's impact of efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).

    For the Commission by the Division of Trading and Markets,
pursuant to delegated authority.\37\
---------------------------------------------------------------------------

    \37\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-15999 Filed 7-2-13; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 79, Number 93 (Wednesday, May 14, 2014)]
[Notices]
[Pages 27592-27593]
[FR Doc No: 2014-11013]

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

DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Docket No. CP14-225-000]

Minnesota Energy Resources Corporation; Notice of Application

    Take notice that on April 23, 2014, Minnesota Energy Resources
Corporation (MERC), 2665 145th Street West, Rosemount, Minnesota 55068,
filed an application pursuant to section 7(f) of the Natural Gas Act
for a service area determination. MERC also requests: (1) A finding
that MERC continues to qualify as a local distribution company (LDC)
for purposes of section 311 of the Natural Gas Policy Act of 1978
(NGPA); and (2) a waiver of the Commission's accounting and reporting
requirements and other regulatory requirements ordinarily applicable to
natural gas companies under the NGA and NGPA, all as more fully set
forth in the application which is on file with the Commission and open
to public inspection.
    The filing may also be viewed on the web at http://www.ferc.gov
using the ``eLibrary'' link. Enter the docket number excluding the last
three digits in the docket number field to access the document. For
assistance, contact FERC at<EMAIL_ADDRESS>or call toll-
free,<PHONE_NUMBER> or TTY,<PHONE_NUMBER>.
    Specifically, MERC requests to own facilities located in Iowa. The
request arises from an agreement between MERC and Interstate Power &
Light Company (IPL). MERC proposes to take service from IPL near the
Iowa/Minnesota border and receive gas on the Iowa side. MERC will then
transport the gas, on its own facilities, to Minnesota. MERC will own
50 to 70 feet of pipeline in Iowa under the proposed transaction. MERC
will serve no customers in Iowa. The purpose of owning facilities in
Iowa is to bring gas to Minnesota to serve MERC's customers in
Minnesota. MERC's application is related to IPL's application for a
limited jurisdiction blanket certificate of public convenience and
necessity filed in Docket No. CP14-232-000.
    Any questions regarding this application should be directed to M.
Gavin McCarty, Associate General Counsel, Integrys Energy Group, Inc.,
130 East Randolph Street Chicago, Illinois 60601 or call (312) 240-
4470, or by fax<PHONE_NUMBER>.
    Pursuant to section 157.9 of the Commission's rules, 18 CFR 157.9,
within 90 days of this Notice the Commission staff will either:
Complete its environmental assessment (EA) and place it into the
Commission's public record (eLibrary) for this proceeding; or issue a
Notice of Schedule for Environmental Review. If a Notice of Schedule
for Environmental Review is issued, it will indicate, among other
milestones, the anticipated date for the Commission staff's issuance of
the final environmental impact statement (FEIS) or EA for this
proposal. The filing of the EA in the Commission's public record for
this proceeding or the issuance of a Notice of Schedule for
Environmental Review will serve to notify federal and state agencies of
the timing for the completion of all necessary reviews, and the
subsequent need to complete all federal authorizations within 90 days
of the date of issuance of the Commission staff's FEIS or EA.
    There are two ways to become involved in the Commission's review of
this project. First, any person wishing to obtain legal status by
becoming a party to the proceedings for this project should, on or
before the comment date stated below file with the Federal Energy
Regulatory Commission, 888 First Street NE., Washington, DC 20426, a
motion to intervene in accordance with the requirements of the
Commission's Rules of Practice and Procedure (18 CFR 385.214 or
385.211) and the Regulations under the NGA (18 CFR 157.10). A person
obtaining party status will be placed on the service list maintained by
the Secretary of the Commission and will receive copies of all
documents filed by the applicant and by all other parties. A party must
submit 7 copies of filings made in the proceeding with the Commission
and must mail a copy to the applicant and to every other party. Only
parties to the proceeding can ask for court review of Commission orders
in the proceeding.
    However, a person does not have to intervene in order to have
comments considered. The second way to participate is by filing with
the Secretary of the Commission, as soon as possible, an original and
two copies of comments in support of or in opposition

to this project. The Commission will consider these comments in
determining the appropriate action to be taken, but the filing of a
comment alone will not serve to make the filer a party to the
proceeding. The Commission's rules require that persons filing comments
in opposition to the project provide copies of their protests only to
the party or parties directly involved in the protest.
    Persons who wish to comment only on the environmental review of
this project should submit an original and two copies of their comments
to the Secretary of the Commission. Environmental commentors will be
placed on the Commission's environmental mailing list, will receive
copies of the environmental documents, and will be notified of meetings
associated with the Commission's environmental review process.
Environmental commentors will not be required to serve copies of filed
documents on all other parties. However, the non-party commentors will
not receive copies of all documents filed by other parties or issued by
the Commission (except for the mailing of environmental documents
issued by the Commission) and will not have the right to seek court
review of the Commission's final order.
    The Commission strongly encourages electronic filings of comments,
protests and interventions in lieu of paper using the ``eFiling'' link
at http://www.ferc.gov. Persons unable to file electronically should
submit an original and 5 copies of the protest or intervention to the
Federal Energy Regulatory Commission, 888 First Street NE., Washington,
DC 20426.
    Comment Date: 5:00 p.m. Eastern Time on May 28, 2014.

    Dated: May 7, 2014.
Kimberly D. Bose,
Secretary.
[FR Doc. 2014-11013 Filed 5-13-14; 8:45 am]
BILLING CODE 6717-01-P