[Federal Register Volume 79, Number 132 (Thursday, July 10, 2014)]
[Notices]
[Pages 39429-39440]
[FR Doc No: 2014-16099]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72540; File No. SR-ICEEU-2014-09]

Self-Regulatory Organizations; ICE Clear Europe Limited; Notice
of Filing of Proposed Rule Change Relating To EMIR Requirements

 July 3, 2014.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on June 30, 2014, ICE Clear Europe Limited (``ICE Clear Europe'') filed
with the Securities and Exchange Commission (``Commission'') the
proposed rule changes described in Items I, II and III below, which
Items have been prepared by ICE Clear Europe. 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 principal purpose of the proposed changes is to amend the ICE
Clear Europe Clearing Rules in order to comply with requirements under
the European Market Infrastructure Regulation (including regulations
and implementing technical standards thereunder, ``EMIR'') \3\ that
will apply to ICE Clear Europe as an authorized central
counterparty.\4\ Among other changes, the proposed rules would
implement a framework under which Clearing Members may offer to their
clients the ability to have their positions and margin assets
segregated from those of other clients of the Clearing Member
(``Individual Client Segregation'').\5\ The proposed rule changes
include various other amendments to comply with EMIR, as discussed
herein. In addition, certain other aspects of the proposed amendments
are not specifically intended to comply with EMIR, but are designed to
harmonize various rule provisions across different products and to make
various other improvements to the rules. ICE Clear Europe will be
required to be in compliance with EMIR as of the time it receives
authorization as a central counterparty from the European Securities
and Markets Authority (``ESMA'').
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    \3\ Regulation (EU) No 648/2012 of the European Parliament and
of the Council of 4 July 2012 on OTC derivatives, central
counterparties and trade repositories, as well as various
implementing regulations and technical standards.
    \4\ ICE Clear Europe will separately file certain related
changes to its policies and procedures, including risk management
policies.
    \5\ As discussed herein, the Individual Client Segregation model
is not being offered at this time to U.S. clearing members or U.S.
person clients, and certain provisions of the proposed rules are
therefore not applicable to such persons. ICE Clear Europe will make
a subsequent rule filing if it subsequently determines to offer such
model to U.S. clearing members or U.S. persons.
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II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, ICE Clear Europe included
statements concerning the purpose of and basis for the proposed rule
change and discussed any comments it received on the proposed rule
change. The text of these statements may be examined at the places
specified in Item IV below. ICE Clear Europe has prepared summaries,
set forth in sections A, B, and C below, of the most significant
aspects of these statements.

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

a. Purpose
    ICE Clear Europe submitted proposed amendments to its Rules in
order to comply with requirements under EMIR that will apply to ICE
Clear Europe upon its authorization as a central counterparty under
EMIR, and to make certain other improvements to its rules. The
principal change will be to implement changes to the structure of
customer accounts for cleared transactions to enhance segregation

options for customers of Clearing Members. This includes the adoption
of the Individual Client Segregation framework as well as certain
modifications relating to the existing, omnibus client segregation
model for Non-FCM/BD Clearing Members. (The existing account structure
and segregation framework applicable to FCM/BD Clearing Members will
remain in effect for such clearing members.) The customer clearing
model and commitments being offered by ICE Clear Europe in compliance
with EMIR are being made available for all product categories, subject
to applicable local law.
    Pursuant to Article 39(1) to (3) of EMIR, ICE Clear Europe is
required to keep separate records and accounts that will enable it to
distinguish the assets and positions of: (i) One Clearing Member from
those of any other Clearing Member and (ii) either (A) a Clearing
Member from those of its clients (``omnibus segregation'') or (B) a
client of a Clearing Member from any other client of that Clearing
Member (``individual segregation''). In addition, each of ICE Clear
Europe's Clearing Members is required (i) to keep separate records and
accounts that enable them to distinguish in both accounts held with the
clearing house and their own accounts Clearing Member assets and
positions from those of its clients; and (ii) to offer clients a choice
of individual or omnibus segregation at the clearing house. ICE Clear
Europe has revised its segregation models to implement this
requirement, as described herein, to provide both individual
segregation and omnibus segregation options.
    The proposed rules would establish two new types of individually
segregated accounts for Non-FCM/BD Clearing Members, Individually
Segregated Margin-flow Co-mingled Accounts and Individually Segregated
Sponsored Accounts. The proposed rules will also establish multiple new
types of omnibus accounts, Segregated Customer Omnibus Accounts
(separately for each product: FX, F&O and CDS) and Segregated TTFCA
Customer Omnibus Accounts (separately for each product: FX, F&O and
CDS) as well as Omnibus Margin-flow Co-mingled Accounts. These new
individually segregated and omnibus accounts will be available only to
non-FCM/BD Clearing Members and their customers. For FCM/BD Clearing
Members and their customers, individual client segregation is not being
offered at this time, and the existing account types and segregation
requirements for client assets (which are required under applicable
law) would be maintained.\6\
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    \6\ The Bank of England has advised ICE Clear Europe that the
requirement under EMIR for the Clearing House to offer an individual
segregation model to Clearing Members (and in turn for Clearing
Members to offer individual segregation to their customers) may be
satisfied, in the case of an FCM/BD Clearing Member, if the Clearing
Member introduces such customers to another Clearing Member
(including an affiliate) that can offer an individually segregated
account, to the extent permitted by applicable law. ICE Clear Europe
is not at this time offering its Sponsored Principal Model to U.S.
Clearing Members or potential U.S. Sponsored Principals, and
therefore Rule 1905 and other references in the Rules to U.S.
Sponsored Principals will not apply at this time. ICE Clear Europe
will submit another rule filing if it determines to offer the
Sponsored Principal Model to U.S. Clearing Members or U.S. Sponsored
Principals.
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    Each Margin-flow Co-mingled Account constitutes a separate account,
referencing a single client (in the case of an Individually Segregated
Margin-flow Co-mingled Account) or group of clients (in the case of an
Omnibus Margin-flow Co-mingled Account) for which separate records are
kept of both margin and positions. However, margin flows are aggregated
across all Margin-flow Co-mingled Accounts. These accounts are broadly
similar to an LSOC account under CFTC rules in operational terms for
position-keeping but differ in that assets are also tracked per
individual Customer, rather than constituting a shared pool with deemed
interests, allowing Customers to decide (subject to agreeing this with
their Clearing Member) what sort of assets should be used to cover
their individual positions, as is required under EMIR. The Rules
provide for two types of Margin-flow Co-mingled Accounts: Individually
segregated and omnibus segregated. Each Individually Segregated Margin-
flow Co-mingled Account records the margin and positions of a single
customer. An Omnibus Margin-flow Co-mingled Account records the margin
and positions of a group of customers (such as a group of affiliated
customers or funds under common management). In either case, margin
flows are aggregated across all Margin-flow Co-mingled Accounts of a
Clearing Member.
    Individually Segregated Sponsored Accounts, from a position-keeping
and margin accounting operational perspective treat a client
(``Sponsored Principal'') in effect as if it were a Clearing Member,
with fully segregated margin, positions and margin flows. The
Individually Segregated Sponsored Account requires the Sponsored
Principal to appoint a Sponsor from among the Clearing Membership to be
fully jointly liable on the account.
    Under the revised rules, ICE Clear Europe will also offer several
types of omnibus segregation accounts for customers of non-FCM/BD
Clearing Members, including a segregated customer omnibus account for
each product category (F&O, CDS and FX) (each a ``Segregated Customer
Omnibus Account'') and a segregated title transfer financial collateral
arrangement (``TTFCA'') account for each product category (each, a
``Segregated TTFCA Customer Omnibus Account''). In accordance with the
FSA policy statement on client money and client assets,\7\ Segregated
Customer Omnibus Accounts will be used for customers of non-FCM/BD
Clearing Members who provide assets to their Clearing Members that are
subject to the FCA's client money and client assets regime (or another
legal requirement to segregate which goes beyond that required under
EMIR). In contrast, Segregated TTFCA Customer Omnibus Accounts will be
used for customers of non-FCM/BD Clearing Members who use title
transfer financial collateral arrangements to provide margin to their
Clearing Members (or which are otherwise subjected only to the
requirement to segregate assets under EMIR, and not under any
applicable law, trust or property law based regime). Within each
category, ICE Clear Europe has chosen to set up separate accounts for
each of the different product types cleared by ICE Clear Europe (F&O,
FX and CDS), for purposes of ease of administration and maintaining the
separation of product categories as otherwise provided in the rules.
Consistent with EMIR,\8\ Clearing Members may use multiple different
types of individually segregated and omnibus segregated accounts for
their various customers.
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    \7\ FSA Policy Statement PS12/23: Client Assets Regime: Changes
Following EMIR (Dec. 2012).
    \8\ EMIR Article 39.
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    In terms of individual segregation, as discussed herein, the
proposed rules establish the framework for the relevant new account
structures for Non-FCM/BD Clearing Members. For Individually Segregated
Margin-flow Co-mingled Accounts, new provisions require separate record
keeping and reporting for the account and permit the aggregation of
margin flows across accounts in this class. As discussed in further
detail below, the amendments for Individually Segregated Sponsored
Principal Accounts, among other matters, (i) introduce the concepts of
a ``Sponsored Principal'' (the client whose positions and margin are
being segregated under the Individually

Segregated Sponsored Account) and a ``Sponsor'' (the Clearing Member
responsible to the clearing house for the Sponsored Principal's
performance in an Individually Segregated Sponsored Account); (ii) set
forth the relationship among the clearing house, Sponsored Principal
and Sponsor; (iii) establish procedures under which ICE Clear Europe
may manage a default by either the Sponsor and/or the Sponsored
Principal under the Rules, (iv) allocate responsibilities and rights as
between a Sponsor and a Sponsored Participant with respect to cleared
contracts; and (v) establish documentation requirements for Sponsored
Principal arrangements.
    The proposed rule amendments are described in detail as follows.
    In Part 1 of the Rules, various definitions have been added or
modified in order to address the changes required by EMIR in a
consistent manner across all products, including: ``CDS Standard
Terms'', ``Customer-CM CDS Transaction'', Customer-CM F&O
Transaction'', ``Customer-CM FX Transaction'', ``EMIR'', ``Energy'',
``F&O'', ``F&O Standard Terms'', ``FX Standard Terms'', ``FX Trade
Particulars'', ``Individually Segregated Customer'', Individually
Segregated Margin-flow Co-mingled Account'', ``Individually Segregated
Sponsored Account'', ``Margin Account'', ``Position Account'',
``Repository'', ``Segregated Customer Omnibus Account for CDS'',
``Segregated Customer Omnibus Account for F&O'', ``Segregated Customer
Omnibus Account for FX'', Segregated TTFCA Customer'', ``Segregated
TTFCA Customer Omnibus Account for CDS'', ``Segregated TTFCA Customer
Omnibus Account for F&O'', ``Segregated TTFCA Customer Omnibus Account
for FX'', ``Sponsor,'' ``Sponsor Agreement'', ``Sponsored Principal'',
``Sponsored Principal Clearing Agreement'', and ``U.S. Sponsored
Principal''. In addition, conforming changes have been made to numerous
existing definitions in order to incorporate these concepts, including
in particular references to Sponsored Principals in addition to
existing references to Clearing Members. In light of various changes
and expected changes to trade execution requirements in the U.S. and
Europe, revised definitions of ``CDS Trade Execution/Processing
Platform'' and ``FX Trade Execution/Processing Platform'' have been
added, and conforming references have been made throughout the Rules.
Certain defined terms relating to ICE OTC commodity contracts and
certain other definitions have been removed as they are no longer used.
Definitions of the Financial Conduct Authority (``FCA'') and Prudential
Regulatory Authority (``PRA'') (and of their rules) have been added
following the recent separation of regulators in the UK, and references
to the FCA's former name, the Financial Services Authority (the
``FSA''), are deleted. References to the FSA throughout the rules have
been modified accordingly.
    The hierarchy of documents in Rule 102(f) has been revised to
include, in relation to an Individually Segregated Sponsored Account,
the Sponsored Principal Clearing Agreement between the Sponsored
Principal and ICE Clear Europe and the Sponsor Agreement between the
relevant Clearing Member Sponsor and ICE Clear Europe. Reference to the
new Standard Terms annexes for FX and F&O customer clearing are also
included. Other clarifications and conforming changes have been made to
the rest of Rule 102(f). Similar changes have been made in Rule 102(l).
New Rule 102(g) requires all Clearing Members providing services to
customers to comply with relevant provisions of EMIR.\9\ Specifically,
Clearing Members must offer customers a choice of individual or omnibus
segregation, to the extent they are permitted to do so under applicable
law, and provide information as to the costs and levels of protection
for various options. Where a Clearing Member is not able under
applicable law to offer such an account, it must, to the extent
permitted under applicable law, offer to introduce the customer to
another Clearing Member that can offer such an account.
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    \9\ Clearing Members would, of course, also need to comply with
any other applicable law in providing services to Customers.
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    Rule 102(j) has been amended to clarify that Sponsors and Sponsored
Principals, in addition to Clearing Members, are responsible for the
conduct of their employees and agents (in addition to their own
conduct) and to reference the new defined terms ``CDS Trade Execution/
Processing Platform'' and ``FX Trade Execution/Processing Platform'' to
account for the current and expected use of such platforms in light of
trade execution requirements under applicable law.
    Rule 102(o) clarifies that with respect to a Clearing Member that
is also a Sponsor, the Rules, the Sponsor Agreement, and certain other
specified documents form a contract between ICE Clear Europe, each
Sponsor acting in its capacity as such and each Sponsored Principal for
which such Sponsor acts. Similarly, the Rules, the applicable Sponsored
Principal Clearing Agreement (if any) and other certain other specified
documents also form a contract between ICE Clear Europe, each Sponsored
Principal and the Sponsor for that Sponsored Principal. Other
conforming changes are made in the rest of Rule 102(o) and Rule 102(p).
    Rule 102(q) has been revised to clarify certain segregation
requirements with respect to different categories of accounts,
including the limitations on setting off one category of proprietary or
customer account against another category, or otherwise using one
category to cover losses in another category, in light of the
additional types of account classes added under the proposed rules.
    Rule 102(r) has been revised to refer to certain of the clearing
house's obligations under EMIR and address certain related interpretive
issues, as well as to add references to Sponsored Principals.
    The governing law provision in Rule 102(s) has been revised to
clarify that the choice of English law is intended also to govern non-
contractual obligations arising out of or in connection with the Rules
or any Contract.
    New Rule 102(w) addresses a Clearing Member's ability to outsource
performance of its obligations, in particular to allow Clearing Members
to outsource performance to affiliates or third parties of their
obligation with respect to end-of-day settlement price submission,
acceptance of forced allocations and participation in default auctions.
This approach is consistent with EMIR and also reflects the
requirements of CFTC Rule 39.16.
    New Rule 102(x) clarifies that persons that are partners of general
partnerships will be jointly and severally liable for the partnership's
obligations under the Rules, and that dissolution of the partnership
will not affect that liability. This provision is not specifically
required under EMIR but is intended to clarify the Clearing House's
rights and obligations when dealing with Sponsored Principals that may
be partnerships, but also is drafted to be applicable in the event that
a partnership applies in future for clearing membership.
    Rule 104, which addresses the clearing house's ability to ``invoice
back'' (in effect, termination of a position through creation by the
clearing house of an offsetting contract) or override the price or
other terms of contracts has been revised to provide that the clearing
house may do so only in the case of a force majeure event, illegality
or impossibility and not, as a general matter, as a remedy for a
default by a Clearing Member. Although this

change is not specifically intended to comply with EMIR, it results
from ongoing discussions with Clearing Members and other market
participants, who have asked that the powers under this provision be
clarified, circumscribed and made consistent across all products. In so
doing, the change has also eliminated uncertainty that these powers
could be used in a default management situation, and thus has clarified
that the Clearing House's default management powers are as set forth in
Part 9 of the Rules. Conforming changes have been made to relevant
definitions, including the addition of a new definition of
``Impossibility''.
    Rule 105, which addresses a decision by the clearing house to cease
acting in that capacity, has been revised to clarify that such an
action might be taken if the clearing house loses any regulatory
authorization required to continue its business.
    The confidentiality provisions of Rule 106 have been extended to
apply to Sponsored Principals and Sponsors and modified in various
technical respects to ensure compliance with ICE Clear Europe's
confidentiality, reporting and disclosure obligations under EMIR. The
changes also clarify that that the Clearing House may disclose
confidential information in certain circumstances, including in the
case of a breach by the Clearing Member or Sponsored Principal of
membership criteria and certain other disclosure requirements (clause
(a)(ii)), information being provided to a data repository or other
entity for purposes of transaction reporting (clause (a)(iii)),\10\
information concerning an Individually Segregated Sponsored Account to
the relevant Sponsor or Sponsored Principal (clause (a)(xi)) and
information concerning a Customer to the relevant Clearing Member
carrying its account (clause (a)(xii)).
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    \10\ Based on Staff's conversation with ICE Clear Europe's
counsel on July 2, 2014, ICE Clear Europe's counsel has confirmed
that the reference to Rule 106(a)(iii) should instead refer to Rule
106(a)(viii).
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    The record retention requirements under Rule 108 for Clearing
Members (and other persons, such as Sponsored Principals) that provide
information to the Clearing House has been extended to ten years,
consistent with the record retention requirements applicable to the
Clearing House itself under Article 29 of EMIR. Various conforming
references to Sponsored Principals, Sponsors and other new defined
terms, as well as other clarifying changes, have also been added in
Rules 107-113. In Rules 111(a)(B) and 111(c)(xviii), ``gross
negligence'' is added as an exclusion to exculpatory provisions
relating to ICE Clear Europe's liability, in order to address
enforceability issues with respect to exculpatory provisions that lack
such an exclusion in some continental European jurisdictions, based on
legal advice received by the clearing house.
    Rule 114(c) allows for outsourcing by the clearing house, subject
to its retention of liability, consistent with the requirements of
article 35 of EMIR. A clarification has been made to Rule 116 to
require notice of changes to Clearing House business days. Finally, new
Rules 117(p) and (q) have been added to clarify that the dispute
resolution procedures from the Rules apply to disputes in connection
with Sponsored Principals, Sponsors, Sponsored Principal Clearing
Agreements and Sponsor Agreements in the same way the Rules apply to
disputes in connection with Clearing Members and Clearing Membership
Agreements.
    A statement has been added to the preamble of Part 2 of the Rules
to clarify that Part 2 (Clearing Membership) does not apply to
Sponsored Principals except to the extent expressly set out in Part 19.
Certain updates and drafting improvements and clarifications to the
Clearing Membership criteria have been made in Rule 201, including the
consolidation into the Rules of various membership criteria previously
in paragraph 2 of the CDS Procedures and paragraph 2 of the FX
Procedures, and other requirements stemming from EMIR or other
applicable law, including requirements as to operational and financial
capacity, compliance with sanctions regimes, and having a well-founded
legal framework to support clearing operations. Rule 201(a)(v) has been
revised to require that a Clearing Member be a user of a designated
repository for purposes of swap data reporting. Rule 201(b) includes a
requirement that additional conditions imposed on Clearing Membership
be proportional to the risk brought by the applicant. Revised Rules
201(c) and (e) contain additional requirements around rejection or
denial of applications.
    Rule 202(a) contains certain additional obligations on Clearing
Members driven by requirements in EMIR, including obligations to make
available to the Clearing House certain information for risk management
purposes (including as to client activity) and to participate in
default management exercises and other testing. Rule 202(b)-(e) (which
are based on and replace current Rule 1516(b) for CDS) establish
responsibilities of a Non-FCM/BD Clearing Member for the execution and
content of customer-facing documentation, including to incorporate the
applicable CDS Standard Terms, F&O Standard Terms or FX Standard Terms.
These aspects of customer documentation facilitate the portability of
customer positions following Clearing Member default, consistent with
the requirements of EMIR, among other matters. Provisions concerning
controller guarantees of Clearing Members are moved to Rule 202(f) from
the CDS Procedures and Rule 1709 (FX) so as to apply to all product
categories.
    Certain conforming changes relating to Sponsored Principals and the
use of the new set of account classes have been added in Rule 207(a)
and (d). New Rule 207(e) clarifies the obligations of certain Disclosed
Principal Members for which a Clearing Member may act in connection
with the energy business, but which are not treated as customers under
the Rules and to align this provision with the equivalent requirement
for Sponsored Principals.
    Rule 301 has been modified to clarify certain matters relating to
its payment banking arrangements. (These generally reflect comments of
and discussions with Clearing Members, and do not specifically relate
to compliance with EMIR.) Rule 301(f), which generally provides that
payments from Clearing Members to ICE Clear Europe are not deemed
received until they have been transferred to the clearing house
concentration account at its concentration bank, has been modified to
provide that if an Approved Financial Institution used by the Clearing
House fails to pay due to a Clearing Member default or similar event,
the Clearing House will first attempt to reinstruct the payment
excluding amounts relevant to the defaulter rather than exercising its
rights to require use of a different Approved Financial Institution
under Rule 301. This accords with the clearing house's existing
practices, and ICE Clear Europe believes it is an appropriate
clarification on its authority under Rule 301(f). Rules 301(m)-(n)
document ICE Clear Europe's existing practice of publishing a list of
Approved Financial Institutions and Concentration Banks, and require
ICE Clear Europe to ensure there is always at least one Concentration
Bank.
    Rule 302(a) has been revised to incorporate new rules with respect
to the payment mechanics for the various accounts classes (including as
to whether payments are made on a net basis or, in certain specified
cases, on a gross basis for a particular account). Rules 302(a)(iii)
and (iv) have been revised to provide for net payments to and from the
clearing house in respect of the F&O product category, for either

Segregated Customer Omnibus Accounts or Segregated TTFCA Customer
Omnibus Accounts. Rules 302(a)(v) and (vi) address the need to have
consolidated settlement with respect to all of a Clearing Member's
Margin-flow Co-mingled Accounts. Rules 302(a)(vii) and (viii) address
settlement of margin transfers for other categories of customer account
(such as for CDS or FX customers), which are calculated on a gross
basis. A conforming change is made in Rule 302(e) for Margin-flow Co-
mingled Accounts.
    New Rule 304 applies the payment provisions of Part 3 of the Rules
in the context of Individually Segregated Sponsored Accounts. Pursuant
to Rule 304(a)(ii), Payments are made to and from the clearing house
separately on a net basis for each such account, by the relevant
Sponsored Principal (or the Sponsor if acting as representative of the
Sponsored Principal for making payments). Rule 304(a)(v) clarifies that
ICE Clear Europe is not permitted to exercise rights of set off as
between any obligation, right or liability arising in connection with
an Individually Segregated Sponsored Account and between any
obligation, right or liability arising in connection with any Customer
Account that is not an Individually Segregated Sponsored Account in
respect of which the Sponsored Principal is a Customer. Rule 304 also
disapplies a number of provisions in Part 3 of the Rules, including
Rules 301(k), 302(a), 302(d) and 302(e), as such provisions are more
specifically provided for in Rule 304 in the context of Individually
Segregated Sponsored Accounts. Rule 304(a)(vi) provides that if a
payment is made by the Sponsor in respect of an Individually Segregated
Sponsored Account, that payment discharges the obligation of the
Sponsored Principal. Similarly, if the clearing house makes a payment
to the Sponsor in respect of the Individually Segregated Sponsored
Account, that payment discharges the clearing house's obligation to the
Sponsored Principal. As provided in Rule 304(a)(vii), Sponsored
Principals are not required to make guaranty fund contributions to the
clearing house.
    Rule 401, which addresses the formation of a cleared contract, has
been amended to incorporate the concept of Sponsored Principals and
Individually Segregated Sponsored Accounts, as well as the other
categories of customer account and certain other conforming changes
(including the removal of obsolete references to ICE OTC markets that
have been superseded). Specifically, the amendments clarify the
capacity in which the Sponsor or Clearing Member is acting with respect
to any such contracts, and the appropriate account in which such
contracts are to be recorded. Conforming changes that incorporate the
new account classes have also been made. The amendments also include
certain non-EMIR related changes, including harmonization of drafting
of provisions across different products and use of new defined terms
(such as Buying Counterparty and Selling Counterparty, terms introduced
due to the existence of Sponsored Principals as a joint counterparty to
Contracts, in addition to Clearing Members). New Rule 401(l) provides
for the reporting of cleared transactions to a Repository, in
accordance with the requirements of EMIR. Rule 401(n) has been revised
to address customer-CM transactions arising from FX transactions. Rule
401(o) has been revised to reflect the various capacities in which a
Clearing Member or Sponsored Principal may enter into a transaction for
the relevant account category. Conforming changes have been made to
rule 401(p) to reflect the various account categories.
    Conforming changes (including addition of references to Sponsored
Principals, use of defined terms for Buying Counterparties and Selling
Counterparties and providing for reporting to Repositories) are made in
Rules 402-408 and 410. Additional conforming changes are made to Rule
405 to address Disclosed Principal Members and use of CDS Trade
Execution/Processing Platforms and FX Trade Execution/Processing
Platforms, as well as other drafting clarifications. Rule 406 contains
additional conforming changes relating to netting of positions and
reporting of net positions to ta Repository. Rule 407 has been amended
to include references to Sponsored Principals and to clarify use of
defined terms. Rule 408 has been revised to address transfer of
positions of a Sponsored Principal as well as a Clearing Member, and to
incorporate certain drafting clarifications.
    Rule 502 has been amended with various conforming changes and
clarifications as to the characterization of margin, generally relating
to the additional account classes and revised defined terms. Rule
502(h) has been revised to expand an undertaking on the part of ICE
Clear not to change the legal characterization of pledged collateral
accounts or assets provided with respect thereto. This change is in
response to clearing member requests for additional legal certainty as
to account characterization, but reflects existing practices. Rule
502(i) contains certain drafting improvements as to the manner in which
the clearing house may use pledged collateral for purposes of the net
sum calculation in Part 9 of the Rules and conforms to the rules
governing the return of excess margin for the account of customers set
forth in Part 9 of the Rules. Rules 503(e) and (f) contain various
conforming changes to reflect the use of the new account classes (and
removing references to Designated CDS Customer Accounts, which are no
longer used), as well as the use of various defined terms.
    New Rule 503(k) is the principal new rule relating to the operation
of Margin-flow Co-mingled Accounts. In circumstances where the clearing
house permits the use of more than one type of permitted cover, the
rule mandates reporting by Clearing Members on such accounts to allow
the tracking of assets (where more than one account is used and more
than one type of margin is provided), such that assets can be allocated
to particular Customers. The rule also sets out backstop rules for pro
rata allocation across different customers that apply in the event of
reporting failures by the Clearing Member.
    Rules 504 and 505 contain various conforming changes, including for
the addition of Sponsored Principals and Individually Segregated
Sponsored Accounts, as well as a clarification of the rights and
obligations of Disclosed Principal Members. Rule 506 sets out
particular procedures for the transfer of margin in the context of
Individually Segregated Sponsored Accounts. As further set out in Rule
1902, the Sponsored Principal may provide margin directly to the
clearing house, or the Sponsor may be operationally responsible for
providing margin to the clearing house on behalf of the Sponsored
Principal. Rule 506 also replaces Rules 504(a), 504(c)(v) and 504(f)
with additional provisions more specifically reflecting the particular
responsibilities of the Sponsored Principal and Sponsor in connection
with the transfer of margin.
    Parts 6, 7 and 8 of the Rules contain various conforming changes
that reflect the addition of Individually Sponsored Segregated Accounts
and other categories of customer accounts. These changes also clarify
that the rules in those parts relating to position limits, and
settlement of futures and options apply to Sponsored Principals in
substantially the same manner as Clearing Members.
    The Default Rules in Part 9 have been amended to provide for the
management of a default by a Sponsor and/or Sponsored Principal.
Certain

conforming changes to defined terms and related drafting improvements
and clarifications have also been made, as discussed herein. The
preamble to Part 9 has also been updated to refer to relevant sections
of EMIR and other applicable law.\11\
---------------------------------------------------------------------------

    \11\ References to particular laws in this preamble are not
intended to be exclusive; nothing in this provision affects any
requirement on ICE Clear Europe to comply with applicable laws not
specifically enumerated.
---------------------------------------------------------------------------

    Under new Rule 901(d), a Sponsored Principal may be declared in
default by the Clearing House in the same way as a Clearing Member if
any of the events specified in Rule 901(a) occur, unless, in the case
of a default under Rule 901(a)(i)-(iii), the Sponsor cures the default.
A Sponsored Principal may also be declared in default if it is in
default under any relevant agreement between the Sponsored Principal
and its Sponsor (as notified by the Sponsor to ICE Clear Europe). If
ICE Clear Europe becomes aware of grounds for declaring a Sponsored
Principal to be a Defaulter under Rule 901(a)(i) to (iii) but no Event
of Default is declared, ICE Clear Europe will notify the Sponsor of
details of such grounds and give the Sponsor an opportunity to perform
the obligation prior to declaring a default in respect of the Sponsored
Principal. (As discussed above, the Sponsor is jointly and severally
liable with the Sponsored Principal with respect to the Sponsored
Principal's positions and related obligations in its Individually
Segregated Sponsored Account. In the case of a failure to perform by
the Sponsored Principal, the Clearing House will direct all liabilities
on the Individually Segregated Sponsored Account to be met from the
Sponsor's nominated proprietary bank account, and the Sponsor is liable
to make such payments.) A Sponsor will not be declared a defaulter
solely as a result of a default of a Sponsored Principal, although the
Sponsor can be declared a defaulter as a result of its own default,
including for failure to perform its own obligations (as jointly and
severally liable) with respect to the Individually Segregated Sponsored
Account. Finally, new Rule 901(e) provides for notification to
regulators of Clearing Member or Sponsored Principal default, as
required under article 48(3) of EMIR.
    If a Sponsored Principal is declared in default, the clearing house
will have the rights and remedies set forth in Part 9 of the Rules, in
the same manner as if the Sponsored Principal were a defaulting
Clearing Member, as provided in Rule 901(d). Various changes to Rules
902-904 also implement these default rights and remedies. Rules 902 and
903, which address certain remedies following default, adds relevant
references to defaulting Sponsored Principals. Revised Rule 903 also
contains certain changes to defined terms and reflects reporting
requirements to Repositories under applicable law for all relevant
product categories.
    The amendments to Rule 904 contain the principal new provisions
addressing remedies of the clearing house in the event of the default
of a Sponsor or a Sponsored Principal. They also make certain other
changes to general provisions relating to transfer of positions and use
of margin, consistent with EMIR requirements.\12\ Rules 904(a) and (b)
contain various changes reflecting new defined terms. Rule 904(c)
clarifies and specifies additional circumstances in which the clearing
house is not obligated to transfer contracts, including where it would
cause a default by the clearing house, require the use of guaranty fund
contributions of non-defaulting Clearing Members or an assessment on
non-defaulting Clearing Members, be contrary to applicable law or lack
any required consent or approval. Consistent with the standards in
EMIR, transfers are required to be fair to both customers and indirect
customers of the defaulter. The provisions in Rule 904 relating to
transfers generally apply to all Clearing Members, including FCM/BD
Clearing Members, subject to any particular requirements of applicable
law or approvals or consents required in order to effect such transfers
(as may be required for the customer account of an FCM/BD Clearing
Member.)
---------------------------------------------------------------------------

    \12\ These include the requirement that the central counterparty
contractually commit to trigger the procedures for transfer of
customer positions and assets of a defaulting clearing member. EMIR
Article 48(5-6).
---------------------------------------------------------------------------

    Rule 904(d)(v) has been amended to create a payment obligation from
the Clearing Member that will net out the value of any appropriation of
collateral to support porting or direct payments to customers under
EMIR. Rule 904(f) has been revised to remove a former provision that
the clearing house was not obligated to effect any transfers of margin,
which was inconsistent with EMIR Articles 39 and 48. Former Rules
904(j) and (k), which were applicable only to CDS but now apply to all
products, have been removed and combined into a new Rule 904(k) and
(l). Former Rule 904(l) (now renumbered as Rule 904(j)), which
addresses transfers of contracts, has been revised to apply generally
to all product categories and types of customer accounts, and to
contemplate reliance on consents to transfers by customers provided
under standard terms documentation.
    Rules 904(m), (p) and (u) include a commitment by ICE Clear Europe
to trigger the process for transfers of customer positions and margin,
as required under Article 48(5-6) of EMIR. Slightly different wording
applies to different types of account, reflecting the requirements of
EMIR for that kind of account and the ability of ICE Clear Europe to
give additional assurances for different account classes. This wording
is supplemented by additional amended provisions around the operational
process for porting notices in the Standard Terms annexes. These
commitments are subject to various conditions precedent to porting set
out in the rules cited above and in Rule 904(c), as discussed above.
    Rules 904(n) and (o) address the default of a Sponsor. Under Rule
904(n), upon a default of a Sponsor, the Sponsored Principal must
continue to fulfill its payment and margin obligations on the
Individually Segregated Sponsored Account to ICE Clear Europe and may
be required to pay additional amounts by way of margin (reflecting the
fact that Sponsored Principals do not make Guaranty Fund
Contributions). Pursuant to Rule 904(o), a Sponsored Principal must
within 10 days of a Sponsor default (i) notify ICE Clear Europe of a
new Sponsor, (ii) become a Clearing Member itself or (iii) move its
positions and margin from the Individually Segregated Sponsored Account
to the omnibus Customer Account of another Clearing Member (which would
require the Sponsored Principal to have or to put into place a customer
relationship with that Clearing Member). If one of the above three
steps is not taken within 10 days or such longer time as the Clearing
House at its discretion allows, then the Sponsored Principal itself may
be declared in default under Rule 904(q).
    New Rules 904(r)-(s) address the default of a Sponsored Principal,
where the Sponsor is not itself in default.\13\ Pursuant to Rule
904(r), in such a case, the Sponsor will be responsible for performance
of any obligations on the Individually Segregated Sponsored Account.
The Sponsor may manage the default by terminating contracts in the
Individually Segregated Sponsored Account within a time period set by
the clearing house. The Sponsor may also

transfer positions (and margin) from the Individually Segregated
Sponsored Account to its proprietary account as part of the default
management process. The clearing house is also entitled to manage the
default, using the same rights, remedies and procedures it has for a
Clearing Member default. If the Sponsor elects to manage the default,
the clearing house will give the Sponsor such time as the clearing
house determines reasonable before managing the default itself. Rule
904(s) clarifies the manner in which guaranty fund contributions and
surplus collateral of the Sponsor may be applied to the net sum
calculated for an Individually Segregated Sponsored Account of a
defaulting Sponsored Principal. Rule 904(s) also provides that if the
Sponsor has made payments in respect of the Individually Segregated
Sponsored Account under Rule 901(d) or 904(r), and the net sum on the
account would otherwise be payable in favor of the Sponsored Principal,
it will instead be paid to the Sponsor. Together, Rules 904(r) and (s)
are designed to give the Sponsor an incentive to manage the default
itself (as would be the case for any other customer default), in light
of its ongoing obligations (based on its joint and several liability)
with respect to the Individually Segregated Sponsored Account until the
default management process is completed. In addition, where the Sponsor
manages the default by transferring the relevant positions in the
Individually Segregated Sponsored Account to its own account, it is
entitled to also receive any margin or balance in the account as well
as any net sum payable by the Clearing House on the account in this
situation, which it may potentially apply against other (uncleared)
liabilities of the defaulted Sponsored Principal. By contrast, if the
Clearing House has to manage the default, then any net sum payable by
the Clearing House would be delivered to the Sponsored Principal and
the Sponsor would have to recoup any separate debts owed to it in other
ways.
---------------------------------------------------------------------------

    \13\ As noted above, the Sponsored Principal model is not being
offered at this time to U.S. Clearing Members or potential U.S.
Sponsored Principals, and accordingly these provisions will not
apply to such persons.
---------------------------------------------------------------------------

    A new Rule 904(t) addresses the calculation of net sums with
respect to Margin-flow Co-mingled Accounts of a defaulting Clearing
Member.\14\ The Rule sets out a procedure for allocating all assets and
liabilities on the Margin-flow Co-mingled Accounts appropriately and
fairly to each individual account, based on the positions and reports
provided as to permitted cover. (Fallback rules apply if no such
reports or records are available, including providing for pro rata
allocation of certain initial margin based on margin requirements for
each account.) New Rule 904(u) addresses ICE Clear Europe's
responsibility to transfer positions in an Individually Segregated
Margin-flow Co-mingled Account, subject to certain conditions analogous
to those discussed above for Rule 904(c).
---------------------------------------------------------------------------

    \14\ As noted above, these accounts are not applicable to FCM/BD
Clearing Members or their customers, and accordingly Rule 904(t) and
(u) would not apply to such persons.
---------------------------------------------------------------------------

    Conforming and clarifying changes are made in Rules 905 and 906,
including for Individually Segregated Sponsored Accounts and the
various other new account classes. In particular, Rule 905 has been
amended to include various conforming references to Sponsored
Principals and Individually Segregated Sponsored Accounts. Rule
905(b)(ii) has been revised to harmonize the drafting across different
product categories. Rules 905(b)(viii) and (ix) have also been amended
to clarify the rights of the clearing house over pledged collateral and
the realization and/or valuation of pledged collateral in the case of
set-off following default. In Rule 906(a), new language expressly
clarifies that the respective obligations of the defaulting Clearing
Member and the clearing house that would otherwise be due following
default are to be reduced to the net sum (as was implicit in the
current rule), in order to facilitate close-out netting following
default.
    Rule 906(b) has been revised to reflect the calculation of separate
net sums for each of the new account classes. Guaranty Fund
Contributions of the defaulter may be applied to the net sum for any
account, but will be applied first to reduce losses on customer
accounts, on a pro rata basis. Rule 906(c) similarly provides that
where proprietary assets of a defaulter are being used to satisfy
losses in the customer accounts, they must be used on a pro rata basis
across such accounts. Revised Rule 906(d) incorporates requirements
under Article 48 of EMIR as to the payment of net sums owed in respect
of various customer accounts, as applicable, including, where
permissible under applicable law and the Rules, return of a net sum
directly to the relevant customer(s). Certain protections under current
rules for the differences between net and gross Customer Account margin
(old Rule 906(i) and usages of ``Customer Account Gross-Net Amount''
and ``Gross Margin Shortfall'' here and elsewhere) are being removed in
light of the EMIR requirements and the new account classes.
    Additional clarifying and conforming changes are made in Rules 907-
918, principally to reference Individually Segregated Sponsored
Accounts as well as remove references to certain former CDS account
concepts that have been deleted as discussed above. Rule 907
incorporates certain default rules for FX contracts. New Rule 907(m)
clarifies that positions in a customer account may, at the request of a
Clearing Member, be moved to the proprietary account of the Clearing
Member in the case of a default of the relevant customer for default
management purposes. (This provision applies equally in the absence of
the declaration of an Event of Default by the Clearing House, and also
applies to a request by a Sponsor to transfer positions of a Sponsored
Principal following a breach or default by the Sponsored Principal.)
    Former Rule 908(a)(ix), which referenced Designated CDS Customer
Accounts (which are no longer offered), has been removed and replaced
with a new provision that provides that in case of a Sponsored
Principal default, Guaranty Fund and assessment contributions of
Clearing Members other than the Sponsor will not be used unless the
Sponsor is itself in default. This is consistent with the use of assets
of non-defaulting Clearing Members generally, and requires that in the
first instance the Sponsor cover losses of its Sponsored Principals.
    Rule 908(b)-(d) and (g) simplify and consolidate certain references
to the default waterfall by referring to the net sum calculation under
`N' in Rule 906 rather than specific components of that calculation.
Rule 908(e) has been revised to remove references to Designated CDS
Customer Accounts, which are no longer offered. Conforming and
clarifying changes are made to Rules 908(g) and (h) to add the concept
of Sponsored Principal. Rule 908(i) (which does not apply to CDS
contracts) has been revised to clarify the application of the default
auction priority as set forth in the relevant F&O or FX auction
procedures.
    Rules 909-911, which address the Clearing House's assessment rights
with respect to default losses, have been revised to also address
losses resulting from Sponsored Principals clearing in the relevant
product category, as well as to update certain cross references and
defined terms.
    In Rule 912, new clause (a)(iv) has been added to address the
treatment of Individually Segregated Sponsored Accounts (and the joint
liability and entitlement of the Sponsor and Sponsored Principal in
respect of such accounts) in the case of a Clearing House default.
    Rule 914 (and related definitions in Rule 913) have been modified
such that variation margin haircutting for the F&O and FX product
categories, if applicable,

will also apply to variation margin owed to Sponsored Principals in
respect of Individually Segregated Sponsored Accounts. Accordingly,
terms such as ``Clearing Member Adjustment Amount'' and ``Contributing
Clearing Member'' have been changed to ``Adjustment Amount'' and
``Contributor,'' respectively (to cover both Clearing Members and
Sponsored Principals), and references to Sponsored Principals have been
added as appropriate throughout the definitions in Rule 913 and the
provisions of Rule 914. Similarly, Rule 916 (relating to termination of
positions in the F&O and FX product categories) and Rule 917 (relating
to cooling-off periods) will apply to Sponsored Principals. Rule 918,
in respect of termination of membership (including during a cooling-off
period), will also apply to Sponsored Principals in respect of
Individually Segregated Sponsored Accounts for F&O and FX contracts.
    Pursuant to new Rule 1006, part 10 of the Rules, relating to
disciplinary matters, applies to Sponsored Principals to the same
extent as Clearing Members acting for their proprietary accounts.
    Rule 1101(c) and 1102(b) have been revised to state that the
Clearing House would establish minimum parameters for determining the
relevant Guaranty Funds for the F&O, CDS and FX businesses to meet the
requirements of Article 42 of EMIR. (This statement does not affect the
Clearing House's obligation to comply with other financial resources
requirements under applicable laws, including the Exchange Act and
Commission rules thereunder (including Rule 17Ad-22(b)(3)).
Accordingly, the parameters for determining the Guaranty Funds will
also take into account such other requirements.) Certain other
conforming and clarifying changes have been made to Rule 1102 and 1103.
Rule 1103(a) and (b) also have been revised to address the use of
Guaranty Fund contributions to support borrowings under liquidity
facilities for the purpose of making payments on cleared contracts, in
accordance with articles 44-45 of Commission Delegated Regulation 153/
2013 under EMIR, subject to certain limitations for each product
category. Rule 1103(b) allows the clearing house to pledge or otherwise
transfer any guaranty fund contributions to support credit or similar
facilities to provide liquidity for clearing house functions. Proceeds
of such facilities could only be used for purposes set forth in Rule
1103(a) (that is, paying amounts owed on cleared contracts and managing
defaults).
    Part 12 of the Rules contains various conforming changes and
updates relating to its EU settlement finality system to enhance
settlement finality for payment arrangements, including for approved
financial institutions used in the payment system, concentration banks
and so-called investment agent banks used by the clearing house for
holding assets pending investment. The changes also reflect the new set
of accounts (including the Individually Segregated Sponsored Accounts)
and amended terminology in the Rules generally and reflect certain
feedback from its UK regulators.
    Part 15 of the Rules, which addresses clearing of CDS, has been
modified to reflect Individually Segregated Sponsored Accounts and
other categories of customer accounts and to make certain other
conforming changes. Rule 1501(kk) has been modified to provide for the
recording of CDS recorded in Individually Segregated Sponsored Accounts
within the Deriv/SERV ``tripartite representation'' system, which is
used by the clearing house, Clearing Members and customers for the
recording of the details of CDS contracts as well as for taking certain
actions (such as triggering following restructuring credit events) with
respect to those contracts. The changes also reflect updates to defined
terms and certain drafting clarifications. As discussed above, the
provisions in Rules 1516(a)-(b) have been moved to Rule 202(b) et seq.
and now apply to all products, with certain minor modifications.
    As noted above, the Sponsored Principal model will not be offered
at this time to FCM/BD Clearing Members or their customers, and changes
to Part 16 of the Rules relating to the Sponsored Principal model will
not apply to FCM/BD Clearing Members at this time. Part 16 of the Rules
contains certain other conforming changes and drafting improvements
that will apply at this time, including in Rules 1604(b), 1604(e),
1605(d), 1605(h), 1607(d), 1608(a) and 1608(c). These largely relate to
changes in defined terms and cross-references, references to a Clearing
Member having multiple proprietary accounts, and certain clarifications
with respect to the CFTC ``Legally Segregated, Operationally
Commingled'' model for cleared swaps carried through FCM/BD Clearing
Members.
    Part 17 of the Rules contains various conforming changes relating
to Individually Segregated Sponsored Accounts and other updates to
defined terms. As mentioned above, a number of modifications to the
Rules for FX contracts (previously in Rules 1701(m), 1706 and 1709)
have been made applicable to all products and so are moved from here to
other parts of the rules.
    New Part 19 of the Rules has been added to address various aspects
of the Individually Segregated Sponsored Account framework. As set
forth above, this framework is not being offered to U.S. Clearing
Members or potential U.S. Sponsored Principals at this time, and ICE
Clear Europe will adopt a further rule change if it determines to offer
this framework to such persons. Rule 1901 contains the initial and
ongoing requirements an entity must meet in order to become a Sponsored
Principal, including signing relevant documentation, paying relevant
fees, being solvent, meeting operational requirements, being an
``eligible contract participant'' and pre-funding a specified amount of
margin to ICE Clear Europe. Rule 1901 (and the requirements set out in
it) broadly reflect those set out in Part 2 of the Rules for Clearing
Members but have been adapted by ICE Clear Europe for this class of
participant, including to reflect the different documentation
requirements for Sponsored Principals and the particular banking
relationships applicable to Sponsored Principals, as well as the fact
that Sponsored Principals are not required to have the same level of
credit standing as Clearing Members (given the Clearing House's
reliance on the Sponsor). Subject to ICE Clear Europe's discretion,
certain criteria for obtaining and maintaining the status of a
Sponsored Principal may be met by the Sponsor or (in the case of
Sponsored Principals that are funds, the fund manager).
    Rule 1902 provides that the relevant Sponsored Principal and Non-
FCM/BD Clearing Member Sponsor are each jointly and severally liable,
as principal and without limitation, to ICE Clear Europe in respect of
all obligations and liabilities arising in connection with the
Individually Segregated Sponsored Account and all Contracts recorded in
it. A Sponsor may be subject to increased Guaranty Fund Contribution
requirements as a result of acting as a Sponsor, on the basis of the
Contracts cleared by its Sponsored Principals. Rule 1902 also specifies
required arrangements for payments between the clearing house and a
Sponsored Principal, and allows the Sponsored Principal and Sponsor to
arrange between them that the Sponsor will perform certain
responsibilities on behalf of the Sponsored Principal. The goal is to
permit the Sponsor and Sponsored Principal flexibility as to the
arrangements between them with

respect to the Individually Segregated Sponsored Account. The Rule
specifies certain required aspects of the agreement between the
Sponsored Principal and Sponsor, in order for obligations to be
properly performed as a matter of the applicable contract law by all
parties on the account. Various modifications applicable to the back-
to-back contract between the Sponsor and Sponsored Principal are set
out in Rule 1902(g) so as to ensure that the Sponsor maintains a flat
position and that the arrangements can be used in the context of
industry standard clearing documentation. The Standard Terms annexes,
which govern the terms of back-to-back contracts, are also separately
amended for purposes of the Sponsored Principal model, as discussed
below.
    Rule 1903 sets forth general modifications to the Rules for
Sponsored Principals, Sponsors and Individually Segregated Accounts in
order to implement the individual segregation model for Sponsors that
are Non-FCM/BD Clearing Members and Non-U.S. Sponsored Principals.
Sponsored Principals do not make guaranty fund contributions, are not
subject to assessment contributions pursuant to the default waterfall
and are not responsible for submitting any pricing data to ICE Clear
Europe. Sponsored Principals may, but are not required to, participate
in default auctions.\15\ Rule 1903 also provides that Sponsored
Principals are subject to the dispute resolution and complaint and
disciplinary procedures otherwise applicable to Clearing Members under
the Rules and, if relevant, market or exchange rules.
---------------------------------------------------------------------------

    \15\ Based on Staff's conversation with ICE Clear Europe's
counsel on July 2, 2014, ICE Clear Europe's counsel has confirmed
that a Sponsored Principal will not be subject to forced allocation
of contracts in the event of a failed auction.
---------------------------------------------------------------------------

    Rule 1904 addresses termination of a Sponsored Principal
relationship with its Sponsor. In general, a Sponsored Principal may
terminate its Sponsor on notice or a Sponsor may terminate its
Sponsored Principal on notice, in either case only if there are no open
Contracts in the relevant Individually Segregated Sponsored Account.
Following service of any such notice, neither the Sponsored Principal
nor the Sponsor may enter into or cause the entry into of any further
Contract for the Individually Segregated Sponsored Account, and the
Clearing House shall be entitled to close the Individually Segregated
Sponsored Account. A Sponsored Principal may change the Sponsor only if
it has established arrangements with a new Sponsor.
    As noted above, the Sponsored Principal framework will not be made
available to FCM/BD Clearing Members or U.S. persons at this time. It
is expected that FCM/BD Clearing Members will satisfy the requirements
of EMIR to offer individual segregation to customers by referring such
customers seeking individual segregation to a Non-FCM/BD Clearing
Member that offers an Individually Segregated Sponsored Account, to the
extent permitted by law. As a result, pursuant to the introductory
paragraph of Rule 1905, the remainder of that rule, and other
references to U.S. Sponsored Principals in the Rules, will be
inapplicable at this time. No U.S. person will be permitted to become a
Sponsored Principal, Individually Segregated Sponsored Accounts will
not be available to U.S. Sponsored Principals, and FCM/BD Clearing
Members will not be permitted to act as Sponsors, until such time as
ICE Clear Europe adopts a further rule change (and makes a related rule
filing) implementing the Sponsored Principal framework for FCM/BD
Clearing Members and U.S. persons and receives all necessary regulatory
approvals in connection therewith.
    Certain changes to the Standard Terms annex, setting out certain
mandatory terms of back-to-back contracts between Clearing Members and
Customers, have been made for CDS contracts. In addition, new Standard
Terms annexes are added for F&O and FX contracts. (The Standard Terms
annexes only apply to Non-FCM/BD Clearing Members and their customers.)
The CDS Standard Terms annex has been modified to incorporate the
Sponsored Principal Model (and distinguish between provisions
applicable to an Individually Segregated Sponsored Account and those
applicable to other Customer Accounts). References to various other
categories of account class have been updated. Certain procedures
concerning portability of positions and margin in the case of a
Clearing Member default (including related notice and timing
requirements) have also been added, consistent with revisions to Rule
904. In addition, certain provisions are made governed by English law
rather than the law of any underlying master agreement, as are the
Rules and Procedures (which are incorporated here by reference), based
on legal advice received by the clearing house. The new annexes for F&O
and FX products are based on the Standard Terms annex for CDS (as
modified).
    Additional changes are made to Exhibit 4 to the Rules, which
contains Settlement and Notices Terms applicable to customer
transactions in CDS. These provisions generally specify certain
requirements for delivery of certain notices as between a customer and
its Clearing Member in connection with a CDS contract, including
certain notices relating to physical settlement, as well as certain
procedures relevant to settling the Clearing Member to customer leg of
such a transaction if physical settlement is applicable. The exhibit
has been modified to include Sponsored Principals and their Sponsors.
The modifications also distinguish between Non-FCM/BD Clearing Members,
which have a back-to-back relationship with their customers pursuant to
a Customer-CM CDS Transaction, and FCM/BD Clearing Members, which act
on behalf of their customers, and do not enter into Customer-CM CDS
Transactions. Various conforming changes to defined terms and drafting
clarifications have also been made.
b. Statutory Basis
    ICE Clear Europe believes that the proposed rule changes are
consistent with the requirements of Section 17A of the Act \16\ and the
regulations thereunder applicable to it, including the standards under
Rule 17Ad-22.\17\ Section 17A(b)(3)(F) of the Act \18\ 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. The proposed rule changes, which are
intended principally to ensure compliance by the clearing house with
the requirements of EMIR, implement new, strengthened options for the
segregation and safeguarding of customer funds and property to be
available to customers of Non-FCM/BD Clearing Members. The existing,
non-individually segregated models will also generally remain available
for those customers that want them. In addition, the customer account
structures and segregation requirements for FCM/BD Clearing Members are
not being changed. Accordingly, the proposed rule changes will enhance,
and not reduce, the level of customer protection available under the
current ICE Clear Europe rules. As a result, ICE Clear Europe believes
that the proposed rule changes will contribute to the safeguarding of
funds and securities

associated with derivative transactions that are in the custody or
control of the clearing house or for which it is responsible, as set
forth herein, within the meaning of Section 17(A)(b)(3)(F).\19\
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78q-1.
    \17\ 17 CFR 240.17Ad-22.
    \18\ 15 U.S.C. 78q-1(b)(3)(F).
    \19\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    As discussed above, EMIR requires that the clearing house offer an
individual segregation model that Clearing Members may in turn offer to
their customers. Under such a model, the clearing house is required to
separately account for, and track, the portfolio of positions of a
customer of a Clearing Member and specific assets provided to margin
such contracts. ICE Clear Europe has developed its Individually
Segregated Sponsored Account model to satisfy this requirement of EMIR.
The Individually Segregated Sponsored Account provides a separate
account for the positions, and margin, of a particular customer, and
accordingly should be protected in the event of a default of the
sponsoring Clearing Member or other customers of the Clearing Member.
It also facilitates the transition to a new Sponsor in the event of a
default of the current Sponsor. For market participants that are
eligible to use and elect to use the Individually Segregated Sponsored
Account model, the approach may provide a higher degree of protection
for customer assets than is currently available.\20\
---------------------------------------------------------------------------

    \20\ As noted above, ICE Clear Europe is not offering the
Sponsored Principal model to FCM/BD Clearing Members and potential
U.S. Sponsored Principals at this time. ICE Clear Europe expects to
continue to evaluate the demand for such a model by such persons,
including in light of evolving commercial, regulatory, capital,
insolvency and other considerations applicable to the Clearing
House, FCM/BD Clearing Members and other market participants. ICE
Clear Europe will submit subsequent rule filings if it determines to
offer such a model to FCM/BD Clearing Members and U.S. persons.
---------------------------------------------------------------------------

    As part of the proposed amendments, ICE Clear Europe is making
other enhancements to its omnibus segregation models. As discussed
above, EMIR also permits the use of omnibus segregation models. The
proposed amendments would, consistent with EMIR and related UK
requirements, establish separate customer omnibus account for client
money and TTFCA collateral arrangements. These provide broadly
equivalent protection that available in ICE Clear Europe's current
model. The amendments would also introduce Margin-flow Co-mingled
Accounts, which provide an intermediate level of segregation and
elimination of certain fellow customer risks through the separate
tracking of positions and actual assets provided to cover particular
Customer positions, but permits co-mingling of payment flows for
operational convenience. This provides another option for market
participants that provides a higher level of protection than is
available using European omnibus accounts, but may involve less cost
and operational complexity than the full Individually Segregated
Sponsored Account model. Consistent with EMIR, the proposed rules also
contemplate that Clearing Members may use multiple types of these
customer accounts, and may maintain multiple accounts within each
category, as needed in their business operations. As discussed above,
ICE Clear Europe is not proposing to change its account framework (and
related customer property protections) for FCM/BD Clearing Members,
which are consistent with existing U.S. regulatory requirements
(including under the Exchange Act).\21\
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    \21\ As noted above, ICE Clear Europe has been advised that EMIR
does not require the Individual Segregation Model to be offered to
FCM/BD Clearing Members or U.S. persons, provided that, to the
extent permitted by applicable law, such clearing members may refer
interested customers to a Non-FCM/BD Clearing Member able to offer
such an account. The other modified account frameworks for Non-FCM/
BD Clearing Members are not designed to satisfy the specific
requirements of U.S. law, including those under the Commodity
Exchange Act and CFTC rules as well as the Exchange Act. As a
result, ICE Clear Europe believes that maintaining the current
account structures for FCM/BD Clearing Members provides the required
level of protection for customers of such Clearing Members in light
of U.S. legal requirements, and that changes to those structures
would not be appropriate at this time as they are not mandated by
EMIR.
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    As such, ICE Clear Europe believes that the proposed rule changes
will enhance the safeguarding of securities and funds associated with
derivative transactions that are in the custody or control of ICE Clear
Europe or for which it is responsible. ICE Clear Europe also believes
that the proposed rule changes will enhance the stability of the
clearing system, by reducing the risk to market participants of a
default by a Clearing Member or other customer. As a result, the
proposed changes are, in the clearing house's view, consistent with the
requirements of Section 17A(b)(3)(F) of the Act. The amendments also
satisfy the relevant requirements of Rule 17Ad-22,\22\ and in
particular implicate the following provisions thereof, as discussed in
more detail below:
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    \22\ 17 CFR 240.17Ad-22.
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    Financial Resources. ICE Clear Europe believes that the amendments
are consistent with the requirements of Rule 17Ad-22(b)(2-3).\23\ The
proposed rule changes do not themselves change ICE Clear Europe's
methodology with respect to its margin or Guaranty Fund
requirements,\24\ although the amendments would require Sponsors to
make additional Guaranty Fund deposits in respect of the individually
segregated accounts of their Sponsored Principals. The amendments would
also require Sponsored Principals to make additional margin payments
upon a default of its Sponsor. Accordingly, ICE Clear Europe does not
believe that the proposed changes will adversely affect its financial
resources that support clearing operations.
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    \23\ 17 CFR 240.17Ad-22(b)(2)-(3).
    \24\ ICE Clear Europe has separately made a filing with respect
to changes in its CDS risk management and other policies. Based on
Staff's conversation with ICE Clear Europe's counsel on July 2,
2014, ICE Clear Europe's counsel has confirmed that notwithstanding
the changes made to Rule 1101(c), ICE Clear Europe currently
implements risk management methodology that takes into account those
parameters required to comply with all applicable laws, including
EMIR and Commission Rules 17Ad-22(b)(2-3). For the avoidance of any
doubt, ICE Clear Europe intends to continue maintaining risk
management methodology with respect to margin and the guaranty fund
that will comply with all applicable laws.
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    Settlement. ICE Clear Europe believes that the rule changes are
consistent with the requirements of Rule 17Ad-22(d)(5), (12) and (15)
\25\ as to the finality and accuracy of its daily settlement process
and avoidance of the risk of settlement failures. In the individual
segregation model, Sponsored Principals will have the option of direct
settlement with the clearing house, which will enhance the finality and
accuracy of the settlement process. ICE Clear Europe believes it has
sufficient operational infrastructure to support these arrangements.
Sponsored Principals who settle through their Sponsor will be treated
in the same manner, and with the same level of finality and accuracy,
as customers of Clearing Members under current Rules. ICE Clear
Europe's existing settlement model will be used for the various omnibus
customer accounts. As a result, ICE Clear Europe does not believe that
the proposed amendments will adversely affect the settlement process,
and believes that the changes are consistent with the relevant
requirements of Rule 17Ad-22 in this regard.
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    \25\ 17 CFR 240.17Ad-22(d)(5), (12) and (15).
---------------------------------------------------------------------------

    Default Procedures. ICE Clear Europe believes that the amendments
enhance its default management procedures and its ability to take
timely action to contain losses and liquidity pressures and to continue
meeting its obligations in the event of insolvencies or defaults, in
accordance with Rule 17Ad-22(d)(11).\26\ The amendments further protect
the assets of customer in the event of a default by a sponsoring
Clearing Member. In particular, the

amendments provide a mechanism for managing the default of a Sponsor
and/or Sponsored Principal, similar to the existing process for
Clearing Member default. Consistent with the requirements of EMIR, the
proposed amendments, also enhance the clearing house's ability to
handle other defaults, and in particular to provide for transfer of
positions and margin following default. These changes are thus in
furtherance of the goals of Rule 17Ad-22 as well.
---------------------------------------------------------------------------

    \26\ 17 CFR 240.17Ad-22(d)(11).
---------------------------------------------------------------------------

    Although the amendments establish a number of new categories of
accounts in order to comply with EMIR, ICE Clear Europe believes that
its default management process is sufficient to address defaults for
each relevant category. With respect to the new varieties of omnibus
accounts, ICE Clear Europe does not believe that such accounts pose any
default management issues different from those presented by its current
omnibus account structure. With respect to the individually segregated
account structures, ICE Clear Europe has considered default management
issues and revised its Rules accordingly to facilitate default
management, consistent with the requirements of EMIR and the Exchange
Act. In the case of Individually Segregated Sponsored Accounts in
particular, the Clearing House has designed its default procedures to
permit, and to incentivize, the Sponsor to manage the default of a
Sponsored Principal in largely the same manner as it manages other
customer defaults. The Clearing House also retains the ability to
manage a Sponsored Principal default in the same manner as it manages
Clearing Member defaults.
    Legal Framework. Consistent with the requirements of EMIR, ICE
Clear Europe has obtained advice of legal counsel in relevant
jurisdictions as to the enforceability of its Rules and Procedures,
including with respect to the Sponsored Principal model and other
relevant amendments made in the proposed Rules. Based on this advice,
ICE Clear Europe believes that the amendments are consistent with the
requirements of Rule 17Ad-22(d)(1) that a clearing agency maintain a
well-founded, transparent and enforceable legal framework for its
activities, including with respect to default management.

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

    ICE Clear Europe does not believe the proposed rule changes would
have any adverse impact, or impose any burden, on competition not
necessary or appropriate in furtherance of the purposes of the Act. The
proposed amendments are principally intended to offer new segregation
models, and enhancements to existing segregation models, for customers
of Clearing Members in order to comply with EMIR requirements
applicable to the clearing house. The amendments are thus expected to
increase the segregation choices available to market participants.
    In terms of access to the clearing house, ICE Clear Europe is not
proposing to materially change its standards for Clearing Membership or
financial requirements for Clearing Membership. ICE Clear Europe is
permitting a new form of access to the clearing house, for Sponsored
Principals, and ICE Clear Europe believes that this development should
facilitate, rather than limit, access to the clearing house. Although
cost models remain to be developed, use of these accounts may be more
expensive than use of omnibus accounts, reflecting the additional
operational complexity and segregation available. It is possible that
these additional costs may deter some market participants for using the
Individually Segregated Sponsored Account. The clearing house retains
other, omnibus segregation models, however, that are based on existing
models and will be available to market participants that do not elect
individual segregation. The clearing house also recognizes that the new
segregation models may impose certain additional costs on Clearing
Members, including potentially additional guaranty fund contributions,
which could raise the cost of customer clearing. However, ICE Clear
Europe believes that this is the result of the requirement under EMIR
to offer such models and in any event is justified by the benefits
provided by such models for those who use them.
    ICE Clear Europe also does not believe the proposed amendments are
likely to adversely affect competition among Clearing Members. The new
segregation models are (and are required to be) made available to all
Non-FCM/BD Clearing Members. As noted above, the new models are not
being offered to FCM/BD Clearing Members, which will continue to use
the account and segregation frameworks provided under applicable U.S.
law. The ability for FCM/BD Clearing Members to continue using the
existing framework should mitigate any competitive impact of the new
models for such Clearing Members. ICE Clear Europe believes that the
new options will facilitate competition among Clearing Members as they
seek to offer the segregation models to clients, consistent with the
commercial requirements of the Clearing Member and their customers and
the competitive environment as well as background regulatory
requirements. To the extent that the new segregation models impose
additional costs and operational complexity, those will fall on all
Clearing Members that seek to use the models, and are not designed to
favor one type of Clearing Member over another.
    In terms of the impact on customers of Clearing Members, the
proposed amendments are intended to provide those customers a greater
range of choices and protections for margin assets provided by those
customers, as required under EMIR. Certain models, such as the
individually segregated model, may impose higher costs on customers.
ICE Clear Europe believes that such costs are accompanied by the higher
protection to customer assets afforded by those models and required
under EMIR. In addition, other models, including omnibus segregation
models, remain available for customers that prefer such models. As a
result, ICE Clear Europe does not believe that the proposed amendments
will impose a significant burden on customers seeking access to
clearing.
    For similar reasons, ICE Clear Europe does not believe that the
rule amendments will adversely affect the ability of market
participants to continue to clear transactions, or otherwise limit
market participants' choices for clearing derivatives. The rule changes
implement a range of different models, each with different costs and
benefits to customers. ICE Clear Europe is also maintaining a
segregation framework analogous to that available today for customers
of Clearing Members. Furthermore, the amendments are intended to
implement requirements that will apply to European clearing houses
generally under EMIR, including the requirement to offer an individual
segregation model. As a result, ICE Clear Europe expects that other
clearing house will offer a similar range of clearing segregation
options, and the changes are not expected to reduce access to clearing
or clearing services.
    For the foregoing reasons, ICE Clear Europe does not believe that
the proposed amendments will impose any burden on competition not
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

    Written comments relating to the rule changes have been solicited
from

Clearing Members through extensive discussions with clearing members
and a public consultation. ICE Clear Europe received various comments
during this consultation and took such comments into account in making
further modifications to the proposed rules. The rule changes also
reflect comments received from the Bank of England in connection with
ICE Clear Europe's application for EMIR authorization. ICE Clear Europe
will notify the Commission of any additional written comments received
by ICE Clear Europe.

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

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

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml) or
     Send an email to<EMAIL_ADDRESS>Please include
File Number SR-ICEEU-2014-09 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
    All submissions should refer to File Number SR-ICEEU-2014-09. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (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 Section, 100 F Street
NE., Washington, DC 20549, on official business days between the hours
of 10:00 a.m. and 3:00 p.m. Copies of such filings will also be
available for inspection and copying at the principal office of ICE
Clear Europe and on ICE Clear Europe's Web site at https://www.theice.com/notices/Notices.shtml?regulatoryFilings.
    All comments received will be posted without change; the Commission
does not edit personal identifying information from submissions. You
should submit only information that you wish to make available
publicly. All submissions should refer to File Number SR-ICEEU-2014-09
and should be submitted on or before July 31, 2014.
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    \27\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2014-16099 Filed 7-9-14; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register: March 17, 2006 (Volume 71, Number 52)]
[Notices]
[Page 13821-13822]
[DOCID:fr17mr06-46]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Docket No. CP06-80-000]

Columbia Gas Transmission Corporation; Notice of Application

March 9, 2006.
    Take notice that Columbia Gas Transmission Corporation, 1700
MacCorkle Avenue, SE., Charleston, West Virginia 25314, filed in Docket
No. CP06-80-000 on March 3, 2006, an application pursuant to section
7(b) of the Natural Gas Act (NGA), to abandon, by removal, two obsolete
1,100 hp compressor units and appurtenant facilities at the Glenville
Compressor Station, located in Gilmer County, West Virginia, 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 TYY,<PHONE_NUMBER>.
    Any questions regarding this application should be directed to
counsel for Columbia, Fredric J. George, Lead Counsel, Columbia Gas
Transmission Corporation, P.O. Box 1273, Charleston, West Virginia
25325-1273;<PHONE_NUMBER> (telephone) or<PHONE_NUMBER> (fax).
    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, 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 14 copies of
filings made with the Commission and must mail a copy to the applicant
and to every other party in the proceeding. 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, or in support of or in opposition to this project, should
submit an original and two copies of their comments to the Secretary of
the Commission. Environmental commenters 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
commenters will not be required to serve copies of filed documents on
all other parties. The Commission's rules require that persons filing
comments in opposition to the project provide copies of their protests
only to the applicant. However, the non-party commenters 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 via the Internet in lieu of paper. See 18
CFR 385.2001(a)(1)(iii) and the instructions on the Commission's Web
site (http://www.ferc.gov) under the ``e-Filing'' link.

    Comment Date: March 30, 2006.

Magalie R. Salas,
 Secretary.
[FR Doc. E6-3872 Filed 3-16-06; 8:45 am]

BILLING CODE 6717-01-P