[Federal Register Volume 75, Number 232 (Friday, December 3, 2010)]
[Notices]
[Pages 75520-75522]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-30375]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63389; File No. S7-16-09]
Order Extending Temporary Conditional Exemptions Under The
Securities Exchange Act of 1934 in Connection With Request on Behalf of
Ice Clear Europe, Limited Related to Central Clearing of Credit Default
Swaps and Request for Comment
November 29, 2010.
I. Introduction
The Securities and Exchange Commission (``Commission'') has taken
multiple actions designed to help foster the prompt development of
credit default swap (``CDS'') central counterparties (``CCP''),
including granting temporary conditional exemptions from certain
provisions of the federal securities laws.\1\
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\1\ See generally Securities Exchange Act Release Nos. 60372
(Jul. 23, 2009), 74 FR 37748 (Jul. 29, 2009) and 61973 (Apr. 23,
2010), 75 FR 22656 (Apr. 29, 2010) (temporary exemptions in
connection with CDS clearing by ICE Clear Europe Limited);
Securities Exchange Act Release Nos. 60373 (Jul. 23, 2009), 74 FR
37740 (Jul. 29, 2009) and 61975 (Apr. 23, 2010), 75 FR 22641 (Apr.
29, 2010) (temporary exemptions in connection with CDS clearing by
Eurex Clearing AG); Securities Exchange Act Release Nos. 59578 (Mar.
13, 2009), 74 FR 11781 (Mar. 19, 2009), 61164 (Dec. 14, 2009), 74 FR
67258 (Dec. 18, 2009), and 61803 (Mar. 30, 2010), 75 FR 17181 (Apr.
5, 2010) (temporary exemptions in connection with CDS clearing by
Chicago Mercantile Exchange Inc.); Securities Exchange Act Release
Nos. 59527 (Mar. 6, 2009), 74 FR 10791 (Mar. 12, 2009), 61119 (Dec.
4, 2009), 74 FR 65554 (Dec. 10, 2009), and 61662 (Mar. 5, 2010), 75
FR 11589 (Mar. 11, 2010) (temporary exemptions in connection with
CDS clearing by ICE Trust U.S. LLC); Securities Exchange Act Release
No. 59164 (Dec. 24, 2008), 74 FR 139 (Jan. 2, 2009) (temporary
exemptions in connection with CDS clearing by LIFFE A&M and
LCH.Clearnet Ltd.); and other Commission actions discussed in
several of these orders. In addition, the Commission has issued
interim final temporary rules that provide exemptions under the
Securities Act of 1933 and the Securities Exchange Act of 1934 for
CDS to facilitate the operation of one or more central
counterparties for the CDS market. See Securities Act Release Nos.
8999 (Jan. 14, 2009), 74 FR 3967 (Jan. 22, 2009) (initial approval),
9063 (Sep. 14, 2009), 74 FR 47719 (Sep. 17, 2009) (extension until
Nov. 30, 2010), and 9158 (Nov. 30, 2010) (extension until Jul. 16,
2011).
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In July 2009, the Commission issued an order providing temporary
conditional exemptions to ICE Clear Europe Limited (``ICE Clear
Europe''), and certain other parties, to permit ICE Clear Europe to
clear and settle CDS transactions.\2\ In response to ICE Clear Europe's
request, the Commission temporarily extended and expanded the
exemptions in April 2010.\3\ The current exemptions pursuant to the
April 2010 ICE Clear Europe Exemptive Order are scheduled to expire on
November 30, 2010, and ICE Clear Europe has requested that the
Commission extend the exemptions contained in the April 2010 ICE Clear
Europe Exemptive Order.\4\
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\2\ Securities Exchange Act Release No. 60372 (Jul. 23, 2009),
74 FR 37748 (Jul. 29, 2009) (``July 2009 ICE Clear Europe Exemptive
Order'').
\3\ Securities Exchange Act Release No. 61973 (Apr. 23, 2010),
75 FR 22656 (Apr. 29, 2010) (``April 2010 ICE Clear Europe Exemptive
Order'').
\4\ See Letter from Russell D. Sacks, ICE Clear Europe, to
Elizabeth Murphy, Secretary, Commission, Nov. 29, 2010 (``November
2010 Request'').
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II. Discussion
A. Legislative Developments
Subsequent to the Commission's issuance of the April 2010 ICE Clear
Exemptive Order, the President signed the Dodd-Frank Wall Street Reform
and Consumer Protection Act of 2010 (``Dodd-Frank Act'') into law.\5\
The
[[Page 75521]]
Dodd-Frank Act was enacted to, among other purposes, promote the
financial stability of the United States by improving accountability
and transparency in the financial system.\6\ To this end, the
provisions of Title VII of the Dodd-Frank Act provide for the
comprehensive regulation of security-based swaps \7\ by the
Commission.\8\ The Dodd-Frank Act amends the Exchange Act to require,
among other things, that transactions in security-based swaps be
cleared through a clearing agency that is registered with the
Commission or that is exempt from registration if they are of a type
that the Commission determines must be cleared, unless an exception or
exemption from mandatory clearing applies.\9\ Furthermore, Title VII of
the Dodd-Frank Act provides that a derivatives clearing organization
registered with the CFTC that cleared swaps pursuant to an exemption
from registration as a clearing agency prior to the date of enactment
of the Dodd-Frank Act, such as ICE Clear Europe, is deemed registered
as a clearing agency for the purposes of clearing security-based swaps
(``Deemed Registered Provision'').\10\ The Deemed Registered Provision,
along with other general provisions under Title VII of the Dodd-Frank
Act, becomes effective on July 16, 2011.\11\ As a result, ICE Clear
Europe will no longer need the exemption from registration as a
clearing agency under Section 17A of the Exchange Act provided by the
April 2010 ICE Clear Europe Exemptive Order, and previous orders, to
clear security-based swaps after the Deemed Registered Provision
becomes effective.
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\5\ Public Law 111-203 (July 21, 2010).
\6\ See Public Law 111-203, Preamble.
\7\ Section 761(a)(6) of the Dodd-Frank Act defines a
``security-based swap'' as any agreement, contract, or transaction
that is a ``swap,'' as defined in Section 1a(47) of the Commodity
Exchange Act, 7 U.S.C. 1a(47), that is based on an index that is a
narrow-based security index, a single security, or a loan, including
any interest therein or on the value thereof; or the occurrence,
nonoccurrence, or extent of the occurrence of an event relating to a
single issuer of a security or the issuers of securities in a
narrow-based security index, provided that such event directly
affects the financial statements, financial condition, or financial
obligations of the issuer. See Section 3(a)(68) of the Securities
Exchange Act of 1934 (``Exchange Act''), 15 U.S.C. 78c(a)(68) (as
added by Section 761(a)(6) of the Dodd-Frank Act). Section 712(d) of
the Dodd-Frank Act provides that the Commission and the Commodity
Futures Trading Commission (``CFTC''), in consultation with the
Board of Governors of the Federal Reserve System, shall, among other
things, jointly further define the terms ``swap'' and ``security-
based swap.''
\8\ Section 761(a)(2) of the Dodd-Frank Act explicitly includes
security-based swaps in the definition of ``security'' in Section
3(a)(10) of the Exchange Act, 15 U.S.C. 78c.
\9\ See Section 763(a) of the Dodd-Frank Act (adding new Section
3C to the Exchange Act, 15 U.S.C. 78c-2).
\10\ See Section 763(b) of the Dodd-Frank Act (adding new
Section 17A(l) to the Exchange Act, 15 U.S.C. 78q-1(1)). Under this
Deemed Registered Provision, ICE Clear Europe will be required to
comply with all requirements of the Exchange Act, and the rules
thereunder, applicable to registered clearing agencies to the extent
it clears security-based swaps after the effective date of the
Deemed Registered Provision, including, for example, the obligation
to file proposed rule changes under Section 19(b) of the Exchange
Act.
\11\ Section 774 of the Dodd-Frank Act states, ``[u]nless
otherwise provided, the provisions of this subtitle shall take
effect on the later of 360 days after the date of the enactment of
this subtitle or, to the extent a provision of this subtitle
requires a rulemaking, not less than 60 days after publication of
the final rule or regulation implementing such provision of this
subtitle.''
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B. ICE Clear Europe's Request for Extension of April 2010 ICE Clear
Europe Exemptive Order
ICE Clear Europe seeks an extension of the temporary exemptions of
the April 2010 ICE Clear Europe Exemptive Order under the same terms
and conditions contained in the April 2010 ICE Clear Europe Exemptive
Order.\12\ In ICE Clear's request for an extension of the April 2010
ICE Clear Exemptive Order, ICE Clear represents that there have been no
material changes to the operations of ICE Clear, and that the
representations made by ICE Clear in connection with the April 2010 ICE
Clear Exemptive Order remain true in all material respects.\13\ These
representations are discussed in detail in our earlier ICE Clear
orders.
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\12\ See November 2010 Request, supra note 4.
\13\ See id. ICE Clear Europe notes that it has created a set of
amendments to its rulebook and procedures for technical improvements
to the process for dealing with restructuring credit events and to
facilitate the imminent introduction of clearing of non-U.S., non-
U.K. sovereign CDS contracts.
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Accordingly, consistent with our findings in the April 2010 ICE
Clear Europe Order, and, in particular, in light of the risk management
and systemic benefits in continuing to facilitate CDS clearing by ICE
Clear Europe until Title VII of the Dodd-Frank Act becomes fully
effective, the Commission finds that it is necessary or appropriate in
the public interest and is consistent with the protection of investors
to exercise its authority to extend the exemptive relief granted in the
April 2010 ICE Clear Europe Exemptive Order until July 16, 2011.
Specifically, pursuant to the Commission's authority under Section 36
of the Exchange Act,\14\ based on the facts presented and the
representations made by ICE Clear Europe,\15\ the Commission is
extending until July 16, 2011, under the same terms and conditions in
the April 2010 ICE Clear Europe Exemptive Order each of the existing
exemptions connected with CDS clearing by ICE Clear Europe, which
include: The temporary conditional exemption granted to ICE Clear
Europe from clearing agency registration under Section 17A of the
Exchange Act solely to perform the functions of a clearing agency for
certain non-excluded CDS; the temporary conditional exemption of ICE
Clear Europe and certain of its clearing members from the registration
requirements of Sections 5 and 6 of the Exchange Act solely in
connection with the calculation of mark-to-market prices for certain
non-excluded CDS cleared by ICE Clear Europe; the temporary conditional
exemption of ICE Clear Europe and certain eligible contract
participants from certain Exchange Act requirements with respect to
certain non-excluded CDS cleared by ICE Clear Europe; and the temporary
conditional exemption from certain Exchange Act requirements granted to
registered broker-dealers with respect to certain non-excluded CDS.\16\
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\14\ 15 U.S.C. 78mm. Section 36 of the Exchange Act authorizes
the Commission to conditionally or unconditionally exempt any
person, security, or transaction, or any class of classes of
persons, securities, or transactions, from any provision or
provisions of the Exchange Act or any rule or regulation thereunder,
by rule, regulation, or order, to the extent that such exemption is
necessary or appropriate in the public interest, and is consistent
with the protection of investors.
\15\ See November 2010 Request, supra note 4. The exemptions we
are granting today are based on all of the representations made by
ICE Clear Europe in its request, which incorporate representations
made by ICE Clear Europe in connection with the April 2010 ICE Clear
Europe Exemptive Order, which in turn incorporate representations
related to our earlier exemptive orders. We recognize, however, that
there could be legal uncertainty in the event that one or more of
the underlying representations were to become inaccurate.
Accordingly, if any of these exemptions were to become unavailable
by reason of an underlying representation no longer being materially
accurate, the legal status of existing open positions in non-
excluded CDS (as defined in the April 2010 ICE Clear Europe
Exemptive Order) that previously had been cleared pursuant to the
exemptions would remain unchanged, but no new positions could be
established pursuant to the exemptions until all of the underlying
representations were again accurate.
\16\ See April 2010 ICE Clear Europe Exemptive Order, supra note
3.
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C. Solicitation of Comments
When we granted the April 2010 ICE Clear Europe Order, we requested
comment on all aspects of the exemptions. We received no comments in
response. In connection with this Order extending the exemptions
granted in connection with CDS clearing by ICE Clear Europe, we
reiterate our request for comments on all aspects of the exemptions.
Comments may be submitted by any of the following methods:
[[Page 75522]]
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/other.shtml); or
Send an e-mail to [email protected]. Please include
File Number S7-16-09 on the subject line; or
Use the Federal eRulemaking Portal (http://www.regulations.gov/). Follow the instructions for submitting comments.
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 S7-16-09. This file number
should be included on the subject line if e-mail is used. To help us
process and review your comments more efficiently, please use only one
method. We will post all comments on the Commission's Internet Web site
(http://www.sec.gov/rules/other.shtml). Comments are also 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. All comments received will
be posted without change; we do not edit personal identifying
information from submissions. You should submit only information that
you wish to make available publicly.
III. Conclusion
It is hereby ordered, pursuant to Section 36(a) of the Exchange
Act, that, until July 16, 2011, the following exemptions connected with
CDS clearing by ICE Clear Europe contained in the April 2010 ICE Clear
Europe Exemptive Order are extended: (i) The temporary conditional
exemption granted to ICE Clear Europe from clearing agency registration
under Section 17A of the Exchange Act solely to perform the functions
of a clearing agency for certain non-excluded CDS; (ii) the temporary
conditional exemption of ICE Clear Europe and certain of its clearing
members from the registration requirements of Sections 5 and 6 of the
Exchange Act solely in connection with the calculation of mark-to-
market prices for certain non-excluded CDS cleared by ICE Clear Europe;
(iii) the temporary conditional exemption of ICE Clear Europe and
certain eligible contract participants from certain Exchange Act
requirements with respect to certain non-excluded CDS cleared by ICE
Clear Europe; and (iv) the temporary conditional exemption from certain
Exchange Act requirements granted to registered broker-dealers with
respect to certain non-excluded CDS.
By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-30375 Filed 12-2-10; 8:45 am]
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