Daily Rules, Proposed Rules, and Notices of the Federal Government
The purpose of the proposed rule change is to provide for the clearing of Western European Sovereign CDS contracts in connection with Paragraph 13 of ICE Clear Europe's CDS Procedures on the following sovereign reference entities: Republic of Ireland, Italian Republic, Hellenic Republic, Portuguese Republic, and Kingdom of Spain (the "New Sovereign Contracts").
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.
ICE Clear Europe has identified Western European Sovereign CDS
ICE Clear Europe's risk management framework has several features designed to address particular risks of the New Sovereign Contracts. To address so-called "wrong way risk" involving correlation between the risk of default of an underlying sovereign and the risk of default of a clearing member that has written credit protection on such a sovereign, the New Sovereign Contracts are denominated in U.S. dollars, rather than Euro (and related margin and guaranty fund requirements are denominated in U.S. dollars). In addition, the rules contain limitations on self-referencing trades (i.e., trades where the clearing member is an affiliate of the underlying sovereign reference entity). Such trades may not be submitted for clearing, and if a clearing member subsequently becomes affiliated with the underlying reference entity, the rules applicable to New Sovereign Contracts provide for the termination of relevant positions.
The margin model applicable to New Sovereign Contracts will use a combination of ICE Clear Europe's spread risk margin calculation methodology used for other CDS trades and a separate margin calculation using a Monte Carlo simulation. The initial margin requirement will reflect the higher of the two calculations.
ICE Clear Europe believes that the proposed rule change to add New Sovereign Contracts for clearing are consistent with the requirements of Section 17A of the Act and the CDS procedures and regulations thereunder applicable to it.
ICE Clear Europe does not believe the proposed rule change would have any impact, or impose any burden, on competition.
Written comments relating to the proposed rule change have not been solicited or received. ICE Clear Europe will notify the Commission of any written comments received by ICE Clear Europe.
Within 45 days of the date of publication of this notice in the
(A) By order approve or disapprove the proposed rule change or
(B) Institute proceedings to determine whether the proposed rule change should be disapproved.
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. In addition, the Commission seeks comment generally on the following issues.
(1) What would be the effect on the promotion of efficiency, competition, and capital formation of ICE Clear Europe clearing New Sovereign Contracts?
(2) Would the clearing of New Sovereign Contracts create incentives among market participants to initiate trades that they otherwise would not? If so, would this increase or create new risks to the financial system or to the central counterparty that would offset the potential benefits of centralized clearing of New Sovereign Contracts?
(3) Would ICE Clear Europe's risk management framework, as described above, appropriately address risks arising from ICE Clear Europe's clearing of New Sovereign Contracts, including but not limited to "wrong-way risk"?
(4) Is the information set forth in this notice or otherwise available to the public sufficient to allow the public to provide meaningful comment on the proposed rule change?
Comments may be submitted by any of the following methods:
* Use the Commission's Internet comment form (
* Send an email to
* Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
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-2012-08 and should be submitted on or before November 23, 2012.