1
ICE Clear Credit LLC Commingling and Portfolio Margining PetitionsIntroduction and Summary
ICE Clear Credit formally filed separate but related Commingling / Portfolio Margining Petitions with theCFTC and SEC on October 4, 2011. (ICE Clear Credit previously filed drafts of its Petitions with theCFTC and SEC on May 23, 2011.) ICE Clear Credit is prepared to implement commingling and portfoliomargining relief with respect to customer-related cleared CDS transactions as soon as practicable subjectto the required regulatory approvals from both the CFTC and SEC.In summary, the ICE Clear Credit Petitions request that the CFTC and SEC issue exemptive orders, inaccordance with Section 713(a) of Dodd-Frank, exempting ICE Clear Credit and its Participants fromSection 15(c)(3) of the Exchange Act and Rule 15c3-3 thereunder, in order to allow broker-dealersregistered under the Securities Exchange Act and that are also registered as futures commissionmerchants pursuant to the Commodity Exchange Act (BD/FCMs) to: (i) hold customer positions in creditdefault swaps (CDS) that include both broad-based index CDS that are regulated by the CFTC ascommodity swaps, and single-name CDS that are regulated by the SEC as security-based swaps, in acustomer commingled omnibus account at ICE Clear Credit that is subject to Section 4d(f) of the CEA andsubject to Subchapter IV of Chapter 7 of Title 11 of the United States Code and the rules and regulationsthereunder; (ii) calculate margin for the commingled account pursuant to a portfolio margining programapproved by the CFTC and SEC; and (iii) provide similar relief for BD/FCMs that maintain clearingaccounts for their customers at ICE Clear Credit.By requiring CDS to be centrally cleared, Congress is calling for a significant change to the riskmanagement of the swaps marketplace. Unless the relief requested by ICE Clear Credit’s Petitions isprovided, BD/FCMs clearing such transactions on behalf of customers will be required to maintainseparate customer accounts subject to different margin rules, and will not be in a position to providemargin relief with respect to correlated commodity swap and security-based swap positions. A customer who sells single-name CDS to offset the risk of a correlated Index CDS will, in the absence of portfoliomargining, have to post full margin for both assets, which will require a significantly greater andunnecessary capital outlay that will discourage participation in the U.S. swap market and potentially addto systemic risk during times of stress.
ICE encourages interested market participants to communicate directly with the CFTC and SEC toexpress their support of commingling and portfolio margining in order to ensure customers haveequal and open access to clearing.
Background
•
ICE Clear Credit currently clears certain index CDS that constitute commodity-based swapsregulated by the CFTC for both house positions and customer-related positions. ICE Clear Creditalso currently clears certain single-name CDS that constitute security-based swaps regulated bythe SEC for house positions.
•
ICE Clear Credit does not currently clear single-name CDS for customer-related positions.
2
•
ICE Clear Credit currently clears the house index and single-name CDS positions in acommingled house account because of the greater operational and economic efficiency affordedby the account structure.
•
On May 17, 2011, ICE Clear Credit received a “no objection” from the FRBNY with respect to ICEClear Credit’s portfolio margining methodology.
•
On July 12, 2011, ICE Clear Credit received a “no objection” from the New York State BankingDepartment with respect to ICE Clear Credit’s portfolio margining methodology.
•
ICE Clear Credit is targeting early December of 2011 as the implementation date for portfoliomargining related to positions in the house account for self-clearing members.
•
As noted above, subject to the required regulatory approvals from both the CFTC and SEC, ICEClear Credit hopes to be in a position to offer commingling and portfolio margining relief withrespect to customer-related cleared CDS positions by the end of 2011.
Description of Relief / Petition
•
ICE Clear Credit is seeking an order from the CFTC permitting: (1) ICE Clear Credit and (2) ICEClear Credit’s clearing participants that are BD/FCMs:1. Commingle Customer Funds – hold and commingle customer positions in CDS, includingbroad-based index CDS, narrow-based index CDS and single-name CDS (i.e., bothswaps and security-based swaps) and the customer funds used to margin, secure or guarantee such CDS instruments, in a swap customer account subject to the customer segregation requirements of Section 4d(f) of the CEA and the rules promulgated by theCFTC thereunder and subject to the commodity broker insolvency provisions of theBankruptcy Code and the CFTC’s Part 190 Rules regarding commodity broker liquidation, and2. Portfolio Margin - calculate margin for the commingled swap customer account of ICEClear Credit’s participants on a portfolio margin basis, under which ICE Clear Creditcould offset security-based CDS contracts and broad-based index CDS that arecorrelated on a risk management and economic basis when calculating marginrequirements.
•
ICE Clear Credit is simultaneously seeking an exemption from the SEC under Exchange ActSection 36(a) granting relief from the application of Securities Exchange Act Section 15(c)(3), andRule 15c3-3 thereunder, with respect to the commingling and portfolio margining of broad-basedindex CDS, narrow-based index CDS and single-name CDS in a CEA Section 4d(f) account for customers and allowing certain affiliates of clearing participants to be excluded from the definitionof “customer” for purposes of Rules 8c-1 and 15c2-1 to allow such affiliates’ CDS positions to becomingled with proprietary assets of a clearing participant in the house account of such clearingparticipant.
•
Specifically, ICE Clear Credit seeks an exemptive order from the SEC permitting BD/FCMs thatare clearing participants of ICE Clear Credit: (1) to hold customer assets used to margin, secureor guarantee customer positions consisting of CDS, including broad-based index CDS, narrow-based index CDS and single-name CDS and the eligible types of the foregoing CDS in a singleomnibus account at ICE Clear Credit that is subject to Section 4d(f) of the CEA and subject to thecommodity broker insolvency provisions of the Bankruptcy Code and the rules and regulations
Search History:
Result 00 of 00
00 results for result for
p.
Recommended
More From This User
Notes
Load more
