Self-Regulatory Organizations; ICE Clear Europe Limited; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Related to SPAN Margin Methodology Enhancements to Inter-Contract Credits and Average Option Pricing Model for Energy Clearing Members
Federal Register, Volume 78 Issue 2 (Thursday, January 3, 2013)
Federal Register Volume 78, Number 2 (Thursday, January 3, 2013)
Notices
Pages 332-333
From the Federal Register Online via the Government Printing Office www.gpo.gov
FR Doc No: 2012-31570
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SECURITIES AND EXCHANGE COMMISSION
Release No. 34-68542; File No. SR-ICEEU-2012-20
Self-Regulatory Organizations; ICE Clear Europe Limited; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Related to SPAN Margin Methodology Enhancements to Inter-Contract Credits and Average Option Pricing Model for Energy Clearing Members
December 27, 2012.
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 December 19, 2012, ICE Clear Europe Limited (``ICE Clear Europe'') filed with the Securities and Exchange Commission (``Commission'') the proposed rule change as described in Items I, II and III below, which Items have been prepared primarily by ICE Clear Europe. ICE Clear Europe filed the proposal pursuant to Section 19(b)(3)(A)(iii) of the Act,\3\ and Rule 19b-4(f)(4)(ii) thereunder,\4\ so that the proposal was effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(4)(ii).
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Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change
The purpose of the change is to implement changes to the SPANsupreg for ICE Margining algorithm employed to calculate Original Margin (``Margin'') on Clearing Member positions. All capitalized terms not defined herein are defined in the ICE Clear Europe Rules.
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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.\5\
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\5\ The Commission has modified the text of the summaries prepared by ICE Clear Europe.
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Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change
In addition to providing clearing services for credit default swaps, ICE Clear Europe also provides clearing services for non-
securities contracts in energy and emissions markets (``Energy Futures Products''). Position Allocation Methodology is an enhancement to the SPANsupreg \6\ for the ICE Margining algorithm employed to calculate Original Margin for certain Energy Futures Products. This feature is applied for certain Energy Futures Products where the position in such a product can be better represented as one or more positions in alternate products for the purposes of calculating Original Margin. This Position Allocation Methodology will result in new enhanced positions, but the SPAN margin calculation algorithm itself has not been changed. These changes will impact both the algorithm employed and the format of SPAN for ICE Array Files (``SPAN Array Files'') published by ICE Clear Europe and will necessitate changes to the applications used by Energy Clearing Members to calculate margin on their Proprietary and Customer positions. ICE Clear Europe has updated the original technical specification, at the request of Clearing Members, in order to provide further clarification and examples relating to implementation of Volatility Credit.
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\6\ SPAN is a registered trademark of Chicago Mercantile Exchange Inc., used herein under license. Chicago Mercantile Exchange Inc. assumes no responsibility in connection with the use of SPAN by any person or entity. SPAN is a risk evaluation and margin framework algorithm.
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As of April 2, 2012, a change to the calculation of the inter-
contract credit that implements an additional credit, the Volatility Credit, was made. The change to the Inter-Contract Credit algorithm yields an additional credit that is included in the existing inter-
contract credit. Since April 2, 2012, the SPAN Arrays published by ICE Clear Europe include the Volatility Risk Credit Rate (the Offset Rate) within the type 14 records.
Since March 30 2012, the Volatility Credit is introduced in respect of the following SPAN Combined Contract pairings:
BRN/BSP, Brent Futures/Brent Option vs. Brent First Line Swap/Brent Average Price Option.
GAS/GSP, Gas Oil Futures/Gas Oil Option vs. Gas Oil Front Line Swap/Gas Oil Average Price Option.
ULS/ULA, Low-Sulphur Gas Oil Futures/Low Sulphur Gas Oil Option vs. Low Sulphur Gas Oil Front Line Swap/Low-Sulphur Gas Oil Average Price Option.
WBS/WSP, WTI Future/WTI Option vs. WTI First Line Swap/WTI Average Price Option.
Going forward, ICE Clear Europe will notify Clearing Members of the applicable Volatility Credit rates in due course. Inter-contract spreads in respect of all other products are unaffected.
At end of day on April 6, 2012, the Clearing House enabled the Average Price Option model for Options on Brent, Gas Oil, Low-Sulphur Gas Oil and WTI First Line Swaps (Commodity Codes I, GSP, ULA and R).
As of April 9, 2012, a modified Black 76 pricing model has been used to determine scanning losses in respect of Average Price Options. This model reflects the risk reduction inherent within these options during the averaging period prior to final settlement. This change has no impact on Clearing Member systems as this change is reflected within the SPAN Array Files and requires no changes to any software or algorithms within the SPAN methodology.
All updated SPANsupreg margin parameters can be found at: https://www.theice.com/clear_europe_span_parameters.jhtml.
ICE Clear Europe has also published test SPAN Array Files conforming to the new SPAN Array File Format, v2.5, which incorporates credit rates in respect of the product pairings identified above. The test files are available from the file download service (AFTS) and are located in the ``/test'' sub-directory of the standard SPAN Array download location on AFTS.
These files are named according to the test file naming convention below:
IPEmmddT.csv.zip or IPEmmddT.sp5.zip, where,
mmdd represents the business month and day;
The sp5 file is of the same format as the pa5 format file that Members might download from the CME ftp site.
Section 17A(b)(3)(F) of the Act \7\ requires, among other things, that the rules of a clearing agency be designed to promote the prompt and accurate
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clearance and settlement of securities transactions and, to the extent applicable, derivative agreements, contracts, and transactions. ICE Clear Europe believes that the proposed change with respect to Energy Futures Products is consistent with the requirements of the Act and the rules and regulations thereunder applicable to ICE Clear Europe, in particular, with Section 17A(b)(3)(F),\8\ because improved margining protects investors and the public interest.
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\7\ 15 U.S.C. 78q-1(b)(3)(F).
\8\ 15 U.S.C. 78q-1(b)(3)(F).
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Self-Regulatory Organization's Statement on Burden on Competition
ICE Clear Europe does not believe the proposed change would have any impact, or impose any burden, on competition.
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Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others
Written comments relating to the proposed change have not been solicited or received. ICE Clear Europe will notify the Commission of any written comments received by ICE Clear Europe.
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Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action
The foregoing rule change has become effective upon filing pursuant to Section 19(b)(3)(A)(iii) of the Act \9\ and Rule 19b-4(f)(4)(ii) \10\ thereunder because it primarily affects the futures clearing operations of the clearing agency with respect to futures that are not security futures, and does not significantly affect any securities clearing operations of the clearing agency or any related rights or obligations of the clearing agency or persons using such service. At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act.\11\
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\9\ 15 U.S.C. 78s(b)(3)(A)(iii).
\10\ 17 CFR 240.19b-4(f)(4)(ii).
\11\ 15 U.S.C. 78s(b)(3)(C).
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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 rule-comments@sec.gov. Please include File Number SR-ICEEU-2012-20 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-ICEEU-2012-20. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission's Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 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/publicdocs/regulatory_filings/ICEU_SEC_121912_2012-20.pdf.
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-2012-20 and should be submitted on or before January 24, 2013.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\12\
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\12\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
FR Doc. 2012-31570 Filed 1-2-13; 8:45 am
BILLING CODE 8011-01-P
