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  • FR Doc E8-17357[Federal Register: July 31, 2008 (Volume 73, Number 148)]


    [Page 44706-44707]

    From the Federal Register Online via GPO Access []





    Determination of Appropriateness of Standards of the United

    Kingdom's Financial Services Authority for Oversight and Supervision of

    ICE Clear Europe Limited, a Multilateral Clearing Organization

    AGENCY: Commodity Futures Trading Commission.

    ACTION: Order.


    SUMMARY: The Commodity Futures Trading Commission (CFTC) is issuing an

    Order pursuant to Section 409(b)(3) of the Federal Deposit Insurance

    Corporation Improvement Act (FDICIA). Section 409(b)(3) provides that

    the Commission (or one of several other authorized U.S. financial

    regulators) may determine that the supervision by a foreign financial

    regulator of a multilateral clearing organization (MCO) for over-the-

    counter (OTC) instruments satisfies appropriate standards. The

    Commission is issuing this Order with respect to the supervision by the

    United Kingdom's (UK) Financial Services Authority (FSA) of ICE Clear

    Europe Limited (ICE Clear Europe).

    DATES: Effective Date: July 31, 2008.

    FOR FURTHER INFORMATION CONTACT: Robert B. Wasserman, Associate

    Director, 202-418-5092,, or Lois J. Gregory,

    Special Counsel, 816-960-7719,, Division of Clearing

    and Intermediary Oversight, Commodity Futures Trading Commission, Three

    Lafayette Centre, 1151 21st Street, NW., Washington, DC 20581.

    SUPPLEMENTARY INFORMATION: The CFTC has issued the following Order:

    Order Issued Pursuant to Section 409 of the Federal Deposit

    Insurance Corporation Improvement Act Determining the Appropriateness

    of the Standards of the United Kingdom's Financial Services Authority

    in the Oversight and Supervision of ICE Clear Europe Limited, a

    Multilateral Clearing Organization.

    FDICIA Section 409 \1\ provides that, in order to operate an MCO

    \2\ for over-the-counter (OTC) derivatives instruments,\3\ a clearing

    organization must meet one of several alternative requirements. In

    particular, a clearing organization will qualify to operate such an MCO

    if it is supervised by a foreign financial regulator that the

    Comptroller of the Currency, the Board of Governors of the Federal

    Reserve System, the Federal Deposit Insurance Corporation, the

    Securities and Exchange Commission, or the CFTC, as applicable, has

    determined satisfies appropriate standards.\4\


    \1\ 12 U.S.C. 4422.

    \2\ FDICIA Section 408(1), 12 U.S.C. 4421(1), defines MCO to

    mean ``a system utilized by more than [two] participants in which

    the bilateral credit exposures of participants arising from the

    transactions cleared are effectively eliminated and replaced by a

    system of guarantees, insurance, or mutualized risk of loss.''

    \3\ FDICIA Section 408(2), 12 U.S.C. 4421(2) defines OTC

    derivative instrument.

    \4\ FDICIA Section 409(b)(3), 12 U.S.C. 4422(b)(3). The CFTC has

    issued two previous orders pursuant to this authority determining

    that the supervision of particular MCOs by a foreign financial

    regulator met appropriate standards. The foreign financial

    regulators involved were the Norwegian Banking, Insurance and

    Securities Commission and the Alberta (Canada) Securities

    Commission. See 67 FR 2419 (January 17, 2002) and 71 FR 10959 (March

    3, 2006), respectively.


    ICE Clear Europe, a Recognised Clearing House under the supervision

    of the UK FSA, has requested that the CFTC determine that the FSA's

    program for supervision of their clearing

    [[Page 44707]]

    activities satisfies appropriate standards.\5\ Such a determination

    would permit ICE Clear Europe to operate as an MCO consistent with the

    requirements set forth in FDICIA Section 409(b)(3).


    \5\ Letter from Paul Swann, President and Chief Operating

    Officer of Ice Clear Europe, to David A. Stawick, Secretary, CFTC,

    dated March 10, 2008, with annexes. ICE Clear Europe intends to

    clear OTC derivatives transactions to be executed on the

    IntercontinentalExchange, Inc. (ICE), a U.S. exempt commercial

    market. See generally CEA Sec. 2(h)(3), 7 U.S.C. 2(h)(3), for a

    discussion of exempt commercial markets. This activity will bring it

    within FDICIA's definition of an MCO. See FDICIA Sec. 408(2)(C), 12

    U.S.C. 4421(2)(C) (defining OTC derivative instrument to include any

    agreement, contract, or transaction exempt under CEA Section 2(h)).


    In reviewing this request, the Commission has considered the UK

    legal and regulatory regime for what are referred to as ``recognised

    clearing houses,'' and how that regime has been applied to ICE Clear

    Europe. This includes the UK's Financial Services and Markets Act, 2000

    \6\ (FSMA), regulations thereunder,\7\ and regulatory guidance provided

    by the FSA.\8\ ICE Clear Europe provided the CFTC with its analysis of

    the correspondence between recognition requirements applicable to

    clearing houses recognized by the FSA and the core principles

    applicable to DCOs as set forth in CEA Section 5b.\9\


    \6\ Financial Services and Markets Act, 2000 (Eng.). References

    to sections of the FSMA are hereinafter cited as ``Section [ ]


    \7\ Financial Services and Markets Act 2000 (Recognition for

    Investment Exchanges and Clearing Houses) Regulations (2001) SI


    \8\ The FSA provides what it describes as a ``specialized

    sourcebook'' entitled ``Recognised Investment Exchanges and

    Recognised Clearing Houses (REC) requirements applying to recognised

    bodies as part of the ``FSA Handbook,'' which is available at http:/


    \9\ The issues raised under Section 409 do not include FSA's

    supervision of trading, and the Commission has accordingly not

    reviewed that aspect of FSA's regulatory program in considering the

    present Order.


    The Commission also considered additional facts, including the

    authority of the FSA to enforce compliance with the applicable foreign

    law, the foreign law's applicability to the activities of MCOs, FSA's

    membership in the International Organization of Securities Commissions

    (IOSCO), a review of the UK financial system in general (including

    FSA's supervision of clearing in particular) by the International

    Monetary Fund and World Bank (with satisfactory results), and the FSA's

    demonstrated ability and willingness to share information and otherwise

    cooperate with the CFTC.

    The FSA is authorized under the FSMA to supervise the clearing of

    financial instruments by persons located in the UK and has the

    authority to enforce compliance with applicable laws, rules and

    regulations.\10\ Clearing in the UK of OTC instruments may be conducted

    only by a clearing house recognized by the FSA,\11\ thus MCO activity

    is subject to regulatory supervision by the FSA. Furthermore, the FSA

    has the ability and has agreed to share with the CFTC, upon request,

    information in its possession regarding ICE Clear Europe's activities

    as a recognised clearing house and to otherwise cooperate with the



    \10\ Section 2 FSMA.

    \11\ Section 285 FSMA. ICE Clear Europe received such

    recognition on May 12, 2008.

    \12\ See generally the Memorandum of Understanding between the

    United States CFTC and the United Kingdom FSA Concerning

    Consultation, Cooperation and the Exchange of Information Related to

    Market Oversight (November 12, 2006) and other agreements to

    cooperate referred to therein.


    As a matter of courtesy, the Commission invited comment concerning

    ICE Clear Europe's application from the other federal financial

    regulators listed in Section 409, but received none. The Commission

    also invited the public to comment on ICE Clear's petition by general

    release posted on the Commission's Web site on June 17, 2008. The

    Commission received comments from three individuals. Each of these

    comments concerned the trading of contracts in the United Kingdom, but

    none addressed the FSA's program for the supervision of clearing. As

    noted above, the supervision of trading was outside the scope of the

    current review.

    Based upon this information, the CFTC has determined, pursuant to

    FDICIA Section 409(b)(3), that the supervision by the UK's FSA of ICE

    Clear Europe's activity in clearing OTC instruments satisfies

    appropriate standards. Any material changes or omissions in the facts

    and circumstances upon which this order is based might require the CFTC

    to reconsider this matter.

    Issued in Washington, DC, on July 23, 2008.

    David A. Stawick,

    Secretary of the Commission.

    [FR Doc. E8-17357 Filed 7-30-08; 8:45 am]

    BILLING CODE 6351-01-P

    Last Updated: July 31, 2008