FR Doc E8-17357[Federal Register: July 31, 2008 (Volume 73, Number 148)]
[Notices]
[Page 44706-44707]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr31jy08-29]
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COMMODITY FUTURES TRADING COMMISSION
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.
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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, [email protected], or Lois J. Gregory,
Special Counsel, 816-960-7719, [email protected], 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\
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\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.
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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).
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\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)).
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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\
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\6\ Financial Services and Markets Act, 2000 (Eng.). References
to sections of the FSMA are hereinafter cited as ``Section [ ]
FSMA.''
\7\ Financial Services and Markets Act 2000 (Recognition for
Investment Exchanges and Clearing Houses) Regulations (2001) SI
2001/995.
\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:/
/fsahandbook.info/FSA/html/handbook/REC.
\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.
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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
CFTC.\12\
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\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.
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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