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


[Page 44706-44707]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]





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.


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\


\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]


Last Updated: July 31, 2008