Securities Law & Instruments

Headnote

Application under section 147 of the Securities Act (Ontario) (OSA) to exempt on an interim basis ICE Clear Credit LLC from recognition as a clearing agency under subsection 21.2(0.1) of the OSA.

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 21.2(0.1), 147.

IN THE MATTER OF

THE SECURITIES ACT,

R.S.O. 1990, CHAPTER S.5, AS AMENDED

(THE OSA)

AND

IN THE MATTER OF

ICE CLEAR CREDIT LLC (ICC)

ORDER

(Section 147 of the OSA)

WHEREAS ICC has filed an application dated December 6, 2012 (Application) with the Ontario Securities Commission (Commission) pursuant to section 147 of the OSA requesting an interim order exempting ICC from the requirement to be recognized as a clearing agency under subsection 21.2(0.1) of the OSA (Order);

AND WHEREAS ICC has represented to the Commission that:

1.1. ICC is a limited liability corporation organized under the laws of the State of Delaware in the United States (US) and is a wholly owned subsidiary of IntercontinentalExchange, Inc., a publicly traded for-profit corporation organized under the laws of Delaware and listed for trading on the New York Stock Exchange;

1.2. ICC is a derivatives clearing organization (DCO) within the meaning of that term under the US Commodity Exchange Act (CEA). ICC is subject to regulatory supervision by the US Commodity Futures Trading Commission (CFTC), a US federal regulatory agency, and is obligated under the CEA to give the CFTC access to all records unless prohibited by law or such records are subject to attorney-client privilege. The CFTC reviews, assesses and enforces a DCO's adherence to the CEA and the regulations thereunder on an ongoing basis, including but not limited to, the DCO's compliance with the core principles relating to: financial resources, participant and product eligibility, risk management, settlement procedures, treatment of funds, default rules and procedures, rule enforcement and system safeguards;

1.3. ICC is a clearing agency within the meaning of that term under the Securities Exchange Act of 1934, as amended (Exchange Act), and as such is regulated by the United States Securities and Exchange Commission (SEC). The SEC reviews, assesses and enforces a clearing agency's adherence to the Exchange Act and the regulations thereunder on an ongoing basis, including but not limited to, the clearing agency's compliance with the clearing agency standards relating to: risk management, participant access, records of financial resources and audited financial statements and minimum operating standards;

1.4. ICE Clear Credit was designated a Systemically Important Financial Market Utility by the Financial Stability Oversight Council in July of 2012.

1.5. ICC clears credit default swaps (CDS), currently CDS index products and single name CDS (collectively, the Clearing Products);

1.6. ICC's clearing participants consist of banks and futures commission merchant (FCM)/broker dealers (BD);

1.7. ICC does not have any offices or maintain other physical installations in Ontario or any other Canadian province or territory. IntercontinentalExchange, Inc. has a wholly owned subsidiary in Winnipeg, Manitoba, ICE Clear Canada, Inc., an exempt clearing agency pursuant to subsection 21.2(0.1) of the OSA;

1.8. A clearing firm may become eligible to clear CDS products at ICC by becoming a Clearing Participant of ICC (ICC Clearing Participant);

1.9. All ICC Clearing Participants, including those that are incorporated/domiciled in non-US jurisdictions, must complete an application for membership and make a deposit into the ICC guaranty fund;

1.10. ICC implements and maintains a system of financial safeguards designed to anticipate potential market exposures and ensure sufficient resources are available to cover future obligations;

1.11. To become an ICC Clearing Participant, a clearing firm must meet all ICC Clearing Participant qualifications and deposit a US$20,000,000 guaranty fund contribution with ICC;

1.12. All ICC Clearing Participants, including those that are incorporated/domiciled in non-US jurisdictions, must be subject to a legal and insolvency regime acceptable to ICC. ICC has sought Canadian legal advice in respect of obtaining an analysis of Canada's legal and insolvency regime. Additionally, clearing participants from non-US jurisdictions must use US settlement banks for settling transactions with ICC. ICC accepts US cash, US Treasuries and G7 currency at various levels for margin and guaranty fund requirements;

1.13. ICE Link is a web-based graphical user interface owned, maintained and operated by IntercontinentalExchange, Inc., used to view and submit bilaterally negotiated transactions into ICC for clearing and settlement services by ICC Clearing Participants and their customers;

1.14. ICC proposes to offer direct clearing access in Ontario (for purposes of submission for clearing at ICC) to certain Canadian financial institutions (within the meaning of such term in subsection 1.1(3) of National Instrument 14-101 Definitions) that have a head office or principal place of business in Ontario (the Ontario Clearing Members);

1.15. ICC will file a full application to the Commission for a subsequent order recognizing ICC as a clearing agency under subsection 21.2(0.1) of the OSA or exempting it from the requirement to be recognized as a clearing agency under section 147 of the OSA (Subsequent Order).

AND WHEREAS based on the Application and the representations ICC has made to the Commission, the Commission has determined that the granting of the Order would not be prejudicial to the public interest;

IT IS HEREBY ORDERED by the Commission that, pursuant to section 147 of the OSA, ICC is exempt on an interim basis from recognition as a clearing agency under subsection 21.2(0.1) of the OSA;

PROVIDED THAT:

1. This Order shall terminate on the earlier of (i) December 31, 2013 or (ii) the effective date of the Subsequent Order;

2. ICC's clearing agency activities in Ontario are limited to the clearing of Clearing Products for Ontario Clearing Members;

3. ICC shall continue to be registered with the CFTC as a DCO under the CEA, as well as with the SEC as a registered clearing agency under the Exchange Act;

4. ICC shall promptly notify staff of the Commission of:

(a) any material change or proposed material change in its regulatory oversight by the CFTC and/or SEC;

(b) any material problems with the clearance and settlement of transactions that could materially affect the safety and efficiency of ICC;

(c) any new service or product cleared by ICC that ICC would like to offer to Ontario Clearing Members; and

(d) the admission of any Ontario Clearing Members;

5. Upon the commencement of clearing of OTC derivatives trades by ICC on behalf of Ontario Clearing Members, ICC shall maintain and submit the following information to the Commission on a quarterly basis, or promptly upon request of Commission staff in respect of each cleared Clearing Product:

(a) the average daily volume and value of trades cleared during the previous quarter for each Ontario Clearing Member;

(b) the portion of total volume and value of trades cleared during the previous quarter for all clearing members that represents the total volume and value of trades cleared during the previous quarter for each Ontario Clearing Member;

(c) the average daily volume and value of the CDS Indices products whose referenced basket include Canadian entities cleared for both Canadian and Non-Canadian clearing members during the previous quarter; and

(d) the average daily volume and value of the Single Name CDS products that reference Canadian entities cleared for both Canadian and Non-Canadian clearing members during the previous quarter;

6. ICC shall promptly provide such information as may be requested from time to time by, and otherwise cooperate with, the Commission or its staff;

7. ICC shall file with the Commission no later than March 1, 2013, a complete application with accurate information and relevant supporting documents for the Subsequent Order. If the March 1, 2013 deadline is not met, the Commission may terminate the interim order without further notice to ICC;

8. With respect to a proceeding brought by the Commission arising out of, related to, concerning or in any other manner connected with the Commission's regulation and oversight of ICC's activities in Ontario, ICC shall submit to the non-exclusive jurisdiction of (i) the courts and administrative tribunals of Ontario and (ii) an administrative proceeding in Ontario; and

9. ICC shall file with the Commission a valid and binding appointment of an agent for service in Ontario upon whom the Commission may serve a notice, pleading, subpoena, summons or other process in any action, investigation or administrative, criminal, quasi-criminal, penal or other proceeding arising out of or relating to or concerning the Commission's regulation and oversight of ICC's activities in Ontario.

DATED: December 28, 2012

"Paulette L. Kennedy"
 
"James D. Carnwath"