CFTC Seeks Public Comment on Request from ICE Clear Europe Limited for Order Permitting Portfolio Margining of Swaps and Security-Based Swaps in a Customer Account

The CFTC is requesting public comment on a petition filed by ICE Clear Europe Limited seeking an order that would allow ICE Clear Europe and its members to (i) commingle customer property related to swaps and security-based swaps, and (ii) collect margin for such swaps and security-based swaps on a portfolio basis. Specifically, ICE Clear Europe is seeking permission to hold broad-based index credit default swaps (which are swaps) and single-name and narrow-based index credit default swaps (which are security-based swaps), along with related customer property such as margin, in a single customer omnibus account subject to CFTC Rules.

ICE Clear Europe argues that this relief will benefit customers by making it cheaper for them to trade cleared CDS instruments. This in turn will promote the objectives of the Dodd-Frank Act by encouraging customers to trade cleared CDSs rather than entering into bilateral over-the-counter contracts. ICE Clear Europe also points out that, in the insolvency of a clearing member that is a joint broker-dealer/futures commission merchant, customer property would be subject to a single insolvency regime (a commodity broker liquidation under subchapter IV of chapter 7 of the Bankruptcy Code) rather than two separate regimes. This may be particularly desirable given the uncertainty surrounding the treatment of security-based swaps in the insolvency of a broker-dealer, since Dodd-Frank did not amend the Securities Investor Protection Act (which would govern the insolvency of most U.S. broker-dealers) to specify the treatment of security-based swaps and related collateral. The relief sought by ICE Clear Europe would, if accepted by the regulators and the Bankruptcy Court, sidestep this legislative problem by opting in to the commodity broker provisions of the Bankruptcy Code, which were revised by Dodd-Frank.

Comments Due: December 14, 2012.

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