SEC Division of Investment Management staff letter: ICE Clear Credit LLC

SHEARMAN & STER1ING LLP
599 LEXINGTON AVENUE I NEW YORK I NY I 10011-6069 WWW.SHEARMAN .COM I T +1.111 .848.4000 I F +1.111 .848 .7179 July 20, 20 II Douglas J. Scheidt, Esq. Associate Director and Chief Counsel Division of Investment Management U.S. Securities and Exchange Commission 100 F Street, N.E. Washington, DC 20549 Re.· ICE Clear Credit LLC:

Custody o/Margin Provided by Investment Compa '7ies:

No-AcTion RequeST

Dear Mr. Scheidt:
We are writing on behalf of ICE Clear Credit LLC (formerly ICE Trust U.S. LLC) (" ICE Credit" or the "Clearinghouse") to request assurance that the staff of ne Division of Investment Management (the "StafT') will not recommend enforcement action UJ Icier Section 17(1) of the Investment Company Act of 1940, as amended (including the rules the 'eunder, the" 1940 Act"). if a registered investment company (a "fund") or its custodian maintlins certain assets of the fund in the custody of the Clearinghouse or the Clearinghouse's cleari Ig members for purposes of meeting the Clearinghouse's or a clearing member's margin requirelT ents. We and ICE Cred it appreciate the corresponding position taken in the Staff's letter on the same topic issued to the Clearinghouse on March 1, 2011. We and ICE Cr :dit also note that (a) the Staffs March I letter could have expired by its terms on Jul y 16,2011 Ibsent the continuing and further relief requested hereby and (b) certain continuing and further relief was orally confirmed by the Stafr on .July 15, 20 11 . As previously described, ICE Credit's operations recently changed f,)llowing its transition to registration with the Commodity Futures Trading Commission ("C FTC" ) as a derivatives clearing organization (a "DCO") and with the Securities and Exc hange Commission (the "Commission" ) as a securities clearing agency as provided under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Acr" )_ We bel ieve that the relevant facts and circumstances of ICE Credit's clearinghouse operations upon this Dodd-Frank transition (as described in more detail below) continue to be appropria te for relief of the nature extended by the Staffs March I letter. We further believe that it is i ppropriate to extend that relief to the Clearinghouse's clearing members (,'Clearing Members") tl,at are futures ABU DHABI I BEIJI NG I BRUSSELS I OOSSElDORF I FRANKFURT I HO NG KO NG I LO NDON I MILAN I MUNICH I NEW YORK PA LO ALTO I PARIS I ROME I SAN FRAN CISCO I sAo PAULO I SHANGHAI I SINGAPORE I TOlna I TO RON TO I WASHIN GT ON . DC ,H(A~"'AIt & mRlINC tI'l A IMIlIO UABIlIIV P~RTN[ illiP RGANIZEO lit 111 JNIltO STAfES IItO[R Iltt: lA'j~ H THE STAlE Jf DHAWAIII WI 'II LAWS IMIT THE peRSONAl liA91l!ly PARIN(RS NYDOCS0 1/ 12227J4.25E

commission merchants registered with the CFTC and/or broker-de tiers registered with the Commission. We acknowledge, however, that the oral relief provide( to the Clearinghouse by the Staff on Jul y 15,20 11 was limi ted to Clearing Members when acti ng as futures commission merchants, and our request for re li ef by this letter is similarly limitfd . (We look fo rward to discussion with the Staff regarding the treatment of Clearing Member s when acting as brokerdealers and ask that the Staff accept our references to broker-dealers ill this letter as prospective only and subj ect to further consideration). Without the continuing and further relief requested, ICE Credit beli ev,.:s that access to its credit default swaps ("CDS") clearinghouse operations by funds will be eithf r blocked or significantl y red uced, which would limit the access of fund investors to a more fic ie nt and rationali zed markct for CDS (and leave funds at a potential disadvantage to othe ' market participants that already have ready access to the ICE clearinghouse). Given the scale of the fu nd industry, that outcome also inhibits the development of ICE Credit's c1earinghoust, operations by leaving a significant market segment uncovered. We also note that following It e effectiveness of certain provisions of the Dodd-Frank Act, market participants. including funds , may bc required to clear certain CDS products, in which case it will be necessary for f mds to have access to cleari nghouses such as ICE Credit. Description of ICE Credit - Generally Effe ctive as of Jul y 16, 20 II , ICE Credit is a Delaware limited iability company that is registered as a DCO and as a securities clearing agency ("SCA"). As slJch, ICE Credit is subj ect to examination by the CFTC and the Commission. ICE Credi t acts as a central clearing party by accepting the rights and obligations under eligible CDS transactions entered into with the Clearing Members and submitt(,d to the Clearinghouse in accordance with its rules (the " ICE Credit Rules" ). Following acceptince of a CDS transaction fo r clearing, the Clearinghouse becomes the seller of credit protectior with respect to the CDS purchaser, and the purchaser of credit protection with respect to the CDS seller. The Clearing Membcr parties to a CDS transaction thus face the Clearinghouse, rc.ther than their respective ori ginal counterparties, in the performance of both the seller's and the purchaser's obligati ons in respect of a transaction. Central clearing in this manner has important market effi ciency and ir vestor protection benefits relative to the preexisting marketplace in which all CDS transactions ll.ad to be entered into and performed on a bi lateral basis bctween individual parties. Our prio letter to the Staff dated March 1.2011 discusses these benefits, which we and ICE Credit continue to find compelling. in detail. I The Dodd-Frank Act, inc luding its clearing requiremer IS, similarly reflects an underl ying policy in favo r
o f' fac il itating the central clearing of CDS transactions. 1 Various policymakers recognize the benefits of a central clearinghouse for CDS 'ransacti ons. For example, the ICE Cred it December 2009 Order, cited in the fo llowi ng footnote, incl udes a I inding by the Commission as l'ol lows:
The Commission has taken multiple actions designed to address concerns n lated to the market in

CDS. The over-the-counter (OTC) market for CDS has been a source of Pd1 icula r concern to us

[the Commiss ion] and other financial regulators, and we have recognize,i that fac ilitating the NYDOCSO / 2227J ~ 2512 2

Since March 2009, ICE Credit has been clearing CDS subject to a temporary conditional exemption from clearing agency registration, together with other eXt mptions provided by the Commission and the U.S. Department of the Treasury.2 As of July 8, 201 I, ICE Credit had cleared a notional amount of $ 11.9 trillion of CDS on behal f of its Clea 'i ng Members 3 Initially. the clearing services of ICE Credit were limited to the clearance of proprietary posi tions in CDS for Clearing Members. Commencing December 2009, ICE Credit made avai lable a framework (the "Non-Member Framework") to providc access to ICE Credit's clearing services to clients of Clearing Members ("Third-Party Clients"). ICE Credit's previous March 1 letter to thc Staff detailed the operations of the Non-Member Framework 4 In the Staffs March I response letter (and under the oral relief extended on July 15,20 11 ), t was the Staffs position that it would not recommend an enforcement ac tion if a fund were te access the Non-Member Framework on the same basis as other Third-Party Clients. subject to v'lI"ious conditions. establishment of ccmral coumcrparties for CDS can play an important role in reducing the counterparty risks inherent in the CDS market, and thus can help mitig: lte potential systemic impact. We therefore have found that taking action to foster the prompt d :velopment of central counterpatties, including granting temporary conditional exemption from ce tain provisions of the federal securities law. is in the public interest. 2 The Commission 's Order of March 6, 2009 provided temporary conditi onal excrtptions for ICE Cred it and its clearing members, effective until December 7,2009. Order Granting Temporary E wmptions Under the Exchange Act on Behalf of ICE US Trust LLC, Exchange ACI Release No. 59527 (Mar. 6, 2009) [hereinafter ICE Credi! March 2009 Order]. The Commission's order of December 4, 2009 extended Sl ch relief until March 7, 20 I O. Order Extendi ng and Modifying Temporary Exemplions Under the Exchange J cl for ICE Credil U.S. LLC, Exchange ACI Re lease No. 61 I 19, (Dec. 4. 2009) [hereinafter ICE Credi! L ecember 2009 Order]. The Commission's order of March 5, 2010 extended such relief until November 30 20 10. Order Extending and Modi fyi ng Temporary Exemplions Under Ihe Exchange ACI for ICE Credit U.S. L .C. Exchange ACI Release No. 61662, (March 5, 20 10) [hereinafter ICE Credi! March 2010 Order]. That reliefe, pired on July 16,20 11. Order Extending and Modifying Temporary Exemplions Under Ihe Exchange ACI for Ie E Cred it U.S. LLC, Exchange ACI Release No. 63387, (Nov. 29, 2010) [hereinafter ICE Credi! November 2010 ( 'rder] From and after July 16, 20 II , ICE Credil is directly regulaled by the Commission as an SCA. 1 Th e currenl Clearing Members are Bank of America, N.A.; Barclays Bank PL< ; Barclays Capilal Inc.: BNP Pari bas: BNP Pari bas Securilies Corp.: Citibank N.A.; Ciligroup Global Markets In;;.; Credit Su isse Inlernational; Credit Suisse
Securiti es (USA) LLC; Deu tsche Bank AG, London Branch ; D.:utsche Bank Securities Inc. :
Go ldman Sac hs International; Goldman, Sachs & Co.; HSBC Bank USA, N.A.; JP ga n Chase Bank, N.A.; J.P. Morgan Sec urities LLC; Merrill Lynch, Pierce, Fenner & Smith , Incorporated Merrill Lynch Inlernational; Morgan Stanley Capital Services, Inc.; Morgan Stanley & Co. LLC: Nomur .. International PLC; Nomura Securities International, Inc.; The Roya l Bank of Scotland pic; UBS AG, London Branch; UBS Securities LLC; and Societe Generale. Since the March I lener, the Clearinghouse has admitted ~oc iete Generale as we ll as the reM affiliates of various of its existing members as clearing members . .• We also refer to the various ICE Credit temporary exempti on orders (c ited at note 2 supra), and the related request leners from Kevin McClear, General Counsel of ICE Credit, to the Commission wi h respect thereto (each request leller is a pub licly ava ilable exhib it to each order), for a more complete descripion of the terms of the Non· Member Framework. For the avoidance of doubt, only Clearing Members can directly access the Clearinghouse. A rund or any other Third-Party Client wish ing to access the Clearinghouse thus wou ld have to do so under an arrangement with one or more Clearing Members. NYDOCSO 1!1222734.25E 3

As in other clearinghouses, mark-to-market margin required under the ~on Member Framework reflects dail y gains or losses on positions. A daily gain or loss on one Third-Party Client's position wi ll corrcspond to a loss or gain on another position carried with the Clearinghouse. Accordingly, mark-to-market margin provided by one Third-Party Cli'.:nt would be expected to be used by the Clearinghouse and/or Clearing Member to provide n ark-to-market margin in favor of another Third-Party Client or Clearing Member. We and ICE Credit bel ieve the Non-Member Framework margining process described in the previous letter, including the treatment of client margin on default by one or more Third Party Clients, is consistent with the use of cl ient margin by typical futures clearing organizations. As recognized in the ICE Credit November 2010 Order, the ICE Credit Rules incorporate protections for initial margin posted by a Third-Party Cl ient conceptually similar to those contemplated under Section I 7(f) of the 1940 Act and related rules. In particular, the ICE Credit Rules largely mirror those under 1940 Act Rule 17f-6 that enable fund 5 to participate in central clearing arrangements for commodity fu tures and do so even more clcsely followi ng the recent Dodd-Frank Transition. As background, futures clearinghouses generally provide that client init a lmargin may be used to satisfy losses to the clearinghouse on client-related positions. Rela ive to the Non-Member Framework, cl ient margin in some futures clearing models is used at an earlier point in the priority of sources (~, before the use of proprietary margin). In addition, the ICE Credit model has the advantage for Third Party Clients that only a portion of Third Party Cli ent margin (up to the ICE Credit Net Customer Margin Requirement) (these terms are defined in our prior March I letter) may be used; in some futures clearing organi zations, all cl ient initial margin may be so used .' , In addition, margin posted by a Third P.,1y Client and held with ICE Cred it with rc ;pect to transactions through a particular Clcaring Member will not be used to satisty losses (client or proprietary) from the default ofa difrerent Clearing Member. ICE Credit's approach is a hybrid between so-ca lled "gross" margining and "ne t" margining mode ls, both of wh ich are in wide use by futu res clearinghouses. In a "gross" model, a Clearing Ml'mber is required to post to the clearinghouse the full amount of margin posted by its clients, without taking into a ,:CO Ullt any offsetting positions held by other clients. In a "netll model, by contrast, the Clearing Member is only I equired to post the net margin requirement for all client positions. tak ing into account positions of one client that Illay offset the risk of positions of other cl ients. The ICE Credit model requires the posting to the clearinghouse of the gross margin for all Third Party Cl ien ts, but ICE Credit is only allowed to use that margi n up to
the ICE Credit Net Customer Margin Requirement (which is the amount that wou ld be posted in the "net" model). "'he ICE Credit Net Customer Margin Requirement cannot exceed the "gross" margin required of Third Party Clients, and to the extent Third Party Clients of a Clearing Member have offsetting positions (e.g., one Th ird Paru Client has bought protcction on a speci fied index with a particular tenor, and another Third Palty Cli ent has sa lt . protection on that index wi th the same tenor), the ICE Credit Net Customer Margin Requirement will be lowcr than the gross margin requirement. Although the exact level or the ICE Credit Net Customer Margin ~eq ui re nt (and the extent to which it is less than the gross margin requiremen t) will depend on the specific conlo!nt orthe cleared portfolios of Third Party Clients at any given time, the approach is, by definition. more ravorable to Third Party Clients than the pure gross margining approach lIsed by some clearinghouses. NYDOCSOt ltlll734.25E 4

Dodd-Frank Transition
The Commission and the CFTC have delayed implementation of val ious requirements of the Dodd-Frank Act with respect to derivatives beyond their expected Jul:1 16, 20 II effective date. among other reasons, to minimize unnecessary disruption and costs to he derivatives markets as tinal rules implementing the Dodd-Frank Act are adopted6 Regardl !SS, upon that date. ICE Cred it automatically became a DCO registered with the CFTC and a : ecurities clearing agency registered with the Commission. This transition in status is referred t" throughout this letter as the "Dodd-Frank Transition." The position sought by ICE Credit from the Staff under this letter (and confirmed orally by the Staff on July 15, 20 11 ) relates solely to periods on and after the Dodd-Frank Transition. Following its registration as a DCO. ICE Credit is regulated by the CF rc and subject to the 18 Core Principles set forth in Section 5b(c)(2) of the Commodity Exchange Act. As such. it is subject to regular audits or risk reviews by the CFTC based on the C ore Principles. It also is subject to regulation by the SEC under the requirements applicable to securities clearing agencies. In addition, following implementation of relevant rulcmaking, tt e laws and regulations applicable to ICE Credit and its Clearing Members will require that any Clearing Member that purchases, sells, or holds CDS positions for others (including for fund ;) must be registered as a futures commission merchant ("FCM") with the CFTC for CDS that are swaps and/or a brokerdealer or security-based swap dealer registered with the Commission fo r CDS that are securitybased swaps. Accordingly, ICE Credit has admitted FCMs and broker-dealers as Clearing Members. commencing July 16.20 II. As a result. certain aspects of the Non-Member Framework reflect the use of FCM and brokerdealer clearing members for customer business rather than the exi,.,ting financial institution clearing members. Notably, clearing members will hold margin assets of Third Party Clients in segregation as required for margin of swap customers in new Sectior 4d(f) of the Commodity Exchange Act and new Section 3E(b) of the Securities Exchange Act of 1934, as amended (the " Exchange Act"). once such requirements are effective, Prior to e Tectiveness of such new segregation requirements, clearing members will hold margin assets of Third Party Clients in segregation under the cleared OTC derivative account class pursuant to Part 190 of the CFTC regulations and related rules of the Clearinghouse, which establish ,egregation requirements equivalent to those applicable to futures positions, (Again, we acknowledge that the rel ief to be extended by the Staff in response to this letter will not extend to Clear ng Members when acting as broker-dealers, In any event, no Clearing Member is expected to act as a broker-dealer in respect of the Clearinghouse until a framework implementing clearinl. of security-based swaps by broker-dealers is agreed, which
framework will require further action by the Commission and/or its Staff.) Sec Effec1ive Date for Swap Regulation, 76 Fed. Reg. 42508 (J uly 19,2011) (CFT( :); Temporary Exemptions and Other Temporary Relief, Together With Information on Compliance Dates for Ntw Provisions of the Securities Exchange Act of 1934 Applicable to Security-Based Swaps, 76 Fed. Reg. 362n (June 22, 2011) (SEC) (the "Effective Date Orders'"). NYDOCSOtIt222734.25E 5

Applicable Law
Section 17([) of the 1940 Act and the rules promulgated thereunder in pose certain requirements
on funds with respect to the custody of their financial assets. [n rela in to such requirements, the legislative history evidences a Congressional objective of ensurin:: that fund assets are held by a linancially secure entity with sufficient safeguards against r1isappropriation7 Under
Section 17([), a fund 's assets generally must be held, subject to rules and regulations
promulgated by the Commission, by (I) banks meeting certain IT inimum asset levels, (2) members of a national securities exchange, (3) a national securities oepository, or (4) the fund itself. Regulatory guidance is available concerning whether particular types of margin are considered fund assets. [n the context of fund trading of futures contracts, the Commi ssion and the Staff have indicated that a fund 's initial margin payments are fund asse ts and therefore must be maintained in a manner that complies with Section 17(t)8 The C )mmission, however, has drawn a distinction between initial margin and variation margin. Variction margin. referred to in the ICE Credit Rules as "mark-to-market margin." consists of margill payments required to be paid due to losses on a party 's position9 These payments. when nlade by a fund, represent payments for liabilities of the fund and are therefore not fund asse S.IO Accordingly, unlike initial margin. variation margin paid by a fund is not subject to Sec tion 17(t)'s requirements, although initial margin received by a fund is subject to Section 17(f). As already outlined, the Commission's Rule 17f-6 permits a fund te deposit initial margin in respect of its commodity futures transactions with an FCM and for sue h margin to be held either by the FCM or a commodity clearing organi zation. Commodity f Itures investors generally initiate their trades by posting margin directly with an FCM, which th, n posts that margin either directly to a commodity clearing organi zation or with one or mo re other FCMs that will subsequently effect the transaction through the clearing organization. This is substantially the same model that exists for CDS transactions initiated with ICE Credit'f Clearing Members. Rule 17f-6 specifically permits funds to participate in such transact' ons and has been widely relied upon. Rule 17f-6 states that: (I) a fund may maintain custocy of cash, securities, and similar investments with any unaffiliated person registered as an FCM as necessary to effect the fund 's transactions in exchange-traded futures contracts and commodit ,/ options, and (2) an FCM may post the margin received from the fund with a commodity clearing organization or another FCM as necessary to effect the fund 's transaction. 7 In vestment Trusts and Investment Companies: Hearings on S 35 80 before a Subcomm . of the Senate Camlll. on Banki ng and Currency, 761h Con g., 3d Scss. 264 ( 1940). 8 Custody or In vestment Company Assets with Futures Commission Mercha Its and Commodity Clearing Organ izations, Invesunen, Company Release No. 203 13 (May 24, 1994) [her:inafter Rule 17[6 Proposing Release]; Deha Government Op,ions Corp. (pub. ava il. Sep!. 27, 1990). 'J Rule 17f·6 Proposing Release a' no'es 57. 74. 10 lei. NYDOCSO 1/1222734.25 [; 6

Analysis
Under the guidance applicable to futures, initial margin required to be p )sted by a fund in respect of CDS transactions submitted for clearing to ICE Credit would wnstitutc fund assets and therefore must comply with the custody requirements of Section 17(f) of the 1940 Act. On the other hand, what the ICE Credit Rules refer to as "mark-to-market mar in " constitutes variation margin, and, in accordancc with guidance from the Commission and th : Staff, such margin does not constitute fund assets. The operations of the Clearinghousc and the Clearing Members resemt Ie a number of permitted custody arrangemcnts, but we and ICE Credit were and are concern( d that there is sufficient ambiguity that - absent continuing interpretive or no-action guidanc: like that in the Staffs March I letter and requested here - funds will be slow to adopt usc of he Clearinghouse or will seek unduly cumbersome custody arrangements in doing so. As we sated previously, the "triparty" arrangements frequently relied upon in some margin contexts do not appear to offer an effective solution. Of the various potential custody arrangements allowed by the 1940 '\ct, the Clearinghouse's structure appears to us to best approximate arrangements for FCMs and commodity clearing organizations already approved for custody of fund assets under Rule 17f-6. In pat1icular. ICE Crcdit's clearing structure replicates key protections available to funds under Rule 17f-6. Relevant protections include:

The requirement that Clearing Members document their relat lonship with Third-Party
Clients under a wrillen contract (lCE Credit Rule 406(a»;
Capital and other requirements for Clearing Members, including a rigorous Clearing
Member application process maintained by the Clearinghouse (I :E Credit Rule 20 I);
Segregation and transfer of margin of Third-Party Clients to the fCE Credit client
omnibus margin account (lCE Credit Rule 406(b)-(d),);
Right of Third Party Clients to the return of their initial and val' ation margin (lCE Credit
Rules 402 and 406 );
Recordkeeping by Clearing Members of transactions and marg in of Third Party Clients
(ICE Credit Ru les 310 and 406(h) - as further described below).
Under Rule 17f-6, a fund's margin is protected through the segregatiol ', requirements of Section 4d(a) of the Commodity Exchange Act and rules thereunder. Under these requirements, client assets provided as margin must be held in a manner segregated from th( FCM's own assets. Use of such assets by the FCM is restricted, although client assets may be \ .sed to satisfy the FCM's margin obligations with respect to client transactions with a rele\ ant derivatives clearing organization. As described in Rule 17f-6(a)(1 )(ii), FCMs may onl, hold client assets with anot her FCM, a clearing organization, or a U.S. or foreign bank. These rule provisions are satisfied in the course of ICE Credit's operati( ,ns in that ICE Credit and the Clearing Members are subject to the parallel rules and regulation; under the cleared OTC derivative account class (and, when effective, Commodity Exchang: Act Section 4d(f) and Exchange Act Section 3E(b» , although positions and margin wil l be held in the account class NYDOCSO 11 1222734.251' 7

for swaps rather than the futures account class. 11 Likewise, Rule 17f- i(a)( I )(iii) recordkeeping rules and Rule 17f~6(a)(2) treatment of daily excess margin and relatd account documentati on and practices would be satisfied in that ICE Credit and the Clearing M,!mbers will be subj ect to the FCM rules and regulations referred to by each of those paragraphs o r'the rule. Rule 17f-6(a)(3) a lso requires that funds withdraw assets from a Rule I 7f-6 custody arrangement as soon as practicable after determining that the arrangement no longer I neets the requirements of Rule 17f-6. To comply with this requirement, we expect that funds will incorporate a process to monitor their arrangements with ICE Credit and the Clearing Mem )ers that is substantia ll y similar to the processes already in place throughout the industry ,n respect of FCM and commodity clearing organization custody arrangements. We also represcnt that the manner in which a Clearing Member wi llma ntain a fund's assets will be governed by a written contract between the fund and the Clearing V1ember, which provides that: 12 o The Clearing Member will comply with the requiremen s relating to the separate treatment of customer fu nds and property, whi ch specify the substantive rcquirements for the treatment of cleared OTC derivativ,:s in the OTC de ri vatives account class prior to any bankruptcy; IJ o The Clearing Member may place and maintain the fund' s assets as appropriate to effect the fund 's cleared CDS transactions through the Clearinghouse and in accordance with the CEA and the CFTC's rules theret nder, and will obtain an acknowlcdgement, as required under CFTC Rule 1.20(a ", as applicable, that such assets are he ld on behal f of the Clearing Member's cust, )!ners in accordance with the provisions of the CEJ; 14 o The Clearing Member will promptly furnish copies of 0 1' extracts from its records or such other information pertaining to the fund 's ms ts as the Commission 11 As noted above, prior to the effectiveness of the segregation requirements under CEA Section 4d(f) and Exchange Act Section 3E(b), margin assets of Third Party Clients wi ll be maintained in the cit ared OTC derivative accoun t class under Part 190 of the CFTC rules and the Clearinghouse rules. In accordanct with the CFTC's requ iremenls. the ICE Credit Rules for the cleared OTC derivatives account class tnlrror Ihe provisions of Section 4d orthe CEA and CFTC regulations with respect to the futures account class (i.e.. 7 C.F. R. §§ 1.20, et seq.), including but not limited to the separate treatment OfClISIOI11Cr positions and propcI1 y from the Clearing Member's positions and property. (ICE Credit Rule 406(d» " See Rule 17f-6(a)( I) under the 1940 Act. (J See Rule 17f-6(a)( I )(i) under the 1940 Act. The CFTC has proposed requ irements " n futu res commission merchants and derivatives clearing organizations regarding the treatment of c eared swaps customer contracts (and related collateral) and confonning
amendments to the cOlTImoc lity broker bankruptcy provisions. Soc 76 Fed. Reg. 338 18 (June 9, 20 11 ). The Clearing Members viII comply with these requi remems upon their effectiveness. " See Rule 17f-6(a)( I )(ii) under the 1940 Act. Under CFTC Rule 1.20(a), an acknow edgement need not be obtained from a derivatives clearing organization that has adopted and submi ted to the CFTC rules that provide for the segregation as customer funds, in accordance with relevant pr )visions of the CEA and the rules thereunder, of all funds held on behalf of customers. NYDOCSO 1/1222734.2;1; 8

through its employees or agents may request; , o Any gains on the Fund's transactions, other than de !! linimis amounts, may be maintained with the Clearing Mcmber only unti l the ne (t business day following recei pt; 16 and o The Fund has the ability to withdraw its assets from the Clearing Member as soon as reasonably practicable if the custodial arrange me nt no longer meets the ' . . 17 foregolng requirements. Despite those similarities to the Rule 17 t~6 structure, howevcr, Rule I ~ f-6 may not be viewed as direct ly avai lable to funds wishing to access the Clearinghouse. Thi ~ is because Rule 17t~ 6 is avai lable on ly in respect of instruments that are:
... commodity futures contracts, options on commodity futures contracts, and options on physical commodities traded on or subjcct to the rules of: (i) Any contract market designated for trading such transactions under the Commodil y Exchange Act and the rules thcreunder; or (ii) Any board of trade or exchange out, ide the United States, as contemplated in Part 30 under the Commodity Exchange Act. It is not clear that a CDS or other cleared swaps would be a qualif ed instrument under that definition. Conclusion We believe that deposit of cash or seCUrities with ICE Credit or Its Clearing Members is consistent with the principles of good custody established by Co ngre ~s and the Commission in
Section 17(t) of the 1940 Act and the ru les thereunder. Based on th,: facts and circumstances
desc ribed above, we beli eve ICE Credit is a proper candidatc for the rec uested no-action re li ef. We also would appreciate that any letter from the Staff in this rega:d contirm the oral relief extended to ICE Credit and its Clearing Members on Jul y 15, 2011. F nally, we understand that the StafT expects to reconsider these matter after December 31 , 20 II We reiterate our belief expressed in our March I letter that any "break" in the availability to funds of the Clearinghouse's facilities would be disruptive and shou ld be avoided. "See Rule 17f-6(a)(I )(i ii) under the 1940 Act. 16 Sec Rule 17f-6(a)(2) under the 1940 Act. 17 See Rule 17f-6(a)(3 ) under the 1940 Act. NYDOCSO I/12227342;E 9

Thank you for your consideration. If for any reason the Staff is considering declining to issue guidance along the lines requested, we and ICE Credit would ! sk that we be given the opportunity to further discuss our request with you at that time. I am avail able at 212-848-4668 or ngreene@sheannan .com. My pa tner Geoffrey Goldman is also familiar with these matters and is at 212-848-4867 or geoffrey. go dman@sheannan.com. Sincerely, tJQ Jte--.- LU2-u. Nathan J. Green

Incoming Letter

Lineage