[Federal Register Volume 80, Number 216 (Monday, November 9, 2015)]
[Notices]
[Pages 69261-69264]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-28402]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76331; File No. SR-ICC-2015-017]


Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of 
Filing of Proposed Rule Change To Revise the ICC Risk Management 
Framework and ICC Treasury Operations Policies and Procedures, and 
Adopt the ICC Risk Management Model Description Document

November 3, 2015.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder \2\ notice is hereby given that 
on October 20, 2015, ICE Clear Credit LLC (``ICC'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change as described in Items I, II, and III below, which Items have 
been prepared primarily by ICC. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    ICC proposes reorganizing the ICC Risk Management Framework 
(``RMF'') in response to a recommendation from the Commodity Futures 
Trading Commission (``CFTC'') regarding improvements related to the 
governance of ICC's risk management documentation. Specifically, ICC 
proposes organizational and clarifying edits to the RMF and the 
Treasury Operations Policies and Procedures, and proposes adopting a 
new Risk Management Model Description Document. These revisions do not 
require any changes to the ICC Clearing Rules (``Rules''). 
Additionally, the edits are not substantive and do not affect the 
nature of ICC's risk management program.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, ICC included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. ICC has prepared summaries, set forth in sections A, B 
and C below, of the most significant aspects of these statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    ICC proposes reorganizing the ICC RMF in response to a CFTC 
recommendation regarding improvements related to the governance of 
ICC's risk management documentation. Specifically, ICC proposes 
organizational and clarifying edits to the RMF and the Treasury 
Operations Policies and Procedures, and proposes adopting a new Risk 
Management Model Description Document. ICC believes such revisions will 
facilitate the prompt and accurate clearance and settlement of 
securities transactions and derivative agreements, contracts, and 
transactions for which it is responsible. The proposed revisions are 
described in detail as follows.
    ICC moved the Collateral Assets Risk Management Framework appendix 
from the RMF to the Treasury Operations Policies and Procedures. 
Accordingly, references throughout the RMF to the Collateral Assets 
Risk Management Framework appendix were updated to refer instead to the 
Treasury Operations Policies and Procedures. ICC moved appendices 
containing technical risk management information (formerly, RMF 
Appendices 3-5) to the new ICC Risk Management Model Description 
Document. Accordingly, references throughout the RMF to these 
appendices were updated to refer to the Risk Management Model 
Description Document.
    ICC also made general updates and edits throughout the RMF for 
clarity and consistency. Such edits include correcting verb tenses, 
adopting consistent abbreviations, and adjusting sentence order to 
assure logical presentation and word flow, and to use more concise, 
succinct language. ICC also made additional clarifying edits, as 
described below. The edits are not substantive and do not affect the 
nature of ICC's risk management program.
    Within the Overview section of the RMF, ICC refined the Business 
Overview details to more accurately describe the business operations of 
Intercontinental Exchange, Inc. and ICC.
    ICC made edits to the Governance and Organization section of the 
RMF to more fully describe which topics the Risk Committee is 
responsible to advise the Board. The list of documents reviewed by the 
Risk Committee on at least an annual basis was revised to include the 
ICC Risk Management Model Description Document, the ICC Treasury 
Operations Policies and Procedures, and the ICC Liquidity Risk 
Management Framework. The Risk Working Group (``RWG'') description was 
updated to note that the group consists of risk personnel from ICC 
Clearing Participants (``CPs''), and to clarify that the RWG is 
responsible for reviewing ICC's risk philosophy and recommending 
changes to ICC's RMF. The validation function of the risk philosophy 
and tolerance was removed from the list of RWG responsibilities, as 
such functions are the ultimate responsibility of the Board. The 
Advisory Committee description was updated to note that the committee 
is comprised of representatives of up to twelve clients/customers of 
ICC CPs (currently there are twelve client/customer members). The CDS 
Default Committee description was updated to note that the committee is 
comprised of representatives from ICC CPs on a rotating basis and to 
remove reference to a duty to provide feedback on ICC's RMF and 
parameters because the CDS Default Committee is only convened upon the 
declaration of a default. The committee description was enhanced to 
note that, as the CDS Default Committee assists ICC in determining and 
managing Minimum Target Prices for auctioned portfolios related to a 
default, the committee oversees necessary auction(s) as well as the 
process to re-establish a matched book. The Risk Management 
Organization section was updated to remove outdated language stating 
that the Risk Management Department conducts an annual review of ICC's 
Risk Management Framework Policy Statement and submits proposed changes 
to the RWG, Risk Committee, and Board. Further, the section was updated 
to remove reference to the Risk Management Department being responsible 
for ICC's intellectual capital and personnel, while creating, 
implementing and maintaining ICC's risk management policies.
    ICC made edits to the Product Summary section of the RMF. ICC 
clarified language to refer to Index CDS Instruments (as opposed to 
Index

[[Page 69262]]

Products), Single Name CDS Instruments (as opposed to Single Name CDS), 
and reference entities (as opposed to companies). The Index CDS 
instruments section was revised to remove reference to the 
International Index Company. The Single Name CDS Instruments section 
was modified to refine language concerning what constitutes a credit 
event. The list of attributes defining a CDS contract was enhanced to 
include Maturity, as well as reference Notional Amount, as opposed to 
Notional Principal. Reference to the terms of the contracts being 
prescribed by the ICC Rules and Participant Agreement was removed. The 
Risk Factors, Risk Sub-Factors and Instruments section was revised to 
enhance the definition of Risk Sub-Factor to refer to a specific single 
name reference obligation seniority and doc clause combination.
    ICC made edits to the Systemic Risk Management Approach section of 
the RMF, which includes Waterfall Levels 1 through 5. ICC revised 
Waterfall Level 1: Membership Criteria to remove reference, within the 
Operational Criteria, to employee participation on industry committees 
(e.g. ISDA, DTCC, etc.). Furthermore, the ongoing monitoring of 
participants section was enhanced to state: (i) Intraday monitoring 
includes intraday CDS market levels and potential equity price 
movements, as well as news from Bloomberg and other information 
sources; and (ii) daily monitoring and analysis includes prior day's 
final pays by CP, daily change in Initial Margin (``IM''), margin 
deficits, unrealized intraday profits/losses for cleared portfolios, 
risk impact of new intraday trades on cleared portfolios, daily end-of-
day (``EOD'') levels, CPs' Guaranty Fund (``GF'') obligations, CPs' 
day-over-day change in GF requirements relative to each firms prior day 
levels, and CPs' day-over-day change in GF requirements relative to the 
total GF balance. ICC has removed from the ongoing monitoring of 
participants section review of the following components: Daily prices 
and spreads (including missed EOD submissions), daily EOD prices 
(including missed prices), prior day's and intraday total IM as a 
percentage of CP's or CP's guarantor's capital, collateral pricing 
report for missing prices, and collateral deposits no longer in 
compliance with ICC's acceptable collateral policy. Such elements are 
included in the enhanced daily monitoring and analysis section or have 
been deemed no longer to relevant to the monitoring process. Further, 
ICC clarified that the Risk Management Department reviews weekly stress 
test results for extreme risk event scenarios to ensure sufficient 
margin cover under market conditions, as opposed to drastic market 
conditions. The Participant Withdrawal subsection was revised to remove 
reference to ICC's right of One Time Assessment and instead refer more 
generally to ICC's power of assessment.
    ICC revised the Waterfall Level 2: Initial Margin description to 
clarify that ICC's IM requirements consist of a set of individual 
components that account for various risks and that the methodology 
includes consideration of hypothetical scenarios for those components. 
ICC added language to the Spread Response requirements section to note 
that the hypothetical prices used in calculating the instrument spread 
response risk IM requirement reflect the time-to-maturity horizon 
reduced by one day. ICC revised the distributions and related 
parameters subsection to refer to the more specific feature Mean 
Absolute Deviation (``MAD'') as opposed to the more general term 
``scale.'' ICC removed reference to a set EWMA decay factor, as the 
factor is dynamic and subject to review and changes by the Risk 
Department in consultation with the Risk Committee. ICC also removed 
outdated language regarding the initial setting of Auto Regressive 
process for first order parameters.
    ICC revised the description of the considered scenarios to provide 
a mathematical description of how the considered scenarios are 
constructed based on statistical analysis of historical time series. 
The term structure scenario construction is now clearly defined in 
terms of 99% Value-at-Risk equivalent risk measures for different 
tenors and the cross-tenor correlation structure is estimated from time 
series analysis. ICC revised the term ``contracting'' to ``tightening'' 
in the context of spread behavior to provide conformity to more 
commonly used credit market terminology.
    Within the Recovery Rate (``RR'') Sensitivity Requirements 
subsection, ICC clarified that two additional single name-specific 
stress-test RRs are considered in determining the requirements.
    ICC revised Waterfall Level 3: Mark-to-Market Margin description. 
Specifically, ICC revised the methodology section to remove specific 
calculations regarding the methodology and instead refer to the ICC EOD 
Price Discovery Policies and Procedures, which contain a more fulsome 
methodology description.
    ICC revised Waterfall Level 4: Intra-day Risk Monitoring/Special 
Margin Call Execution to clarify language describing the calculation of 
prices to determine the adequacy of collected IM intraday. 
Specifically, as part of the calculation, ICC utilizes bid-offer quotes 
which are automatically fed into the ICC risk management intraday 
monitoring system.
    ICC revised Waterfall Level 5: Guaranty Fund description. The ICC 
GF is designed to provide adequate funds to cover losses associated 
with the default of the two CPs, as well as any affiliated CPs (i.e. 
any other CP that owns, is owned by, or is under common ownership with 
such a CP) with the greatest potential uncollateralized losses. ICC 
added language to note that the set of all affiliated CPs is considered 
as a CP affiliate group. Within the Waterfall Level 5 description, ICC 
revised language to reinforce this CP affiliate group concept. Within 
the Guaranty Fund Calculation for Clearing Participants subsection, ICC 
removed reference to summary concepts of uncollateralized loss given 
default, uncollateralized spread response losses, uncollateralized 
basis risk losses, and uncollateralized interest rate losses, 
previously used in describing the computations of the stress scenario 
losses. ICC more precisely defined the factors considered within the GF 
calculation and related stress test scenarios as the following: 
Occurrence of multiple credit events, uncollateralized loss-given-
default from self-referencing positions, adverse spread scenarios, 
adverse index-single-name basis widening, adverse interest rate 
scenarios, and anti procyclicality.
    ICC added language to the Guaranty Fund Allocation subsection of 
the RMF to state that the CP's total uncollateralized GF stress loss is 
the difference between the sum of the stress loss given default, GF 
stress spread response, GF stress basis risk and interest rate losses 
and the sum of the IM idiosyncratic jump-to-default requirements, IM 
spread response requirement, IM basis and interest risk requirement.
    ICC revised the General Wrong Way Risk and Contagion Measures 
subsection to remove technical information that was moved to the Risk 
Management Model Description Document.
    ICC revised the Position Concentration Limits subsection of the 
Risk Limits and Controls section to clarify that ICC's concentration 
charge is designed to increase a CP's IM requirement toward the risk of 
maximum loss and ultimately, at the extreme, toward the full expected 
notional amount of liability of the sold protection or the present 
value of the

[[Page 69263]]

amount of coupon payments for bought protection. ICC summarized 
language referring to the notional liability of the protection sold or 
the full value of coupon payments to refer more generally to loss 
associated with the portfolio. ICC revised the Model Time Horizon 
subsection to note that the standard risk horizon can be increased by 
the ICC Risk Management Department during banking holiday periods to 
reflect ICC's limited ability to execute margin calls without Risk 
Committee consultation. ICC further revised the Position Concentration 
Thresholds subsection to clarify that, if at any point, either the 
margin requirements or concentration charges grow to be a concern, ICC 
has the authority to execute special or intraday margin calls, and/or 
to increase the rate at which the concentration charges grow.
    ICC revised the Stress Testing subsection of the Back Testing and 
Stress Testing section to remove specific assumptions associated with 
the various stress scenarios used in the daily risk management process. 
For proprietary reasons, these specific assumptions are now included in 
ICC's Stress Testing Framework. ICC also clarified that the Risk 
Management Department presents stress results at the monthly Risk 
Committee meetings, as well as recommendations about next steps and 
recommendations to add or retire stress tests.
    ICC made edits to the Default Treatment section to remove outdated 
language stating that ICC seconds traders eligible to serve on the ICE 
Clear Europe Default Management Committee. ICC removed language 
regarding the auctioning of multi-currency portfolios for stylistic 
reasons, as the following sentences provide the information in a more 
accessible format.
    ICC revised the Cash Settlement subsection of the Settlement 
section to remove outdated language stating that ICC will evaluate a 
transition to a Central bank model for US cash if available.
    ICC made edits to the Market Investment Risk Management section of 
the RMF. Specifically, ICC deleted redundant language regarding ICC's 
investment policy that can be found in the ICC Treasury Operations 
Policies and Procedures.
    ICC enhanced the ICC Clearing Participant Risk Management 
Questionnaire appendix to add more specific details that better capture 
the intent of the questions contained within.
    ICC revised the Overview section of the Clearing Participant 
Default Management Procedures appendix to refer more generally to ICC's 
default management procedures, as opposed to offering specific details 
provided elsewhere within the appendix. ICC also revised the CDS 
Default Committee subsection to remove language stating that the CDS 
Default Committee Members are responsible for determining and adjusting 
minimum target prices for auctions. ICC added language to the Hedging 
and Liquidation subsection to note that the CDS Default Committee is 
responsible for assisting ICC with respect to liquidating and hedging 
positions with the Non-Defaulting CPs, in consultation with the Chief 
Risk Officer. ICC clarified the Auction Procedures/Competitive Bidding 
section to state that the auction bidding process will be open for an 
ICC specified minute window, as opposed to a specific 15-minute window.
    ICC removed the Collateral Assets Risk Management Framework 
Appendix 7 from the RMF and added it as an appendix to the ICC Treasury 
Operations Policies and Procedures. Accordingly, references within the 
Treasury Operations Policies and Procedures to the RMF were updated. 
Additionally, ICC updated its list of banking relationships contained 
within the document. ICC also made conforming, non-material edits to 
the document.
    Finally, ICC has created the Risk Management Model Description 
Document, which includes the technical risk information previously 
included in Appendices 3 to 5 of the RMF as well as information 
previously included in explanatory risk documents. Technical risk 
information, previously included in explanatory risk documents, is 
incorporated consistently throughout the new Risk Management Model 
Description Document. The inclusion of such information does not 
constitute a substantive change to the RMF, as it serves to enhance the 
transparency of the technical details of the current implementation 
described in the previous RMF. In the Risk Management Model Description 
Document, ICC provides additional technical information to improve the 
understanding and/or replication of the models. ICC also provides 
improved logical connections among all model components, which should 
contribute to developing a general intuition for ICC's risk approach.
    Material changes to the Risk Management Model Description Document 
will be approved by ICC's Board of Managers and submitted, in the 
appropriate form to regulators consistent with other documents 
constituting ICC's RMF. The Risk Management Model Description Document 
includes a technical description of ICC's Initial Margin methodology 
(Recovery Rate Sensitivity Risk Analysis; Loss Given Default Risk 
Analysis; Liquidity Risk Analysis; Large Position Risk Analysis; Jump-
To-Default Risk Analysis; Interest Rate Sensitivity Risk Analysis; 
Basic Risk Analysis; Spread Risk Analysis; Multi-Currency Portfolio 
Treatment; and Portfolio Loss Boundary Condition) and ICC's Guaranty 
Fund methodology (Guaranty Fund Size Estimation; Guaranty Fund 
Requirements and Periodic Adjustments; and General Wrong Way Risk and 
Contagion Stress Tests). Within the Spread Risk Analysis section, where 
ICC previously had listed explicit risk factors within the RMF, ICC 
replaced such explicit risk factors with the underlying formulas used 
in deriving such factors.
    Section 17A(b)(3)(F) of the Act \3\ requires, among other things, 
that the rules of a clearing agency be designed to promote the prompt 
and accurate clearance and settlement of securities transactions, and 
to the extent applicable, derivative agreements, contracts and 
transactions and to comply with the provisions of the Act and the rules 
and regulations thereunder. ICC believes that the proposed rule changes 
are consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to ICC, in particular, to Section 
17(A)(b)(3)(F),\4\ because ICC believes that the proposed rule changes 
will promote the prompt and accurate clearance and settlement of 
securities transactions, derivatives agreements, contracts, and 
transactions. The revised RMF, the revised Treasury Operations Policies 
and Procedures, and the Risk Management Model Description Document 
provide additional clarity regarding ICC's RMF. ICC believes the 
proposed revisions provide further clarity in terms of ICC's risk 
management policies and procedures, through the consolidation of 
technical risk documents into one singular document. ICC believes the 
revisions to ICC's RMF will continue to ensure proper governance of the 
RMF. Further, by revising the RMF and the Treasury Operations Policies 
and Procedures, and establishing the Risk Management Model Description 
document, ICC is complying with a directive from the CFTC regarding 
clarity and transparency of its RMF. As such, the proposed rule changes 
are designed to promote the

[[Page 69264]]

prompt and accurate clearance and settlement of securities 
transactions, derivatives agreements, contracts, and transactions 
within the meaning of Section 17A(b)(3)(F) of the Act.\5\
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    \3\ 15 U.S.C. 78q-1(b)(3)(F).
    \4\ Id.
    \5\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    ICC does not believe the proposed rule changes would have any 
impact, or impose any burden, on competition. ICC is reorganizing its 
risk management policies and not making any substantive changes to its 
overall RMF. Therefore, ICC does not believe the proposed rule changes 
impose any burden on competition that is inappropriate in furtherance 
of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    Written comments relating to the proposed rule change have not been 
solicited or received. ICC will notify the Commission of any written 
comments received by ICC.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-ICC-2015-017 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-ICC-2015-017. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filings will also be available 
for inspection and copying at the principal office of ICE Clear Credit 
and on ICE Clear Credit's Web site at https://www.theice.com/clear-credit/regulation.
    All comments received will be posted without change; the Commission 
does not edit personal identifying information from submissions. You 
should submit only information that you wish to make available 
publicly. All submissions should refer to File Number SR-ICC-2015-017 
and should be submitted on or before November 30, 20155.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-28402 Filed 11-6-15; 8:45 am]
BILLING CODE 8011-01-P