[Federal Register Volume 83, Number 203 (Friday, October 19, 2018)]
[Notices]
[Pages 53136-53138]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-22776]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84424; File No. SR-ICC-2018-010]


Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Relating 
to ICC's Stress Testing Framework and ICC's Liquidity Risk Management 
Framework

October 15, 2018.
    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 1, 2018, ICE Clear Credit LLC (``ICC'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change described in Items I, II, and III below, which Items have been 
prepared primarily by ICC. ICC filed the proposed rule changes pursuant 
to Section 19(b)(3)(A) of the Act,\3\ and Rule 19b-4(f)(4)(ii) 
thereunder,\4\ so that the proposal was immediately effective upon 
filing with the Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(4)(ii).
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The principal purpose of the proposed rule change is to revise the 
ICC Stress Testing Framework and the ICC Liquidity Risk Management 
Framework. These revisions do not require any changes to the ICC 
Clearing Rules (``Rules'').

II. Clearing Agency'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) Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

(a) Purpose
    ICC proposes revising its Stress Testing Framework and its 
Liquidity Risk Management Framework. Specifically, ICC proposes 
clarifying changes regarding current aspects of its stress testing and 
liquidity stress testing practices to address comments received from 
independent validations, as well as additional clean-up changes. The 
independent validator comments revolve around clarification updates 
that do not change ICC's current stress testing and liquidity stress 
testing practices. ICC's proposed changes to address the independent 
validator comments include updates to correct inconsistencies between 
section numbering and the table of contents, ensure that scenarios are 
categorized consistently across the ICC Stress Testing Framework and 
the ICC Liquidity Risk Management Framework, define potentially unclear 
terminology, and clarify or include additional detail relating to 
potentially ambiguous phrases or text such that ICC's documentation 
provides a clearer view of its stress testing and liquidity stress 
testing practices. 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.
Stress Testing Framework
    ICC proposes revisions to the Stress Testing Framework to address 
independent validator comments and to make clarification and clean-up 
changes to enhance readability. ICC proposes clean-up changes to the 
Table of Contents to add two sections, which are not new to the 
document, but were previously excluded from the Table of Contents. ICC 
also proposes, for clarity, updates to the `Overview' section to 
abbreviate ``Risk Committee'' to ``RC.'' ICC proposes corresponding 
changes throughout the document.
    ICC proposes amendments to the `Predefined Scenarios' section of 
the Stress Testing Framework. ICC proposes to divide the predefined 
scenarios into four categories. Previously, the Stress Testing 
Framework divided the predefined scenarios into three categories by 
combining the Historically Observed Extreme but Plausible Market 
Scenarios: Severity of Losses in Response to a Baseline Credit Event 
and the Hypothetically Constructed (Forward Looking) Extreme but 
Plausible Market Scenarios into one category. ICC proposes to separate 
these scenarios into two categories to maintain uniformity throughout 
the Stress Testing Framework since each represents a distinct sub-
section in the `Predefined Scenarios' section of the Stress Testing 
Framework. Additionally, ICC proposes to categorize the Discordant 
Spread Scenarios (i.e., scenarios designed to reproduce significant 
discordant outcomes during the considered period) and the Opposite 
Discordant Spread Scenarios (i.e., scenarios constructed using the 
opposite discordant outcomes to those observed during the considered 
period) as Historically Observed Extreme but Plausible to ensure 
consistency with the scenarios classified as Historically Observed 
Extreme but Plausible in the Liquidity Risk Management Framework, which 
include the Discordant Spread Scenarios and the Opposite Discordant 
Spread Scenarios.
    ICC proposes clarifying changes to the `Display of Discordant 
Behavior among Instrument Groups' section. ICC proposes to more clearly 
define discordant change as discordant relative spread move. ICC 
proposes to add clarifying language to define the market depth of 
sovereign reference entities in terms of the observed weekly trading 
volumes from the Depository Trust & Clearing Corporation (``DTCC''). In 
addition, ICC proposes to include language to clarify that the 
historical period selected to represent the greatest combined 
discordant change for sovereign reference entities can be different 
from the one selected for corporate single names (``SNs'').
    ICC proposes enhancements to the `Reverse Stress Testing: Guaranty 
Fund Adequacy Analysis' section to provide additional clarity regarding 
how ICC performs such analysis. Specifically, ICC proposes to add 
explanatory language to note that, upon the simultaneous default of two 
Clearing Participant (``CP'') affiliate groups (``AGs''), ICC considers 
additional adverse spread realizations and idiosyncratic credit events 
associated with reference obligations on which the stress tested CP 
sold protection.
    ICC proposes enhancements to the `Interest Rate Sensitivity 
Analysis'

[[Page 53137]]

section to further clarify its analysis. To avoid confusing interest 
rate shocks as haircuts, ICC proposes to clarify that interest rate 
shocks used for stress testing are based on interest rate shocks 
observed during historical periods used to estimate haircuts.
    ICC proposes clarification changes to the `Guaranty Fund Sizing 
Sensitivity Analysis' section. ICC's Guaranty Fund (``GF'') model aims 
to establish financial resources that are sufficient to cover 
hypothetical losses associated with the simultaneous credit events 
where up to five SN Risk Factor Groups (``RFGs'') \5\ are impacted. In 
that, two of the selected SN RFGs are CP AGs (i.e., Cover-2 GF sizing) 
and the other three RFGs are non-CP RFGs. Under the alternative 
combination, three of the selected SN RFGs are CP AGs (i.e., Cover-3 GF 
sizing) and the other two RFGs are non-CP RFGs. Given that two or three 
of the selected SN RFGs are CP AGs, ICC proposes to provide specific 
reference to CP AGs when referring to Cover-2 and Cover-3 GF sizing. 
ICC proposes corresponding changes throughout the document when 
referencing Cover-2 and Cover-3.
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    \5\ ICC deems each SN reference entity a Risk Factor. ICC deems 
a set of SN Risk Factors related by a common parental ownership 
structure a RFG.
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    ICC proposes updates to the `Interpretation of Results' section. 
For clarity, ICC proposes revisions to specify when it assesses Cover-2 
in terms of two CP AGs generating the largest uncollateralized stress 
losses (i.e., stress losses over their corresponding financial 
resources) versus two CP AGs generating the largest consumption of the 
GF. ICC proposes incorporating the Discordant Spread Scenarios and the 
Opposite Discordant Spread Scenarios in its list of Historically 
Observed and Hypothetically Constructed Extreme but Plausible Scenarios 
to ensure consistency with the Historically Observed Extreme but 
Plausible Scenarios set forth in the Liquidity Risk Management 
Framework, which include the Discordant Spread Scenarios and the 
Opposite Discordant Spread Scenarios. In addition, ICC proposes to 
further clarify the role of large position requirements, noting that 
large position requirements, although initially excluded, are included 
in the available total margin used to cover hypothetical losses from 
stress test results.
    ICC proposes amending the `Post-Stress Testing Review & Governance 
Structure' section to more clearly reflect the ICC Risk Department's 
reporting and stress testing obligations. The proposed changes clarify 
that, for each considered stress scenario, the ICC Risk Department 
creates and reviews stress testing results for all applicable CP AGs. 
The proposed changes further specify which scenarios are provided 
weekly for reporting purposes and which are provided monthly to the 
Risk Committee. The proposed changes also note the ICC Risk 
Department's reporting obligation if deficiencies are uncovered during 
analysis of certain Cover-2 stress scenarios, along with the ICC Risk 
Department's obligation to execute stress testing regularly for all CP 
AGs.
Liquidity Risk Management Framework
    ICC proposes revisions to its Liquidity Risk Management Framework 
to make clean-up changes and clarification changes in response to 
independent validator comments. Specifically, ICC proposes to revise 
the `Discordant Scenario' sub-section to more clearly define discordant 
change as discordant relative spread move. In addition, consistent with 
the Stress Testing Framework, ICC proposes modifying the `Required 
Analysis' section to more clearly reflect the ICC Risk Department's 
reporting and stress testing obligations. ICC proposes to note that, 
for each considered stress scenario, the ICC Risk Department executes 
stress testing daily for all applicable CP AGs. ICC also proposes to 
specify which scenarios are provided weekly for reporting purposes and 
which are provided monthly to the Risk Committee.
(b) Statutory Basis
    Section 17A(b)(3)(F) of the Act \6\ 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; to assure the safeguarding of securities and funds which 
are in the custody or control of the clearing agency or for which it is 
responsible; 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),\7\ 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, and contribute to the safeguarding of securities and 
funds associated with security-based swap transactions in ICC's custody 
or control, or for which ICC is responsible. The proposed changes to 
the Stress Testing Framework and the Liquidity Risk Management 
Framework to address independent validator comments provide additional 
clarity and transparency regarding ICC's stress testing and liquidity 
stress testing practices and enhance ICC's approach to identifying 
potential weaknesses in the risk methodology as well as the methodology 
for testing the sufficiency of ICC's liquidity resources. The 
clarification and clean-up changes that enhance readability further 
ensure that the documentation of ICC's Stress Testing Framework and 
Liquidity Risk Management Framework remains up-to-date, clear, and 
transparent. ICC believes that having policies and procedures that 
clearly and accurately document ICC's stress testing and liquidity 
stress testing practices are an important component to the 
effectiveness of ICC's risk management system, which promotes the 
prompt and accurate clearance and settlement of securities 
transactions, derivatives agreements, contracts, and transactions and 
contributes to the safeguarding of securities and funds associated with 
security-based swap transactions in ICC's custody or control, or for 
which ICC is responsible. As such, the proposed rule changes are 
designed to promote the prompt and accurate clearance and settlement of 
securities transactions, derivatives agreements, contracts, and 
transactions and to contribute to the safeguarding of securities and 
funds associated with security-based swap transactions in ICC's custody 
or control, or for which ICC is responsible within the meaning of 
Section 17A(b)(3)(F) of the Act.\8\
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    \6\ 15 U.S.C. 78q-1(b)(3)(F).
    \7\ Id.
    \8\ Id.
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    In addition, the proposed revisions to the Stress Testing Framework 
and the Liquidity Risk Management Framework are consistent with the 
relevant requirements of Rule 17Ad-22.\9\ Rule 17Ad-22(b)(3) \10\ 
requires ICC to establish, implement, maintain and enforce written 
policies and procedures reasonably designed to maintain sufficient 
financial resources to withstand, at a minimum, a default by the two CP 
families to which it has the largest exposures in extreme but plausible 
market conditions. The proposed changes to the Stress Testing Framework 
and the Liquidity Risk Management Framework provide further clarity and 
transparency regarding ICC's

[[Page 53138]]

stress testing and liquidity stress testing practices and enhance ICC's 
approach to identifying potential weaknesses in the risk methodology as 
well as the methodology for testing the sufficiency of ICC's liquidity 
resources, thereby ensuring that ICC maintains sufficient financial 
resources to withstand, at a minimum, a default by the two CP families 
to which it has the largest exposures in extreme but plausible market 
conditions, consistent with the requirements of Rule 17Ad-22(b)(3).\11\
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    \9\ 17 CFR 240.17Ad-22.
    \10\ 17 CFR 240.17Ad-22(b)(3).
    \11\ Id.
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    Rule 17Ad-22(d)(8) \12\ requires ICC to establish, implement, 
maintain and enforce written policies and procedures reasonably 
designed to have governance arrangements that are clear and transparent 
to fulfill the public interest requirements in Section 17A of the 
Act.\13\ By updating the Stress Testing Framework and the Liquidity 
Risk Management Framework so that the documents more clearly reflect 
the assignment of responsibilities to the ICC Risk Department in terms 
of reporting and stress testing obligations, the proposed changes will 
ensure that ICC's governance of the Stress Testing Framework and the 
Liquidity Risk Management Framework is clear, transparent, and 
documented accurately, consistent with the requirements of Rule 17Ad-
22(d)(8).\14\
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    \12\ 17 CFR 240.17Ad-22(d)(8).
    \13\ 15 U.S.C. 78q-1.
    \14\ 17 CFR 240.17Ad-22(d)(8).
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(B) Clearing Agency's Statement on Burden on Competition

    ICC does not believe the proposed rule changes would have any 
impact, or impose any burden, on competition. The proposed changes to 
ICC's Stress Testing Framework and ICC's Liquidity Risk Management 
Framework will apply uniformly across all market participants. 
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) Clearing Agency'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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act and paragraph (f) of Rule 19b-4 thereunder. At 
any time within 60 days of the filing of the proposed rule change, the 
Commission summarily may temporarily suspend such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.

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-2018-010 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-ICC-2018-010. 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 website (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 website 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 website at https://www.theice.com/clear-credit/regulation.
    All comments received will be posted without change. Persons 
submitting comments are cautioned that we do not redact or edit 
personal identifying information from comment submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-ICC-2018-010 and should be 
submitted on or before November 9, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
Eduardo A. Aleman,
Assistant Secretary.
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    \15\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2018-22776 Filed 10-18-18; 8:45 am]
 BILLING CODE 8011-01-P