[Federal Register Volume 84, Number 205 (Wednesday, October 23, 2019)]
[Notices]
[Pages 56871-56873]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-23053]



[[Page 56871]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87331; File No. SR-ICEEU-2019-021]


Self-Regulatory Organizations; ICE Clear Europe Limited; Notice 
of Filing and Immediate Effectiveness of Proposed Rule Change Relating 
to Amendments to Futures and Options Risk Procedures (the ``F&O Risk 
Procedures'').1
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    \1\ Capitalized terms used but not defined herein have the 
meanings specified in the ICE Clear Europe Clearing Rules (the 
``Rules'').

October 17, 2019. Pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act''),\2\ and Rule 19b-4 thereunder,\3\ notice 
is hereby given that on October 4, 2019, ICE Clear Europe Limited 
(``ICE Clear Europe'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule changes described in 
Items I, II, and III below, which Items have been prepared primarily by 
ICE Clear Europe. ICE Clear Europe filed the proposed rule change 
pursuant to Section 19(b)(3)(A) of the Act \4\ and Rule 19b-4(f)(4) \5\ 
thereunder, such that the proposed rule change 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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    \2\ 15 U.S.C. 78s(b)(1).
    \3\ 17 CFR 240.19b-4.
    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ 17 CFR 240.19b-4(f)(4).
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    ICE Clear Europe proposes to make certain amendments to the F&O 
Risk Procedures to enhance to enhance their clarity in relation to the 
margin account structure, certain margin add-on calculation 
methodology, the process for the monitoring and reporting of the back-
testing results and the data management and governance document 
processes.

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

    In its filing with the Commission, ICE Clear Europe 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. ICE Clear Europe has prepared summaries, 
set forth in sections (A), (B), and (C) below, of the most significant 
aspects of such statements.

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

(a) Purpose
    ICE Clear Europe is proposing to amend its F&O Risk Procedures to 
enhance their clarity in relation to the margin account structure, 
certain margin add-on calculation methodology, the process for the 
monitoring and reporting of the back-testing results and the data 
management and governance document processes.
    The revised procedures ensure that the short descriptions of the 
various accounts offered by ICE Clear Europe would be aligned with the 
related terminology present in the ICE Clear Europe Clearing 
Procedures. They would also allow for the clarification of the ICE 
Clear Europe departments responsible for the review of the F&O margins' 
parameters. The proposed amendments would also include certain other 
enhancements and clarifications, described below.
I. European Market Infrastructure Regulation (EMIR) Add-On
    The amendments would facilitate a more accurate description of the 
methodology with which the Clearing House currently complies with 
Article 26 of the EMIR Regulatory Technical Standards (RTS). The 
requirement prescribes that all Clearing Members' house and proprietary 
positions from affiliates of a Clearing Member use a minimum of a two-
business day margin period of risk (MPOR).
    The EMIR add-on ensures that at least a two- business day MPOR 
amount would be collected for these positions for products that would 
otherwise use a one- business day MPOR for initial margin.
    The amendments would ensure an accurate explanation of the EMIR 
add-on calculation inclusion in the ICE Clear Europe end of day margins 
calculation process and of the fact that ICE Clear Europe does not 
publish parameter arrays used for calculating additional initial 
margins.
II. Back-Testing
    Several aspects of the F&O Risk Procedures addressing the back-
testing process would be amended to enhance clarity and to ensure that 
the operational steps followed by ICE Clear Europe are accurately 
reflected in the F&O Risk Procedures. The amendments would cover the 
assumptions and the formula for the margin coverage calculation and its 
test methodology. In relation to the back-test statistics, the 
amendments would specify that the Clearing Risk Department (CRD) could 
apply at its discretion other back testing statistics, in addition to 
the standard Basel Traffic Light.\6\
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    \6\ Basel Statistics test as per--Basel Committee on Banking 
Supervision, ``Supervisory framework for the use of ``backtesting'' 
in conjunction with the internal models approach to market risk 
capital requirements'' (January 1996), available at: https://www.bis.org/publ/bcbs22.pdf.
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    In relation to the macro back-testing the amendments would explain 
that if the model displays consistent and continuous red zone for some 
portfolios, ICE Clear Europe may require Clearing Members to provide 
for additional margin, referred to as super margin.
    The amendments would also introduce a new section to the F&O Risk 
Procedures to address the margin coverage and back-testing monitoring 
and reporting process. The amendments would clarify, for both the macro 
and micro back-testing, the process for the daily creation of the 
relevant risk report for the top day breaches and the process for the 
related investigation by a Clearing Risk Department (``CRD'') analyst 
and escalation process to senior CRD personnel. Each macro margin 
coverage breach is also presented monthly to the Model Oversight 
Committee and bi-monthly to the F&O Product Risk Committee. The 
amendments would also cover the frequency with which the back-testing 
statistics, for both macro and micro back-testing, are generated and 
the internal reporting process followed for the review of the related 
results. Back-testing results would be reported by CRD analysts daily 
to Clearing House senior management staff with respect to macro back-
testing results, and with respect to macro and micro back-testing 
results, monthly to the Model Oversight Committee and bi-monthly to the 
F&O Product Risk Committee. A Risk Oversight Department (``ROD'') 
analyst also reviews the macro level results and discusses details if 
necessary before presenting it to the Model Oversight Committee. Model 
remediation actions on a Clearing Member portfolio at a macro level or 
due to product back-testing results at a micro level would be flagged 
to senior management, the Model Oversight Committee and the F&O Product 
Risk Committee. The same information regarding monitoring and reporting 
would also be summarized in a table which would specify the level of 
the back-testing, the name of the report that is generated, the metrics 
contained in each report, the storage system used by the Clearing 
House, the frequency of

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the generation of each report and the audience with whom it is shared.
III. Data Management
    The amendments would also introduce a new section to the F&O Risk 
Procedures to define the different types and sources of data used by 
the CRD and the related controls. The amendments classify the data used 
by the CRD into either static or dynamic data, and explain which data 
are included in each category.
    The amendments would also provide details on the data quality 
checks performed by the CRD on the static and dynamic data and on the 
historical prices.
    The section would also describe the reasons for which the CRD is 
allowed to correct or exclude data from being used in the margin models 
or stress scenarios and require that the list of exclusions and 
corrections with related justifications be reviewed each month by the 
Model Oversight Committee.
IV. Document Governance and Exception Handling
    The amendments would also introduce a new section to the F&O Risk 
Procedures to describe the breach management process for the reporting 
and possible escalation of material breaches or unapproved deviations 
from the F&O Risk Procedures. The section would also include the 
description of the exception handling process and governance.
    Certain other typographical corrections and similar clarifications 
would also be made.
(b) Statutory Basis
    ICE Clear Europe believes that the proposed amendments are 
consistent with the requirements of Section 17A of the Act \7\ and the 
regulations thereunder applicable to it, including the standards under 
Rule 17Ad-22.\8\ Section 17A(b)(3)(F) of the Act \9\ 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 in the custody or control of the clearing agency or for which 
it is responsible, and the protection of investors and the public 
interest. As discussed above, the proposed amendments to the F&O Risk 
Procedures are intended to more accurately reflect Clearing House 
practice and to enhance the ICE Clear Europe internal processes with 
respect to the EMIR add-on application, the back-testing calculation, 
data management activity and document governance. This would facilitate 
the Clearing House's ability to manage risk generally, and therefore 
promote the prompt and accurate clearance and settlement of 
transactions, and further the public interest in the sound operation of 
clearing agencies. (The amendments should not significantly affect, and 
are consistent with, the safeguarding of securities or funds in the 
custody or control of the Clearing House or for which it is 
responsible.) As a result, in ICE Clear Europe's view, the amendments 
are consistent with the requirements of Section 17A(b)(3)(F) of the 
Act.
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    \7\ 15 U.S.C. 78q-1.
    \8\ 17 CFR 240.17Ad-22.
    \9\ 15 U.S.C. 78q-1(b)(3)(F).
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    The amendments would also satisfy the relevant specific 
requirements of Rule 17Ad-22,\10\ as set forth in the following 
discussion. Through providing additional details, including details 
relating to monitoring of margin coverage and back-test statistics, the 
margin coverage calculation formula and data quality monitoring, and 
enhancing overall clarity of the F&O Risk Procedures, the amendments 
are consistent with Rule 17Ad-22(e)(3)(i),\11\ which requires clearing 
agencies to have reasonably designed policies and procedures that, at a 
minimum, include risk management policies, procedures, and systems 
designed to identify, measure, monitor, and manage the range of risks 
that arise in or are borne by a clearing agency.
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    \10\ 17 CFR 240.17Ad-22.
    \11\ 17 CFR 240.17Ad-22(e)(3). The rule states that: ``[e]ach 
covered clearing agency shall establish, implement, maintain and 
enforce written policies and procedures reasonably designed to, as 
applicable: (3) Maintain a sound risk management framework for 
comprehensively managing legal, credit, liquidity, operational, 
general business, investment, custody, and other risks that arise in 
or are borne by the covered clearing agency, which: (i) Includes 
risk management policies, procedures, and systems designed to 
identify, measure, monitor, and manage the range of risks that arise 
in or are borne by the covered clearing agency, that are subject to 
review on a specified periodic basis and approved by the board of 
directors annually;''
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    Rule 17Ad-22(e)(6)(i) \12\ specifically requires clearing agencies 
to establish, implement, maintain and enforce written policies and 
procedures reasonably designed to cover its credit exposures to its 
participants by establishing a risk-based margin system that, at a 
minimum, considers, and produces margin levels commensurate with, the 
risks and particular attributes of each relevant product, portfolio, 
and market. The proposed amendments with respect to the EMIR add-on 
application are consistent with such requirement as they facilitate the 
application of the two-business day MPOR margin requirement for the 
relevant products to cover credit exposures to Clearing Members 
relative to the related product risks.
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    \12\ 17 CFR 240.17Ad-22(e)(6). The rule states that: ``[e]ach 
covered clearing agency shall establish, implement, maintain and 
enforce written policies and procedures reasonably designed to, as 
applicable: (6) Cover, if the covered clearing agency provides 
central counterparty services, its credit exposures to its 
participants by establishing a risk-based margin system that, at a 
minimum: (i) Considers, and produces margin levels commensurate 
with, the risks and particular attributes of each relevant product, 
portfolio, and market;''
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    Rule 17Ad-22(e)(6)(vi)(D) \13\ specifically requires clearing 
agencies to implement reasonably designed policies and procedures to 
cover its credit exposures to its participants by establishing a risk-
based margin system that is monitored by management on an ongoing basis 
and is regularly reviewed, tested, and verified by reporting the 
results of its analyses to appropriate decision makers at the covered 
clearing agency. In compliance with these requirements, the proposed 
amendments to the F&O Risk Procedures specify the monitoring and the 
reporting process which ICE Clear Europe must follow in relation to the 
results of the macro and micro level back-testing results. The 
amendments to the F&O Risk Procedures describe for each test, the 
frequency of the reporting of the relevant results and the ICE Clear 
Europe departments responsible for their monitoring and review, which 
include senior management, the Model Oversight Committee and the F&O 
Product Committee.
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    \13\ 17 CFR 240.17Ad-22(e)(6). The rule states that: ``[e]ach 
covered clearing agency shall establish, implement, maintain and 
enforce written policies and procedures reasonably designed to, as 
applicable: (6) Cover, if the covered clearing agency provides 
central counterparty services, its credit exposures to its 
participants by establishing a risk-based margin system that, at a 
minimum: (vi) Is monitored by management on an ongoing basis and is 
regularly reviewed, tested, and verified by: (D) Reporting the 
results of its analyses under paragraphs (e)(6)(vi)(B) and (C) of 
this section to appropriate decision makers at the covered clearing 
agency, including but not limited to, its risk management committee 
or board of directors, and using these results to evaluate the 
adequacy of and adjust its margin methodology, model parameters, and 
any other relevant aspects of its credit risk management 
framework;''
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    Rule 17Ad-22(e)(2)(i) and (v) \14\ requires clearing agencies to 
establish reasonably designed policies and

[[Page 56873]]

procedures to provide for governance arrangements that are clear and 
transparent and specify clear and direct lines of responsibility. To 
facilitate compliance with this requirement, the proposed amendments to 
the F&O Risk Procedures more clearly define the ICE Clear Europe 
departments responsible for review of back-testing results, data 
quality checks, breach management and exception handling.
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    \14\ 17 CFR 240.17Ad-22(e)(2). The rule states that: ``[e]ach 
covered clearing agency shall establish, implement, maintain and 
enforce written policies and procedures reasonably designed to, as 
applicable: (2) Provide for governance arrangements that: (i) Are 
clear and transparent; . . . (v) Specify clear and direct lines of 
responsibility. . . .
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(B) Clearing Agency's Statement on Burden on Competition

    ICE Clear Europe does not believe the proposed rule changes would 
have any impact, or impose any burden, on competition not necessary or 
appropriate in furtherance of the purposes of the Act. The proposed 
amendments on the EMIR add-on would apply to those F&O Contracts that 
are margined using a one-business day MPOR and are intended to 
strengthen risk management relating to these products and to ensure 
compliance with EMIR requirements relating to the EMIR add-on. The 
amendments would apply to all F&O Clearing Members that trade contracts 
in the relevant category. ICE Clear Europe does not believe the 
amendments would generally affect the overall cost of clearing for F&O 
Clearing Members or other market participants or otherwise affect 
access to clearing generally. To the extent the amendments relating to 
the EMIR add-on may impose certain additional costs on F&O Clearing 
Members, these result from requirement imposed by EMIR and are 
generally applicable to F&O Clearing Members. As a result, any 
additional burdens placed on F&O Clearing Members would be appropriate 
in furtherance of enhancing risk management, and are not intended to 
disadvantage any particular Clearing Member. As a result, ICE Clear 
Europe believes that any impact on competition would be appropriate 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 amendments have not been 
solicited or received by ICE Clear Europe. ICE Clear Europe will notify 
the Commission of any comments received with respect to the proposed 
rule change.

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

    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-ICEEU-2019-021 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-ICEEU-2019-021. 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 Section, 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 Europe and on ICE 
Clear Europe's website at https://www.theice.com/clear-europe/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-ICEEU-2019-021 and should be 
submitted on or before November 13, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-23053 Filed 10-22-19; 8:45 am]
 BILLING CODE 8011-01-P