[Federal Register Volume 85, Number 122 (Wednesday, June 24, 2020)]
[Notices]
[Pages 37992-37995]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-13536]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89090; File No. SR-ICEEU-2020-009]


Self-Regulatory Organizations; ICE Clear Europe Limited; Notice 
of Filing and Immediate Effectiveness of Proposed Rule Change Relating 
to Amendments to the ICE Clear Europe Model Risk Governance Framework

June 18, 2020.
    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 June 12, 2020, ICE Clear Europe Limited (``ICE Clear Europe'' or the 
``Clearing House'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule changes described in Items I, II, 
and III below, which Items have been primarily prepared by ICE Clear 
Europe. ICE Clear Europe filed the proposed rule change pursuant to 
Section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(6) \4\ 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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    \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)(6).

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[[Page 37993]]

I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The principal purpose of the proposed amendments is for ICE Clear 
Europe to modify its Model Risk Governance Framework (the ``Model Risk 
Governance Framework'' or ``Framework'') to clarify the Clearing 
House's model risk management processes and to update the Framework's 
document governance and exception handling processes. The revisions to 
the Model Risk Governance Framework would not involve any changes to 
the ICE Clear Europe Clearing Rules or Procedures.\5\
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    \5\ Capitalized terms used but not defined herein have the 
meanings specified in the ICE Clear Europe Clearing Rules.
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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
    Following its annual review of the Model Risk Governance Framework, 
ICE Clear Europe is proposing to amend the Framework as follows: (i) 
Clarify certain procedures for model risk management, including with 
respect to new models and reviews of existing models; (ii) to update 
governance provisions relating to document review, breach management 
and exception handling; and (iii) to make various drafting 
clarifications and improvements.
Model Risk Management
    The section of the Framework addressing validation and model 
performance assessment would be renamed to the more general ``Model 
Risk Management'' and clarify that the Clearing House will identify, 
measure, monitor and mitigate model risk in all stages of a model life 
cycle. Certain general explanatory, non-substantive language (such as 
language generally explaining stages of new models, referencing the 
general nature of model changes and explaining the general importance 
of model validation and performance assessment) would be removed as 
unnecessary.
    With respect to new models, language would be introduced to clarify 
that the time elapsed from validation to the production date is not to 
exceed the validation cycle.
    With respect to review of existing models, the Clearing House 
proposes to add further detail regarding annual validation cycles: The 
time horizon of the cycles would be measured on a month-to-month basis, 
and the time the remediation plan was approved would be used as a 
reference. In addition, it would be clarified that model performance 
assessments would be conducted on a periodic basis, with cycles no 
greater than those used for validations (as opposed to no greater than 
one year). These assessments would, at a minimum, include the review of 
the testing performance of the models as well as the appropriateness of 
the parameters and assumptions used in them.
    In the section discussing model retirement, language providing that 
the efficiency of a model may deteriorate over its life cycle for 
several reasons would be removed as unnecessary. The section would also 
be updated to provide that the Clearing House's assessment of the risks 
and consequences of retiring a model would, at a minimum, include a 
review of the reasons for the retirement, the coverage of risks post-
retirement, the existing interdependencies and the regulatory 
compliance.
Governance
    The amendments to the Framework would also update arrangements for 
breach management, ongoing Framework reviews and exception handling. 
The amendments are intended to make the Framework consistent in this 
regard with other ICE Clear Europe policies and governance processes. 
In particular, the amendments would provide that (i) the document 
owner, as specified in ICE Clear Europe policies, is responsible for 
ensuring that documents remain up-to-date and are reviewed in 
accordance with the Clearing House's governance processes, (ii) the 
document owner will report material breaches or unapproved deviations 
from the Framework to their Head of Department, the Chief Risk Officer 
and the Head of Compliance (or their delegates) who will determine if 
further escalation will be made to relevant senior executives, the 
Board and/or competent authorities, and (iii) exceptions to the Model 
Risk Governance Framework would be approved in accordance with the 
Clearing House's governance process for the approval of changes to such 
document.
General Drafting Clarifications and Improvements
    By way of general drafting clarification and improvements, the 
amendments to the Model Risk Governance Framework would re-word certain 
sections for improved readability as well as make general grammatical 
and typographical corrections. Certain terminology would be updated 
throughout the Framework, including clarifying the use of the term 
``remediation plan'' as opposed to ``remediation action''. The ``Second 
Line'' discussion of Model Risk Governance would be clarified to 
provide that the Risk Oversight Department is responsible to establish, 
maintain and observe guidelines for performing independent validation 
exercises only, and not also for model performance assessments and 
review of impact assessments (as those are generally ``First Line'' 
functions).
(b) Statutory Basis
    ICE Clear Europe believes that the proposed amendments to the Model 
Risk Governance Framework are consistent with the requirements of 
Section 17A of the Act \6\ and the regulations thereunder applicable to 
it. In particular, Section 17A(b)(3)(F) of the Act \7\ 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, 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. 
The proposed changes to the Model Risk Governance Framework are 
designed to clarify and strengthen ICE Clear Europe's model risk 
management framework. The amendments would clarify that model risk 
management is to be identified, measured, monitored and mitigated in 
all stages of a model life cycle. The amendments would provide greater 
detail as to the timing of the Clearing House's assessment of new 
models and of existing models; specifically, the time elapsed to the 
production launch date with respect to a new model would not be greater 
than the validation cycle, and the time horizon of existing models

[[Page 37994]]

would be measured on a month-to-month basis, using the time the 
remediation plan was approved as reference. The amendments would also 
clarify requirements for ongoing performance assessments, and enhance 
the governance over the Framework, to be consistent with other ICE 
Clear Europe policies. ICE Clear Europe believes that the Framework as 
so amended would enhance the overall risk management of the Clearing 
House, and thereby promote the prompt and accurate clearance of 
transactions and further the public interest in sound operation of 
clearing agencies, within the meaning of Section 17A(b)(3)(F).\8\ The 
amendments are not intended to affect, and are consistent with, the 
Clearing House's existing Rules and Procedures relating to the 
safeguarding of funds and securities in the custody or control of the 
Clearing House or for which it is responsible, within the meaning of 
that section.
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    \6\ 15 U.S.C. 78q-1.
    \7\ 15 U.S.C. 78q-1(b)(3)(F).
    \8\ 15 U.S.C. 78q-1(b)(3)(F).
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    In addition, ICE Clear Europe believes that the proposed revisions 
to the Model Risk Governance Framework are consistent with the relevant 
requirements of Rule 17Ad-22.\9\ Rule 17Ad-22(b)(4) \10\ requires 
clearing agencies to perform an annual model validation, including a 
performance evaluation, of their margin models and the related 
parameters and assumptions. Rules 17Ad-22(e)(4)(vii) \11\ and 17Ad-
22(e)(6)(vii),\12\ also require clearing agencies to have policies and 
procedures in place to ensure the performance of a model validation of 
their credit risk models, margin system, and related models not less 
than annually. Pursuant to the amendments, validation would continue to 
be performed on an annual basis and the additional clarifications 
minimum standards would further improve the review and validation 
process, in compliance with these requirements.
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    \9\ 17 CFR 240.17Ad-22.
    \10\ 17 CFR 240.17Ad-22(b)(4). The rule states that ``[a] 
registered clearing agency that performs central counterparty 
services shall establish, implement, maintain and enforce written 
policies and procedures reasonably designed to: (4) Provide for an 
annual model validation consisting of evaluating the performance of 
the clearing agency's margin models and the related parameters and 
assumptions associated with such models by a qualified person who is 
free from influence from the persons responsible for the development 
or operation of the models being validated''.
    \11\ 17 CFR 240.17Ad-22(e)(4)(vii). The rule states that 
``[e]ach covered clearing agency shall establish, implement, 
maintain and enforce written policies and procedures reasonably 
designed to, as applicable: (4) Effectively identify, measure, 
monitor, and manage its credit exposures to participants and those 
arising from its payment, clearing, and settlement processes, 
including by: (vii) Performing a model validation for its credit 
risk models not less than annually or more frequently as may be 
contemplated by the covered clearing agency's risk management 
framework established pursuant to paragraph (e)(3) of this section''
    \12\ 17 CFR 240.17Ad-22(e)(6)(vii). 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:
    (vii) Requires a model validation for the covered clearing 
agency's margin system and related models to be performed not less 
than annually, or more frequently as may be contemplated by the 
covered clearing agency's risk management framework established 
pursuant to paragraph (e)(3) of this section''

    Rule 17Ad-22(e)(2) \13\ requires clearing agencies to establish 
reasonably designed policies and procedures to provide for 
governance arrangements that are clear and transparent and specify 
clear and direct lines of responsibility. The proposed amendments to 
the Framework more clearly define the roles and responsibilities of 
the document owner, the Head of Department, the senior members of 
the Risk Oversight Department and the senior members of the 
Compliance Department, consistent with governance arrangement for 
other ICE Clear Europe policies and procedures. ICE Clear Europe 
believes that the amendments to the Framework are therefore 
consistent with the requirements of Rule 17Ad-22(e)(2).\14\
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    \13\ 17 CFR 240.17 Ad-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 (ii) Clearly prioritize the safety and 
efficiency of the covered clearing agency; (iii) Support the public 
interest requirements in Section 17A of the Act (15 U.S.C. 78q-1) 
applicable to clearing agencies, and the objectives of owners and 
participants; (iv) Establish that the board of directors and senior 
management have appropriate experience and skills to discharge their 
duties and responsibilities; (v) Specify clear and direct lines of 
responsibility; and (vi) Consider the interests of participants' 
customers, securities issuers and holders, and other relevant 
stakeholders of the covered clearing agency.''
    \14\ 17 CFR 240.17 Ad-22(e)(2).
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(B) Clearing Agency's Statement on Burden on Competition

    ICE Clear Europe does not believe the proposed amendments would 
have any impact, or impose any burden, on competition not necessary or 
appropriate in furtherance of the purposes of the Act. The amendments 
are being adopted to further strengthen the Model Risk Governance 
Framework by implementing internal procedures intended to strengthen 
oversight of models. The amendments would apply to all product 
categories, and are not intended to affect directly Clearing Members or 
market participants, or the markets for cleared products. As a result, 
ICE Clear Europe does not otherwise believe the amendments would affect 
the costs of or access to clearing, or the market for clearing services 
generally. Therefore, ICE Clear Europe does not believe the proposed 
rule change imposes 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 amendments have not been 
solicited or received by ICE Clear Europe. ICE Clear Europe will notify 
the Commission of any written comments received with respect to the 
proposed rule change.

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

    Because the foregoing proposed rule change does not:
    (i) Significantly affect the protection of investors or the public 
interest;
    (ii) impose any significant burden on competition; and
    (iii) become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission may designate, it has 
become effective pursuant to Section 19(b)(3)(A) of the Act \15\ and 
Rule 19b-4(f)(6) \16\ thereunder.
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(6).
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    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 
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-2020-009 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.


[[Page 37995]]


All submissions should refer to File Number SR-ICEEU-2020-009. 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 Europe and on ICE 
Clear Europe's website at https://www.theice.com/notices/Notices.shtml?regulatoryFilings.
    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-2020-009 and should be 
submitted on or before July 15, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-13536 Filed 6-23-20; 8:45 am]
BILLING CODE 8011-01-P