[Federal Register Volume 86, Number 49 (Tuesday, March 16, 2021)]
[Notices]
[Pages 14478-14482]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-05339]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91290; File No. SR-ICEEU-2021-007]


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 Futures and Options Risk Policy 
and Futures and Options Risk Procedures and Retirement of the Futures 
and Options Concentration Charge Policy

March 10, 2021.
    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 March 3, 2021, 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 prepared primarily 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)(4)(ii) \4\ 
thereunder, such that the proposed rule was immediately effective upon 
filing with the Commission. The Commission is publishing this notice to 
solicit

[[Page 14479]]

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 amendments is for ICE Clear 
Europe to (i) modify its Futures and Options Risk Policy (the ``F&O 
Risk Policy'') and Futures and Options Risk Procedures (the ``F&O Risk 
Procedures'' or the ``Procedures'') to update certain aspects of the 
F&O initial margin methodology, including with respect to the capital 
to margin ratio, use of delivery margin, calculation of net liquidating 
value and certain buffers, and (ii) retire its Futures and Options 
Concentration Charge Policy (``F&O Concentration Charge Policy'') once 
such proposed amendment are made, as such policy would be made 
redundant as a result of the proposed amendments.

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 revise the F&O Policy to remove 
the description of the capital to margin ratio as a basis for 
requesting additional initial margin or a reduction in positions to 
reduce the required initial margin level.
    ICE Clear Europe is also proposing to amend its F&O Procedures to 
(i) update certain processes, escalations and controls with respect to 
the review of the IRM margin rate parameters, (ii) update the existing 
descriptions of review and testing processes for additional margin 
calculation methodologies, (iii) add a description of the Clearing 
House's use of delivery margin, net liquidating value, intraday 
buffers, overnight buffers, and ad hoc buffers as margin calculation 
methodologies and (iv) make various other drafting clarifications and 
improvements. These proposed amendments would result in the retiring of 
ICE Clear Europe's F&O Concentration Charge Policy as the F&O Risk 
Policy and F&O Risk Procedures (as amended) would render such Future 
and Options Concentration Charge Policy redundant.
I. Futures and Options Risk Policy
    The Policy would be revised to remove section 2.2.6, which 
describes the capital to margin ratio, from the additional margin 
requirements discussion. The description is being removed as the ratio 
is not in itself necessarily the basis of additional margin 
requirements and is addressed in other existing ICE Clear Europe 
policies and procedures. This amendment does not reflect a change in 
Clearing House practice or margin methodology. Certain minor non-
substantive typographical updates would also be made to the Policy.
II. F&O Risk Procedures
IRM Margin Rate Parameters
    Amendments to the Procedures would update the standard parameters 
for daily calculation of the calibrated IM rate (the so-called 
``Autopilot'' or ``AP'' rate) to reference inter-contract volatility 
spreads. The amendments would update and clarify certain processes for 
the routine periodic review of the production margin rate (which is the 
actual rate used in the margin calculation generating CMs' Core IM 
requirements, and is typically based on the Autopilot rate). 
Specifically, the amendments would clarify that details of proposed 
parameters and margin impact along with justification for any manual 
overrides from the Autopilot rate would need to be approved by the CRO 
and the President of ICEU or their deputies. The amendments would 
provide that the CRD can inform exchange staff (instead of sales staff) 
at its discretion for information about the margin update. The 
amendments would also remove a process for the CRD to receive feedback 
on proposed parameters by sales staff or management, which the Clearing 
House views as unnecessary in light of the procedures for senior 
management approval.
    Furthermore, the amendments would provide that upon review and 
approval of specific Senior Management Team members, the CRD would 
promote the rates into the risk system. The CRD would refresh the 
Product Report to perform a check on the rates to go live. One such 
check would be to ensure no cross-asset class inter-commodity spread 
(ICS) parameters are larger than 80%. Any correction to the promoted 
rates would be made at such point. The summary table of the review and 
promotion process for IRM margin rate parameters would be updated to 
reflect the Clearing House's current practices with respect to the 
testing and frequency of testing for such IRM margin rate parameters. 
Specifically, daily checks flagging any difference between production 
rate and AP rate using a threshold of 20% where AP is larger than 
production would be used. Additionally, monthly checks would flag any 
difference between production rate and AP rate for material parameters 
using a threshold of 20% relative difference where AP is larger than 
production scanning rate, and 20% absolute difference where production 
is larger than AP ICS rate.
Parameter Review and Recalibration
    The amendments would clarify that exceptions driving an ad hoc 
review and parameter recalibration would be subject to notification to 
the Risk Oversight Department (``ROD'') in addition to Senior CRD 
(director or above) decision. This clarification would be made 
throughout the Procedures with respect to parameter review and 
recalibration.
IRM Parameterization
    This section would be amended to correctly reference relevant model 
documentation. The summary of the review process would be updated to 
add that ad hoc reviews would be triggered by large deviations in the 
daily sensitivity report.
Additional Initial Margin
    Amendments to the section of the Procedures relating to 
concentration charges would update the testing frequency for product 
review and group mapping requirements from at least annually to monthly 
for a subset of products, and otherwise quarterly.
    With respect to the Stress Margin or Stress Loss Charge (``SLC'') 
additional Initial Margin calculation methodology, the Procedures would 
update the testing and frequency with respect to the SLC process from 
no specific test to provide for Daily Cover 1 and Cover 2 tests where 
the largest uncollateralized stress loss of a single member and pair of 
members, respectively, is determined. Any SLC top up would be called 
from the member. Furthermore, with respect to the SLC process for 
stress scenarios and proxy mapping, the amendments would update the 
frequency of review to provide that PCA EVT scenarios (i.e., those 
combining principal component analysis and extreme value theory)

[[Page 14480]]

would be reviewed at least quarterly. Monthly testing with respect to 
PCA EVT monitoring would be reported to the MOC.
    The amendments would update the description of F&O guarantee fund 
(GF) requirements to clarify that GF size corresponds to the maximum of 
the largest cover 2 loss over the last month or the average cover two 
losses over the last three months plus one standard deviation. This 
change conforms to current practice and does not reflect a change in 
methodology.
    Regarding the Clearing House's Wrong-Way Risk (WWR) Requirements, 
the amendments would update the testing/frequency of the WWR process to 
add that index weights would be reviewed quarterly.
    With respect to the EMIR add-on calculation methodology, the 
testing frequency would be updated to provide for monthly backtesting 
on benchmark products using a one-day margin period of risk and a daily 
check for benchmark products using a two-day margin period of risk. Ad 
hoc review would be dependent on test results, margin behavior during 
high volatility periods, and market expert feedback, rather than being 
only applicable for H and F accounts.
    The updates to the procedures would add a new section addressing 
``Delivery Margins'', which would add a description of the Clearing 
House's existing use of delivery margins to mitigate any payment or 
delivery risks during the delivery timeline of physically delivered 
products. Such delivery margins include: (i) Delivery margin, which is 
designed to cover any price movement on the product in delivery, (ii) 
buyer security, which is the notional value of the prompt portion of 
the contract in delivery, (iii) seller security, which is the 
additional charge on the seller to cover the situation where the seller 
is unable to deliver agreed product, and (iv) contingent variation 
margin, collected against difference between spot price and end of day 
settlement price between the last trading day and collection of buyer's 
security. The amended Procedures would also include a summary table 
that describes details of the delivery margin, buyer/seller security, 
and contingent variation margin.
    The amendments to the Procedures would also add a new section 
describing the Clearing House's existing practices regarding net 
liquidating value of certain ``equity-style'' margined F&O options. For 
such options, the option premium must be paid/received at inception of 
the trade and the daily option value held as a credit or debit against 
the margin account for the remainder of the open position. The level of 
NLV credit/debit would be recalculated each day according to the option 
settlement price and any top up would be called the following day. A 
summary table of the details of the NLV determination would be 
included.
    The updates to the Procedures would add a new section regarding 
``Intraday and Overnight Buffer'', which would summarize the existing 
ability of Clearing Members to post an additional buffer each day to 
offset intraday margin shortfall. The provisions would reference 
existing descriptions of intraday and overnight buffers in the 
Procedures. A summary table of the intraday and overnight buffers would 
also be included.
    Finally, the updates to the Procedures would add a new section 
describing ``Ad-Hoc Buffer'', which would state that Clearing Members 
may be requested to post additional buffers for various risks not 
otherwise covered in the Procedures. Such requirements would be set by 
the Risk Senior Management and the Credit Risk team. A summary table of 
the ad-hoc buffer would be included. The amendments are intended to 
describe more clearly an existing authority of the Clearing House.
Other General Drafting Clarifications and Improvements
    The amendments would define previously undefined terms such as 
``CRO'' (Chief Risk Officer). Various typographical and similar 
corrections would also be made throughout the Procedures.
(b) Statutory Basis
    ICE Clear Europe believes that the proposed amendments to the F&O 
Risk Policy and the F&O Risk Procedures are consistent with the 
requirements of Section 17A of the Act \5\ and the regulations 
thereunder applicable to it. In particular, 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, 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.
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    \5\ 15 U.S.C. 78q-1.
    \6\ 15 U.S.C. 78q-1(b)(3)(F).
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    The proposed changes to the F&O Procedures and F&O Policy are 
designed to strengthen ICE Clear Europe's tools to manage the risk of 
losses resulting from defaulting Clearing Members' portfolios. The 
amendments would update and clarify the processes, controls and 
escalations with respect to the testing and reviewing Clearing Members' 
Initial Margin requirements and related parameters. The amendments 
would also more clearly describe certain types of additional margin and 
calculation methodologies, and clarify the procedures for the testing 
and review thereof. Through better managing risks in default scenarios 
and promoting market stability, the proposed amendments would promote 
the stability of the Clearing House and the prompt and accurate 
clearance and settlement of cleared contracts. The enhanced risk 
management is therefore also generally consistent with the protection 
of investors and the public interest in the safe operation of the 
Clearing House. (ICE Clear Europe would not expect the amendments to 
affect the safeguarding of securities and funds in ICE Clear Europe's 
custody or control or for which it is responsible.) Accordingly, the 
amendments satisfy the requirements of Section 17A(b)(3)(F).\7\
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    \7\ 15 U.S.C. 78q-1(b)(3)(F).
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    The amendments are also consistent with relevant provisions of Rule 
17Ad-22. Rule 17Ad-22(e)(3)(i) \8\ requires clearing agencies to 
maintain a sound risk management framework that identifies, measures, 
monitors and manages the range of risks that it faces. The amendments 
to the F&O Risk Policy and the F&O Risk Procedures are intended to 
better reflect margin and guaranty fund methodologies that calibrate 
resources held by ICE Clear Europe to the risks faced by the Clearing 
House, through improvements to the description and review and testing 
of relevant methodologies. The amendments will thus strengthen the 
management of default risks, and risk management more generally. In ICE 
Clear Europe's view, the amendments are therefore consistent with the 
requirements of Rule 17Ad-22(e)(3)(i).\9\
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    \8\ 17 CFR 240.17 Ad-22(e)(3)(i).
    \9\ 17 CFR 240.17 Ad-22(e)(3)(i).
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    Rule 17Ad-22(e)(6)(i) \10\ requires a covered clearing agency to 
consider and produce margin levels commensurate with, the risks and 
particular attributes of each relevant product, portfolio, and market. 
The proposed amendments update the existing descriptions of calculation 
methodologies for additional margin to provide further detail, 
including with respect to ongoing testing and review processes. The

[[Page 14481]]

amendments further add a description of the Clearing House's existing 
use of delivery margin, net liquidating value, intraday buffers, 
overnight buffers, and ad hoc buffers. These amendments thus enhance 
the clarity of ICE Clear Europe's overall margin framework and 
documentation, and facilitate compliance with the requirements of Rule 
17Ad-22(e)(6)(i).\11\
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    \10\ 17 CFR 240.17Ad-22(e)(6)(i).
    \11\ 17 CFR 240.17Ad-22(e)(6)(i).
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    Rule 17Ad-22(e)(6)(vi)(A) and (B) \12\ requires that a clearing 
agency cover its credit exposures to its participants by establishing a 
risk-based margin system that is monitored by management and regularly 
reviewed by ``(A) [c]onducting backtests of its margin model at least 
once each day using standard predetermined parameters and assumptions'' 
and ``(B) [c]onducting a sensitivity analysis of its margin model and a 
review of its parameters and assumptions for backtesting on at least a 
monthly basis . . .'' The proposed amendments describing the EMIR 
margin add-on methodology provide for monthly backtesting on 1-day 
margin period of risk benchmark products using predetermined parameters 
and a daily check for other products. In ICE Clear Europe's view, these 
amendments are therefore consistent with the requirements of Rule 17Ad-
22(e)(6)(vi)(A) and (B).\13\
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    \12\ 17 CFR 240.17Ad-22(e)(6)(vi)(A) and (B).
    \13\ 17 CFR 240.17Ad-22(e)(6)(vi)(A) and (B).
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    Rule 17Ad-22(e)(4)(v) \14\ requires a covered clearing agency to 
maintain financial resources that would at a minimum enable it to cover 
a wide range of foreseeable stress scenarios that include, but are not 
limited to, the default of the two participant families that would 
potentially cause the largest aggregate credit exposure for the covered 
clearing agency in extreme but plausible market conditions. The 
amendments to the Procedures are consistent with this requirement by 
providing that the GF size corresponds to the maximum of the largest 
cover 2 loss over the last month or the average cover 2 two losses over 
the last three months plus one standard deviation. In ICE Clear 
Europe's view, these amendments are therefore consistent with the 
requirements of Rule 17Ad-22(e)(4)(v).\15\
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    \14\ 17 CFR 240.17 Ad-22(e)(4)(v).
    \15\ 17 CFR 240.17 Ad-22(e)(4)(v).
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    Rule 17Ad-22(e)(2) \16\ 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 
Procedures would update the processes for the review of the relevant 
parameters to clarify the role of the CRD and deputies of the Chief 
Risk Officer and the President of the Clearing House. They would also 
describe for the role of Senior Management Team members and the Risk 
Oversight Department in this process. In ICE Clear Europe's view, the 
amendments are therefore consistent with the requirements of Rule 17Ad-
22(e)(2).\17\
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    \16\ 17 CFR 240.17 Ad-22(e)(2).
    \17\ 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 update and clarify the F&O Risk Policy and the F&O 
Risk Procedures and will apply to all F&O Clearing Members. The 
proposed amendments are not expected to materially change F&O Guaranty 
Fund Contributions or margin requirements for F&O Clearing Members. ICE 
Clear Europe does not believe the amendments would affect the costs of 
clearing, the ability to market participants to access 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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \18\ and paragraph (f) of Rule 19b-4 \19\ 
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.
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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 17 CFR 240.19b-4(f).
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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-2021-007 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-2021-007. 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-2021-007

[[Page 14482]]

and should be submitted on or before April 6, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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J. Mathew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-05339 Filed 3-15-21; 8:45 am]
BILLING CODE 8011-01-P