[Federal Register Volume 86, Number 100 (Wednesday, May 26, 2021)]
[Notices]
[Pages 28425-28427]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-11083]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91951; File No. SR-ICC-2021-009]


Self-Regulatory Organizations; ICE Clear Credit LLC; Order 
Approving Proposed Rule Change Relating to the ICC Risk Parameter 
Setting and Review Policy

May 20, 2021.

I. Introduction

    On April 2, 2021, ICE Clear Credit LLC (``ICC'') filed with the 
Securities and Exchange Commission (``Commission''), pursuant to 
Section 19(b)(1) of the Securities Exchange Act of 1934 (the Act'') \1\ 
and Rule 19b-4 thereunder,\2\ a proposed rule change to make changes to 
ICC's Risk Parameter Setting and Review Policy (``RPSRP''). The 
proposed rule change was published for comment in the Federal Register 
on April 14, 2021.\3\ The Commission did not receive comments regarding 
the proposed rule change. For the reasons discussed below, the 
Commission is approving the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ ICC Risk Parameter Setting and Review Policy, Exchange Act 
Release No. 91517 (April 8, 2021), 86 FR 19667 (April 14, 2021) (SR-
ICC-2021-009) (``Notice'').

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[[Page 28426]]

II. Description of the Proposed Rule Change

    ICC is proposing to revise its RPSRP, which describes the process 
of setting and reviewing the risk management model core parameters and 
the performance of sensitivity analyses related to certain parameter 
settings. Specifically, the proposed rule change would amend the 
``Univariate Level Parameters'' subsection (Subsection 1.7.1) related 
to the univariate level parameters associated with the integrated 
spread response model component.\4\ Namely, ICC proposes to transition 
the risk management mean absolute deviation (``MAD'') monthly parameter 
update for index risk factors to an automatic daily update in the risk 
management system. The proposed changes would also specify that single 
name risk factor level risk management MADs are not subject to 
automatic updates and that the ICC Risk Department estimates and 
reviews the univariate single name integrated spread response 
parameters and their assumptions at least on a monthly basis.
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    \4\ The description of the proposed rule change is excerpted 
from the Notice.
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    Further, the proposed rule change would make minor clarifications 
to the ``Implied Distribution Parameters for Index Option Instruments'' 
subsection (Subsection 1.7.4). Specifically, ICC previously replaced 
naming conventions used in the RPSRP for stress scenarios associated 
with the Lehman Brothers (``LB'') default with more generic naming 
conventions associated with extreme price changes, namely extreme price 
decreases and increases (the ``Extreme Price Change Scenarios''). The 
proposed rule change would make minor updates to replace references and 
notations to the scenarios associated with the LB default with the 
Extreme Price Change Scenarios. ICC also proposes to consistently refer 
to ``stress MAD factors'' as ``stress implied MAD factors'' in this 
section.
    Finally, the proposed rule change would amend the ``Routinely 
Updated Parameters'' subsection (Subsection 2.4) to be consistent with 
the changes to Section 1.7.1 noted above specifying that the index risk 
factor level risk management MADs are automatically updated daily in 
the risk management system and the other risk factor parameters are 
reviewed at least monthly.

III. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act directs the Commission to approve a 
proposed rule change of a self-regulatory organization if it finds that 
such proposed rule change is consistent with the requirements of the 
Act and the rules and regulations thereunder applicable to such 
organization.\5\ For the reasons given below, the Commission finds that 
the proposed rule change is consistent with Section 17A(b)(3)(F) of the 
Act \6\ and Rules 17Ad-22(e)(2)(i) and (v),\7\ Rule 17Ad-
22(e)(4)(ii),\8\ and 17Ad-22(e)(6)(i) \9\ and thereunder.
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    \5\ 15 U.S.C. 78s(b)(2)(C).
    \6\ 15 U.S.C. 78q-1(b)(3)(F).
    \7\ 17 CFR 240.17Ad-22(e)(2)(i) and (v).
    \8\ 17 CFR 240.17Ad-22(e)(4)(ii).
    \9\ 17 CFR 240.17Ad-22(e)(6)(i).
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A. Consistency With Section 17A(b)(3)(F) of the Act

    Section 17A(b)(3)(F) of the Act requires, among other things, that 
the rules of a clearing agency, like ICC, be designed to promote the 
prompt and accurate clearance and settlement of securities transactions 
and, to the extent applicable, derivative agreements, contracts, and 
transactions, as well as to assure the safeguarding of securities and 
funds which are in its custody or control or for which it is 
responsible.\10\ The Commission believes that the proposed changes to 
the RPSRP, as described above, would timely capture any significant MAD 
changes and minimize the cumulative effect of MAD changes between 
parameter updates for index risk factors, and thus reduce the level of 
initial margin procyclicality. This, in turn, helps to ensure that ICC 
collects initial margin sufficient to cover its credit exposures to its 
clearing participants, thereby supporting its ability to continue 
operating as a central counterparty with the financial resources 
necessary for ICC to promptly and accurately clear and settle CDS 
transactions and safeguard securities and funds.
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    \10\ 15 U.S.C. 78q-1(b)(3)(F).
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    Further, the Commission believes that the changes to the Implied 
Distribution Parameters for Index Option Instruments in the RPSRP to 
replace references and notations to the scenarios associated with the 
LB default with the Extreme Price Change Scenarios strengthens the 
RPSRP documentation so that all sections are consistent with the 
previous change that incorporated Extreme Price Change Scenarios into 
the ICC risk management procedures, including the RPSRP.\11\ The 
Commission believes by ensuring generically named stress scenarios that 
relate to extreme market events, as opposed to the LB default, are 
incorporated into the RPSRP, ICC can be more flexible and capable of 
considering a range of events beyond the LB Default, which, in turn, 
enhances its ability to collect the appropriate amount of initial 
margin to cover its credit exposures to its clearing participants, 
thereby supporting its ability to continue operating as a central 
counterparty with the financial resources necessary to promptly and 
accurately clear and settle CDS transactions and safeguard securities 
and funds.
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    \11\ See, SR-ICC-2020-009.
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    Finally, the Commission believes that the proposed amendments to 
update the ``Routinely Updated Parameters'' subsection of the RPSRP to 
specify that the index risk factor level risk management MADs are 
automatically updated daily in the risk management system and the other 
risk factor parameters are reviewed at least monthly enhances clarity 
with respect to ICC's process of setting and reviewing the model core 
parameters to ensure that the documentation remains up-to-date and 
clear to support the effectiveness of ICC's risk management system. The 
Commission believes that an effective risk management system supports 
ICC's ability to maintain adequate financial resources, thereby 
promoting both the prompt and accurate clearance and settlement of CDS 
transactions and the ability to safeguard securities and funds.
    For these reasons, the Commission believes the proposed rule 
changes are consistent with Section 17A(b)(3)(F) of the Act.\12\
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    \12\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rule 17Ad-22(e)(2)(i) and (v)

    Rule 17Ad-22(e)(2)(i) and (v) requires each covered clearing agency 
to establish, implement, maintain, and enforce written policies and 
procedures reasonably designed, as applicable, to provide, as 
applicable, for governance arrangements that are clear and transparent 
and specify clear and direct lines of responsibility.\13\ The 
Commission believes that by proposing to amend the risk management MAD 
monthly parameter update for index risk factors to an automatic daily 
update in the risk management system, specifying that single name risk 
factor level risk management MADs are not subject to automatic updates 
and that the ICC Risk Department estimates and reviews the univariate 
single name integrated spread response parameters and their assumptions 
at least on a monthly basis, the proposed rule change promotes clear 
and transparent governance arrangements and direct lines of

[[Page 28427]]

responsibility. For these reasons, the Commission believes that the 
proposed rule change is consistent with Rule 17Ad-22(e)(2)(i) and 
(v).\14\
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    \13\ 17 CFR 240.17Ad-22(e)(2)(i) and (v).
    \14\ 17 CFR 240.17Ad-22(e)(2)(i) and (v).
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C. Consistency With Rule 17Ad-22(e)(4)(ii)

    Rule 17Ad-22(e)(4)(ii) requires each covered clearing agency to 
establish, implement, maintain, and enforce written policies and 
procedures reasonably designed, as applicable, to effectively identify, 
measure, monitor, and manage its credit exposures to participants and 
those arising from its payment, clearing, and settlement processes, 
including by maintaining additional financial resources at the minimum 
to 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.\15\
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    \15\ 17 CFR 240.17Ad-22(e)(4)(ii).
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    The Commission believes that by transitioning the risk management 
MAD monthly parameter update for index risk factors to an automatic 
daily update, the proposed rule change would enhance ICC's ability to 
manage risks and maintain sufficient financial resources by collecting 
the margin designed to cover its credit exposures, thereby 
strengthening its ability to maintain its financial resources and thus 
withstand the potential pressure of the default of a clearing 
participant.
    For these reasons, the Commission believes that the proposed rule 
change is consistent with Rule 17Ad-22(e)(4)(ii).

D. Consistency With Rule 17Ad-22(e)(6)(i)

    Rule 17Ad-22(e)(6)(i) requires each covered clearing agency to 
establish, implement, maintain, and enforce written policies and 
procedures reasonably designed, as applicable, 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.\16\ As noted above, the proposed rule 
change would revise the RPSRP such that the index risk factor level 
risk management MADs are automatically updated daily in the risk 
management system in order to timely capture any significant MAD 
changes and minimize the cumulative effect of MAD changes between two 
parameter updates and thus reduce the level of IM procyclicality. The 
Commission believes that because index RFs could exhibit dynamic market 
response to rapidly changing macro-economic conditions, the proposed 
change should help to produce margin levels commensurate with the risks 
and particular attributes of portfolios in which positions in index RFs 
dominate portfolio compositions. The Commission also believes that the 
more frequent update should enhance and strengthen ICC's process for 
reviewing and setting the model core parameters, which, in turn, serves 
to promote the soundness of ICC's risk management model and system and 
thus to produce margin levels commensurate with the risks and 
particular attributes of each relevant product, portfolio, and market.
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    \16\ 17 CFR 240.17Ad-22(e)(6)(i).
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    For these reasons, the Commission believes that the proposed rule 
change is consistent with Rule 17Ad-22(e)(6)(i).\17\
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    \17\ 17 CFR 240.17Ad-22(e)(6)(i).
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IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act, 
and in particular, with the requirements of Section 17A(b)(3)(F) of the 
Act \18\ and Rules 17Ad-22(e)(2)(i) and (v),\19\ Rule 17Ad-
22(e)(4)(ii),\20\ and 17Ad-22(e)(6)(i) \21\ and thereunder.
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    \18\ 15 U.S.C. 78q-1(b)(3)(F).
    \19\ 17 CFR 240.17Ad-22(e)(2)(i) and (v).
    \20\ 17 CFR 240.17Ad-22(e)(4)(ii).
    \21\ 17 CFR 240.17Ad-22(e)(6)(i).
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    It is therefore ordered pursuant to Section 19(b)(2) of the Act 
\22\ that the proposed rule change (SR-ICC-2021-009), be, and hereby 
is, approved.\23\
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    \22\ 15 U.S.C. 78s(b)(2).
    \23\ In approving the proposed rule change, the Commission 
considered the proposal's impact on efficiency, competition, and 
capital formation. 15 U.S.C. 78c(f).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-11083 Filed 5-25-21; 8:45 am]
BILLING CODE 8011-01-P