[Federal Register Volume 86, Number 192 (Thursday, October 7, 2021)]
[Notices]
[Pages 55888-55890]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-21865]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93235; File No. SR-ICC-2021-020]


Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of 
Filing of Proposed Rule Change Relating to the Stress Testing Framework 
and the Indirect Participant Risk Monitoring and Review Policy

October 1, 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 September 27, 2021, ICE Clear Credit LLC (``ICC'') filed with the 
Securities and Exchange Commission the proposed rule change as 
described in Items I, II and III below, which Items have been prepared 
primarily by ICC. 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.
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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 amend the 
Stress Testing Framework and to adopt and formalize the Indirect 
Participant Risk Monitoring and Review Policy (``Indirect Participant 
Risk Policy''). These revisions do not require any changes to the ICC 
Clearing Rules (the ``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, 
security-based swap submission, or advance notice and discussed any 
comments it received on the proposed rule change, security-based swap 
submission, or advance notice. 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 to amend the Stress Testing Framework and to adopt and 
formalize the Indirect Participant Risk Policy. The proposed amendments 
to the Stress Testing Framework include clarifications on the stress 
testing practices of ICC and reference the Indirect Participant Risk 
Policy. The proposed Indirect Participant Risk Policy describes the 
monitoring and review of risk arising from and relating to indirect 
participants, which are the underlying clients of ICC's Clearing 
Participants (``CPs''). ICC believes that 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. ICC proposes to move forward 
with implementation of such changes following Commission approval of 
the proposed rule change. The proposed revisions are described in 
detail as follows.
I. Stress Testing Framework
    The revisions to the Stress Testing Framework are intended to 
clarify ICC's stress testing practices and include minor clean-up 
changes. The proposed changes abbreviate various terms throughout the 
document, starting in Section 2. Regarding the stress test methodology 
in Section 3, ICC would define financial resources as available funds 
from the Initial Margin requirements and Guaranty Fund contributions 
related to the selected portfolios in a footnote, and make minor 
conforming terminology changes in the text regarding the analyzed 
Initial Margin requirements. A proposed appendix with details on ICC's 
stress test methodology would be referenced throughout the amended 
document, specifically in Sections 3, 5, and 13. Proposed footnotes in 
Subsection 5.1 contain formulas that provide further definition 
regarding certain historically observed extreme but plausible market 
scenarios. The proposed amendments to Section 12 specify that client 
stress testing is executed daily (rather than ``at least monthly'') and 
reference the Indirect Participant Risk Policy for further details. In 
Section 14, ICC proposes a grammatical update to make ``meeting'' 
plural and to memorialize that the Stress Testing Framework is subject 
to review by the Risk Committee and review and approval by the Board at 
least annually. ICC proposes to include the Indirect Participant Risk 
Policy as a reference in Section 15.
    ICC proposes new Section 16 as an appendix, which is intended to 
provide more detail and clarity on ICC's stress test methodology and 
would not change the methodology. The proposed appendix defines key 
terms and sets out underlying formulas and equations used for stress 
testing. Key terms include Stress Testing Profit/Losses, which 
represent the CP portfolio hypothetical response to the considered 
stress testing scenarios. Moreover, the appendix explains the 
determination of the order of defaulting CP Affiliate Groups (``AGs'') 
in order to establish if the available financial resources are 
sufficient to cover hypothetical losses associated with the two 
greatest CP AG uncollateralized stress losses and discusses the 
consideration given to wrong way risk exposure. Finally, the appendix 
details how ICC determines if the available financial resources are 
sufficient to cover the hypothetical losses associated with the two 
greatest CP AG uncollateralized losses under the extreme but plausible 
scenarios.
II. Indirect Participant Risk Policy
    The risk management program at ICC includes various elements 
designed to ensure the adequate identification, monitoring and 
management of risks arising from and relating to indirect participants. 
The proposed Indirect Participant Risk Policy memorializes such 
practices and analyses and sets forth the associated governance 
arrangements. The document is divided into seven sections, which are 
detailed below.
    Section 1 introduces the purpose of the document and defines key 
terms. Indirect participants are defined as the underlying clients of 
ICC's CPs. ICC's CPs with clients are referred to as Futures Commission 
Merchants/Broker Dealers (``FCMs/BDs'') throughout the document. 
Indirect Participants can pose risk to CPs and indirectly to ICC due to 
the presence of Large Traders. A Large Trader includes a client of a CP 
that exhibits large risk exposure in its portfolio that transpires 
through concentrated position(s), significant level of 
collateralization and large uncollateralized losses under extreme but 
plausible market stress scenarios.
    Sections 2 through 4 describe and memorialize the identification, 
monitoring, and risk management practices related to indirect 
participants and the presence of Large Traders.

[[Page 55889]]

Section 2 introduces a report that enables ICC to determine the 
presence of potential Large Traders and assess the level of risk that 
they may pose to the CP and/or ICC. Client risk exposure across all 
FCMs/BDs and corresponding indirect participants are summarized in this 
report, which allows the ICC Risk Department to monitor and identify 
the FCMs/BDs with the largest indirect participants. Section 3 details 
a report summarizing ICC's indirect participants with risk profiles 
prone to adverse risk distribution, due to their size, across all FCMs/
BDs. The criteria for the selection of indirect participants in this 
report is set out in the Indirect Participant Risk Policy. Further, 
Section 3 describes a complementary report, which would indicate the 
probability of an indirect participant adversely distributing its risk 
across multiple FCMs/BDs and provide guidance on additional indirect 
participants to be included for reporting. Individual client portfolio 
level stress testing is executed and presented through another report 
discussed in Section 4. The selection of indirect participants and 
FCMs/BDs for this analysis as well as relevant assumptions are also 
explained in Section 4. Moreover, each section details the frequency of 
execution or review of the report by the ICC Risk Department and the 
frequency of review by the ICC Risk Committee.
    Section 5 memorializes governance procedures associated with the 
performance and review of the aforementioned analyses. The Indirect 
Participant Risk Policy specifies the group or individual involved in 
the execution, interpretation, review, and reporting of the analyses as 
well as the frequency. Section 5 also sets out the actions to be taken 
if the ICC Risk Department and the ICC Risk Committee deem the risk 
arising from indirect participants to be significant. In Sections 6 and 
7, ICC includes references and a revision history.
(b) Statutory Basis
    ICC believes that the proposed rule change is consistent with the 
requirements of Section 17A of the Act \3\ and the regulations 
thereunder applicable to it, including the applicable standards under 
Rule 17Ad-22.\4\ In particular, Section 17A(b)(3)(F) of the Act \5\ 
requires that the rule change be consistent with the prompt and 
accurate clearance and settlement of securities transactions and 
derivative agreements, contracts and transactions cleared by ICC, the 
safeguarding of securities and funds in the custody or control of ICC 
or for which it is responsible, and the protection of investors and the 
public interest. The proposed changes strengthen the Stress Testing 
Framework by providing more detail on the methodology through defined 
terms and references to relevant documentation and formulas or 
equations, memorializing the review and approval process, and making 
other clarification and clean-up changes to ensure that it remains up-
to-date and transparent. The proposed Indirect Participant Policy 
describes and memorializes the practices and analyses governing the 
identification, monitoring, and review of risk arising from and 
relating to indirect participants and sets forth the associated 
governance arrangements. ICC believes that the proposed rule change 
will ensure that responsible parties carry out their assigned duties 
effectively with respect to stress testing and managing risk from 
indirect participants, thereby promoting the prompt and accurate 
clearing and settlement of the contracts cleared by ICC, the 
safeguarding of securities and funds in the custody or control of ICC 
or for which it is responsible, and the protection of investors and the 
public interest, within the meaning of Section 17A(b)(3)(F) of the 
Act.\6\
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    \3\ 15 U.S.C. 78q-1.
    \4\ 17 CFR 240.17Ad-22.
    \5\ 15 U.S.C. 78q-1(b)(3)(F).
    \6\ Id.
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    The amendments would also satisfy relevant requirements of Rule 
17Ad-22.\7\ Rule 17Ad-22(e)(2)(i) and (v) \8\ requires each covered 
clearing agency to establish, implement, maintain, and enforce written 
policies and procedures reasonably designed to provide for governance 
arrangements that are clear and transparent and specify clear and 
direct lines of responsibility. The proposed changes strengthen the 
governance procedures in the Stress Testing Framework by memorializing 
the review and approval process by relevant groups at least annually. 
The proposed Indirect Participant Risk Policy details governance 
procedures associated with the performance and review of analyses 
related to indirect participants. Specifically, this document specifies 
the group or individual involved in the execution, interpretation, 
review, and reporting of the analyses as well as the frequency. As 
such, in ICC's view, the proposed rule change continues to ensure that 
ICC maintains policies and procedures that are reasonably designed to 
provide for clear and transparent governance arrangements and specify 
clear and direct lines of responsibility, consistent with Rule 17Ad-
22(e)(2)(i) and (v).\9\
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    \7\ 17 CFR 240.17Ad-22.
    \8\ 17 CFR 240.17Ad-22(e)(2)(i) and (v).
    \9\ Id.
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    Rule 17Ad-22(e)(3)(i) \10\ requires each covered clearing agency to 
establish, implement, maintain, and enforce written policies and 
procedures reasonably designed to 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 
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 annually. ICC 
maintains a sound risk management framework that identifies, measures, 
monitors, and manages the range of risks that it faces. The Stress 
Testing Framework is a key aspect of ICC's risk management approach, 
and the proposed amendments would memorialize that the document is 
reviewed by the ICC Risk Committee and reviewed and approved by the ICC 
Board at least annually. As such, the amendments would satisfy the 
requirements of Rule 17Ad-22(e)(3)(i).\11\
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    \10\ 17 CFR 240.17Ad-22(e)(3)(i).
    \11\ Id.
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    Rule 17Ad-22(e)(4)(ii) \12\ requires each covered clearing agency 
to establish, implement, maintain, and enforce written policies and 
procedures reasonably designed 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. 
The proposed amendments enhance ICC's ability to manage its financial 
resources by providing further clarity and transparency on the stress 
test methodology and on the procedures and analyses related to managing 
risk from indirect participants. The proposed rule change would thus 
enhance the implementation of such policies and procedures by ensuring 
that responsible parties effectively carry out their associated duties, 
thereby

[[Page 55890]]

supporting ICC's ability to maintain its financial resources and 
withstand the pressures of defaults, consistent with the requirements 
of Rule 17Ad-22(e)(4)(ii).\13\
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    \12\ 17 CFR 240.17Ad-22(e)(4)(ii).
    \13\ Id.
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    Rule 17Ad-22(e)(4)(vi) \14\ requires each covered clearing agency 
to establish, implement, maintain, and enforce written policies and 
procedures reasonably designed to effectively identify, measure, 
monitor, and manage its credit exposures to participants and those 
arising from its payment, clearing, and settlement processes, including 
by testing the sufficiency of its total financial resources available 
to meet the minimum financial resource requirements, including by 
conducting stress testing of its total financial resources once each 
day using standard predetermined parameters and assumptions; conducting 
a comprehensive analysis on at least a monthly basis of the existing 
stress testing scenarios, models, and underlying parameters and 
assumptions; and reporting the results of its analyses to appropriate 
decision makers at ICC. The proposed rule change continues to ensure 
that ICC's policies and procedures, including the Stress Testing 
Framework and Indirect Participant Risk Policy, provide a clear 
framework for ICC to conduct stress testing and analysis and report the 
results to appropriate decision makers at ICC, in compliance with this 
requirement. The Indirect Participant Risk Policy would memorialize 
governance procedures associated with the performance and review of 
analyses related to indirect participants, including the frequency of 
execution or review and reporting to the ICC Risk Committee. As such, 
ICC believes the proposed rule change is consistent with the 
requirements of Rule 17Ad-22(e)(4)(vi).
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    \14\ 17 CFR 240.17Ad-22(e)(4)(vi).
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    Rule 17Ad-22(e)(19) \15\ requires each covered clearing agency to 
establish, implement, maintain, and enforce written policies and 
procedures reasonably designed to identify, monitor, and manage the 
material risks to the covered clearing agency arising from arrangements 
in which firms that are indirect participants in the covered clearing 
agency rely on the services provided by direct participants to access 
the covered clearing agency's payment, clearing, or settlement 
facilities. As described above, the proposed Indirect Participant Risk 
Policy documents ICC's processes and procedures related to indirect 
participants, including how ICC identifies, analyzes, escalates, and 
reports on indirect participants. The document ensures responsibility 
and accountability by detailing the group or individual involved in the 
execution, interpretation, and review of reports, the frequency of 
execution and review, and the actions to be taken if the risk arising 
from indirect participants is deemed significant. Accordingly, ICC 
believes that the proposed rule change promotes its ability to 
identify, monitor, and manage the material risks to it related to 
indirect participants and is thus consistent with the requirements of 
Rule 17Ad-22(e)(19).\16\
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    \15\ 17 CFR 240.17Ad-22(e)(19).
    \16\ Id.
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(B) Clearing Agency's Statement on Burden on Competition

    ICC does not believe the proposed rule change would have any 
impact, or impose any burden, on competition. The proposed changes to 
amend the Stress Testing Framework and to adopt and formalize the 
Indirect Participant Risk Policy will apply uniformly across all market 
participants. Therefore, ICC 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 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 and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

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-2021-020 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-2021-020. 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-2021-020 and should be 
submitted on or before October 28, 2021.

    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. 2021-21865 Filed 10-6-21; 8:45 am]
BILLING CODE 8011-01-P