[Federal Register Volume 87, Number 131 (Monday, July 11, 2022)]
[Notices]
[Pages 41149-41152]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-14634]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95200; File No. SR-ICC-2022-008]
Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of
Filing of Proposed Rule Change Relating to the Stress Testing Framework
and the Liquidity Risk Management Framework
July 5, 2022.
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 23, 2022, ICE Clear Credit LLC (``ICC'') filed with the
Securities and Exchange Commission (``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, security-based
swap submission, or advance notice 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 revise the
ICC Stress Testing Framework (``STF'') and the ICC Liquidity Risk
Management Framework (``LRMF''). These revisions do not require any
changes to the ICC Clearing Rules (``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 revising the STF and LRMF to introduce new stress
scenarios, clarify existing stress scenarios, and make other minor
edits. ICC believes the proposed changes 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 these
changes following Commission approval of the proposed rule change. The
proposed rule change is described in detail as follows.
I. STF
The proposed amendments to the STF introduce new stress scenarios
related to the Coronavirus pandemic and oil price war (the ``COVID-19/
Oil Crisis''), clarify existing stress scenarios related to credit
default index swaptions (``index options''), and make other minor
edits.
The proposed changes amend Section 5.1 containing the historically
observed extreme but plausible market scenarios. ICC proposes a minor
edit to abbreviate a term. ICC proposes to introduce additional stress
scenarios related to the COVID-19/Oil Crisis. ICC previously introduced
price-based stress scenarios related to the COVID-19/Oil Crisis in the
STF, which replicate observed instrument price changes during this
period.\3\ ICC proposes to incorporate complementing spread-based
stress scenarios related to the COVID-19/Oil Crisis, which reflect
observed relative spread increases and decreases during this period
(the ``COVID-19/Oil Crisis Spread Scenarios''). Additionally, the
stress scenarios related to index options (i.e., the stress options-
implied Mean Absolute Deviation (``MAD'') scenarios) would be moved
into a separate section and corresponding references throughout the STF
would accordingly refer to this new Section 9.
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\3\ See SR-ICC-2020-009 for additional information on the
introduction of the COVID-19/Oil Crisis price-based stress
scenarios.
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ICC proposes additional clarifications in Section 5 and throughout
the STF. To distinguish from the COVID-19/Oil Crisis Spread Scenarios,
ICC would refer to the price-based stress scenarios as the COVID-19/Oil
Crisis Price Scenarios in Section 5.2 and throughout the STF. ICC also
proposes to incorporate the COVID-19/Oil Crisis Spread Scenarios
[[Page 41150]]
in the other categories of scenarios, namely in Section 5.3
(hypothetically constructed (forward looking) extreme but plausible
market scenarios) and Section 5.4 (extreme model response test
scenarios), as well as in Section 14 (interpretation of results).
ICC proposes further details to describe how the existing stress
scenarios for index option positions are integrated within the current
set of stress scenarios for CDS index and single name instruments.
Currently, the stress options-implied MAD scenarios are generated for
index option positions. Such scenarios are not applied to portfolios
independently but rather directly incorporated into the CDS stress
scenarios. As such, the proposed changes clarify that the stress
options-implied MAD scenarios complement the underlying stress
scenarios (in Section 6) and reference proposed Section 9 for more
detail on the stress options-implied MAD approach (in Section 8).
Moreover, proposed Section 9 memorializes the stress options-
implied MAD scenarios and approach more clearly. Information from
Section 5.1 on these scenarios would reside in Section 9 with certain
amendments. The proposed amendments do not change the stress testing
methodology and instead add detail and update terminology to be
clearer. Proposed language explains that when index options are present
in a portfolio, the underlying market stress test scenarios incorporate
the stress options-implied MAD scenarios. Terminology changes specify
that the scenarios consider an increase/decrease in the options-implied
MAD upon spread widening/tightening and clarification changes detail
the incorporation of the options-implied MAD in the scenarios. The
proposed changes more clearly set forth the creation of the stress
options-implied MAD, including how the necessary components are
derived. No changes are proposed with respect to what the final
scenario prices of the index option instruments reflect. The following
sections are renumbered accordingly throughout the STF, including in
Table 1 in Section 14. Finally, proposed Section 17 adds a revision
history to track changes.
II. LRMF
ICC proposes corresponding changes to the LRMF to introduce new
stress scenarios related to the COVID-19/Oil Crisis, clarify existing
stress scenarios related to index options, and make other minor edits.
ICC proposes to revise Section 2.3 regarding liquidity requirements
for client-related accounts. The amended language specifies that
Clearing Participants deposit 100% of their Euro denominated client
gross margin in any acceptable collateral to match Schedule 401 in the
ICC Rules. This is intended to be a clean-up change to remove an
outdated provision to ensure consistency across the LRMF and ICC Rules
and would not change current requirements.
ICC proposes updates to Section 3.3.2 regarding the historically
observed extreme but plausible market scenarios. The proposed changes
define extreme market events to include COVID-19 and the simultaneous
occurrence of the oil price war and make grammatical edits to change a
term to its plural form. ICC also previously introduced the COVID-19/
Oil Crisis price-based stress scenarios in the LRMF \4\ and proposes to
incorporate the complementing COVID-19/Oil Crisis Spread Scenarios,
which are also referred to as the COVID19OCSS, in the LRMF. The price-
based stress scenarios would be referred to as the COVID-19/Oil Crisis
Price Scenarios or COVID19OCPS throughout the document.
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\4\ Id.
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Revisions to the existing stress options-implied MAD scenarios are
proposed in Section 3.3.2. To ensure consistency with the STF, ICC
proposes the inclusion of similar language and changes in subsection
(b). The proposed changes memorialize the stress options-implied MAD
scenarios and approach more clearly in the LRMF, including how the
scenarios for index option positions are integrated within the current
set of stress scenarios for CDS index and single name instruments. The
proposed amendments do not change the methodology and instead add
detail and update terminology to be clearer. Terminology changes
specify that the scenarios consider an increase/decrease in the
options-implied MAD and clarification changes detail the incorporation
of the options-implied MAD in the scenarios. The proposed changes more
clearly set forth the creation of the stress options-implied MAD,
including how the necessary components are derived. No changes are
proposed with respect to what the final scenario prices of the index
option instruments reflect. A typographical fix is made in the
footnotes to refer to the correct reference document. In addition, ICC
proposes to amend subsection (d) to add a section symbol and to set out
how the stress options-implied MAD scenarios that complement the
extreme model response test scenarios are derived to match language
currently in the STF.
ICC proposes additional minor updates to Section 3.3. ICC would
incorporate the COVID-19/Oil Crisis Spread Scenarios in Section 3.3.3
in Table 1 containing the liquidity stress testing scenarios and in
Section 3.3.4 related to the interpretation of results. ICC also
proposes a minor edit to the extreme market scenarios in Table 1 to
specify that the COVID19OCPS are extreme.
(b) Statutory Basis
ICC believes that the proposed rule change is consistent with the
requirements of Section 17A of the Act \5\ and the regulations
thereunder applicable to it, including the applicable standards under
Rule 17Ad-22.\6\ In particular, Section 17A(b)(3)(F) of the Act \7\
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.
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\5\ 15 U.S.C. 78q-1.
\6\ 17 CFR 240.17Ad-22.
\7\ 15 U.S.C. 78q-1(b)(3)(F).
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As discussed herein, the proposed amendments introduce new stress
scenarios, clarify existing stress scenarios, and make other minor
edits. Such changes strengthen the STF and LRMF by introducing spread-
based COVID-19/Oil Crisis scenarios that complement the current
scenarios and by memorializing the stress options-implied MAD scenarios
more clearly to ensure transparency and that responsible parties
effectively carry out their assigned duties. The additional
clarification and clean-up changes further ensure readability and
clarity, including by adding a revision history to track changes,
updating terminology, ensuring that references are accurate, and
ensuring consistency between the LRMF and the ICC Rules regarding
client-related liquidity requirements to avoid potential confusion. ICC
believes that having policies and procedures that clearly and
accurately document its risk management practices, including stress
testing and liquidity stress testing, are an important component to the
effectiveness of ICC's risk management system and support ICC's ability
to maintain adequate financial resources and sufficient liquid
resources. Accordingly, in ICC's view, the proposed rule change is
consistent with the prompt and accurate clearance and settlement of
securities transactions,
[[Page 41151]]
derivatives agreements, contracts, and transactions, 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.\8\
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\8\ Id.
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The amendments would also satisfy relevant requirements of Rule
17Ad-22.\9\ Rule 17Ad-22(e)(4)(ii) \10\ requires ICC 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 ICC in
extreme but plausible market conditions. The introduction of the COVID-
19/Oil Crisis Spread Scenarios would complement the current scenarios
and add additional insight into potential weaknesses in the ICC risk
management methodology, thereby supporting ICC's ability to manage its
financial resources. Additional proposed changes ensure consistency
across the STF and LRMF and more clearly describe the stress options-
implied MAD scenarios, including how the scenarios for index option
positions are integrated within the current set of stress scenarios for
CDS index and single name instruments. The proposed amendments add
detail and update terminology to be clearer, which would ensure
transparency and strengthen the documentation, thereby supporting the
effectiveness of ICC's risk management system. The proposed
clarification and clean-up changes further enhance the readability of
the STF and LRMF and ensure that it remains up-to-date, clear, and
transparent. As such, the proposed amendments would strengthen 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).\11\
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\9\ 17 CFR 240.17Ad-22.
\10\ 17 CFR 240.17Ad-22(e)(4)(ii).
\11\ Id.
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Rule 17Ad-22(e)(4)(vi) \12\ requires ICC 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 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. As such, ICC
believes the proposed rule change is consistent with the requirements
of Rule 17Ad-22(e)(4)(vi).\13\
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\12\ 17 CFR 240.17Ad-22(e)(4)(vi).
\13\ Id.
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Rule 17Ad-22(e)(7)(i) \14\ requires ICC to establish, implement,
maintain, and enforce written policies and procedures reasonably
designed to effectively measure, monitor, and manage the liquidity risk
that arises in or is borne by it, including measuring, monitoring, and
managing its settlement and funding flows on an ongoing and timely
basis, and its use of intraday liquidity by maintaining sufficient
liquid resources at the minimum in all relevant currencies to effect
same-day and, where appropriate, intraday and multiday settlement of
payment obligations with a high degree of confidence under a wide range
of foreseeable stress scenarios that includes, but is not limited to,
the default of the participant family that would generate the largest
aggregate payment obligation for ICC in extreme but plausible market
conditions. The introduction of the COVID-19/Oil Crisis Spread
Scenarios would complement the current scenarios and add additional
insight into potential weaknesses in the ICC liquidity risk management
methodology, thereby supporting ICC's ability to ensure that it
maintains sufficient liquidity resources. The proposed clarification
and clean-up changes provide further clarity and transparency regarding
ICC's liquidity risk management practices in the LRMF, including by
promoting uniformity with the STF, ensuring consistency between the
LRMF and the ICC Rules regarding the client-related liquidity
requirements, and ensuring that information and references are current,
including in Table 1 which sets out the liquidity stress testing
scenarios. As such, the proposed amendments would promote ICC's ability
to ensure that it maintains sufficient liquid resources in accordance
with the requirements of Rule 17Ad-22(e)(7)(i).\15\
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\14\ 17 CFR 240.17Ad-22(e)(7)(i).
\15\ 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
introduce complementing COVID-19/Oil Crisis Spread Scenarios, add
clarification on the existing stress scenarios related to index
options, and make other minor edits, which ICC believes are appropriate
in furtherance of the risk management of the clearing house. The
changes to the STF and LRMF will apply uniformly across all market
participants. ICC does not believe these amendments would affect the
costs of clearing or the ability of market participants to access
clearing. Therefore, ICC does not believe the proposed rule change
would impose 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.
[[Page 41152]]
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-2022-008 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-2022-008. 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-2022-008 and should be
submitted on or before August 1, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-14634 Filed 7-8-22; 8:45 am]
BILLING CODE 8011-01-P