[Federal Register Volume 87, Number 161 (Monday, August 22, 2022)]
[Notices]
[Pages 51466-51469]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-17947]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95504; File No. SR-ICC-2022-008]


Self-Regulatory Organizations; ICE Clear Credit LLC; Order 
Approving Proposed Rule Change Relating to the Stress Testing Framework 
and the Liquidity Risk Management Framework

August 16, 2022.

I. Introduction

    On June 23, 2022, 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 (``Act''),\1\ 
and Rule 19b-4 thereunder,\2\ a proposed rule change to amend its 
Stress Testing Framework (``STF'') and the ICC Liquidity Risk 
Management Framework (``LRMF''). The proposed rule change was published 
for comment in the Federal Register on July 11, 2022.\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\ 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; Exchange Act 
Release No. 95200 (Jul. 5, 2022); 87 FR 41149 (Jul. 11, 2022) (File 
No. SR-ICC-2022-008) (``Notice'').
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II. Description of the Proposed Rule Change

    ICC proposes to revise its STF and LRMF to introduce new stress 
scenarios, clarify existing stress scenarios, and make other minor 
edits.\4\ Specifically, the proposed rule change would introduce new 
stress scenarios related to the Coronavirus pandemic and oil price war 
(the ``COVID-19/Oil Crisis'').
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    \4\ The description that follows is substantially excerpted from 
the Notice. Capitalized terms not otherwise defined herein have the 
meanings assigned to them in the STS, LRMF or ICC's Clearing Rules, 
as applicable.
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A. STF

    The proposed amendments to the STF introduce new stress scenarios 
related to the COVID-19/Oil Crisis, clarify existing stress scenarios 
related to credit default index swaptions (``index options''), and make 
other minor edits. Specifically, the proposed changes would amend 
Section 5.1 containing the historically observed extreme but plausible 
market scenarios with a minor edit to abbreviate a term and to 
introduce additional stress scenarios

[[Page 51467]]

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.\5\ This proposal would 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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    \5\ Self-Regulatory Organizations; ICE Clear Credit LLC; Order 
Approving Proposed Rule Change Relating to the ICC Risk Management 
Framework, ICC Risk Management Model Description, ICC Risk Parameter 
Setting and Review Policy, ICC Stress Testing Framework, and ICC 
Liquidity Risk Management Framework; Exchange Act Release Number 
89639 (Aug. 21, 2020); 85 FR 53036 (Aug. 27, 2020) (File No. SR-ICC-
2020-009).
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    The proposal would make the following additional clarifications in 
Section 5 and throughout the STF. To distinguish between price- and 
spread-based stress scenarios, ICC proposes to replace references to 
COVID-19/Oil Crisis Scenarios in the current STF with references to 
COVID-19/Oil Crisis Price Scenarios. The proposal would also 
incorporate the COVID-19/Oil Crisis Spread Scenarios 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).
    Additionally, the proposal would add text describing 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. The stress options-implied MAD scenarios are 
currently generated for index option positions and are not applied to 
portfolios independently, but rather, are directly incorporated into 
the CDS stress scenarios. The proposed rule changes would 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).
    ICC proposes to add a new Section 9 to the STF, which would 
memorialize the stress options-implied MAD scenarios and approach. As 
described above, information from current Section 5.1 on these 
scenarios would move to Section 9 with certain amendments. The proposed 
amendments would not change ICC's stress testing methodology, but 
instead would add detail and updated terminology for clarity. The 
proposed language would explain that when index options are present in 
a portfolio, the underlying market stress test scenarios incorporate 
the stress options-implied MAD scenarios. ICC proposes terminology 
changes that would specify that the scenarios consider an increase/
decrease in the options-implied MAD upon spread widening/tightening and 
clarification changes would detail the incorporation of the options-
implied MAD in the scenarios. The proposed changes are intended to more 
clearly set forth the process for 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. ICC also proposes to renumber 
sections throughout the STF as necessary, including in Table 1 in 
Section 14. Finally, proposed Section 17 adds a revision history to 
track changes.

B. 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 of the LRMF regarding liquidity 
requirements for client-related accounts. The proposed changes would 
specify 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.
    The proposed rule change would update Section 3.3.2 regarding the 
historically observed extreme but plausible market scenarios. The 
proposal would expand the set of extreme market events to include 
COVID-19 and the simultaneous occurrence of the oil price war, and 
would also make grammatical edits to change a term to its plural form. 
Consistent with the STF, ICC previously introduced the COVID-19/Oil 
Crisis price-based stress scenarios in the LRMF \6\ and proposes now to 
incorporate the complementing COVID-19/Oil Crisis Spread Scenarios, 
which are also referred to as the COVID-19 OCSS, in the LRMF. The 
price-based stress scenarios would be referred to as the COVID-19/Oil 
Crisis Price Scenarios or COVID-19 OCPS throughout the document.
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    \6\ Id.
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    ICC also proposes revisions to Section 3.3.2 of the LRMF regarding 
stress options-implied MAD scenarios. To ensure consistency with the 
STF, ICC proposes adding language and changes in subsection (b) that 
would be similar to the language proposed in the STF. The proposed rule 
changes would 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 would not change ICC's liquidity risk management 
methodology, but would instead add detail and update terminology to be 
clearer. The proposed terminology changes would specify that the 
scenarios consider an increase/decrease in the options-implied MAD and 
clarification changes would detail the incorporation of the options-
implied MAD in the scenarios. The proposed changes are intended to more 
clearly set forth the process for 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. ICC proposes a typographical fix 
in the footnotes to refer to the correct reference document. In 
addition, the proposal would 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 also proposes minor updates to Section 3.3 of the LRMF. 
Specifically, the proposal 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. The proposed rule changes would also make a 
minor edit to the extreme market scenarios in Table 1 to specify that 
the COVID19OCPS are extreme.

III. Discussion of 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

[[Page 51468]]

rules and regulations thereunder applicable to such organization.\7\ 
For the reasons discussed below, the Commission finds that the proposed 
rule change is consistent with Section 17A(b)(3)(F) of the Act \8\ and 
Rule 17Ad-22(e)(4)(ii) and (vi), and Rule 17Ad-22 (e)(7)(i) and (vi) 
thereunder.\9\
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    \7\ 15 U.S.C. 78s(b)(2)(C).
    \8\ 15 U.S.C. 78q-1(b)(3)(F).
    \9\ 17 CFR 240.17Ad-22(e)(4)(ii) and (vi) and 17 CFR 240.17Ad-22 
(e)(7)(i) and (vi).
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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 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 the 
custody or control of ICC or for which it is responsible.\10\
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    \10\ 15 U.S.C. 78q-1(b)(3)(F).
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    As noted above, the proposal would incorporate into the STF and 
LRMF spread-based stress scenarios related to the COVID-19/Oil Crisis, 
which reflect observed relative spread increases and decreases during 
this period and which complement previously introduced the COVID-19/Oil 
Crisis price-based stress scenarios. By adding spread-based stress 
scenarios related to the COVID-19/Oil Crisis, the Commission believes 
the proposed rule change should enhance ICC's ability to manage risks 
in a way that makes it more flexible and capable of considering events 
beyond, for instance, price-based stress scenarios. The Commission 
believes that considering additional stress scenarios should, in turn, 
increase the likelihood that ICC calculates and collects sufficient 
financial resources to mitigate its potential exposures. Managing such 
exposures should, in turn, enhance ICC's ability to manage the default 
of a clearing participant by continuing to promptly and accurately 
clear and settle securities transactions.
    Additionally, as noted above, the proposed rule change would, while 
not changing ICC's methodology, clarify in both the STF and LRMF that 
the stress options-implied MAD scenarios are integrated within the 
current set of stress scenarios for CDS index and single name 
instruments. Further, the proposed rule change would reorganize the STF 
to memorialize the stress options-implied MAD scenarios and approach in 
a separate section. The proposed language would explain that when index 
options are present in a portfolio, the underlying market stress test 
scenarios incorporate the stress options-implied MAD scenarios. 
Proposed terminology changes would specify that the scenarios consider 
an increase/decrease in the options-implied MAD upon spread widening/
tightening, and clarification changes would detail the incorporation of 
the options-implied MAD in the scenarios. Further, the proposed changes 
would more clearly set forth the creation of the stress options-implied 
MAD, including how the necessary components are derived. The proposed 
rule change would also make various clean-up changes detailed above. 
For example, the proposed rule change would make grammatical edits, 
renumber sections, make changes to distinguish between price and spread 
COVID-19/Oil Crisis scenarios, and specify that Clearing Participants 
deposit 100% of their Euro denominated client gross margin in any 
acceptable collateral in order to match Schedule 401 in the ICC Rules. 
The Commission believes that these proposed organizational and clean-up 
changes would enhance the STF and LRMF used to support ICC's risk 
management system by increasing readability, transparency, and clarity 
regarding its practices, and therefore support the ability of those 
utilizing these documents to manage risk and maintain adequate 
financial resources, thereby promoting both the prompt and accurate 
clearance and settlement of securities 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.\11\
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    \11\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rule 17Ad-22(e)(4)(ii) and (vi)

    Rule 17Ad-22(e)(4)(ii) requires ICC 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 ICC in 
extreme but plausible market conditions.\12\ Rule 17Ad-22(e)(4)(vi) 
\13\ requires ICC 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 testing the sufficiency of its total 
financial resources available to meet the minimum financial resource 
requirements of Rule 17Ad-22(e)(4)(ii).\14\
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    \12\ 17 CFR 240.17Ad-22(e)(4)(ii).
    \13\ 17 CFR 240.17Ad-22(e)(4)(vi).
    \14\ 17 CFR 240.17Ad-22(e)(4)(ii).
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    The Commission believes that the proposed introduction of the 
COVID-19/Oil Crisis Spread Scenarios would complement the current 
scenarios in the risk management policies and procedures and add 
additional insight into potential weaknesses in the ICC risk management 
methodology, thereby widening the range of stress scenarios that ICC 
employs to manage its credit exposures and financial resources. 
Additionally, the Commission believes that the proposed changes noted 
above to add detail, update terminology, ensure consistency across the 
STF and LRMF, and more clearly describe the stress options-implied MAD 
scenarios, would ensure transparency and strengthen ICC's risk 
management documentation, thereby supporting the effectiveness of ICC's 
risk management system to cover a wide range of foreseeable stress 
scenarios, including the COVID-19/Oil Crisis Spread Scenarios.
    The Commission also believes that the proposed clarification and 
clean-up changes noted above would also enhance the readability of the 
policies and procedures, thereby strengthening the documentation for 
its users and ensuring that it remains up-to-date, clear, and 
transparent to support the effectiveness of ICC's risk management 
system.
    For these reasons, the Commission believes that the proposed rule 
changes are therefore consistent with the requirements of Rules 17Ad-
22(e)(4)(ii) and (e)(4)(vi).\15\
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    \15\ 17 CFR 240.17Ad-22(e)(4)(ii) and (vi).
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C. Consistency With Rule 17Ad-22(e)(7)(i) and (vi)

    Rule 17Ad-22(e)(7)(i) requires ICC to establish, implement, 
maintain, and enforce written policies and procedures reasonably 
designed, as applicable, 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

[[Page 51469]]

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.\16\ Rule 17Ad-
22(e)(7)(vi) \17\ requires ICC to establish, implement, maintain, and 
enforce written policies and procedures reasonably designed, as 
applicable, to effectively measure, monitor, and manage the liquidity 
risk that arises in or is borne by it, including determining the amount 
and regularly testing the sufficiency of the liquid resources held for 
purposes of meeting the minimum liquid resource requirement under Rule 
17Ad-22(e)(7)(i).\18\
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    \16\ 17 CFR 240.17Ad-22(e)(7)(i).
    \17\ 17 CFR 240.17Ad-22(e)(7)(vi).
    \18\ 17 CFR 240.17Ad-22(e)(7)(i).
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    The Commission believes that the proposed changes noted above 
provide further clarity and transparency regarding ICC's liquidity 
stress testing practices to strengthen the documentation surrounding 
ICC's liquidity stress testing and liquidity risk management, including 
by providing additional scenario descriptions. The Commission believes 
that the introduction of the COVID-19/Oil Crisis Spread Scenarios would 
complement the current scenarios and, in turn, widen the range of 
stress scenarios that ICC employs to monitor and manage its liquidity 
risks. The Commission further believes that introduction of the COVID-
19/Oil Crisis Spread Scenarios would improve ICC's testing of the 
sufficiency of its liquid resources, by providing additional insights 
and information using spread-based scenarios.
    The Commission believes that 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. The 
Commission believes that these proposed changes would strengthen ICC's 
STF and LRMF and aid users of the documentation in managing ICC's 
liquid resources.
    For the reasons stated above, the Commission believes that the 
proposed rule changes are consistent with Rules 17Ad-22(e)(7)(i) and 
(vi).\19\
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    \19\ 17 CFR 240.17Ad-22(e)(7)(i) and (vi).
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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 \20\ and Rule 17Ad-22(e)(4)(ii) and (vi), and Rule 17Ad-22 
(e)(7)(i) and (vi) thereunder.\21\
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    \20\ 15 U.S.C. 78q-1(b)(3)(F).
    \21\ 17 CFR 240.17Ad-22(e)(4)(ii) and (vi) and (e)(7)(i) and 
(vi).
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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-2022-008), 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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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2022-17947 Filed 8-19-22; 8:45 am]
BILLING CODE 8011-01-P