[Federal Register Volume 88, Number 160 (Monday, August 21, 2023)]
[Notices]
[Pages 56899-56901]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-17857]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98140; File No. SR-ICC-2023-012)


Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of 
Filing of Proposed Rule Change Relating to the Stress Testing Framework

August 15, 2023.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on August 8, 2023, ICE Clear Credit LLC (``ICC'') filed with the 
Securities and Exchange Commission (the ``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 revise the 
ICC Stress Testing Framework (``STF''). 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 to update the STF. The STF sets forth the ICC stress 
testing practices that are focused on ensuring the adequacy of systemic 
risk protections. The proposed changes are limited to updating the 
stress period of the default-free Euro discount interest rate curve 
used in ICC's interest rate sensitivity analysis and providing 
additional clarifying language to the STF. 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 changes 
are described in detail as follows.
    ICC proposes to update STF Section 11, ``Interest Rate Sensitivity 
Analysis'', which describes ICC's interest rate sensitivity analysis to 
account for the risks associated with changes to default-free discount 
interest rates. The STF currently incorporates two, currency specific, 
stress test parallel shifts (i.e., up, and down) of the default-free 
discount interest rate for both CDS and CDS Index Options instruments. 
The magnitude of the interest rate stress scenarios reflects the 
largest shock, estimated using the collateral haircut model, during a 
selected stress period for the applicable sovereign debt, and such 
selected stress periods are subject to periodic review. Following such 
review, ICC proposes to update the stress period used to shock the EURO 
default-free discount interest rate.
    The reasoning behind such proposed change is to respond to the 
current volatile interest rate period which began in 2022 and continues 
into 2023 due to the fast pace of U.S. Dollar and Euro interest rate 
increases. The impact to Euro interest rate volatility has been 
significant due to the sudden and rapid increases in Euro interest 
rates by the European Central Bank in an effort to curb multi-decade 
high inflation. Such interest rate volatility observed during this 
currently ongoing ``2022/2023 inflation crisis period'' is greater than 
the interest rate volatility observed in the Euro stress period 
currently in place in the STF (i.e., the ``western European credit 
crisis period'' which occurred in 2011-2012). Specifically, the 
magnitude of the collateral haircuts observed in the currently ongoing 
``2022/2023 inflation crisis period'' exceed the collateral haircuts 
observed during the ``western European credit crisis period.''
    Therefore, ICC proposes to replace the current ``western European 
credit crisis period'' stress period with the ``2022/2023 inflation 
crisis period'' stress period in Section 11 of the STF. Such proposed 
change is prudent, from a risk perspective, as it improves ICC's 
interest rate sensitivity analysis by referencing the higher interest 
rate volatility stress period. As the current inflation crisis remains 
ongoing, ICC will continue to monitor interest rate volatility for any 
new volatility peak observed in the current ``2022/2023 inflation 
crisis period.''. In addition, ICC proposes to make analogous 
clarifying language changes to the identification of the default-free 
USD discount interest rate curve in Section 11 of the STF to remove the 
specific dates of the applicable stress period (i.e., the 2008/2009 
credit crisis period).
(b) Statutory Basis
    As discussed herein, the proposed changes update the default-free 
Euro discount interest rate curve used in ICC's interest rate 
sensitivity analysis to reflect the interest rate shocks observed 
during the recent 2022-2023 inflation crisis period. Such proposed 
change strengthens the STF by updating the Euro stress period. 
Accordingly, ICC believes that the proposed changes to the STF are 
consistent with the prompt and accurate clearance and settlement of 
securities transactions, derivatives agreements, contracts, and 
transactions, the safeguarding of securities and funds

[[Page 56900]]

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 17(A)(b)(3)(F) of the Act.\3\
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    \3\ 17 CFR 240.17(A)(b)(3)(F).
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    In addition, the proposed changes to the STF are consistent with 
the relevant requirements of Rule 17Ad-22.\4\ Rule 17Ad-22(b)(3) \5\ 
requires ICC to establish, implement, maintain and enforce written 
policies and procedures reasonably designed to maintain sufficient 
financial resources to withstand, at a minimum, a default by the two CP 
families to which it has the largest exposures in extreme but plausible 
market conditions. The proposed changes to the STF provide further 
clarity and transparency regarding ICC's stress testing practices, 
including updating the stress periods used in ICC's interest rate 
sensitivity analysis. The proposed revisions also support ICC's ability 
to maintain sufficient risk requirements and enhance ICC's approach to 
identifying potential weaknesses in the risk management system by 
updating time periods to existing stress testing hypotheticals, thereby 
ensuring that ICC maintains sufficient financial resources to 
withstand, at a minimum, a default by the two CP families to which it 
has the largest exposures in extreme but plausible market conditions, 
consistent with the requirements of Rule 17Ad-22(b)(3).\6\
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    \4\ 17 CFR 240.17Ad-22.
    \5\ 17 CFR 240.17Ad-22(b)(3).
    \6\ Id.
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    The amendments would also satisfy relevant requirements of Rule 
17Ad-22.\7\ Rule 17Ad-22(e)(4)(ii) \8\ 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 proposed amendments 
enhance ICC's ability to manage its financial resources by updating a 
stress period used in ICC's interest rate sensitivity analysis. The 
proposed amendments add descriptive detail to be clearer, which would 
ensure transparency and strengthen the documentation, thereby 
supporting the effectiveness of ICC's risk management system. The 
proposed clarifying language further enhances the readability of the 
STF and ensures 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).\9\
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    \7\ 17 CFR 240.17Ad-22.
    \8\ 17 CFR 240.17Ad-22(e)(4)(ii).
    \9\ Id.
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    Rule 17Ad-22(e)(4)(vi) \10\ 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 STF, 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).\11\
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    \10\ 17 CFR 240.17Ad-22(e)(4)(vi).
    \11\ 17 CFR 240.17Ad-22(e)(4)(vi).
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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 
the STF update the stress period used in ICC's interest rate 
sensitivity analysis and make other clarifying changes, which ICC 
believes are appropriate in furtherance of the risk management of the 
clearing house. The changes to the STF will apply uniformly across all 
market participants. ICC does not believe these changes 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.

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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-ICC-2023-012 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-2023-012. 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

[[Page 56901]]

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 a.m. and 3 
p.m. Copies of such filings also will 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.
    Do not include personal identifiable information in submissions; 
you should submit only information that you wish to make available 
publicly. We may redact in part or withhold entirely from publication 
submitted material that is obscene or subject to copyright protection. 
All submissions should refer to File Number SR-ICC-2023-012 and should 
be submitted on or before September 11, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-17857 Filed 8-18-23; 8:45 am]
BILLING CODE 8011-01-P