[Federal Register Volume 88, Number 160 (Monday, August 21, 2023)]
[Notices]
[Pages 56901-56903]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-17860]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98138; File No. SR-ICEEU-2023-019]


Self-Regulatory Organizations; ICE Clear Europe Limited; Notice 
of Filing of Proposed Rule Change Relating to Amendments to the Model 
Risk Policy

August 15, 2023.
    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 August 4, 2023, ICE Clear Europe Limited (``ICE Clear Europe'' or 
the ``Clearing House'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule changes described in 
Items I, II and III below, which Items have been prepared primarily by 
ICE Clear Europe. 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

    ICE Clear Europe Limited (``ICE Clear Europe'' or the ``Clearing 
House'') proposes to modify its Model Risk Governance Framework (to be 
renamed the Model Risk Policy) (the ``Model Risk Policy'' or the 
``Policy'') \3\ to make certain enhancements to the Clearing House's 
current policy and practices as they pertain to model and parameter 
risks.
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    \3\ Capitalized terms used but not defined herein have the 
meanings specified in the ICE Clear Europe Clearing Rules and the 
Policy.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    In its filing with the Commission, ICE Clear Europe included 
statements concerning the purpose of and basis for the proposed rule 
change and discussed any comments it received on the proposed rule 
change. The text of these statements may be examined at the places 
specified in Item IV below. ICE Clear Europe has prepared summaries, 
set forth in sections (A), (B), and (C) below, of the most significant 
aspects of such statements.

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

(a) Purpose
    ICE Clear Europe is proposing to amend its Model Risk Governance 
Framework (to be renamed the Model Risk Policy) to expand its current 
scope to include certain risk frameworks and to distinguish between 
``Business As Usual'' (``BAU'') and non-BAU parameter changes, among 
other changes discussed herein.
    The amendments would expand the scope of the Policy to include risk 
frameworks used to quantify, aggregate and manage the risks of the 
Clearing House. The amendments would further clarify that references to 
``model'' in the rest of the document would refer to both models and 
risk frameworks. The discussion of the architecture supporting the 
Policy would be revised to also include guidelines for the remediation 
of validation findings relating to models.
    The amendments would also state that changes to risk parameters 
would be categorized as significant and not significant. This would 
follow the same categorization under the existing Policy with respect 
to model changes. A footnote referencing a specific ESMA opinion as 
providing the criteria defining model change significance would be 
revised to state more generally that the criteria will be in accordance 
with prevailing regulatory opinions, guidelines or requirements (in 
order to take into account any other regulatory positions that may be 
in effect from time to time). Moreover, the changes to parameters would 
be categorized as Business as Usual (``BAU'') and Non-BAU. Changes 
considered BAU would be defined as changes in the parameters resulting 
from the application of existing methodologies as part of a regular 
review or calibration exercise. Non-BAU changes would be all other 
changes. The amendments would clarify that the definition of BAU would 
be in accordance with existing regulatory guidelines.
    The amendments would also clarify certain governance 
responsibilities. The Board would be responsible for the approval of 
significant non-BAU changes to risk parameters. Auto Pilot versus 
Production deviations beyond BAU thresholds will generally follow a 
similar governance process to that for changes in parameters but given 
that these deviations are usually time sensitive and driven by stressed 
market conditions, the Clearing House will need the ability to act 
quickly to ensure market stability. Thus, for these situations the 
governance process will involve Board notification rather than Board 
pre-approval and Risk Oversight Department review rather than full 
independent pre-validation. The Model Oversight Committee would be 
responsible for establishing and maintaining a model inventory and 
assigning a specific owner to each model (a function currently 
performed by the First Line). The Model Oversight Committee would also 
be responsible for approving non-significant non-BAU changes to risk 
parameters and for reviewing significant non-BAU changes to risk 
parameters for recommendation to the Board. In addition, the committee 
would be responsible for approving changes to model documentation.
    The First Line responsibilities would also be modified by the 
amendments. As noted above, the First Line would no longer be 
responsible for establishing and maintaining a model inventory and 
assigning a specific owner to each model as that responsibility would 
be moved to the Model Oversight Committee. The First Line would be 
responsible for proposing and seeking approval for non-BAU changes to 
risk parameters (as it currently does for models, model changes, and 
model retirements). Similarly, the First Line

[[Page 56902]]

would also be responsible for proposing significance levels for non-BAU 
changes to risk parameters. The Second Line would be responsible for 
performing independent validation exercises for non-BAU changes to risk 
parameters (as it currently does for models).
    Finally, a new sub-section would be added addressing Non-BAU 
parameter changes. The section would provide that significant non-BAU 
changes to risk parameters must be validated before they are 
implemented in production. Non-significant non-BAU changes must be 
validated in accordance with the validation pipeline.
    A number of other drafting clarifications and conforming changes 
replacing the references to ``Framework'' with ``Policy'' would also be 
made throughout the document.
(b) Statutory Basis
    ICE Clear Europe believes that the proposed amendments to the 
Policy are consistent with the requirements of Section 17A of the 
Securities Exchange Act of 1934 (the ``Act'') \4\ and the regulations 
thereunder applicable to it. In particular, Section 17A(b)(3)(F) of the 
Act \5\ requires, among other things, that the rules of a clearing 
agency be designed to promote the prompt and accurate clearance and 
settlement of securities transactions and, to the extent applicable, 
derivative agreements, contracts, and transactions, the safeguarding of 
securities and funds in the custody or control of the clearing agency 
or for which it is responsible, and the protection of investors and the 
public interest.
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    \4\ 15 U.S.C. 78q-1.
    \5\ 15 U.S.C. 78q-1(b)(3)(F).
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    The proposed changes to the Policy are designed to facilitate the 
risk management and governance of risk frameworks in a similar manner 
to that for models under the existing framework. The processes, 
controls and escalations used by the Clearing House with respect to the 
testing and reviewing of models, as well the responsibilities of the 
Clearing House's committees, management and the Board in relation to 
the models would thus be applied to risk frameworks. The amendments 
provide additional procedures for the management of risk parameter 
changes, distinguishing between BAU and non-BAU (which are subject to 
additional review and governance requirements). The Clearing House 
believes these changes will further overall risk management at the 
Clearing House, which would in turn promote the stability of the 
Clearing House and the prompt and accurate clearance and settlement of 
cleared contracts. The enhanced Policy is therefore also generally 
consistent with the protection of investors and the public interest in 
the safe operation of the Clearing House. (ICE Clear Europe would not 
expect the amendments to affect the safeguarding of securities and 
funds in ICE Clear Europe's custody or control or for which it is 
responsible.) Accordingly, the amendments satisfy the requirements of 
Section 17A(b)(3)(F).\6\
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    \6\ 15 U.S.C. 78q-1(b)(3)(F).
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    The amendments to the Policy are also consistent with relevant 
provisions of Rule 17Ad-22.\7\ Rule 17Ad-22(e)(3)(i) provides that 
``[e]ach covered clearing agency shall establish, implement, maintain 
and enforce written policies and procedures reasonable designed to, as 
applicable [. . .] identify, measure, monitor, and manage the range of 
risks that arise in or are borne by the covered clearing agency''.\8\ 
The amendments to the Policy are intended to expand the considerations 
of the existing model governance framework to apply to risk frameworks 
as well as models and to distinguish BAU and non-BAU changes to risk 
parameters for purposes of ongoing review and oversight. The expanded 
scope of the Policy will, in ICE Clear Europe's view, assist the 
Clearing House in the ongoing review and oversight of the models and 
frameworks it uses in the operation of the Clearing House, and the 
management of the risks that may arise from the use of such models and 
frameworks. The amendments would thus strengthen the overall risk 
management of the Clearing House. In ICE Clear Europe's view, the 
amendments are therefore consistent with the requirements of Rule 17Ad-
22(e)(3)(i).\9\
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    \7\ 17 CFR 240.17 Ad-22.
    \8\ 17 CFR 240.17 Ad-22(e)(3)(i).
    \9\ 17 CFR 240.17 Ad-22(e)(3)(i).
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    Rule 17Ad-22(b)(4) provides ``[a] registered clearing agency that 
performs central counterparty services shall establish, implement, 
maintain and enforce written policies and procedures reasonably 
designed to [. . .] [p]rovide for an annual model validation consisting 
of evaluating the performance of the clearing agency's margin models 
and the related parameters and assumptions associated with such models 
by a qualified person who is free from influence from the persons 
responsible for the development or operation of the models being 
validated''.\10\ The amendments add non-BAU changes to risk parameters 
but do not otherwise change the Policy's or Clearing House's practice 
in reviewing and validating models. Under the Policy, the First Line 
would still be responsible for development and operation of the models, 
while the Risk Oversight Department (as part of the Second Line) is 
responsible for performing independent validation exercises for the new 
models, model changes and non-BAU changes to risk parameters. The Risk 
Oversight Committee would also oversee independent validation exercises 
performed by external validators. In ICE Clear Europe's view, the 
amendments are therefore consistent with Rule 17Ad-22(b)(4).\11\
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    \10\ 17 CFR 240.17Ad-22(b)(4).
    \11\ 17 CFR 240.17Ad-22(b)(4).
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    Rules 17Ad-22(e)(4)(vii) provides ``[e]ach covered clearing agency 
shall establish, implement, maintain and enforce written policies and 
procedures reasonably designed to, as applicable [. . .] [e]ffectively 
identify, measure, monitor, and manage its credit exposures to 
participants and those arising from its payment, clearing, and 
settlement processes, including by [. . .] [p]erforming a model 
validation for its credit risk models not less than annually or more 
frequently as may be contemplated by the covered clearing agency's risk 
management framework established [. . .]'' \12\ and 17Ad-22(e)(6)(vii) 
provides ``[e]ach covered clearing agency shall establish, implement, 
maintain and enforce written policies and procedures reasonably 
designed to, as applicable [. . .] [c]over, if the covered clearing 
agency provides central counterparty services, its credit exposures to 
its participants by establishing a risk-based margin system that, at a 
minimum [. . .] [r]equires a model validation for the covered clearing 
agency's margin system and related models to be performed not less than 
annually, or more frequently as may be contemplated by the covered 
clearing agency's risk management framework [. . .]''.\13\ The 
amendments to the Policy expand the current scope to include risk 
frameworks and do not otherwise change ICE Clear Europe's model 
validation cycles. As per the Policy and the Clearing House's current 
practice, the validation pipeline would still include annual validation 
cycles. In ICE Clear Europe's view, the amendments are therefore 
consistent with Rules 17Ad-22(e)(4)(vii) \14\ and 17Ad-
22(e)(6)(vii).\15\
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    \12\ 17 CFR 240.17Ad-22(e)(4)(vii).
    \13\ 17 CFR 240.17Ad-22(e)(6)(vii).
    \14\ 17 CFR 240.17Ad-22(e)(4)(vii).
    \15\ 17 CFR 240.17Ad-22(e)(6)(vii).

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[[Page 56903]]

    Rule 17Ad-22(e)(2) provides that ``[e]ach covered clearing agency 
shall establish, implement, maintain and enforce written policies and 
procedures reasonable designed to, as applicable [. . .] provide for 
governance arrangements that are clear and transparent'' \16\ and 
``[s]pecify clear and direct lines of responsibility''.\17\ The 
amendments to the Policy would extend the existing responsibilities of 
the Clearing House's committees, management and the Board with respect 
to models to also apply to risk frameworks. The amendments would also 
clarify certain responsibilities of the Board and other relevant 
committees and personnel as they relate to BAU and Non-BAU changes to 
risk parameters. In ICE Clear Europe's view, the amendments are 
therefore consistent with the requirements of Rule 17Ad-22(e)(2).\18\
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    \16\ 17 CFR 240.17 Ad-22(e)(2)(i).
    \17\ 17 CFR 240.17 Ad-22(e)(2)(v).
    \18\ 17 CFR 240.17 Ad-22(e)(2).
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(B) Clearing Agency's Statement on Burden on Competition

    ICE Clear Europe does not believe the proposed amendments would 
have any impact, or impose any burden, on competition not necessary or 
appropriate in furtherance of the purposes of the Act. The amendments 
are being adopted to update and expand the Clearing House's Model Risk 
Policy, which relate to the Clearing House's internal processes for 
model and risk framework review, and overall risk management. The 
amendments will not change the Clearing House Rules or Procedures and 
will not change the rights or obligations of the Clearing House or 
Clearing Members. ICE Clear Europe does not believe the amendments and 
adoption would affect the costs of clearing, the ability of market 
participants to access clearing, or the market for clearing services 
generally. Therefore, ICE Clear Europe 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 amendments have not been 
solicited or received by ICE Clear Europe. ICE Clear Europe will notify 
the Commission of any written comments received with respect to the 
proposed rule change.

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-ICEEU-2023-019 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-ICEEU-2023-019. 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 (https://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 
a.m. and 3 p.m. Copies of such filings will also be available for 
inspection and copying at the principal office of ICE Clear Europe and 
on ICE Clear Europe's website at https://www.ice.com/clear-europe/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-ICEEU-2023-019 and 
should be submitted on or before September 11, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-17860 Filed 8-18-23; 8:45 am]
BILLING CODE 8011-01-P