[Federal Register Volume 89, Number 82 (Friday, April 26, 2024)]
[Notices]
[Pages 32496-32499]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-08947]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100008; File No. SR-ICC-2024-003]


Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of 
Filing of Proposed Rule Change Relating to the ICC Collateral Risk 
Management Framework

April 22, 2024.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 
1934,\1\ and Rule 19b-4,\2\ notice is hereby given that on April 16, 
2024, 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 
Collateral Risk Management Framework (``CRMF''). These revisions do not 
require any changes to the ICC Clearing Rules \3\ (the ``Rules'').\4\
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    \3\ A copy of the ICC Clearing Rules can be found here: https://www.ice.com/publicdocs/clear_clear/ICE_Clear_Credit_Rules.pdf.
    \4\ Capitalized terms used but not defined herein have the 
meanings specified in the Rules.
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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, ICC 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. 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 revise its CRMF. The CRMF describes ICC's 
collateral assets risk management methodology, including a description 
of ICC's quantitative risk management approach that accounts for the 
risk associated with fluctuations of collateral asset prices. ICC 
believes the proposed 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 make such changes effective following Commission 
approval of the proposed rule change. The proposed revisions are 
discussed in detail as follows.
    The primary purpose of the proposed revisions is to address an 
internal audit recommendation to remove the 2-day 99.9% Value-at-Risk 
(``VaR'') risk measure from ICC's ``haircut'' model approach as such 
measure does not contribute to the determination of the collateral 
``haircut'' factors and re-scale certain figures to accompany changes 
in the axis'.\5\ In addition, ICC proposes revisions to the CRMF to 
correct errors in certain figures contained in the CRMF, typographical 
errors, and to update the revision history.
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    \5\ Haircuts are a risk management tool where assets are priced 
and posted as collateral at a discount, otherwise known as the 
`haircut' for the purpose of taking into account their native market 
risks (i.e., the risk of a decrease in value of the asset posted as 
collateral) as well as cross-currency risks (i.e., the risk of the 
change in value of one currency as compared to the value of another 
currency) when the collateral is to be used to cover an obligation 
denominated in a different currency.
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    Under the current CRMF, the computation of the ``haircut'' factors 
is achieved by comparing two risk measures: (i) the 5-day 99% Expected 
Shortfall risk measure and (ii) the 2-day 99.9% VaR risk measure, and 
then utilizing the more conservative of these two risk measures to 
determine the ``haircut'' factors that capture potential collateral 
value losses.\6\ In general, the 5-day 99% Expected Shortfall risk 
measure is a more conservative measurement than the 2-day 99.9% VaR 
risk measure, given the nature of the calculation (i.e., expected 
shortfall versus VaR) and the longer measurement period (i.e., 5 days 
versus 2 days). As a result, the 5-day 99% Expected Shortfall risk 
measure is the more conservative risk measurement as compared to the 2-
day 99.9% VaR risk measure, and it is expected that the 5-day 99% 
Expected Shortfall risk measure will continue to be the more 
conservative of these two risk measures. Therefore, the inclusion of 
the 2-day 99.9% VaR risk measure has not in the past contributed to the 
determination of collateral ``haircut'' factors, nor is it expected to 
in the future. As a result, removal of the 2-day 99.9% VaR risk measure 
will not impact ICC's determination of collateral ``haircut'' factors 
and the removal of this unnecessary risk measure will simplify the 
CRMF.
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    \6\ The 1-day 99% VaR and the 1-day 99% ES risk measures are 
preserved in current figures 10, 24, 25 and 37. This is because 
under the statistical model, underpinning the 2-day 99.9% VaR and 
the 5-day 99% ES risk measures, are calibrated on the 1-day changes 
as discussed further in Section I, Paragraphs 2 and 3 of the CRMF, 
which summarizes (that the above-named current figures are still 
relevant as they preserve the 1-day risk horizon along with the 99% 
VaR back-testing results since they reflect the same quantile that 
is ultimately used to estimate collateral haircuts, namely the 99% 
quantile.
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    Furthermore, the 2-day 99.9% VaR risk measure is inspired by the 
general regulatory margin-period-of-risk \7\ (``MPOR'') for exchange-
traded instruments, while the 5-day 99% Expected Shortfall risk measure 
is inspired by the MPOR for over-the-counter traded instruments. As ICC 
clears only over-the-counter swaps with a minimum MPOR of five days and 
does not clear exchange-traded instruments (with a 2-day MPOR), 
references to 2-day MPOR in the CRMF are not necessary.
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    \7\ Margin-period-of-risk or `MPOR' is a maturity factor that is 
applied to reflect the length of exposure period over which the 
defaulted portfolio is exposed to changes in value.
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    To achieve the foregoing, ICC proposes revisions to the CRMF to 
remove all references to the 2-day 99.9% VaR risk measure and 
references

[[Page 32497]]

the exchange-traded 2-day MPOR, which appear in the following sections 
of the CRMF: Section I.; Section 1.a. (including removal from Eq. 3); 
Section I.b. (including removal from Eq.5); Section III.; Section 
IV.a.; Section IV.b.; and Section IV.c. With the removal of the 2-day 
99.9% VaR risk measure from the current two risk measure comparison, it 
is necessary to change plural nouns to singular nouns throughout the 
CRMF. In connection with the removal of the 2-day 99.9% VaR risk 
measure, ICC proposes to delete Figure 11, Figure 12, Figure 26, Figure 
27, Figure 28, Figure 29, Figure 38 and Figure 39 from the CRMF as all 
such figures relate to the 2-day 99.9% VaR risk measure, including 1-
day 99.9% VaR which was preserved to calculate 2-day 99.9% VaR.
    As a consequence of deleting the figures discussed in the 
immediately prior paragraph, it is necessary to renumber the remaining 
figures, and references to the remaining figures, in the CRMF as 
follows:
     renumber Figure 13 to Figure 11;
     renumber Figure 14 to Figure 12;
     renumber Figure 15 to Figure 13;
     renumber Figure 16 to Figure 14;
     renumber Figure 17 to Figure 15;
     renumber Figure 18 to Figure 16;
     renumber Figure 19 to Figure 17;
     renumber Figure 20 to Figure 18;
     renumber Figure 21 to Figure 19;
     renumber Figure 22 to Figure 20;
     renumber Figure 23 to Figure 21;
     renumber Figure 24 to Figure 22;
     renumber Figure 25 to Figure 23;
     renumber Figure 30 to Figure 24;
     renumber Figure 31 to Figure 25;
     renumber Figure 32 to Figure 26;
     renumber Figure 33 to Figure 27;
     renumber Figure 34 to Figure 28;
     renumber Figure 35 to Figure 29;
     renumber Figure 36 to Figure 30;
     renumber Figure 37 to Figure 31; and
     renumber Figure 40 to Figure 32.
    In addition to the foregoing proposed revisions related to the 
removal of the 2-day 99.9% VaR risk measure and the exchange-traded 2-
day MPOR, ICC proposes the following additional revisions to the CRMF 
to re-scale certain figures and correct typographical errors. 
Specifically, ICC proposes to re-scale Figure 12, Figure 13, and Figure 
26 to adjust the chart from percentage to bps. The change from 
percentage to bps does not affect the data, but it affects the 
visualization of the chart because when re-scaling from percentage to 
bps, the scale will be larger as 1 bps equals 1/100 of a percentage 
point. The figure numbers below reflect the figure renumbering as 
described above:
     Updated footnote 1 to the most current link to the ICC 
Collateral Management presentation on the Intercontinental Exchange, 
Inc. Website;
     Revised Figure 5: re-scaled Figure 5 to adjust bin sizes 
\8\ (which relate to the thickness of each bar in the histogram) and 
re-scaled from bps to the correct label of percentage (``%'') on the x-
axis; \9\
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    \8\ `Bin size' in risk data refers to the width of intervals 
used to group similar data points when analyzing risk. The 
underlying data remains the same regardless of the bin size. A 
change in bin size, while not including different data, might 
apportion the data more widely or more narrowly across the chart 
within newly created intervals. As the distributions change, so 
could the trend lines across the intervals change.
    \9\ While the visual illustration of Figure 5 has changed (it is 
merely illustrative), the underlying data and estimations have 
remained unchanged.
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     Corrected and consistent use of defined term US TIPS;
     Corrected typographical error in label to Figure 8 which 
was incorrectly labeled Figure 5;
     Corrected and consistent use of defined term BTLS;
     Revised Figure 12: re-scaled Figure 12 from % to bps and 
added the correct label to x-axis; \10\
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    \10\ Figure 12's underlying data and estimates have remained 
constant with the correction from % to bps, however, the histogram 
is merely illustrative and the plots have been adjusted to reflect 
the correct estimations.
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     Revised Figure 13: re-scaled Figure 13 from % to bps and 
added the correct label to x-axis; \11\
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    \11\ Figure 13's underlying data and estimates have remained 
constant with the correction from % to bps, however, the histogram 
is merely illustrative and the plots have been adjusted to reflect 
the correct estimations.
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     Revised Figure 16: corrected the label in the y-axis from 
% to bps;
     Revised Figure 17: corrected the label in the y-axis from 
% to bps;
     Revised Figure 20: corrected the label in the y-axis from 
% to bps;
     Revised Figure 21: corrected the label in the y-axis from 
% to bps;
     Revised Figure 26: re-scaled Figure 26 from % to bps and 
added the correct label to the x-axis; \12\
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    \12\ Figure 26's underlying data and estimates have remained 
constant with the correction from % to bps, however, the histogram 
is merely illustrative and the plots have been adjusted to reflect 
the correct estimations.
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     Revised Figure 28: corrected the label in the y-axis from 
% to bps; and
     Revised Figure 30: corrected the label in the y-axis from 
% to bps.
    Lastly, ICC proposes to revise Section VI of the CRMF to update the 
revision history.
(b) Statutory Basis
    ICC believes that the proposed rule change is consistent with the 
requirements of Section 17A of the Act \13\ and the regulations 
thereunder applicable to it, including the applicable standards under 
Rule 17Ad-22.\14\ In particular, Section 17A(b)(3)(F) of the Act \15\ 
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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    \13\ 15 U.S.C. 78q-1.
    \14\ 17 CFR 240.17Ad-22.
    \15\ 15 U.S.C. 78q-1(b)(3)(F).
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    As discussed herein, the proposed revisions to update the CRMF to 
remove the 2-day 99.9% VaR risk measure that does not contribute to the 
estimate of the collateral ``haircut'' factors and removes the 
unnecessary references to exchange-traded 2-day MPOR. The proposed 
revisions also correct errors and re-scale certain figures in the CRMF 
among other typographical errors. The proposed revisions would not 
amend ICC's methodology and will not impact ICC's determination of 
collateral ``haircut'' factors. In addition, the removal of the 2-day 
99.9% VaR risk measure would simplify the CRMF and would promote 
effective operation of the collateral assets risk management model by 
eliminating an unused risk measure. In ICC's view, such changes promote 
transparency by removing an unused risk measure and only including 
relevant parameters, computations, equations, definitions, and figures 
to describe relevant processes, which would also ensure that 
responsible parties carry out their assigned duties effectively and aid 
them in doing so. Further, the correction and clarification changes 
ensure transparency, readability, and clarity by avoiding unnecessary 
repetition and duplication in the defined terms in the CRMF and 
correcting drafting errors. ICC believes that having policies and 
procedures that clearly and accurately document its risk measurements 
associated with fluctuations of collateral asset prices is an important 
component to the effectiveness of ICC's risk management system and 
support ICC's ability to maintain adequate financial resources and 
collateral management resources. Accordingly, ICC believes that the 
proposed rule change is consistent with the prompt and accurate 
clearance and settlement of securities transactions, 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

[[Page 32498]]

the meaning of Section 17A(b)(3)(F) of the Act.\16\
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    \16\ Id.
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    Rule 17Ad-22(e)(4)(ii) \17\ 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 revisions enhance ICC's 
ability to manage its financial resources by providing further clarity 
and transparency on its collateral assets risk management approach 
through the updated risk measures in the CRMF, which will promote the 
effective and accurate function of the collateral assets risk 
management model. The proposed rule change would also enhance the 
implementation of various processes and procedures associated with the 
collateral assets risk management methodology to ensure that 
responsible parties effectively carry out their associated duties, 
including by providing relevant parameters, computations, equations, 
definitions, and figures. As such, the proposed amendments would 
support 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).\18\
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    \17\ 17 CFR 240.17Ad-22(e)(4)(ii).
    \18\ Id.
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    Rule 17Ad-22(e)(5) \19\ requires ICC to establish, implement, 
maintain, and enforce written policies and procedures reasonably 
designed to limit the assets it accepts as collateral to those with low 
credit, liquidity, and market risks, and set and enforce appropriately 
conservative haircuts and concentration limits if the covered clearing 
agency requires collateral to manage its or its participants' credit 
exposure; and require a review of the sufficiency of its collateral 
haircuts and concentration limits to be performed not less than 
annually. ICC would continue to limit the assets that ICC accepts as 
collateral to those with low credit, liquidity, and market risks under 
the proposed rule change. Collateral haircut factor estimations are 
executed daily, and the ICC Risk Department reviews the results and 
determines any updates, at least monthly. Haircut factors can be 
updated more frequently at the discretion of the CRO or designee. 
Furthermore, the CRMF continues to provide a clear framework for ICC to 
set and enforce appropriately conservative haircuts for acceptable 
collateral assets. The proposed revisions will improve clarity of the 
process of calculating the conservative collateral haircut factors that 
are executed daily. As such, the amendments would satisfy the 
requirements of Rule 17Ad-22(e)(5).\20\
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    \19\ 17 CFR 240.17Ad-22(e)(5).
    \20\ 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 
remove the 2-day 99.9% VaR risk measure and exchange-traded 2-day MPOR 
language do not amend ICC's methodology and would result in no change 
to 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 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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-ICC-2024-003 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-2024-003. 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 Credit and 
on ICE Clear Credit's website at https://www.ice.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-2024-003 and should 
be submitted on or before May 17, 2024.


[[Page 32499]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-08947 Filed 4-25-24; 8:45 am]
BILLING CODE 8011-01-P