Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of Filing of Proposed Rule Change Relating to the Stress Testing Framework and the Indirect Participant Risk Monitoring and Review Policy

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October 7, 2021

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Securities and Exchange Commission

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<title>Federal Register, Volume 86 Issue 192 (Thursday, October 7, 2021)</title>
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[Federal Register Volume 86, Number 192 (Thursday, October 7, 2021)]
[Notices]
[Pages 55888-55890]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-21865]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93235; File No. SR-ICC-2021-020]

Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of
Filing of Proposed Rule Change Relating to the Stress Testing Framework
and the Indirect Participant Risk Monitoring and Review Policy

October 1, 2021.
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 September 27, 2021, ICE Clear Credit LLC (``ICC'') filed with the
Securities and Exchange 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 amend the
Stress Testing Framework and to adopt and formalize the Indirect
Participant Risk Monitoring and Review Policy (``Indirect Participant
Risk Policy''). These revisions do not require any changes to the ICC
Clearing Rules (the ``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 amend the Stress Testing Framework and to adopt and
formalize the Indirect Participant Risk Policy. The proposed amendments
to the Stress Testing Framework include clarifications on the stress
testing practices of ICC and reference the Indirect Participant Risk
Policy. The proposed Indirect Participant Risk Policy describes the
monitoring and review of risk arising from and relating to indirect
participants, which are the underlying clients of ICC's Clearing
Participants (``CPs''). ICC believes that such 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 move forward
with implementation of such changes following Commission approval of
the proposed rule change. The proposed revisions are described in
detail as follows.
I. Stress Testing Framework
The revisions to the Stress Testing Framework are intended to
clarify ICC's stress testing practices and include minor clean-up
changes. The proposed changes abbreviate various terms throughout the
document, starting in Section 2. Regarding the stress test methodology
in Section 3, ICC would define financial resources as available funds
from the Initial Margin requirements and Guaranty Fund contributions
related to the selected portfolios in a footnote, and make minor
conforming terminology changes in the text regarding the analyzed
Initial Margin requirements. A proposed appendix with details on ICC's
stress test methodology would be referenced throughout the amended
document, specifically in Sections 3, 5, and 13. Proposed footnotes in
Subsection 5.1 contain formulas that provide further definition
regarding certain historically observed extreme but plausible market
scenarios. The proposed amendments to Section 12 specify that client
stress testing is executed daily (rather than ``at least monthly'') and
reference the Indirect Participant Risk Policy for further details. In
Section 14, ICC proposes a grammatical update to make ``meeting''
plural and to memorialize that the Stress Testing Framework is subject
to review by the Risk Committee and review and approval by the Board at
least annually. ICC proposes to include the Indirect Participant Risk
Policy as a reference in Section 15.
ICC proposes new Section 16 as an appendix, which is intended to
provide more detail and clarity on ICC's stress test methodology and
would not change the methodology. The proposed appendix defines key
terms and sets out underlying formulas and equations used for stress
testing. Key terms include Stress Testing Profit/Losses, which
represent the CP portfolio hypothetical response to the considered
stress testing scenarios. Moreover, the appendix explains the
determination of the order of defaulting CP Affiliate Groups (``AGs'')
in order to establish if the available financial resources are
sufficient to cover hypothetical losses associated with the two
greatest CP AG uncollateralized stress losses and discusses the
consideration given to wrong way risk exposure. Finally, the appendix
details how ICC determines if the available financial resources are
sufficient to cover the hypothetical losses associated with the two
greatest CP AG uncollateralized losses under the extreme but plausible
scenarios.
II. Indirect Participant Risk Policy
The risk management program at ICC includes various elements
designed to ensure the adequate identification, monitoring and
management of risks arising from and relating to indirect participants.
The proposed Indirect Participant Risk Policy memorializes such
practices and analyses and sets forth the associated governance
arrangements. The document is divided into seven sections, which are
detailed below.
Section 1 introduces the purpose of the document and defines key
terms. Indirect participants are defined as the underlying clients of
ICC's CPs. ICC's CPs with clients are referred to as Futures Commission
Merchants/Broker Dealers (``FCMs/BDs'') throughout the document.
Indirect Participants can pose risk to CPs and indirectly to ICC due to
the presence of Large Traders. A Large Trader includes a client of a CP
that exhibits large risk exposure in its portfolio that transpires
through concentrated position(s), significant level of
collateralization and large uncollateralized losses under extreme but
plausible market stress scenarios.
Sections 2 through 4 describe and memorialize the identification,
monitoring, and risk management practices related to indirect
participants and the presence of Large Traders.

[[Page 55889]]

Section 2 introduces a report that enables ICC to determine the
presence of potential Large Traders and assess the level of risk that
they may pose to the CP and/or ICC. Client risk exposure across all
FCMs/BDs and corresponding indirect participants are summarized in this
report, which allows the ICC Risk Department to monitor and identify
the FCMs/BDs with the largest indirect participants. Section 3 details
a report summarizing ICC's indirect participants with risk profiles
prone to adverse risk distribution, due to their size, across all FCMs/
BDs. The criteria for the selection of indirect participants in this
report is set out in the Indirect Participant Risk Policy. Further,
Section 3 describes a complementary report, which would indicate the
probability of an indirect participant adversely distributing its risk
across multiple FCMs/BDs and provide guidance on additional indirect
participants to be included for reporting. Individual client portfolio
level stress testing is executed and presented through another report
discussed in Section 4. The selection of indirect participants and
FCMs/BDs for this analysis as well as relevant assumptions are also
explained in Section 4. Moreover, each section details the frequency of
execution or review of the report by the ICC Risk Department and the
frequency of review by the ICC Risk Committee.
Section 5 memorializes governance procedures associated with the
performance and review of the aforementioned analyses. The Indirect
Participant Risk Policy specifies the group or individual involved in
the execution, interpretation, review, and reporting of the analyses as
well as the frequency. Section 5 also sets out the actions to be taken
if the ICC Risk Department and the ICC Risk Committee deem the risk
arising from indirect participants to be significant. In Sections 6 and
7, ICC includes references and a revision history.
(b) Statutory Basis
ICC believes that the proposed rule change is consistent with the
requirements of Section 17A of the Act \3\ and the regulations
thereunder applicable to it, including the applicable standards under
Rule 17Ad-22.\4\ In particular, Section 17A(b)(3)(F) of the Act \5\
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. The proposed changes strengthen the Stress Testing
Framework by providing more detail on the methodology through defined
terms and references to relevant documentation and formulas or
equations, memorializing the review and approval process, and making
other clarification and clean-up changes to ensure that it remains up-
to-date and transparent. The proposed Indirect Participant Policy
describes and memorializes the practices and analyses governing the
identification, monitoring, and review of risk arising from and
relating to indirect participants and sets forth the associated
governance arrangements. ICC believes that the proposed rule change
will ensure that responsible parties carry out their assigned duties
effectively with respect to stress testing and managing risk from
indirect participants, thereby promoting the prompt and accurate
clearing and settlement of the contracts 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, within the meaning of Section 17A(b)(3)(F) of the
Act.\6\
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\3\ 15 U.S.C. 78q-1.
\4\ 17 CFR 240.17Ad-22.
\5\ 15 U.S.C. 78q-1(b)(3)(F).
\6\ Id.
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The amendments would also satisfy relevant requirements of Rule
17Ad-22.\7\ Rule 17Ad-22(e)(2)(i) and (v) \8\ requires each covered
clearing agency to establish, implement, maintain, and enforce written
policies and procedures reasonably designed to provide for governance
arrangements that are clear and transparent and specify clear and
direct lines of responsibility. The proposed changes strengthen the
governance procedures in the Stress Testing Framework by memorializing
the review and approval process by relevant groups at least annually.
The proposed Indirect Participant Risk Policy details governance
procedures associated with the performance and review of analyses
related to indirect participants. Specifically, this document specifies
the group or individual involved in the execution, interpretation,
review, and reporting of the analyses as well as the frequency. As
such, in ICC's view, the proposed rule change continues to ensure that
ICC maintains policies and procedures that are reasonably designed to
provide for clear and transparent governance arrangements and specify
clear and direct lines of responsibility, consistent with Rule 17Ad-
22(e)(2)(i) and (v).\9\
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\7\ 17 CFR 240.17Ad-22.
\8\ 17 CFR 240.17Ad-22(e)(2)(i) and (v).
\9\ Id.
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Rule 17Ad-22(e)(3)(i) \10\ requires each covered clearing agency to
establish, implement, maintain, and enforce written policies and
procedures reasonably designed to maintain a sound risk management
framework for comprehensively managing legal, credit, liquidity,
operational, general business, investment, custody, and other risks
that arise in or are borne by the covered clearing agency, which
includes risk management policies, procedures, and systems designed to
identify, measure, monitor, and manage the range of risks that arise in
or are borne by the covered clearing agency, that are subject to review
on a specified periodic basis and approved by the Board annually. ICC
maintains a sound risk management framework that identifies, measures,
monitors, and manages the range of risks that it faces. The Stress
Testing Framework is a key aspect of ICC's risk management approach,
and the proposed amendments would memorialize that the document is
reviewed by the ICC Risk Committee and reviewed and approved by the ICC
Board at least annually. As such, the amendments would satisfy the
requirements of Rule 17Ad-22(e)(3)(i).\11\
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\10\ 17 CFR 240.17Ad-22(e)(3)(i).
\11\ Id.
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Rule 17Ad-22(e)(4)(ii) \12\ 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 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
the covered clearing agency in extreme but plausible market conditions.
The proposed amendments enhance ICC's ability to manage its financial
resources by providing further clarity and transparency on the stress
test methodology and on the procedures and analyses related to managing
risk from indirect participants. The proposed rule change would thus
enhance the implementation of such policies and procedures by ensuring
that responsible parties effectively carry out their associated duties,
thereby

[[Page 55890]]

supporting 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).\13\
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\12\ 17 CFR 240.17Ad-22(e)(4)(ii).
\13\ Id.
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Rule 17Ad-22(e)(4)(vi) \14\ 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 Stress Testing
Framework and Indirect Participant Risk Policy, 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. The Indirect Participant Risk Policy would memorialize
governance procedures associated with the performance and review of
analyses related to indirect participants, including the frequency of
execution or review and reporting to the ICC Risk Committee. As such,
ICC believes the proposed rule change is consistent with the
requirements of Rule 17Ad-22(e)(4)(vi).
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\14\ 17 CFR 240.17Ad-22(e)(4)(vi).
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Rule 17Ad-22(e)(19) \15\ requires each covered clearing agency to
establish, implement, maintain, and enforce written policies and
procedures reasonably designed to identify, monitor, and manage the
material risks to the covered clearing agency arising from arrangements
in which firms that are indirect participants in the covered clearing
agency rely on the services provided by direct participants to access
the covered clearing agency's payment, clearing, or settlement
facilities. As described above, the proposed Indirect Participant Risk
Policy documents ICC's processes and procedures related to indirect
participants, including how ICC identifies, analyzes, escalates, and
reports on indirect participants. The document ensures responsibility
and accountability by detailing the group or individual involved in the
execution, interpretation, and review of reports, the frequency of
execution and review, and the actions to be taken if the risk arising
from indirect participants is deemed significant. Accordingly, ICC
believes that the proposed rule change promotes its ability to
identify, monitor, and manage the material risks to it related to
indirect participants and is thus consistent with the requirements of
Rule 17Ad-22(e)(19).\16\
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\15\ 17 CFR 240.17Ad-22(e)(19).
\16\ 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
amend the Stress Testing Framework and to adopt and formalize the
Indirect Participant Risk Policy will apply uniformly across all market
participants. 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.

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

<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#eb999e878ec6888486868e859f98ab988e88c58c849d"><span class="__cf_email__" data-cfemail="fb898e979ed6989496969e958f88bb889e98d59c948d">[email&#160;protected]</span></a>. Please include
File Number SR-ICC-2021-020 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-2021-020. 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 (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
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 <a href="https://www.theice.com/clear-credit/regulation">https://www.theice.com/clear-credit/regulation</a>.
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-2021-020 and should be
submitted on or before October 28, 2021.

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-21865 Filed 10-6-21; 8:45 am]
BILLING CODE 8011-01-P

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