Notice2022-10805
Self-Regulatory Organizations; ICE Clear Credit LLC; Order Approving Proposed Rule Change Relating to the ICC Risk Parameter Setting and Review Policy
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
May 20, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 98 (Friday, May 20, 2022)</title>
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[Federal Register Volume 87, Number 98 (Friday, May 20, 2022)]
[Notices]
[Pages 31020-31021]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-10805]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94921; File No. SR-ICC-2022-002]
Self-Regulatory Organizations; ICE Clear Credit LLC; Order
Approving Proposed Rule Change Relating to the ICC Risk Parameter
Setting and Review Policy
May 16, 2022.
I. Introduction
On March 22, 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 (the
``Act''),\1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to
amend its Risk Parameter Setting and Review Policy (the ``RPSR
Policy''). The proposed rule change was published for comment in the
Federal Register on April 4, 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 ICC Risk Parameter
Setting and Review Policy; Exchange Act Release No. 34-94544 (March
29, 2022); 87 FR 19563 (April 4, 2022) (SR-ICC-2022-002)
(``Notice'').
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II. Description of the Proposed Rule Change
The RPSR Policy describes ICC's process of setting and reviewing
the risk management model core parameters and the performance of
sensitivity analyses related to certain parameter settings.\4\ Overall,
ICC represents the proposed amendments would be clarifications needed
to address an independent model validation and would not change the
methodology.\5\
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\4\ The description is substantially excerpted from the Notice,
87 FR at 19563. Capitalized terms not defined herein have the
meanings assigned to them in the RPSR Policy or the ICC Rules, as
applicable.
\5\ Notice, 87 FR at 19563.
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The proposed rule change would amend Section 1.7, which describes
the parameters associated with the integrated spread response component
of ICC's CDS risk model. The RPSR Policy categorizes these parameters
as Univariate, Multivariate, and Anti-Procyclicality Level Parameters.
The proposed rule change would make amendments to Subsection 1.7.1,
which describes the Univariate Level Parameters.
As part of these Univariate Level Parameters, ICC derives the end-
of-day
[[Page 31021]]
(``EOD'') recovery rate for single name risk factors (meaning each
single name CDS contract).\6\ The proposed rule change would add text
to explain how ICC derives the EOD recovery rate from price quotes
submitted by Clearing Members. For each single name risk factor, the
EOD recovery rate would reflect the smaller of the standard market
convention recovery rate and the minimum submitted EOD bid price
submitted by Clearing Members. The proposed changes would explain that
the EOD recovery rate would be the minimum submitted EOD bid price, and
therefore would deviate from the standard market convention, when the
single name risk factor itself is distressed. The proposed language
would further specify the role of the established EOD recovery rate in
using the ISDA Standard Model for price-to-spread mapping.
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\6\ As explained in ICC's Risk Management Model Description,
every index, sub-index, or underlying single name is deemed a Risk
Factor. See Self-Regulatory Organizations; ICE Clear Credit LLC;
Order Approving Proposed Rule Change Relating to the ICC Risk
Management Model Description, Exchange Act Release No. 91918 (May
18, 2021), 86 FR 27927 (May 24, 2021).
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III. Discussion and 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 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)(6)(vi)(B) 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)(6)(vi)(B).
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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.\10\ Based on its
review of the record, and for the reasons discussed below, the
Commission believes the proposed changes to RPSR Policy are consistent
with the promotion of the prompt and accurate clearance and settlement
of transactions at ICC.
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\10\ 15 U.S.C. 78q-1(b)(3)(F).
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The Commission believes that the change should improve the RPSR
Policy by documenting how ICC derives the EOD recovery rate from price
quotes submitted by Clearing Members for Univariate Level Parameters.
The Commission believes that documenting ICC's approach should help to
ensure that ICC derives the EOD recovery rate and related Univariate
Level Parameters in a clear and consistent manner. Because ICC uses the
RPSR Policy to set and review core parameters for ICC's risk management
model, the Commission believes that this improvement to the RPSR should
help to ensure the continued efficacy of the risk management model. An
effective risk management model should help to ensure that ICC collects
sufficient margin, commensurate with the risks presented by the
transactions its clears. The Commission thus believes the proposed rule
change should ultimately help to ensure that ICC collects sufficient
margin, and in doing so should help improve ICC's ability to avoid
losses that could result during periods of market stress. Because such
losses could disrupt ICC's ability to operate and thus promptly and
accurately clear and settle security based swap transactions, the
Commission finds the proposed rule change would promote the prompt and
accurate clearance and settlement of securities transactions,
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)(6)(vi)(B)
Rule 17Ad-22(e)(6)(vi)(B) requires that ICC establish, implement,
maintain and enforce written policies and procedures reasonably
designed to, as applicable, cover its credit exposures to its
participants by establishing a risk-based margin system that, at a
minimum is monitored by management on an ongoing basis and is regularly
reviewed, tested, and verified by conducting a sensitivity analysis of
its margin model and a review of its parameters and assumptions for
backtesting on at least a monthly basis, and considering modifications
to ensure the backtesting practices are appropriate for determining the
adequacy of ICC's margin resources.\12\ As discussed above, the
proposed rule change would document how ICC derives the EOD recovery
rate from price quotes submitted by Clearing Members for Univariate
Level Parameters. In doing so, the Commission believes the proposed
rule change would help to ensure that ICC analyzes this particular
aspect of the Univariate Level Parameters, which the RPSR Policy
requires ICC's Risk team to estimate and review, and perform
sensitivity analysis on, at least monthly. Therefore, the Commission
finds that the proposed rule change is consistent with Rule 17Ad-
22(e)(6)(vi)(B).\13\
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\12\ 17 CFR 240.17Ad-22(e)(6)(vi)(B).
\13\ 17 CFR 240.17Ad-22(e)(6)(vi)(B).
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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 \14\ and Rule 17Ad-22(e)(6)(vi)(B) thereunder.\15\
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\14\ 15 U.S.C. 78q-1(b)(3)(F).
\15\ 17 CFR 240.17Ad-22(e)(6)(vi)(B).
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It is therefore ordered pursuant to Section 19(b)(2) of the Act
\16\ that the proposed rule change (SR-ICC-2022-002), be, and hereby
is, approved.\17\
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\16\ 15 U.S.C. 78s(b)(2).
\17\ 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.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-10805 Filed 5-19-22; 8:45 am]
BILLING CODE 8011-01-P
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