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

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Published

August 21, 2023

Issuing agencies

Securities and Exchange Commission

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<title>Federal Register, Volume 88 Issue 160 (Monday, August 21, 2023)</title>
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[Federal Register Volume 88, Number 160 (Monday, August 21, 2023)]
[Notices]
[Pages 56899-56901]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[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.

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="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#2a585f464f07494547474f445e596a594f49044d455c"><span class="__cf_email__" data-cfemail="ed9f988188c08e8280808883999ead9e888ec38a829b">[email&#160;protected]</span></a>. 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 (<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

[[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 <a href="https://www.theice.com/clear-credit/regulation">https://www.theice.com/clear-credit/regulation</a>.
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

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