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Notice2023-20424

Self-Regulatory Organizations; ICE Clear Europe Limited; Notice of Filing and Immediate Effectiveness of Proposed Rule Change, as Modified by Amendment No. 1, Relating to the Amendments the Futures and Options Risk Procedures

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Published

September 21, 2023

Issuing agencies

Securities and Exchange Commission

Full Text

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<title>Federal Register, Volume 88 Issue 182 (Thursday, September 21, 2023)</title>
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[Federal Register Volume 88, Number 182 (Thursday, September 21, 2023)]
[Notices]
[Pages 65210-65218]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-20424]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98407; File No. SR-ICEEU-2023-023]

Self-Regulatory Organizations; ICE Clear Europe Limited; Notice
of Filing and Immediate Effectiveness of Proposed Rule Change, as
Modified by Amendment No. 1, Relating to the Amendments the Futures and
Options Risk Procedures

September 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 31, 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 primarily prepared by
ICE Clear Europe. ICE Clear Europe filed the proposed rule change
pursuant to section 19(b)(3)(A) \3\ of the Act and Rule

[[Page 65211]]

19b-4(f)(4)(ii) thereunder,\4\ such that the proposed rule change was
immediately effective upon filing with the Commission. On September 14,
2023, ICE Clear Europe filed Amendment No. 1 which amends and restates
in its entirety the Form 19b-4 Information and Exhibit 1A.\5\ The
Commission is publishing this notice to solicit comments on the
proposed rule change, as modified by Amendment No. 1 (hereafter ``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.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(4)(ii).
\5\ Amendment No. 1 updates the 19b-4 Information and the
Exhibit 1A to more fully describe changes outlined in the Exhibit 5.
ICEEU represents that it did not make any changes to its Exhibit 5.
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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 amend the Futures and Options Risk Procedures (the
``F&O Risk Procedures'' or ``Procedures'') \6\ to make certain updates
and clarifications relating to risk management for the F&O product
category, including to reference the Clearing House's Model Risk Policy
and update the Document Governance and Exception Handling provisions.
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\6\ Capitalized terms used but not defined herein have the
meanings specified in the F&O Risk Procedures or, if not defined
therein, the ICE Clear Europe Clearing 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, 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 Futures and Options Risk
Procedures to make various updates and clarifications, including to add
a section describing the existing F&O Guaranty Fund, make reference to
the recently revised Model Risk Policy,\7\ and update the Document
Governance and Exception Handling language. Various non-substantive
drafting changes and improvements would also be made throughout the
document. The amendments generally do not represent a change in the
Clearing House's practices, but rather are intended to improve and
clarify the documentation of existing risk management practices.
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\7\ See, The Model Risk Policy as described in Exchange Act
Release No. 34-98138, SR ICEEU-2023-019 (August 15, 2023), 88 Fed
Reg. 56901 (Aug. 21, 2023).
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In the purpose section of the document, the amendments would
clarify that details of models described in the Procedures (in addition
to processes) are included in the relevant model methodology and
procedure documentation. The amendments would further provide that any
changes to the risk parameters would be subject to the governance set
out in the Model Risk Policy. The amendments would also make non-
substantive clarifications to the description of the role of ICE Clear
Europe as a central counterparty.
The revised Procedures would simplify the description of Clearing
Member groups and clarify that Clearing Members in the same Member
Group may be based in various jurisdictions rather than specifically
referencing a Clearing Member in Europe and another part of the world.
The amendments would also make clear that in order to perform exposure
analysis at appropriate levels of aggregation, the Clearing House
associates its Clearing Members in Member Groups. Additional language
regarding how Member Groups are identified and the internal groups
responsible for the membership onboarding process would be removed as
unnecessary.
The amendments would also simplify and clarify the discussion of
the various types of proprietary and client margin accounts made
available to its Clearing Members (which are established pursuant to
the published Rules and Clearing Procedures and are not being changed
by virtue of these amendments). The amendments would state more simply
that the Core IM is calculated on either a ``Gross'' or ``Net'' basis
dependent upon the type of margin account. (As an exception, the chart
detailing the margin accounts would change the Core IM Method for the
Individual Client (ISOC) accounts (I) and (J) from Net to N/A, as the
net/gross distinction is not applicable for such accounts). Various
conforming changes would be made to the summary of the accounts,
including to reflect that the house account (H) is margined on a net
basis, as was already reflected in the chart. Additional clarifications
would be made that accounts are margined on a net or gross basis
(rather than a net and gross basis). The amendments would also explain
more concisely that information as to Money Rules and FCM/BD customer
applicability is included in the table to distinguish account types. A
footnote would also be added to provide an ICEU EMIR Disclosure
Statement that supplies further details on the margin account types.
The amendments further clarify the distinction between the net and
gross calculations of initial margin in light of CFTC and Bank of
England/EU requirements. The amendments note that EU rules treat the
one-day MPOR gross margin calculation under CFTC rules as equivalent to
the two-day MPOR net margin calculation. The amendments also make non-
substantive drafting clarifications to the discussion of net and gross
margin methods. The amendments also add a statement that house and
proprietary affiliate positions of a clearing member are calculated
using a minimum two-day MPOR. The amendments reflect existing practice
and would not change the manner of calculation of initial margin for
any accounts. The amendments would remove as unnecessary language
referencing ICE Clear Europe setting up multiple customer accounts to
cater for ESMA and CFTC requirements.
The amendments would clarify that ICE Clear Europe performs
position keeping of all positions belonging to each account of both
clearing members and non-clearing members (defined as members of ICE
exchanges that are not clearing members). The changes would also
clarify that for gross margined accounts, the Clearing House will rely
on a gross client margin file provided by the clearing member for
purposes of position management and calculation of gross initial
margin. The changes also address reconciliation of the gross client
margin file against actual positions in the relevant account and
margining of any inconsistencies. These amendments do not represent a
change in current practice by the Clearing House.
The amendments would specify that the Clearing Risk Department is
the owner of the Procedures document and remove references to the F&O
Market Risk team.
The discussion of initial margin would be revised for greater
simplicity and clarity and are not intended to change the substance of
the calculation of initial margin, which is set forth in the existing
applicable model documentation for the ICE Risk Model. The amendments
would clarify that initial margin consists of Core IM and Additional IM
to mitigate the risk it is exposed to on all Futures and Options
positions. The amendments would also

[[Page 65212]]

clarify that the Procedures provide detail to each of the IM components
(removing unnecessary references to frequency, limits and thresholds,
exceptions and escalation).
The amendments would clarify that the ICE Risk Model uses margin
rates in computing Core IM and these margin rates would be the
responsibility of the Clearing Risk Department. A reference to a
specific version of the IRM Margin Rate Calibration Model Documentation
would be deleted as unnecessary and computation of the model margin
rates, as opposed to calibrated margin rate, would be inserted above
the table detailing the computation. The table of standard settings for
the computation of model margin rates (referred to as the ``Autopilot
rates'') would be simplified, removing rows labeled ``System/Process'',
``Test/Frequency'', and ``Exceptions'' as unnecessary, and removing
references to specific Energy and Financial & Softs sectors. Likewise,
the Margin Period of Risk would be summarized as 1 day or 2 days
depending on the product, consistent with the discussion above. The
summary of the lookback period would be revised from at least 100 days
to VaR that is at least as conservative as that based on a 250-day
lookback. The Anti-Procyclicality would be amended to be at least 25
percent stressed volatility (rather than exactly 25%). The row on Risk
Parameters would be replaced with a summary of the output of the risk
model, which is the ICE Risk Model margin rates including those
previously specified.
The amendments would clarify the process for review and promotion
of production margin rates. The amendments are intended to correctly
reflect the existing practice that the review of the production margin
rate is performed versus trigger criteria daily (as opposed to
quarterly). As a result of the daily review, references to ad hoc
updates in addition to quarterly reviews would be deleted as they are
no longer required. This would include the deletion of the governance
procedures related to review of the exceptions driving ad hoc review
and related effectiveness without notice. The amendments would address
that that production margin rates are set to the Autopilot model rates
at a specific point in time after each review through a process called
promotion. It would further state that the production rates are the
margin rates used in the calculation of Clearing Member's Core IM
requirements. The steps to review and the promotion of the proposed
production margin rates would include mention of their promotion. The
steps would also be simplified to state that first the update to the
production margin rates would be proposed and reviewed by the Clearing
Risk Department, then the Clearing Risk Department would seek approval
for the margin update. Then once approved, the Clearing Risk Department
would promote the margin rates into the Risk System, followed by
informing the Clearing Members and wider market of the new margin rates
by means of the Clearing House's website. The amendments would add that
typically one business day's notice would be given to the market from
the date of the circular, and the Clearing Risk Department would then
upload the approved margin rates to the ICE Clear Europe website upon
publication of the circular. A table summarizing the review and
promotion process would be deleted as duplicative and unnecessary.
A cross-reference to documentation relating to ICE Risk Model
parameters would be updated to include a general reference to the ICE
Risk Model documentation instead of an outdated version. Details on
certain parameters relating to EWMA volatility and APC stress
volatility would be removed as they are addressed in the ICE Risk Model
documentation. The amendments would add another new sub-section on the
ICE Risk Model Daily Requirements that would outline the process for
computing Core IM as part of the End of Day process. This would include
computation of the ICE Risk Model daily margin requirements and EMIR
Add-on for each Clearing Member margin account. The amendments would
also delete outdated references to the IRM V1.0 Model Documentation,
related risk array files and inputs, and the ECS system. The related
table with the summary of products eligible under each margin account
would change the I and J Accounts to N/A as opposed to Net margining
type. The footnote would explain that for these accounts the sub-
clients within the client account are individually (rather than net)
margined. Any material change in Core IM would be escalated to
Operations, instead of the previous plus or minus 5 percent (or more
depending on known margin change) escalation threshold. This section
would also reference a summary of the IRM Margin Rate Promotion and
Core IM processes that would be added in the Appendix to the
Procedures. These changes are consistent with existing margin practice
but are intended to document the current process more clearly.
In terms of additional IM, the amendments would specify that such
amounts are to collateralize risks not captured by the Core IM amount.
Clarifications would be made to the descriptions of various types of
additional IM, as discussed herein. For example, amendments would
clarify that the additional risk from concentrated positions would be
covered through a Concentration Charge add-on, and that the additional
margin is called on a t+1 basis to be met the following day. The
requirement would clarify the notice process for additional IM through
the MFT system, remove an outdated reference to EoD reporting and
remove unnecessary distinctions between concentration charges for
different product segments. The summary table of the Concentration
Charge process would be deleted, and relevant terms moved to the added
Appendix. In the Parameter Calibration section, the amendments would
remove the existing discussion and add instead that the details of the
Concentration Charge model or risk parameters would be described in the
relevant Concentration Charge model documentation.
In the Stress Margin section, the amendments would add a general
description of the stress loss charge as ensuring that sufficient pre-
funded resources to ensure regulatory compliance are held at all times.
The amendments would also clarify that any Stress Loss Charge top-up
requirements would be called via an intraday call on a t+1 basis so
that, for example, positions as of the end of day on Monday could incur
additional margin called on Tuesday for receipt on Tuesday. The
amendments would clarify that the total Stress Loss Charge would be
posted in the end of day additional margin requirement so that any
surplus or deficit is part of the end of day margining. The summary of
the Stress Loss Charge process would be deleted, and relevant terms
moved to the added Appendix. Additional details of the Stress Loss
Charge model and risk parameters would be removed, and a cross-
reference added to the Futures and Options Guaranty Fund model
documentation (which addresses such parameters). An incorrect cross-
reference to the F&O Stress Testing Policy would be removed.
In the Shortfall Margin section, the amendments would specify that
Shortfall Margin would be called to cover uncollateralized stress loss
(as calculated at the margin account level). The amendments would also
state that Shortfall Margin would be called on a t+1 basis to be met on
the following day, so that, for example, positions on Monday EOD can
incur additional margin called on Tuesday for receipt on

[[Page 65213]]

Wednesday morning. The amendments would delete unnecessary provisions
relating to the posting of the requirement against a specific ledger
type in daily reports and EOD reporting through ECS. The summary of the
Shortfall Margin process would be removed, and relevant details moved
to the Appendix.
In the Specific Wrong-Way Risk section, the amendments would
explain that the Wrong Way Risk additional margin requirements are
called on a t+1 basis to be met the following day, so that, for
example, positions as of Monday EOD can incur additional margin called
on Tuesday for receipt on Wednesday morning. As with other categories
of additional IM, the amendments would delete unnecessary provisions
relating to the posting of the requirement against a specific ledger
type in daily reports and EOD reporting of the additional amount
through ECS. A table summarizing the Wrong Way Risk process would be
removed and relevant details moved to the Appendix.
In the EMIR Add-on section, the amendments would clarify various
aspects of this add-on, which is collected for house and affiliate
accounts for products for which Core IM is otherwise calculated using a
1-day MPOR. The add-on covers the amount, if any, by which Core IM
would exceed that amount if calculated on a 2-day MPOR basis, in order
to ensure that house and affiliate positions are margined using a
minimum 2-day MPOR as required under EMIR. The amendments would further
clarify that the EMIR Add-on is called at the same time as Core IM
requirements, so that, for example, House and Affiliate account
positions as of Monday EOD can incur EMIR add-on called on Monday night
for receipt on Tuesday morning. A table summarizing the EMIR add-on
process would be removed and relevant provisions moved to the Appendix.
The amendments would delete language concerning the review and
subsequent parameter recalibration as unnecessary as it is covered in
the relevant model documentation.
In the Delivery Margins section, the amendments would revise the
Procedures to state explicitly that the delivery margin is designed to
cover potential price moves at a 99th percentile level for the product
in delivery. The amendments would further state that the Delivery
Margin is typically set to the front month scanning margin rate for the
product and held by the CCP until buyer security is paid by the buyer.
The description of the calculation of Buyer Security would be clarified
to be the notional value of bought positions that are deliverable
within the following 2 business days. Similarly, the description of the
calculation of Seller Security would be modified to be an additional
requirement posted by the seller, calculated to cover any applicable
costs and charges, should they be unable to deliver the agreed product.
The definition of Contingent Variation Margin would be clarified to be
the difference between the Exchange Delivery Settlement Price and a
representative market price for the remaining portion of the given
underlying that is yet to be delivered (analogous to Variation Margin).
Tables summarizing the Delivery Margin, Buyer/Seller Security and the
Contingent Variation Margin would be removed with relevant details
moved to the Appendix.
In the Net Liquidating Value (``NLV'') section, certain non-
substantive drafting improvements would be made. In addition, the
description of the top up for NLV credit/debit would be revised to
state that it be called for at the end of the day (call time t) and not
the following day. A table summarizing the NLV would be removed with
relevant details moved to the Appendix.
In the Intraday and Overnight Buffer section, the amendment would
add a statement of the use of mandatory buffer, which is called when
trading out of intraday margining hours is observed that increases Core
IM requirements above thresholds. For these positions traded outside
the hours covered by the intraday margin process, the IM requirements
are calculated using IRM. In cases where the resultant increase to an
account's IM exceeds the limit set, an overnight buffer equal to the
largest exceedance is requested and held for the following 30 days. The
amendments would add that this process would be introduced to achieve
compliance with relevant requirements of EMIR \8\ and would only be
applicable to 1-day gross client omnibus margined accounts. The
amendments would further clarify that voluntary buffer could be posted
to reduce the Clearing Members' operational burden of managing intraday
margin calls. A table summarizing the intraday and overnight buffer
process would be removed and relevant details moved to the Appendix.
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\8\ Article 26 of EMIR RTS Regulation (EU) No 153/2013 (ESMA/
2016/429).
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In the Ad-Hoc Buffer section, the amendments would clarify that
Clearing Members may be requested to post additional buffers for any
risks not covered by the requirements detailed in the Procedures. The
amendments would specify that the requirements would be set by the
Clearing Risk Department. A table summarizing the ad hoc buffer process
would be removed and relevant details moved to the Appendix.
In the discussion of intraday margining, the amendments would
provide a clearer statement of the basis for such margining: that
although the Clearing House collateralizes risk through IM and
Variation Margin as part of the overnight process, the Clearing House
may be exposed to uncollateralized exposures, or Intraday Shortfalls,
due to adverse market price movements causing a change in the value of
members positions, new trading activities resulting in an increased IM
requirement on Clearing Members' accounts and the value of securities
held as collateral being reduced. The amendments would clarify that the
Clearing Risk Department could calculate any additional IM that it may
require on a near real-time basis intraday.
In respect to Intraday Risk Monitoring the amendments would specify
that the Clearing Risk Department monitors changes in Core IM in
addition to Variation Margin on an ongoing basis. The Intraday Margin
requirement of an account would be the sum of the Intraday IM and
Intraday Variation Margin of the account.
The section on Core Intraday IM Calculation would be updated and
moved to Section 4.2. The amendments would accordingly delete previous
language under Section 4.3 that was titled ``Intraday Core IM
Calculation''. The revised section would state that the Core Intraday
IM would be calculated and, when above thresholds, called on a near-
real time basis intraday. For gross margined accounts, the amendments
would reflect that because gross positions are only received at end of
day, the Clearing House will not have near-real-time data for purposes
of intraday margining. As a result, the Clearing House uses the
previous end of day gross margin plus the change in net 2-day margin
for the account between the start of day and the current point in time
to determine intraday Gross IM. The amendments would detail the step by
step process in the calculation and the formula that would be employed
(these steps would replace an existing summary of steps to update
references and terminology used in the amended Procedures). The
amendment would note that ICE Clear Europe utilizes 2D MPOR for
calculating Intraday Net IM and Start of Day Net IM, and that only the
Intraday Net IM changes throughout the day (neither the End of Day
Gross IM nor Start of Day Net IM change

[[Page 65214]]

throughout the day). The amendments would specify that for net margined
accounts, the current real time net position is used to calculate Core
Intraday IM in the same way as End of Day IM for those accounts.
In reference to Intraday Shortfall, the amendments would clarify
that the calculation for the current collateral on account would
include both collateral used to meet end of the day IM requirements and
additional collateral available to cover intraday calls. The amendments
would remove a statement that at a minimum, prices are refreshed hourly
(as the Clearing House expects prices to be refreshed more frequently)
but retain the general principle that the Clearing Risk Department
monitors the prices utilized to value securities deposited as
collateral throughout the day. The amendments would make various non-
substantive drafting clarifications to the intraday limits. In
addition, for Clearing Member Limit 2, the amendments would specify
that the total value of collateral on deposit would be that of the
loss-making accounts and collateral in the House account. The
amendments would add that for Clearing Limit 1 (in addition to Clearing
Limit 2), the Clearing House would permit use of excess collateral
present on the House account to offset Intraday Shortfalls arising on
all other accounts in deficit. The amendments also make clear that the
Clearing house can at its discretion alter, rather than only reduce,
the limits applicable to individual accounts as this more accurately
reflects the current practice of the Clearing House.
For Intraday Margin Call Triggers, the amendments would remove a
duplicative statement of the minimum shortfall for an intraday call.
The amendments would also clarify that ICE Clear Europe may call for
additional collateral at any time to mitigate any (not just material)
risk, consistent with the existing Rules and current practice.
The Intraday Margin Call Procedure would be revised to state that
the 30-minute warning of a trigger breach is at the Clearing House's
discretion. The amendments would also remove, as a means of limiting
intraday risk and satisfying a margin call, improving the profit and
loss of the account (as that is likely impractical in the relevant
timeframe). The amendments would also remove a concept that the
Clearing Risk Department would make recommendations to clearing members
to avoid receiving intraday calls; rather, the goal would be to provide
warnings prior to 19:30 London time so that all intraday calls are
issued prior to 20:00 London time. The amendments would state that more
than one intraday call may be made during the same day as required
(without necessarily being based on market conditions). Certain
references to the use of the APS system in connection with providing
cash or collateral would be deleted in this section and throughout the
Procedures as unnecessary (and would not reflect a change in current
practice). A diagram presenting the procedure for an Intraday Margin
Call would be deleted as unnecessary.
In the Overnight Window Monitoring section, the amendments would
clarify the specific gross margined and ISOC accounts to which
overnight monitoring applies. The amendments would also state that the
Clearing Risk Department (rather than a senior Clearing Risk Department
person), would issue a margin call or require the Clearing Member to
take other risk reducing action, when appropriate. (ICE Clear Europe
believes it is appropriate for the responsibility to be on the
department rather than a senior individual.) An escalation process
where a Member cannot be contacted or does not reduce positions would
be deleted along with notification of regulators, as this information
is contained in separate Clearing House default management procedures.
In the Intraday Buffer section, the amendments would clarify that
if a Clearing Member wishes to reduce the operational burden of
frequent intraday calls or Overnight Buffer, then the Clearing Member
may choose to lodge excess collateral as Intraday Buffer. The
amendments would also clarify that where a Clearing Member notifies ICE
Clear Europe that it no longer wants to lodge Intraday Buffer, the
buffer will be available to be returned after the next overnight margin
run. The amendments remove unnecessary specifications of the means of
providing such a notice. The amendments would also delete as
unnecessary a statement that the Clearing Member would be able to
choose to fund the requirement with the type of collateral of their
choosing.
In the Overnight Buffer section, the amendments would specify the
particular gross margining and ISOC accounts to which it applies. The
amendments would also correct that the amount will be called as part of
the End of Day process (rather than intraday).
In the Returning of Margin Call Collateral section, the amendments
would provide that margin posted intraday in respect of an intraday
margin call may, in extraordinary circumstances at the discretion of
the Treasury Department and Clearing Risk Department, be returned in
cases where the Clearing Member has unrealized gains (i.e., positive
intraday variation margin). The amendments would also correct a
reference to the End of Day process (as opposed to the End of Day
margining process).
The amendments would replace the existing discussion of the F&O
Guaranty Fund with a new section describing generally the sizing of the
F&O Guaranty Fund, as established pursuant to the published Rules and
Finance Procedures and the existing F&O Guaranty Fund model
documentation. The amendments would describe the required size of the
F&O Guaranty Fund, as being adequate to cover the first and second
largest, non mutually exclusive, uncollateralized losses from Member
Groups resulting from agreed stress testing scenarios. The size also
has to be sufficient to enable the Clearing House to withstand a
Clearing Member default to which the Clearing House has the largest
stress testing exposure, or the second and third largest if the sum of
those are greater. The size has to be sufficient to cover the larger of
the sum of the individually calculated segments for Energy and
Financials & Softs (``F&S'') member portfolios or the largest
contemporaneous scenario. If the Energy and F&S segment fund is smaller
than the largest contemporaneous losses scenario, then an additional
guaranty fund apportionment amount would be calculated and would be
allocated to both Energy and F&S Fund segments in accordance with the
Clearing Rules. In establishing the size of the F&O Guaranty Fund the
ICE Initial Contribution is not included and must be met by Clearing
Member contributions only.
The amendments would add that review of the size of the F&O
Guaranty Fund would occur at least every two months and would be based
on historical stress testing results and other factors ICE considers
relevant. The added section would describe the steps taken in the
periodic review process, and the role of relevant ICE Clear Europe
committees. Ad hoc assessments could be triggered by the Clearing House
in addition to the periodic review. Extraordinary reviews may also be
necessary based on stress testing results.
The amendments would state that Clearing Members will normally have
five UK business days (from the date of the notice) to lodge sufficient
funds with the Clearing House if the overall level of the F&O Guaranty
Fund or a specific Clearing Member's allocation must increase,
consistent with the requirements of the Rules and Finance Procedures.
Under extreme circumstances, the Clearing House can

[[Page 65215]]

accelerate the call of the F&O Guaranty Fund requirements to a one
day's notice or otherwise reasonably change the notice period. A
failure to meet these payments would be considered a breach of Clearing
House Clearing Rules. Clearing Members would also have the ability to
withdraw excess funds that result from a decrease in their fund
contributions following a review of the level of the F&O Guaranty Fund.
The amendments would add that ICE Clear Europe's recommendations on
the level of the F&O Guaranty Fund would be based on several factors
including the level of the largest member's uncollateralized losses
historically and how it compares against the associated segment fund
level or the total F&O Guaranty Fund, the level of the second and third
largest members uncollateralized losses historically and how it
compares against the associated segment fund level or the total F&O
Guaranty Fund, the amount and number of stress loss charges called
across memberships and any other relevant factors ICE Clear Europe
deems appropriate. The size of the F&O Guaranty Fund would also be
subject to a floor in accordance with regulations, as described in
further detail in the existing Futures and Options Guaranty Fund model
documentation.
The amendments would detail that a particular Clearing Member's
contribution to each of the Fund segments should reflect its relative
share of clearing activity and relative share of uncollateralized loss.
The amendments described the two factor model used in allocating the
F&O Guaranty Fund, based on IM and Uncollateralized Stress Loss, as
provided in the existing Futures and Options Guaranty Fund model
documentation. The amendments would also state that additional rules
that may apply to the F&O Guaranty Fund are specified in the Clearing
Rules and a summary of the F&O Guaranty Fund sizing and contribution
processes would be found in the Appendix.
Various revisions would be made in the section on Model Performance
to improve clarity. The amendments would clarify the drafting of a
general statement regarding the calculation of core initial margin to
reflect that the calculation is used to derive core initial margin at
the member account level. The amendments are intended to clarify the
top day margin coverage calculation performed by the Clearing House to
assess whether the Core IM covers market price movements over the
relevant MPOR at the 99th percentile level. The assessment is made at
both the margin account level (the ``macro'' or ``portfolio'' level)
and product level (the ``micro'' level). An outdated reference to the
previous IRM v.1.0 model documentation would also be deleted. In the
revised discussion of margin Coverage, scope and definitions,
references to certain EMIR requirements would be removed (as the
relevant definitions incorporating regulatory requirements are part of
the Procedures). At the macro level, the amendments would clarify that
the margin coverage is calculated by comparing Clearing Member
account's Core IM requirement to the clean P&L. (Provisions addressing
frequency of back-testing are removed in this section as the topic is
addressed elsewhere in the Procedures.) Another reference to the CRD
database and the results being stored in the database would be deleted
as unnecessary detail for the Procedures. Non-substantive
clarifications would be made to the calculation of Margin Coverage.
In the section for Back Test Statistics the amendments would
clarify that back testing involves consideration of a number of
historical observations. The amendments would delete language stating
that statistics based on less than 200 days cannot be considered
statistically significant and note that statistical back-testing is
usually performed considering at least 250 business days. Although the
Clearing Risk Department would retain the discretion to use other back-
testing statistics in addition to the Basel Traffic Light System, the
amendments would remove unnecessary references to specific examples of
such statistics. A detailed escalation process based on the results of
the statistics handled by the Risk Manager would also be deleted. As
revised, the Clearing Risk Department would determine the appropriate
action to address any breaches.
The amendments would specify that for macro level margin coverage,
breaches would be monitored daily (but an unclear reference to such
breaches being ``controlled'' daily would be removed). A breach would
be reported, investigated and signed off by the Clearing Risk
Department, not a specific risk manager as previously stated. The
examples of appropriate action would be modified for concision to
include reviewing the margin model and/or increasing the relevant
production margin rates based on the Autopilot model.
The amendments would specify that for the micro level, coverage of
F&O margins rates would be reported daily. Any breaches driving a
breach at margin account level would be investigated and reviewed by
the Clearing Risk Department, in efforts to provide information on the
drivers of the breach and assess whether the breach was driven by
erroneous prices. The amendments would clarify that actions required as
a result of a breach would no longer be escalated to the risk manager
but would be at the discretion of the Clearing Risk Department. Such
mitigation actions could include reviewing and updating the relevant
margin rates. Prior language relating to specific monitoring of
outright and spread F&O parameters has been removed as unnecessary in
light of the more general provisions of the revised draft.
The amendments would specify that back testing results that fall in
the red or yellow zones under the Basel Traffic Light system would be
reviewed and investigated by the Clearing Risk Department. Specifically
for the micro level, the amendments would recognize that the large
amount of margin parameters would make it difficult to review and
action all back test statistic results. The amendments would make
clarifying adjustments to the list of priorities when reviewing a
statistical back test. The products driving red or yellow back test
statistics would be identified and their back test performance would be
reviewed. Micro back test statistics in the standard Basel redzone not
driving macro back test breach results would be reviewed and the
mitigation action would be considered at the discretion of the Clearing
Risk Department. Micro back test statistics in the standard Basel
yellow zone not driving macro back test breach results would be
considered part of the regular margin update proposals.
The amendments would also make changes in the Monitoring and
Reporting section. For Margin Coverage at the macro level, the
amendments would state that the Clearing Risk Department would report
the top day macro breaches daily (deleting the lengthier manual process
previously included) and the breach statistics would be presented
monthly at the Model Oversight Committee and bi-monthly at the F&O
Product Risk Committee. Accordingly, changes such as deleting
references to manual reports being generated would be deleted from the
macro back testing section. The process would also be more streamlined
with the committee pack sent to the F&O Product Risk Committee, that is
sent bi-monthly, including the macro back-test statistics.
Similar amendments would be made to the Margin Coverage section for
the micro level. The amendments would broadly state that the Clearing
Risk Department would report the top day

[[Page 65216]]

micro breaches daily (deleting the lengthier process previously
included). The Clearing Risk Department would on a monthly basis
generate reporting displaying the statistics of a large selection of
products across all parameter types. The detailed micro back testing
results would be reported and reviewed monthly by the Clearing Risk
Department. The Clearing Risk Department would produce a monthly
summary of micro back testing results for material products and margin
rates for the Model Oversight Committee. Micro back-testing results
would be reviewed on a bimonthly basis at the F&O Product Risk
Committee for material products. Certain definitions of materiality for
these reviews in the existing Procedures would be removed, as ICE Clear
Europe believes a more flexible approach to materiality is appropriate.
The amendments would state that any proposed model or parameter
remediation actions due to product back testing results would be
governed by the Model Risk Policy (specific language regarding the
flagging of these remediation actions to senior management and various
committees would be deleted as relevant notifications are addressed in
the Model Risk Policy). A section and table summarizing the Margin
Coverage and Backtest Statistics would be deleted as unnecessary.
The amendments would make changes to the Sensitivity Testing
section to add that the daily tests would undergo a monthly review at
the material product or account level. They would also add that the
Model parameters are described in detail in the relevant ICE Risk Model
documentation.
A section on Stress Testing Methodology would be shortened to
discuss Stress Testing more generally, in light of the fact that stress
testing is addressed in detail in other Clearing House policies and
procedures. The amendments would add that the objective of stress
testing is to ensure that the F&O Guaranty Fund is adequate to cover
the uncollateralized losses arising from the two largest Clearing
Member Groups. In addition, the results are used in Stress Margin,
Shortfall Margin, and Guaranty Fund sizing and allocation. The
amendments would state that the stress tests are performed under
extreme but plausible market price moves. The amendments reference the
two types of stress scenarios applied by the Clearing House--historical
scenarios and theoretical scenarios. The Clearing House conducts daily
stress testing on the Clearing Member portfolios, and results are
reviewed by the Clearing Risk Department and escalated as necessary.
The amendments would make revisions to the section on data quality
checks and exclusions for dynamic data. A sentence on revisions to
EDSPs would be moved to the new section on Revisions and Remediations
discussed below. In the historical prices discussion, a sentence
stating that use of external data would usually be based on a
materiality assessment where a product's IM reaches a significant
portion of the overall Clearing House IM would be deleted. ICE Clear
Europe does not believe it is necessary to specify this particular
scenario given its general authority to use external data to run ad hoc
analysis.
The amendments would add a new section on Revisions and
Remediations in relation to Data Management.
The Remediations section would address what was previously referred
to as exclusions and corrections and would outline other factors that
could imply that remediation may be necessary. These would include
corrections to market prices as a result of corporate actions. Certain
other examples (including a footnote related to large moves from M&A
announcements) would be removed as unnecessary given the more general
authority to engage in remediation of data. Data that is remediated
would have to be approved by the Clearing Risk Department (rather than
a senior Clearing Risk Department person). In addition, the
remediations with related justifications would be reviewed monthly by
the Model Monitoring Group.
The amendments would make changes to the Procedure's document
governance, breach management and exception handling, to make it
generally consistent with other ICE Clear Europe policies. The document
owner identified by the Clearing House would be responsible for
ensuring that the Procedures remains up-to-date and reviewed in
accordance with the Clearing House's governance processes. The document
owner would also be responsible for reporting any material breaches or
deviations to the Head of Department, Chief Risk Officer and Head of
Regulation and Compliance in order to determine if further escalation
is required. Exceptions to the Procedures would also be approved in
accordance with the governance processes for approvals of changes to
the Procedures. The amendments would state explicitly that changes to
the Procedures would also have to be approved in accordance with the
Clearing House's governance process and would take effect following
completion of required internal and regulatory approvals.
The amendments would also add the aforementioned Appendix
summarizing the processes detailed in other parts of the Procedures.
A number of other drafting clarifications and conforming changes
such as updating names of relevant persons, committees and departments,
replacing and conforming defined terms, and deleting outdated
references would also be made throughout the document. Various
provisions would also be renumbered or relabeled throughout the
Procedures.
(b) Statutory Basis
ICE Clear Europe believes that the proposed amendments to the F&O
Risk Procedures are consistent with the requirements of section 17A of
the Securities Exchange Act of 1934 (the ``Act'') \9\ and the
regulations thereunder applicable to it. In particular, section
17A(b)(3)(F) of the Act \10\ 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.
---------------------------------------------------------------------------

\9\ 15 U.S.C. 78q-1.
\10\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

The proposed changes are intended to update the Procedures to make
them consistent with other Clearing House policies and to describe
current Clearing House practices around margin and guaranty fund
determination more accurately. The updates would reflect recent
amendments to the Clearing House's Model Risk Policy, which governs key
aspects of risk management with respect to models, including margin
models. The amendments would also clarify various aspects of the
calculation of Core IM and Additional IM (and the components thereof),
as well as the process for monitoring intraday changes in conditions
and making intraday margin calls when additional margin is required. In
general, these amendments will not result in a change of the margin
methodology but are intended to more clearly describe and document the
methodology. Additionally, a new section would be added to describe,
for completeness, key aspects of the sizing of the F&O Guaranty Fund
(which is more fully defined in other Clearing

[[Page 65217]]

House documentation). The clarifications to the Procedures will thus
further overall risk management at the Clearing House with respect to
the Futures and Options product category, which would in turn promote
the stability of the Clearing House and the prompt and accurate
clearance and settlement of cleared contracts. The enhanced Procedures
are 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).\11\
---------------------------------------------------------------------------

\11\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

The amendments to the Procedures are also consistent with relevant
provisions of Rule 17Ad-22.\12\ Specifically, Rule 17Ad-22(e)(4)(i)
provides that ``[e]ach covered clearing agency shall establish,
implement, maintain and enforce written policies and procedures
reasonable 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 process,
including by [. . .] [m]aintaining sufficient financial resources to
cover its credit exposure to each participant fully with a high degree
of confidence''.\13\ As discussed, the amendments would make certain
clarifications to the descriptions of the Clearing House's margin
methodology and Guaranty Fund sizing process (including the process for
reviewing and adjusting the size of the F&O Guaranty Fund from time to
time and the basis for allocating the F&O Guaranty Fund across clearing
members). The amendments are not intended to result in changes in those
practices or in margin or guaranty fund levels. As such, the amendments
are consistent with maintaining sufficient financial resources to cover
the Clearing House's credit exposures, within the meaning of Rule 17Ad-
22(e)(4)(i).\14\
---------------------------------------------------------------------------

\12\ 17 CFR 240.17 Ad-22.
\13\ 17 CFR 240.17 Ad-22(e)(4)(i).
\14\ 17 CFR 240.17 Ad-22(e)(4)(i).
---------------------------------------------------------------------------

Rule 17Ad-22(e)(6)(i) and (ii) provides that ``[e]ach covered
clearing agency shall establish, implement, maintain and enforce
written policies and procedures reasonable 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 minimum [. . .]
[c]onsiders, and produces margin levels commensurate with, the risks
and particular attributes of each relevant product, portfolio, and
market'' \15\ and ``[m]arks participant positions to market and
collects margin, including variation margin or equivalent charges if
relevant, at least daily and includes the authority and operational
capacity to make intraday margin calls in defined circumstances''.\16\
As set forth above, the amendments to the Procedures would make
clarifying changes to the descriptions of practices for collection of
both Core IM and Additional IM (and the relevant components thereof).
For instance, the amendment clarifies the procedures for determining
and promoting production margin rates based on the autopilot rates
resulting from standard application of the ICE Risk Model. The
amendments would also clarify the process for calculating Additional
IM, as well as monitoring intraday change and making intraday margin
calls as a result of those calculations. In ICE Clear Europe's view,
the amendments are therefore consistent with the requirements of Rule
17Ad-22(e)(6)(i) and (ii).\17\
---------------------------------------------------------------------------

\15\ 17 CFR 240.17 Ad-22(e)(6)(i).
\16\ 17 CFR 240.17 Ad-22(e)(6)(ii).
\17\ 17 CFR 240.17 Ad-22(e)(6)(i) and (ii).
---------------------------------------------------------------------------

Rule 17Ad-22(e)(6)(vi)(A) and (B) requires that a clearing agency
cover its credit exposures to its participants by establishing a risk-
based margin system that is monitored by management and regularly
reviewed by ``(A) [c]onducting backtests of its margin model at least
once each day using standard predetermined parameters and assumptions''
\18\ and ``(B) [c]onducting 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
the covered clearing agency's margin resources''.\19\ As previously
stated, the amendments would make various clarifications and drafting
improvements to the description of the review process for back testing
at both the micro and macro level for margin coverage. The changes also
clarify the periodic review process by the Clearing Risk Department,
relevant committees and other relevant personnel. In ICE Clear Europe's
view, these amendments are therefore consistent with the requirements
of Rule 17Ad-22(e)(6)(vi)(A) and (B).\20\
---------------------------------------------------------------------------

\18\ 17 CFR 240.17 Ad-22(e)(6)(vi)(A).
\19\ 17 CFR 240.17 Ad-22(e)(6)(vi)(B).
\20\ 17 CFR 240.17 Ad-22(e)(6)(vi)(A) and (B).
---------------------------------------------------------------------------

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''.\21\ The amendments to
the Procedures are intended to assist the Clearing House in accurately
monitoring and evaluating its credit risk and collecting appropriate
margin from its Clearing Members accordingly. Moreover, the amendments
would specify the process in reviewing, testing and resizing of the F&O
Guaranty Fund. As a result, the Clearing House would be better able to
manage the risk of losses that may arise from default by F&O Clearing
Members. In ICE Clear Europe's view, the amendments are therefore
consistent with the requirements of Rule 17Ad-22(e)(3)(i).\22\
---------------------------------------------------------------------------

\21\ 17 CFR 240.17 Ad-22(e)(3)(i).
\22\ 17 CFR 240.17 Ad-22(e)(3)(i).
---------------------------------------------------------------------------

Rule 17Ad-22(e)(2) provides that ``[e]ach covered clearing agency
shall establish, implement, maintain and enforce written policies and
procedures reasonably designed to, as applicable [. . .] [p]rovide for
governance arrangements that are [c]lear and transparent'' \23\ and
``[s]pecify clear and direct lines of responsibility''.\24\ As
discussed, the Procedures would clearly state certain responsibilities
of the Clearing Risk Department and Model Oversight Committee, among
others, in relation to oversight of the Clearing House's practices
regarding margin for F&O products and the F&O Guaranty Fund. In line
with the Clearing House's other policies and procedures, the Procedures
would also describe the responsibilities of the document owner and
appropriate escalation and notification requirements for responding to
exceptions and deviations from the Procedures. In ICE Clear Europe's
view, the amendments to the Procedures are therefore consistent with
the requirements of Rule 17Ad-22(e)(2).\25\
---------------------------------------------------------------------------

\23\ 17 CFR 240.17 Ad-22(e)(2)(i).
\24\ 17 CFR 240.17 Ad-22(e)(2)(v).
\25\ 17 CFR 240.17 Ad-22(e)(2).
---------------------------------------------------------------------------

(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 clarify the F&O Risk Procedures and
will apply to all F&O Clearing Members. The

[[Page 65218]]

proposed amendments are not expected to materially change the margin
methodology or the resulting margin levels or requirements for F&O
Clearing Members. Similarly, the amendments are not expected to
materially change the F&O Guaranty Fund requirements. Accordingly, ICE
Clear Europe does not believe the amendments would affect the costs of
clearing, the ability to 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.

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

The foregoing rule change has become effective pursuant to section
19(b)(3)(A) of the Act \26\ and paragraph (f) of Rule 19b-4 \27\
thereunder. At any time within 60 days of the filing of the proposed
rule change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
---------------------------------------------------------------------------

\26\ 15 U.S.C. 78s(b)(3)(A).
\27\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------

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#6715120b024a04080a0a020913142714020449000811"><span class="__cf_email__" data-cfemail="186a6d747d357b7775757d766c6b586b7d7b367f776e">[email&#160;protected]</span></a>. Please include
file number SR-ICEEU-2023-023 on the subject line.

Paper Comments

<bullet> 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-2023-023. 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="https://www.sec.gov/rules/sro.shtml">https://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 notice 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 <a href="https://www.theice.com/clear-europe/regulation">https://www.theice.com/clear-europe/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-ICEEU-2023-023 and
should be submitted on or before October 12, 2023.

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
---------------------------------------------------------------------------

\28\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2023-20424 Filed 9-20-23; 8:45 am]
BILLING CODE 8011-01-P

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