Notice2023-21944
Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to the ICC Risk Parameter Setting and Review Policy Framework
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
October 4, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 191 (Wednesday, October 4, 2023)</title>
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[Federal Register Volume 88, Number 191 (Wednesday, October 4, 2023)]
[Notices]
[Pages 68698-68700]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-21944]
[[Page 68698]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98603; File No. SR-ICC-2023-011]
Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Relating to
the ICC Risk Parameter Setting and Review Policy Framework
September 28, 2023.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of
1934,\1\ and Rule 19b-4,\2\ notice is hereby given that on September
27, 2023, 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 primarily prepared by ICC. ICC
filed the proposed rule change pursuant to Section 19(b)(3)(A) \3\ of
the Act and Rule 19b-4(f)(1) thereunder,\4\ such that the proposed rule
change was immediately effective upon filing with the Commission. The
Commission is publishing this notice to solicit comments on the
proposed rule change, security-based swap submission, or advance notice
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)(1).
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
ICC proposes a rule change to update the ICC Risk Parameter Setting
and Review Policy Framework (``RPSRP''). 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 revise its RPSRP, which describes the process of
setting and reviewing the risk management model core parameters and the
performance of sensitivity analysis related to certain parameter
settings. The parameters set and calibrated pursuant to the RPSRP are
used in ICC's risk methodology in certain calculations including,
without limitation, initial margin and guaranty fund requirements, as
described in the ICC Risk Management Model Description document and the
ICC Risk Management Framework. 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 make such
changes effective following Commission approval of the proposed rule
change. The proposed revisions are described in detail as follows.
ICC proposes to revise the RPSRP to add clarifying language and
more detail as to how a particular parameter is calculated in response
to a recent independent validator recommendation. Such proposed
revisions do not represent a change in the calculation of any parameter
set under the RPSRP. Specifically, ICC proposes to revise RPSRP Section
1.7.1. ``Univariate Level Parameters,'' which contains a description of
ICC's process of setting and reviewing the Univariate Level Parameters,
which are the standardized distributions that describe the random
fluctuations of the credit spread log-returns which are calibrated
daily. The Univariate Level Parameters are a category of the
``Integrated Spread Response Parameters'' model component.\5\ ICC
proposes to provide more details to the Univariate Level Parameters
with respect to the estimation of the stress period mean absolute
deviation (``MAD''). The proposed revision consists of providing
details on the determination of the stress period MAD, which is the
period that corresponds to the peak sample MAD estimate based on 250
observations over the most actively traded tenor historical dataset,
during which the majority of the Risk Factors \6\ belonging to a
``Market (Sub-portfolio) Group'' \7\ exhibited their highest stress MAD
levels. The revisions are intended to provide enhanced details of the
stress period MAD calculation and how such stress periods are selected
across Risk Factors, but such revisions do not represent a change in
the calculation of the Univariate Level Parameters.
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\5\ The Integrated Spread Response Parameters capture credit
spread and recovery rate fluctuations and is computed by creating
profit/loss distributions from a set of jointly simulated
hypothetical credit spread and recovery rate scenarios, such as
Monte Carlo Value at Risk. The Integrated Spread Response Parameters
are categorized into Univariate, Multivariate and Anti-
Procyclicality Level Parameters.
\6\ With respect to credit default swap contracts, each
underlying index, sub-index or single name reference entity is
deemed a separate ``Risk Factor.''
\7\ A Market (Sub-Portfolio) Group consists of Risk Factors that
share similar market and risk profile characteristics such as
geographical locations, hours of trading activity and stress
periods.
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Also, ICC proposes the addition of Table 2 to Section 1.7.1. of the
RPSRP to provide an illustration of Market (Sub-portfolio) Group
compositions across several Master Document Transaction Types \8\
(``MDTTs''). The purpose of Table 2 is to provide further details on
the composition of the Market (Sub-portfolio) Groups by providing
illustrative mapping of various Market (Sub-portfolio) Groups to the
applicable MDTTs. Also, ICC has made conforming changes to Exhibit 5
[sic], to account for the addition of Table 2. Finally, ICC proposes to
update the RPSRP revision history to reflect the proposed changes.
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\8\ Master Document Transaction Types refers to the
``Transaction Types'' identified by the International Swaps and
Derivatives Association, Inc. (IDSA) in the publication of their
Credit Derivatives Physical Settlement Matrix.
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(b) Statutory Basis
ICC believes that the proposed rule change is consistent with the
requirements of Section 17A of the Act \9\ and the regulations
thereunder applicable to it, including the applicable standards under
Rule 17Ad-22.\10\ In particular, Section 17A(b)(3)(F) of the Act \11\
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 cleared by ICC; the safeguarding
of securities and funds which are in the custody or control of ICC or
for which it is responsible; and the protection of investors and the
public interest. The proposed revisions to the RPSRP are limited to
providing additional detail on the calculation of the stress period MAD
which is used in the Univariate Level Parameters. ICC believes that the
proposed additional details to the
[[Page 68699]]
calculation of the stress period MAD enhance ICC policies, practices
and procedures with respect to risk management. As such, the proposed
rule change is designed to promote the prompt and accurate clearance
and settlement of securities transactions, derivatives agreements,
contracts, and transactions; to contribute to the safeguarding of
securities and funds associated with security-based swap transactions
in ICC's custody or control, or for which ICC is responsible; and, in
general, to protect investors and the public interest within the
meaning of Section 17A(b)(3)(F) of the Act.\12\
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\9\ 15 U.S.C. 78q-1.
\10\ 17 CFR 240.17Ad-22.
\11\ 15 U.S.C. 78q-1(b)(3)(F).
\12\ Id.
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Rule 17Ad-22(e)(4)(ii) \13\ 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.
ICC believes that the proposed changes provide additional clarity and
more detail on ICC's current practices as to how a particular parameter
is calculated in the RPSRP, which strengthens ICC's process for
reviewing and setting the model core parameters and, in turn, serves to
promote the soundness of ICC's risk management model and its ability to
manage risks and maintain appropriate financial resources. Such changes
enhance the readability and transparency of the RPSRP, which would
strengthen the documentation and ensure 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).\14\
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\13\ 17 CFR 240.17Ad-22(e)(4)(ii).
\14\ Id.
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Rule 17Ad-22(e)(4)(vi)(B) \15\ 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 a comprehensive analysis on at least a monthly basis of
underlying parameters and assumptions. Under the proposed changes, the
RPSRP continues to provide a clear framework for ICC to set and review
the risk management model core parameters and their underlying
assumptions in the risk management model. The proposed changes provide
additional clarity with respect to the Univariate Level Parameters
associated with the integrated spread response model component. As
such, ICC believes the proposed rule change is consistent with the
requirements of Rule 17Ad-22(e)(4)(vi)(B).\16\
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\15\ 17 CFR 240.17Ad-22(e)(4)(vi)(B).
\16\ Id.
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Rule 17Ad-22(e)(6)(i) \17\ requires each covered clearing agency to
establish, implement, maintain, and enforce written policies and
procedures reasonably designed to cover its credit exposures to its
participants by establishing a risk-based margin system that, at a
minimum, considers, and produces margin levels commensurate with, the
risks and particular attributes of each relevant product, portfolio,
and market. As described above, the proposed clarifications would
promote clarity and transparency in the documentation. In ICC's view,
the proposed changes thus enhance and strengthen ICC's process for
reviewing and setting the model core parameters, which in turn serves
to promote the soundness of ICC's risk management model and system,
which will continue to consider and produce margin levels commensurate
with the risks and particular attributes of each relevant product,
portfolio, and market, consistent with the requirements of Rule 17Ad-
22(e)(6)(i).\18\
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\17\ 17 CFR 240.17Ad-22(e)(6)(i).
\18\ 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 rule change
to update the ICC RPSRP 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.
(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants or Others
Written comments relating to the proposed rule change have not been
solicited or received. ICC will notify the Commission of any written
comments received by ICC.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to section
19(b)(3)(A) of the Act \19\ and paragraph (f) of the Rule 19b-4 \20\
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.
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\19\ 15 U.S.C. 78s(b)(3)(A).
\20\ 17 CFR 240.19b-4(f).
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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#5022253c357d333f3d3d353e2423102335337e373f26"><span class="__cf_email__" data-cfemail="ee9c9b828bc38d8183838b809a9dae9d8b8dc0898198">[email protected]</span></a>. Please include
file number SR-ICC-2023-011 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.
All submissions should refer to file number SR-ICC-2023-011. 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 between the
[[Page 68700]]
Commission and any person, other than those that may be withheld from
the public in accordance with the provisions of 5 U.S.C. 552, will be
available for website viewing and printing in the Commission's Public
Reference Room, 100 F Street NE, Washington, DC 20549, on official
business days between the hours of 10 a.m. and 3 p.m. Copies of such
filings will also be available for inspection and copying at the
principal office of ICE Clear Credit and on ICE Clear Credit's website
at <a href="https://www.ice.com/clear-credit/regulation">https://www.ice.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-2023-011 and should
be submitted on or before October 25, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
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\21\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-21944 Filed 10-3-23; 8:45 am]
BILLING CODE 8011-01-P
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