
[Federal Register Volume 81, Number 150 (Thursday, August 4, 2016)]
[Notices]
[Pages 51532-51533]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-18475]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78448; File No. SR-ICC-2016-010]


Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of 
Filing of Proposed Rule Change To Revise the ICC Risk Management Model 
Description Document and the ICC Risk Management Framework

July 29, 2016.
    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 July 15, 2016, ICE Clear Credit LLC (``ICC'') filed with the 
Securities and Exchange Commission (``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. Self-Regulatory Organization'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 Risk Management Framework to incorporate certain risk model 
enhancements. ICC also proposes minor clarifying edits to the ICC Risk 
Management Model Description document and the ICC Risk Management 
Framework. These revisions do not require any changes to the ICC 
Clearing Rules (``Rules'').

II. Self-Regulatory Organization'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 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. ICC has prepared summaries, set forth in sections A, B 
and C below, of the most significant aspects of these statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    ICC proposes revising its risk management framework to incorporate 
risk model enhancements related to the single name credit default swap 
(``CDS'') liquidity charge methodology. ICC believes 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. The proposed revisions are 
described in detail as follows.
    ICC proposes a revised approach to computing single name CDS 
liquidity charges. Specifically, ICC proposes to introduce minimum 
instrument liquidity requirements independent of instrument maturities. 
ICC's current approach features instrument liquidity requirements that 
decay with time to maturity for fixed credit spread levels. The 
proposed approach introduces minimum liquidity requirements for 
individual instruments, independent of time to maturity for the 
considered instruments, and thus establishes minimum liquidity charges 
that do not decay over time as maturity is approached. The revised 
calculation for single name CDS liquidity charges at the instrument 
level incorporates a price-based bid-offer width floor component to 
provide stability of requirements, as well as a dynamic spread-based 
BOW component to reflect the additional risk associated with distressed 
market conditions. The values of such price-based BOW and spread-based 
BOW are fixed factors, which are subject to at least monthly reviews 
and updates by ICC Risk Management Department with consultation with 
the Risk Committee.
    ICC also proposes enhancements to the liquidity charge calculation 
at the risk factor level. The current risk factor level liquidity 
requirements are based on forward CDS spread levels. Under the revised 
calculation, liquidity charges at the risk factor level are computed by 
first calculating the liquidity requirements for each individual 
instrument position in the portfolio, and then summing all instrument 
liquidity requirements for positions with the same directionality, 
i.e., bought or sold protection. The risk factor liquidity requirement 
is the greatest liquidity requirement associated with either the sum of 
all bought protection position liquidity requirements, or the sum of 
all sold protection position liquidity requirements. There are no 
changes to the liquidity charge calculation at the portfolio level.
    ICC expects these enhancements will ensure more stable liquidity 
requirements for instruments across the curve. Further, the 
enhancements simplify ICC's liquidity charge methodology, which 
promotes ease of understanding. As stated above, the current risk 
factor level liquidity requirements are based on forward CDS spread 
levels and are, in general, more difficult to replicate due to the 
inherited need for knowledge of spread levels across the entire term 
structure (``curve''). Additionally, to facilitate replication of the 
enhanced liquidity charge calculations, ICC will provide end-of-day 
data for instruments in which clients have open positions, allowing for 
additional transparency and easier replication for clients who wish to 
estimate liquidity charges for hypothetical and current positions.
    ICC also proposes updating liquidity scaling factors to reflect the 
methodology enhancements. There is no price based component under the 
current methodology. To reflect the introduction of a price based 
component, the liquidity scaling factors have been decomposed and 
adjusted in order to maintain the same overall composition with both 
price and spread based components.
    ICC also proposes minor clarifying edits to the ICC Risk Management 
Framework and the ICC Risk Management Model Description document. ICC 
added language to the Overview section of the Risk Management Framework 
to identify which ICC documents provide additional details regarding 
ICC's risk management approach. ICC added language to the Governance 
and Organization section of the Risk Management Framework to note that 
the reporting line of ICC's Chief Risk Officer to the Chairperson of 
the ICC Risk Committee, who is also a non-executive manager on the 
Board, allows the Chief Risk Officer to bring any issues or concerns 
directly to the Board without intermediation by other ICC personnel. 
ICC also made edits to the Governance and Organization section of the 
Risk Management Framework to revise the list of documents reviewed by 
the Risk Committee on at least an annual basis to include the ICC End-
of-Day Price Discovery Policies and Procedures and the ICC Operational 
Risk Management

[[Page 51533]]

Framework.\3\ Finally, ICC added minor clarifying details to the 
technical calculation descriptions set forth in the ICC Risk Management 
Model Description document, specifically in the Recovery Rate 
Sensitivity Risk Analysis, Interest Rate Sensitivity Risk Analysis, 
Spread Risk Analysis, and Guaranty Fund Size Estimation sections.
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    \3\ Staff has confirmed this statement, corrected to conform 
with the proposed revised Risk Management Framework filed with the 
Commission, with ICC via email on July 26, 2016.
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    Section 17A(b)(3)(F) of the Act \4\ 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 and to comply with the provisions of the Act and the rules 
and regulations thereunder. ICC believes that the proposed rule changes 
are consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to ICC, in particular, to Section 
17(A)(b)(3)(F),\5\ because ICC believes that the proposed rule changes 
will promote the prompt and accurate clearance and settlement of 
securities transactions, derivatives agreements, contracts, and 
transactions, as the proposed changes provide clarity and enhance risk 
policies, resulting in enhanced stability and conservative bias of 
requirements, and thereby facilitate ICC's ability to promptly and 
accurately clear and settle its cleared CDS contracts. In addition, the 
proposed revisions are consistent with the relevant requirements of 
Rule 17Ad-22.\6\ In particular, the risk model enhancements proposed in 
the Risk Management Model Description document will enhance the 
financial resources available to the clearing house by promoting 
stability and conservative bias of requirements, and are therefore 
reasonably designed to meet the margin and financial resource 
requirements of Rule 17Ad-22(b)(2-3).\7\ The risk model enhancements 
will also result in a more transparent and simplified liquidity charge 
approach, and are therefore consistent with the requirements of Rule 
17Ad-22(d)(8).\8\
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    \4\ 15 U.S.C. 78q-1(b)(3)(F).
    \5\ Id.
    \6\ 17 CFR 240.17Ad-22.
    \7\ 17 CFR 240.17Ad-22(b)(2-3).
    \8\ 17 CFR 240.17Ad-22(d)(8).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    ICC does not believe the proposed rule changes would have any 
impact, or impose any burden, on competition. The risk model 
enhancements and clarifying changes apply uniformly across all market 
participants. Therefore, ICC does not believe the proposed rule changes 
impose any burden on competition that is inappropriate in furtherance 
of the purposes of the Act.

C. Self-Regulatory Organization'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

    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 the 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

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-ICC-2016-010 on the subject line.

Paper Comments

    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-ICC-2016-010. 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 Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filings will also be available 
for inspection and copying at the principal office of ICE Clear Credit 
and on ICE Clear Credit's Web site at https://www.theice.com/clear-credit/regulation.
    All comments received will be posted without change; the Commission 
does not edit personal identifying information from submissions. You 
should submit only information that you wish to make available 
publicly. All submissions should refer to File Number SR-ICC-2016-010 
and should be submitted on or before August 25, 2016.
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    \9\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-18475 Filed 8-3-16; 8:45 am]
 BILLING CODE 8011-01-P


