
[Federal Register Volume 82, Number 193 (Friday, October 6, 2017)]
[Notices]
[Pages 46844-46845]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-21540]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81797; File No. SR-ICC-2017-012]


Self-Regulatory Organizations; ICE Clear Credit LLC; Order 
Approving Proposed Rule Change Relating to ICC's Liquidity Risk 
Management Framework and ICC's Stress Testing Framework

October 2, 2017.

I. Introduction

    On August 22, 2017, ICE Clear Credit LLC (``ICC'') filed with the 
Securities and Exchange Commission (``Commission''), pursuant to 
section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ 
and Rule 19b-4 thereunder,\2\ a proposed rule change (SR-ICC-2017-012) 
to amend the ICC Liquidity Risk Management Framework and the ICC Stress 
Testing Framework. The proposed rule change was published for comment 
in the Federal Register on August 31, 2017.\3\ The Commission received 
no comment letters regarding the proposed change. For the reasons 
discussed below, the Commission is approving the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 81486 (August 25, 2017), 
82 FR 41454 (August 31, 2017) (SR-ICC-2017-012) (``Notice'').
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II. Description of the Proposed Rule Change

    In connection with clearing Single Name (``SN'') credit default 
swaps (``CDS'') referencing ICC Clearing Participants (``CPs''), ICC 
has proposed changes to its Stress Testing Framework and Liquidity Risk 
Management Framework, which ICC believes will enhance its stress 
testing and liquidity stress testing practices. The proposed rule 
change would expand the stress test scenarios that ICC considers to be 
extreme but plausible by incorporating additional losses related to the 
expected loss given default of all names not explicitly assumed to 
enter a state of default in a CP's portfolio.\4\ The proposed change 
would similarly amend the stress scenarios described in ICC's Liquidity 
Risk Management Framework, which ICC stated is necessary to ensure 
consistency across its documents.\5\ The proposed change would also 
incorporate an enhanced analysis of profits and losses (``P/L'') 
arising out of General Wrong-Way Risk (``GWWR'') generated by SNs in 
the Banking and Sovereign sectors.\6\ Further, the proposed change 
would clarify ICC's current view that certain GWWR and contagion stress 
scenarios are extreme, but not plausible, and that such scenarios would 
be reviewed for informational purposes only.\7\
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    \4\ Notice, 82 FR at 41455.
    \5\ Notice, 82 FR at 41455-56.
    \6\ Notice, 82 FR at 41455.
    \7\ Id.
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    The proposed change would enhance ICC's guaranty fund sizing 
process by adding a new sensitivity analysis. This new analysis would 
contemplate the default of three CP SNs and two non-CP SNs. This 
analysis would be in addition to the current sizing approach, which 
contemplates the default of two CP SNs and three non-CP SNs. While not 
immediately requiring the collection of additional resources, ICC 
stated that the proposed change could provide a potential remedy where 
deficiencies are identified in ICC's current sizing methodology.\8\
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    \8\ Id.
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    ICC also proposes to add an interest rate sensitivity analysis in 
order to comply with CFTC Regulation 17 CFR 39.36. The proposed 
interest rate sensitivity analysis would shock the Euro and USD 
interest rate curves up and down to see which scenario would lead to 
further erosion of ICC's guaranty fund. ICC stated that this analysis 
would have no impact on its guaranty fund sizing methodology.\9\
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    \9\ Id.
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    The proposed change also includes amendments to ICC's approach to 
Specific Wrong-Way Risk (``SWWR'') P/L to expand the SWWR P/L to 
incorporate losses arising in connection with defaulting CP specific 
exposures, and also adds a description of ICC's current client stress 
testing practices. ICC stated that these changes were proposed for 
consistency with specific CFTC regulations.\10\
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    \10\ Id.
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III. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act \11\ directs the Commission to 
approve a proposed rule change of a self-regulatory organization if it 
finds that such proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to such organization.
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    \11\ 15 U.S.C. 78s(b)(2)(C).
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    Section 17A(b)(3)(F) \12\ of the Act requires, inter alia, that the 
rules of a clearing agency be designed to assure the safeguarding of 
securities and funds which are in the custody or control of the 
clearing agency, or for which it is

[[Page 46845]]

responsible. Rule 17Ad-22(b)(3) \13\ requires, inter alia, that a 
registered clearing agency acting as a central counterparty for 
security-based swaps shall 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 participant families to which it has the largest exposures in 
extreme but plausible market conditions, in its capacity as a central 
counterparty for security-based swaps.
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    \12\ 15 U.S.C. 78q-1(b)(3)(F).
    \13\ 17 CFR 240.17Ad-22(b)(3).
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    The Commission finds that the proposed rule change, which enhances 
ICC's Stress Testing Framework and Liquidity Risk Management Framework, 
is consistent with section 17A \14\ of the Act and Rule 17Ad-22 \15\ 
thereunder. As noted above, in response to the clearing of SN CDS 
referencing CPs, the proposed change would expand the range of stress 
tests that ICC considers to be extreme but plausible. The Commission 
has reviewed the Notice and ICC's rules, policies, and procedures, and 
believes that the expanded range of extreme but plausible scenarios, 
supplemented by the information that will be provided by certain 
additional GWWR and contagion stress scenarios considered to be extreme 
but implausible, enhance ICC's processes for estimating the amount of 
financial resources ICC should collect.
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    \14\ 15 U.S.C. 78q-1.
    \15\ 17 CFR 240.17Ad-22.
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    Additionally, while adoption of the sensitivity analyses described 
above will not immediately require ICC to collect additional financial 
resources, it will provide ICC with additional risk management 
information. Further, ICC stated that at least in some cases, one of 
the newly added analyses could provide a potential remedy where 
deficiencies are identified in ICC's current sizing methodology.\16\ 
Consequently, the Commission believes that the proposed rule change is 
reasonably designed to ensure that ICC maintains sufficient financial 
resources in accordance with the requirements of Rule 17Ad-22(b)(3) and 
will thereby enhance ICC's ability to safeguard the securities and 
funds of CPs in the event of participant defaults. As a result, the 
Commission finds that the proposed change is consistent with the 
requirements of section 17A of the Act and the relevant provisions of 
Rule 17Ad-22.
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    \16\ Notice, 82 FR at 41455.
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IV. Conclusion

    It is therefore ordered pursuant to section 19(b)(2) of the Act 
that the proposed rule change (SR-ICC-2017-012) be, and hereby is, 
approved.\17\
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    \17\ In approving the proposed rule change, the Commission 
considered the proposal's impact on efficiency, competition, and 
capital formation. 15 U.S.C. 78c(f).
    \18\ 17 CFR 200.30-3(a)(12).

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-21540 Filed 10-5-17; 8:45 am]
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