
[Federal Register Volume 84, Number 45 (Thursday, March 7, 2019)]
[Notices]
[Pages 8348-8353]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-04085]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85236; File No. SR-ICEEU-2018-010]


Self-Regulatory Organizations; ICE Clear Europe Limited; Order 
Approving Proposed Rule Change Relating to Amendments to the ICE Clear 
Europe CDS Risk Policy (the ``CDS Risk Policy''), CDS Clearing Back-
Testing Policy (the ``Back-Testing Policy'') and CDS Stress-Testing 
Policy (the ``Stress-Testing Policy'') (Collectively, the ``CDS 
Policies'')

March 1, 2019.

I. Introduction

    On November 13, 2018, ICE Clear Europe Limited (``ICE Clear 
Europe'') 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 to modify and update certain provisions of its 
risk policies related to CDS Contracts. The proposed rule change was 
published for comment in the Federal Register on December 4, 2018.\3\ 
On December 26, 2018, the Commission extended the period to take action 
on the proposed rule change to March 4, 2019.\4\ The Commission did not 
receive comments on the proposed rule 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. 84667 (Nov. 28, 2018), 
83 FR 62638 (Dec. 4, 2018) (SR-ICEEU-2018-010) (``Notice'').
    \4\ Securities Exchange Act Release No. 84957 (Dec. 26, 2018), 
84 FR 855 (Jan. 31, 2019) (SR-ICEEU-2018-010).
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II. Description of the Proposed Rule Change

A. CDS Risk Policy

    The proposed rule change would incorporate into the CDS Risk Policy 
a description of ICE Clear Europe's overall Board risk appetite and 
limit framework.\5\ Currently the CDS Risk Policy does not reference 
the framework, but other ICE Clear Europe policies, including the 
Stress-Testing Policy, reference the framework. The description of the 
framework that the proposed rule change would add to the CDS Risk 
Policy would be consistent with the description of the framework that 
other ICE Clear Europe policies, including the Stress-Testing Policy, 
use. As described in the proposed change to the CDS Risk Policy, the 
framework would use Board-level risk appetite statements, risk appetite 
metrics, and management risk limits, and would be subject to review at 
least annually.\6\ The proposed rule change would add description of 
the framework to the CDS Risk Policy to make clear that the CDS Risk 
Policy is part of ICE Clear Europe's overall risk management.
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    \5\ Capitalized terms not otherwise defined herein shall have 
the meanings given to them in the CDS Policies or ICE Clear Europe 
Rulebook.
    \6\ Notice, 83 FR at 62638.
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    The proposed rule change would specifically address periodic 
reviews of margin requirements and the related margin methodology and 
parameters. Currently, the CDS Risk Policy provides that ICE Clear 
Europe conducts a statistical analysis of the margin levels and market 
performance on at least a monthly basis. Similarly, under the proposed 
revised policy, the clearing risk department would be required to 
perform such a review at least monthly, consistent with applicable 
legal requirements.\7\
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    \7\ See 17 CFR 240.17Ad-22(e)(6)(vi).
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    The proposed rule change would provide additional detail about the 
use of the results of such reviews by ICE Clear Europe management. 
Specifically, under the proposed rule change, the head of first line 
clearing risk would present the results of the monthly review to ICE 
Clear Europe's Model Oversight Committee (``MOC'').\8\ The head of 
first line clearing risk would report to the President of ICE Clear 
Europe and would manage ICE Clear Europe's first line clearing risk 
team including default management, liquidity risk, market risk and 
counterparty risk. Moreover, the proposed rule change would provide 
that at the end of each quarter, the Clearing Risk Department would 
share its monthly reviews from the quarter with the Risk Oversight 
Department (``ROD''), which would perform a second-line review. The 
head of second line clearing risk then would present the results of 
this quarterly review to the MOC. The head of second line clearing risk 
would be ICE Clear Europe's Chief Risk Officer and would report to the 
President and the senior independent director of ICE Clear Europe.\9\ 
The CDS Risk Policy currently provides only that the Risk Management 
Department recommends margin methodology changes to the President and 
Board of Directors of ICE Clear Europe for their approval. Thus, the 
proposed rule change would provide more explanation regarding ICE Clear 
Europe's use of the monthly reviews of margin levels.
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    \8\ Notice, 83 FR at 62638.
    \9\ Id.
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    The proposed amendments would also clarify that the Clearing Risk 
Department would recommend proposed margin methodology changes 
resulting from the review process to the Board for approval. Currently, 
the CDS Risk Policy provides that the ICE Clear Europe Risk Management 
Department recommends margin methodology changes to the President and 
the Board for their approval. Thus, this proposed change would update 
the name of the responsible ICE Clear Europe department from Risk 
Management Department to Clearing Risk Department. Moreover, this 
proposed change would eliminate a redundancy in providing that ICE 
Clear Europe's Board alone shall approve margin methodology changes. 
Because ICE Clear Europe's President also serves on the Board, it would 
not be necessary for both the President and the Board to separately 
approve margin methodology changes.\10\
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    \10\ See https://www.theice.com/publicdocs/clear_europe/Organisational_Structure_Objectives_Strategy.pdf.
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    The proposed rule change would specify in further detail the timing 
and extent of backtesting and stress testing.\11\ Currently, the CDS 
Risk Policy provides that ICE Clear Europe conducts backtesting on a 
daily basis, but the Policy does not specify that ICE Clear Europe uses 
standard predetermined

[[Page 8349]]

parameters and assumptions, nor does it provide any information about 
sensitivity analysis. Consistent with applicable law, the proposed rule 
change would require that: (i) ICE Clear Europe's Clearing Risk 
Department conduct backtesting at least once each day using standard 
predetermined parameters and assumptions; (ii) ICE Clear Europe conduct 
sensitivity analyses of its margin models and review parameters and 
assumptions for backtesting on at least a monthly basis; and (iii) ICE 
Clear Europe conduct sensitivity analyses and reviews more frequently 
than monthly when the relevant products cleared or markets served 
display high volatility or become less liquid or when the size or 
concentration of positions held by Clearing Members increases or 
decreases significantly.\12\ With respect to stress testing, the CDS 
Risk Policy currently provides details regarding stress testing 
scenarios and provides that ICE Clear Europe executes such scenarios on 
a regular basis, but does not specify that ICE Clear Europe conducts 
stress testing daily or uses standard predetermined parameters and 
assumptions. Consistent with applicable law, the proposed rule change 
would require that the clearing risk department conduct stress testing 
at least once each day using standard predetermined parameters and 
assumptions, which are reviewed on at least a monthly basis and more 
frequently when the relevant products cleared or markets served display 
high volatility or become less liquid or when the size or concentration 
of positions held by Clearing Members increases or decreases 
significantly.\13\
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    \11\ Notice, 83 FR at 62638.
    \12\ See 17 CFR 240.17Ad-22(e)(6)(vi).
    \13\ See 17 CFR 240.17Ad-22(e)(4)(vi).
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    The proposed rule change would also establish details regarding 
policy governance and reporting. The proposed rule change would specify 
that the models used to support the policy objectives of the policy are 
subject to an annual independent validation and governance oversight 
which may be performed by an independent member of the ROD or an 
external validator.\14\ The CDS Risk Policy does not currently provide 
any details regarding validation of the models used to support the 
policy. The CDS Risk Policy owner, who is the CDS Risk Director and 
part of the Clearing Risk Department, would be responsible for ensuring 
that the policy remains up-to-date and is reviewed, with the support of 
the ROD.\15\
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    \14\ Notice, 83 FR at 62638.
    \15\ Notice, 83 FR at 62638.
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    The proposed rule change would also provide a new process for 
escalation and reporting of any deviations from the policy, as well as 
compliance with regulatory reporting and filing requirements and would 
make the policy owner responsible for both. Under the current policy, 
any changes to the Policy that affect the risk profile of ICE Clear 
Europe are subject to Board approval, and any exceptions or deviations 
from the Policy must be reported to the Chief Risk Officer and 
escalated to the CDS Risk Committee and Board Risk Committee, if 
material. Under the proposed rule change, the policy owner must report 
any deviations from the Policy or material breaches to the President of 
ICE Clear Europe and the Risk Oversight Department, who will then 
proceed with appropriate governance and further escalation. Thus, this 
change ensures that deviations and material breaches are reported to 
the President and Risk Oversight Department who can then proceed with 
Board involvement if needed. This change also ensures the involvement 
of the Risk Oversight Department, who supports other functions under 
the Policy, such as the reviews discussed above. Finally, this change 
would make the process for escalation and reporting consistent with the 
process currently found in the Stress-Testing Policy.
    The proposed rule change would further specify the roles of various 
departments and committees at ICEEU with respect to the CDS Risk 
Policy.\16\ Currently, the CDS Risk Policy describes the roles of the 
Risk Working Group (``RWG'') (which consists of risk personnel of 
Clearing Members, and provides guidance on risk management matters, 
including review of margin and stress testing parameters), Trading 
Advisory Committee (which advises on pricing processes), and MOC (which 
is responsible for overall model risk management of the Clearing House, 
and for oversight of the periodic reviews described above) in advising 
on and approving matters related to the Policy. The proposed rule 
change would further specify the role of the RWG and MOC in providing 
feedback and reviewing the results of ongoing monitoring of models that 
support the CDS Risk Policy. The proposed rule change would also 
provide further detail as to the composition and role of the RWG and 
MOC. Finally, the proposed rule change would make the Clearing Risk 
Department, with the support of the ROD, responsible for adherence to 
the policy and relevant appetite metrics.
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    \16\ Id.
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    The proposed rule change would also update references to various 
committees and departments of ICE Clear Europe, correct typographical 
and similar errors, update cross-references, and remove an unnecessary 
reference to ICE Clear Credit.

B. Back-Testing Policy

    The proposed rule change would make changes to the Back-Testing 
Policy similar to those changes described above for the CDS Risk 
Policy. Specifically, the proposed rule change would incorporate into 
the Back-Testing Policy a description of ICE Clear Europe's overall 
Board risk appetite and limit framework.\17\ Currently the Back-Testing 
Policy does not reference the framework, but other ICE Clear Europe 
policies, including the Stress-Testing Policy, reference the framework. 
The description of the framework that the proposed rule change would 
add to the Back-Testing Policy would be consistent with the description 
of the framework that other ICE Clear Europe policies, including the 
Stress-Testing Policy, use. As described in the proposed change to the 
Back-Testing Policy, the framework would use Board-level risk appetite 
statements, risk appetite metrics, and management risk limits, and 
would be subject to review at least annually.\18\ The proposed rule 
change would add description of the framework to the Back-Testing 
Policy to make clear that the Back-Testing Policy is part of ICE Clear 
Europe's overall risk management.
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    \17\ Notice, 83 FR at 62638.
    \18\ Notice, 83 FR at 62638.
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    The proposed rule change would also add the same provisions 
relating to the timing of backtesting and related sensitivity analysis 
discussed above in the context of the CDS Risk Policy.\19\ Currently, 
the Back-Testing Policy provides that ICE Clear Europe conducts 
backtesting on a daily basis, but the Policy does not specify that ICE 
Clear Europe uses standard predetermined parameters and assumptions, 
nor does it provide any information about sensitivity analysis.
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    \19\ Id.
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    In addition, the proposed rule change would clarify the meaning of, 
and make other changes to, certain confidence levels used in the 
backtesting process.\20\ Specifically, the proposed rule change would 
specify that these confidence levels represent the confidence to which 
models are expected to perform. Although the Back-Testing Policy 
currently describes the confidence levels that ICE Clear Europe uses in 
backtesting, it does not make clear what these confidence levels 
represent. Thus, the proposed change would clarify the

[[Page 8350]]

meaning of the confidence levels and therefore how those confidence 
levels are used in evaluating ICE Clear Europe's backtesting. The 
proposed rule change would also remove a reference to the 99% quantile 
used before EMIR implementation. ICE Clear Europe no longer uses this 
confidence level in backtesting. Rather, in the guidelines relating to 
remediation of poor backtesting, the proposed rule change would state 
explicitly that portfolio backtesting is done using a confidence level 
of 99.5% or higher.
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    \20\ Notice, 83 FR at 62639.
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    As with the amendments to the CDS Risk Policy, the proposed rule 
change would also establish details regarding policy governance and 
reporting.\21\ Specifically, the proposed rule change would specify 
that the models used to support the objectives of the Back-Testing 
Policy are subject to an annual independent validation and governance 
oversight which may be performed by an independent member of the ROD or 
an external validator. The Back-Testing Policy does not currently 
provide details regarding independent validation of the models used to 
support the Policy. The proposed rule change would make the Back-
Testing Policy owner, who is the CDS Risk Director and part of the 
Clearing Risk Department, responsible for ensuring that the Back-
Testing Policy remains up-to-date and is reviewed, with the support of 
the ROD.\22\ The proposed rule change would make the Clearing Risk 
Department, with the support of the ROD, responsible for adherence to 
the policy and relevant appetite metrics.\23\
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    \21\ Notice, 83 FR at 62639.
    \22\ Id.
    \23\ Id.
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    The proposed rule change would also provide a new process for 
escalation and reporting of any deviations from the policy, as well as 
compliance with regulatory reporting and filing requirements and would 
make the policy owner responsible for both. Currently, the Back-Testing 
Policy provides that the Policy will be reviewed and approved in 
accordance with the Policy Governance Review Calendar, or whenever the 
Clearing House identifies further issues requiring specific attention 
under the Policy. The proposed rule change would provide that any 
deviations from the Policy must be appropriately escalated and reported 
in a timely manner by the policy owner and would also make the policy 
owner responsible for reporting any material breaches or deviations to 
the President and Risk Oversight Department. Thus, this proposed rule 
change would provide additional detail to the escalation of changes to 
the Policy as well as make the process for escalation and reporting 
consistent with the process proposed to be added to the CDS Risk 
Policy. Finally, this change would make the process for escalation and 
reporting consistent with the process proposed for the CDS Risk Policy 
and the process currently found in the Stress-Testing Policy.
    The proposed rule change would also update references to various 
committees and departments of ICE Clear Europe, correct typographical 
and similar errors, and update cross-references.

C. Stress-Testing Policy

    The proposed rule change would make changes to the Stress-Testing 
Policy similar to those described above for the CDS Risk Policy. 
Specifically, the proposed rule change would amend the Stress-Testing 
Policy to include the same provisions relating to the timing of stress 
testing discussed above in the context of the CDS Risk Policy.\24\ 
Currently, the Stress-Testing Policy provides details regarding stress 
testing scenarios and provides that ICE Clear Europe executes such 
scenarios on a regular basis, but does not specify that ICE Clear 
Europe conducts stress testing daily or uses standard predetermined 
parameters and assumptions.
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    \24\ Notice, 83 FR at 62639.
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    The proposed rule change would also amend the Stress-Testing Policy 
to reflect the role of the Board Risk Committee, in addition to the CDS 
Risk Committee, in reviewing and overseeing stress testing. 
Specifically, the proposed rule change would amend the Stress-Testing 
Policy to ensure that both the CDS Risk Committee and the Board Risk 
Committee are sufficiently informed to advise the Board on the safety 
and soundness of the risk management approach and to provide a 
mechanism for management and the committees to test the level of 
protection offered in the potential stress scenarios.\25\ Under the 
current policy, the Board Risk Committee, in addition to the CDS Risk 
Committee, reviews and advises on stress testing results. The current 
policy does not specifically require that the Board Risk Committee be 
sufficiently informed to advise the Board on the safety and soundness 
of the risk management approach or provide a mechanism for the Board 
Risk Committee to test the level of protection offered in the potential 
stress scenario, however. Thus, the proposed rule change would correct 
this situation and ensure that the Board Risk Committee is sufficiently 
informed to fulfill its roll under the Policy.
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    \25\ Notice, 83 FR at 62639.
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III. Commission Findings

    Section 19(b)(2)(C) of the Act 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.\26\ For the reasons given below, the Commission finds 
that the proposed rule change is consistent with Section 17A(b)(3)(F) 
of the Act \27\ and Rules 17Ad-22(e)(2)(i) and (v), (e)(4)(vi), and 
(e)(6)(vi) thereunder.\28\
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    \26\ 15 U.S.C. 78s(b)(2)(C).
    \27\ 15 U.S.C. 78q-1(b)(3)(F).
    \28\ 17 CFR 240.17Ad-22(e)(2)(i) and (v), (e)(4)(vi), and 
(e)(6)(vi).
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A. Consistency With Section 17A(b)(3)(F) of the Act

    Section 17A(b)(3)(F) of the Act requires, among other things, that 
the rules of ICE Clear Europe be designed to promote the prompt and 
accurate clearance and settlement of securities transactions and, to 
the extent applicable, derivative agreements, contracts, and 
transactions, as well as to assure the safeguarding of securities and 
funds which are in the custody or control of ICE Clear Europe or for 
which it is responsible, and, in general, to protect investors and the 
public interest.\29\
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    \29\ 15 U.S.C. 78q-1(b)(3)(F).
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    As discussed above, the proposed rule change would amend the CDS 
Policies to provide more detail with respect to the use of the results 
of periodic reviews of margin requirements and the related methodology 
by ICE Clear Europe management, including second-line reviews and 
reporting to ICE Clear Europe's Chief Risk Officer, President, and 
senior independent director. The proposed rule change would also 
specify that ICE Clear Europe's daily backtesting uses standard 
predetermined parameters and assumptions and that ICE Clear Europe 
conducts sensitivity analyses of its margin models and reviews 
parameters and assumptions for backtesting on at least a monthly basis, 
and more frequently than monthly in certain cases, as discussed above. 
Similarly, the proposed rule change would specify that ICE Clear Europe 
conducts stress testing once each day and that in doing so, ICE Clear 
Europe uses standard predetermined parameters and assumptions, which 
are reviewed on at least a monthly basis and more

[[Page 8351]]

frequently, as discussed above. Finally, with respect to the Back-
Testing Policy, the proposed rule change would clarify the meaning of 
confidence levels used in the backtesting process and eliminate a 
confidence level no longer used in backtesting.
    The Commission believes that these changes, taken as a whole, would 
help to improve ICE Clear Europe's stress testing and backtesting. In 
providing more detail with respect to the use of the results of 
periodic reviews of margin requirements and the related methodology by 
ICE Clear Europe management, including second-line reviews and 
reporting to ICE Clear Europe's Chief Risk Officer, President, and 
senior independent director, the Commission believes that the proposed 
rule change would help to improve ICE Clear Europe's evaluation and 
revision of its margin requirements, related methodology, and 
parameters. The Commission believes that this, in turn, would help to 
ensure that ICE Clear Europe maintains effective margin requirements, 
related methodology, and parameters.
    Similarly, in specifying that stress testing is conducted daily, 
the Commission believes that the proposed rule change would help 
improve the effectiveness of stress testing by ensuring that it is 
conducted on a regular basis. Moreover, in specifying that in 
conducting backtesting and stress testing ICE Clear Europe uses 
standard predetermined parameters and assumptions, the Commission 
believes that the proposed rule change would help ensure the accuracy 
and reliability of backtesting and stress testing. Finally, the 
Commission believes that in clarifying the meaning of confidence levels 
used in the backtesting process and removing a confidence level no 
longer used by ICE Clear Europe, the proposed rule change would help to 
ensure the effectiveness of ICE Clear Europe's backtesting process by 
helping to ensure that ICE Clear Europe conducts backtesting at the 
correct confidence level. Because backtesting and stress testing can 
help reveal inadequacies in ICE Clear Europe's margin requirements and 
the models that support those requirements, the Commission believes 
that the proposed rule change would help to ensure that ICE Clear 
Europe maintains effective margin requirements.
    Given that an effective margin system is necessary to manage ICE 
Clear Europe's credit exposures to its Clearing Members and the risks 
associated with clearing security based swap-related portfolios, the 
Commission believes that the proposed rule change would help improve 
ICE Clear Europe's ability to avoid losses that could result from the 
mismanagement of such credit exposures and risks. Because such losses 
could disrupt ICE Clear Europe's ability to promptly and accurately 
clear security based swap transactions, by making the above-described 
improvements to the review and reporting of ICE Clear Europe's margin 
requirements and timing and scope of backtesting and stress testing, 
the Commission believes that the proposed rule change would help 
promote the prompt and accurate clearance and settlement of securities 
transactions.
    Similarly, appropriate management of ICE Clear Europe's credit 
exposures to its Clearing Members and the risks associated with 
clearing security based swap-related portfolios is critical to avoiding 
the realization of losses on such portfolios that could threaten ICE 
Clear Europe's ability to operate, thereby threatening access to 
securities and funds in ICE Clear Europe's control. Because the 
proposed changes would improve ICE Clear Europe's ability to manage 
such credit exposures by improving the processes ICE Clear Europe uses 
to review and maintain its margin system, including backtesting and 
stress testing, the Commission believes that the proposed rule change 
would help assure the safeguarding of securities and funds which are in 
the custody or control of ICE Clear Europe or for which it is 
responsible. Finally, for both of these reasons, the Commission 
believes the proposed rule change is consistent with protecting 
investors and the public interest.
    Therefore, the Commission finds that the proposed rule change would 
promote the prompt and accurate clearance and settlement of securities 
transactions, assure the safeguarding of securities and funds in ICE 
Clear Europe's custody and control, and, in general, protect investors 
and the public interest, consistent with the Section 17A(b)(3)(F) of 
the Act.\30\
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    \30\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rules 17Ad-22(e)(2)(i) and (v)

    Rules 17Ad-22(e)(2)(i) and (v) require that ICE Clear Europe 
establish, implement, maintain and enforce written policies and 
procedures reasonably designed to provide for governance arrangements 
that are clear and transparent and specify clear and direct lines of 
responsibility.\31\
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    \31\ 17 CFR 240.17Ad-22(e)(2)(i) and (v).
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    As discussed above, the proposed rule change would revise the CDS 
Policies to specify the roles of various departments and committees at 
ICE Clear Europe, including the role of RWG and MOC in providing 
feedback and reviewing the results of ongoing monitoring of models that 
support the CDS Risk Policy and update references to ICE Clear Europe 
committees. The Commission believes that this change would improve the 
transparency of ICE Clear Europe's governance arrangements by 
clarifying the role played by various departments and committees in 
following and maintaining the CDS Policies.
    With respect to the CDS Risk Policy and Back-Testing Policy 
specifically, the Commission believes that the proposed rule change, in 
incorporating an overall Board risk appetite and limit framework, would 
help to clarify the governance around the risk appetite associated with 
the CDS Risk Policy and Back-Testing Policy and make clear that the 
policies are part of ICE Clear Europe's overall risk management. The 
Commission similarly believes that the proposed rule change would help 
improve the transparency of ICE Clear Europe's governance arrangements 
in specifying that the models used to support the CDS Risk Policy and 
Back-Testing Policy are subject to an annual independent validation and 
governance oversight. The Commission further believes that the proposed 
rule change would help ICE Clear Europe specify clear and direct 
responsibility for the CDS Risk Policy and Back-Testing Policy by 
assigning an owner for each policy and making that owner responsible 
for ensuring that the policy remains up-to-date and is reviewed. 
Similarly, the Commission believes that in making the clearing risk 
department, with the support of the ROD, responsible for adherence to 
the policies and relevant appetite metrics, the proposed rule change 
would specify who is responsible for compliance with the polices. 
Finally, the Commission believes that, in amending the CDS Risk Policy 
and Back-Testing Policy to provide a new process for escalation and 
reporting of any deviations from the policies, as well as compliance 
with regulatory reporting and filing requirements (and make the policy 
owner responsible for both), the proposed rule change would clarify the 
governance arrangements with respect to deviations from the policies. 
This proposed change would also make the process for escalation and 
reporting consistent across all of the CDS Policies, thus further 
contributing to clarity and transparency of ICE Clear Europe's 
governance arrangements.
    With respect to the Stress-Testing Policy, the Commission also 
believes that the proposed rule change, in

[[Page 8352]]

specifically requiring that the Board Risk Committee be sufficiently 
informed to advise the Board on the safety and soundness of the risk 
management approach, would help to ensure that the Board Risk Committee 
is sufficiently informed to carry out its roll under the Policy, 
thereby helping to ensure that the Board Risk Committee has a clear and 
direct responsibility under the Policy.
    Finally, the Commission believes that in correcting typographical 
errors and updating cross-references, as discussed above, the proposed 
rule change would clarify ICE Clear Europe's governance arrangements by 
helping to ensure that the CDS Policies correctly reference the 
positions, departments, and/or committees responsible under the CDS 
Policies.
    Therefore, for the above reasons the Commission finds that the 
proposed rule change is consistent with Rules 17Ad-22(e)(2)(i) and 
(v).\32\
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    \32\ 17 CFR 240.17Ad-22(e)(2)(i) and (v).
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C. Consistency With Rule 17Ad-22(e)(4)(vi)

    Rule 17Ad-22(e)(4)(vi) requires that ICE Clear Europe 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 under Rule 17Ad-22(e)(4)(i) 
through (iii), as applicable, by (i) conducting stress testing of its 
total financial resources once each day using standard predetermined 
parameters and assumptions; (ii) conducting a comprehensive analysis on 
at least a monthly basis of the existing stress testing scenarios, 
models, and underlying parameters and assumptions, and considering 
modifications to ensure they are appropriate for determining the 
required level of default protection in light of current and evolving 
market conditions; (iii) conducting a comprehensive analysis of stress 
testing scenarios, models, and underlying parameters and assumptions 
more frequently than monthly when the products cleared or markets 
served display high volatility or become less liquid, or when the size 
or concentration of positions held by its participants increases 
significantly; and (iv) reporting the results of its analyses to 
appropriate decision makers at ICE Clear Europe, including but not 
limited to, its risk management committee or board of directors.\33\
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    \33\ 17 CFR 240.17Ad-22(e)(4)(vi).
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    As discussed above, ICE Clear Europe's policies do not currently 
require that stress testing be conducted daily or that it use standard 
predetermined parameters and assumptions. The proposed rule change 
would amend the CDS Risk Policy and Stress-Testing Policy to require 
that ICE Clear Europe's clearing risk department conduct stress testing 
at least once each day using standard predetermined parameters and 
assumptions, which are reviewed on at least a monthly basis and more 
frequently when the relevant products cleared or markets served display 
high volatility or become less liquid or when the size or concentration 
of positions held by Clearing Members increases or decreases 
significantly. Moreover, the proposed rule change would amend the CDS 
Risk Policy to provide greater detail with respect to ICE Clear 
Europe's periodic reviews, including second-line review and reporting, 
of margin requirements, related methodology, and parameters.
    The Commission believes that these proposed amendments would help 
ensure that ICE Clear Europe complies with the requirements of Rule 
17Ad-22(e)(4)(vi) by establishing standards for frequency of testing 
and review and use of standard predetermined parameters and assumptions 
consistent with those of the rule. Therefore, the Commission finds that 
the proposed rule change is consistent with Rule 17Ad-22(e)(4)(vi).\34\
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    \34\ 17 CFR 240.17Ad-22(e)(4)(vi).
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D. Consistency With Rule 17Ad-22(e)(6)(vi)

    Rule 17Ad-22(e)(6)(vi) requires that ICE Clear Europe 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 is 
monitored by management on an ongoing basis and is regularly reviewed, 
tested, and verified by (i) conducting backtests of its margin model at 
least once each day using standard predetermined parameters and 
assumptions; (ii) conducting 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 
its margin resources; (iii) conducting a sensitivity analysis of its 
margin model and a review of its parameters and assumptions for 
backtesting more frequently than monthly during periods of time when 
the products cleared or markets served display high volatility or 
become less liquid, or when the size or concentration of positions held 
by participants increases or decreases significantly; and (iv) 
reporting the results of its analyses under to appropriate decision 
makers, including but not limited to, its risk management committee or 
board of directors, and using these results to evaluate the adequacy of 
and adjust its margin methodology, model parameters, and any other 
relevant aspects of its credit risk management framework.\35\
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    \35\ 17 CFR 240.17Ad-22(e)(6)(vi).
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    As discussed above, ICE Clear Europe's policies do not currently 
require that ICE Clear Europe use standard predetermined parameters and 
assumptions in conducting backtesting nor do they provide detail 
regarding sensitivity analysis. The proposed rule change would amend 
the CDS Risk Policy and Back-Testing Policy to require that (i) ICE 
Clear Europe's clearing risk department conduct backtesting at least 
once each day using standard predetermined parameters and assumptions 
and (ii) ICE Clear Europe conduct sensitivity analyses of its margin 
models and review parameters and assumptions for backtesting on at 
least a monthly basis, and more frequently than monthly when the 
relevant products cleared or markets served display high volatility or 
become less liquid or when the size or concentration of positions held 
by Clearing Members increases or decreases significantly. Moreover, the 
proposed rule change would amend the CDS Risk Policy to provide greater 
detail with respect to ICE Clear Europe's periodic reviews, including 
second-line review and reporting, of margin requirements, related 
methodology, and parameters.
    The Commission believes that these proposed amendments would help 
ensure that ICE Clear Europe complies with the requirements of Rule 
17Ad-22(e)(6)(vi) by establishing standards for frequency of testing 
and review, use of standard predetermined parameters and assumptions, 
and use of sensitivity analysis consistent with those of the rule. 
Therefore, the Commission finds that the proposed rule change is 
consistent with Rule 17Ad-22(e)(6)(vi).\36\
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    \36\ 17 CFR 240.17Ad-22(e)(6)(vi).

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IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposal is consistent with the requirements of the Act, and in 
particular, with the requirements of Section 17A(b)(3)(F) of the Act 
\37\ and Rules 17Ad-22(e)(2)(i) and (v), (e)(4)(vi), and (e)(6)(vi) 
thereunder.\38\
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    \37\ 15 U.S.C. 78q-1(b)(3)(F).
    \38\ 17 CFR 240.17Ad-22(e)(2)(i) and (v), (e)(4)(vi), and 
(e)(6)(vi).
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    It is therefore ordered pursuant to Section 19(b)(2) of the Act 
\39\ that the proposed rule change (SR-ICEEU-2018-010) be, and hereby 
is, approved.\40\
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    \39\ 15 U.S.C. 78s(b)(2).
    \40\ 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).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\41\
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    \41\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-04085 Filed 3-6-19; 8:45 am]
 BILLING CODE 8011-01-P


