[Federal Register Volume 87, Number 98 (Friday, May 20, 2022)]
[Notices]
[Pages 31020-31021]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-10805]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94921; File No. SR-ICC-2022-002]


Self-Regulatory Organizations; ICE Clear Credit LLC; Order 
Approving Proposed Rule Change Relating to the ICC Risk Parameter 
Setting and Review Policy

May 16, 2022.

I. Introduction

    On March 22, 2022, 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 (the 
``Act''),\1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
amend its Risk Parameter Setting and Review Policy (the ``RPSR 
Policy''). The proposed rule change was published for comment in the 
Federal Register on April 4, 2022.\3\ The Commission did not receive 
comments regarding 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\ Self-Regulatory Organizations; ICE Clear Credit LLC; Notice 
of Filing of Proposed Rule Change Relating to the ICC Risk Parameter 
Setting and Review Policy; Exchange Act Release No. 34-94544 (March 
29, 2022); 87 FR 19563 (April 4, 2022) (SR-ICC-2022-002) 
(``Notice'').
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II. Description of the Proposed Rule Change

    The RPSR Policy describes ICC's process of setting and reviewing 
the risk management model core parameters and the performance of 
sensitivity analyses related to certain parameter settings.\4\ Overall, 
ICC represents the proposed amendments would be clarifications needed 
to address an independent model validation and would not change the 
methodology.\5\
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    \4\ The description is substantially excerpted from the Notice, 
87 FR at 19563. Capitalized terms not defined herein have the 
meanings assigned to them in the RPSR Policy or the ICC Rules, as 
applicable.
    \5\ Notice, 87 FR at 19563.
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    The proposed rule change would amend Section 1.7, which describes 
the parameters associated with the integrated spread response component 
of ICC's CDS risk model. The RPSR Policy categorizes these parameters 
as Univariate, Multivariate, and Anti-Procyclicality Level Parameters. 
The proposed rule change would make amendments to Subsection 1.7.1, 
which describes the Univariate Level Parameters.
    As part of these Univariate Level Parameters, ICC derives the end-
of-day

[[Page 31021]]

(``EOD'') recovery rate for single name risk factors (meaning each 
single name CDS contract).\6\ The proposed rule change would add text 
to explain how ICC derives the EOD recovery rate from price quotes 
submitted by Clearing Members. For each single name risk factor, the 
EOD recovery rate would reflect the smaller of the standard market 
convention recovery rate and the minimum submitted EOD bid price 
submitted by Clearing Members. The proposed changes would explain that 
the EOD recovery rate would be the minimum submitted EOD bid price, and 
therefore would deviate from the standard market convention, when the 
single name risk factor itself is distressed. The proposed language 
would further specify the role of the established EOD recovery rate in 
using the ISDA Standard Model for price-to-spread mapping.
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    \6\ As explained in ICC's Risk Management Model Description, 
every index, sub-index, or underlying single name is deemed a Risk 
Factor. See Self-Regulatory Organizations; ICE Clear Credit LLC; 
Order Approving Proposed Rule Change Relating to the ICC Risk 
Management Model Description, Exchange Act Release No. 91918 (May 
18, 2021), 86 FR 27927 (May 24, 2021).
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III. Discussion and 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.\7\ For the reasons discussed below, the Commission finds 
that the proposed rule change is consistent with Section 17A(b)(3)(F) 
of the Act \8\ and Rule 17Ad-22(e)(6)(vi)(B) thereunder.\9\
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    \7\ 15 U.S.C. 78s(b)(2)(C).
    \8\ 15 U.S.C. 78q-1(b)(3)(F).
    \9\ 17 CFR 240.17Ad-22(e)(6)(vi)(B).
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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 ICC be designed to promote the prompt and accurate 
clearance and settlement of securities transactions.\10\ Based on its 
review of the record, and for the reasons discussed below, the 
Commission believes the proposed changes to RPSR Policy are consistent 
with the promotion of the prompt and accurate clearance and settlement 
of transactions at ICC.
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    \10\ 15 U.S.C. 78q-1(b)(3)(F).
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    The Commission believes that the change should improve the RPSR 
Policy by documenting how ICC derives the EOD recovery rate from price 
quotes submitted by Clearing Members for Univariate Level Parameters. 
The Commission believes that documenting ICC's approach should help to 
ensure that ICC derives the EOD recovery rate and related Univariate 
Level Parameters in a clear and consistent manner. Because ICC uses the 
RPSR Policy to set and review core parameters for ICC's risk management 
model, the Commission believes that this improvement to the RPSR should 
help to ensure the continued efficacy of the risk management model. An 
effective risk management model should help to ensure that ICC collects 
sufficient margin, commensurate with the risks presented by the 
transactions its clears. The Commission thus believes the proposed rule 
change should ultimately help to ensure that ICC collects sufficient 
margin, and in doing so should help improve ICC's ability to avoid 
losses that could result during periods of market stress. Because such 
losses could disrupt ICC's ability to operate and thus promptly and 
accurately clear and settle security based swap transactions, the 
Commission finds the proposed rule change would promote the prompt and 
accurate clearance and settlement of securities transactions, 
consistent with Section 17A(b)(3)(F) of the Act.\11\
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    \11\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rule 17Ad-22(e)(6)(vi)(B)

    Rule 17Ad-22(e)(6)(vi)(B) requires that ICC establish, implement, 
maintain and enforce written policies and procedures reasonably 
designed to, as applicable, 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 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 ICC's margin resources.\12\ As discussed above, the 
proposed rule change would document how ICC derives the EOD recovery 
rate from price quotes submitted by Clearing Members for Univariate 
Level Parameters. In doing so, the Commission believes the proposed 
rule change would help to ensure that ICC analyzes this particular 
aspect of the Univariate Level Parameters, which the RPSR Policy 
requires ICC's Risk team to estimate and review, and perform 
sensitivity analysis on, at least monthly. Therefore, the Commission 
finds that the proposed rule change is consistent with Rule 17Ad-
22(e)(6)(vi)(B).\13\
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    \12\ 17 CFR 240.17Ad-22(e)(6)(vi)(B).
    \13\ 17 CFR 240.17Ad-22(e)(6)(vi)(B).
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IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act, 
and in particular, with the requirements of Section 17A(b)(3)(F) of the 
Act \14\ and Rule 17Ad-22(e)(6)(vi)(B) thereunder.\15\
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    \14\ 15 U.S.C. 78q-1(b)(3)(F).
    \15\ 17 CFR 240.17Ad-22(e)(6)(vi)(B).
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    It is therefore ordered pursuant to Section 19(b)(2) of the Act 
\16\ that the proposed rule change (SR-ICC-2022-002), be, and hereby 
is, approved.\17\
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    \16\ 15 U.S.C. 78s(b)(2).
    \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).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-10805 Filed 5-19-22; 8:45 am]
BILLING CODE 8011-01-P


