[Federal Register Volume 87, Number 131 (Monday, July 11, 2022)]
[Notices]
[Pages 41149-41152]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-14634]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95200; File No. SR-ICC-2022-008]


Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of 
Filing of Proposed Rule Change Relating to the Stress Testing Framework 
and the Liquidity Risk Management Framework

July 5, 2022.
    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 June 23, 2022, 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, 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.
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I. Clearing Agency'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 Stress Testing Framework (``STF'') and the ICC Liquidity Risk 
Management Framework (``LRMF''). These revisions do not require any 
changes to the ICC Clearing Rules (``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 revising the STF and LRMF to introduce new stress 
scenarios, clarify existing stress scenarios, and make other minor 
edits. ICC believes the proposed changes 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 move forward with implementation of these 
changes following Commission approval of the proposed rule change. The 
proposed rule change is described in detail as follows.
I. STF
    The proposed amendments to the STF introduce new stress scenarios 
related to the Coronavirus pandemic and oil price war (the ``COVID-19/
Oil Crisis''), clarify existing stress scenarios related to credit 
default index swaptions (``index options''), and make other minor 
edits.
    The proposed changes amend Section 5.1 containing the historically 
observed extreme but plausible market scenarios. ICC proposes a minor 
edit to abbreviate a term. ICC proposes to introduce additional stress 
scenarios related to the COVID-19/Oil Crisis. ICC previously introduced 
price-based stress scenarios related to the COVID-19/Oil Crisis in the 
STF, which replicate observed instrument price changes during this 
period.\3\ ICC proposes to incorporate complementing spread-based 
stress scenarios related to the COVID-19/Oil Crisis, which reflect 
observed relative spread increases and decreases during this period 
(the ``COVID-19/Oil Crisis Spread Scenarios''). Additionally, the 
stress scenarios related to index options (i.e., the stress options-
implied Mean Absolute Deviation (``MAD'') scenarios) would be moved 
into a separate section and corresponding references throughout the STF 
would accordingly refer to this new Section 9.
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    \3\ See SR-ICC-2020-009 for additional information on the 
introduction of the COVID-19/Oil Crisis price-based stress 
scenarios.
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    ICC proposes additional clarifications in Section 5 and throughout 
the STF. To distinguish from the COVID-19/Oil Crisis Spread Scenarios, 
ICC would refer to the price-based stress scenarios as the COVID-19/Oil 
Crisis Price Scenarios in Section 5.2 and throughout the STF. ICC also 
proposes to incorporate the COVID-19/Oil Crisis Spread Scenarios

[[Page 41150]]

in the other categories of scenarios, namely in Section 5.3 
(hypothetically constructed (forward looking) extreme but plausible 
market scenarios) and Section 5.4 (extreme model response test 
scenarios), as well as in Section 14 (interpretation of results).
    ICC proposes further details to describe how the existing stress 
scenarios for index option positions are integrated within the current 
set of stress scenarios for CDS index and single name instruments. 
Currently, the stress options-implied MAD scenarios are generated for 
index option positions. Such scenarios are not applied to portfolios 
independently but rather directly incorporated into the CDS stress 
scenarios. As such, the proposed changes clarify that the stress 
options-implied MAD scenarios complement the underlying stress 
scenarios (in Section 6) and reference proposed Section 9 for more 
detail on the stress options-implied MAD approach (in Section 8).
    Moreover, proposed Section 9 memorializes the stress options-
implied MAD scenarios and approach more clearly. Information from 
Section 5.1 on these scenarios would reside in Section 9 with certain 
amendments. The proposed amendments do not change the stress testing 
methodology and instead add detail and update terminology to be 
clearer. Proposed language explains that when index options are present 
in a portfolio, the underlying market stress test scenarios incorporate 
the stress options-implied MAD scenarios. Terminology changes specify 
that the scenarios consider an increase/decrease in the options-implied 
MAD upon spread widening/tightening and clarification changes detail 
the incorporation of the options-implied MAD in the scenarios. The 
proposed changes more clearly set forth the creation of the stress 
options-implied MAD, including how the necessary components are 
derived. No changes are proposed with respect to what the final 
scenario prices of the index option instruments reflect. The following 
sections are renumbered accordingly throughout the STF, including in 
Table 1 in Section 14. Finally, proposed Section 17 adds a revision 
history to track changes.
II. LRMF
    ICC proposes corresponding changes to the LRMF to introduce new 
stress scenarios related to the COVID-19/Oil Crisis, clarify existing 
stress scenarios related to index options, and make other minor edits.
    ICC proposes to revise Section 2.3 regarding liquidity requirements 
for client-related accounts. The amended language specifies that 
Clearing Participants deposit 100% of their Euro denominated client 
gross margin in any acceptable collateral to match Schedule 401 in the 
ICC Rules. This is intended to be a clean-up change to remove an 
outdated provision to ensure consistency across the LRMF and ICC Rules 
and would not change current requirements.
    ICC proposes updates to Section 3.3.2 regarding the historically 
observed extreme but plausible market scenarios. The proposed changes 
define extreme market events to include COVID-19 and the simultaneous 
occurrence of the oil price war and make grammatical edits to change a 
term to its plural form. ICC also previously introduced the COVID-19/
Oil Crisis price-based stress scenarios in the LRMF \4\ and proposes to 
incorporate the complementing COVID-19/Oil Crisis Spread Scenarios, 
which are also referred to as the COVID19OCSS, in the LRMF. The price-
based stress scenarios would be referred to as the COVID-19/Oil Crisis 
Price Scenarios or COVID19OCPS throughout the document.
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    \4\ Id.
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    Revisions to the existing stress options-implied MAD scenarios are 
proposed in Section 3.3.2. To ensure consistency with the STF, ICC 
proposes the inclusion of similar language and changes in subsection 
(b). The proposed changes memorialize the stress options-implied MAD 
scenarios and approach more clearly in the LRMF, including how the 
scenarios for index option positions are integrated within the current 
set of stress scenarios for CDS index and single name instruments. The 
proposed amendments do not change the methodology and instead add 
detail and update terminology to be clearer. Terminology changes 
specify that the scenarios consider an increase/decrease in the 
options-implied MAD and clarification changes detail the incorporation 
of the options-implied MAD in the scenarios. The proposed changes more 
clearly set forth the creation of the stress options-implied MAD, 
including how the necessary components are derived. No changes are 
proposed with respect to what the final scenario prices of the index 
option instruments reflect. A typographical fix is made in the 
footnotes to refer to the correct reference document. In addition, ICC 
proposes to amend subsection (d) to add a section symbol and to set out 
how the stress options-implied MAD scenarios that complement the 
extreme model response test scenarios are derived to match language 
currently in the STF.
    ICC proposes additional minor updates to Section 3.3. ICC would 
incorporate the COVID-19/Oil Crisis Spread Scenarios in Section 3.3.3 
in Table 1 containing the liquidity stress testing scenarios and in 
Section 3.3.4 related to the interpretation of results. ICC also 
proposes a minor edit to the extreme market scenarios in Table 1 to 
specify that the COVID19OCPS are extreme.
(b) Statutory Basis
    ICC believes that the proposed rule change is consistent with the 
requirements of Section 17A of the Act \5\ and the regulations 
thereunder applicable to it, including the applicable standards under 
Rule 17Ad-22.\6\ In particular, Section 17A(b)(3)(F) of the Act \7\ 
requires that the rule change be consistent with the prompt and 
accurate clearance and settlement of securities transactions and 
derivative agreements, contracts and transactions cleared by ICC, the 
safeguarding of securities and funds in the custody or control of ICC 
or for which it is responsible, and the protection of investors and the 
public interest.
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    \5\ 15 U.S.C. 78q-1.
    \6\ 17 CFR 240.17Ad-22.
    \7\ 15 U.S.C. 78q-1(b)(3)(F).
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    As discussed herein, the proposed amendments introduce new stress 
scenarios, clarify existing stress scenarios, and make other minor 
edits. Such changes strengthen the STF and LRMF by introducing spread-
based COVID-19/Oil Crisis scenarios that complement the current 
scenarios and by memorializing the stress options-implied MAD scenarios 
more clearly to ensure transparency and that responsible parties 
effectively carry out their assigned duties. The additional 
clarification and clean-up changes further ensure readability and 
clarity, including by adding a revision history to track changes, 
updating terminology, ensuring that references are accurate, and 
ensuring consistency between the LRMF and the ICC Rules regarding 
client-related liquidity requirements to avoid potential confusion. ICC 
believes that having policies and procedures that clearly and 
accurately document its risk management practices, including stress 
testing and liquidity stress testing, are an important component to the 
effectiveness of ICC's risk management system and support ICC's ability 
to maintain adequate financial resources and sufficient liquid 
resources. Accordingly, in ICC's view, the proposed rule change is 
consistent with the prompt and accurate clearance and settlement of 
securities transactions,

[[Page 41151]]

derivatives agreements, contracts, and transactions, the safeguarding 
of securities and funds in the custody or control of ICC or for which 
it is responsible, and the protection of investors and the public 
interest, within the meaning of Section 17A(b)(3)(F) of the Act.\8\
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    \8\ Id.
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    The amendments would also satisfy relevant requirements of Rule 
17Ad-22.\9\ Rule 17Ad-22(e)(4)(ii) \10\ requires ICC 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 ICC in 
extreme but plausible market conditions. The introduction of the COVID-
19/Oil Crisis Spread Scenarios would complement the current scenarios 
and add additional insight into potential weaknesses in the ICC risk 
management methodology, thereby supporting ICC's ability to manage its 
financial resources. Additional proposed changes ensure consistency 
across the STF and LRMF and more clearly describe the stress options-
implied MAD scenarios, including how the scenarios for index option 
positions are integrated within the current set of stress scenarios for 
CDS index and single name instruments. The proposed amendments add 
detail and update terminology to be clearer, which would ensure 
transparency and strengthen the documentation, thereby supporting the 
effectiveness of ICC's risk management system. The proposed 
clarification and clean-up changes further enhance the readability of 
the STF and LRMF 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).\11\
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    \9\ 17 CFR 240.17Ad-22.
    \10\ 17 CFR 240.17Ad-22(e)(4)(ii).
    \11\ Id.
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    Rule 17Ad-22(e)(4)(vi) \12\ requires ICC 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 stress 
testing of its total financial resources once each day using standard 
predetermined parameters and assumptions; conducting a comprehensive 
analysis on at least a monthly basis of the existing stress testing 
scenarios, models, and underlying parameters and assumptions; and 
reporting the results of its analyses to appropriate decision makers at 
ICC. The proposed rule change continues to ensure that ICC's policies 
and procedures provide a clear framework for ICC to conduct stress 
testing and analysis and report the results to appropriate decision 
makers at ICC, in compliance with this requirement. As such, ICC 
believes the proposed rule change is consistent with the requirements 
of Rule 17Ad-22(e)(4)(vi).\13\
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    \12\ 17 CFR 240.17Ad-22(e)(4)(vi).
    \13\ Id.
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    Rule 17Ad-22(e)(7)(i) \14\ requires ICC to establish, implement, 
maintain, and enforce written policies and procedures reasonably 
designed to effectively measure, monitor, and manage the liquidity risk 
that arises in or is borne by it, including measuring, monitoring, and 
managing its settlement and funding flows on an ongoing and timely 
basis, and its use of intraday liquidity by maintaining sufficient 
liquid resources at the minimum in all relevant currencies to effect 
same-day and, where appropriate, intraday and multiday settlement of 
payment obligations with a high degree of confidence under a wide range 
of foreseeable stress scenarios that includes, but is not limited to, 
the default of the participant family that would generate the largest 
aggregate payment obligation for ICC in extreme but plausible market 
conditions. The introduction of the COVID-19/Oil Crisis Spread 
Scenarios would complement the current scenarios and add additional 
insight into potential weaknesses in the ICC liquidity risk management 
methodology, thereby supporting ICC's ability to ensure that it 
maintains sufficient liquidity resources. The proposed clarification 
and clean-up changes provide further clarity and transparency regarding 
ICC's liquidity risk management practices in the LRMF, including by 
promoting uniformity with the STF, ensuring consistency between the 
LRMF and the ICC Rules regarding the client-related liquidity 
requirements, and ensuring that information and references are current, 
including in Table 1 which sets out the liquidity stress testing 
scenarios. As such, the proposed amendments would promote ICC's ability 
to ensure that it maintains sufficient liquid resources in accordance 
with the requirements of Rule 17Ad-22(e)(7)(i).\15\
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    \14\ 17 CFR 240.17Ad-22(e)(7)(i).
    \15\ 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 changes 
introduce complementing COVID-19/Oil Crisis Spread Scenarios, add 
clarification on the existing stress scenarios related to index 
options, and make other minor edits, which ICC believes are appropriate 
in furtherance of the risk management of the clearing house. The 
changes to the STF and LRMF will apply uniformly across all market 
participants. ICC does not believe these amendments would affect the 
costs of clearing or the ability of market participants to access 
clearing. Therefore, ICC does not believe the proposed rule change 
would impose 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

    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 such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

[[Page 41152]]

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 [email protected]. Please include 
File Number SR-ICC-2022-008 on the subject line.

Paper Comments

    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-2022-008. 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 (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 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 10:00 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 website at https://www.theice.com/clear-credit/regulation.
    All comments received will be posted without change. Persons 
submitting comments are cautioned that we do not redact or edit 
personal identifying information from comment submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-ICC-2022-008 and should be 
submitted on or before August 1, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-14634 Filed 7-8-22; 8:45 am]
BILLING CODE 8011-01-P


