[Federal Register Volume 87, Number 217 (Thursday, November 10, 2022)]
[Notices]
[Pages 67982-67985]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-24505]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96237; File No. SR-ICC-2022-013]


Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of 
filing of Proposed Rule Change Relating to the ICC Collateral Risk 
Management Framework, ICC Treasury Operations Policies and Procedures, 
and ICC Liquidity Risk Management Framework

November 4, 2022.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
\1\ (the ``Act'') and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on October 24, 2022, ICE Clear Credit LLC (``ICC'') filed with the 
Securities and Exchange Commission (the ``Commission'') the proposed 
rule change as described in Items I, II and III below, which Items have 
been primarily prepared 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. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The principal purpose of the proposed rule change is to formalize 
the Collateral Risk Management Framework (``CRMF'') and to amend the 
Treasury Operations Policies and Procedures (``Treasury Policy'') and 
the Liquidity Risk Management Framework (``LRMF''). These revisions do 
not require any changes to the ICC Clearing Rules (the ``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 to formalize the CRMF and to make related changes to 
the Treasury Policy and the LRMF. The proposed changes formalize a 
standalone CRMF to centralize relevant information on ICC's collateral 
assets risk management methodology in one document. The proposed 
changes further remove duplicative information from the Treasury Policy 
and update references in the Treasury Policy and the LRMF accordingly. 
Such changes would not amend ICC's methodology but would instead 
promote transparency and effective operation of the collateral assets 
risk management model by unifying key information on ICC's collateral 
assets risk management approach in one document. ICC believes that 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. ICC proposes 
to make such changes effective following Commission approval of the 
proposed rule change. The proposed revisions are discussed in detail as 
follows.
CRMF
    ICC proposes to formalize the CRMF as a standalone document 
containing its current collateral assets risk management approach. The 
CRMF begins by introducing ICC's quantitative risk management approach 
that accounts for the risk associated with fluctuations of collateral 
asset prices. The document is further divided into six sections that 
are detailed below.
    Section I sets out the computation of the current collateral asset 
haircut factors. To compute collateral haircut factors, estimations of 
two risk measures are performed. The more conservative risk measure is 
chosen to establish the haircut factors that capture potential 
collateral value losses. The chosen methodology, which consists of 
quantifying the potential risk exposures by analyzing the distribution 
of the appropriately identified risk factor describing the collateral 
asset price changes, is set forth in more detail in this section.
    The following subsections are specific to currency and sovereign 
debt haircut factors. Regarding currency haircut factors in Subsection 
I.a, a two-stage approach is set out to account for the risk associated 
with fluctuations of collateral asset prices denominated in foreign 
currencies and its corresponding time series are used for collateral 
denominated in foreign currencies. The risk of the underlying 
collateral asset is estimated in its own currency in the first stage, 
and the risk exposure to an exchange rate conversion is considered by 
applying a foreign exchange (``FX'') haircut factor in the second 
stage. With respect to sovereign debt haircut factors, Subsection I.b 
sets out how the fluctuations of the time to maturity yield rates are 
considered and its corresponding time series are used for sovereign 
debt collateral. In each subsection, further detail, such as relevant 
computations, equations, definitions, and considerations, is included 
to describe how currency and sovereign debt haircut factors are 
determined.
    The final haircut factor rounding process is set out in Subsection 
I.c. The estimated haircut factors are rounded up to ensure appropriate 
stability and some conversative bias. Relevant computations, equations 
and illustrations demonstrate the haircut factor rounding process.
    Section II details the current collateral assets risk management 
model and contains additional risk management information. This section 
begins by

[[Page 67983]]

introducing the statistical calibration of the model by estimating an 
appropriate distribution to a time series of past realizations of the 
driving factor. One of the main components of the collateral assets 
risk management model is the distribution that describes the 
realizations of the asset price determining risk factor. Certain 
assumptions are also introduced to provide more stable and easy-to-
reproduce numerical results.
    The model framework is described in more detail in the following 
subsections. Subsection II.a details certain distributional assumptions 
appropriate for FX and fixed income (``FI'') assets on which the 
haircut methodology is based. A summary of relevant literature is 
included; the haircut methodology uses the cited results on 
distribution families with applications to FX and FI instruments. 
Subsection II.b and II.c set forth parameter estimations. Subsection 
II.b expresses how parameter estimates are obtained and used to compute 
multi-day risk measures. Parameter estimations are performed in stages 
to facilitate numerical implementation and result replication and to 
eliminate potential operational risk. The main inputs for the 
statistical approach are set out and the calibration of the collateral 
haircut model is discussed. Subsection II.c explains how the 
variability of a risk factor is described for risk management purposes 
and sets out the selected measure of variability for all considered 
time series. Subsection II.d depicts multi-period forecasting, 
including the analysis that is performed to extend one-day to multi-
period forecasts. Subsection II.e discusses how risk measures are 
obtained which are used for haircut purposes. For each subsection, 
additional detail, such as relevant parameters, computations, 
equations, definitions, and figures, is included to describe relevant 
processes.
    Section III contains governance procedures relevant to the CRMF. 
Collateral haircut factor estimations are executed daily, and the ICC 
Risk Department reviews the results and determines any updates, at 
least monthly. Haircut factors can be updated more frequently at the 
discretion of the ICC Chief Risk Officer (``CRO'') or designee. 
Additional language explains the implementation of updates by relevant 
departments and the periodic review of the statistical performance of 
the collateral haircut model, which consists of back-testing of 
applicable risk factors at least quarterly. A discussion of the back-
testing exercise is included related to exploring poor back-testing 
results and taking remedial actions. The associated governance process 
is also summarized, including the ICC officers responsible for 
determining poor back-testing, the steps required following such 
determination, the groups consulted regarding poor back-testing or 
remedial action, and additional statistical analyses to measure and 
monitor the significance of back-testing results.
    Section IV provides applications to FX and FI instruments to 
demonstrate the viability of the model used in the collateral risk 
management methodology. Subsection IV.a presents an example of the 
modeling approach applied to cash collateral denominated in a currency 
different from the required currency. Subsection IV.b presents an 
example of the modeling approach applied to US Treasury Bonds 
denominated in US Dollars (``USD''). Subsection IV.c presents an 
example of the modeling approach applied to US Treasury Inflation 
Protected Securities (``TIPS'') denominated in USD. Each subsection 
sets out a three-stage approach to estimate risk measures and 
corresponding haircut factors and includes illustrations and back-
testing results. Finally, Section V consists of a list of references 
and Section VI adds a revision history.
Treasury Policy
    The proposed changes remove information on ICC's collateral assets 
risk management approach from the Treasury Policy. Currently, Appendix 
6 to the Treasury Policy, titled Collateral Assets Risk Management 
Framework, (``Appendix 6'') contains this information. ICC proposes to 
remove Appendix 6 and, accordingly, to replace a reference to Appendix 
6 with a reference to the CRMF in Section V.B.3.
    In general, information from Appendix 6 is included throughout 
Sections I and III of the CRMF with minor differences in drafting style 
and without substantive changes. The below list summarizes where the 
information in Appendix 6 would reside following removal and 
differences from the CRMF.
     The approach accounting for the risk associated with 
fluctuations of collateral assets denominated in foreign currencies in 
Appendix 6, paragraph 1 is moved to the CRMF, Subsection I.a.
     The estimations of two risk measures in Appendix 6, 
paragraph 2 are moved to the CRMF, Section I.
     Examples related to currencies and sovereign debt from 
Appendix 6, paragraphs 3 and 4 are moved to the CRMF, Subsections I.a 
and I.b, respectively.
     A risk measure definition in Appendix 6, paragraph 5 is 
moved to the CRMF, Section I. A policy reference from Appendix 6, 
paragraph 5 is removed, as ICC considers it unnecessary given the 
additional risk management information in the CRMF.
     Information on FX and sovereign debt haircuts in Appendix 
6, paragraphs 6-9 is moved to the CRMF, Subsections I.a and I.b, 
respectively.
     The rounding of estimated haircuts in Appendix 6, 
paragraph 10 is moved to the CRMF, Subsection I.c. Information on 
establishing, reviewing, and updating haircuts in Appendix 6, paragraph 
10 is moved to the CRMF, Section III.
     Information on updating haircuts during periods of extreme 
stress in Appendix 6, paragraph 11 is moved to the CRMF, Subsection 
I.c.
    As described above, the remaining CRMF sections include additional 
information that is not in Appendix 6. The CRMF would more fully 
describe ICC's collateral assets risk management approach and would not 
change the methodology in Appendix 6.
LRMF
    ICC proposes minor changes to the LRMF to update references from 
the Treasury Policy to the CRMF. Currently, Section 2.4 in the LRMF 
references information in Appendix 6, including details on the 
collateral haircut methodology and process for reviewing and updating 
collateral haircuts. The amended LRMF would reference the CRMF instead 
of the Treasury Policy which would contain the subject information 
under the proposed updates.
(b) Statutory Basis
    ICC believes that the proposed rule change is consistent with the 
requirements of section 17A of the Act \3\ and the regulations 
thereunder applicable to it, including the applicable standards under 
Rule 17Ad-22.\4\ In particular, section 17A(b)(3)(F) of the Act \5\ 
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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    \3\ 15 U.S.C. 78q-1.
    \4\ 17 CFR 240.17Ad-22.
    \5\ 15 U.S.C. 78q-1(b)(3)(F).
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    As discussed herein, the proposed amendments formalize the CRMF to 
centralize relevant information on ICC's collateral assets risk 
management

[[Page 67984]]

methodology in one standalone document. The CRMF includes information 
from Appendix 6 as well as information not in Appendix 6, such as 
additional risk management information, governance procedures, modeling 
approach examples, and references. The proposed amendments also remove 
duplicative information from the Treasury Policy and update references 
in the Treasury Policy and the LRMF to the CRMF as needed. The proposed 
rule change would not amend ICC's methodology and would promote 
effective operation of the collateral assets risk management model by 
unifying key information on ICC's collateral assets risk management 
approach in one document. The additional information in the CRMF would 
provide a more detailed explanation of the collateral assets risk 
management model and methodology that would facilitate replication and 
validation by third parties. In ICC's view, such changes promote 
transparency by including additional information on ICC's collateral 
assets risk management approach in the CRMF, including relevant 
parameters, computations, equations, definitions, and figures to 
describe relevant processes, which would also ensure that responsible 
parties carry out their assigned duties effectively and aid them in 
doing so. Further, the clarification changes ensure transparency, 
readability, and clarity by avoiding unnecessary repetition and 
duplication in the Treasury Policy and maintaining references to the 
appropriate document in the Treasury Policy and LRMF, which would avoid 
confusion between policies and promote efficient and effective 
operation of ICC's collateral assets risk management methodology. 
Accordingly, ICC believes that the proposed rule change is consistent 
with the prompt and accurate clearance and settlement of securities 
transactions, 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.\6\
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    \6\ Id.
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    The amendments would also satisfy relevant requirements of Rule 
17Ad-22.\7\ Rule 17Ad-22(e)(2)(i) and (v) \8\ requires ICC to 
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. The proposed changes strengthen the governance 
procedures related to ICC's collateral assets risk management approach 
by memorializing associated governance processes and procedures in the 
CRMF. The CRMF details governance procedures associated with haircut 
factor updates, implementation, and review, including the responsible 
ICC personnel, department, group, or committee. As such, in ICC's view, 
the proposed rule change continues to ensure that ICC maintains 
policies and procedures that are reasonably designed to provide for 
clear and transparent governance arrangements and specify clear and 
direct lines of responsibility, consistent with Rule 17Ad-22(e)(2)(i) 
and (v).\9\
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    \7\ 17 CFR 240.17Ad-22.
    \8\ 17 CFR 240.17Ad-22(e)(2)(i) and (v).
    \9\ Id.
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    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 proposed amendments enhance ICC's 
ability to manage its financial resources by providing further clarity 
and transparency on its collateral assets risk management approach 
through additional details, examples, and references in the CRMF, which 
will promote the effective and accurate function of the collateral 
assets risk management model. The additional information in the CRMF 
provides a more detailed explanation of the collateral assets risk 
management model and methodology, which will facilitate replication and 
validation by third parties. The proposed rule change would also 
enhance the implementation of various processes and procedures 
associated with the collateral assets risk management methodology to 
ensure that responsible parties effectively carry out their associated 
duties, including by providing relevant parameters, computations, 
equations, definitions, and figures. Furthermore, the clarification 
changes serve to avoid confusion between policies and promote efficient 
and effective operation of ICC's collateral assets risk management 
methodology by avoiding unnecessary repetition and duplication in the 
Treasury Policy by removing Appendix 6 and by ensuring references to 
the appropriate document in the Treasury Policy and LRMF. As such, the 
proposed amendments would support 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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    \10\ 17 CFR 240.17Ad-22(e)(4)(ii).
    \11\ Id.
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    Rule 17Ad-22(e)(5) \12\ requires ICC to establish, implement, 
maintain, and enforce written policies and procedures reasonably 
designed to limit the assets it accepts as collateral to those with low 
credit, liquidity, and market risks, and set and enforce appropriately 
conservative haircuts and concentration limits if the covered clearing 
agency requires collateral to manage its or its participants' credit 
exposure; and require a review of the sufficiency of its collateral 
haircuts and concentration limits to be performed not less than 
annually. ICC would continue to limit the assets that ICC accepts as 
collateral to those with low credit, liquidity, and market risks under 
the proposed rule change. Furthermore, the CRMF would provide a clear 
framework for ICC to continue to set and enforce appropriately 
conservative haircuts for acceptable collateral assets and would set 
out responsible parties. The additional governance procedures in 
Section III of the CRMF would ensure that ICC establishes, reviews, and 
updates haircuts within defined intervals, and more frequently if 
deemed necessary. As described above, collateral haircut factor 
estimations are executed daily, and the ICC Risk Department reviews the 
results and determines any updates, at least monthly. Haircut factors 
can be updated more frequently at the discretion of the CRO or 
designee. As such, the amendments would satisfy the requirements of 
Rule 17Ad-22(e)(5).\13\
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    \12\ 17 CFR 240.17Ad-22(e)(5).
    \13\ 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 
formalize a standalone CRMF to centralize relevant information on ICC's 
collateral assets risk management methodology in one document. The 
proposed changes further remove duplicative information

[[Page 67985]]

from the Treasury Policy and update references in the Treasury Policy 
and the LRMF accordingly. These changes do not amend ICC's methodology 
and would 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 imposes 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.

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-2022-013 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-2022-013. 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-2022-013 and should be 
submitted on or before December 1, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-24505 Filed 11-9-22; 8:45 am]
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