Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of Filing of Amendment No. 1 and Order Approving Proposed Rule Change, as Modified by Amendment No. 1 Thereto, To Update and Formalize the ICC Stress Testing Framework, 36979-36981 [2016-13477]
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Federal Register / Vol. 81, No. 110 / Wednesday, June 8, 2016 / Notices
plans to submit this existing collection
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and approval.
Rule 477 (17 CFR 230.477) under the
Securities Act of 1933 (15 U.S.C. 77a et
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Written comments are invited on: (a)
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DC 20549 or send an email to: PRA_
Mailbox@sec.gov.
Dated: June 2, 2016.
Brent J. Fields,
Secretary.
[FR Doc. 2016–13466 Filed 6–7–16; 8:45 am]
BILLING CODE 8011–01–P
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–77982; File No. SR–ICC–
2016–005]
Self-Regulatory Organizations; ICE
Clear Credit LLC; Notice of Filing of
Amendment No. 1 and Order
Approving Proposed Rule Change, as
Modified by Amendment No. 1 Thereto,
To Update and Formalize the ICC
Stress Testing Framework
June 2, 2016.
I. Introduction
On March 31, 2016, ICE Clear Credit
LLC (‘‘ICC’’ or ‘‘ICE Clear Credit’’) 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 update and formalize ICC’s
stress testing framework. On April 20,
2016 ICC filed Amendment No. 1 to the
proposal.3 The proposed rule change
was published for comment in the
Federal Register on April 21, 2016.4
The Commission did not receive
comments on the proposed rule change.
For the reasons discussed below, the
Commission is approving the proposed
rule change, as modified by Amendment
No. 1.
II. Description of the Proposed Rule
Change
The principal purpose of the
proposed rule change is to update and
formalize ICC’s Stress Testing
Framework, which sets forth the stress
testing practices instituted by ICC. The
framework, according to ICC, is
designed to: Articulate the types of
stress tests executed and the main
purpose of each type of test; describe
how stress tests are conducted; define
the actual test scenarios currently
executed; outline the range of remedial
actions available (which, depending on
the results, may include enhancements
to the risk methodology or certain
Clearing Participant (‘‘CP’’) specific
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 ICE Clear Credit filed Amendment No. 1 to
further revise the Stress Testing Framework to
incorporate language regarding the treatment of
unrated reference entities for the purposes of
applying the stress scenarios. Under Amendment
No. 1, ICC has clarified that unrated reference
entities are treated as non-investment grade entities
with respect to the application of stress scenarios.
Amendment No. 1 is not subject to comment
because it is a technical, clarifying amendment that
does not alter the substance of the proposed rule
change or raise any novel regulatory issues.
4 Securities Exchange Act Release No. 34–77633
(April 15, 2016), 81 FR 23531 (April 21, 2016) (SR–
ICC–2016–005).
2 17
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36979
action); and explain how stress test
results are used in the governance
process.
ICC states that the stress testing
framework helps ICC identify potential
weaknesses in the risk management
methodology currently used and, as a
result, allows ICC to identify potential
model enhancements to the Initial
Margin and Guaranty Fund models, as
well as identify the need to exercise
short term remedies based upon specific
CP positions and risk of exposure prior
to introduction of model enhancements.
ICC represents that during the
execution of stress testing, the ICC Risk
Department (‘‘Risk Department’’)
applies the standard set of pre-defined
Stress Test Scenarios against actual
portfolios, sample portfolios derived
from currently cleared positions, and
expected future portfolios, as
appropriate, to generate hypothetical
profits or losses. According to ICC, the
Risk Department compares the
hypothetical losses to the available
funds from the Initial Margin
requirements and Guaranty Fund
contribution related to the selected
portfolios. A scenario deficiency is
identified in the event that the
hypothetical loss exceeds the protection
provided by the available collateral
assets and mutualization funds. ICC
states that, depending on the
plausibility of the stress scenarios and
the frequency and severity of any
resulting deficiencies, the Risk
Department may recommend
enhancements to the risk methodology.
ICC represents that it utilizes certain
predefined scenarios for its stress
testing, which fall into three standard
categories: (i) Historically observed
extreme but plausible market scenarios;
(ii) historically observed and
hypothetically constructed (forward
looking) extreme but plausible market
scenarios with a baseline credit event;
and (iii) extreme model response tests
(collectively, ‘‘Stress Test Scenarios’’).
ICC states that discordant scenarios (i.e.,
scenarios under which selected risk
factors move in opposite directions;
commonly the behavior deviates from
historically observed behavior) are
applied to certain instruments to
account for discordant price moves.
ICC asserts that it applies the Stress
Test Scenarios to a variety of portfolios.
Specifically, ICC applies the Stress Test
Scenarios to all currently cleared
portfolios. ICC states that its Risk
Department may also apply the Stress
Test Scenarios to sample portfolios
obtained from currently cleared
portfolios and may also apply the Stress
Test Scenarios to staff-constructed,
expected future portfolios, as ICC’s Risk
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Department deems appropriate, to
mimic expected future portfolios upon
the launch of new services. In this case,
ICC states that the stress test analysis is
presented to and reviewed by ICC’s Risk
Committee prior to the launch of the
new clearing services. ICC represents
that it may design specific portfolio sets
to test the validity of certain model/
system assumptions. According to ICC,
the stress test results from such
expected future portfolio executions are
reviewed and analyzed internally, and
may be used to support future model
initiatives.
ICC states that it also designs stress
test analysis directed toward the
identification of wrong-way risk in
cleared portfolios. For every cleared
portfolio, ICC asserts that all positions
in index risk factors and single name
risk factors that exhibit high degree of
association with the considered CP are
used to create a sub-portfolio which will
be subjected to additional stress test
analysis. The constructed sub-portfolio
is subjected to the same Stress Test
Scenarios utilized by ICC.
The framework also describes ICC’s
reverse stress testing (Guaranty Fund
Adequacy Analysis) practices.
According to ICC, the purpose of the
adequacy analysis is to provide
estimates for the level of protection
achieved by the clearinghouse via its
Initial Margin and Guaranty Fund
models. In performing its analysis, ICC
represents that it considers a
combination of adverse price
realizations and idiosyncratic credit
events associated with reference
obligations on which the stress tested
CP sold protection. ICC’s Stress Testing
Framework also describes the
correlation sensitivity analysis
performed by ICC, based on Monte Carlo
simulations, as well as the additional
recovery rate sensitivity analysis.
ICC’s framework also details how
stress testing is utilized in ICC’s
governance process. ICC states that it
maintains a framework to ensure that
ICC’s Risk Committee and Board are
provided with transparency into the
Risk Department’s stress test results and
contemplated methodology changes.
According to ICC, stress testing results
are reviewed, at a minimum, by ICC’s
Risk Department weekly. Additionally,
ICC states that stress testing results are
provided to ICC’s Risk Committee
weekly and a report of such results is
presented to the Risk Committee on a
monthly basis. Ad hoc reviews of the
stress testing results may be undertaken
at the discretion of ICC’s Chief Risk
Officer.
In the event of any deficiencies noted
upon stress testing, ICC represents that
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its Risk Department must report such
deficiencies to ICC senior management
and the Risk Committee, and either (a)
provide analysis that the results do not
highlight a significant weakness in the
stress testing or risk methodology; or (b)
recommend enhancements to the stress
testing or risk methodology. ICC states
that ICC senior management and the
Risk Committee will review and
recommend any stress testing or risk
methodology enhancements to the ICC
Board, which is responsible for
approval. ICC states that the Risk
Department may also choose to add new
scenarios and portfolios in response to
deficiencies noted upon stress testing;
in this case, the Risk Department will
discuss with the Risk Committee, which
will recommend to the Board, which is
responsible for approval.
ICC asserts that the Risk Department
maintains a standard set of Stress
Scenarios and portfolios (namely actual
portfolios, sample portfolios derived
from currently cleared portfolios, and
expected future portfolios) that are
executed on a regular basis. In the event
that a scenario or portfolio in the
standard set is no longer applicable, or
has been superseded by new scenarios
or portfolios, ICC claims that the Risk
Department may wish to retire or
modify the outdated scenario or
portfolio, in which case, the Risk
Department will, with ICC senior
management: Conduct analysis to
support a recommendation; discuss the
analysis and obtain a recommendation
from the Risk Committee; and present
the final analysis to the Board for
approval. ICC states that, in the interest
of prudent risk management, the Risk
Department may wish to add scenarios
and/or portfolios to the standard set and
that Risk Committee or Board approval
is not required unless such scenarios
and/or portfolios are added in response
to stress testing deficiencies, as
described above.
Previous versions of ICC’s framework
included the Risk Working Group in the
governance structure, as ICC consulted
with the Risk Working Group as it
worked to develop its initial stress
testing approach and appropriate
scenarios. ICC states that, as it now has
a fully developed approach, stress
testing remains focused on data analysis
and reporting results, which ICC claims
are addressed at the Risk Committee and
Board level. Thus, to reflect current
governance practices, references to the
Risk Working Group have been removed
from its framework.
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III. Discussion and Commission
Findings
Section 19(b)(2)(C) of the Act 5 directs
the Commission to approve a proposed
rule change of a self-regulatory
organization if the Commission finds
that the proposed rule change is
consistent with the requirements of the
Act and the rules and regulations
thereunder applicable to such selfregulatory organization. Section
17A(b)(3)(F) of the Act 6 requires, among
other things, that the rules of a clearing
agency be designed to promote the
prompt and accurate clearance and
settlement of securities transactions,
and to the extent applicable, derivative
agreements, contracts and transactions,
to assure the safeguarding of securities
and funds which are in the custody or
control of the clearing agency or for
which it is responsible and, in general,
to protect investors and the public
interest. In addition, Rule 17Ad–
22(b)(3),7 requires registered clearing
agencies to maintain, at a minimum,
sufficient financial resources to
withstand a default by the participant
family to which it has the largest
exposure in extreme but plausible
market conditions, and for registered
clearing agencies acting as a central
counterparty for security-based swaps,
to maintain additional financial
resources sufficient to withstand, at a
minimum, a default by the two
participant families to which it has the
largest exposures in extreme but
plausible market conditions.
The Commission finds that the
proposed rule change is consistent with
the requirements of Section 17A of the
Act 8 and the rules and regulations
thereunder applicable to ICC.
ICC’s Stress Testing Framework
establishes ICC’s stress testing practices.
These stress testing practices are
designed, among other things, to ensure
the adequacy of ICC’s financial
resources under applicable legal
requirements, and set forth the
methodology by which ICC evaluates
potential portfolio profits and losses,
compared to the Initial Margin and
Guaranty Fund funds maintained, in
order to identify any potential weakness
in ICC’s risk methodology. Such
financial resources will facilitate ICC’s
continued operations in the event of a
participant default. As such, the
Commission believes that the proposed
rule changes are designed to promote
the prompt and accurate clearance and
settlement of securities transactions,
5 15
U.S.C. 78s(b)(2)(C).
U.S.C. 78q–1(b)(3)(F).
7 17 CFR 240.17Ad–22(b)(3).
8 15 U.S.C. 78q–1.
6 15
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derivatives agreements, contracts, and
transactions within the meaning of
Section 17A(b)(3)(F) 9 of the Act.
The Commission also believes that the
proposed changes will satisfy the
applicable requirements of Rule 17Ad–
22.10 In particular, the Stress Testing
Framework contains stress testing
practices designed to ensure that ICE
Clear Credit maintains sufficient
financial resources to withstand a
default by the participant family to
which it has the largest exposure in
extreme but plausible market
conditions, and that as a registered
clearing agency acting as a central
counterparty for security-based swaps,
ICC maintains additional financial
resources sufficient to withstand, at a
minimum, a default by the two
participant families to which it has the
largest exposures in extreme but
plausible market conditions, consistent
with the requirements of Rule 17Ad–
22(b)(3).11
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 of the
Act 12 and the rules and regulations
thereunder.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,13 that the
proposed rule change (File No. SR–ICC–
2016–005) as modified by Amendment
No. 1, be, and hereby is, approved.14
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.15
Brent J. Fields,
Secretary.
[FR Doc. 2016–13477 Filed 6–7–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–77976; File No. SR–NYSE–
2016–11]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Designation of Longer Period for
Commission Action on a Proposed
Rule Change, as Modified by
Amendment No. 1, To Establish
Certain End User Fees, Amend the
Definition of Affiliate, and Amend the
Co-Location Section of the Price List
To Reflect the Changes
June 2, 2016.
On April 4, 2016, New York Stock
Exchange LLC (‘‘NYSE’’ or the
‘‘Exchange’’) 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
establish fees relating to certain end
users, amend the definition of Affiliate,
and amend the co-location section of the
Price List to reflect the changes. The
Commission published the proposed
rule change for comment in the Federal
Register on April 22, 2016.3 On April
29, 2016, the Exchange filed
Amendment No. 1 to the proposed rule
change.4 The Commission received two
comment letters on the proposed rule
change.5
Section 19(b)(2) of the Act 6 provides
that, within 45 days of the publication
of the notice of the filing of a proposed
rule change, or within such longer
period up to 90 days as the Commission
may designate if it finds such longer
period to be appropriate and publishes
its reasons for so finding or as to which
the self-regulatory organization
consents, the Commission shall approve
the proposed rule change, disapprove
the proposed rule change, or institute
proceedings to determine whether the
proposed rule change should be
disapproved. The Commission is
extending this 45-day time period.
The Commission finds that it is
appropriate to designate a longer period
within which to take action on the
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 34–
77642 (April 18, 2016), 81 FR 23786 (‘‘Notice’’).
4 Amendment No. 1 made technical changes
relating to the General Notes numbering and
references in the Co-location section of the Price
List.
5 See Letter from Michael J. Friedman, General
Counsel and CCO, Trillium to Brent J. Fields,
Secretary, Commission, dated May 13, 2016; see
also Letter from Eero Pikat to the Commission,
dated May 13, 2016.
6 15 U.S.C. 78s(b)(2).
2 17
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9 Id.
10 17
CFR 240.17Ad–22.
CFR 240.17Ad–22(b)(3).
12 15 U.S.C. 78q–1.
13 15 U.S.C. 78s(b)(2).
14 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).
15 17 CFR 200.30–3(a)(12).
11 17
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proposed rule change so that it has
sufficient time to consider the proposed
rule change. Accordingly, the
Commission, pursuant to Section
19(b)(2) of the Act,7 designates July 21,
2016, as the date by which the
Commission should approve,
disapprove, or institute proceedings to
determine whether to disapprove the
proposed rule change (File No. SR–
NYSE–2016–11), as modified by
Amendment No. 1.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.8
Brent J. Fields,
Secretary.
[FR Doc. 2016–13474 Filed 6–7–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–77974; File No. SR–
NYSEArca–2016–77]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Amending the NYSE Arca
Options Fee Schedule and the NYSE
Arca Equities Schedule of Fees and
Charges for Exchange Services To
Eliminate Certain Services That Are No
Longer Utilized by Users and To
Remove Obsolete Text
June 2, 2016.
Pursuant to section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on May 23,
2016, NYSE Arca, Inc. (the ‘‘Exchange’’
or ‘‘NYSE Arca’’) 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
prepared by the self-regulatory
organization. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
The Exchange proposes amend the
NYSE Arca Options Fee Schedule (the
‘‘Options Fee Schedule’’) and, through
its wholly owned subsidiary NYSE Arca
Equities, Inc. (‘‘NYSE Arca Equities’’),
the NYSE Arca Equities Schedule of
7 Id.
8 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
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]]>Agencies
[Federal Register Volume 81, Number 110 (Wednesday, June 8, 2016)]
[Notices]
[Pages 36979-36981]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-13477]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-77982; File No. SR-ICC-2016-005]
Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of
Filing of Amendment No. 1 and Order Approving Proposed Rule Change, as
Modified by Amendment No. 1 Thereto, To Update and Formalize the ICC
Stress Testing Framework
June 2, 2016.
I. Introduction
On March 31, 2016, ICE Clear Credit LLC (``ICC'' or ``ICE Clear
Credit'') 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 update and formalize ICC's stress testing
framework. On April 20, 2016 ICC filed Amendment No. 1 to the
proposal.\3\ The proposed rule change was published for comment in the
Federal Register on April 21, 2016.\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, as modified by
Amendment No. 1.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ ICE Clear Credit filed Amendment No. 1 to further revise the
Stress Testing Framework to incorporate language regarding the
treatment of unrated reference entities for the purposes of applying
the stress scenarios. Under Amendment No. 1, ICC has clarified that
unrated reference entities are treated as non-investment grade
entities with respect to the application of stress scenarios.
Amendment No. 1 is not subject to comment because it is a technical,
clarifying amendment that does not alter the substance of the
proposed rule change or raise any novel regulatory issues.
\4\ Securities Exchange Act Release No. 34-77633 (April 15,
2016), 81 FR 23531 (April 21, 2016) (SR-ICC-2016-005).
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
The principal purpose of the proposed rule change is to update and
formalize ICC's Stress Testing Framework, which sets forth the stress
testing practices instituted by ICC. The framework, according to ICC,
is designed to: Articulate the types of stress tests executed and the
main purpose of each type of test; describe how stress tests are
conducted; define the actual test scenarios currently executed; outline
the range of remedial actions available (which, depending on the
results, may include enhancements to the risk methodology or certain
Clearing Participant (``CP'') specific action); and explain how stress
test results are used in the governance process.
ICC states that the stress testing framework helps ICC identify
potential weaknesses in the risk management methodology currently used
and, as a result, allows ICC to identify potential model enhancements
to the Initial Margin and Guaranty Fund models, as well as identify the
need to exercise short term remedies based upon specific CP positions
and risk of exposure prior to introduction of model enhancements.
ICC represents that during the execution of stress testing, the ICC
Risk Department (``Risk Department'') applies the standard set of pre-
defined Stress Test Scenarios against actual portfolios, sample
portfolios derived from currently cleared positions, and expected
future portfolios, as appropriate, to generate hypothetical profits or
losses. According to ICC, the Risk Department compares the hypothetical
losses to the available funds from the Initial Margin requirements and
Guaranty Fund contribution related to the selected portfolios. A
scenario deficiency is identified in the event that the hypothetical
loss exceeds the protection provided by the available collateral assets
and mutualization funds. ICC states that, depending on the plausibility
of the stress scenarios and the frequency and severity of any resulting
deficiencies, the Risk Department may recommend enhancements to the
risk methodology.
ICC represents that it utilizes certain predefined scenarios for
its stress testing, which fall into three standard categories: (i)
Historically observed extreme but plausible market scenarios; (ii)
historically observed and hypothetically constructed (forward looking)
extreme but plausible market scenarios with a baseline credit event;
and (iii) extreme model response tests (collectively, ``Stress Test
Scenarios''). ICC states that discordant scenarios (i.e., scenarios
under which selected risk factors move in opposite directions; commonly
the behavior deviates from historically observed behavior) are applied
to certain instruments to account for discordant price moves.
ICC asserts that it applies the Stress Test Scenarios to a variety
of portfolios. Specifically, ICC applies the Stress Test Scenarios to
all currently cleared portfolios. ICC states that its Risk Department
may also apply the Stress Test Scenarios to sample portfolios obtained
from currently cleared portfolios and may also apply the Stress Test
Scenarios to staff-constructed, expected future portfolios, as ICC's
Risk
[[Page 36980]]
Department deems appropriate, to mimic expected future portfolios upon
the launch of new services. In this case, ICC states that the stress
test analysis is presented to and reviewed by ICC's Risk Committee
prior to the launch of the new clearing services. ICC represents that
it may design specific portfolio sets to test the validity of certain
model/system assumptions. According to ICC, the stress test results
from such expected future portfolio executions are reviewed and
analyzed internally, and may be used to support future model
initiatives.
ICC states that it also designs stress test analysis directed
toward the identification of wrong-way risk in cleared portfolios. For
every cleared portfolio, ICC asserts that all positions in index risk
factors and single name risk factors that exhibit high degree of
association with the considered CP are used to create a sub-portfolio
which will be subjected to additional stress test analysis. The
constructed sub-portfolio is subjected to the same Stress Test
Scenarios utilized by ICC.
The framework also describes ICC's reverse stress testing (Guaranty
Fund Adequacy Analysis) practices. According to ICC, the purpose of the
adequacy analysis is to provide estimates for the level of protection
achieved by the clearinghouse via its Initial Margin and Guaranty Fund
models. In performing its analysis, ICC represents that it considers a
combination of adverse price realizations and idiosyncratic credit
events associated with reference obligations on which the stress tested
CP sold protection. ICC's Stress Testing Framework also describes the
correlation sensitivity analysis performed by ICC, based on Monte Carlo
simulations, as well as the additional recovery rate sensitivity
analysis.
ICC's framework also details how stress testing is utilized in
ICC's governance process. ICC states that it maintains a framework to
ensure that ICC's Risk Committee and Board are provided with
transparency into the Risk Department's stress test results and
contemplated methodology changes. According to ICC, stress testing
results are reviewed, at a minimum, by ICC's Risk Department weekly.
Additionally, ICC states that stress testing results are provided to
ICC's Risk Committee weekly and a report of such results is presented
to the Risk Committee on a monthly basis. Ad hoc reviews of the stress
testing results may be undertaken at the discretion of ICC's Chief Risk
Officer.
In the event of any deficiencies noted upon stress testing, ICC
represents that its Risk Department must report such deficiencies to
ICC senior management and the Risk Committee, and either (a) provide
analysis that the results do not highlight a significant weakness in
the stress testing or risk methodology; or (b) recommend enhancements
to the stress testing or risk methodology. ICC states that ICC senior
management and the Risk Committee will review and recommend any stress
testing or risk methodology enhancements to the ICC Board, which is
responsible for approval. ICC states that the Risk Department may also
choose to add new scenarios and portfolios in response to deficiencies
noted upon stress testing; in this case, the Risk Department will
discuss with the Risk Committee, which will recommend to the Board,
which is responsible for approval.
ICC asserts that the Risk Department maintains a standard set of
Stress Scenarios and portfolios (namely actual portfolios, sample
portfolios derived from currently cleared portfolios, and expected
future portfolios) that are executed on a regular basis. In the event
that a scenario or portfolio in the standard set is no longer
applicable, or has been superseded by new scenarios or portfolios, ICC
claims that the Risk Department may wish to retire or modify the
outdated scenario or portfolio, in which case, the Risk Department
will, with ICC senior management: Conduct analysis to support a
recommendation; discuss the analysis and obtain a recommendation from
the Risk Committee; and present the final analysis to the Board for
approval. ICC states that, in the interest of prudent risk management,
the Risk Department may wish to add scenarios and/or portfolios to the
standard set and that Risk Committee or Board approval is not required
unless such scenarios and/or portfolios are added in response to stress
testing deficiencies, as described above.
Previous versions of ICC's framework included the Risk Working
Group in the governance structure, as ICC consulted with the Risk
Working Group as it worked to develop its initial stress testing
approach and appropriate scenarios. ICC states that, as it now has a
fully developed approach, stress testing remains focused on data
analysis and reporting results, which ICC claims are addressed at the
Risk Committee and Board level. Thus, to reflect current governance
practices, references to the Risk Working Group have been removed from
its framework.
III. Discussion and Commission Findings
Section 19(b)(2)(C) of the Act \5\ directs the Commission to
approve a proposed rule change of a self-regulatory organization if the
Commission finds that the proposed rule change is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to such self-regulatory organization. Section 17A(b)(3)(F)
of the Act \6\ requires, among other things, that the rules of a
clearing agency be designed to promote the prompt and accurate
clearance and settlement of securities transactions, and to the extent
applicable, derivative agreements, contracts and transactions, to
assure the safeguarding of securities and funds which are in the
custody or control of the clearing agency or for which it is
responsible and, in general, to protect investors and the public
interest. In addition, Rule 17Ad-22(b)(3),\7\ requires registered
clearing agencies to maintain, at a minimum, sufficient financial
resources to withstand a default by the participant family to which it
has the largest exposure in extreme but plausible market conditions,
and for registered clearing agencies acting as a central counterparty
for security-based swaps, to maintain additional financial resources
sufficient to withstand, at a minimum, a default by the two participant
families to which it has the largest exposures in extreme but plausible
market conditions.
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\5\ 15 U.S.C. 78s(b)(2)(C).
\6\ 15 U.S.C. 78q-1(b)(3)(F).
\7\ 17 CFR 240.17Ad-22(b)(3).
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The Commission finds that the proposed rule change is consistent
with the requirements of Section 17A of the Act \8\ and the rules and
regulations thereunder applicable to ICC.
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\8\ 15 U.S.C. 78q-1.
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ICC's Stress Testing Framework establishes ICC's stress testing
practices. These stress testing practices are designed, among other
things, to ensure the adequacy of ICC's financial resources under
applicable legal requirements, and set forth the methodology by which
ICC evaluates potential portfolio profits and losses, compared to the
Initial Margin and Guaranty Fund funds maintained, in order to identify
any potential weakness in ICC's risk methodology. Such financial
resources will facilitate ICC's continued operations in the event of a
participant default. As such, the Commission believes that the proposed
rule changes are designed to promote the prompt and accurate clearance
and settlement of securities transactions,
[[Page 36981]]
derivatives agreements, contracts, and transactions within the meaning
of Section 17A(b)(3)(F) \9\ of the Act.
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\9\ Id.
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The Commission also believes that the proposed changes will satisfy
the applicable requirements of Rule 17Ad-22.\10\ In particular, the
Stress Testing Framework contains stress testing practices designed to
ensure that ICE Clear Credit maintains sufficient financial resources
to withstand a default by the participant family to which it has the
largest exposure in extreme but plausible market conditions, and that
as a registered clearing agency acting as a central counterparty for
security-based swaps, ICC maintains additional financial resources
sufficient to withstand, at a minimum, a default by the two participant
families to which it has the largest exposures in extreme but plausible
market conditions, consistent with the requirements of Rule 17Ad-
22(b)(3).\11\
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\10\ 17 CFR 240.17Ad-22.
\11\ 17 CFR 240.17Ad-22(b)(3).
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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 of the Act \12\ and the
rules and regulations thereunder.
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\12\ 15 U.S.C. 78q-1.
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\13\ that the proposed rule change (File No. SR-ICC-2016-005) as
modified by Amendment No. 1, be, and hereby is, approved.\14\
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\13\ 15 U.S.C. 78s(b)(2).
\14\ 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.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-13477 Filed 6-7-16; 8:45 am]
BILLING CODE 8011-01-P
