Self-Regulatory Organizations; ICE Clear Credit LLC; Order Approving Proposed Rule Change To Revise the ICC Risk Management Model Description Document and the ICC Risk Management Framework, 78677-78678 [2016-26906]

Download as PDF Federal Register / Vol. 81, No. 216 / Tuesday, November 8, 2016 / Notices furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.14 Brent J. Fields, Secretary. [FR Doc. 2016–26907 Filed 11–7–16; 8:45 am] IV. Solicitation of Comments BILLING CODE 8011–01–P 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 (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– Phlx–2016–107 on the subject line. SECURITIES AND EXCHANGE COMMISSION [Release No. 34–79220; File No. SR–ICC– 2016–010] Self-Regulatory Organizations; ICE Clear Credit LLC; Order Approving Proposed Rule Change To Revise the ICC Risk Management Model Description Document and the ICC Risk Management Framework November 2, 2016 mstockstill on DSK3G9T082PROD with NOTICES Paper Comments I. Introduction • Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–Phlx–2016–107. 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 Web site (https://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 Web site 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 the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–Phlx–2016–107 and should be submitted on or before November 29, 2016. On July 15, 2016, 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 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to revise the ICC Risk Management Framework to incorporate changes to the single name credit default swap (‘‘CDS’’) liquidity charge methodology and make additional minor, clarifying changes (SR–ICC–2016–010). The proposed rule change was published for comment in the Federal Register on August 4, 2016.3 On September 15, 2016, the Commission extended the time period in which to either approve, disapprove, or institute proceedings to determine whether to disapprove the proposed rule change to November 2, 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. VerDate Sep<11>2014 16:27 Nov 07, 2016 Jkt 241001 II. Description of the Proposed Rule Change ICC proposes revising the ICC Risk Management Framework to incorporate certain risk model enhancements related to its single name CDS liquidity charge methodology. ICC also proposes minor clarifying edits to the ICC Risk Management Model Description 14 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 Securities Exchange Act Release No. 34–78448 (July 29, 2016), 81 FR 51532 (Aug. 4, 2016) (SR– ICC–2016–010). 4 Securities Exchange Act Release No. 34–78846 (Sept. 15, 2016), 81 FR 64574 (Sept. 20, 2016) (SR– ICC–2016–010). 1 15 PO 00000 Frm 00113 Fmt 4703 Sfmt 4703 78677 document and the ICC Risk Management Framework. These revisions do not require any changes to the ICC Clearing Rules. Specifically, ICC proposes to introduce minimum instrument liquidity requirements independent of instrument maturities. ICC’s current approach features instrument liquidity requirements that decay with time to maturity for fixed credit spread levels. The proposed approach introduces minimum liquidity requirements for individual instruments, independent of time to maturity for the considered instruments. ICC believes the proposal thus establishes minimum liquidity charges that do not decay over time as maturity is approached. The revised calculation for single name CDS liquidity charges at the instrument level will incorporate a price-based bid-offer width (‘‘BOW’’) floor component, which ICC asserts will provide stability of requirements, as well as a dynamic spread-based BOW component, which ICC asserts will reflect the additional risk associated with distressed market conditions. The values of such pricebased BOW and spread-based BOW will be fixed factors, which will be subject to at least monthly reviews and updates by ICC Risk Management Department with consultation with the Risk Committee. ICC also proposes enhancements to the liquidity charge calculation at the risk factor level. ICC’s current risk factor level liquidity requirements are based on forward CDS spread levels. Under the revised calculation, liquidity charges at the risk factor level will be computed by first calculating the liquidity requirements for each individual instrument position in the portfolio, and then summing all instrument liquidity requirements for positions with the same directionality, i.e. bought or sold protection. The risk factor liquidity requirement will be the greatest liquidity requirement associated with either the sum of all bought protection position liquidity requirements, or the sum of all sold protection position liquidity requirements. ICC is not proposing any changes to the liquidity charge calculation at the portfolio level. ICC expects these enhancements will ensure more stable liquidity requirements for instruments across the curve and simplify ICC’s liquidity charge methodology, which ICC believes should promote ease of understanding. In ICC’s view, the current risk factor level liquidity requirements, based on forward CDS spread levels, are, in general, more difficult to replicate due E:\FR\FM\08NON1.SGM 08NON1 78678 Federal Register / Vol. 81, No. 216 / Tuesday, November 8, 2016 / Notices mstockstill on DSK3G9T082PROD with NOTICES to the need for knowledge of spread levels across the entire term structure. Additionally, to facilitate replication of the enhanced liquidity charge calculations, ICC will provide end-ofday data for instruments in which clients have open positions, allowing for additional transparency and easier replication for clients who wish to estimate liquidity charges for hypothetical and current positions. ICC also proposes updating liquidity scaling factors to reflect the methodology enhancements. There is no price based component under the current methodology. To reflect the introduction of a price based component, the liquidity scaling factors will be decomposed and adjusted in order to maintain the same overall composition with both price and spread based components. ICC has also proposed minor clarifying edits to the ICC Risk Management Framework and the ICC Risk Management Model Description document. ICC will add language to the Overview section of the Risk Management Framework to identify which ICC documents provide additional details regarding ICC’s risk management approach. ICC will add language to the Governance and Organization section of the Risk Management Framework to note that the reporting line of ICC’s Chief Risk Officer to the Chairperson of the ICC Risk Committee, who is also a non-executive manager on the Board, allows the Chief Risk Officer to bring any issues or concerns directly to the Board without intermediation by other ICC personnel. ICC will also make edits to the Governance and Organization section of the Risk Management Framework to revise the list of documents reviewed by the Risk Committee on at least an annual basis to include the ICC End-ofDay Price Discovery Policies and Procedures and the ICC Operational Risk Management Framework. Finally, ICC will add minor clarifying details to the technical calculation descriptions set forth in the ICC Risk Management Model Description document, specifically in the Recovery Rate Sensitivity Risk Analysis, Interest Rate Sensitivity Risk Analysis, Spread Risk Analysis, and Guaranty Fund Size Estimation sections. 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 5 15 U.S.C. 78s(b)(2)(C). VerDate Sep<11>2014 16:27 Nov 07, 2016 Jkt 241001 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 are designed to promote the prompt and accurate clearance and settlement of securities transactions and, to the extent applicable, derivative agreements, contracts, and transactions and to comply with the provisions of the Act and the rules and regulations thereunder. The Commission finds that the proposed rule change is consistent with the requirements of Section 17A of the Act 7 and the rules and regulations thereunder applicable to ICC. ICC asserts that the proposed change will simplify its initial margin methodology and lead to more stable initial margin requirements. The Commission believes that ICC’s proposed revisions to the ICC Risk Management Framework and the ICC Risk Model Description Document, including the introduction of minimum liquidity requirements for the relevant instruments that do not decay over time and therefore are independent of instrument maturities, are reasonably designed to meet the margin and financial resource requirements of Rule 17Ad–22(b)(2–3).8 In addition, the Commission believes that the revised methodology should assist market participants clearing or deciding whether to clear instruments through ICC to estimate liquidity charges for hypothetical and current positions. This enhancement in transparency is consistent with Rule 17Ad–22(d)(9),9 which requires clearing agencies to establish, implement, maintain, and enforce policies and procedures reasonably designed to provide market participants with sufficient information for them to identify and evaluate the risks and costs associated with using its service. 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 10 and the rules and regulations thereunder. It is therefore ordered, pursuant to Section 19(b)(2) of the Act,11 that the proposed rule change (File No. SR–ICC– 2016–010) be, and hereby is, approved.12 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.13 Brent J. Fields, Secretary. [FR Doc. 2016–26906 Filed 11–7–16; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION Sunshine Act Meeting Notice is hereby given, pursuant to the provisions of the Government in the Sunshine Act, Public Law 94–409, that the Securities and Exchange Commission will hold a closed meeting on Thursday, November 10, 2016, at 2 p.m. Commissioners, Counsel to the Commissioners, the Secretary to the Commission, and recording secretaries will attend the closed meeting. Certain staff members who have an interest in the matters also may be present. The General Counsel of the Commission, or her designee, has certified that, in her opinion, one or more of the exemptions set forth in 5 U.S.C. 552b(c)(3), (5), (7), 9(B) and (10) and 17 CFR 200.402(a)(3), (a)(5), (a)(7), (a)(9)(ii), and (a)(10), permit consideration of the scheduled matter at the closed meeting. Chair White, as duty officer, voted to consider the items listed for the closed meeting in closed session. The subject matter of the closed meeting will be: Institution and settlement of administrative proceedings; and Other matters relating to enforcement proceedings. At times, changes in Commission priorities require alterations in the scheduling of meeting items. For further information and to ascertain what, if any, matters have been added, deleted or postponed, please contact Brent J. Fields from the Office of the Secretary at (202) 551–5400. Dated: November 3, 2016. Brent J. Fields, Secretary. [FR Doc. 2016–27029 Filed 11–4–16; 11:15 am] BILLING CODE 8011–01–P 6 15 U.S.C. 78q–1(b)(3)(F). 7 15 U.S.C. 78q–1. 8 17 CFR 240.17Ad–22(b)(2–3). 9 17 CFR 240.17Ad–22(d)(9). 10 15 U.S.C. 78q–1. 11 15 U.S.C. 78s(b)(2). PO 00000 Frm 00114 Fmt 4703 Sfmt 9990 12 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). 13 17 CFR 200.30–3(a)(12). E:\FR\FM\08NON1.SGM 08NON1

Agencies

[Federal Register Volume 81, Number 216 (Tuesday, November 8, 2016)]
[Notices]
[Pages 78677-78678]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-26906]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79220; File No. SR-ICC-2016-010]


Self-Regulatory Organizations; ICE Clear Credit LLC; Order 
Approving Proposed Rule Change To Revise the ICC Risk Management Model 
Description Document and the ICC Risk Management Framework

November 2, 2016

I. Introduction

    On July 15, 2016, 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 (``Act'') \1\ 
and Rule 19b-4 thereunder,\2\ a proposed rule change to revise the ICC 
Risk Management Framework to incorporate changes to the single name 
credit default swap (``CDS'') liquidity charge methodology and make 
additional minor, clarifying changes (SR-ICC-2016-010). The proposed 
rule change was published for comment in the Federal Register on August 
4, 2016.\3\ On September 15, 2016, the Commission extended the time 
period in which to either approve, disapprove, or institute proceedings 
to determine whether to disapprove the proposed rule change to November 
2, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 34-78448 (July 29, 
2016), 81 FR 51532 (Aug. 4, 2016) (SR-ICC-2016-010).
    \4\ Securities Exchange Act Release No. 34-78846 (Sept. 15, 
2016), 81 FR 64574 (Sept. 20, 2016) (SR-ICC-2016-010).
---------------------------------------------------------------------------

II. Description of the Proposed Rule Change

    ICC proposes revising the ICC Risk Management Framework to 
incorporate certain risk model enhancements related to its single name 
CDS liquidity charge methodology. ICC also proposes minor clarifying 
edits to the ICC Risk Management Model Description document and the ICC 
Risk Management Framework. These revisions do not require any changes 
to the ICC Clearing Rules.
    Specifically, ICC proposes to introduce minimum instrument 
liquidity requirements independent of instrument maturities. ICC's 
current approach features instrument liquidity requirements that decay 
with time to maturity for fixed credit spread levels. The proposed 
approach introduces minimum liquidity requirements for individual 
instruments, independent of time to maturity for the considered 
instruments. ICC believes the proposal thus establishes minimum 
liquidity charges that do not decay over time as maturity is 
approached. The revised calculation for single name CDS liquidity 
charges at the instrument level will incorporate a price-based bid-
offer width (``BOW'') floor component, which ICC asserts will provide 
stability of requirements, as well as a dynamic spread-based BOW 
component, which ICC asserts will reflect the additional risk 
associated with distressed market conditions. The values of such price-
based BOW and spread-based BOW will be fixed factors, which will be 
subject to at least monthly reviews and updates by ICC Risk Management 
Department with consultation with the Risk Committee.
    ICC also proposes enhancements to the liquidity charge calculation 
at the risk factor level. ICC's current risk factor level liquidity 
requirements are based on forward CDS spread levels. Under the revised 
calculation, liquidity charges at the risk factor level will be 
computed by first calculating the liquidity requirements for each 
individual instrument position in the portfolio, and then summing all 
instrument liquidity requirements for positions with the same 
directionality, i.e. bought or sold protection. The risk factor 
liquidity requirement will be the greatest liquidity requirement 
associated with either the sum of all bought protection position 
liquidity requirements, or the sum of all sold protection position 
liquidity requirements. ICC is not proposing any changes to the 
liquidity charge calculation at the portfolio level. ICC expects these 
enhancements will ensure more stable liquidity requirements for 
instruments across the curve and simplify ICC's liquidity charge 
methodology, which ICC believes should promote ease of understanding. 
In ICC's view, the current risk factor level liquidity requirements, 
based on forward CDS spread levels, are, in general, more difficult to 
replicate due

[[Page 78678]]

to the need for knowledge of spread levels across the entire term 
structure.
    Additionally, to facilitate replication of the enhanced liquidity 
charge calculations, ICC will provide end-of-day data for instruments 
in which clients have open positions, allowing for additional 
transparency and easier replication for clients who wish to estimate 
liquidity charges for hypothetical and current positions.
    ICC also proposes updating liquidity scaling factors to reflect the 
methodology enhancements. There is no price based component under the 
current methodology. To reflect the introduction of a price based 
component, the liquidity scaling factors will be decomposed and 
adjusted in order to maintain the same overall composition with both 
price and spread based components.
    ICC has also proposed minor clarifying edits to the ICC Risk 
Management Framework and the ICC Risk Management Model Description 
document. ICC will add language to the Overview section of the Risk 
Management Framework to identify which ICC documents provide additional 
details regarding ICC's risk management approach. ICC will add language 
to the Governance and Organization section of the Risk Management 
Framework to note that the reporting line of ICC's Chief Risk Officer 
to the Chairperson of the ICC Risk Committee, who is also a non-
executive manager on the Board, allows the Chief Risk Officer to bring 
any issues or concerns directly to the Board without intermediation by 
other ICC personnel. ICC will also make edits to the Governance and 
Organization section of the Risk Management Framework to revise the 
list of documents reviewed by the Risk Committee on at least an annual 
basis to include the ICC End-of-Day Price Discovery Policies and 
Procedures and the ICC Operational Risk Management Framework. Finally, 
ICC will add minor clarifying details to the technical calculation 
descriptions set forth in the ICC Risk Management Model Description 
document, specifically in the Recovery Rate Sensitivity Risk Analysis, 
Interest Rate Sensitivity Risk Analysis, Spread Risk Analysis, and 
Guaranty Fund Size Estimation sections.

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 are designed to promote the prompt and accurate 
clearance and settlement of securities transactions and, to the extent 
applicable, derivative agreements, contracts, and transactions and to 
comply with the provisions of the Act and the rules and regulations 
thereunder.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78s(b)(2)(C).
    \6\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    The Commission finds that the proposed rule change is consistent 
with the requirements of Section 17A of the Act \7\ and the rules and 
regulations thereunder applicable to ICC. ICC asserts that the proposed 
change will simplify its initial margin methodology and lead to more 
stable initial margin requirements. The Commission believes that ICC's 
proposed revisions to the ICC Risk Management Framework and the ICC 
Risk Model Description Document, including the introduction of minimum 
liquidity requirements for the relevant instruments that do not decay 
over time and therefore are independent of instrument maturities, are 
reasonably designed to meet the margin and financial resource 
requirements of Rule 17Ad-22(b)(2-3).\8\ In addition, the Commission 
believes that the revised methodology should assist market participants 
clearing or deciding whether to clear instruments through ICC to 
estimate liquidity charges for hypothetical and current positions. This 
enhancement in transparency is consistent with Rule 17Ad-22(d)(9),\9\ 
which requires clearing agencies to establish, implement, maintain, and 
enforce policies and procedures reasonably designed to provide market 
participants with sufficient information for them to identify and 
evaluate the risks and costs associated with using its service.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78q-1.
    \8\ 17 CFR 240.17Ad-22(b)(2-3).
    \9\ 17 CFR 240.17Ad-22(d)(9).
---------------------------------------------------------------------------

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 \10\ and the 
rules and regulations thereunder.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\11\ that the proposed rule change (File No. SR-ICC-2016-010) be, 
and hereby is, approved.\12\
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    \11\ 15 U.S.C. 78s(b)(2).
    \12\ 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.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-26906 Filed 11-7-16; 8:45 am]
BILLING CODE 8011-01-P
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