Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of Proposed Rule Change, as Modified by Amendment No. 1, Relating to ICC's Risk Management Model Description Document and ICC's Risk Management Framework, 53917-53922 [2018-23279]
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exemptions from the requirements of 10 CFR
50.82(a)(8)(i)(A) and 10 CFR 50.75(h)(1)(iv) to
allow use of a portion of the funds from the
Oyster Creek DTF for spent fuel management
and site restoration activities in accordance
with the Oyster Creek PSDAR and DCE,
dated May 21, 2018. Additionally, the
Commission hereby grants Exelon an
exemption from the requirement of 10 CFR
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without prior NRC notification.
The exemptions are effective upon
issuance.
Dated at Rockville, Maryland, this 19th day
of October 2018.
For the Nuclear Regulatory Commission.
/RA/
Kathryn M. Brock,
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Reactor Licensing, Office of Nuclear Reactor
Regulation.
[FR Doc. 2018–23300 Filed 10–24–18; 8:45 am]
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[Release No. 34–84457; File No. SR–ICC–
2018–008]
Self-Regulatory Organizations; ICE
Clear Credit LLC; Notice of Filing of
Amendment No. 1 and Order Granting
Accelerated Approval of Proposed
Rule Change, as Modified by
Amendment No. 1, Relating to ICC’s
Risk Management Model Description
Document and ICC’s Risk Management
Framework
daltland on DSKBBV9HB2PROD with NOTICES
October 19, 2018.
On July 5, 2018, ICE Clear Credit LLC
(‘‘ICC’’) filed with the Securities and
Exchange Commission (‘‘Commission’’)
a proposed rule change to transition
from a stress-based methodology to a
Monte Carlo-based methodology for the
spread-response and recovery-ratesensitivity-response components of the
initial margin model (SR–ICC–2018–
008), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder.2
The proposed rule change was
published for comment in the Federal
Register on July 24, 2018.3 On
September 5, 2018, the Commission
designated a longer period within which
to approve the proposed rule change,
disapprove the proposed rule change, or
institute proceedings to determine
whether to approve or disapprove the
1 15
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Securities Exchange Act Release No. 83662 (July
18, 2018), 83 FR 35033 (July 24, 2018) (SR–ICC–
2018–008) (‘‘Notice’’).
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proposed rule change.4 The Commission
did not receive any comments on the
Proposed Rule Change. On October 12,
2018, ICC filed Amendment No 1 to the
proposed rule change.5 The Commission
is publishing this notice to solicit
comment on Amendment No. 1 from
interested persons and is approving the
proposed rule change, as modified by
Amendment No. 1 (hereinafter,
‘‘Proposed Rule Change’’) on an
accelerated basis.6
I. Description of the Proposed Rule
Change
ICC’s current approach uses a stressbased approach for the spread-response
and recovery-rate (‘‘RR’’) sensitivityresponse components of the initial
margin model. Specifically, to derive
the spread-response component, the
current approach considers a set of
hypothetical ‘‘tightening’’ and
‘‘widening’’ credit-spread scenarios
from which it computes instrument
Profit/Loss (‘‘P/L’’) responses for every
Risk Factor (‘‘RF’’) scenario.7 All
instrument P/L responses for a scenario
are aggregated to obtain the portfolio P/
L response for that scenario.8 Because
the set of scenarios does not reflect the
joint distribution of the considered RFs,
offsets between P/Ls are applied to
provide some portfolio benefits.9 To
derive the RR sensitivity-response
component, all instruments belonging to
a RF or Risk Sub-Factor (‘‘RSF’’) are
subjected to RR stress scenarios to
obtain the resulting P/L responses, and
the worst-scenario response is chosen
for the estimation of the RF/RSF RR
sensitivity-response component.10
ICC’s current stress-based approach
generates a limited number of stress
scenarios that may not capture the risk
of portfolios with more complex, nonlinear instruments.11 Additionally, the
current approach does not provide for a
consistent estimation of the portfoliolevel spread response based on a
defined risk measure (e.g., Value-at-Risk
(‘‘VaR’’)) and quantile (e.g., 99%).12 To
alleviate the problem, the Proposed Rule
4 Securities Exchange Act Release No. 84032
(September 5, 2018), 83 FR 46000 (September 11,
2018) (SR–ICC–2018–008).
5 In Amendment No. 1 to the proposed rule
change, ICC provided additional details and
analyses surrounding the proposed rule change in
the form of a confidential Exhibit 3.
6 Capitalized terms used herein but not otherwise
defined have the meaning set forth in the ICE Clear
Europe Clearing Rules, which is available at https://
www.theice.com/publicdocs/clear_europe/
rulebooks/rules/Clearing_Rules.pdf.
7 Id.
8 Id.
9 Id.
10 Id.
11 Notice, 83 FR at 35033.
12 Id.
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53917
Change would revise ICC’s Risk
Management Model Description
Document and its Risk Management
Framework to a Monte Carlo-based
methodology for the spread-response
and recovery-rate-sensitivity-response
(‘‘RR’’) components of ICC’s initial
margin model.
The proposed Monte Carlo-based
methodology would utilize standard
tools in modeling dependence, which
can be seen as a means for constructing
multivariate distributions with different
univariate distributions and with
desired dependence structures, to
generate the spread and RR scenarios.13
It also would provide flexibility in
modeling tail dependence, an important
concept in risk management that
provides information about how
frequently extreme values are expected
to occur, and that ICC considers
particularly suitable for implementing
its Monte Carlo framework.14
Specifically, under the Monte Carlo
approach, the ‘‘integrated spread
response’’ component would replace the
spread-response and RR-sensitivityresponse components.15 This
component would be computed by
creating P/L distributions from a set of
jointly-simulated hypothetical (forward
looking) spread and RR scenarios.16 ICC
would not change the univariate RF
distribution assumptions under the
proposed Monte Carlo-based
methodology.17 ICC would utilize the
simulated scenarios to derive the
hypothetical spread and RR levels at
which each instrument is repriced in
order to generate a scenario instrument
P/L based on post-index-decomposition
positions.18 ICC would create P/L
distributions from the set of jointlysimulated hypothetical (forward
looking) credit spread and RR scenarios
to compute the integrated spreadresponse component.19 The P/L
distributions for each instrument would
allow ICC to decompose portfolio level
P/L at the RF level and to estimate RFlevel risk measures.20 The proposed
model would utilize the 5-day 99.5%
VaR measure and allow ICC to be
compliant with the European Market
Infrastructure Regulation (‘‘EMIR’’) as
applied to Over-The-Counter
instruments.21
13 Id.
14 Id.
15 Id.
16 Id.
17 Notice,
18 Notice,
83 FR at 35033–34.
83 FR at 35034.
19 Id.
20 Id.
21 Id.
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Federal Register / Vol. 83, No. 207 / Thursday, October 25, 2018 / Notices
Revisions to the ‘Initial Margin
Methodology’ Section of the Risk
Management Model Description
Document
ICC proposes revisions to the ‘Initial
Margin Methodology’ section of the Risk
Management Model Description
Document to reflect its transition to a
Monte Carlo-based methodology for the
spread-response and RR-sensitivityresponse components.22 ICC also
proposes to clarify its initial margin
model to note that it features stress loss
considerations and a P/L distribution
analysis at selected quantile levels that
are 99% or higher.23 The proposed
changes would further include a
description of each of the initial margin
model components, which would be
separated into statistically calibrated
components and stress-based add-on
components.24 The statistically
calibrated components (i.e., spread and
RR dynamics, interest rate dynamics,
and index/single-name (‘‘SN’’) basis
dynamics) would reflect fluctuations in
market observed or implied quantities,
and their direct P/L impacts.25 The
stress-based add-on components (i.e.,
idiosyncratic loss given default
(‘‘LGD’’), wrong-way-risk (‘‘WWR’’)
LGD, bid/offer width risk, and
concentration risk) would reflect the
risk associated with low probability
events with limited information sets.26
First, ICC proposes certain minor
updates to terminology in the ‘LGD Risk
Analysis’ section consistent with the
transition to the Monte Carlo
approach.27 Specifically, the proposed
revisions would clarify that the LGD
calculation considers RSF-specific RR
level scenarios and that the Jump-ToDefault (‘‘JTD’’) RR stress levels would
be updated if needed. ICC proposes to
update the Profit/Loss-Given-Default
(‘‘P/LGD’’) calculation at the RSF level
to indicate the association between the
JTD and the RR level scenarios.28 ICC
proposes to remove a reference to the
stress levels noted in the current ‘RR
Sensitivity Risk Analysis’ section. ICC
proposes to move the RF level P/LGD
calculation ahead of the Risk Factor
Group (‘‘RFG’’) LGD calculations to
avoid disrupting the grouping of RFG
LGD calculations.29
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22 Id.
23 Id.
24 Id.
25 Id.
26 Id.
27 ICC
also proposes to reorganize the ‘Initial
Margin Methodology’ section to begin with the
‘LGD Risk Analysis’ section. Id.
28 Id.
29 Id.
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Second, ICC proposes amendments to
the ‘JTD Risk Analysis’ section.30 The
proposed revisions to the
Uncollateralized LGD (‘‘ULGD’’)
calculation would incorporate the
integrated spread-response component
described above and remove reference
to the current RR-sensitivity-response
component.31 ICC also proposes, for
clarity, to shorten a description in the
WWR JTD calculation and to move
details regarding the Kendall tau rankorder correlation to follow the WWR
JTD calculation as such details are
associated with the WWR JTD
calculation.32 ICC proposes to include
this information, which is currently
located in a source in a footnote, within
the text to provide further description of
the source in the footnote.33 ICC also
proposes minor structural updates to its
description of specific WWR (‘‘SWWR’’)
to enhance readability.34
Third, ICC proposes to add clarifying
language to the ‘Interest Rate Sensitivity
Risk Analysis’ section to note that the
interest rate sensitivity component is a
statistically calibrated initial margin
component.35 ICC also proposes to
correct a notation to reflect an inverse
distribution function.36
Fourth, ICC proposes a number of
structural changes to the ‘Basis Risk
Analysis’ section, which consist of
moving certain descriptions within the
section and making changes to conform
such descriptions to the proposed new
Monte Carlo based approach.
Specifically, ICC proposes moving the
description in the current ‘Long-Short
Benefits among RFs with Common
Basis’ subsection to the proposed ‘Index
Decomposition and Long-Short Offsets’
subsection and making conforming
changes.37 Similarly, ICC proposes
moving the description in the current
‘Portfolio Benefits Hierarchy Summary’
subsection to the proposed ‘Long/Short
Offset Hierarchy’ subsection and making
conforming changes.38 ICC also
proposes moving the analysis in the
current ‘Basis Risk Analysis’ section to
the proposed ‘Index-Basis Risk
Estimation’ subsection and making
conforming changes.39
30 Id.
31 Id.
32 Id. The details regarding the Kendall tau rankorder correlation would remain unchanged, except
for the addition of clarifying language referencing
regulatory guidance with respect to RFs deemed
highly correlated. Id.
33 Id.
34 Id.
35 Id.
36 Id.
37 Id.
38 Id.
39 Id.
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Fifth, ICC proposes to combine the
current ‘Spread Risk Analysis’ and ‘RR
Sensitivity Risk Analysis’ sections into
the proposed ‘Spread and RR Risk
Analysis’ section to reflect the transition
to a Monte Carlo-based methodology for
the spread-response and RR-sensitivityresponse components.40 Under the
proposed approach, ICC would utilize
credit spreads and RR distributions to
jointly simulate scenarios to estimate
portfolio risk measures.41 Accordingly,
ICC proposes to combine the ‘Spread
Risk Analysis’ and ‘RR Sensitivity Risk
Analysis’ sections into the ‘Spread and
RR Risk Analysis’ section given their
interrelation under the proposed
approach, in which the integrated
spread response would be computed by
creating P/L distributions from a set of
jointly-simulated hypothetical (forward
looking) spread and RR scenarios.42
In the amended ‘Spread Risk
Analysis’ section, ICC proposes to
remove details regarding the current
stress-based approach and to describe
how ICC generates credit spread
scenarios using Monte Carlo
techniques.43 As described above, the
spread-response component is derived
in terms of a set of hypothetical
‘‘tightening’’ and ‘‘widening’’ credit
spread scenarios under the current
stress-based approach.44 The analysis of
the univariate characteristics of credit
spread log-returns to arrive at credit
spread scenarios would not change
under the Monte Carlo-based
methodology.45
The univariate RF distribution
assumptions would not change under
the Monte Carlo-based methodology,
and thus the ‘Distribution of the Credit
Spreads’ subsection of the amended
‘Spread Risk Analysis’ section remains
largely the same with some clarifying
changes to language included.46
ICC proposes to describe the
implementation of the Monte Carlobased methodology in the new
‘Multivariate Statistical Approach via
Copulas’ subsection. ICC proposes to
include a discussion on the construction
and application of the standard tools in
modeling dependence, including the
review of their theoretical background,
in the new ‘Copulas’ subsection.47
ICC proposes the new ‘Tail
Dependence’ subsection to provide a
description of the concept of tail
40 Id.
41 Id.
42 Id.
43 Notice,
44 Notice,
83 FR at 35034–35.
83 FR at 35035.
45 Id.
46 Id.
47 Id.
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Federal Register / Vol. 83, No. 207 / Thursday, October 25, 2018 / Notices
dependence, given its relevancy as it
indicates the probability of extreme
values occurring jointly.48 The proposed
subsection would provide additional
support behind ICC’s conclusion that
the tools for modeling dependence
would be particularly suitable for
connecting the various univariate
distributions in a multivariate setting as
they provide flexibility in modeling tail
dependence.49
In the proposed ‘Copula Simulation’
subsection, ICC would describe its
Monte Carlo-based simulation
approach.50 The proposed approach is
based on first generating for all SN RF/
RSF and On The Run indices Most
Actively Traded Tenor (‘‘MATT’’)
scenarios using the stochastic
representation of the selected
multivariate distribution under
consideration.51 The conditional
simulation approach would then be
utilized to generate individual RF/tenorspecific scenarios.52 ICC also proposes
to describe the block simulation
approach that it would utilize in
generating scenarios, which departs
from an approach where all tenors for
all SNs are simulated together. Instead,
specific blocks of the correlation matrix
would be considered through the
stepwise block simulation approach.53
ICC would discuss the estimation of a
new parameter in the proposed ‘Copula
Parameter Estimation’ subsection.54 The
new subsection would include a
description of two methods that can be
used for parameter estimation, namely
the ‘‘quasi Maximum Likelihood’’
approach and the ‘‘Canonical Maximum
Likelihood’’ method.55 ICC proposes to
set the value at which this parameter is
set conservatively and to explain that
the value reflects strong tail dependence
within the simulation framework, which
is important because ICC estimates that
tail dependence would increase in
stressed market conditions.56
Sixth, ICC proposes certain
amendments to the ‘RR Risk Analysis’
section to remove details regarding the
current stress-based approach for the
RR-sensitivity-response component and
to describe how ICC jointly simulates
credit spread and RR scenarios using
Monte Carlo techniques.57 As discussed
above, under the current stress-based
approach, the RR-sensitivity-response
component is computed in terms of RR
stress scenarios and incorporates
potential losses associated with changes
in the market implied RR.58 The
proposed Monte Carlo-based
methodology would consider the risk
arising from fluctuations in the market
implied RRs of each SN RF and/or RSF
jointly with the fluctuations in the
curves of credit spreads.59
The proposed ‘Distribution of RRs’
subsection would contain much of the
relevant analysis under the current ‘RR
Sensitivity Risk Analysis’ section
because the univariate RR distribution
assumptions would not change under
the Monte Carlo-based methodology.
ICC proposes some additional clarifying
language to further specify that the RR
stress-based sensitivity requirement
transitioned to a Monte Carlo
simulation-based methodology.60
Specifically, ICC proposes to note the
assumption regarding the analysis of
each SN RF/RSF that includes the
description located under the current
‘Beta Distribution’ subsection as the
integrated spread response also assumes
a Beta distribution describing the
behavior of the RRs.61
The amended ‘Parameter Estimation’
subsection would discuss the parameter
calibration necessary to simulate RR
scenarios and is largely the same.62 The
proposed revisions would remove or
replace terminology associated with the
stress-based approach with terminology
associated with the Monte Carlo-based
approach.63
The proposed ‘Spread-Recovery-Rate
Bivariate Model’ subsection would
describe the use of credit spread and RR
distributions to jointly simulate
scenarios to estimate portfolio risk
measures under the Monte Carlo-based
methodology.64 Namely, ICC proposes
to discuss the use of the conditional
simulation approach to jointly simulate
SN RF/RSF-specific RR scenarios with
SN RF/RSF MATT spread log-return
scenarios.65 ICC proposes to note
several assumptions under this model,
along with an explanation of how it
generates the individual SN RF/RSFspecific RR scenarios and the tenorspecific spread scenarios using
copulas.66
ICC proposes moving the ‘ArbitrageFree Modeling’ subsection, which is
currently located in the ‘Spread Risk
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Analysis’ section, to the ‘Spread and RR
Risk Analysis’ section.67 The analysis
would remain largely the same with
some language clarifications, including
references to simulated spread levels in
conjunction with simulated RR levels
within the text and within formulas to
ensure consistency with the proposed
‘Spread and RR Risk Analysis’ section.68
ICC proposes further revisions to
terminology, such as removing
terminology associated with the stressbased approach and incorporating the
Monte Carlo simulation based
methodology described above to ensure
consistency with the proposed ‘Spread
and RR Risk Analysis’ section.69 ICC
also proposes replacing specific
references to the current most actively
traded tenor with references to the more
general concept of ‘‘most actively traded
tenor’’ to account for a situation in
which the referenced most actively
traded tenor is different.70
Seventh, in the proposed ‘Risk
Estimations’ subsection, ICC would
describe the computation of the
integrated spread-response
component.71 Once the Monte Carlo
scenarios would be simulated, all
instruments would be repriced, and the
respective instrument P/L responses
would be computed.72 Upon
consideration of the instrument
positions in each portfolio along with
the instrument P/L responses, portfolio
risk estimations would be performed
and the integrated spread-response
component would be established.73
ICC proposes to discuss its calculation
of P/Ls for instruments, RFs, common
currency sub-portfolios, and multicurrency sub-portfolios under the new
‘RF and Sub-Portfolio Level Integrated
Spread Response’ subsection.74 ICC
proposes to retain the use of subportfolios as is currently done today.75
However, the portfolio benefits across
sub-portfolios would be limited.76 This
enhancement would allow ICC to
decompose portfolio level P/L at the
sub-portfolio level and to estimate subportfolio level risk measures.77
In the proposed ‘Instrument P/L
Estimations’ subsection, ICC would
describe the calculation of instrument
P/Ls. Namely, ICC would reprice all
instruments at the hypothetical spread
67 Id.
68 Id.
48 Id.
49 Id.
58 Id.
69 Id.
50 Id.
59 Id.
70 Id.
51 Id.
60 Id.
71 Id.
52 Id.
61 Id.
72 Id.
53 Id.
62 Id.
73 Id.
54 Id.
63 Id.
74 Id.
55 Id.
64 Id.
75 Id.
56 Id.
65 Id.
76 Id.
57 Id.
66 Id.
77 Id.
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Federal Register / Vol. 83, No. 207 / Thursday, October 25, 2018 / Notices
and RR levels, which would be derived
from the simulated spread and RR
scenarios, and take the difference
between the prices of the instruments at
the simulated scenarios and the current
end-of-day (‘‘EOD’’) prices.78 ICC would
utilize the instrument-related P/L
distribution to estimate the instrumentspecific integrated spread response as
the 99.5% VaR measure in the currency
of the instrument.79
ICC would describe the calculation of
RF P/Ls in the proposed ‘RF P/L
Estimations’ subsection.80 ICC would
utilize the simulated P/L scenarios,
combined with the post-indexdecomposition positions related to a
given RF, to generate a currency-specific
RF P/L distribution.81 ICC would utilize
this RF-related P/L distribution to
estimate the RF-specific integrated
spread response as the 99.5% VaR
measure in the currency of the
considered RF.82
In the proposed ‘Common Currency
Sub-Portfolio P/L Estimations’
subsection, ICC would describe the
calculation of common currency subportfolio P/Ls.83 For a currency specific
sub-portfolio, ICC would extract the
relevant risk measures from subportfolio level P/L distributions, which
would be obtained from the aggregation
of common currency RF P/L
distributions.84
In the proposed ‘Multi-Currency SubPortfolio P/L Estimations’ subsection,
ICC would add clarifying language
describing the calculation of multicurrency sub-portfolio P/Ls. ICC
proposes to extend multi-currency
portfolio benefits to RFs with similar
market characteristics, where the RFs
and their respective instruments would
be denominated in different
currencies.85 Under the proposed
approach, long-short integrated spread
response benefits would be provided
between Corporate RFs that are
denominated in different currencies.86
ICC proposes to retain the multicurrency risk aggregation approach,
which involves obtaining U.S. Dollar
(‘‘USD’’) and Euro (‘‘EUR’’)
denominated sub-portfolio P/L
distributions, to RFs within the North
American Corporate and European
Corporate sub-portfolios denominated
in USD and EUR, respectively.87
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78 Notice,
79 Notice,
83 FR at 35035–36.
83 FR at 35036.
ICC proposes to include its
calculation for the portfolio level
integrated spread-response component
in the ‘Portfolio level Integrated Spread
Response’ subsection.88 The calculation
would include the sub-portfolio-specific
integrated spread response after any
potential multicurrency benefits and the
RF-specific integrated spread
response.89 ICC proposes the new ‘RF
Attributed Integrated Spread Response
Requirements’ subsection to describe
the calculation of the RF attributed
integrated spread-response component
for each RF in the considered
portfolio.90
ICC proposes minor revisions to the
‘Anti-Procyclicality Measures’
subsection to replace terminology
associated with the stress-based
approach with terminology associated
with the Monte Carlo-based approach.91
ICC also proposes to update calculation
descriptions relating to portfolio
responses to note that certain amounts
would be converted to or represented in
USD using the EOD established foreign
exchange (‘‘FX’’) rate.92
Eighth, ICC proposes updates to the
‘Multi-Currency Portfolio Treatment’
section to incorporate the proposed
integrated spread-response
component.93 ICC proposes to clarify
that it implements a multi-currency
portfolio treatment methodology for
portfolios with instruments that are
denominated in different currencies.94
The proposed changes would also
remove references to the current spreadresponse component.95
Finally, ICC also proposes minor edits
to the ‘Portfolio Loss Boundary
Condition’ section to remove or replace
references to the current spreadresponse and RR-sensitivity-response
components with references to the
proposed integrated spread-response
component within the text and within
formulas to ensure consistency with the
proposed ‘Spread and RR Risk Analysis’
section, specifically the ‘Portfolio Level
Integrated SR’ subsection.96 Moreover,
ICC proposes to reference, for clarity,
the total number of RFs within the
considered sub-portfolio in its
calculations of the maximum portfolio
loss and the maximum portfolio
integrated spread response to ensure
consistency with the proposed ‘Spread
and RR Risk Analysis’ section,
specifically the ‘Portfolio Level
Integrated SR’ subsection.97
Other Revisions to the Risk Management
Model Description Document
ICC proposes minor changes to the
‘Guaranty Fund (‘‘GF’’) Methodology’
section of the Risk Management Model
Description Document.98 The proposed
changes would move the descriptions
associated with the credit spread curve
shape scenarios (i.e., Uniform Scaling,
Pivoting, and Tenor Specific) from the
current ‘Spread Risk Analysis’ section to
the ‘Unconditional Uncollateralized
Exposures’ subsection.99 Although the
credit spread curve shape scenarios are
currently considered as part of the
spread-response component, ICC
proposes to only use them for GF
purposes.100 The descriptions and
calculations associated with the credit
spread curve shape scenarios would
remain largely the same with some
clarifying changes, including the
substitution of a variable for the
simulation quantile in the calculations
to reflect consistency with the GF risk
measure, and structural changes to the
descriptions to enhance readability.101
Additionally, the proposed changes
would include reference to the
integrated spread response in place of
the spread response in the calculations
describing the GF stress spread
response.
ICC also proposes other non-material
changes to the Risk Management Model
Description Document, including minor
grammatical, typographical, and
structural changes to enhance
readability and minor updates to
calculations to update symbol
notations.102
Risk Management Framework
ICC proposes conforming revisions to
its Risk Management Framework to
reflect the transition to a Monte Carlobased methodology for the spread
response and RR-sensitivity-response
components of the initial margin
model.103 The proposed revisions are
described in detail as follows.
ICC proposes changes to the ‘Waterfall
Level 2: Initial Margin’ section to
combine the spread response and the RR
sensitivity components into the
proposed integrated spread-response
component.104 The proposed revisions
would introduce the integrated spread-
88 Id.
80 Id.
89 Id.
97 Id.
81 Id.
90 Id.
98 Id.
82 Id.
91 Id.
99 Id.
83 Id.
92 Id.
100 Id.
84 Id.
93 Id.
101 Id.
85 Id.
94 Id.
102 Id.
86 Id.
95 Id.
103 Id.
87 Id.
96 Id.
104 Id.
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response component under the
amended ‘Integrated Spread Response
Requirements’ section and replace all
references to the spread response with
references to the integrated spread
response.105 ICC proposes conforming
changes throughout the framework.106
Currently, the spread-response
component is obtained by estimating
scenario P/L for a set of hypothetical
‘‘tightening’’ and ‘‘widening’’ credit
spread scenarios and by considering the
largest loss.107 Under the proposed
revisions, the integrated spread
response would be computed by
creating P/L distributions from a set of
jointly-simulated hypothetical (forward
looking) credit spread and RR
scenarios.108 The proposed changes
would provide an updated calculation
of the instrument scenario P/L, note the
mappings between spread and RR levels
and prices are performed by means of
the International Swap and Derivatives
Association (‘‘ISDA’’) standard
conversion convention, and specify that
the hypothetical prices are forward
looking.109 ICC also proposes to state
that the integrated spread response
approach would assume a distribution
that would describe the behavior of the
RRs.110
ICC proposes the new ‘Index
Decomposition Approach’ subsection,
which would contain the analysis under
the current ‘Index Decomposition
Benefits between Index RFs and SN
RSFs’ subsection without any material
changes.111 ICC also proposes the new
‘Portfolio Approach’ subsection to
describe the Monte Carlo simulation
framework, which would replace the
current stress-based approach noted
above.112 ICC proposes to utilize Monte
Carlo techniques to generate spread and
RR scenarios.113 ICC would utilize the
simulated scenarios to derive the
hypothetical spread and RR levels, at
which each instrument is repriced in
order to generate a scenario instrument
P/L based on post-index-decomposition
positions.114 For each scenario,
instrument P/Ls would aggregated to
obtain RF and sub-portfolio P/Ls, which
represent the RF and sub-portfolio P/L
distributions that would be used to
estimate the RF and sub-portfolio 99.5%
VaR measures at a risk horizon that is
daltland on DSKBBV9HB2PROD with NOTICES
105 Id.
106 Id.
at least 5 days.115 The portfolio level
integrated spread response would be
estimated as a weighted sum of RF and
sub-portfolio 99.5% VaR measures.116
ICC also proposes to move its analysis
related to achieving anti pro-cyclicality
to the amended ‘Integrated Spread
Response Requirements’ section without
any material changes.117
Notice of Filing of Amendment No. 1
ICC submitted Amendment No. 1 to
provide Commission with additional
details and analyses surrounding ICC’s
proposed transition to a Monte Carlobased methodology for certain
components of the initial margin model.
Amendment No. 1 included additional
information, which was submitted as
Exhibit 3, related to the Filing. Exhibit
3 contains a correlation sensitivity
analysis on portfolios using the
proposed Monte Carlo-based
methodology for the first half of 2018
and a back-testing analysis of the IM
components of the proposed Monte
Carlo-based methodology spanning 2015
through 2018 and including periods of
stressed market conditions.
II. Discussion and Commission
Findings
Section 19(b)(2)(C) of the Act directs
the Commission to approve a proposed
rule change of a self-regulatory
organization if it finds that such
proposed rule change is consistent with
the requirements of the Act and the
rules and regulations thereunder
applicable to such organization.118 For
the reasons given below, the
Commission finds that the proposal is
consistent with Section 17A(b)(3)(F) of
the Act 119 and Rule 17Ad–22(b)(2)
thereunder.120
A. Consistency With Section
17A(b)(3)(F) of the Act
Section 17A(b)(3)(F) of the Act 121
requires, among other things, that the
rules of ICC 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 ICC or for which it is
responsible; and to comply with the
provisions of the Act and the rules and
regulations thereunder.
107 Id.
108 Id.
115 Id.
109 Id.
116 Id.
110 Id.
117 Id.
111 Notice,
118 15
83 FR at 35036–37.
112 Notice, 83 FR at 35037.
113 Id.
114 Id.
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18:10 Oct 24, 2018
U.S.C. 78s(b)(2)(C).
U.S.C. 78q–1(b)(3)(F).
120 17 CFR 240.17Ad–22(b)(2).
121 15 U.S.C. 78q–1(b)(3)(F).
119 15
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53921
As described above, the Proposed
Rule Change would make a variety of
changes to ICC’s initial margin model,
and the documentation thereof, to
transition ICC from the current stressbased approach to a Monte Carlo-based
methodology for the spread-response
and recovery-rate-sensitivity-response
components of the model. The current
approach faces certain limitations, in
that it produces a limited number of
stress scenarios that may not capture the
risk of portfolios with more complex,
non-linear instruments, and that it does
not provide for a consistent estimation
of the portfolio level spread response
based on a defined risk measure (e.g.,
Value-at-Risk) and quantile (e.g., 99%).
The methodology reflected in the
Proposed Rule Change is designed to
address these limitations. Specifically,
the Monte Carlo-based methodology
should help ICC to consider a large set
of scenarios to more appropriately
capture portfolio risk, including the risk
of more complex, non-linear
instruments, and produce consistent
quantile-based portfolio risk measures.
Thus, the Commission believes that
the proposed Monte Carlo-based
methodology should enhance ICC’s
initial margin model by improving its
ability to determine the amount of
initial margin that ICC should collect
and, therefore, to manage financial risk
exposures that may arise in the course
of its ongoing clearance and settlement
activities. The Commission also believes
that the improved ability to determine
initial margin should better allow ICC to
complete the clearance and settlement
process in the event of a member
default. For these reasons, the
Commission believes that Proposed
Rule Change should help promote the
prompt and accurate clearance and
settlement of securities transactions,
derivative agreements, contracts, and
transactions. Similarly, the Proposed
Rule Change should enhance ICC’s
ability to help assure the safeguarding of
securities and funds which are in the
custody or control of ICC or for which
it is responsible because the enhanced
initial margin model should better allow
ICC to determine the amount of initial
margin it needs to collect and hold to
address potential loss exposures.
Finally, for both of these reasons, the
Commission believes the Proposed Rule
Change should, in general, protect
investors and the public interest.
B. Consistency With Rule 17Ad–22(b)(2)
Rule 17Ad-22(b)(2) requires that ICC
establish, implement, maintain and
enforce written policies and procedures
reasonably designed to use margin
requirements to limit its credit
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Federal Register / Vol. 83, No. 207 / Thursday, October 25, 2018 / Notices
exposures to participants under normal
market conditions and use risk-based
models and parameters to set margin
requirements and review such margin
requirements and the related risk-based
models and parameters at least
monthly.122
As described above, the Proposed
Rule Change would transition ICC to a
Monte Carlo-based methodology for the
spread-response and recovery-ratesensitivity-response components of the
initial margin model. The Commission
believes that the Proposed Rule Change
should enhance ICC’s ability to establish
margin requirements that are better able
to capture portfolio risk, including the
risk of more complex, non-linear
instruments, and ensure that ICC
establishes margin requirements that are
commensurate with the risks and
characteristics of each portfolio. Taken
together, the Commission believes that
these aspects of the Proposed Rule
Change should improve ICC’s use of
risk-based models and parameters to set
margin requirements, which, in turn,
should improve ICC’s use of margin
requirements to limit its credit
exposures to participants under normal
market conditions.
The Proposed Rule Change includes
numerous changes to the descriptions of
ICC’s initial margin methodology in its
Risk Management Model Description
and its Risk Management Framework to
reflect this transition to the proposed
methodology. The Commission
therefore believes that the proposed rule
change should help ICC establish
written procedures reasonably designed
to use risk-based models and parameters
to set margin requirements.
Therefore, for the above reasons the
Commission finds that the Proposed
Rule Change is consistent with Rule
17Ad–22(b)(2).123
III. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether Amendment No. 1 is
consistent with the Act. Comments may
be submitted by any of the following
methods:
daltland on DSKBBV9HB2PROD with NOTICES
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–
ICC–2018–008 on the subject line.
122 17
Paper Comments
Send paper comments in triplicate to
Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–ICC–2018–008. 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 (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change, security-based swap
submission, or advance notice that are
filed with the Commission, and all
written communications relating to the
proposed rule change, security-based
swap submission, or advance notice
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 the
filing also will 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–2018–008 and
should be submitted on or before
November 15, 2018.
IV. Accelerated Approval of the
Proposed Rule Change
The Commission finds good cause,
pursuant to Section 19(b)(2) of the
Act,124 to approve the Proposed Rule
Change prior to the 30th day after the
date of publication of Amendment No.
1 in the Federal Register. As discussed
above, Amendment No. 1 provides
additional details and analyses
surrounding ICC’s proposed transition
to a Monte Carlo-based methodology for
certain components of the initial margin
model.
CFR 240.17Ad–22(b)(2).
123 Id.
VerDate Sep<11>2014
124 15
18:10 Oct 24, 2018
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By providing the additional
information, Amendment No. 1
provides for a more clear and
comprehensive understanding of the
estimated impact of the Proposed Rule
Change, which helps to improve the
Commission’s review of the Proposed
Rule Change for consistency with the
Act. Specifically, the information helps
to ensure that ICC’s risk management
system appropriately and effectively
addresses the risks associated with
clearing security based swap-related
portfolios by providing an estimated
impact of the proposed Monte Carlobased methodology.
For similar reasons as discussed
above, the Commission finds that
Amendment No. 1 is designed to help
assure the safeguarding of securities and
funds which are in the custody or
control of ICC, consistent with Section
17A(b)(3)(F) of the Act.125 Accordingly,
the Commission finds good cause for
approving the Proposed Rule Change, as
modified by Amendment No. 1, on an
accelerated basis, pursuant to Section
19(b)(2) of the Exchange Act.126
V. 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(b)(3)(F) of
the Act 127 and Rule 17Ad–22(b)(2)
thereunder.128
IT IS THEREFORE ORDERED
pursuant to Section 19(b)(2) of the
Act 129 that the proposed rule change, as
modified by Amendment No. 1, (SR–
ICC–2018–008) be, and hereby is,
approved on an accelerated basis.130
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.131
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–23279 Filed 10–24–18; 8:45 am]
BILLING CODE 8011–01–P
125 15
U.S.C. 78q–1(b)(3)(F).
U.S.C. 78s(b)(2).
127 15 U.S.C. 78q–1(b)(3)(F).
128 17 CFR 240.17Ad–22(b)(2).
129 15 U.S.C. 78s(b)(2).
130 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).
131 17 CFR 200.30–3(a)(12).
126 15
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]]>Agencies
[Federal Register Volume 83, Number 207 (Thursday, October 25, 2018)]
[Notices]
[Pages 53917-53922]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-23279]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-84457; File No. SR-ICC-2018-008]
Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of
Filing of Amendment No. 1 and Order Granting Accelerated Approval of
Proposed Rule Change, as Modified by Amendment No. 1, Relating to ICC's
Risk Management Model Description Document and ICC's Risk Management
Framework
October 19, 2018.
On July 5, 2018, ICE Clear Credit LLC (``ICC'') filed with the
Securities and Exchange Commission (``Commission'') a proposed rule
change to transition from a stress-based methodology to a Monte Carlo-
based methodology for the spread-response and recovery-rate-
sensitivity-response components of the initial margin model (SR-ICC-
2018-008), pursuant to Section 19(b)(1) of the Securities Exchange Act
of 1934 (``Act'') \1\ and Rule 19b-4 thereunder.\2\ The proposed rule
change was published for comment in the Federal Register on July 24,
2018.\3\ On September 5, 2018, the Commission designated a longer
period within which to approve the proposed rule change, disapprove the
proposed rule change, or institute proceedings to determine whether to
approve or disapprove the proposed rule change.\4\ The Commission did
not receive any comments on the Proposed Rule Change. On October 12,
2018, ICC filed Amendment No 1 to the proposed rule change.\5\ The
Commission is publishing this notice to solicit comment on Amendment
No. 1 from interested persons and is approving the proposed rule
change, as modified by Amendment No. 1 (hereinafter, ``Proposed Rule
Change'') on an accelerated basis.\6\
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 83662 (July 18, 2018),
83 FR 35033 (July 24, 2018) (SR-ICC-2018-008) (``Notice'').
\4\ Securities Exchange Act Release No. 84032 (September 5,
2018), 83 FR 46000 (September 11, 2018) (SR-ICC-2018-008).
\5\ In Amendment No. 1 to the proposed rule change, ICC provided
additional details and analyses surrounding the proposed rule change
in the form of a confidential Exhibit 3.
\6\ Capitalized terms used herein but not otherwise defined have
the meaning set forth in the ICE Clear Europe Clearing Rules, which
is available at https://www.theice.com/publicdocs/clear_europe/rulebooks/rules/Clearing_Rules.pdf.
---------------------------------------------------------------------------
I. Description of the Proposed Rule Change
ICC's current approach uses a stress-based approach for the spread-
response and recovery-rate (``RR'') sensitivity-response components of
the initial margin model. Specifically, to derive the spread-response
component, the current approach considers a set of hypothetical
``tightening'' and ``widening'' credit-spread scenarios from which it
computes instrument Profit/Loss (``P/L'') responses for every Risk
Factor (``RF'') scenario.\7\ All instrument P/L responses for a
scenario are aggregated to obtain the portfolio P/L response for that
scenario.\8\ Because the set of scenarios does not reflect the joint
distribution of the considered RFs, offsets between P/Ls are applied to
provide some portfolio benefits.\9\ To derive the RR sensitivity-
response component, all instruments belonging to a RF or Risk Sub-
Factor (``RSF'') are subjected to RR stress scenarios to obtain the
resulting P/L responses, and the worst-scenario response is chosen for
the estimation of the RF/RSF RR sensitivity-response component.\10\
---------------------------------------------------------------------------
\7\ Id.
\8\ Id.
\9\ Id.
\10\ Id.
---------------------------------------------------------------------------
ICC's current stress-based approach generates a limited number of
stress scenarios that may not capture the risk of portfolios with more
complex, non-linear instruments.\11\ Additionally, the current approach
does not provide for a consistent estimation of the portfolio-level
spread response based on a defined risk measure (e.g., Value-at-Risk
(``VaR'')) and quantile (e.g., 99%).\12\ To alleviate the problem, the
Proposed Rule Change would revise ICC's Risk Management Model
Description Document and its Risk Management Framework to a Monte
Carlo-based methodology for the spread-response and recovery-rate-
sensitivity-response (``RR'') components of ICC's initial margin model.
---------------------------------------------------------------------------
\11\ Notice, 83 FR at 35033.
\12\ Id.
---------------------------------------------------------------------------
The proposed Monte Carlo-based methodology would utilize standard
tools in modeling dependence, which can be seen as a means for
constructing multivariate distributions with different univariate
distributions and with desired dependence structures, to generate the
spread and RR scenarios.\13\ It also would provide flexibility in
modeling tail dependence, an important concept in risk management that
provides information about how frequently extreme values are expected
to occur, and that ICC considers particularly suitable for implementing
its Monte Carlo framework.\14\
---------------------------------------------------------------------------
\13\ Id.
\14\ Id.
---------------------------------------------------------------------------
Specifically, under the Monte Carlo approach, the ``integrated
spread response'' component would replace the spread-response and RR-
sensitivity-response components.\15\ This component would be computed
by creating P/L distributions from a set of jointly-simulated
hypothetical (forward looking) spread and RR scenarios.\16\ ICC would
not change the univariate RF distribution assumptions under the
proposed Monte Carlo-based methodology.\17\ ICC would utilize the
simulated scenarios to derive the hypothetical spread and RR levels at
which each instrument is repriced in order to generate a scenario
instrument P/L based on post-index-decomposition positions.\18\ ICC
would create P/L distributions from the set of jointly-simulated
hypothetical (forward looking) credit spread and RR scenarios to
compute the integrated spread-response component.\19\ The P/L
distributions for each instrument would allow ICC to decompose
portfolio level P/L at the RF level and to estimate RF-level risk
measures.\20\ The proposed model would utilize the 5-day 99.5% VaR
measure and allow ICC to be compliant with the European Market
Infrastructure Regulation (``EMIR'') as applied to Over-The-Counter
instruments.\21\
---------------------------------------------------------------------------
\15\ Id.
\16\ Id.
\17\ Notice, 83 FR at 35033-34.
\18\ Notice, 83 FR at 35034.
\19\ Id.
\20\ Id.
\21\ Id.
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[[Page 53918]]
Revisions to the `Initial Margin Methodology' Section of the Risk
Management Model Description Document
ICC proposes revisions to the `Initial Margin Methodology' section
of the Risk Management Model Description Document to reflect its
transition to a Monte Carlo-based methodology for the spread-response
and RR-sensitivity-response components.\22\ ICC also proposes to
clarify its initial margin model to note that it features stress loss
considerations and a P/L distribution analysis at selected quantile
levels that are 99% or higher.\23\ The proposed changes would further
include a description of each of the initial margin model components,
which would be separated into statistically calibrated components and
stress-based add-on components.\24\ The statistically calibrated
components (i.e., spread and RR dynamics, interest rate dynamics, and
index/single-name (``SN'') basis dynamics) would reflect fluctuations
in market observed or implied quantities, and their direct P/L
impacts.\25\ The stress-based add-on components (i.e., idiosyncratic
loss given default (``LGD''), wrong-way-risk (``WWR'') LGD, bid/offer
width risk, and concentration risk) would reflect the risk associated
with low probability events with limited information sets.\26\
---------------------------------------------------------------------------
\22\ Id.
\23\ Id.
\24\ Id.
\25\ Id.
\26\ Id.
---------------------------------------------------------------------------
First, ICC proposes certain minor updates to terminology in the
`LGD Risk Analysis' section consistent with the transition to the Monte
Carlo approach.\27\ Specifically, the proposed revisions would clarify
that the LGD calculation considers RSF-specific RR level scenarios and
that the Jump-To-Default (``JTD'') RR stress levels would be updated if
needed. ICC proposes to update the Profit/Loss-Given-Default (``P/
LGD'') calculation at the RSF level to indicate the association between
the JTD and the RR level scenarios.\28\ ICC proposes to remove a
reference to the stress levels noted in the current `RR Sensitivity
Risk Analysis' section. ICC proposes to move the RF level P/LGD
calculation ahead of the Risk Factor Group (``RFG'') LGD calculations
to avoid disrupting the grouping of RFG LGD calculations.\29\
---------------------------------------------------------------------------
\27\ ICC also proposes to reorganize the `Initial Margin
Methodology' section to begin with the `LGD Risk Analysis' section.
Id.
\28\ Id.
\29\ Id.
---------------------------------------------------------------------------
Second, ICC proposes amendments to the `JTD Risk Analysis'
section.\30\ The proposed revisions to the Uncollateralized LGD
(``ULGD'') calculation would incorporate the integrated spread-response
component described above and remove reference to the current RR-
sensitivity-response component.\31\ ICC also proposes, for clarity, to
shorten a description in the WWR JTD calculation and to move details
regarding the Kendall tau rank-order correlation to follow the WWR JTD
calculation as such details are associated with the WWR JTD
calculation.\32\ ICC proposes to include this information, which is
currently located in a source in a footnote, within the text to provide
further description of the source in the footnote.\33\ ICC also
proposes minor structural updates to its description of specific WWR
(``SWWR'') to enhance readability.\34\
---------------------------------------------------------------------------
\30\ Id.
\31\ Id.
\32\ Id. The details regarding the Kendall tau rank-order
correlation would remain unchanged, except for the addition of
clarifying language referencing regulatory guidance with respect to
RFs deemed highly correlated. Id.
\33\ Id.
\34\ Id.
---------------------------------------------------------------------------
Third, ICC proposes to add clarifying language to the `Interest
Rate Sensitivity Risk Analysis' section to note that the interest rate
sensitivity component is a statistically calibrated initial margin
component.\35\ ICC also proposes to correct a notation to reflect an
inverse distribution function.\36\
---------------------------------------------------------------------------
\35\ Id.
\36\ Id.
---------------------------------------------------------------------------
Fourth, ICC proposes a number of structural changes to the `Basis
Risk Analysis' section, which consist of moving certain descriptions
within the section and making changes to conform such descriptions to
the proposed new Monte Carlo based approach. Specifically, ICC proposes
moving the description in the current `Long-Short Benefits among RFs
with Common Basis' subsection to the proposed `Index Decomposition and
Long-Short Offsets' subsection and making conforming changes.\37\
Similarly, ICC proposes moving the description in the current
`Portfolio Benefits Hierarchy Summary' subsection to the proposed
`Long/Short Offset Hierarchy' subsection and making conforming
changes.\38\ ICC also proposes moving the analysis in the current
`Basis Risk Analysis' section to the proposed `Index-Basis Risk
Estimation' subsection and making conforming changes.\39\
---------------------------------------------------------------------------
\37\ Id.
\38\ Id.
\39\ Id.
---------------------------------------------------------------------------
Fifth, ICC proposes to combine the current `Spread Risk Analysis'
and `RR Sensitivity Risk Analysis' sections into the proposed `Spread
and RR Risk Analysis' section to reflect the transition to a Monte
Carlo-based methodology for the spread-response and RR-sensitivity-
response components.\40\ Under the proposed approach, ICC would utilize
credit spreads and RR distributions to jointly simulate scenarios to
estimate portfolio risk measures.\41\ Accordingly, ICC proposes to
combine the `Spread Risk Analysis' and `RR Sensitivity Risk Analysis'
sections into the `Spread and RR Risk Analysis' section given their
interrelation under the proposed approach, in which the integrated
spread response would be computed by creating P/L distributions from a
set of jointly-simulated hypothetical (forward looking) spread and RR
scenarios.\42\
---------------------------------------------------------------------------
\40\ Id.
\41\ Id.
\42\ Id.
---------------------------------------------------------------------------
In the amended `Spread Risk Analysis' section, ICC proposes to
remove details regarding the current stress-based approach and to
describe how ICC generates credit spread scenarios using Monte Carlo
techniques.\43\ As described above, the spread-response component is
derived in terms of a set of hypothetical ``tightening'' and
``widening'' credit spread scenarios under the current stress-based
approach.\44\ The analysis of the univariate characteristics of credit
spread log-returns to arrive at credit spread scenarios would not
change under the Monte Carlo-based methodology.\45\
---------------------------------------------------------------------------
\43\ Notice, 83 FR at 35034-35.
\44\ Notice, 83 FR at 35035.
\45\ Id.
---------------------------------------------------------------------------
The univariate RF distribution assumptions would not change under
the Monte Carlo-based methodology, and thus the `Distribution of the
Credit Spreads' subsection of the amended `Spread Risk Analysis'
section remains largely the same with some clarifying changes to
language included.\46\
---------------------------------------------------------------------------
\46\ Id.
---------------------------------------------------------------------------
ICC proposes to describe the implementation of the Monte Carlo-
based methodology in the new `Multivariate Statistical Approach via
Copulas' subsection. ICC proposes to include a discussion on the
construction and application of the standard tools in modeling
dependence, including the review of their theoretical background, in
the new `Copulas' subsection.\47\
---------------------------------------------------------------------------
\47\ Id.
---------------------------------------------------------------------------
ICC proposes the new `Tail Dependence' subsection to provide a
description of the concept of tail
[[Page 53919]]
dependence, given its relevancy as it indicates the probability of
extreme values occurring jointly.\48\ The proposed subsection would
provide additional support behind ICC's conclusion that the tools for
modeling dependence would be particularly suitable for connecting the
various univariate distributions in a multivariate setting as they
provide flexibility in modeling tail dependence.\49\
---------------------------------------------------------------------------
\48\ Id.
\49\ Id.
---------------------------------------------------------------------------
In the proposed `Copula Simulation' subsection, ICC would describe
its Monte Carlo-based simulation approach.\50\ The proposed approach is
based on first generating for all SN RF/RSF and On The Run indices Most
Actively Traded Tenor (``MATT'') scenarios using the stochastic
representation of the selected multivariate distribution under
consideration.\51\ The conditional simulation approach would then be
utilized to generate individual RF/tenor-specific scenarios.\52\ ICC
also proposes to describe the block simulation approach that it would
utilize in generating scenarios, which departs from an approach where
all tenors for all SNs are simulated together. Instead, specific blocks
of the correlation matrix would be considered through the stepwise
block simulation approach.\53\
---------------------------------------------------------------------------
\50\ Id.
\51\ Id.
\52\ Id.
\53\ Id.
---------------------------------------------------------------------------
ICC would discuss the estimation of a new parameter in the proposed
`Copula Parameter Estimation' subsection.\54\ The new subsection would
include a description of two methods that can be used for parameter
estimation, namely the ``quasi Maximum Likelihood'' approach and the
``Canonical Maximum Likelihood'' method.\55\ ICC proposes to set the
value at which this parameter is set conservatively and to explain that
the value reflects strong tail dependence within the simulation
framework, which is important because ICC estimates that tail
dependence would increase in stressed market conditions.\56\
---------------------------------------------------------------------------
\54\ Id.
\55\ Id.
\56\ Id.
---------------------------------------------------------------------------
Sixth, ICC proposes certain amendments to the `RR Risk Analysis'
section to remove details regarding the current stress-based approach
for the RR-sensitivity-response component and to describe how ICC
jointly simulates credit spread and RR scenarios using Monte Carlo
techniques.\57\ As discussed above, under the current stress-based
approach, the RR-sensitivity-response component is computed in terms of
RR stress scenarios and incorporates potential losses associated with
changes in the market implied RR.\58\ The proposed Monte Carlo-based
methodology would consider the risk arising from fluctuations in the
market implied RRs of each SN RF and/or RSF jointly with the
fluctuations in the curves of credit spreads.\59\
---------------------------------------------------------------------------
\57\ Id.
\58\ Id.
\59\ Id.
---------------------------------------------------------------------------
The proposed `Distribution of RRs' subsection would contain much of
the relevant analysis under the current `RR Sensitivity Risk Analysis'
section because the univariate RR distribution assumptions would not
change under the Monte Carlo-based methodology. ICC proposes some
additional clarifying language to further specify that the RR stress-
based sensitivity requirement transitioned to a Monte Carlo simulation-
based methodology.\60\ Specifically, ICC proposes to note the
assumption regarding the analysis of each SN RF/RSF that includes the
description located under the current `Beta Distribution' subsection as
the integrated spread response also assumes a Beta distribution
describing the behavior of the RRs.\61\
---------------------------------------------------------------------------
\60\ Id.
\61\ Id.
---------------------------------------------------------------------------
The amended `Parameter Estimation' subsection would discuss the
parameter calibration necessary to simulate RR scenarios and is largely
the same.\62\ The proposed revisions would remove or replace
terminology associated with the stress-based approach with terminology
associated with the Monte Carlo-based approach.\63\
---------------------------------------------------------------------------
\62\ Id.
\63\ Id.
---------------------------------------------------------------------------
The proposed `Spread-Recovery-Rate Bivariate Model' subsection
would describe the use of credit spread and RR distributions to jointly
simulate scenarios to estimate portfolio risk measures under the Monte
Carlo-based methodology.\64\ Namely, ICC proposes to discuss the use of
the conditional simulation approach to jointly simulate SN RF/RSF-
specific RR scenarios with SN RF/RSF MATT spread log-return
scenarios.\65\ ICC proposes to note several assumptions under this
model, along with an explanation of how it generates the individual SN
RF/RSF-specific RR scenarios and the tenor-specific spread scenarios
using copulas.\66\
---------------------------------------------------------------------------
\64\ Id.
\65\ Id.
\66\ Id.
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ICC proposes moving the `Arbitrage-Free Modeling' subsection, which
is currently located in the `Spread Risk Analysis' section, to the
`Spread and RR Risk Analysis' section.\67\ The analysis would remain
largely the same with some language clarifications, including
references to simulated spread levels in conjunction with simulated RR
levels within the text and within formulas to ensure consistency with
the proposed `Spread and RR Risk Analysis' section.\68\ ICC proposes
further revisions to terminology, such as removing terminology
associated with the stress-based approach and incorporating the Monte
Carlo simulation based methodology described above to ensure
consistency with the proposed `Spread and RR Risk Analysis'
section.\69\ ICC also proposes replacing specific references to the
current most actively traded tenor with references to the more general
concept of ``most actively traded tenor'' to account for a situation in
which the referenced most actively traded tenor is different.\70\
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\67\ Id.
\68\ Id.
\69\ Id.
\70\ Id.
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Seventh, in the proposed `Risk Estimations' subsection, ICC would
describe the computation of the integrated spread-response
component.\71\ Once the Monte Carlo scenarios would be simulated, all
instruments would be repriced, and the respective instrument P/L
responses would be computed.\72\ Upon consideration of the instrument
positions in each portfolio along with the instrument P/L responses,
portfolio risk estimations would be performed and the integrated
spread-response component would be established.\73\
---------------------------------------------------------------------------
\71\ Id.
\72\ Id.
\73\ Id.
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ICC proposes to discuss its calculation of P/Ls for instruments,
RFs, common currency sub-portfolios, and multi-currency sub-portfolios
under the new `RF and Sub-Portfolio Level Integrated Spread Response'
subsection.\74\ ICC proposes to retain the use of sub-portfolios as is
currently done today.\75\ However, the portfolio benefits across sub-
portfolios would be limited.\76\ This enhancement would allow ICC to
decompose portfolio level P/L at the sub-portfolio level and to
estimate sub-portfolio level risk measures.\77\
---------------------------------------------------------------------------
\74\ Id.
\75\ Id.
\76\ Id.
\77\ Id.
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In the proposed `Instrument P/L Estimations' subsection, ICC would
describe the calculation of instrument P/Ls. Namely, ICC would reprice
all instruments at the hypothetical spread
[[Page 53920]]
and RR levels, which would be derived from the simulated spread and RR
scenarios, and take the difference between the prices of the
instruments at the simulated scenarios and the current end-of-day
(``EOD'') prices.\78\ ICC would utilize the instrument-related P/L
distribution to estimate the instrument-specific integrated spread
response as the 99.5% VaR measure in the currency of the
instrument.\79\
---------------------------------------------------------------------------
\78\ Notice, 83 FR at 35035-36.
\79\ Notice, 83 FR at 35036.
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ICC would describe the calculation of RF P/Ls in the proposed `RF
P/L Estimations' subsection.\80\ ICC would utilize the simulated P/L
scenarios, combined with the post-index-decomposition positions related
to a given RF, to generate a currency-specific RF P/L distribution.\81\
ICC would utilize this RF-related P/L distribution to estimate the RF-
specific integrated spread response as the 99.5% VaR measure in the
currency of the considered RF.\82\
---------------------------------------------------------------------------
\80\ Id.
\81\ Id.
\82\ Id.
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In the proposed `Common Currency Sub-Portfolio P/L Estimations'
subsection, ICC would describe the calculation of common currency sub-
portfolio P/Ls.\83\ For a currency specific sub-portfolio, ICC would
extract the relevant risk measures from sub-portfolio level P/L
distributions, which would be obtained from the aggregation of common
currency RF P/L distributions.\84\
---------------------------------------------------------------------------
\83\ Id.
\84\ Id.
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In the proposed `Multi-Currency Sub-Portfolio P/L Estimations'
subsection, ICC would add clarifying language describing the
calculation of multi-currency sub-portfolio P/Ls. ICC proposes to
extend multi-currency portfolio benefits to RFs with similar market
characteristics, where the RFs and their respective instruments would
be denominated in different currencies.\85\ Under the proposed
approach, long-short integrated spread response benefits would be
provided between Corporate RFs that are denominated in different
currencies.\86\ ICC proposes to retain the multi-currency risk
aggregation approach, which involves obtaining U.S. Dollar (``USD'')
and Euro (``EUR'') denominated sub-portfolio P/L distributions, to RFs
within the North American Corporate and European Corporate sub-
portfolios denominated in USD and EUR, respectively.\87\
---------------------------------------------------------------------------
\85\ Id.
\86\ Id.
\87\ Id.
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ICC proposes to include its calculation for the portfolio level
integrated spread-response component in the `Portfolio level Integrated
Spread Response' subsection.\88\ The calculation would include the sub-
portfolio-specific integrated spread response after any potential
multicurrency benefits and the RF-specific integrated spread
response.\89\ ICC proposes the new `RF Attributed Integrated Spread
Response Requirements' subsection to describe the calculation of the RF
attributed integrated spread-response component for each RF in the
considered portfolio.\90\
---------------------------------------------------------------------------
\88\ Id.
\89\ Id.
\90\ Id.
---------------------------------------------------------------------------
ICC proposes minor revisions to the `Anti-Procyclicality Measures'
subsection to replace terminology associated with the stress-based
approach with terminology associated with the Monte Carlo-based
approach.\91\ ICC also proposes to update calculation descriptions
relating to portfolio responses to note that certain amounts would be
converted to or represented in USD using the EOD established foreign
exchange (``FX'') rate.\92\
---------------------------------------------------------------------------
\91\ Id.
\92\ Id.
---------------------------------------------------------------------------
Eighth, ICC proposes updates to the `Multi-Currency Portfolio
Treatment' section to incorporate the proposed integrated spread-
response component.\93\ ICC proposes to clarify that it implements a
multi-currency portfolio treatment methodology for portfolios with
instruments that are denominated in different currencies.\94\ The
proposed changes would also remove references to the current spread-
response component.\95\
---------------------------------------------------------------------------
\93\ Id.
\94\ Id.
\95\ Id.
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Finally, ICC also proposes minor edits to the `Portfolio Loss
Boundary Condition' section to remove or replace references to the
current spread-response and RR-sensitivity-response components with
references to the proposed integrated spread-response component within
the text and within formulas to ensure consistency with the proposed
`Spread and RR Risk Analysis' section, specifically the `Portfolio
Level Integrated SR' subsection.\96\ Moreover, ICC proposes to
reference, for clarity, the total number of RFs within the considered
sub-portfolio in its calculations of the maximum portfolio loss and the
maximum portfolio integrated spread response to ensure consistency with
the proposed `Spread and RR Risk Analysis' section, specifically the
`Portfolio Level Integrated SR' subsection.\97\
---------------------------------------------------------------------------
\96\ Id.
\97\ Id.
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Other Revisions to the Risk Management Model Description Document
ICC proposes minor changes to the `Guaranty Fund (``GF'')
Methodology' section of the Risk Management Model Description
Document.\98\ The proposed changes would move the descriptions
associated with the credit spread curve shape scenarios (i.e., Uniform
Scaling, Pivoting, and Tenor Specific) from the current `Spread Risk
Analysis' section to the `Unconditional Uncollateralized Exposures'
subsection.\99\ Although the credit spread curve shape scenarios are
currently considered as part of the spread-response component, ICC
proposes to only use them for GF purposes.\100\ The descriptions and
calculations associated with the credit spread curve shape scenarios
would remain largely the same with some clarifying changes, including
the substitution of a variable for the simulation quantile in the
calculations to reflect consistency with the GF risk measure, and
structural changes to the descriptions to enhance readability.\101\
Additionally, the proposed changes would include reference to the
integrated spread response in place of the spread response in the
calculations describing the GF stress spread response.
---------------------------------------------------------------------------
\98\ Id.
\99\ Id.
\100\ Id.
\101\ Id.
---------------------------------------------------------------------------
ICC also proposes other non-material changes to the Risk Management
Model Description Document, including minor grammatical, typographical,
and structural changes to enhance readability and minor updates to
calculations to update symbol notations.\102\
---------------------------------------------------------------------------
\102\ Id.
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Risk Management Framework
ICC proposes conforming revisions to its Risk Management Framework
to reflect the transition to a Monte Carlo-based methodology for the
spread response and RR-sensitivity-response components of the initial
margin model.\103\ The proposed revisions are described in detail as
follows.
---------------------------------------------------------------------------
\103\ Id.
---------------------------------------------------------------------------
ICC proposes changes to the `Waterfall Level 2: Initial Margin'
section to combine the spread response and the RR sensitivity
components into the proposed integrated spread-response component.\104\
The proposed revisions would introduce the integrated spread-
[[Page 53921]]
response component under the amended `Integrated Spread Response
Requirements' section and replace all references to the spread response
with references to the integrated spread response.\105\ ICC proposes
conforming changes throughout the framework.\106\ Currently, the
spread-response component is obtained by estimating scenario P/L for a
set of hypothetical ``tightening'' and ``widening'' credit spread
scenarios and by considering the largest loss.\107\ Under the proposed
revisions, the integrated spread response would be computed by creating
P/L distributions from a set of jointly-simulated hypothetical (forward
looking) credit spread and RR scenarios.\108\ The proposed changes
would provide an updated calculation of the instrument scenario P/L,
note the mappings between spread and RR levels and prices are performed
by means of the International Swap and Derivatives Association
(``ISDA'') standard conversion convention, and specify that the
hypothetical prices are forward looking.\109\ ICC also proposes to
state that the integrated spread response approach would assume a
distribution that would describe the behavior of the RRs.\110\
---------------------------------------------------------------------------
\104\ Id.
\105\ Id.
\106\ Id.
\107\ Id.
\108\ Id.
\109\ Id.
\110\ Id.
---------------------------------------------------------------------------
ICC proposes the new `Index Decomposition Approach' subsection,
which would contain the analysis under the current `Index Decomposition
Benefits between Index RFs and SN RSFs' subsection without any material
changes.\111\ ICC also proposes the new `Portfolio Approach' subsection
to describe the Monte Carlo simulation framework, which would replace
the current stress-based approach noted above.\112\ ICC proposes to
utilize Monte Carlo techniques to generate spread and RR
scenarios.\113\ ICC would utilize the simulated scenarios to derive the
hypothetical spread and RR levels, at which each instrument is repriced
in order to generate a scenario instrument P/L based on post-index-
decomposition positions.\114\ For each scenario, instrument P/Ls would
aggregated to obtain RF and sub-portfolio P/Ls, which represent the RF
and sub-portfolio P/L distributions that would be used to estimate the
RF and sub-portfolio 99.5% VaR measures at a risk horizon that is at
least 5 days.\115\ The portfolio level integrated spread response would
be estimated as a weighted sum of RF and sub-portfolio 99.5% VaR
measures.\116\ ICC also proposes to move its analysis related to
achieving anti pro-cyclicality to the amended `Integrated Spread
Response Requirements' section without any material changes.\117\
---------------------------------------------------------------------------
\111\ Notice, 83 FR at 35036-37.
\112\ Notice, 83 FR at 35037.
\113\ Id.
\114\ Id.
\115\ Id.
\116\ Id.
\117\ Id.
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Notice of Filing of Amendment No. 1
ICC submitted Amendment No. 1 to provide Commission with additional
details and analyses surrounding ICC's proposed transition to a Monte
Carlo-based methodology for certain components of the initial margin
model. Amendment No. 1 included additional information, which was
submitted as Exhibit 3, related to the Filing. Exhibit 3 contains a
correlation sensitivity analysis on portfolios using the proposed Monte
Carlo-based methodology for the first half of 2018 and a back-testing
analysis of the IM components of the proposed Monte Carlo-based
methodology spanning 2015 through 2018 and including periods of
stressed market conditions.
II. Discussion and Commission Findings
Section 19(b)(2)(C) of the Act directs the Commission to approve a
proposed rule change of a self-regulatory organization if it finds that
such proposed rule change is consistent with the requirements of the
Act and the rules and regulations thereunder applicable to such
organization.\118\ For the reasons given below, the Commission finds
that the proposal is consistent with Section 17A(b)(3)(F) of the Act
\119\ and Rule 17Ad-22(b)(2) thereunder.\120\
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\118\ 15 U.S.C. 78s(b)(2)(C).
\119\ 15 U.S.C. 78q-1(b)(3)(F).
\120\ 17 CFR 240.17Ad-22(b)(2).
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A. Consistency With Section 17A(b)(3)(F) of the Act
Section 17A(b)(3)(F) of the Act \121\ requires, among other things,
that the rules of ICC 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 ICC or for which it is responsible; and to comply
with the provisions of the Act and the rules and regulations
thereunder.
---------------------------------------------------------------------------
\121\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
As described above, the Proposed Rule Change would make a variety
of changes to ICC's initial margin model, and the documentation
thereof, to transition ICC from the current stress-based approach to a
Monte Carlo-based methodology for the spread-response and recovery-
rate-sensitivity-response components of the model. The current approach
faces certain limitations, in that it produces a limited number of
stress scenarios that may not capture the risk of portfolios with more
complex, non-linear instruments, and that it does not provide for a
consistent estimation of the portfolio level spread response based on a
defined risk measure (e.g., Value-at-Risk) and quantile (e.g., 99%).
The methodology reflected in the Proposed Rule Change is designed to
address these limitations. Specifically, the Monte Carlo-based
methodology should help ICC to consider a large set of scenarios to
more appropriately capture portfolio risk, including the risk of more
complex, non-linear instruments, and produce consistent quantile-based
portfolio risk measures.
Thus, the Commission believes that the proposed Monte Carlo-based
methodology should enhance ICC's initial margin model by improving its
ability to determine the amount of initial margin that ICC should
collect and, therefore, to manage financial risk exposures that may
arise in the course of its ongoing clearance and settlement activities.
The Commission also believes that the improved ability to determine
initial margin should better allow ICC to complete the clearance and
settlement process in the event of a member default. For these reasons,
the Commission believes that Proposed Rule Change should help promote
the prompt and accurate clearance and settlement of securities
transactions, derivative agreements, contracts, and transactions.
Similarly, the Proposed Rule Change should enhance ICC's ability to
help assure the safeguarding of securities and funds which are in the
custody or control of ICC or for which it is responsible because the
enhanced initial margin model should better allow ICC to determine the
amount of initial margin it needs to collect and hold to address
potential loss exposures. Finally, for both of these reasons, the
Commission believes the Proposed Rule Change should, in general,
protect investors and the public interest.
B. Consistency With Rule 17Ad-22(b)(2)
Rule 17Ad-22(b)(2) requires that ICC establish, implement, maintain
and enforce written policies and procedures reasonably designed to use
margin requirements to limit its credit
[[Page 53922]]
exposures to participants under normal market conditions and use risk-
based models and parameters to set margin requirements and review such
margin requirements and the related risk-based models and parameters at
least monthly.\122\
---------------------------------------------------------------------------
\122\ 17 CFR 240.17Ad-22(b)(2).
---------------------------------------------------------------------------
As described above, the Proposed Rule Change would transition ICC
to a Monte Carlo-based methodology for the spread-response and
recovery-rate-sensitivity-response components of the initial margin
model. The Commission believes that the Proposed Rule Change should
enhance ICC's ability to establish margin requirements that are better
able to capture portfolio risk, including the risk of more complex,
non-linear instruments, and ensure that ICC establishes margin
requirements that are commensurate with the risks and characteristics
of each portfolio. Taken together, the Commission believes that these
aspects of the Proposed Rule Change should improve ICC's use of risk-
based models and parameters to set margin requirements, which, in turn,
should improve ICC's use of margin requirements to limit its credit
exposures to participants under normal market conditions.
The Proposed Rule Change includes numerous changes to the
descriptions of ICC's initial margin methodology in its Risk Management
Model Description and its Risk Management Framework to reflect this
transition to the proposed methodology. The Commission therefore
believes that the proposed rule change should help ICC establish
written procedures reasonably designed to use risk-based models and
parameters to set margin requirements.
Therefore, for the above reasons the Commission finds that the
Proposed Rule Change is consistent with Rule 17Ad-22(b)(2).\123\
---------------------------------------------------------------------------
\123\ Id.
---------------------------------------------------------------------------
III. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether Amendment No. 1
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 [email protected]. Please include
File Number SR-ICC-2018-008 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities and
Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-ICC-2018-008. 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 (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change, security-based
swap submission, or advance notice that are filed with the Commission,
and all written communications relating to the proposed rule change,
security-based swap submission, or advance notice 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 the
filing also will 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-2018-008 and should be submitted on
or before November 15, 2018.
IV. Accelerated Approval of the Proposed Rule Change
The Commission finds good cause, pursuant to Section 19(b)(2) of
the Act,\124\ to approve the Proposed Rule Change prior to the 30th day
after the date of publication of Amendment No. 1 in the Federal
Register. As discussed above, Amendment No. 1 provides additional
details and analyses surrounding ICC's proposed transition to a Monte
Carlo-based methodology for certain components of the initial margin
model.
---------------------------------------------------------------------------
\124\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------
By providing the additional information, Amendment No. 1 provides
for a more clear and comprehensive understanding of the estimated
impact of the Proposed Rule Change, which helps to improve the
Commission's review of the Proposed Rule Change for consistency with
the Act. Specifically, the information helps to ensure that ICC's risk
management system appropriately and effectively addresses the risks
associated with clearing security based swap-related portfolios by
providing an estimated impact of the proposed Monte Carlo-based
methodology.
For similar reasons as discussed above, the Commission finds that
Amendment No. 1 is designed to help assure the safeguarding of
securities and funds which are in the custody or control of ICC,
consistent with Section 17A(b)(3)(F) of the Act.\125\ Accordingly, the
Commission finds good cause for approving the Proposed Rule Change, as
modified by Amendment No. 1, on an accelerated basis, pursuant to
Section 19(b)(2) of the Exchange Act.\126\
---------------------------------------------------------------------------
\125\ 15 U.S.C. 78q-1(b)(3)(F).
\126\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------
V. 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(b)(3)(F) of the Act
\127\ and Rule 17Ad-22(b)(2) thereunder.\128\
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\127\ 15 U.S.C. 78q-1(b)(3)(F).
\128\ 17 CFR 240.17Ad-22(b)(2).
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IT IS THEREFORE ORDERED pursuant to Section 19(b)(2) of the Act
\129\ that the proposed rule change, as modified by Amendment No. 1,
(SR-ICC-2018-008) be, and hereby is, approved on an accelerated
basis.\130\
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\129\ 15 U.S.C. 78s(b)(2).
\130\ 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).
\131\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\131\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-23279 Filed 10-24-18; 8:45 am]
BILLING CODE 8011-01-P
