Self-Regulatory Organizations; ICE Clear Europe Limited; Notice of Filing of Proposed Rule Change, as Modified by Partial Amendment No. 1, Relating to the ICE Clear Europe CDS Clearing Back-Testing Policy (the “Back-Testing Policy”)., 46573-46575 [2019-18997]
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Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Notices
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of 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.
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–NASDAQ–2019–067 and
should be submitted on or before
September 25, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.15
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–19005 Filed 9–3–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–86782; File No. SR–ICEEU–
2019–017]
Self-Regulatory Organizations; ICE
Clear Europe Limited; Notice of Filing
of Proposed Rule Change, as Modified
by Partial Amendment No. 1, Relating
to the ICE Clear Europe CDS Clearing
Back-Testing Policy (the ‘‘Back-Testing
Policy’’).
August 28, 2019.
jbell on DSK3GLQ082PROD with NOTICES
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on August
19, 2019, ICE Clear Europe Limited
(‘‘ICE Clear Europe’’ or the ‘‘Clearing
House’’) filed with the Securities and
Exchange Commission (‘‘Commission’’)
the proposed rule changes described in
Items I, II and III below, which Items
have been substantially prepared by ICE
Clear Europe. On August 27, 2019, ICE
Clear Europe filed Partial Amendment
No. 1 to the proposed rule change.3 The
Commission is publishing this notice to
15 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Partial Amendment No. 1 corrected an
inaccurate statement in the initial proposed rule
change but did not make any changes to the
substance of the filing or the text of the proposed
rule change.
1 15
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19:08 Sep 03, 2019
Jkt 247001
solicit comments on the proposed rule
change, as modified by Partial
Amendment No. 1 (hereafter referred to
as the ‘‘proposed rule change’’), from
interested persons.
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
ICE Clear Europe Limited (‘‘ICE Clear
Europe’’ or the ‘‘Clearing House’’)
proposes to revise its Back-Testing
Policy to make certain clarifications,
correct certain typographical errors and
update governance processes.
II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
In its filing with the Commission, ICE
Clear Europe included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. ICE
Clear Europe has prepared summaries,
set forth in sections (A), (B), and (C)
below, of the most significant aspects of
such statements.
(A) Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
(a) Purpose
ICE Clear Europe is proposing to
modify, update and reorganize certain
provisions of its Back-Testing Policy to
clarify certain test strategies, procedures
and methodologies, correct certain
typographical errors and update
governance processes.
The amendments to the Back-Testing
Policy principally include various
clarifications to the daily, weekly and
monthly back-testing performed by the
Clearing House. As discussed herein,
the amendments would generally align
the Back-Testing Policy with the
Clearing House’s current back-testing
practices, and accordingly the
amendments are not intended to result
in significant changes in back-testing
practices. ICE Clear Europe is thus
proposing to make these changes in
order to make the policy more accurate,
clear and precise, in line with regulatory
requirements applicable to back-margin
back-testing and related suggestions of
its regulators. Certain amendments will
in particular clarify that back-testing is
done at the Clearing Member account
level,4 replacing existing references to
4 Account for this purpose has the meaning
specified in the Rules.
PO 00000
Frm 00072
Fmt 4703
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46573
testing at the portfolio level (which was
a less precise description).
The amendments would reorganize
the requirements of the policy with
respect to daily back-testing, but would
not substantially change existing
processes. As noted above, the
amendments would provide for daily
back-testing at the Clearing Member
account level. The amendments would
also provide that back-testing results
would be reported to the Model
Oversight Committee and CDS Risk
Committee on a monthly basis,
including an exceedance summary, an
example of which would be included in
the Back-Testing Policy.
The provisions of the Back-Testing
Policy setting out portfolio construction
for back-testing the production margin
model using special strategy portfolios
would be amended to add an additional
strategy and also update strategy names
and clarify the use of bought and sold
protection positions in the back-testing
process. The portfolio construction of
the additional strategy, iTraxx Senior
Financial 5Y.OTR Arb, would be the
same as the construction of the existing
special strategies but would relate only
to the iTraxx Senior Financials 5Y
index. ICE Clear Europe regularly back
tests using this additional strategy in
practice and is adding it to the policy to
reflect this practice. The amendments
would provide that with respect to each
specified strategy, for completeness, the
opposite strategy would be taken into
consideration. The other amendments
are also generally intended to better
reflect current practice.
The provisions of the policy relating
to back testing of the Monte Carlo
(‘‘MC’) model would be revised to
clarify that back-tests are performed
daily on the Spread Response
component of the Initial Margin using
ICE Clear Europe’s MC model rather
than the worst among the scenario based
spread response approaches and the MC
approach. The back-test would be
performed on individual Clearing
Member accounts using the risk
approach for the Spread Response
Initial Margin (and accordingly
references to specific quantiles for
testing have been removed). The backtested risk measures would include the
sum of the MC VaR and the basis risk,
interest rate and recovery rate
quantities. This amendment is intended
to clarify what is meant in the policy by
‘‘Monte Carlo back-testing’’, which is
back-testing only the MC model and not
the stress based model. There would be
no change to the current practice with
respect to MC model back testing. The
amendments would also remove an
unnecessary distinction depending on
E:\FR\FM\04SEN1.SGM
04SEN1
46574
Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Notices
jbell on DSK3GLQ082PROD with NOTICES
whether the indices are decomposed. In
ICE Clear Europe’s view, this change
would improve the readability of the
policy by clarifying that the basis risk
initial margin component is part of the
back-tested initial margin components.
This amendment would not change
current practices.
The section regarding the full period
back-testing results setting out the
manner in which the back-tested
component of initial margin and the
profit and loss results for every backtested day are reported for each Clearing
Member for daily portfolio back-testing
would be removed as the reporting
requirements have been consolidated
into a different section of the policy.
The amendments would make certain
changes to the Basel Traffic Light
System exceedance summaries.
Pursuant to the amendments, backtesting results of the production model
for each Clearing Member’s account,
special-strategy back-testing results of
the production model and back-testing
results of the MC model for each
Clearing Member’s account would be
reported at least monthly to align the
frequency of the reporting to the
relevant regulatory requirement under
Commission Rule 17Ad–22(b)(2).5
Various other changes would also be
made to correct typographical and
similar errors and to clarify use of
certain defined terms and references.
Certain outdated references to testing
quantiles of 99% and 99.25% would be
removed, as they are lower than the
minimum 99.5% quantile prescribed by
the European Market Infrastructure
Regulation (EMIR) for over the counter
(OTC) contracts.
(b) Statutory Basis
ICE Clear Europe believes that the
changes described herein are consistent
with the requirements of Section 17A of
the Act 6 and the regulations thereunder
applicable to it. Section 17A(b)(3)(F) of
the Act 7 in particular requires, among
other things, that the rules of the
clearing agency be designed to promote
the prompt and accurate clearance and
settlement of securities transactions
and, to the extent applicable, derivative
agreements, contracts and transactions,
to assure the safeguarding of securities
and funds in the custody or control of
the clearing agency or for which it is
responsible and the protection of
investors, and, in general, protect
investors and the public interest. The
5 Such change would not preclude ICE Clear
Europe from sharing relevant reports with
regulators more frequently as under current
practice.
6 15 U.S.C. 78q–1.
7 15 U.S.C. 78q–1(b)(3)(F).
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19:08 Sep 03, 2019
Jkt 247001
proposed amendments are designed to
modify the Back-Testing Policy to
clarify certain risk management
practices for CDS Contracts including
back-testing strategies, the application
of the Monte Carlo method, and the
frequency of back-testing and reporting
of results. The amendments would also
adopt various enhancements to the
review and governance processes for
those policies. In ICE Clear Europe’s
view, the amendments will not result in
a significant change in its back-testing
practices, but will improve the accuracy
and clarity of the Back-Testing Policy.
As such, the amendments are consistent
with the continued overall risk
management of the Clearing House, and
with the prompt and accurate clearance
of transactions and the public interest in
sound operation of clearing agencies,
within the meaning of Section
17A(b)(3)(F).8 As the amendments
would enhance the Back-Testing Policy
as its relates to Clearing House margin
models, the amendments would also be
consistent with requirements relating to
safeguarding of funds and securities in
the custody or control of the Clearing
House or for which it is responsible,
within the meaning of that section.
Accordingly, the amendments satisfy
the requirements of Section
17A(b)(3)(F).9
ICE Clear Europe also believes that
the amendments for similar reasons are
consistent with specific requirements of
Rule 17Ad–22.10 Through providing
additional details and examples and
enhancing overall clarity of the BackTesting Policy, the amendments are
consistent with Rule 17Ad–22(e)(3)(i),11
which requires clearing agencies to have
reasonably designed policies and
procedures that, at a minimum, include
risk management policies, procedures,
and systems designed to identify,
measure, monitor, and manage the range
of risks that arise in or are borne by a
clearing agency.
8 15
U.S.C. 78q–1(b)(3)(F).
U.S.C. 78q–1(b)(3)(F).
10 17 CFR 240.17Ad–22.
11 17 CFR 240.17 Ad–22(e)(3)(i). The rule states
that ‘‘[e]ach covered clearing agency shall establish,
implement, maintain and enforce written policies
and procedures reasonably designed to, as
applicable:
(3) Maintain a sound risk management framework
for comprehensively managing legal, credit,
liquidity, operational, general business, investment,
custody, and other risks that arise in or are borne
by the covered clearing agency, which:
(i) Includes risk management policies,
procedures, and systems designed to identify,
measure, monitor, and manage the range of risks
that arise in or are borne by the covered clearing
agency, that are subject to review on a specified
periodic basis and approved by the board of
directors annually’’.
9 15
PO 00000
Frm 00073
Fmt 4703
Sfmt 4703
Rule 17Ad–22(e)(6)(vi)(A) 12
specifically requires clearing agencies to
implement reasonably designed policies
and procedures to conduct back-testing
of their margin model at least once each
day using standard predetermined
parameters and assumptions. In
compliance with these requirements,
proposed amendments to the BackTesting Policy specify that ICE Clear
Europe must perform daily portfoliolevel back-testing analysis at a 99.5%
quantile based on the individual
Clearing Member accounts as of the
back-testing date. Back-testing results
would also reviewed on a daily basis by
the Clearing Risk Department.
Pursuant to Rule 17Ad–
22(e)(6)(vi)(B) 13 a clearing agency must
have policies and procedures reasonably
designed to review its parameters and
assumptions for back-testing its margin
model on at least a monthly basis. The
proposed amendments to the BackTesting Policy, as discussed above, are
consistent with these requirements, as
they provide that reviews of the backtest results must be reported to the
Model Oversight Committee and CDS
Risk Committee on a monthly basis. As
a result, ICE Clear Europe believes that
these amendments to the Back-Testing
Policy are in compliance with Rule
17Ad–22(e)(6)(vi)(B).14
Rule 17Ad–22(e)(2) 15 requires
clearing agencies to establish reasonably
12 17 CFR 240.17Ad-22(e)(6)(vi)(A). The rule
states that ‘‘[e]ach covered clearing agency shall
establish, implement, maintain and enforce written
policies and procedures reasonably designed to, as
applicable:
(6) Cover, if the covered clearing agency provides
central counterparty services, its credit exposures to
its participants by establishing a risk-based margin
system that, at a minimum:
(vi) Is monitored by management on an ongoing
basis and is regularly reviewed, tested, and verified
by:
A. Conducting backtests of its margin model at
least once each day using standard predetermined
parameters and assumptions’’.
13 17 CFR 240.17Ad–22(e)(6)(vi)(B). The rule
states that ‘‘[e]ach covered clearing agency shall
establish, implement, maintain and enforce written
policies and procedures reasonably designed to, as
applicable:
(6) Cover, if the covered clearing agency provides
central counterparty services, its credit exposures to
its participants by establishing a risk-based margin
system that, at a minimum:
(vi) Is monitored by management on an ongoing
basis and is regularly reviewed, tested, and verified
by:
B. Conducting a sensitivity analysis of its margin
model and a review of its parameters and
assumptions for backtesting on at least a monthly
basis, and considering modifications to ensure the
backtesting practices are appropriate for
determining the adequacy of the covered clearing
agency’s margin resources’’.
14 17 CFR 240.17Ad–22(e)(6)(vi)(B).
15 17 CFR 240.17 Ad–22(e)(2). The rule states that
‘‘[e]ach covered clearing agency shall establish,
implement, maintain and enforce written policies
E:\FR\FM\04SEN1.SGM
04SEN1
Federal Register / Vol. 84, No. 171 / Wednesday, September 4, 2019 / Notices
designed policies and procedures to
provide for governance arrangements
that are clear and transparent and
specify clear and direct lines of
responsibility. To facilitate compliance
with this requirement, the proposed
amendments to the Back-Testing Policy
more clearly define the roles and
responsibilities of the CDS Risk
Committee and Model Oversight
Committee to receive back-testing
results.
(B) Clearing Agency’s Statement on
Burden on Competition
ICE Clear Europe does not believe the
proposed rule changes would have any
impact, or impose any burden, on
competition not necessary or
appropriate in furtherance of the
purpose of the Act. The amendments to
the Back-Testing Policy apply to all CDS
Contracts and are intended to strengthen
risk management relating to these
products. ICE Clear Europe does not
believe the amendments will have any
direct effect on Clearing Members, other
market participants or the market for
cleared products generally. As a result,
ICE Clear Europe does not believe the
amendments will materially affect the
cost of, or access to, clearing. To the
extent the amendments may have any
impact on margin levels, ICE Clear
Europe believes such changes will be
appropriate in furtherance of the risk
management of the Clearing House.
Therefore, ICE Clear Europe does not
believe the proposed rule changes
impose any burden on competition that
is inappropriate in furtherance of the
purposes of the Act.
jbell on DSK3GLQ082PROD with NOTICES
(C) Clearing Agency’s Statement on
Comments on the Proposed Rule
Change Received From Members,
Participants or Others
Written comments relating to the
proposed amendments have not been
solicited or received by ICE Clear
Europe. ICE Clear Europe will notify the
and procedures reasonably designed to, as
applicable:
(2) Provide for governance arrangements that:
(i) Are clear and transparent;
(ii) Clearly prioritize the safety and efficiency of
the covered clearing agency;
(iii) Support the public interest requirements in
Section 17A of the Act (15 U.S.C. 78q–1) applicable
to clearing agencies, and the objectives of owners
and participants;
(iv) Establish that the board of directors and
senior management have appropriate experience
and skills to discharge their duties and
responsibilities;
(v) Specify clear and direct lines of responsibility;
and
(vi) Consider the interests of participants’
customers, securities issuers and holders, and other
relevant stakeholders of the covered clearing
agency.’’
VerDate Sep<11>2014
19:08 Sep 03, 2019
Jkt 247001
Commission of any written comments
received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) By order approve or disapprove
the proposed rule change or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml) or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
ICEEU–2019–017 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–ICEEU–2019–017. 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 that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
PO 00000
Frm 00074
Fmt 4703
Sfmt 4703
46575
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filings will also be available for
inspection and copying at the principal
office of ICE Clear Europe and on ICE
Clear Europe’s website at https://
www.theice.com/clear-europe/
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–ICEEU–
2019–017 and should be submitted on
or before September 25, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.16
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–18997 Filed 9–3–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–86783; File No. SR–ICEEU–
2019–014]
Self-Regulatory Organizations; ICE
Clear Europe Limited; Order Approving
Proposed Rule Change Relating to the
ICE Clear Europe CDS Default
Management Framework
August 28, 2019.
I. Introduction
On June 25, 2019, ICE Clear Europe
Limited (‘‘ICE Clear Europe,’’ the
‘‘Clearing House’’ or ‘‘ICEEU’’) 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 its CDS Default
Management Framework (the
‘‘Framework’’). The proposed rule
change was published for comment in
the Federal Register on July 16, 2019.3
The Commission did not receive
comments on the proposed rule change.
For the reasons discussed below, the
Commission is approving the proposed
rule change.
16 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. 86340 (July
10, 2019), 84 FR 33996 (July 16, 2019) (SR–ICEEU–
2019–014) (‘‘Notice’’).
1 15
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]]>Agencies
[Federal Register Volume 84, Number 171 (Wednesday, September 4, 2019)]
[Notices]
[Pages 46573-46575]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-18997]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-86782; File No. SR-ICEEU-2019-017]
Self-Regulatory Organizations; ICE Clear Europe Limited; Notice
of Filing of Proposed Rule Change, as Modified by Partial Amendment No.
1, Relating to the ICE Clear Europe CDS Clearing Back-Testing Policy
(the ``Back-Testing Policy'').
August 28, 2019.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on August 19, 2019, ICE Clear Europe Limited (``ICE Clear Europe'' or
the ``Clearing House'') filed with the Securities and Exchange
Commission (``Commission'') the proposed rule changes described in
Items I, II and III below, which Items have been substantially prepared
by ICE Clear Europe. On August 27, 2019, ICE Clear Europe filed Partial
Amendment No. 1 to the proposed rule change.\3\ The Commission is
publishing this notice to solicit comments on the proposed rule change,
as modified by Partial Amendment No. 1 (hereafter referred to as the
``proposed rule change''), from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Partial Amendment No. 1 corrected an inaccurate statement in
the initial proposed rule change but did not make any changes to the
substance of the filing or the text of the proposed rule change.
---------------------------------------------------------------------------
I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
ICE Clear Europe Limited (``ICE Clear Europe'' or the ``Clearing
House'') proposes to revise its Back-Testing Policy to make certain
clarifications, correct certain typographical errors and update
governance processes.
II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
In its filing with the Commission, ICE Clear Europe included
statements concerning the purpose of and basis for the proposed rule
change and discussed any comments it received on the proposed rule
change. The text of these statements may be examined at the places
specified in Item IV below. ICE Clear Europe has prepared summaries,
set forth in sections (A), (B), and (C) below, of the most significant
aspects of such statements.
(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
(a) Purpose
ICE Clear Europe is proposing to modify, update and reorganize
certain provisions of its Back-Testing Policy to clarify certain test
strategies, procedures and methodologies, correct certain typographical
errors and update governance processes.
The amendments to the Back-Testing Policy principally include
various clarifications to the daily, weekly and monthly back-testing
performed by the Clearing House. As discussed herein, the amendments
would generally align the Back-Testing Policy with the Clearing House's
current back-testing practices, and accordingly the amendments are not
intended to result in significant changes in back-testing practices.
ICE Clear Europe is thus proposing to make these changes in order to
make the policy more accurate, clear and precise, in line with
regulatory requirements applicable to back-margin back-testing and
related suggestions of its regulators. Certain amendments will in
particular clarify that back-testing is done at the Clearing Member
account level,\4\ replacing existing references to testing at the
portfolio level (which was a less precise description).
---------------------------------------------------------------------------
\4\ Account for this purpose has the meaning specified in the
Rules.
---------------------------------------------------------------------------
The amendments would reorganize the requirements of the policy with
respect to daily back-testing, but would not substantially change
existing processes. As noted above, the amendments would provide for
daily back-testing at the Clearing Member account level. The amendments
would also provide that back-testing results would be reported to the
Model Oversight Committee and CDS Risk Committee on a monthly basis,
including an exceedance summary, an example of which would be included
in the Back-Testing Policy.
The provisions of the Back-Testing Policy setting out portfolio
construction for back-testing the production margin model using special
strategy portfolios would be amended to add an additional strategy and
also update strategy names and clarify the use of bought and sold
protection positions in the back-testing process. The portfolio
construction of the additional strategy, iTraxx Senior Financial 5Y.OTR
Arb, would be the same as the construction of the existing special
strategies but would relate only to the iTraxx Senior Financials 5Y
index. ICE Clear Europe regularly back tests using this additional
strategy in practice and is adding it to the policy to reflect this
practice. The amendments would provide that with respect to each
specified strategy, for completeness, the opposite strategy would be
taken into consideration. The other amendments are also generally
intended to better reflect current practice.
The provisions of the policy relating to back testing of the Monte
Carlo (``MC') model would be revised to clarify that back-tests are
performed daily on the Spread Response component of the Initial Margin
using ICE Clear Europe's MC model rather than the worst among the
scenario based spread response approaches and the MC approach. The
back-test would be performed on individual Clearing Member accounts
using the risk approach for the Spread Response Initial Margin (and
accordingly references to specific quantiles for testing have been
removed). The back-tested risk measures would include the sum of the MC
VaR and the basis risk, interest rate and recovery rate quantities.
This amendment is intended to clarify what is meant in the policy by
``Monte Carlo back-testing'', which is back-testing only the MC model
and not the stress based model. There would be no change to the current
practice with respect to MC model back testing. The amendments would
also remove an unnecessary distinction depending on
[[Page 46574]]
whether the indices are decomposed. In ICE Clear Europe's view, this
change would improve the readability of the policy by clarifying that
the basis risk initial margin component is part of the back-tested
initial margin components. This amendment would not change current
practices.
The section regarding the full period back-testing results setting
out the manner in which the back-tested component of initial margin and
the profit and loss results for every back-tested day are reported for
each Clearing Member for daily portfolio back-testing would be removed
as the reporting requirements have been consolidated into a different
section of the policy.
The amendments would make certain changes to the Basel Traffic
Light System exceedance summaries. Pursuant to the amendments, back-
testing results of the production model for each Clearing Member's
account, special-strategy back-testing results of the production model
and back-testing results of the MC model for each Clearing Member's
account would be reported at least monthly to align the frequency of
the reporting to the relevant regulatory requirement under Commission
Rule 17Ad-22(b)(2).\5\
---------------------------------------------------------------------------
\5\ Such change would not preclude ICE Clear Europe from sharing
relevant reports with regulators more frequently as under current
practice.
---------------------------------------------------------------------------
Various other changes would also be made to correct typographical
and similar errors and to clarify use of certain defined terms and
references. Certain outdated references to testing quantiles of 99% and
99.25% would be removed, as they are lower than the minimum 99.5%
quantile prescribed by the European Market Infrastructure Regulation
(EMIR) for over the counter (OTC) contracts.
(b) Statutory Basis
ICE Clear Europe believes that the changes described herein are
consistent with the requirements of Section 17A of the Act \6\ and the
regulations thereunder applicable to it. Section 17A(b)(3)(F) of the
Act \7\ in particular requires, among other things, that the rules of
the clearing agency be designed to promote the prompt and accurate
clearance and settlement of securities transactions and, to the extent
applicable, derivative agreements, contracts and transactions, to
assure the safeguarding of securities and funds in the custody or
control of the clearing agency or for which it is responsible and the
protection of investors, and, in general, protect investors and the
public interest. The proposed amendments are designed to modify the
Back-Testing Policy to clarify certain risk management practices for
CDS Contracts including back-testing strategies, the application of the
Monte Carlo method, and the frequency of back-testing and reporting of
results. The amendments would also adopt various enhancements to the
review and governance processes for those policies. In ICE Clear
Europe's view, the amendments will not result in a significant change
in its back-testing practices, but will improve the accuracy and
clarity of the Back-Testing Policy. As such, the amendments are
consistent with the continued overall risk management of the Clearing
House, and with the prompt and accurate clearance of transactions and
the public interest in sound operation of clearing agencies, within the
meaning of Section 17A(b)(3)(F).\8\ As the amendments would enhance the
Back-Testing Policy as its relates to Clearing House margin models, the
amendments would also be consistent with requirements relating to
safeguarding of funds and securities in the custody or control of the
Clearing House or for which it is responsible, within the meaning of
that section. Accordingly, the amendments satisfy the requirements of
Section 17A(b)(3)(F).\9\
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\6\ 15 U.S.C. 78q-1.
\7\ 15 U.S.C. 78q-1(b)(3)(F).
\8\ 15 U.S.C. 78q-1(b)(3)(F).
\9\ 15 U.S.C. 78q-1(b)(3)(F).
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ICE Clear Europe also believes that the amendments for similar
reasons are consistent with specific requirements of Rule 17Ad-22.\10\
Through providing additional details and examples and enhancing overall
clarity of the Back-Testing Policy, the amendments are consistent with
Rule 17Ad-22(e)(3)(i),\11\ which requires clearing agencies to have
reasonably designed policies and procedures that, at a minimum, include
risk management policies, procedures, and systems designed to identify,
measure, monitor, and manage the range of risks that arise in or are
borne by a clearing agency.
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\10\ 17 CFR 240.17Ad-22.
\11\ 17 CFR 240.17 Ad-22(e)(3)(i). The rule states that ``[e]ach
covered clearing agency shall establish, implement, maintain and
enforce written policies and procedures reasonably designed to, as
applicable:
(3) Maintain a sound risk management framework for
comprehensively managing legal, credit, liquidity, operational,
general business, investment, custody, and other risks that arise in
or are borne by the covered clearing agency, which:
(i) Includes risk management policies, procedures, and systems
designed to identify, measure, monitor, and manage the range of
risks that arise in or are borne by the covered clearing agency,
that are subject to review on a specified periodic basis and
approved by the board of directors annually''.
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Rule 17Ad-22(e)(6)(vi)(A) \12\ specifically requires clearing
agencies to implement reasonably designed policies and procedures to
conduct back-testing of their margin model at least once each day using
standard predetermined parameters and assumptions. In compliance with
these requirements, proposed amendments to the Back-Testing Policy
specify that ICE Clear Europe must perform daily portfolio-level back-
testing analysis at a 99.5% quantile based on the individual Clearing
Member accounts as of the back-testing date. Back-testing results would
also reviewed on a daily basis by the Clearing Risk Department.
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\12\ 17 CFR 240.17Ad-22(e)(6)(vi)(A). The rule states that
``[e]ach covered clearing agency shall establish, implement,
maintain and enforce written policies and procedures reasonably
designed to, as applicable:
(6) Cover, if the covered clearing agency provides central
counterparty services, its credit exposures to its participants by
establishing a risk-based margin system that, at a minimum:
(vi) Is monitored by management on an ongoing basis and is
regularly reviewed, tested, and verified by:
A. Conducting backtests of its margin model at least once each
day using standard predetermined parameters and assumptions''.
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Pursuant to Rule 17Ad-22(e)(6)(vi)(B) \13\ a clearing agency must
have policies and procedures reasonably designed to review its
parameters and assumptions for back-testing its margin model on at
least a monthly basis. The proposed amendments to the Back-Testing
Policy, as discussed above, are consistent with these requirements, as
they provide that reviews of the back-test results must be reported to
the Model Oversight Committee and CDS Risk Committee on a monthly
basis. As a result, ICE Clear Europe believes that these amendments to
the Back-Testing Policy are in compliance with Rule 17Ad-
22(e)(6)(vi)(B).\14\
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\13\ 17 CFR 240.17Ad-22(e)(6)(vi)(B). The rule states that
``[e]ach covered clearing agency shall establish, implement,
maintain and enforce written policies and procedures reasonably
designed to, as applicable:
(6) Cover, if the covered clearing agency provides central
counterparty services, its credit exposures to its participants by
establishing a risk-based margin system that, at a minimum:
(vi) Is monitored by management on an ongoing basis and is
regularly reviewed, tested, and verified by:
B. Conducting a sensitivity analysis of its margin model and a
review of its parameters and assumptions for backtesting on at least
a monthly basis, and considering modifications to ensure the
backtesting practices are appropriate for determining the adequacy
of the covered clearing agency's margin resources''.
\14\ 17 CFR 240.17Ad-22(e)(6)(vi)(B).
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Rule 17Ad-22(e)(2) \15\ requires clearing agencies to establish
reasonably
[[Page 46575]]
designed policies and procedures to provide for governance arrangements
that are clear and transparent and specify clear and direct lines of
responsibility. To facilitate compliance with this requirement, the
proposed amendments to the Back-Testing Policy more clearly define the
roles and responsibilities of the CDS Risk Committee and Model
Oversight Committee to receive back-testing results.
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\15\ 17 CFR 240.17 Ad-22(e)(2). The rule states that ``[e]ach
covered clearing agency shall establish, implement, maintain and
enforce written policies and procedures reasonably designed to, as
applicable:
(2) Provide for governance arrangements that:
(i) Are clear and transparent;
(ii) Clearly prioritize the safety and efficiency of the covered
clearing agency;
(iii) Support the public interest requirements in Section 17A of
the Act (15 U.S.C. 78q-1) applicable to clearing agencies, and the
objectives of owners and participants;
(iv) Establish that the board of directors and senior management
have appropriate experience and skills to discharge their duties and
responsibilities;
(v) Specify clear and direct lines of responsibility; and
(vi) Consider the interests of participants' customers,
securities issuers and holders, and other relevant stakeholders of
the covered clearing agency.''
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(B) Clearing Agency's Statement on Burden on Competition
ICE Clear Europe does not believe the proposed rule changes would
have any impact, or impose any burden, on competition not necessary or
appropriate in furtherance of the purpose of the Act. The amendments to
the Back-Testing Policy apply to all CDS Contracts and are intended to
strengthen risk management relating to these products. ICE Clear Europe
does not believe the amendments will have any direct effect on Clearing
Members, other market participants or the market for cleared products
generally. As a result, ICE Clear Europe does not believe the
amendments will materially affect the cost of, or access to, clearing.
To the extent the amendments may have any impact on margin levels, ICE
Clear Europe believes such changes will be appropriate in furtherance
of the risk management of the Clearing House. Therefore, ICE Clear
Europe does not believe the proposed rule changes impose any burden on
competition that is inappropriate in furtherance of the purposes of the
Act.
(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants or Others
Written comments relating to the proposed amendments have not been
solicited or received by ICE Clear Europe. ICE Clear Europe will notify
the Commission of any written comments received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml) or
Send an email to [email protected]. Please include
File Number SR-ICEEU-2019-017 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-ICEEU-2019-017. 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 that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of such filings will also be available for inspection
and copying at the principal office of ICE Clear Europe and on ICE
Clear Europe's website at https://www.theice.com/clear-europe/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-ICEEU-2019-017 and should be
submitted on or before September 25, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-18997 Filed 9-3-19; 8:45 am]
BILLING CODE 8011-01-P
