Self-Regulatory Organizations; ICE Clear Credit LLC; Order Approving Proposed Rule Change Relating to the ICC Risk Management Framework, ICC Risk Management Model Description, ICC Risk Parameter Setting and Review Policy, ICC Stress Testing Framework, and ICC Liquidity Risk Management Framework, 53036-53040 [2020-18826]

Download as PDF 53036 Federal Register / Vol. 85, No. 167 / Thursday, August 27, 2020 / Notices an average annual hour burden of 4,927 hours and average aggregate time costs of $1,729,377. We estimate that filers will be required to file 2,091 responses regarding rule 6c–11. For these responses related to rule 6c–11, we an average annual hour burden of 0.1 hour per response per year, for an average annual hour burden of 209.1 hours and average aggregate time costs of $73,394.1. We estimate that the total hour burdens and time costs associated with Form N–CEN, including the burdens associated with the liquidity-related, swing pricing-related, and rule 6c–11related items, will result in an average annual hour burden of 52,397 hours and average aggregate time costs of $18,392,382.45. The requirements of this collection of information are mandatory. Responses will not be kept confidential. An agency may not conduct or sponsor, and a person is not required to respond to a collection of information unless it displays a currently valid control number. The public may view background documentation for this information collection at the following website: www.reginfo.gov. Find this particular information collection by selecting ‘‘Currently under 30-day Review—Open for Public Comments’’ or by using the search function. Written comments and recommendations for the proposed information collection should be sent within 30 days of publication of this notice to (i) www.reginfo.gov/public/do/ PRAMain and (ii) David Bottom, Director/Chief Information Officer, Securities and Exchange Commission, c/o Cynthia Roscoe, 100 F Street NE, Washington, DC 20549, or by sending an email to: PRA_Mailbox@sec.gov. SECURITIES AND EXCHANGE COMMISSION [Release No. 34–89639; File No. SR–ICC– 2020–009] Self-Regulatory Organizations; ICE Clear Credit LLC; Order Approving Proposed Rule Change Relating to the ICC Risk Management Framework, ICC Risk Management Model Description, ICC Risk Parameter Setting and Review Policy, ICC Stress Testing Framework, and ICC Liquidity Risk Management Framework August 21, 2020. I. Introduction On July 1, 2020, ICE Clear Credit LLC (‘‘ICC’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 1 and Rule 19b–4,2 a proposed rule change to make changes to ICC’s Risk Management Framework (‘‘RMF’’), Risk Management Model Description (‘‘RMMD’’), Risk Parameter Setting and Review Policy (‘‘RPSRP’’), Stress Testing Framework (‘‘STF’’), and Liquidity Risk Management Framework (‘‘LRMF’’). The proposed rule change was published for comment in the Federal Register on July 16, 2020.3 The Commission did not receive comments regarding the proposed rule change. For the reasons discussed below, the Commission is approving the proposed rule change. II. Description of the Proposed Rule Change A. Updated Stress Scenario Naming Conventions and Clarifications [FR Doc. 2020–18803 Filed 8–26–20; 8:45 am] The proposed rule change would update certain stress scenario naming conventions to be more generic, i.e., by replacing naming conventions for stress scenarios associated with the Lehman Brothers (‘‘LB’’) default with more generic naming conventions associated with extreme price increases and decreases (the ‘‘Extreme Price Change Scenarios’’). BILLING CODE 8011–01–P 1. Risk Management Framework Dated: August 21, 2020. J. Matthew DeLesDernier, Assistant Secretary. The proposed rule change would replace references to the LB default in the RMF with more generic references to khammond on DSKJM1Z7X2PROD with NOTICES 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of Proposed Rule Change Relating to the ICC Risk Management Framework, ICC Risk Management Model Description, ICC Risk Parameter Setting and Review Policy, ICC Stress Testing Framework, and ICC Liquidity Risk Management Framework, Exchange Act Release No. 89286 (July 10, 2020); 85 FR 43272 (July 16, 2020) (SR–ICC–2020–009). 2 17 VerDate Sep<11>2014 17:09 Aug 26, 2020 Jkt 250001 PO 00000 Frm 00095 Fmt 4703 Sfmt 4703 extreme market events. In particular, to achieve anti-procyclicality (‘‘APC’’) of initial margin requirements and to achieve APC of Guaranty Fund sizing, Sections IV.B.1 and IV.E.1, respectively, of the RMF discuss two price-based scenarios, associated with price decreases and increases, and currently states that the considered stress price changes are derived from market behavior during and after the LB default period. The proposed rule change would replace the reference to the LB default in both sections with a reference to extreme market events, stating that the considered stress price changes are derived from extreme market events related to the default of a large market participant, global pandemic problem, or regional or global economic crisis. 2. Risk Management Model Description The proposed rule change would incorporate the Extreme Price Change Scenarios into the RMMD. Specifically, the proposal would replace references and notations to the scenarios associated with the LB default with references and notations to the Extreme Price Change Scenarios in both the Initial Margin and Guaranty Fund Methodology sections. The proposed rule change would introduce the Extreme Price Change Scenarios in Section VII.3.3, which discusses APC measures. Currently, this section examines instrument price changes observed during the LB default. The proposal would amend this section by replacing references to the LB Default with references to extreme market events to examine instrument price changes observed during extreme market events rather than the LB Default and would include considerations related to the greatest price decreases and increases over a number of consecutive trading days during the period of extreme market events. This section would also state that the Extreme Price Change Scenarios reflect extreme market events related to the default of a large market participant, global pandemic problem, regional or global economic crisis and would explain how these scenarios are derived. Moreover, this section would introduce a factor that would be associated with one of the Extreme Price Change Scenarios and reference the RPSRP for details on how it is set. In the context of Index Swaptions, the formulas used would also be updated to reference the Extreme Price Change Scenarios in Section VII.3.3 and minor clarifications would be included for certain descriptions associated with option instruments in respect of the E:\FR\FM\27AUN1.SGM 27AUN1 Federal Register / Vol. 85, No. 167 / Thursday, August 27, 2020 / Notices remaining time to expiry in Sections VII.3.3 and X.3.1.4 3. Risk Parameter Setting and Review Policy The proposal would also incorporate the Extreme Price Change Scenarios into the RPSRP. Specifically, Table 1 in Section 1.1 contains ICC’s core model parameters and would be amended to incorporate the abovementioned factor associated with one of the Extreme Price Change Scenarios. In Section 1.7, the proposed rule change would add a new subsection to include another category of parameters associated with the integrated spread response model component, namely the APC level parameters. The rule proposal would introduce the Extreme Price Change Scenarios in this subsection because extreme stress scenarios associated with historically observed extreme prices changes are inputs in estimating the APC portfolio response. As discussed above, the Extreme Price Change Scenarios would consider the greatest observed price decreases and increases over a number of consecutive trading days within the period of extreme market events related to the default of a large market participant, global pandemic problem, regional or global economic crisis. Moreover, ICC would set out how the Extreme Price Change Scenarios are derived as well as how the abovementioned factor is estimated. ICC would further summarize the associated review and governance process for these scenarios, including the reviewers and any prerequisites to the implementation of parameter updates. khammond on DSKJM1Z7X2PROD with NOTICES B. Introduction of New Stress Scenarios and Clarifications The proposed rule change would also introduce the COVID–19/Oil Crisis Scenarios and amend the LRMF to ensure scenario unification among the STF and LRMF. 1. Stress Testing Framework The proposal would amend the STF to introduce the COVID–19/Oil Crisis Scenarios. Specifically, the proposal would amend the definition of extreme market events to include the Coronavirus pandemic and the simultaneous occurrence of the oil price war in Section 3. In Section 5 of the STF, the proposed rule change would rename the category of scenarios deemed as Historically 4 The proposal would make other minor clarification or clean-up changes to the RMMD. Specifically, ICC proposes to add language to clarify a notation in an equation in Section VII.1.2.1 and update cross-references in Section IX. VerDate Sep<11>2014 17:09 Aug 26, 2020 Jkt 250001 Observed Extreme but Plausible Market Scenarios: Severity of Losses in Response to a Baseline Credit Event to the more general Historically Observed Extreme but Plausible Market Scenarios: Severity of Losses in Response to Baseline Market Events. The associated description of that category would be updated to replace the LB default with a more general description of extreme market events such as those related to the default of a large market participant, global pandemic problem, and regional or global economic crisis. The proposal would also make conforming changes to Section 5.2, including updating the heading and adding a general description of the category followed by the associated scenarios, which would include the COVID–19/Oil Crisis Scenarios, in bulleted form. ICC also proposes to incorporate reference to the COVID–19/Oil Crisis Scenarios into the other categories of scenarios, namely Hypothetically Constructed (Forward Looking) Extreme but Plausible Market Scenarios and Extreme Model Response Test Scenarios in Sections 5.3 and 5.4, respectively, and to replace references to the LB default with more general references to extreme market events and price changes in Section 5.4. In Section 13 of the STF, ICC proposes to add the COVID–19/Oil Crisis Scenarios to the list of Historically Observed and Hypothetically Constructed Extreme but Plausible Scenarios. Additionally, in Section 13, ICC proposes to remove a footnote to avoid redundancy as such information can be found in the text of Section 14. 2. Liquidity Risk Management Framework The proposal would amend the LRMF to incorporate the COVID–19/Oil Crisis Scenarios and ensure unification of the LRMF and STF, including with respect to scenario descriptions and governance procedures. Further, the proposal would amend Section 2 to provide additional clarity on ICC’s liquidity risk management practices. ICC would add explanatory language classifying scenarios as ‘‘extreme and not expected to be realized’’ and ‘‘extreme but plausible’’ based on risk horizons in Section 2.3 and reference such classifications throughout the document. ICC also would clarify actions that it can take only in the event of a CP default, specifically related to pledgeable collateral in Section 2.6, and actions that it can take irrespective of a CP default or non-default scenario, specifically related to accessing committed repurchase (‘‘repo’’) and PO 00000 Frm 00096 Fmt 4703 Sfmt 4703 53037 committed foreign exchange (‘‘FX’’) facilities in Section 2.7. ICC also proposes revisions to Section 2.8, which describes ICC’s liquidity waterfall (i.e., the order, to the extent practicable, that ICC uses its available liquid resources (‘‘ALR’’) to meet its currency-specific cash payment obligations) to amend the determination of ALR. ALR consist of the available deposits currently in cash of the required denomination, and the cash equivalent of the available deposits in collateral types that ICC can convert to cash, in the required currency of denomination, rapidly enough to meet the relevant, currency-specific deadlines by which ICC must meet its liquidity obligations (‘‘ICC Payout Deadlines’’). The proposed rule change would revise Section 2.8 to specify that, to enable an assessment of the impact of a service provider becoming unavailable and/or overnight investments not unwinding by the relevant ICC Payout Deadlines, the cash on deposit component of ALR considered across all levels of the liquidity waterfall may be adjusted to be a portion, the Available Percentage, of the actual cash on deposit. The proposed amendments would also discuss the determinations of ALR if the analysis assumes the use of the committed repo facilities. ICC proposes amendments to Section 3.3 that either provide additional clarity or promote consistency between the STF and LRMF. The proposed changes would add background on ICC’s stress testing analysis and reorganize Section 3.3 into four parts. Proposed Section 3.3.1 would describe ICC’s stress test methodology that uses a set of stress scenarios and establishes if the ALRs are sufficient to cover hypothetical liquidity obligations. This section would also include language describing the Forward Looking (Hypothetically Constructed) Scenarios that is consistent with the STF, such as details on their construction and on the calculation of Loss-Given-Default (‘‘LGD’’) and Expected LGD with respect to these scenarios. Proposed subpart (a) would detail ICC’s cover-2 analysis, which demonstrates to what extent the required liquidity resources available to ICC were sufficient to meet single and multi-day cover-2 liquidity obligations under the considered scenarios. Proposed Section 3.3.2 would set forth the predefined scenarios that ICC maintains for liquidity stress testing and would be divided into the following consistent with the STF: (a) Historically Observed Extreme but Plausible Market Scenarios, (b) Historically Observed Extreme but Plausible Market Scenarios: Severity of Losses in Response to E:\FR\FM\27AUN1.SGM 27AUN1 khammond on DSKJM1Z7X2PROD with NOTICES 53038 Federal Register / Vol. 85, No. 167 / Thursday, August 27, 2020 / Notices Baseline Market Events, (c) Hypothetically Constructed (Forward Looking) Extreme but Plausible Market Scenarios, and (d) Extreme Model Response Tests. ICC would incorporate the COVID–19/Oil Crisis Scenarios in part (b) and amend the terminology describing the LGD scenarios in part (c), including by consistently referring to reference entity groups as Risk Factor Groups (‘‘RFGs’’),5 more specifically defining reference entities and CP RFGs, and specifying the reference entities in a RFG for stress testing. In part (c), ICC would clarify its description of the oneservice-provider-down scenarios which consider a reduction in ALR designed to represent ICC’s exposure to service providers at which it maintains cash deposits, invested cash deposits or collateral against invested cash deposits, due to ICC’s potential inability to access those accounts when required. ICC also proposes to update terminology to incorporate the Available Percentage in part (c) and add details on the ICC Risk Department’s analysis of the Available Percentage. ICC proposes additional amendments to Section 3.3.3 regarding its stress testing analysis approach. ICC proposes to add explanatory language related to portfolios that present specific wrong way risk and related to sequencing defaulting CP AGs for stress scenarios. Table 1, which lists scenarios used in ICC’s liquidity stress testing and assigns each scenario to a group for reporting purposes, would be amended to incorporate additional columns detailing the corresponding report and classification/frequency and reorganized to add additional groups and scenarios (i.e., the COVID–19/Oil Crisis Scenarios) for completeness. In proposed Section 3.3.4, ICC would discuss its interpretation of liquidity stress test results, including governance procedures for enhancing the liquidity risk management methodology and procedures to meet its reporting obligations. Proposed Figure 2 would further illustrate ICC’s categorization of hypothetical losses. Specifically, depending on whether there are sufficient liquidity resources across certain levels of the liquidity waterfall, stress test results could be in one of three zones (green, yellow, or red) that have different reporting requirements. Results in the red zone would be considered poor, and reporting to the ICC Risk Committee or the Board would be required. 5 ICC deems each single name reference entity a Risk Factor. ICC deems a set of single name Risk Factors related by a common parental ownership structure a RFG. VerDate Sep<11>2014 17:09 Aug 26, 2020 Jkt 250001 ICC proposes additional clarification changes to the LRMF. Specifically, ICC proposes language in Section 4.3 regarding its determination of poor stress testing and/or historical analysis, noting the ICC personnel responsible for making such a determination, who would be the same personnel designated in the STF as responsible for determining poor stress testing performance. Proposed Section 6 would be an appendix that sets forth the computation of liquidity resources and remaining liquidity resources across the levels of the liquidity waterfall, including formulas for calculating currency-specific cash ALRs and currency-specific cash remaining ALRs. Such changes are explanatory and do not amend the methodology. ICC also proposes to update Table 2, which illustrates a specific report, to reorganize and include additional groups to be consistent with amended Table 1. The proposal would make other minor clarification or non-material clean-up changes to the LRMF. Specifically, the proposed revisions would update terminology to clarify an objective of the framework in Section 1.3 and abbreviate a defined term in Section 1.4. The proposed changes would also add quotation marks around a defined term in Section 2.3; clarify ICC’s use of ALR in Section 2.8, including by moving two sentences earlier in the section and incorporating reference to required currencies of denomination; and rephrase a sentence for clarity in Section 2.8.4. ICC proposes to include terminology updates with respect to the scenarios described in Sections 3.1 and 3.3 for consistency and clarity and to amend Section 3.3.2 to make certain terms lowercase, renumber subsections, update formatting, and add and update relevant cross-references. Additionally, ICC proposes minor terminology clarifications in describing its stress test analysis in Section 3.3.3 and ICC’s governance procedures in Sections 4.1 through 4.3, such as making certain terms lowercase, more clearly describing certain terms, and abbreviating defined terms. III. 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.6 For the 6 15 PO 00000 U.S.C. 78s(b)(2)(C). Frm 00097 Fmt 4703 Sfmt 4703 reasons given below, the Commission finds that the proposed rule change is consistent with Section 17A(b)(3)(F) of the Act 7 and Rules 17Ad–22(e)(2)(i) and (v),8 17Ad–22 (e)(4)(ii),9 and 17Ad– 22(e)(7)(i) 10 thereunder. A. Consistency With Section 17A(b)(3)(F) of the Act Section 17A(b)(3)(F) of the Act 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, as well as to assure the safeguarding of securities and funds which are in the custody or control of ICC or for which it is responsible.11 As noted above, the proposed rule change would update certain stress scenario naming conventions to be more generic and introduce stress scenarios related to the Coronavirus pandemic and oil price war in March 2020 in the RMF (discussed in Section II.A.1 above), the RMMD (discussed in Section II.A.2 above), and the RPSRP (discussed in Section II.A.3 above). The Commission believes that, by incorporating more generically named stress scenarios that relate to extreme market events, as opposed to the LB default, and introducing the COVID–19/Oil Crisis Scenarios, ICC is updating the RMF, RMMD, and RPSRP in a way that allows ICC to be more flexible and capable of considering a range of events beyond the LB Default, which, in turn, enhances its ability to manage risks and thereby maintain the financial resources necessary to promptly and accurately clear and settle transactions and safeguard securities and funds. Additionally, the Commission believes that the various minor clarification and clean-up changes to the RMMD and the summary of the associated review and governance process, including the reviewers and any prerequisites to the implementation of parameter updates, in the RPSRP helps to strengthen ICC’s risk management documentation with clear guidance, which ultimately supports ICC’s ability to promptly and accurately clear and settle securities transactions. The Commission also believes that the proposed changes to the STF and the LRMF to introduce the COVID–19/Oil Crisis Scenarios and renaming stress scenarios more generally, as described 7 15 U.S.C. 78q–1(b)(3)(F). CFR 240.17Ad–22(e)(2)(i), (iii), and (v). 9 17 CFR 240.17Ad–22(e)(4)(ii). 10 17 CFR 240.17Ad–22(e)(7)(i). 11 15 U.S.C. 78q–1(b)(3)(F). 8 17 E:\FR\FM\27AUN1.SGM 27AUN1 Federal Register / Vol. 85, No. 167 / Thursday, August 27, 2020 / Notices khammond on DSKJM1Z7X2PROD with NOTICES in Section II.B.1 and II.B.2 above, should also enhance ICC’s ability to manage risks in a way that makes it more flexible and capable of considering a range of events. The Commission believes that this, in turn, will help ICC manage financial resources and hence promote its ability to promptly and accurately clear and settle trades and safeguard securities and funds. Additionally, the Commission believes that the various clarifying amendments to the LRMF noted above in Section II.B.2, including clarifying its ability to use repo or FX facilities in the event of default or non-default scenarios, classifying scenarios based on liquidity risk horizon as plausible or not, describing in the default waterfall the ability to adjust the cash on deposit component of the available liquid resources, and providing background on the stress testing analysis, approach, interpretations and governance, should enhance the policies and procedures used to support ICC’s risk management system by increasing transparency and clarity regarding its practices. The Commission believes that this, in turn, should strengthen ICC’s ability to maintain adequate financial resources, thereby promoting both the prompt and accurate clearance and settlement of securities transactions and the ability to safeguard securities and funds. For these reasons, the Commission believes the proposed rule changes are consistent with Section 17A(b)(3)(F) of the Act. B. Consistency With Rule 17Ad– 22(e)(2)(i) and (v) Rules 17Ad–22(e)(2)(i) and (v) require that ICC establish, implement, maintain, and enforce written policies and procedures reasonably designed to, as applicable, provide for governance arrangements that are clear and transparent and specify clear and direct lines of responsibility. As noted above in Section II.A.3, the proposed changes to the RPSRP summarize the review and governance process to note the frequency that the ICC Risk Department would review the stress scenarios of price changes and their assumptions and with whom it clears APC level parameter updates. Further, the proposed changes to the LRMF in Section II.B.2 detail the frequency that ICC’s Risk Department would perform an analysis of the Available Percentage of the cash on deposit and whether and when updates are performed. As noted above, the proposed changes to the LRMF also discuss the interpretation of liquidity stress test results, including governance procedures for enhancing the liquidity VerDate Sep<11>2014 17:09 Aug 26, 2020 Jkt 250001 risk management methodology and procedures to meet its reporting obligations. Additionally, the proposed changes to the LRMF clarify the individuals responsible for determining poor stress testing results and the need for enhancements to the methodology. The Commission believes that these changes clarify these particular governance processes by specifying responsible parties, their duties, and review frequency, thereby helping to ensure that ICC’s policies and procedures are clear and transparent with clear and direct lines of governing responsibility. For these reasons, the Commission believes that these aspects of the proposed rule change are consistent with Rules 17Ad–22(e)(2)(i) and (v).12 C. Consistency With Rule 17Ad– 22(e)(4)(ii) Rule 17Ad–22(e)(4)(ii) requires each covered clearing agency to establish, implement, maintain, and enforce written policies and procedures reasonably designed to, as applicable, effectively identify, measure, monitor, and manage its credit exposures to participants and those arising from its payment, clearing, and settlement processes, including by maintaining additional financial resources at the minimum to enable it to cover a wide range of foreseeable stress scenarios that include, but are not limited to, the default of the two participant families that would potentially cause the largest aggregate credit exposure for the covered clearing agency in extreme but plausible market conditions.13 The Commission believes that by introducing the COVID–19/Oil Crisis Scenarios, the proposed rule change would complement the current scenarios in the risk management policies and procedures and add additional insight into potential weaknesses in the ICC risk management methodology, thereby enhancing ICC’s ability to manage its credit exposures and financial resources. Additionally, as noted above, the proposed rule change would replace naming conventions for stress scenarios associated with the LB default with more generic naming conventions associated with extreme price changes. The Commission believes that this change, particularly when discussing scenarios used to determine initial margin and guarantee fund sizing, would enhance ICC’s ability to manage risks and thereby maintain the appropriate financial resources to 12 17 13 17 PO 00000 CFR 240.17Ad–22(e)(2)(i) and (v). CFR 240.17Ad–22(e)(4)(ii). Frm 00098 Fmt 4703 Sfmt 4703 53039 enable it to cover a wide range of foreseeable stress scenarios. The Commission also believes that the proposed clarification and clean-up changes enhance the readability and transparency of the policies and procedures, thereby strengthening the documentation and ensuring that it remains up-to-date, clear, and transparent to support the effectiveness of ICC’s risk management system. The Commission believes that the proposed amendments are therefore consistent with the requirements of Rule 17Ad–22(e)(4)(ii).14 D. Consistency With Rule 17Ad– 22(e)(7)(i) Rule 17Ad–22(e)(7)(i) requires each covered clearing agency to establish, implement, maintain, and enforce written policies and procedures reasonably designed, as applicable, to effectively measure, monitor, and manage the liquidity risk that arises in or is borne by the covered clearing agency, including measuring, monitoring, and managing its settlement and funding flows on an ongoing and timely basis, and its use of intraday liquidity by maintaining sufficient liquid resources at the minimum in all relevant currencies to effect same-day and, where appropriate, intraday and multiday settlement of payment obligations with a high degree of confidence under a wide range of foreseeable stress scenarios that includes, but is not limited to, the default of the participant family that would generate the largest aggregate payment obligation for the covered clearing agency in extreme but plausible market conditions.15 The Commission believes that the proposed clarification changes to the LRMF noted above in Section II.B.2 provide further clarity and transparency regarding ICC’s liquidity stress testing practices to strengthen the documentation surrounding ICC’s liquidity stress testing methodology, including by providing additional scenario descriptions and details on the computation of liquidity resources, and ensuring consistency with the STF. Additionally, the proposed rule changes clarify actions that ICC can take only in the event of a CP default, specifically related to pledgeable collateral, and actions that it can take irrespective of a CP default or non-default scenario, related to accessing committed repo and committed FX facilities. The Commission believes that these changes should enhance ICC’s ability to monitor 14 17 15 17 E:\FR\FM\27AUN1.SGM CFR 240.17Ad–22(e)(4)(ii). CFR 240.17Ad–22(e)(7)(i). 27AUN1 53040 Federal Register / Vol. 85, No. 167 / Thursday, August 27, 2020 / Notices and maintain necessary liquidity by preparing it for different stress scenarios and clarifying when liquidity tools can be used. The Commission also believes that the proposed changes to the LRMF noted above related to categorization of stress test results should strengthen ICC’s approach to identifying potential weaknesses in the liquidity risk management system with additional procedures related to the determination and analysis of poor stress testing. For the reasons stated above, the Commission believes that the proposed rule changes are consistent with Rule 17Ad–22(e)(7)(i).16 E. Conclusion On the basis of the foregoing, the Commission finds that the proposed rule change is consistent with the requirements of the Act, and in particular, with the requirements of Section 17A(b)(3)(F) of the Act 17 and Rules 17Ad–22(e)(2)(i) and (v),18 17Ad– 22 (e)(4)(ii),19 and 17Ad–22(e)(7)(i) 20 thereunder. It is therefore ordered pursuant to Section 19(b)(2) of the Act 21 that the proposed rule change (SR–ICC–2020– 009), be, and hereby is, approved.22 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.23 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–18826 Filed 8–26–20; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [SEC File No. 270–297, OMB Control No. 3235–0336] Proposal for OMB Review; Comment Request; Revision: Form N–14 Notice is hereby given that, pursuant to the Paperwork Reduction Act of 1995 (‘‘Paperwork Reduction Act’’), the Securities and Exchange Commission (the ‘‘Commission’’) is soliciting comments on the collection of information summarized below. The Commission plans to submit this existing collection of information to the Office of Management and Budget (‘‘OMB’’) for extension and approval. Form N–14 (17 CFR 239.23) is the form for registration under the Securities Act of 1933 (15 U.S.C. 77a et seq.) (‘‘Securities Act’’) of securities issued by management investment companies registered under the Investment Company Act of 1940 (15 U.S.C. 80a–1 et seq.) (‘‘Investment Company Act’’) and business development companies as defined by Section 2(a)(48) of the Investment Company Act in: (1) A transaction of the type specified in rule 145(a) under the Securities Act (17 CFR 230.145(a)); (2) a merger in which a vote or consent of the security holders of the company being acquired is not required pursuant to applicable state law; (3) an exchange offer for securities of the issuer or another person; (4) a public reoffering or resale of any securities acquired in an offering registered on Form N–14; or (5) two or more of the transactions listed in (1) through (4) registered on one registration statement. The principal purpose of Form N–14 is to make material information regarding securities to be issued in connection with business combination transactions available to investors. The information required to be filed with the Commission permits verification of compliance with securities law requirements and assures the public availability and dissemination of such information. Without the registration statement requirement, material information may not necessarily be available to investors. TABLE 1—BURDEN ESTIMATES FOR INITIAL REGISTRATION STATEMENTS FILED ON FORM N–14 Cost of internal burden Wage rate 1 Internal burden Annual cost burden Annual responses Internal burden (aggregate) Cost of internal burden (aggregate) Annual cost burden (aggregate) CURRENTLY APPROVED ESTIMATES Preparing and filing reports on Form N-14 generally. 497.31 hours .. × Preparation and review of exhibit hyperlinks. 0.25 hours ...... ........................ Total Annual Burden ........ $173,063.88 $23,091 × 253 125,820 hours .............. $43,758,162 $5,842,000 × $348 (blend of compliance attorney and senior programmer). 348 (blend of compliance attorney and senior programmer). 87 300 × 253 63 hours ....................... 22,011 75,900 ........ ................................................ .................... ................ .................. 125,883 hours .............. 43,780,173 5,917,900 ........ REVISED ESTIMATES Preparing and filing reports on Form N–14 generally. 610 hours ....... × Burden per amendment .......... 290 hours ....... × Total Annual Burden ........ ........................ ........ 317.3 (blend of attorney, senior accountant, and paralegal). 319 ((blend of attorney, senior accountant, and paralegal). 193,554 27,500 × 156 96,160 hours ................ 29,181,672 4,290,000 92,530 16,000 × 97 29,100 hours ................ 8,674,710 1,552,000 ................................................ .................... ................ .................. 125,260 hours .............. 37,856,382 5,842,000 ........ khammond on DSKJM1Z7X2PROD with NOTICES Notes: 1 The Commission’s estimates concerning the allocation of burden hours and the relevant wage rates are based on consultations with industry representatives and on salary information for the securities industry compiled by the Securities Industry and Financial Markets Association’s Office Salaries in the Securities Industry 2013. The estimated wage figures are modified by Commission staff to account for an 1800-hour work-year and multiplied by 5.35 to account for bonuses, firm size, employee benefits, overhead, and adjusted to account for the effects of inflation. See Securities Industry and Financial Markets Association, Report on Management & Professional Earnings in the Securities Industry 2013. As summarized in Table 1 above, the Commission has previously estimated that about 253 funds will make about 253 filings on Form N–14 each year, incurring 125,883 hours of internal hour 16 Id. 20 17 17 15 U.S.C. 78q–1(b)(3)(F). 18 17 CFR 240.17Ad–22(e)(2)(i)and (v). 19 17 CFR 240.17Ad–22(e)(4)(ii). VerDate Sep<11>2014 burden at a cost of about $43.78 million. The hour burden estimates for preparing and filing reports on Form N–14 are based on the Commission’s experience with the contents of the form. The 17:09 Aug 26, 2020 Jkt 250001 CFR 240.17Ad–22(e)(7)(i). U.S.C. 78s(b)(2). 22 In approving the proposed rule change, the Commission considered the proposal’s impact on 21 15 PO 00000 Frm 00099 Fmt 4703 Sfmt 4703 number of burden hours may vary depending on, among other things, the complexity of the filing and whether preparation of the forms is performed by internal staff or outside counsel. efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 23 17 CFR 200.30–3(a)(12). E:\FR\FM\27AUN1.SGM 27AUN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 85, Number 167 (Thursday, August 27, 2020)]
[Notices]
[Pages 53036-53040]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-18826]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89639; File No. SR-ICC-2020-009]


Self-Regulatory Organizations; ICE Clear Credit LLC; Order 
Approving Proposed Rule Change Relating to the ICC Risk Management 
Framework, ICC Risk Management Model Description, ICC Risk Parameter 
Setting and Review Policy, ICC Stress Testing Framework, and ICC 
Liquidity Risk Management Framework

August 21, 2020.

I. Introduction

    On July 1, 2020, ICE Clear Credit LLC (``ICC'') filed with the 
Securities and Exchange Commission (``Commission''), pursuant to 
Section 19(b)(1) of the Securities Exchange Act of 1934 \1\ and Rule 
19b-4,\2\ a proposed rule change to make changes to ICC's Risk 
Management Framework (``RMF''), Risk Management Model Description 
(``RMMD''), Risk Parameter Setting and Review Policy (``RPSRP''), 
Stress Testing Framework (``STF''), and Liquidity Risk Management 
Framework (``LRMF''). The proposed rule change was published for 
comment in the Federal Register on July 16, 2020.\3\ The Commission did 
not receive comments regarding the proposed rule change. For the 
reasons discussed below, the Commission is approving the proposed rule 
change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Self-Regulatory Organizations; ICE Clear Credit LLC; Notice 
of Proposed Rule Change Relating to the ICC Risk Management 
Framework, ICC Risk Management Model Description, ICC Risk Parameter 
Setting and Review Policy, ICC Stress Testing Framework, and ICC 
Liquidity Risk Management Framework, Exchange Act Release No. 89286 
(July 10, 2020); 85 FR 43272 (July 16, 2020) (SR-ICC-2020-009).
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II. Description of the Proposed Rule Change

A. Updated Stress Scenario Naming Conventions and Clarifications

    The proposed rule change would update certain stress scenario 
naming conventions to be more generic, i.e., by replacing naming 
conventions for stress scenarios associated with the Lehman Brothers 
(``LB'') default with more generic naming conventions associated with 
extreme price increases and decreases (the ``Extreme Price Change 
Scenarios'').
1. Risk Management Framework
    The proposed rule change would replace references to the LB default 
in the RMF with more generic references to extreme market events. In 
particular, to achieve anti-procyclicality (``APC'') of initial margin 
requirements and to achieve APC of Guaranty Fund sizing, Sections 
IV.B.1 and IV.E.1, respectively, of the RMF discuss two price-based 
scenarios, associated with price decreases and increases, and currently 
states that the considered stress price changes are derived from market 
behavior during and after the LB default period. The proposed rule 
change would replace the reference to the LB default in both sections 
with a reference to extreme market events, stating that the considered 
stress price changes are derived from extreme market events related to 
the default of a large market participant, global pandemic problem, or 
regional or global economic crisis.
2. Risk Management Model Description
    The proposed rule change would incorporate the Extreme Price Change 
Scenarios into the RMMD. Specifically, the proposal would replace 
references and notations to the scenarios associated with the LB 
default with references and notations to the Extreme Price Change 
Scenarios in both the Initial Margin and Guaranty Fund Methodology 
sections.
    The proposed rule change would introduce the Extreme Price Change 
Scenarios in Section VII.3.3, which discusses APC measures. Currently, 
this section examines instrument price changes observed during the LB 
default. The proposal would amend this section by replacing references 
to the LB Default with references to extreme market events to examine 
instrument price changes observed during extreme market events rather 
than the LB Default and would include considerations related to the 
greatest price decreases and increases over a number of consecutive 
trading days during the period of extreme market events. This section 
would also state that the Extreme Price Change Scenarios reflect 
extreme market events related to the default of a large market 
participant, global pandemic problem, regional or global economic 
crisis and would explain how these scenarios are derived. Moreover, 
this section would introduce a factor that would be associated with one 
of the Extreme Price Change Scenarios and reference the RPSRP for 
details on how it is set.
    In the context of Index Swaptions, the formulas used would also be 
updated to reference the Extreme Price Change Scenarios in Section 
VII.3.3 and minor clarifications would be included for certain 
descriptions associated with option instruments in respect of the

[[Page 53037]]

remaining time to expiry in Sections VII.3.3 and X.3.1.\4\
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    \4\ The proposal would make other minor clarification or clean-
up changes to the RMMD. Specifically, ICC proposes to add language 
to clarify a notation in an equation in Section VII.1.2.1 and update 
cross-references in Section IX.
---------------------------------------------------------------------------

3. Risk Parameter Setting and Review Policy
    The proposal would also incorporate the Extreme Price Change 
Scenarios into the RPSRP. Specifically, Table 1 in Section 1.1 contains 
ICC's core model parameters and would be amended to incorporate the 
abovementioned factor associated with one of the Extreme Price Change 
Scenarios. In Section 1.7, the proposed rule change would add a new 
subsection to include another category of parameters associated with 
the integrated spread response model component, namely the APC level 
parameters. The rule proposal would introduce the Extreme Price Change 
Scenarios in this subsection because extreme stress scenarios 
associated with historically observed extreme prices changes are inputs 
in estimating the APC portfolio response.
    As discussed above, the Extreme Price Change Scenarios would 
consider the greatest observed price decreases and increases over a 
number of consecutive trading days within the period of extreme market 
events related to the default of a large market participant, global 
pandemic problem, regional or global economic crisis. Moreover, ICC 
would set out how the Extreme Price Change Scenarios are derived as 
well as how the abovementioned factor is estimated. ICC would further 
summarize the associated review and governance process for these 
scenarios, including the reviewers and any prerequisites to the 
implementation of parameter updates.

B. Introduction of New Stress Scenarios and Clarifications

    The proposed rule change would also introduce the COVID-19/Oil 
Crisis Scenarios and amend the LRMF to ensure scenario unification 
among the STF and LRMF.
1. Stress Testing Framework
    The proposal would amend the STF to introduce the COVID-19/Oil 
Crisis Scenarios. Specifically, the proposal would amend the definition 
of extreme market events to include the Coronavirus pandemic and the 
simultaneous occurrence of the oil price war in Section 3.
    In Section 5 of the STF, the proposed rule change would rename the 
category of scenarios deemed as Historically Observed Extreme but 
Plausible Market Scenarios: Severity of Losses in Response to a 
Baseline Credit Event to the more general Historically Observed Extreme 
but Plausible Market Scenarios: Severity of Losses in Response to 
Baseline Market Events. The associated description of that category 
would be updated to replace the LB default with a more general 
description of extreme market events such as those related to the 
default of a large market participant, global pandemic problem, and 
regional or global economic crisis. The proposal would also make 
conforming changes to Section 5.2, including updating the heading and 
adding a general description of the category followed by the associated 
scenarios, which would include the COVID-19/Oil Crisis Scenarios, in 
bulleted form. ICC also proposes to incorporate reference to the COVID-
19/Oil Crisis Scenarios into the other categories of scenarios, namely 
Hypothetically Constructed (Forward Looking) Extreme but Plausible 
Market Scenarios and Extreme Model Response Test Scenarios in Sections 
5.3 and 5.4, respectively, and to replace references to the LB default 
with more general references to extreme market events and price changes 
in Section 5.4.
    In Section 13 of the STF, ICC proposes to add the COVID-19/Oil 
Crisis Scenarios to the list of Historically Observed and 
Hypothetically Constructed Extreme but Plausible Scenarios. 
Additionally, in Section 13, ICC proposes to remove a footnote to avoid 
redundancy as such information can be found in the text of Section 14.
2. Liquidity Risk Management Framework
    The proposal would amend the LRMF to incorporate the COVID-19/Oil 
Crisis Scenarios and ensure unification of the LRMF and STF, including 
with respect to scenario descriptions and governance procedures.
    Further, the proposal would amend Section 2 to provide additional 
clarity on ICC's liquidity risk management practices. ICC would add 
explanatory language classifying scenarios as ``extreme and not 
expected to be realized'' and ``extreme but plausible'' based on risk 
horizons in Section 2.3 and reference such classifications throughout 
the document. ICC also would clarify actions that it can take only in 
the event of a CP default, specifically related to pledgeable 
collateral in Section 2.6, and actions that it can take irrespective of 
a CP default or non-default scenario, specifically related to accessing 
committed repurchase (``repo'') and committed foreign exchange (``FX'') 
facilities in Section 2.7.
    ICC also proposes revisions to Section 2.8, which describes ICC's 
liquidity waterfall (i.e., the order, to the extent practicable, that 
ICC uses its available liquid resources (``ALR'') to meet its currency-
specific cash payment obligations) to amend the determination of ALR. 
ALR consist of the available deposits currently in cash of the required 
denomination, and the cash equivalent of the available deposits in 
collateral types that ICC can convert to cash, in the required currency 
of denomination, rapidly enough to meet the relevant, currency-specific 
deadlines by which ICC must meet its liquidity obligations (``ICC 
Payout Deadlines''). The proposed rule change would revise Section 2.8 
to specify that, to enable an assessment of the impact of a service 
provider becoming unavailable and/or overnight investments not 
unwinding by the relevant ICC Payout Deadlines, the cash on deposit 
component of ALR considered across all levels of the liquidity 
waterfall may be adjusted to be a portion, the Available Percentage, of 
the actual cash on deposit. The proposed amendments would also discuss 
the determinations of ALR if the analysis assumes the use of the 
committed repo facilities.
    ICC proposes amendments to Section 3.3 that either provide 
additional clarity or promote consistency between the STF and LRMF. The 
proposed changes would add background on ICC's stress testing analysis 
and reorganize Section 3.3 into four parts. Proposed Section 3.3.1 
would describe ICC's stress test methodology that uses a set of stress 
scenarios and establishes if the ALRs are sufficient to cover 
hypothetical liquidity obligations. This section would also include 
language describing the Forward Looking (Hypothetically Constructed) 
Scenarios that is consistent with the STF, such as details on their 
construction and on the calculation of Loss-Given-Default (``LGD'') and 
Expected LGD with respect to these scenarios. Proposed subpart (a) 
would detail ICC's cover-2 analysis, which demonstrates to what extent 
the required liquidity resources available to ICC were sufficient to 
meet single and multi-day cover-2 liquidity obligations under the 
considered scenarios.
    Proposed Section 3.3.2 would set forth the predefined scenarios 
that ICC maintains for liquidity stress testing and would be divided 
into the following consistent with the STF: (a) Historically Observed 
Extreme but Plausible Market Scenarios, (b) Historically Observed 
Extreme but Plausible Market Scenarios: Severity of Losses in Response 
to

[[Page 53038]]

Baseline Market Events, (c) Hypothetically Constructed (Forward 
Looking) Extreme but Plausible Market Scenarios, and (d) Extreme Model 
Response Tests. ICC would incorporate the COVID-19/Oil Crisis Scenarios 
in part (b) and amend the terminology describing the LGD scenarios in 
part (c), including by consistently referring to reference entity 
groups as Risk Factor Groups (``RFGs''),\5\ more specifically defining 
reference entities and CP RFGs, and specifying the reference entities 
in a RFG for stress testing. In part (c), ICC would clarify its 
description of the one-service-provider-down scenarios which consider a 
reduction in ALR designed to represent ICC's exposure to service 
providers at which it maintains cash deposits, invested cash deposits 
or collateral against invested cash deposits, due to ICC's potential 
inability to access those accounts when required. ICC also proposes to 
update terminology to incorporate the Available Percentage in part (c) 
and add details on the ICC Risk Department's analysis of the Available 
Percentage.
---------------------------------------------------------------------------

    \5\ ICC deems each single name reference entity a Risk Factor. 
ICC deems a set of single name Risk Factors related by a common 
parental ownership structure a RFG.
---------------------------------------------------------------------------

    ICC proposes additional amendments to Section 3.3.3 regarding its 
stress testing analysis approach. ICC proposes to add explanatory 
language related to portfolios that present specific wrong way risk and 
related to sequencing defaulting CP AGs for stress scenarios. Table 1, 
which lists scenarios used in ICC's liquidity stress testing and 
assigns each scenario to a group for reporting purposes, would be 
amended to incorporate additional columns detailing the corresponding 
report and classification/frequency and reorganized to add additional 
groups and scenarios (i.e., the COVID-19/Oil Crisis Scenarios) for 
completeness.
    In proposed Section 3.3.4, ICC would discuss its interpretation of 
liquidity stress test results, including governance procedures for 
enhancing the liquidity risk management methodology and procedures to 
meet its reporting obligations. Proposed Figure 2 would further 
illustrate ICC's categorization of hypothetical losses. Specifically, 
depending on whether there are sufficient liquidity resources across 
certain levels of the liquidity waterfall, stress test results could be 
in one of three zones (green, yellow, or red) that have different 
reporting requirements. Results in the red zone would be considered 
poor, and reporting to the ICC Risk Committee or the Board would be 
required.
    ICC proposes additional clarification changes to the LRMF. 
Specifically, ICC proposes language in Section 4.3 regarding its 
determination of poor stress testing and/or historical analysis, noting 
the ICC personnel responsible for making such a determination, who 
would be the same personnel designated in the STF as responsible for 
determining poor stress testing performance. Proposed Section 6 would 
be an appendix that sets forth the computation of liquidity resources 
and remaining liquidity resources across the levels of the liquidity 
waterfall, including formulas for calculating currency-specific cash 
ALRs and currency-specific cash remaining ALRs. Such changes are 
explanatory and do not amend the methodology. ICC also proposes to 
update Table 2, which illustrates a specific report, to reorganize and 
include additional groups to be consistent with amended Table 1.
    The proposal would make other minor clarification or non-material 
clean-up changes to the LRMF. Specifically, the proposed revisions 
would update terminology to clarify an objective of the framework in 
Section 1.3 and abbreviate a defined term in Section 1.4. The proposed 
changes would also add quotation marks around a defined term in Section 
2.3; clarify ICC's use of ALR in Section 2.8, including by moving two 
sentences earlier in the section and incorporating reference to 
required currencies of denomination; and rephrase a sentence for 
clarity in Section 2.8.4. ICC proposes to include terminology updates 
with respect to the scenarios described in Sections 3.1 and 3.3 for 
consistency and clarity and to amend Section 3.3.2 to make certain 
terms lowercase, renumber subsections, update formatting, and add and 
update relevant cross-references. Additionally, ICC proposes minor 
terminology clarifications in describing its stress test analysis in 
Section 3.3.3 and ICC's governance procedures in Sections 4.1 through 
4.3, such as making certain terms lowercase, more clearly describing 
certain terms, and abbreviating defined terms.

III. 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.\6\ For the reasons given below, the Commission finds that 
the proposed rule change is consistent with Section 17A(b)(3)(F) of the 
Act \7\ and Rules 17Ad-22(e)(2)(i) and (v),\8\ 17Ad-22 (e)(4)(ii),\9\ 
and 17Ad-22(e)(7)(i) \10\ thereunder.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78s(b)(2)(C).
    \7\ 15 U.S.C. 78q-1(b)(3)(F).
    \8\ 17 CFR 240.17Ad-22(e)(2)(i), (iii), and (v).
    \9\ 17 CFR 240.17Ad-22(e)(4)(ii).
    \10\ 17 CFR 240.17Ad-22(e)(7)(i).
---------------------------------------------------------------------------

A. Consistency With Section 17A(b)(3)(F) of the Act

    Section 17A(b)(3)(F) of the Act 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, as well 
as to assure the safeguarding of securities and funds which are in the 
custody or control of ICC or for which it is responsible.\11\
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    As noted above, the proposed rule change would update certain 
stress scenario naming conventions to be more generic and introduce 
stress scenarios related to the Coronavirus pandemic and oil price war 
in March 2020 in the RMF (discussed in Section II.A.1 above), the RMMD 
(discussed in Section II.A.2 above), and the RPSRP (discussed in 
Section II.A.3 above). The Commission believes that, by incorporating 
more generically named stress scenarios that relate to extreme market 
events, as opposed to the LB default, and introducing the COVID-19/Oil 
Crisis Scenarios, ICC is updating the RMF, RMMD, and RPSRP in a way 
that allows ICC to be more flexible and capable of considering a range 
of events beyond the LB Default, which, in turn, enhances its ability 
to manage risks and thereby maintain the financial resources necessary 
to promptly and accurately clear and settle transactions and safeguard 
securities and funds.
    Additionally, the Commission believes that the various minor 
clarification and clean-up changes to the RMMD and the summary of the 
associated review and governance process, including the reviewers and 
any prerequisites to the implementation of parameter updates, in the 
RPSRP helps to strengthen ICC's risk management documentation with 
clear guidance, which ultimately supports ICC's ability to promptly and 
accurately clear and settle securities transactions.
    The Commission also believes that the proposed changes to the STF 
and the LRMF to introduce the COVID-19/Oil Crisis Scenarios and 
renaming stress scenarios more generally, as described

[[Page 53039]]

in Section II.B.1 and II.B.2 above, should also enhance ICC's ability 
to manage risks in a way that makes it more flexible and capable of 
considering a range of events. The Commission believes that this, in 
turn, will help ICC manage financial resources and hence promote its 
ability to promptly and accurately clear and settle trades and 
safeguard securities and funds.
    Additionally, the Commission believes that the various clarifying 
amendments to the LRMF noted above in Section II.B.2, including 
clarifying its ability to use repo or FX facilities in the event of 
default or non-default scenarios, classifying scenarios based on 
liquidity risk horizon as plausible or not, describing in the default 
waterfall the ability to adjust the cash on deposit component of the 
available liquid resources, and providing background on the stress 
testing analysis, approach, interpretations and governance, should 
enhance the policies and procedures used to support ICC's risk 
management system by increasing transparency and clarity regarding its 
practices. The Commission believes that this, in turn, should 
strengthen ICC's ability to maintain adequate financial resources, 
thereby promoting both the prompt and accurate clearance and settlement 
of securities transactions and the ability to safeguard securities and 
funds.
    For these reasons, the Commission believes the proposed rule 
changes are consistent with Section 17A(b)(3)(F) of the Act.

B. Consistency With Rule 17Ad-22(e)(2)(i) and (v)

    Rules 17Ad-22(e)(2)(i) and (v) require that ICC establish, 
implement, maintain, and enforce written policies and procedures 
reasonably designed to, as applicable, provide for governance 
arrangements that are clear and transparent and specify clear and 
direct lines of responsibility.
    As noted above in Section II.A.3, the proposed changes to the RPSRP 
summarize the review and governance process to note the frequency that 
the ICC Risk Department would review the stress scenarios of price 
changes and their assumptions and with whom it clears APC level 
parameter updates. Further, the proposed changes to the LRMF in Section 
II.B.2 detail the frequency that ICC's Risk Department would perform an 
analysis of the Available Percentage of the cash on deposit and whether 
and when updates are performed. As noted above, the proposed changes to 
the LRMF also discuss the interpretation of liquidity stress test 
results, including governance procedures for enhancing the liquidity 
risk management methodology and procedures to meet its reporting 
obligations. Additionally, the proposed changes to the LRMF clarify the 
individuals responsible for determining poor stress testing results and 
the need for enhancements to the methodology.
    The Commission believes that these changes clarify these particular 
governance processes by specifying responsible parties, their duties, 
and review frequency, thereby helping to ensure that ICC's policies and 
procedures are clear and transparent with clear and direct lines of 
governing responsibility. For these reasons, the Commission believes 
that these aspects of the proposed rule change are consistent with 
Rules 17Ad-22(e)(2)(i) and (v).\12\
---------------------------------------------------------------------------

    \12\ 17 CFR 240.17Ad-22(e)(2)(i) and (v).
---------------------------------------------------------------------------

C. Consistency With Rule 17Ad-22(e)(4)(ii)

    Rule 17Ad-22(e)(4)(ii) requires each covered clearing agency to 
establish, implement, maintain, and enforce written policies and 
procedures reasonably designed to, as applicable, effectively identify, 
measure, monitor, and manage its credit exposures to participants and 
those arising from its payment, clearing, and settlement processes, 
including by maintaining additional financial resources at the minimum 
to enable it to cover a wide range of foreseeable stress scenarios that 
include, but are not limited to, the default of the two participant 
families that would potentially cause the largest aggregate credit 
exposure for the covered clearing agency in extreme but plausible 
market conditions.\13\
---------------------------------------------------------------------------

    \13\ 17 CFR 240.17Ad-22(e)(4)(ii).
---------------------------------------------------------------------------

    The Commission believes that by introducing the COVID-19/Oil Crisis 
Scenarios, the proposed rule change would complement the current 
scenarios in the risk management policies and procedures and add 
additional insight into potential weaknesses in the ICC risk management 
methodology, thereby enhancing ICC's ability to manage its credit 
exposures and financial resources. Additionally, as noted above, the 
proposed rule change would replace naming conventions for stress 
scenarios associated with the LB default with more generic naming 
conventions associated with extreme price changes. The Commission 
believes that this change, particularly when discussing scenarios used 
to determine initial margin and guarantee fund sizing, would enhance 
ICC's ability to manage risks and thereby maintain the appropriate 
financial resources to enable it to cover a wide range of foreseeable 
stress scenarios.
    The Commission also believes that the proposed clarification and 
clean-up changes enhance the readability and transparency of the 
policies and procedures, thereby strengthening the documentation and 
ensuring that it remains up-to-date, clear, and transparent to support 
the effectiveness of ICC's risk management system.
    The Commission believes that the proposed amendments are therefore 
consistent with the requirements of Rule 17Ad-22(e)(4)(ii).\14\
---------------------------------------------------------------------------

    \14\ 17 CFR 240.17Ad-22(e)(4)(ii).
---------------------------------------------------------------------------

D. Consistency With Rule 17Ad-22(e)(7)(i)

    Rule 17Ad-22(e)(7)(i) requires each covered clearing agency to 
establish, implement, maintain, and enforce written policies and 
procedures reasonably designed, as applicable, to effectively measure, 
monitor, and manage the liquidity risk that arises in or is borne by 
the covered clearing agency, including measuring, monitoring, and 
managing its settlement and funding flows on an ongoing and timely 
basis, and its use of intraday liquidity by maintaining sufficient 
liquid resources at the minimum in all relevant currencies to effect 
same-day and, where appropriate, intraday and multiday settlement of 
payment obligations with a high degree of confidence under a wide range 
of foreseeable stress scenarios that includes, but is not limited to, 
the default of the participant family that would generate the largest 
aggregate payment obligation for the covered clearing agency in extreme 
but plausible market conditions.\15\
---------------------------------------------------------------------------

    \15\ 17 CFR 240.17Ad-22(e)(7)(i).
---------------------------------------------------------------------------

    The Commission believes that the proposed clarification changes to 
the LRMF noted above in Section II.B.2 provide further clarity and 
transparency regarding ICC's liquidity stress testing practices to 
strengthen the documentation surrounding ICC's liquidity stress testing 
methodology, including by providing additional scenario descriptions 
and details on the computation of liquidity resources, and ensuring 
consistency with the STF. Additionally, the proposed rule changes 
clarify actions that ICC can take only in the event of a CP default, 
specifically related to pledgeable collateral, and actions that it can 
take irrespective of a CP default or non-default scenario, related to 
accessing committed repo and committed FX facilities. The Commission 
believes that these changes should enhance ICC's ability to monitor

[[Page 53040]]

and maintain necessary liquidity by preparing it for different stress 
scenarios and clarifying when liquidity tools can be used. The 
Commission also believes that the proposed changes to the LRMF noted 
above related to categorization of stress test results should 
strengthen ICC's approach to identifying potential weaknesses in the 
liquidity risk management system with additional procedures related to 
the determination and analysis of poor stress testing.
    For the reasons stated above, the Commission believes that the 
proposed rule changes are consistent with Rule 17Ad-22(e)(7)(i).\16\
---------------------------------------------------------------------------

    \16\ Id.
---------------------------------------------------------------------------

E. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act, 
and in particular, with the requirements of Section 17A(b)(3)(F) of the 
Act \17\ and Rules 17Ad-22(e)(2)(i) and (v),\18\ 17Ad-22 
(e)(4)(ii),\19\ and 17Ad-22(e)(7)(i) \20\ thereunder.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78q-1(b)(3)(F).
    \18\ 17 CFR 240.17Ad-22(e)(2)(i)and (v).
    \19\ 17 CFR 240.17Ad-22(e)(4)(ii).
    \20\ 17 CFR 240.17Ad-22(e)(7)(i).
---------------------------------------------------------------------------

    It is therefore ordered pursuant to Section 19(b)(2) of the Act 
\21\ that the proposed rule change (SR-ICC-2020-009), be, and hereby 
is, approved.\22\
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    \21\ 15 U.S.C. 78s(b)(2).
    \22\ In approving the proposed rule change, the Commission 
considered the proposal's impact on efficiency, competition, and 
capital formation. 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
---------------------------------------------------------------------------

    \23\ 17 CFR 200.30-3(a)(12).

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-18826 Filed 8-26-20; 8:45 am]
BILLING CODE 8011-01-P

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