Self-Regulatory Organizations; ICE Clear Europe Limited; Notice of Filing of Proposed Rule Change Relating to Amendments to the ICE Clear Europe CDS Clearing Stress Testing Policy and CDS Clearing Back-Testing Policy, 10878-10881 [2022-03960]
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Federal Register / Vol. 87, No. 38 / Friday, February 25, 2022 / Notices
launched operations for its Full Service
MEO Port fees, and further, that the
amount of the fee is directly related to
the Member or non-Member’s TCV
resulting in higher fees for greater
TCV.119 What are commenters’ views on
the adequacy of the information the
Exchange provides regarding the
proposed differentials in fees? Do
commenters believe that the proposed
price differences are supported by the
Exchange’s assertions that it set the
level of each proposed new fee in a
manner that it equitable and not
unfairly discriminatory?
Under the Commission’s Rules of
Practice, the ‘‘burden to demonstrate
that a proposed rule change is
consistent with the Exchange Act and
the rules and regulations issued
thereunder . . . is on the [SRO] that
proposed the rule change.’’ 120 The
description of a proposed rule change,
its purpose and operation, its effect, and
a legal analysis of its consistency with
applicable requirements must all be
sufficiently detailed and specific to
support an affirmative Commission
finding,121 and any failure of an SRO to
provide this information may result in
the Commission not having a sufficient
basis to make an affirmative finding that
a proposed rule change is consistent
with the Act and the applicable rules
and regulations.122 Moreover,
‘‘unquestioning reliance’’ on an SRO’s
representations in a proposed rule
change would not be sufficient to justify
Commission approval of a proposed rule
change.123
The Commission believes it is
appropriate to institute proceedings to
allow for additional consideration and
comment on the issues raised herein,
including as to whether the proposal is
consistent with the Act, any potential
comments or supplemental information
provided by the Exchange, and any
additional independent analysis by the
Commission.
V. Commission’s Solicitation of
Comments
The Commission requests written
views, data, and arguments with respect
to the concerns identified above as well
as any other relevant concerns. In
particular, the Commission invites the
written views of interested persons
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119 See
id.
CFR 201.700(b)(3).
121 See id.
122 See id.
123 See Susquehanna Int’l Group, LLP v.
Securities and Exchange Commission, 866 F.3d
442, 446–47 (D.C. Cir. 2017) (rejecting the
Commission’s reliance on an SRO’s own
determinations without sufficient evidence of the
basis for such determinations).
120 17
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concerning whether the proposal is
consistent with Sections 6(b)(4), 6(b)(5),
and 6(b)(8), or any other provision of the
Act, or the rules and regulations
thereunder. The Commission asks that
commenters address the sufficiency and
merit of the Exchange’s statements in
support of the proposal, in addition to
any other comments they may wish to
submit about the proposed rule change.
Although there do not appear to be any
issues relevant to approval or
disapproval that would be facilitated by
an oral presentation of views, data, and
arguments, the Commission will
consider, pursuant to Rule 19b–4, any
request for an opportunity to make an
oral presentation.124
Interested persons are invited to
submit written data, views, and
arguments regarding whether the
proposal should be approved or
disapproved by March 18, 2022. Any
person who wishes to file a rebuttal to
any other person’s submission must file
that rebuttal by April 1, 2022.
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 No. SR–
PEARL–2022–04 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–PEARL–2022–04. 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
124 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act
grants the Commission flexibility to determine what
type of proceeding—either oral or notice and
opportunity for written comments—is appropriate
for consideration of a particular proposal by an
SRO. See Securities Acts Amendments of 1975,
Report of the Senate Committee on Banking,
Housing and Urban Affairs to Accompany S. 249,
S. Rep. No. 75, 94th Cong., 1st Sess. 30 (1975).
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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–PEARL–2022–04 and
should be submitted on or before March
18, 2022. Rebuttal comments should be
submitted by April 1, 2022.
VI. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(3)(C) of the Act,125 that
File Numbers SR–PEARL–2022–04 be,
and hereby is, temporarily suspended.
In addition, the Commission is
instituting proceedings to determine
whether the proposed rule change
should be approved or disapproved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.126
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022–03964 Filed 2–24–22; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–94280; File No. SR–ICEEU–
2022–004]
Self-Regulatory Organizations; ICE
Clear Europe Limited; Notice of Filing
of Proposed Rule Change Relating to
Amendments to the ICE Clear Europe
CDS Clearing Stress Testing Policy
and CDS Clearing Back-Testing Policy
February 18, 2022.
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 February
10, 2022, ICE Clear Europe Limited
(‘‘ICE Clear Europe’’ or the ‘‘Clearing
House’’) filed with the Securities and
Exchange Commission (‘‘Commission’’)
125 15
U.S.C. 78s(b)(3)(C).
CFR 200.30–3(a)(12), (57) and (58).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
126 17
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Federal Register / Vol. 87, No. 38 / Friday, February 25, 2022 / Notices
the proposed rule changes described in
Items I, II and III below, which Items
have been prepared primarily by ICE
Clear Europe. The Commission is
publishing this notice to solicit
comments on 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 proposes to modify
certain provisions of its CDS Clearing
Stress Testing Policy (‘‘CDS StressTesting Policy’’) and CDS Clearing BackTesting Policy (‘‘CDS Back-Testing
Policy’’) to make certain clarifications
and updates.3
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 [sic]
its CDS Back-Testing Policy and its CDS
Stress-Testing Policy to describe more
fully certain existing Clearing House
practices, as discussed herein.
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CDS Back-Testing Policy
The amendments to the CDS BackTesting Policy would generally clarify
the types of back-testing the Clearing
House performs of its CDS risk models.
The amendments would also make
minor terminology updates to conform
uses of defined terms, make
typographical corrections throughout
the document, and add and/or update
section names and numbering to
improve organization and readability.
The general discussion of the Clearing
House’s Back-testing approach would be
amended to add a new paragraph which
would specify that the Clearing House
conducts several types of back-tests
described in the CDS Back-Testing
3 Capitalized terms used but not defined herein
have the meanings specified in the ICE Clear
Europe Clearing Rules and the CDS Clearing Stress
Testing Policy and the CDS Clearing Back-Testing
Policy (as applicable).
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Policy and that the Clearing House
adopts all the available reliable and
validated data for each back-test in
order to assess the model performance
over a long period in which stressed
market conditions and idiosyncratic
events are likely to have occurred.
A new section would be added (and
numbering would be updated
accordingly) to describe the use of
overlapping and non-overlapping data
in the back-testing of the CDS risk
model performed by the Clearing House.
The section would state explicitly that
using non-overlapping back-testing for
static portfolios is the preferred
approach because the CDS risk model is
designed to cover a multi-days risk
horizon, but that the lack of sufficiently
long data sets may limit the use of the
approach. Overlapping back-testing is
used in order for the Clearing House to
have a statistically significant sample,
but the count of exceedances is
artificially duplicated. The amendments
also would discuss the ways the
Clearing House addresses the problem
of time dependent observations.
The discussion of the implementation
of the Basel Traffic Light System (BTLS)
would be updated to state explicitly that
one of the main assumptions of BTLS is
that excessive losses are time
independent. The amendments would
describe how, because multi-horizon
overlapping back-testing is time
dependent, the problem would be
addressed by correcting the number of
consecutive exceedances within the risk
time horizon.
The discussion of Multi-horizon back
testing (renamed Multi-days horizon
back-testing) would clarify that the
observed loss is calculated as the
minimum NAV change over 5 days for
house accounts. Further clarificatory
updates that would be made include
specifying that shortfall is also known
as ‘‘back-test exceedances’’ and that
unrealized loss is also known as ‘‘worst
N-days P&L’’. These updates would be
made throughout the CDS Back-Testing
Policy in order to be more descriptive
and improve readability. The
amendments would further reflect that
the Clearing House’s use of the worst Ndays P&L may lead to multiple
consecutive back-test exceedances
following one large market move in the
overlapping back-testing approach.
The discussion of detailed daily backtesting results would be updated to
include further explanations of the
information presented in Table 2
(Example of the minimum 5-day P/L
detail for daily back-testing).
Specifically, the amendments would
provide that the last two examples in
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Table 2 shows the worst N-days P/L
could be the 4-days P/L or 3-days P/L.
The section relating to back-testing
the production model with Clearing
Members accounts would be amended
to clarify that a minimum of one year of
observations is required to define the
statistical significance of back-testing
results.
Provisions relating to back-testing the
production model with Special Strategy
portfolios would be updated to describe
that the set of portfolios tested include
strategies like Index arbitrage portfolios
with long Index and short Single Names
constituent of the current Index. The
strategies would refer to the main
Indices where the Clearing House clears
part of the underlying Single Names.
Additionally, the amendments would
provide that back-test results at the
99.5% quantile would be reviewed on at
least a monthly basis, and that back-test
results at the 99.75% quantile would be
reviewed on an ad-hoc basis, when
there is a large market move. A table
showing portfolio reconstruction for
special strategy back-testing would be
removed as unnecessary detail now
covered in the more general description
of the special strategies.
A new section addressing stylized
portfolios back-testing would be added
and would provide that the Clearing
Risk Department would perform backtesting on a series of stylized portfolios
when a new risk factor is introduced for
clearing. Such stylized portfolios aim at
replicating certain trading strategies in
order to make sure that the risk related
to the newly introduced risk factors can
be managed through the current CDS
risk model. Stylized portfolios backtesting may be carried out more
frequently on the risk factors that [sic]
the largest open interest at the Clearing
House in order to provide further
assurance regarding the CDS risk model
performance. The changes reflect
current back-testing practice, and are
intended to more clearly document such
practices in the Back-Testing Policy.
The provisions relating to univariate
back-testing would be updated to
provide that back-testing results at
99.5% quantile would be reviewed on at
least a monthly basis by the Clearing
Risk Department and reported to the
Model Oversight Committee on a
monthly basis, which reflects current
practice. Back-testing results at 99.75%
quantile would be reviewed on ad-hoc
basis, when stress market conditions
might cause breaches at 99.5% quantile.
CDS Stress-Testing Policy
In the CDS Stress-Testing Policy, the
description of the use of Hypothetical
Scenarios would be updated to clarify
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Federal Register / Vol. 87, No. 38 / Friday, February 25, 2022 / Notices
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that forward looking credit event
scenarios are based on both historically
observed and hypothetical extreme but
plausible market scenarios. This update
is intended to more clearly reflect
current stress testing practice.
(b) Statutory Basis
ICE Clear Europe believes that the
amendments to the CDS Back-Testing
Policy and the CDS Stress-Testing
Policy are consistent with the
requirements of Section 17A of the Act 4
and the regulations thereunder
applicable to it. In particular, Section
17A(b)(3)(F) of the Act 5 requires, among
other things, that the rules of a clearing
agency be designed to promote the
prompt and accurate clearance and
settlement of securities transactions
and, to the extent applicable, derivative
agreements, contracts, and transactions,
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 the
public interest.
The amendments to the CDS BackTesting Policy are generally designed to
enhance and clarify the descriptions of
back-testing performed on ICE Clear
Europe CDS risk models. Although
these changes are largely not intended
to represent a change in current Clearing
House practices, they are intended to
more clearly reflect those practices and
thereby enhance the ongoing
implementation and monitoring of backtesting. In particular, the amendments
clarify the use of overlapping and nonoverlapping data sets, the back-testing of
stylized portfolios when new risk
factors are rolled out, assumptions
around time independence of
exceedances, and the review process for
the 99.75% quantile back tests
(including the frequency of review and
the Clearing House committees
responsible for review). The amendment
to the CDS Stress-Testing Policy would
clarify the use of hypothetical scenarios
in constructing forward looking credit
event scenarios in stress testing of the
CDS risk model. Therefore, the
amendments will help ICE Clear Europe
ensure that its risk model will
effectively measure credit exposures
and default risks, and thus that the
Clearing House adequately maintains
adequate financial resources to support
its CDS operations. The amendments
will therefore enhance the stability of
the Clearing House and overall promote
the prompt and accurate clearance and
settlement of securities transactions
and, derivative agreements, contracts,
and transactions, and the public interest
in the sound operation of clearing
agencies. Accordingly, the amendments
are consistent with the requirements of
Section 17A(b)(3)(F).6 (ICE Clear Europe
does not believe the amendments will
affect the safeguarding of securities and
funds in ICE Clear Europe’s custody or
control or for which it is responsible.)
For similar reasons, the proposed
amendments are also consistent with
relevant requirements of Rule 17Ad–22.
ICE Clear Europe believes that the
proposed amendments are consistent
with the relevant requirements of Rule
17Ad–22(e)(4)(vi)(A),7 which provides
that ‘‘[e]ach covered clearing agency
shall establish, implement, maintain
and enforce written policies and
procedures reasonable 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
[. . .] testing the sufficiency of its total
financial resources available to meet the
minimum financial resource
requirements [. . .] by conducting stress
testing of its total financial resources
once each day using standard
predetermined parameters and
assumptions’’, among other
requirements. The amendments to the
CDS Stress-Testing Policy clarify that
construction of certain forward looking
stress scenarios is based on hypothetical
as well as historical scenarios. As
amended, the CDS Stress-Testing Policy
will facilitate the ongoing stress-testing
of financial resources and effective
management of credit exposures to CDS
Clearing Members. As such, the
amendments are consistent with the
requirements of Rule 17Ad–22(e)(4)(vi)–
(B) [sic].8
Rule 17Ad–22(e)(6)(vi) 9 provides that
‘‘[e]ach covered clearing agency shall
establish, implement, maintain and
enforce written policies and procedures
reasonable designed to, as applicable
[. . .] 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 [. . .]
is monitored [sic] 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; (B)
conducting a sensitivity analysis of its
margin model and a review of its
U.S.C. 78q–1(b)(3)(F).
CFR 240.17Ad–22.
8 17 CFR 240.17Ad–22(e)(4)(vi)(A).
9 17 CFR 240.17Ad–22(e)(6)(vi).
U.S.C. 78q–1.
5 15 U.S.C. 78q–1(b)(3)(F).
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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
6 15
7 17
4 15
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 [its]
margin resources; (C) conducting a
sensitivity analysis of its margin model
and a review of its parameters and
assumptions for backtesting more
frequently than monthly during periods
of time when the products cleared or
markets served display high volatility or
become less liquid, or when the size or
concentration of positions held by the
covered clearing agency’s participants
increases or decreases significantly; and
(D) reporting the results of its analyses
. . . to appropriate decision makers
. . . .’’. The amendments to the CDS
Back-Testing Policy will, as discussed
above, enhance the framework for ICE
Clear Europe to conduct back-testing of
CDS risk models by more clearly
addressing the use of overlapping and
non-overlapping back-testing data sets,
the back-testing of stylized portfolios
when new risk factors are implemented,
and assumptions around time
independence of excessive losses,
among other changes. The amendments
also clarify the procedures for review of
back-testing at certain quantiles (on a
monthly or ad hoc basis, as
appropriate). As such, ICE Clear Europe
believes the amendments are consistent
with the requirements of Rule 17Ad–
22(e)(6)(vi).10
Rules 17Ad–22(e)(2)(i) and (v) 11
provides that ‘‘[e]ach covered clearing
agency shall establish, implement,
maintain and enforce written policies
and procedures reasonable designed to,
as applicable [. . .] provide for
governance arrangements that are clear
and transparent [and] specify clear and
direct lines of responsibility’’. As
described herein, references to the roles
of certain committees and departments
with respect to reviews and approvals
throughout the CDS Back-Testing Policy
have been updated to reflect existing
practice with respect to the roles of
groups. As such, the amendments
provide additional clarity with respect
to Clearing House governance and lines
of responsibility consistent with Rules
17Ad–22(e)(2)(i) and (v).12
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10 17
CFR 240.17Ad–22(e)(6)(vi).
CFR 240.17 Ad–22(e)(2)(i) and (v).
12 17 CFR 240.17 Ad–22(e)(2)(i) and (v).
11 17
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Federal Register / Vol. 87, No. 38 / Friday, February 25, 2022 / Notices
purpose of the Act. In general, the
amendments are intended to provide
clarifications and additional details
where necessary in order to reflect
existing practices for CDS stress-testing
and back-testing and are not intended to
impose new requirements on Clearing
Members. The terms of cleared CDS
contracts and of clearing are not
otherwise changing. As such, the
amendments will apply to all CDS
Clearing Members and are unlikely, in
ICE Clear Europe’s view, to materially
affect the cost of clearing for CDS
products or affect access to clearing for
CDS products at ICE Clear Europe or the
market for cleared services generally. To
the extent the changes could lead to
changes in margin rates, based on the
results of stress-testing and/or backtesting, ICE Clear Europe believes any
such changes would be designed to
appropriately reflect its credit risk from
CDS Clearing Members with respect to
cleared positions. 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
such proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
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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:
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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–2022–004 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–2022–004. 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–
2022–004 and should be submitted on
or before March 18, 2022.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.13
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022–03960 Filed 2–24–22; 8:45 am]
BILLING CODE 8011–01–P
13 17
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CFR 200.30–3(a)(12).
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10881
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–94283; File No. SR–OCC–
2022–002]
Self-Regulatory Organizations; The
Options Clearing Corporation; Notice
of Filing of Proposed Rule Change
Concerning the Options Clearing
Corporation’s Governance
Arrangements
February 18, 2022.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Exchange Act’’ or ‘‘Act’’),1 and Rule
19b–4 thereunder,2 notice is hereby
given that on February 7, 2022, The
Options Clearing Corporation (‘‘OCC’’ or
‘‘Corporation’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared primarily by OCC. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
This proposed rule change would
modify and enhance OCC’s governance
arrangements. Specifically, OCC is
proposing to amend certain of its
governing documents by: (i) Clarifying
that OCC’s Public Directors may not be
affiliated with any designated contract
market (‘‘DCM’’) or futures commission
merchant (‘‘FCM’’); (ii) allowing the
Board of Directors (‘‘Board’’) to delegate
authority to (a) Board-level committees
(‘‘Committees’’) to review and approve
certain routine initiatives and policies,
as well as to authorize certain regulatory
filings and (b) an OCC Officer to
authorize certain regulatory filings in
more limited cases; 3 (iii) removing the
portion of Article XI, Section 1 of the
By-Laws that allows OCC to deem the
affirmative vote or consent of an
Exchange Director to be the approval of
the stockholder that elected the
Exchange Director for By-Law
amendments that require stockholder
consent; and (iv) applying additional
amendments recommended as part of
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 Under OCC’s By-Laws, the Board may elect one
or more officers as it may from time to time
determine are required for the effective
management and operation of the Corporation. ByLaws Art. IV § 1. In addition, the Chairman, Chief
Executive Officer and Chief Operational Officer
each may appoint such officers, in addition to those
elected by the Board, and such agents as they each
shall deem necessary or appropriate to carry out the
functions assigned to them. By-Laws Art. IV § 2.
2 17
E:\FR\FM\25FEN1.SGM
25FEN1
]]>Agencies
[Federal Register Volume 87, Number 38 (Friday, February 25, 2022)]
[Notices]
[Pages 10878-10881]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-03960]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94280; File No. SR-ICEEU-2022-004]
Self-Regulatory Organizations; ICE Clear Europe Limited; Notice
of Filing of Proposed Rule Change Relating to Amendments to the ICE
Clear Europe CDS Clearing Stress Testing Policy and CDS Clearing Back-
Testing Policy
February 18, 2022.
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 February 10, 2022, ICE Clear Europe Limited (``ICE Clear Europe'' or
the ``Clearing House'') filed with the Securities and Exchange
Commission (``Commission'')
[[Page 10879]]
the proposed rule changes described in Items I, II and III below, which
Items have been prepared primarily by ICE Clear Europe. The Commission
is publishing this notice to solicit comments on the proposed rule
change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
ICE Clear Europe proposes to modify certain provisions of its CDS
Clearing Stress Testing Policy (``CDS Stress-Testing Policy'') and CDS
Clearing Back-Testing Policy (``CDS Back-Testing Policy'') to make
certain clarifications and updates.\3\
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\3\ Capitalized terms used but not defined herein have the
meanings specified in the ICE Clear Europe Clearing Rules and the
CDS Clearing Stress Testing Policy and the CDS Clearing Back-Testing
Policy (as applicable).
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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 [sic] its CDS Back-Testing Policy
and its CDS Stress-Testing Policy to describe more fully certain
existing Clearing House practices, as discussed herein.
CDS Back-Testing Policy
The amendments to the CDS Back-Testing Policy would generally
clarify the types of back-testing the Clearing House performs of its
CDS risk models. The amendments would also make minor terminology
updates to conform uses of defined terms, make typographical
corrections throughout the document, and add and/or update section
names and numbering to improve organization and readability.
The general discussion of the Clearing House's Back-testing
approach would be amended to add a new paragraph which would specify
that the Clearing House conducts several types of back-tests described
in the CDS Back-Testing Policy and that the Clearing House adopts all
the available reliable and validated data for each back-test in order
to assess the model performance over a long period in which stressed
market conditions and idiosyncratic events are likely to have occurred.
A new section would be added (and numbering would be updated
accordingly) to describe the use of overlapping and non-overlapping
data in the back-testing of the CDS risk model performed by the
Clearing House. The section would state explicitly that using non-
overlapping back-testing for static portfolios is the preferred
approach because the CDS risk model is designed to cover a multi-days
risk horizon, but that the lack of sufficiently long data sets may
limit the use of the approach. Overlapping back-testing is used in
order for the Clearing House to have a statistically significant
sample, but the count of exceedances is artificially duplicated. The
amendments also would discuss the ways the Clearing House addresses the
problem of time dependent observations.
The discussion of the implementation of the Basel Traffic Light
System (BTLS) would be updated to state explicitly that one of the main
assumptions of BTLS is that excessive losses are time independent. The
amendments would describe how, because multi-horizon overlapping back-
testing is time dependent, the problem would be addressed by correcting
the number of consecutive exceedances within the risk time horizon.
The discussion of Multi-horizon back testing (renamed Multi-days
horizon back-testing) would clarify that the observed loss is
calculated as the minimum NAV change over 5 days for house accounts.
Further clarificatory updates that would be made include specifying
that shortfall is also known as ``back-test exceedances'' and that
unrealized loss is also known as ``worst N-days P&L''. These updates
would be made throughout the CDS Back-Testing Policy in order to be
more descriptive and improve readability. The amendments would further
reflect that the Clearing House's use of the worst N-days P&L may lead
to multiple consecutive back-test exceedances following one large
market move in the overlapping back-testing approach.
The discussion of detailed daily back-testing results would be
updated to include further explanations of the information presented in
Table 2 (Example of the minimum 5-day P/L detail for daily back-
testing). Specifically, the amendments would provide that the last two
examples in Table 2 shows the worst N-days P/L could be the 4-days P/L
or 3-days P/L.
The section relating to back-testing the production model with
Clearing Members accounts would be amended to clarify that a minimum of
one year of observations is required to define the statistical
significance of back-testing results.
Provisions relating to back-testing the production model with
Special Strategy portfolios would be updated to describe that the set
of portfolios tested include strategies like Index arbitrage portfolios
with long Index and short Single Names constituent of the current
Index. The strategies would refer to the main Indices where the
Clearing House clears part of the underlying Single Names.
Additionally, the amendments would provide that back-test results at
the 99.5% quantile would be reviewed on at least a monthly basis, and
that back-test results at the 99.75% quantile would be reviewed on an
ad-hoc basis, when there is a large market move. A table showing
portfolio reconstruction for special strategy back-testing would be
removed as unnecessary detail now covered in the more general
description of the special strategies.
A new section addressing stylized portfolios back-testing would be
added and would provide that the Clearing Risk Department would perform
back-testing on a series of stylized portfolios when a new risk factor
is introduced for clearing. Such stylized portfolios aim at replicating
certain trading strategies in order to make sure that the risk related
to the newly introduced risk factors can be managed through the current
CDS risk model. Stylized portfolios back-testing may be carried out
more frequently on the risk factors that [sic] the largest open
interest at the Clearing House in order to provide further assurance
regarding the CDS risk model performance. The changes reflect current
back-testing practice, and are intended to more clearly document such
practices in the Back-Testing Policy.
The provisions relating to univariate back-testing would be updated
to provide that back-testing results at 99.5% quantile would be
reviewed on at least a monthly basis by the Clearing Risk Department
and reported to the Model Oversight Committee on a monthly basis, which
reflects current practice. Back-testing results at 99.75% quantile
would be reviewed on ad-hoc basis, when stress market conditions might
cause breaches at 99.5% quantile.
CDS Stress-Testing Policy
In the CDS Stress-Testing Policy, the description of the use of
Hypothetical Scenarios would be updated to clarify
[[Page 10880]]
that forward looking credit event scenarios are based on both
historically observed and hypothetical extreme but plausible market
scenarios. This update is intended to more clearly reflect current
stress testing practice.
(b) Statutory Basis
ICE Clear Europe believes that the amendments to the CDS Back-
Testing Policy and the CDS Stress-Testing Policy are consistent with
the requirements of Section 17A of the Act \4\ and the regulations
thereunder applicable to it. In particular, Section 17A(b)(3)(F) of the
Act \5\ requires, among other things, that the rules of a clearing
agency be designed to promote the prompt and accurate clearance and
settlement of securities transactions and, to the extent applicable,
derivative agreements, contracts, and transactions, 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 the
public interest.
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\4\ 15 U.S.C. 78q-1.
\5\ 15 U.S.C. 78q-1(b)(3)(F).
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The amendments to the CDS Back-Testing Policy are generally
designed to enhance and clarify the descriptions of back-testing
performed on ICE Clear Europe CDS risk models. Although these changes
are largely not intended to represent a change in current Clearing
House practices, they are intended to more clearly reflect those
practices and thereby enhance the ongoing implementation and monitoring
of back-testing. In particular, the amendments clarify the use of
overlapping and non-overlapping data sets, the back-testing of stylized
portfolios when new risk factors are rolled out, assumptions around
time independence of exceedances, and the review process for the 99.75%
quantile back tests (including the frequency of review and the Clearing
House committees responsible for review). The amendment to the CDS
Stress-Testing Policy would clarify the use of hypothetical scenarios
in constructing forward looking credit event scenarios in stress
testing of the CDS risk model. Therefore, the amendments will help ICE
Clear Europe ensure that its risk model will effectively measure credit
exposures and default risks, and thus that the Clearing House
adequately maintains adequate financial resources to support its CDS
operations. The amendments will therefore enhance the stability of the
Clearing House and overall promote the prompt and accurate clearance
and settlement of securities transactions and, derivative agreements,
contracts, and transactions, and the public interest in the sound
operation of clearing agencies. Accordingly, the amendments are
consistent with the requirements of Section 17A(b)(3)(F).\6\ (ICE Clear
Europe does not believe the amendments will affect the safeguarding of
securities and funds in ICE Clear Europe's custody or control or for
which it is responsible.)
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\6\ 15 U.S.C. 78q-1(b)(3)(F).
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For similar reasons, the proposed amendments are also consistent
with relevant requirements of Rule 17Ad-22. ICE Clear Europe believes
that the proposed amendments are consistent with the relevant
requirements of Rule 17Ad-22(e)(4)(vi)(A),\7\ which provides that
``[e]ach covered clearing agency shall establish, implement, maintain
and enforce written policies and procedures reasonable 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 [. . .]
testing the sufficiency of its total financial resources available to
meet the minimum financial resource requirements [. . .] by conducting
stress testing of its total financial resources once each day using
standard predetermined parameters and assumptions'', among other
requirements. The amendments to the CDS Stress-Testing Policy clarify
that construction of certain forward looking stress scenarios is based
on hypothetical as well as historical scenarios. As amended, the CDS
Stress-Testing Policy will facilitate the ongoing stress-testing of
financial resources and effective management of credit exposures to CDS
Clearing Members. As such, the amendments are consistent with the
requirements of Rule 17Ad-22(e)(4)(vi)-(B) [sic].\8\
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\7\ 17 CFR 240.17Ad-22.
\8\ 17 CFR 240.17Ad-22(e)(4)(vi)(A).
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Rule 17Ad-22(e)(6)(vi) \9\ provides that ``[e]ach covered clearing
agency shall establish, implement, maintain and enforce written
policies and procedures reasonable designed to, as applicable [. . .]
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 [. . .] is monitored [sic]
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; (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 [its] margin resources; (C)
conducting a sensitivity analysis of its margin model and a review of
its parameters and assumptions for backtesting more frequently than
monthly during periods of time when the products cleared or markets
served display high volatility or become less liquid, or when the size
or concentration of positions held by the covered clearing agency's
participants increases or decreases significantly; and (D) reporting
the results of its analyses . . . to appropriate decision makers . . .
.''. The amendments to the CDS Back-Testing Policy will, as discussed
above, enhance the framework for ICE Clear Europe to conduct back-
testing of CDS risk models by more clearly addressing the use of
overlapping and non-overlapping back-testing data sets, the back-
testing of stylized portfolios when new risk factors are implemented,
and assumptions around time independence of excessive losses, among
other changes. The amendments also clarify the procedures for review of
back-testing at certain quantiles (on a monthly or ad hoc basis, as
appropriate). As such, ICE Clear Europe believes the amendments are
consistent with the requirements of Rule 17Ad-22(e)(6)(vi).\10\
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\9\ 17 CFR 240.17Ad-22(e)(6)(vi).
\10\ 17 CFR 240.17Ad-22(e)(6)(vi).
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Rules 17Ad-22(e)(2)(i) and (v) \11\ provides that ``[e]ach covered
clearing agency shall establish, implement, maintain and enforce
written policies and procedures reasonable designed to, as applicable
[. . .] provide for governance arrangements that are clear and
transparent [and] specify clear and direct lines of responsibility''.
As described herein, references to the roles of certain committees and
departments with respect to reviews and approvals throughout the CDS
Back-Testing Policy have been updated to reflect existing practice with
respect to the roles of groups. As such, the amendments provide
additional clarity with respect to Clearing House governance and lines
of responsibility consistent with Rules 17Ad-22(e)(2)(i) and (v).\12\
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\11\ 17 CFR 240.17 Ad-22(e)(2)(i) and (v).
\12\ 17 CFR 240.17 Ad-22(e)(2)(i) and (v).
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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
[[Page 10881]]
purpose of the Act. In general, the amendments are intended to provide
clarifications and additional details where necessary in order to
reflect existing practices for CDS stress-testing and back-testing and
are not intended to impose new requirements on Clearing Members. The
terms of cleared CDS contracts and of clearing are not otherwise
changing. As such, the amendments will apply to all CDS Clearing
Members and are unlikely, in ICE Clear Europe's view, to materially
affect the cost of clearing for CDS products or affect access to
clearing for CDS products at ICE Clear Europe or the market for cleared
services generally. To the extent the changes could lead to changes in
margin rates, based on the results of stress-testing and/or back-
testing, ICE Clear Europe believes any such changes would be designed
to appropriately reflect its credit risk from CDS Clearing Members with
respect to cleared positions. 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 such 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-2022-004 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-2022-004. 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-2022-004 and should be
submitted on or before March 18, 2022.
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\13\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-03960 Filed 2-24-22; 8:45 am]
BILLING CODE 8011-01-P
