Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of Filing of Proposed Rule Change Relating to the Risk Parameter Setting and Review Policy and the Risk Management Model Description, 13223-13226 [2025-04659]

Download as PDF Federal Register / Vol. 90, No. 53 / Thursday, March 20, 2025 / Notices Dated: March 17, 2025. Sherry R. Haywood, Assistant Secretary. (A) Clearing Agency’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change [FR Doc. 2025–04762 Filed 3–19–25; 8:45 am] (a) Purpose ICC proposes revising the RPSRP and RMMD. The proposed amendments are intended to make certain enhancements and clarifications to the RPSRP and RMMD to improve ICC’s documentation of its risk management methodology and processes. ICC believes that such revisions will facilitate the prompt and accurate clearance and settlement of securities transactions and derivative agreements, contracts, and transactions for which it is responsible. ICC proposes to make such changes effective following Commission approval of the proposed rule change. The proposed revisions are described in detail as follows. BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–102679; File No. SR–ICC– 2025–001] Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of Filing of Proposed Rule Change Relating to the Risk Parameter Setting and Review Policy and the Risk Management Model Description March 14, 2025. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934,1 and Rule 19b–4 thereunder,2 notice is hereby given that on March 12, 2025, ICE Clear Credit LLC (‘‘ICE Clear Credit’’ or ‘‘ICC’’) 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 primarily prepared by ICC. 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 The principal purpose of the proposed rule change is to revise its (i) Risk Parameter Setting and Review Policy (the ‘‘RPSRP’’), and (ii) the Risk Management Model Description (the ‘‘RMMD’’). ddrumheller on DSK120RN23PROD with NOTICES1 II. Clearing Agency’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, ICC included statements concerning the purpose of and basis for the proposed rule change, security-based swap submission, or advance notice and discussed any comments it received on the proposed rule change, securitybased swap submission, or advance notice. The text of these statements may be examined at the places specified in Item IV below. ICC has prepared summaries, set forth in sections (A), (B), and (C) below, of the most significant aspects of these statements. 1 15 2 17 U.S.C. 78s(b)(1). CFR 240.19b–4. VerDate Sep<11>2014 19:09 Mar 19, 2025 Jkt 265001 RPSRP ICC proposes to revise the RPSRP, which describes the process of setting and reviewing the risk management model core parameters and the performance of sensitivity analysis related to certain parameter settings. The parameters set and calibrated pursuant to the RPSRP are used in ICC’s risk methodology in certain calculations including, without limitation, initial margin and guaranty fund requirements, as described in the RMMD and the ICC Risk Management Framework. Such proposed changes to the RPSRP are intended to (i) transition the risk management mean absolute deviation (‘‘MAD’’) monthly parameter update for credit default swap (‘‘CDS’’) single name risk factors to an automatic daily update in the risk management system; (ii) enhance the documentation and calibration details included in the RPSRP regarding the current antiprocyclical condition (‘‘APC’’) measure for CDS index options; and (iii) make certain other minor language corrections and clarifications. The proposed changes are described in detail below. ICC proposes to amend Section 1.7.1 of the RPSRP, ‘Univariate Level Parameters’ to revise the cadence at which a specific parameter is updated. Such proposed change relates to the univariate level parameters associated with the integrated spread response (‘‘iSR’’) model component.3 Namely, ICC proposes to transition the risk management MAD monthly parameter update for CDS single name risk factors to an automatic daily update in the risk 3 The iSR is a risk model component that captures credit spread and recovery rate fluctuations and is computed by creating profit/loss distributions from a set of jointly simulated hypothetical credit spread and recovery rate scenarios. PO 00000 Frm 00092 Fmt 4703 Sfmt 4703 13223 management system. With this change to an automatic daily update, single name risk factor level risk management MADs will be updated at the same daily cadence as CDS index risk factors.4 Section 1.7.1 currently compares the suitability of an automatic daily update for CDS single name risk factors and CDS index risk factors. While an automatic daily update is particularly suitable for CDS index risk factors due to their macro-level dynamic market response, CDS single name risk factors still benefit from an automatic daily update.5 As automatic daily updates are suitable for both CDS single name risk factors and CDS index risk factors, ICC proposes changes to Section 1.7.1 to remove any comparison of suitability. ICC proposes further changes to Section 1.7.1 of the RPSRP to note that the behavior of single name risk factors is inherently prone to idiosyncratic events and hence exhibit dynamic market response to rapidly changing single name risk factor specific market conditions, suitable for and benefitting from automatic risk management MAD updates. With the proposed addition of automatic daily updates, ICC proposes to remove the reference to monthly single name risk factor risk management MAD reviews in Section 1.7.1 of the RPSRP. Furthermore, ICC proposes additional corrective and clarifying changes to Section 1.7.1 of the RPSRP. Specifically, with respect to the description of the ICC risk department’s review of univariate iSR parameters, ICC proposes to delete the erroneous qualifier ‘‘SN’’ from the reference to iSR parameters as such reviews are not limited to single name iSR parameters, rather such reviews are conducted with respect to both CDS single name and CDS index iSR parameters. In addition, ICC proposes to add the word ‘‘additional’’ to clarify that the ICC risk department presents on an at least monthly basis to the ICC Risk Working Group (‘‘RWG’’) 6 the performed analysis, and any ‘‘additional’’ proposed parameter updates. The purpose of this change is to clarify that the ICC risk department 4 Please note that ICC transitioned the risk management MAD monthly parameter updates for index risk factors to an automatic daily update in 2021. See Exchange Act Release No. 91951 (May 20, 2021), 86 FR 28425 (May 26, 2021) (SR–ICC–2021– 009). 5 For instance, CDS single name risk factors also exhibit a dynamic market response to rapidly changing single name risk factor specific market conditions and are thus also suitable for automatic daily updates. 6 The ICC Risk Working Group or RWG, which generally meets weekly, is composed of risk employees of ICC Clearing Participants. The RWG consults with the ICC risk department to provide input into ICC’s systemic risk approach. E:\FR\FM\20MRN1.SGM 20MRN1 13224 Federal Register / Vol. 90, No. 53 / Thursday, March 20, 2025 / Notices ddrumheller on DSK120RN23PROD with NOTICES1 will review with the RWG both the automatic parameter updates described in the RPSRP, and any ‘‘additional’’ proposed parameter updates beyond the automatic parameter updates. Such corrective and clarifying changes improve the accuracy of the RPSRP. In addition, ICC proposes further enhancements to the RPSRP to address recommendations from a recent independent validation report. Such enhancements relate to the antiprocyclicality level parameters associated with the iSR that are designed to help achieve antiprocyclicality of the iSR.7 ICC analyzes instrument price changes during extreme market events to achieve antiprocyclicality of the iSR. The RPSRP discusses stress scenarios associated with historically observed extreme price changes, which serve as inputs in estimating the anti-procyclical portfolio response used to establish the final portfolio iSR. ICC proposes to revise Section 1.7.3 of the RPSRP, ‘AntiProcyclicality Level Parameters’ to add calibration details regarding the current APC measure for CDS index options describing such stress scenario of ‘‘asynchronous’’ 8 hedging risk. The proposed enhanced description of the calibration details in Section 1.7.3 of the RPSRP documents that the applicable stress scenario for CDS index options is constructed such that CDS index options prices are not consistent with the CDS index price levels. The proposed enhancements to the description of the calibration details in Section 1.7.3 of the RPSRP do not revise ICC’s parameter setting methodology, rather such additional details are intended to increase clarity and provide additional detail to ICC’s description of its parameter setting methodology set forth in the RPSRP. In connection with the proposed enhanced details in Section 1.7.3 of the RPSRP, ICC proposes to formally define the current ‘‘underlying price dislocation factor for options extreme asynchronous price scenarios’’ 9 by 7 The iSR is ultimately used to compute ICC’s initial margin requirements, as the iSR is added along with other requirements to establish the total initial margin requirement for a portfolio. 8 ‘‘Asynchronous’’ hedging risk stress scenario corresponds to the dislocation of the underlying CDS index versus CDS index option hedges in the event of a liquidation auction (e.g., in the event the CDS index options sub-portfolio is auctioned at a different time from the CDS index sub-portfolio). In contrast, ‘‘Synchronous’’ hedging risk stress scenario corresponds to the preservation of the underlying CDS index versus CDS index option hedges in the event of a liquidation auction. 9 Price dislocation factor refers to the current factor that captures the potential asynchronous repricing/liquidation of the option sub-portfolio VerDate Sep<11>2014 19:09 Mar 19, 2025 Jkt 265001 adding to the list of core risk model parameters contained in Section 1.1., Table 1 of the RPSRP. Lastly, ICC proposes to revise Section 3 ‘Revision History’ of the RPSRP to include the proposed revisions. RMMD ICC proposes to revise the RMMD, which provides a description of ICC’s quantitative risk models and the associated methods and techniques used in connection with ICC’s determination of initial margin and guaranty fund requirements. Specifically, ICC proposes changes to the RMMD to (i) update the calculation of the risk factor level maximum loss (‘‘MaxLoss’’) to make it more robust, conservative, and stable from a risk perspective; and (ii) enhance the documentation and calibration details included in the RMMD regarding the current APC measure for CDS index options (consistent with the analogous proposed changes to the RPSRP described above). The proposed changes are described in detail below. ICC proposes to revise Section III.2 ‘Maximum Loss Conditions’ of the RMMD to enhance the CDS index and CDS single name MaxLoss boundary condition to make them more stable and conservative. Currently, for the index risk factor and risk sub-factor (‘‘RSF’’) 10 MaxLoss boundary conditions, the methodology considers both the loss responses of the underlying CDS index only portfolios, and the loss responses to the combined underlying CDS index and the CDS index option subportfolios. Currently the loss response, in both cases, only account for the liability associated with the defaulting net protection buyers and sellers for a given CDS index risk factor and RSF. As amended, for the index risk factor and RSF MaxLoss boundary conditions, the enhancement consists of always considering loss responses of the combined underlying CDS index and the CDS index option sub-portfolios, namely, replacing the underlying CDS index-only portfolios loss responses’ component of the MaxLoss boundary condition, with the combined underlying CDS index and the CDS index option sub-portfolio loss responses associated with extreme price moves. The incorporation of the combined underlying CDS index and the CDS index option sub-portfolios’ response to extreme price moves provides additional conservative bias because the index risk factor and RSF and the underlying index sub-portfolio, and thus breaking existing hedges. 10 A risk sub-factor or RSF is a specific single name reference obligation seniority and document clause combination. PO 00000 Frm 00093 Fmt 4703 Sfmt 4703 MaxLoss will only consider loss responses to the combined underlying CDS index and CDS index option subportfolios under which the loss response to the extreme price moves can lead to larger losses for the combined underlying CDS index and the CDS index option sub-portfolio. Similarly, for single names, the enhancement of the risk factor and RSF level MaxLoss boundary condition consists of also considering the portfolio responses to extreme price moves to extend the enhancement made to the index risk factor and RSF MaxLoss boundary condition, for consistency. Currently, for single name risk factor and RSF MaxLoss boundary conditions, the methodology only considers the liability associated with defaulting net protection buyers and sellers for a given single name risk factor and RSF. The incorporation of the single name risk factor and RSF sub-portfolio response to extreme price moves provides additional conservative bias because the loss response to extreme price moves can lead to larger losses for the single name risk factor and RSF sub-portfolio. In addition, ICC proposes further enhancements to the RMMD to address recommendations from a recent independent validation report analogous to the proposed changes to the RPSRP to address independent validation report recommendations described above. Specifically, ICC proposes revising Section VII.5.3 of the RMMD, ‘Anti-Procyclicality Measures’ to add calibration details regarding the current APC measure for CDS index options describing the stress scenarios of synchronous and asynchronous hedging risk. The proposed enhanced description of the calibration details in Section VII.5.3 of the RMMD documents the different calculations performed for synchronous scenarios as compared to the calculations performed for asynchronous scenarios. Specifically, the proposed changes would formally clarify the synchronous and asynchronous scenarios, when synchronous and asynchronous scenarios could occur, and where to find information related to index risk factor specific price dislocation factor. Calibration details are also updated for this price dislocation factor. The underlying price dislocation factor for asynchronous scenarios is currently set to a specific value in the RMMD. As amended, the underlying price dislocation factor would be calibrated by considering a ratio between peak price decreases or increases. ICC believes the proposed calibration provides a more informed estimate, as E:\FR\FM\20MRN1.SGM 20MRN1 Federal Register / Vol. 90, No. 53 / Thursday, March 20, 2025 / Notices ddrumheller on DSK120RN23PROD with NOTICES1 the underlying price dislocation factor is no longer static. The proposed enhancements to calibration details in Section VII.5.3 of the RMMD do not revise ICC’s parameter setting methodology. The methodology already sets a specific value for the price dislocation factor in the context of asynchronous scenarios. Rather, ICC would calibrate the price dislocation factor by using a ratio of the current extreme price moves. The additional calibration details are intended to increase clarity, provide additional detail to ICC’s description of its risk methodology set forth in the RMMD, and address independent validation recommendations to ensure robustness of ICC’s methodology. Lastly, ICC proposes to add a ‘Revision History’ Section to the RMMD to document revisions made to the RMMD on a going forward basis. (b) Statutory Basis ICC believes that the proposed rule change is consistent with the requirements of Section 17A of the Securities Exchange Act of 1934 (the ‘‘Act’’) 11 and the regulations thereunder applicable to it, including the applicable standards under Rule 17Ad–22.12 In particular, Section 17A(b)(3)(F) of the Act 13 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, to assure the safeguarding of securities and funds in the custody or control of the clearing agency or for which it is responsible, and to protect investors and the public interest. The proposed amendments include the transition of the risk management MAD monthly parameter updates for CDS single name risk factors to an automatic daily update. Such change would timely capture any significant MAD changes and minimize the cumulative effect of MAD changes between parameter updates, and thus reduce the level of initial margin procyclicality. The proposed amendments to the RMMD to update the calculation of risk factor level MaxLoss will make the methodology more antiprocyclical, thereby making it more robust, conservative, and stable from a risk perspective. The remaining proposed amendments to the RPSRP and RMMD address independent validation recommendations and provide further detail and language clarifications and corrections which would strengthen and further ensure readability and clarity with respect to ICC’s process of setting and reviewing the model core parameters to ensure that the documentation remains up-todate, clear and transparent to support the effectiveness of ICC’s risk management. Accordingly, in ICC’s view, the proposed rule change is consistent with the prompt and accurate clearance and settlement of the contracts cleared at ICC, the safeguarding of securities and funds in the custody or control of ICC or for which it is responsible, and the protection of investors and the public interest, within the meaning of Section 17A(b)(3)(F) of the Act.14 Rule 17Ad–22(e)(2)(i) and (v) 15 requires each covered clearing agency to establish, implement, maintain, and enforce written policies and procedures reasonably designed to provide for governance arrangements that are clear and transparent and specify clear and direct lines of responsibility. ICC’s RPSRP clearly assigns and documents responsibility and accountability for the estimation and review of the model core parameters and the performance of sensitivity analysis. Regarding the univariate level parameters, the proposed changes continue to ensure that ICC maintains clear and transparent governance procedures and arrangements, including by describing the frequency of the parameter reviews and updates, the group involved in the review process, and prerequisites to implementing parameter updates. As such, in ICC’s view, the proposed rule change continues to ensure that ICC maintains policies and procedures that are reasonably designed to provide for clear and transparent governance arrangements and specify clear and direct lines of responsibility, consistent with Rule 17Ad–22(e)(2)(i) and (v).16 Rule 17Ad–22(e)(3)(i) 17 requires ICC to establish, implement, maintain and enforce written policies and procedures reasonably designed to maintain a sound risk management framework for comprehensively managing legal, credit, liquidity, operational, general business, investment, custody, and other risks that arise in or are borne by it, which includes risk management policies, procedures, and systems designed to identify, measure, monitor, and manage the range of risks that arise in or are borne by it, that are subject to review on 14 Id. 11 15 U.S.C. 78q–1. 12 17 CFR 240.17ad–22. 13 15 U.S.C. 78q–1(b)(3)(F). VerDate Sep<11>2014 19:09 Mar 19, 2025 15 17 17 17 Jkt 265001 PO 00000 a specified periodic basis and approved by the Board annually. ICC maintains a sound risk management framework that identifies, measures, monitors, and manages the range of risks that it faces. The RPSRP and RMMD are key aspects of ICC’s risk management approach, and the proposed clarifying amendments would ensure further clarity and transparency in the documentation, which would promote the successful maintenance and operation of the RPSRP and RMMD. As such, the amendments would satisfy the requirements of Rule 17Ad–22(e)(3)(i).18 Rule 17Ad–22(e)(4)(ii) 19 requires ICC to establish, implement, maintain, and enforce written policies and procedures reasonably designed to 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 ICC in extreme but plausible market conditions. The proposed changes promote the soundness of the model including by (i) transitioning the risk management MAD monthly parameter update for single name risk factors to an automatic daily update and (ii) enhancing the documentation to update the calculation of risk factor level MaxLoss to make the methodology more robust, conservative and stable from a risk perspective. ICC believes that the proposed rule change would thus enhance ICC’s ability to manage risks and maintain appropriate financial resources. ICC proposes additional enhancements and clarifications, including enhancements to the documentation and calibration details regarding the APC measure for CDS index options. ICC believes that such changes address independent validation recommendations and enhance the readability and transparency of the RPSRP and RMMD, which would strengthen the methodology and documentation and ensure it remains up-to-date, clear and transparent. As such, the proposed amendments would strengthen ICC’s ability to maintain its financial resources and withstand the pressures of defaults, consistent with the CFR 240.17ad–22(e)(2)(i) and (v). 16 Id. 18 Id. CFR 240.17ad–22(e)(3)(i). Frm 00094 Fmt 4703 Sfmt 4703 13225 19 17 E:\FR\FM\20MRN1.SGM CFR 240.17ad–22(e)(4)(ii). 20MRN1 13226 Federal Register / Vol. 90, No. 53 / Thursday, March 20, 2025 / Notices requirements of Rule 17Ad– 22(e)(4)(ii).20 Rule 17Ad–22(e)(6)(i) 21 requires ICC to establish, implement, maintain, and enforce written policies and procedures reasonably designed to cover its credit exposures to its participants by establishing a risk-based margin system that, at a minimum, considers, and produces margin levels commensurate with, the risks and particular attributes of each relevant product, portfolio, and market. As described above, the single name risk factor level MADs would be automatically updated daily in the risk management system, which would timely capture any significant MAD changes and minimize the cumulative effect of MAD changes between parameter updates, and thus reduce the level of initial margin procyclicality. The additional clarifications would further promote clarity and transparency in the RPSRP and RMMD. In ICC’s view, the proposed changes thus enhance and strengthen ICC’s process for reviewing and setting the model core parameters, which in turn serves to promote the soundness of ICC’s risk management model and system, which will continue to consider and produce margin levels commensurate with the risks and particular attributes of each relevant product, portfolio, and market, consistent with the requirements of Rule 17Ad–22(e)(6)(i).22 (B) Clearing Agency’s Statement on Burden on Competition ICC does not believe the proposed rule change would have any impact, or impose any burden, on competition. The proposed changes to the RSPRP and RMMD will apply uniformly across all market participants. ICC does not believe these amendments would affect the costs of clearing or the ability of market participants to access clearing. Therefore, ICC does not believe the proposed rule change would impose any burden on competition that is inappropriate in furtherance of the purposes of the Act. ddrumheller on DSK120RN23PROD with NOTICES1 (C) Clearing Agency’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others Written comments relating to the proposed rule change have not been solicited or received. ICC will notify the Commission of any written comments received by ICC. 20 Id. 21 17 CFR 240.17ad–22(e)(6)(i). 22 Id. VerDate Sep<11>2014 19:09 Mar 19, 2025 Jkt 265001 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-regulations/self-regulatoryorganization-rulemaking); or • Send an email to rule-comments@ sec.gov. Please include file number SR– ICC–2025–001 on the subject line. Paper Comments • Send paper comments in triplicate to [Name of Secretary], Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549. All submissions should refer to file number SR–ICC–2025–001. 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-regulations/self-regulatoryorganization-rulemaking). 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 PO 00000 Frm 00095 Fmt 4703 Sfmt 4703 a.m. and 3 p.m. Copies of such filings will also be available for inspection and copying at the principal office of ICE Clear Credit and on ICE Clear Credit’s website at https://www.ice.com/clearcredit/regulation. Do not include personal identifiable information in submissions; you should submit only information that you wish to make available publicly. We may redact in part or withhold entirely from publication submitted material that is obscene or subject to copyright protection. All submissions should refer to file number SR–ICC–2025–001 and should be submitted on or before April 10, 2025. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.23 Vanessa A. Countryman, Secretary. [FR Doc. 2025–04659 Filed 3–19–25; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–102669; File No. SR–PHLX– 2024–72] Self-Regulatory Organizations; Nasdaq Phlx, LLC; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To Permit the Trading of FLEX Options on Shares of the iShares Bitcoin Trust ETF March 14, 2025. I. Introduction On December 26, 2024, Nasdaq Phlx, LLC (‘‘Phlx’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’ or ‘‘Exchange Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to amend Options 8, Section 34, FLEX Trading, to permit options on shares of the iShares Bitcoin Trust ETF (‘‘IBIT’’) to trade as cash-settled and physically settled FLEX equity options. The proposed rule change was published for comment in the Federal Register on January 14, 2025.3 On February 27, 2025, pursuant to Section 19(b)(2) of the Act,4 the Commission designated a longer period 23 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 102132 (Jan. 7, 2025), 90 FR 3266 (‘‘Notice’’). 4 15 U.S.C. 78s(b)(2). 1 15 E:\FR\FM\20MRN1.SGM 20MRN1

Agencies

[Federal Register Volume 90, Number 53 (Thursday, March 20, 2025)]
[Notices]
[Pages 13223-13226]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-04659]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-102679; File No. SR-ICC-2025-001]


Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of 
Filing of Proposed Rule Change Relating to the Risk Parameter Setting 
and Review Policy and the Risk Management Model Description

March 14, 2025.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 
1934,\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on 
March 12, 2025, ICE Clear Credit LLC (``ICE Clear Credit'' or ``ICC'') 
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 primarily prepared by ICC. 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

    The principal purpose of the proposed rule change is to revise its 
(i) Risk Parameter Setting and Review Policy (the ``RPSRP''), and (ii) 
the Risk Management Model Description (the ``RMMD'').

II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    In its filing with the Commission, ICC included statements 
concerning the purpose of and basis for the proposed rule change, 
security-based swap submission, or advance notice and discussed any 
comments it received on the proposed rule change, security-based swap 
submission, or advance notice. The text of these statements may be 
examined at the places specified in Item IV below. ICC has prepared 
summaries, set forth in sections (A), (B), and (C) below, of the most 
significant aspects of these statements.

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

(a) Purpose
    ICC proposes revising the RPSRP and RMMD. The proposed amendments 
are intended to make certain enhancements and clarifications to the 
RPSRP and RMMD to improve ICC's documentation of its risk management 
methodology and processes. ICC believes that such revisions will 
facilitate the prompt and accurate clearance and settlement of 
securities transactions and derivative agreements, contracts, and 
transactions for which it is responsible. ICC proposes to make such 
changes effective following Commission approval of the proposed rule 
change. The proposed revisions are described in detail as follows.
RPSRP
    ICC proposes to revise the RPSRP, which describes the process of 
setting and reviewing the risk management model core parameters and the 
performance of sensitivity analysis related to certain parameter 
settings. The parameters set and calibrated pursuant to the RPSRP are 
used in ICC's risk methodology in certain calculations including, 
without limitation, initial margin and guaranty fund requirements, as 
described in the RMMD and the ICC Risk Management Framework. Such 
proposed changes to the RPSRP are intended to (i) transition the risk 
management mean absolute deviation (``MAD'') monthly parameter update 
for credit default swap (``CDS'') single name risk factors to an 
automatic daily update in the risk management system; (ii) enhance the 
documentation and calibration details included in the RPSRP regarding 
the current anti-procyclical condition (``APC'') measure for CDS index 
options; and (iii) make certain other minor language corrections and 
clarifications. The proposed changes are described in detail below.
    ICC proposes to amend Section 1.7.1 of the RPSRP, `Univariate Level 
Parameters' to revise the cadence at which a specific parameter is 
updated. Such proposed change relates to the univariate level 
parameters associated with the integrated spread response (``iSR'') 
model component.\3\ Namely, ICC proposes to transition the risk 
management MAD monthly parameter update for CDS single name risk 
factors to an automatic daily update in the risk management system. 
With this change to an automatic daily update, single name risk factor 
level risk management MADs will be updated at the same daily cadence as 
CDS index risk factors.\4\ Section 1.7.1 currently compares the 
suitability of an automatic daily update for CDS single name risk 
factors and CDS index risk factors. While an automatic daily update is 
particularly suitable for CDS index risk factors due to their macro-
level dynamic market response, CDS single name risk factors still 
benefit from an automatic daily update.\5\ As automatic daily updates 
are suitable for both CDS single name risk factors and CDS index risk 
factors, ICC proposes changes to Section 1.7.1 to remove any comparison 
of suitability. ICC proposes further changes to Section 1.7.1 of the 
RPSRP to note that the behavior of single name risk factors is 
inherently prone to idiosyncratic events and hence exhibit dynamic 
market response to rapidly changing single name risk factor specific 
market conditions, suitable for and benefitting from automatic risk 
management MAD updates. With the proposed addition of automatic daily 
updates, ICC proposes to remove the reference to monthly single name 
risk factor risk management MAD reviews in Section 1.7.1 of the RPSRP.
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    \3\ The iSR is a risk model component that captures credit 
spread and recovery rate fluctuations and is computed by creating 
profit/loss distributions from a set of jointly simulated 
hypothetical credit spread and recovery rate scenarios.
    \4\ Please note that ICC transitioned the risk management MAD 
monthly parameter updates for index risk factors to an automatic 
daily update in 2021. See Exchange Act Release No. 91951 (May 20, 
2021), 86 FR 28425 (May 26, 2021) (SR-ICC-2021-009).
    \5\ For instance, CDS single name risk factors also exhibit a 
dynamic market response to rapidly changing single name risk factor 
specific market conditions and are thus also suitable for automatic 
daily updates.
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    Furthermore, ICC proposes additional corrective and clarifying 
changes to Section 1.7.1 of the RPSRP. Specifically, with respect to 
the description of the ICC risk department's review of univariate iSR 
parameters, ICC proposes to delete the erroneous qualifier ``SN'' from 
the reference to iSR parameters as such reviews are not limited to 
single name iSR parameters, rather such reviews are conducted with 
respect to both CDS single name and CDS index iSR parameters. In 
addition, ICC proposes to add the word ``additional'' to clarify that 
the ICC risk department presents on an at least monthly basis to the 
ICC Risk Working Group (``RWG'') \6\ the performed analysis, and any 
``additional'' proposed parameter updates. The purpose of this change 
is to clarify that the ICC risk department

[[Page 13224]]

will review with the RWG both the automatic parameter updates described 
in the RPSRP, and any ``additional'' proposed parameter updates beyond 
the automatic parameter updates. Such corrective and clarifying changes 
improve the accuracy of the RPSRP.
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    \6\ The ICC Risk Working Group or RWG, which generally meets 
weekly, is composed of risk employees of ICC Clearing Participants. 
The RWG consults with the ICC risk department to provide input into 
ICC's systemic risk approach.
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    In addition, ICC proposes further enhancements to the RPSRP to 
address recommendations from a recent independent validation report. 
Such enhancements relate to the anti-procyclicality level parameters 
associated with the iSR that are designed to help achieve anti-
procyclicality of the iSR.\7\ ICC analyzes instrument price changes 
during extreme market events to achieve anti-procyclicality of the iSR. 
The RPSRP discusses stress scenarios associated with historically 
observed extreme price changes, which serve as inputs in estimating the 
anti-procyclical portfolio response used to establish the final 
portfolio iSR. ICC proposes to revise Section 1.7.3 of the RPSRP, 
`Anti-Procyclicality Level Parameters' to add calibration details 
regarding the current APC measure for CDS index options describing such 
stress scenario of ``asynchronous'' \8\ hedging risk. The proposed 
enhanced description of the calibration details in Section 1.7.3 of the 
RPSRP documents that the applicable stress scenario for CDS index 
options is constructed such that CDS index options prices are not 
consistent with the CDS index price levels. The proposed enhancements 
to the description of the calibration details in Section 1.7.3 of the 
RPSRP do not revise ICC's parameter setting methodology, rather such 
additional details are intended to increase clarity and provide 
additional detail to ICC's description of its parameter setting 
methodology set forth in the RPSRP.
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    \7\ The iSR is ultimately used to compute ICC's initial margin 
requirements, as the iSR is added along with other requirements to 
establish the total initial margin requirement for a portfolio.
    \8\ ``Asynchronous'' hedging risk stress scenario corresponds to 
the dislocation of the underlying CDS index versus CDS index option 
hedges in the event of a liquidation auction (e.g., in the event the 
CDS index options sub-portfolio is auctioned at a different time 
from the CDS index sub-portfolio). In contrast, ``Synchronous'' 
hedging risk stress scenario corresponds to the preservation of the 
underlying CDS index versus CDS index option hedges in the event of 
a liquidation auction.
---------------------------------------------------------------------------

    In connection with the proposed enhanced details in Section 1.7.3 
of the RPSRP, ICC proposes to formally define the current ``underlying 
price dislocation factor for options extreme asynchronous price 
scenarios'' \9\ by adding to the list of core risk model parameters 
contained in Section 1.1., Table 1 of the RPSRP.
---------------------------------------------------------------------------

    \9\ Price dislocation factor refers to the current factor that 
captures the potential asynchronous repricing/liquidation of the 
option sub-portfolio and the underlying index sub-portfolio, and 
thus breaking existing hedges.
---------------------------------------------------------------------------

    Lastly, ICC proposes to revise Section 3 `Revision History' of the 
RPSRP to include the proposed revisions.
RMMD
    ICC proposes to revise the RMMD, which provides a description of 
ICC's quantitative risk models and the associated methods and 
techniques used in connection with ICC's determination of initial 
margin and guaranty fund requirements. Specifically, ICC proposes 
changes to the RMMD to (i) update the calculation of the risk factor 
level maximum loss (``MaxLoss'') to make it more robust, conservative, 
and stable from a risk perspective; and (ii) enhance the documentation 
and calibration details included in the RMMD regarding the current APC 
measure for CDS index options (consistent with the analogous proposed 
changes to the RPSRP described above). The proposed changes are 
described in detail below.
    ICC proposes to revise Section III.2 `Maximum Loss Conditions' of 
the RMMD to enhance the CDS index and CDS single name MaxLoss boundary 
condition to make them more stable and conservative. Currently, for the 
index risk factor and risk sub-factor (``RSF'') \10\ MaxLoss boundary 
conditions, the methodology considers both the loss responses of the 
underlying CDS index only portfolios, and the loss responses to the 
combined underlying CDS index and the CDS index option sub-portfolios. 
Currently the loss response, in both cases, only account for the 
liability associated with the defaulting net protection buyers and 
sellers for a given CDS index risk factor and RSF. As amended, for the 
index risk factor and RSF MaxLoss boundary conditions, the enhancement 
consists of always considering loss responses of the combined 
underlying CDS index and the CDS index option sub-portfolios, namely, 
replacing the underlying CDS index-only portfolios loss responses' 
component of the MaxLoss boundary condition, with the combined 
underlying CDS index and the CDS index option sub-portfolio loss 
responses associated with extreme price moves. The incorporation of the 
combined underlying CDS index and the CDS index option sub-portfolios' 
response to extreme price moves provides additional conservative bias 
because the index risk factor and RSF MaxLoss will only consider loss 
responses to the combined underlying CDS index and CDS index option 
sub-portfolios under which the loss response to the extreme price moves 
can lead to larger losses for the combined underlying CDS index and the 
CDS index option sub-portfolio. Similarly, for single names, the 
enhancement of the risk factor and RSF level MaxLoss boundary condition 
consists of also considering the portfolio responses to extreme price 
moves to extend the enhancement made to the index risk factor and RSF 
MaxLoss boundary condition, for consistency. Currently, for single name 
risk factor and RSF MaxLoss boundary conditions, the methodology only 
considers the liability associated with defaulting net protection 
buyers and sellers for a given single name risk factor and RSF. The 
incorporation of the single name risk factor and RSF sub-portfolio 
response to extreme price moves provides additional conservative bias 
because the loss response to extreme price moves can lead to larger 
losses for the single name risk factor and RSF sub-portfolio.
---------------------------------------------------------------------------

    \10\ A risk sub-factor or RSF is a specific single name 
reference obligation seniority and document clause combination.
---------------------------------------------------------------------------

    In addition, ICC proposes further enhancements to the RMMD to 
address recommendations from a recent independent validation report 
analogous to the proposed changes to the RPSRP to address independent 
validation report recommendations described above. Specifically, ICC 
proposes revising Section VII.5.3 of the RMMD, `Anti-Procyclicality 
Measures' to add calibration details regarding the current APC measure 
for CDS index options describing the stress scenarios of synchronous 
and asynchronous hedging risk. The proposed enhanced description of the 
calibration details in Section VII.5.3 of the RMMD documents the 
different calculations performed for synchronous scenarios as compared 
to the calculations performed for asynchronous scenarios. Specifically, 
the proposed changes would formally clarify the synchronous and 
asynchronous scenarios, when synchronous and asynchronous scenarios 
could occur, and where to find information related to index risk factor 
specific price dislocation factor. Calibration details are also updated 
for this price dislocation factor. The underlying price dislocation 
factor for asynchronous scenarios is currently set to a specific value 
in the RMMD. As amended, the underlying price dislocation factor would 
be calibrated by considering a ratio between peak price decreases or 
increases. ICC believes the proposed calibration provides a more 
informed estimate, as

[[Page 13225]]

the underlying price dislocation factor is no longer static. The 
proposed enhancements to calibration details in Section VII.5.3 of the 
RMMD do not revise ICC's parameter setting methodology. The methodology 
already sets a specific value for the price dislocation factor in the 
context of asynchronous scenarios. Rather, ICC would calibrate the 
price dislocation factor by using a ratio of the current extreme price 
moves. The additional calibration details are intended to increase 
clarity, provide additional detail to ICC's description of its risk 
methodology set forth in the RMMD, and address independent validation 
recommendations to ensure robustness of ICC's methodology.
    Lastly, ICC proposes to add a `Revision History' Section to the 
RMMD to document revisions made to the RMMD on a going forward basis.
(b) Statutory Basis
    ICC believes that the proposed rule change is consistent with the 
requirements of Section 17A of the Securities Exchange Act of 1934 (the 
``Act'') \11\ and the regulations thereunder applicable to it, 
including the applicable standards under Rule 17Ad-22.\12\ In 
particular, Section 17A(b)(3)(F) of the Act \13\ 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, to assure the safeguarding of securities and funds in the 
custody or control of the clearing agency or for which it is 
responsible, and to protect investors and the public interest.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78q-1.
    \12\ 17 CFR 240.17ad-22.
    \13\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    The proposed amendments include the transition of the risk 
management MAD monthly parameter updates for CDS single name risk 
factors to an automatic daily update. Such change would timely capture 
any significant MAD changes and minimize the cumulative effect of MAD 
changes between parameter updates, and thus reduce the level of initial 
margin procyclicality. The proposed amendments to the RMMD to update 
the calculation of risk factor level MaxLoss will make the methodology 
more anti-procyclical, thereby making it more robust, conservative, and 
stable from a risk perspective. The remaining proposed amendments to 
the RPSRP and RMMD address independent validation recommendations and 
provide further detail and language clarifications and corrections 
which would strengthen and further ensure readability and clarity with 
respect to ICC's process of setting and reviewing the model core 
parameters to ensure that the documentation remains up-to-date, clear 
and transparent to support the effectiveness of ICC's risk management. 
Accordingly, in ICC's view, the proposed rule change is consistent with 
the prompt and accurate clearance and settlement of the contracts 
cleared at ICC, the safeguarding of securities and funds in the custody 
or control of ICC or for which it is responsible, and the protection of 
investors and the public interest, within the meaning of Section 
17A(b)(3)(F) of the Act.\14\
---------------------------------------------------------------------------

    \14\ Id.
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(2)(i) and (v) \15\ requires each covered clearing 
agency to establish, implement, maintain, and enforce written policies 
and procedures reasonably designed to provide for governance 
arrangements that are clear and transparent and specify clear and 
direct lines of responsibility. ICC's RPSRP clearly assigns and 
documents responsibility and accountability for the estimation and 
review of the model core parameters and the performance of sensitivity 
analysis. Regarding the univariate level parameters, the proposed 
changes continue to ensure that ICC maintains clear and transparent 
governance procedures and arrangements, including by describing the 
frequency of the parameter reviews and updates, the group involved in 
the review process, and prerequisites to implementing parameter 
updates. As such, in ICC's view, the proposed rule change continues to 
ensure that ICC maintains policies and procedures that are reasonably 
designed to provide for clear and transparent governance arrangements 
and specify clear and direct lines of responsibility, consistent with 
Rule 17Ad-22(e)(2)(i) and (v).\16\
---------------------------------------------------------------------------

    \15\ 17 CFR 240.17ad-22(e)(2)(i) and (v).
    \16\ Id.
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(3)(i) \17\ requires ICC to establish, implement, 
maintain and enforce written policies and procedures reasonably 
designed to maintain a sound risk management framework for 
comprehensively managing legal, credit, liquidity, operational, general 
business, investment, custody, and other risks that arise in or are 
borne by it, which includes risk management policies, procedures, and 
systems designed to identify, measure, monitor, and manage the range of 
risks that arise in or are borne by it, that are subject to review on a 
specified periodic basis and approved by the Board annually. ICC 
maintains a sound risk management framework that identifies, measures, 
monitors, and manages the range of risks that it faces. The RPSRP and 
RMMD are key aspects of ICC's risk management approach, and the 
proposed clarifying amendments would ensure further clarity and 
transparency in the documentation, which would promote the successful 
maintenance and operation of the RPSRP and RMMD. As such, the 
amendments would satisfy the requirements of Rule 17Ad-22(e)(3)(i).\18\
---------------------------------------------------------------------------

    \17\ 17 CFR 240.17ad-22(e)(3)(i).
    \18\ Id.
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(4)(ii) \19\ requires ICC to establish, implement, 
maintain, and enforce written policies and procedures reasonably 
designed to 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 ICC in extreme but 
plausible market conditions. The proposed changes promote the soundness 
of the model including by (i) transitioning the risk management MAD 
monthly parameter update for single name risk factors to an automatic 
daily update and (ii) enhancing the documentation to update the 
calculation of risk factor level MaxLoss to make the methodology more 
robust, conservative and stable from a risk perspective. ICC believes 
that the proposed rule change would thus enhance ICC's ability to 
manage risks and maintain appropriate financial resources. ICC proposes 
additional enhancements and clarifications, including enhancements to 
the documentation and calibration details regarding the APC measure for 
CDS index options. ICC believes that such changes address independent 
validation recommendations and enhance the readability and transparency 
of the RPSRP and RMMD, which would strengthen the methodology and 
documentation and ensure it remains up-to-date, clear and transparent. 
As such, the proposed amendments would strengthen ICC's ability to 
maintain its financial resources and withstand the pressures of 
defaults, consistent with the

[[Page 13226]]

requirements of Rule 17Ad-22(e)(4)(ii).\20\
---------------------------------------------------------------------------

    \19\ 17 CFR 240.17ad-22(e)(4)(ii).
    \20\ Id.
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(6)(i) \21\ requires ICC to establish, implement, 
maintain, and enforce written policies and procedures reasonably 
designed to cover its credit exposures to its participants by 
establishing a risk-based margin system that, at a minimum, considers, 
and produces margin levels commensurate with, the risks and particular 
attributes of each relevant product, portfolio, and market. As 
described above, the single name risk factor level MADs would be 
automatically updated daily in the risk management system, which would 
timely capture any significant MAD changes and minimize the cumulative 
effect of MAD changes between parameter updates, and thus reduce the 
level of initial margin procyclicality. The additional clarifications 
would further promote clarity and transparency in the RPSRP and RMMD. 
In ICC's view, the proposed changes thus enhance and strengthen ICC's 
process for reviewing and setting the model core parameters, which in 
turn serves to promote the soundness of ICC's risk management model and 
system, which will continue to consider and produce margin levels 
commensurate with the risks and particular attributes of each relevant 
product, portfolio, and market, consistent with the requirements of 
Rule 17Ad-22(e)(6)(i).\22\
---------------------------------------------------------------------------

    \21\ 17 CFR 240.17ad-22(e)(6)(i).
    \22\ Id.
---------------------------------------------------------------------------

(B) Clearing Agency's Statement on Burden on Competition

    ICC does not believe the proposed rule change would have any 
impact, or impose any burden, on competition. The proposed changes to 
the RSPRP and RMMD will apply uniformly across all market participants. 
ICC does not believe these amendments would affect the costs of 
clearing or the ability of market participants to access clearing. 
Therefore, ICC does not believe the proposed rule change would 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 rule change have not been 
solicited or received. ICC will notify the Commission of any written 
comments received by ICC.

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-regulations/self-regulatory-organization-rulemaking); 
or
     Send an email to [email protected]. Please include 
file number SR-ICC-2025-001 on the subject line.

Paper Comments

     Send paper comments in triplicate to [Name of Secretary], 
Secretary, Securities and Exchange Commission, 100 F Street NE, 
Washington, DC 20549.

All submissions should refer to file number SR-ICC-2025-001. 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-regulations/self-regulatory-organization-rulemaking). 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 a.m. and 3 
p.m. Copies of such filings will also be available for inspection and 
copying at the principal office of ICE Clear Credit and on ICE Clear 
Credit's website at https://www.ice.com/clear-credit/regulation.
    Do not include personal identifiable information in submissions; 
you should submit only information that you wish to make available 
publicly. We may redact in part or withhold entirely from publication 
submitted material that is obscene or subject to copyright protection.
    All submissions should refer to file number SR-ICC-2025-001 and 
should be submitted on or before April 10, 2025.

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

    \23\ 17 CFR 200.30-3(a)(12).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2025-04659 Filed 3-19-25; 8:45 am]
BILLING CODE 8011-01-P
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