81 FR 51532 - Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of Filing of Proposed Rule Change To Revise the ICC Risk Management Model Description Document and the ICC Risk Management Framework

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 150 (August 4, 2016)

Page Range		51532-51533
FR Document		2016-18475

Federal Register, Volume 81 Issue 150 (Thursday, August 4, 2016)

[Federal Register Volume 81, Number 150 (Thursday, August 4, 2016)]
[Notices]
[Pages 51532-51533]
From the Federal Register Online [www.thefederalregister.org]
[FR Doc No: 2016-18475]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78448; File No. SR-ICC-2016-010]

Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of
Filing of Proposed Rule Change To Revise the ICC Risk Management Model
Description Document and the ICC Risk Management Framework

July 29, 2016.
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 July 15, 2016, ICE Clear Credit LLC (``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 prepared primarily by ICC. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
---------------------------------------------------------------------------

\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

The principal purpose of the proposed rule change is to revise the
ICC Risk Management Framework to incorporate certain risk model
enhancements. ICC also proposes minor clarifying edits to the ICC Risk
Management Model Description document and the ICC Risk Management
Framework. These revisions do not require any changes to the ICC
Clearing Rules (``Rules'').

II. Self-Regulatory Organization'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 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. ICC has prepared summaries, set forth in sections A, B
and C below, of the most significant aspects of these statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

ICC proposes revising its risk management framework to incorporate
risk model enhancements related to the single name credit default swap
(``CDS'') liquidity charge methodology. ICC believes 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. The proposed revisions are
described in detail as follows.
ICC proposes a revised approach to computing single name CDS
liquidity charges. Specifically, ICC proposes to introduce minimum
instrument liquidity requirements independent of instrument maturities.
ICC's current approach features instrument liquidity requirements that
decay with time to maturity for fixed credit spread levels. The
proposed approach introduces minimum liquidity requirements for
individual instruments, independent of time to maturity for the
considered instruments, and thus establishes minimum liquidity charges
that do not decay over time as maturity is approached. The revised
calculation for single name CDS liquidity charges at the instrument
level incorporates a price-based bid-offer width floor component to
provide stability of requirements, as well as a dynamic spread-based
BOW component to reflect the additional risk associated with distressed
market conditions. The values of such price-based BOW and spread-based
BOW are fixed factors, which are subject to at least monthly reviews
and updates by ICC Risk Management Department with consultation with
the Risk Committee.
ICC also proposes enhancements to the liquidity charge calculation
at the risk factor level. The current risk factor level liquidity
requirements are based on forward CDS spread levels. Under the revised
calculation, liquidity charges at the risk factor level are computed by
first calculating the liquidity requirements for each individual
instrument position in the portfolio, and then summing all instrument
liquidity requirements for positions with the same directionality,
i.e., bought or sold protection. The risk factor liquidity requirement
is the greatest liquidity requirement associated with either the sum of
all bought protection position liquidity requirements, or the sum of
all sold protection position liquidity requirements. There are no
changes to the liquidity charge calculation at the portfolio level.
ICC expects these enhancements will ensure more stable liquidity
requirements for instruments across the curve. Further, the
enhancements simplify ICC's liquidity charge methodology, which
promotes ease of understanding. As stated above, the current risk
factor level liquidity requirements are based on forward CDS spread
levels and are, in general, more difficult to replicate due to the
inherited need for knowledge of spread levels across the entire term
structure (``curve''). Additionally, to facilitate replication of the
enhanced liquidity charge calculations, ICC will provide end-of-day
data for instruments in which clients have open positions, allowing for
additional transparency and easier replication for clients who wish to
estimate liquidity charges for hypothetical and current positions.
ICC also proposes updating liquidity scaling factors to reflect the
methodology enhancements. There is no price based component under the
current methodology. To reflect the introduction of a price based
component, the liquidity scaling factors have been decomposed and
adjusted in order to maintain the same overall composition with both
price and spread based components.
ICC also proposes minor clarifying edits to the ICC Risk Management
Framework and the ICC Risk Management Model Description document. ICC
added language to the Overview section of the Risk Management Framework
to identify which ICC documents provide additional details regarding
ICC's risk management approach. ICC added language to the Governance
and Organization section of the Risk Management Framework to note that
the reporting line of ICC's Chief Risk Officer to the Chairperson of
the ICC Risk Committee, who is also a non-executive manager on the
Board, allows the Chief Risk Officer to bring any issues or concerns
directly to the Board without intermediation by other ICC personnel.
ICC also made edits to the Governance and Organization section of the
Risk Management Framework to revise the list of documents reviewed by
the Risk Committee on at least an annual basis to include the ICC End-
of-Day Price Discovery Policies and Procedures and the ICC Operational
Risk Management

[[Page 51533]]

Framework.\3\ Finally, ICC added minor clarifying details to the
technical calculation descriptions set forth in the ICC Risk Management
Model Description document, specifically in the Recovery Rate
Sensitivity Risk Analysis, Interest Rate Sensitivity Risk Analysis,
Spread Risk Analysis, and Guaranty Fund Size Estimation sections.
---------------------------------------------------------------------------

\3\ Staff has confirmed this statement, corrected to conform
with the proposed revised Risk Management Framework filed with the
Commission, with ICC via email on July 26, 2016.
---------------------------------------------------------------------------

Section 17A(b)(3)(F) of the Act \4\ 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 and to comply with the provisions of the Act and the rules
and regulations thereunder. ICC believes that the proposed rule changes
are consistent with the requirements of the Act and the rules and
regulations thereunder applicable to ICC, in particular, to Section
17(A)(b)(3)(F),\5\ because ICC believes that the proposed rule changes
will promote the prompt and accurate clearance and settlement of
securities transactions, derivatives agreements, contracts, and
transactions, as the proposed changes provide clarity and enhance risk
policies, resulting in enhanced stability and conservative bias of
requirements, and thereby facilitate ICC's ability to promptly and
accurately clear and settle its cleared CDS contracts. In addition, the
proposed revisions are consistent with the relevant requirements of
Rule 17Ad-22.\6\ In particular, the risk model enhancements proposed in
the Risk Management Model Description document will enhance the
financial resources available to the clearing house by promoting
stability and conservative bias of requirements, and are therefore
reasonably designed to meet the margin and financial resource
requirements of Rule 17Ad-22(b)(2-3).\7\ The risk model enhancements
will also result in a more transparent and simplified liquidity charge
approach, and are therefore consistent with the requirements of Rule
17Ad-22(d)(8).\8\
---------------------------------------------------------------------------

\4\ 15 U.S.C. 78q-1(b)(3)(F).
\5\ Id.
\6\ 17 CFR 240.17Ad-22.
\7\ 17 CFR 240.17Ad-22(b)(2-3).
\8\ 17 CFR 240.17Ad-22(d)(8).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

ICC does not believe the proposed rule changes would have any
impact, or impose any burden, on competition. The risk model
enhancements and clarifying changes apply uniformly across all market
participants. Therefore, ICC does not believe the proposed rule changes
impose any burden on competition that is inappropriate in furtherance
of the purposes of the Act.

C. Self-Regulatory Organization'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 the proposed rule change or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.

IV. Solicitation of Comments

Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:

Electronic Comments

Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-ICC-2016-010 on the subject line.

Paper Comments

Send paper comments in triplicate to Secretary, Securities and
Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-ICC-2016-010. 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 Web site (http://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 Web site 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 Credit
and on ICE Clear Credit's Web site at https://www.theice.com/clear-credit/regulation.
All comments received will be posted without change; the Commission
does not edit personal identifying information from submissions. You
should submit only information that you wish to make available
publicly. All submissions should refer to File Number SR-ICC-2016-010
and should be submitted on or before August 25, 2016.
---------------------------------------------------------------------------

\9\ 17 CFR 200.30-3(a)(12).

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\9\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-18475 Filed 8-3-16; 8:45 am]
BILLING CODE 8011-01-P

51532 Federal Register / Vol. 81, No. 150 / Thursday, August 4, 2016 / Notices

12 and should be submitted on or before in Item IV below. ICC has prepared requirements, or the sum of all sold
August 25, 2016. summaries, set forth in sections A, B protection position liquidity
For the Commission, by the Division of and C below, of the most significant requirements. There are no changes to
Trading and Markets, pursuant to delegated aspects of these statements. the liquidity charge calculation at the
authority.22
A. Self-Regulatory Organization’s portfolio level.
Robert W. Errett, Statement of the Purpose of, and ICC expects these enhancements will
Deputy Secretary. Statutory Basis for, the Proposed Rule ensure more stable liquidity
[FR Doc. 2016–18473 Filed 8–3–16; 8:45 am] Change requirements for instruments across the
BILLING CODE 8011–01–P
ICC proposes revising its risk curve. Further, the enhancements
management framework to incorporate simplify ICC’s liquidity charge
risk model enhancements related to the methodology, which promotes ease of
SECURITIES AND EXCHANGE understanding. As stated above, the
single name credit default swap (‘‘CDS’’)
COMMISSION current risk factor level liquidity
liquidity charge methodology. ICC
[Release No. 34–78448; File No. SR–ICC– believes such revisions will facilitate requirements are based on forward CDS
2016–010] the prompt and accurate clearance and spread levels and are, in general, more
settlement of securities transactions and difficult to replicate due to the inherited
Self-Regulatory Organizations; ICE derivative agreements, contracts, and need for knowledge of spread levels
Clear Credit LLC; Notice of Filing of transactions for which it is responsible. across the entire term structure
Proposed Rule Change To Revise the The proposed revisions are described in (‘‘curve’’). Additionally, to facilitate
ICC Risk Management Model detail as follows. replication of the enhanced liquidity
Description Document and the ICC ICC proposes a revised approach to charge calculations, ICC will provide
Risk Management Framework computing single name CDS liquidity end-of-day data for instruments in
July 29, 2016. charges. Specifically, ICC proposes to which clients have open positions,
Pursuant to Section 19(b)(1) of the introduce minimum instrument allowing for additional transparency
Securities Exchange Act of 1934 liquidity requirements independent of and easier replication for clients who
(‘‘Act’’) 1 and Rule 19b–4 thereunder 2 instrument maturities. ICC’s current wish to estimate liquidity charges for
notice is hereby given that on July 15, approach features instrument liquidity hypothetical and current positions.
2016, ICE Clear Credit LLC (‘‘ICC’’) filed requirements that decay with time to
maturity for fixed credit spread levels. ICC also proposes updating liquidity
with the Securities and Exchange scaling factors to reflect the
Commission (‘‘Commission’’) the The proposed approach introduces
minimum liquidity requirements for methodology enhancements. There is no
proposed rule change as described in price based component under the
Items I, II, and III below, which Items individual instruments, independent of
time to maturity for the considered current methodology. To reflect the
have been prepared primarily by ICC. introduction of a price based
The Commission is publishing this instruments, and thus establishes
minimum liquidity charges that do not component, the liquidity scaling factors
notice to solicit comments on the have been decomposed and adjusted in
decay over time as maturity is
proposed rule change from interested order to maintain the same overall
approached. The revised calculation for
persons.
single name CDS liquidity charges at the composition with both price and spread
I. Self-Regulatory Organization’s instrument level incorporates a price- based components.
Statement of the Terms of Substance of based bid-offer width floor component ICC also proposes minor clarifying
the Proposed Rule Change to provide stability of requirements, as edits to the ICC Risk Management
The principal purpose of the well as a dynamic spread-based BOW Framework and the ICC Risk
proposed rule change is to revise the component to reflect the additional risk Management Model Description
ICC Risk Management Framework to associated with distressed market document. ICC added language to the
incorporate certain risk model conditions. The values of such price- Overview section of the Risk
enhancements. ICC also proposes minor based BOW and spread-based BOW are
Management Framework to identify
clarifying edits to the ICC Risk fixed factors, which are subject to at
which ICC documents provide
Management Model Description least monthly reviews and updates by
additional details regarding ICC’s risk
document and the ICC Risk ICC Risk Management Department with
management approach. ICC added
Management Framework. These consultation with the Risk Committee.
ICC also proposes enhancements to language to the Governance and
revisions do not require any changes to Organization section of the Risk
the liquidity charge calculation at the
the ICC Clearing Rules (‘‘Rules’’). Management Framework to note that the
risk factor level. The current risk factor
II. Self-Regulatory Organization’s level liquidity requirements are based reporting line of ICC’s Chief Risk Officer
Statement of the Purpose of, and on forward CDS spread levels. Under to the Chairperson of the ICC Risk
Statutory Basis for, the Proposed Rule the revised calculation, liquidity Committee, who is also a non-executive
Change charges at the risk factor level are manager on the Board, allows the Chief
computed by first calculating the Risk Officer to bring any issues or
In its filing with the Commission, ICC concerns directly to the Board without
included statements concerning the liquidity requirements for each
individual instrument position in the intermediation by other ICC personnel.
purpose of and basis for the proposed
portfolio, and then summing all ICC also made edits to the Governance
sradovich on DSK3GMQ082PROD with NOTICES

rule change and discussed any
instrument liquidity requirements for and Organization section of the Risk
comments it received on the proposed
positions with the same directionality, Management Framework to revise the
rule change. The text of these statements
i.e., bought or sold protection. The risk list of documents reviewed by the Risk
may be examined at the places specified
factor liquidity requirement is the Committee on at least an annual basis to
22 17 CFR 200.30–3(a)(12). greatest liquidity requirement associated include the ICC End-of-Day Price
1 15 U.S.C. 78s(b)(1). with either the sum of all bought Discovery Policies and Procedures and
2 17 CFR 240.19b–4. protection position liquidity the ICC Operational Risk Management

VerDate Sep<11>2014 18:12 Aug 03, 2016 Jkt 238001 PO 00000 Frm 00103 Fmt 4703 Sfmt 4703 E:\FR\FM\04AUN1.SGM 04AUN1

Federal Register / Vol. 81, No. 150 / Thursday, August 4, 2016 / Notices 51533

Framework.3 Finally, ICC added minor The risk model enhancements and submission, all subsequent
clarifying details to the technical clarifying changes apply uniformly amendments, all written statements
calculation descriptions set forth in the across all market participants. with respect to the proposed rule
ICC Risk Management Model Therefore, ICC does not believe the change that are filed with the
Description document, specifically in proposed rule changes impose any Commission, and all written
the Recovery Rate Sensitivity Risk burden on competition that is communications relating to the
Analysis, Interest Rate Sensitivity Risk inappropriate in furtherance of the proposed rule change between the
Analysis, Spread Risk Analysis, and purposes of the Act. Commission and any person, other than
Guaranty Fund Size Estimation sections. those that may be withheld from the
Section 17A(b)(3)(F) of the Act 4 C. Self-Regulatory Organization’s public in accordance with the
requires, among other things, that the Statement on Comments on the provisions of 5 U.S.C. 552, will be
rules of a clearing agency be designed to Proposed Rule Change Received From available for Web site viewing and
promote the prompt and accurate Members, Participants or Others printing in the Commission’s Public
clearance and settlement of securities Written comments relating to the Reference Room, 100 F Street NE.,
transactions and, to the extent proposed rule change have not been Washington, DC 20549, on official
applicable, derivative agreements, solicited or received. ICC will notify the business days between the hours of
contracts, and transactions and to Commission of any written comments 10:00 a.m. and 3:00 p.m. Copies of such
comply with the provisions of the Act received by ICC. filings will also be available for
and the rules and regulations inspection and copying at the principal
thereunder. ICC believes that the III. Date of Effectiveness of the
office of ICE Clear Credit and on ICE
proposed rule changes are consistent Proposed Rule Change and Timing for
Clear Credit’s Web site at https://
with the requirements of the Act and the Commission Action www.theice.com/clear-credit/regulation.
rules and regulations thereunder Within 45 days of the date of All comments received will be posted
applicable to ICC, in particular, to publication of this notice in the Federal without change; the Commission does
Section 17(A)(b)(3)(F),5 because ICC Register or within such longer period not edit personal identifying
believes that the proposed rule changes up to 90 days (i) as the Commission may information from submissions. You
will promote the prompt and accurate designate if it finds such longer period should submit only information that
clearance and settlement of securities to be appropriate and publishes its you wish to make available publicly. All
transactions, derivatives agreements, reasons for so finding or (ii) as to which submissions should refer to File
contracts, and transactions, as the the self-regulatory organization Number SR–ICC–2016–010 and should
proposed changes provide clarity and consents, the Commission will: be submitted on or before August 25,
enhance risk policies, resulting in (A) by order approve or disapprove 2016.
enhanced stability and conservative bias the proposed rule change or For the Commission, by the Division of
of requirements, and thereby facilitate (B) institute proceedings to determine Trading and Markets, pursuant to delegated
ICC’s ability to promptly and accurately whether the proposed rule change authority.9
clear and settle its cleared CDS should be disapproved. Robert W. Errett,
contracts. In addition, the proposed Deputy Secretary.
IV. Solicitation of Comments
revisions are consistent with the [FR Doc. 2016–18475 Filed 8–3–16; 8:45 am]
relevant requirements of Rule 17Ad– Interested persons are invited to
BILLING CODE 8011–01–P
22.6 In particular, the risk model submit written data, views, and
enhancements proposed in the Risk arguments concerning the foregoing,
Management Model Description including whether the proposed rule
SECURITIES AND EXCHANGE
document will enhance the financial change is consistent with the Act.
COMMISSION
resources available to the clearing house Comments may be submitted by any of
by promoting stability and conservative the following methods: [Release No. 34–78444; File No. SR–BOX–
bias of requirements, and are therefore 2016–37]
Electronic Comments
reasonably designed to meet the margin Self-Regulatory Organizations; BOX
and financial resource requirements of • Use the Commission’s Internet
comment form (http://www.sec.gov/ Options Exchange LLC; Notice of
Rule 17Ad–22(b)(2–3).7 The risk model Filing and Immediate Effectiveness of
enhancements will also result in a more rules/sro.shtml); or
transparent and simplified liquidity • Send an email to rule-comments@ a Proposed Rule Change To Detail
sec.gov. Please include File Number SR– How Complex Orders Will Execute
charge approach, and are therefore Through the Facilitation Auction
consistent with the requirements of Rule ICC–2016–010 on the subject line.
Mechanism
17Ad–22(d)(8).8 Paper Comments
July 29, 2016.
B. Self-Regulatory Organization’s Send paper comments in triplicate to
Pursuant to section 19(b)(1) 1 of the
Statement on Burden on Competition Secretary, Securities and Exchange
Securities Exchange Act of 1934 (the
ICC does not believe the proposed Commission, 100 F Street NE.,
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
rule changes would have any impact, or Washington, DC 20549–1090.
notice is hereby given that on July 26,
impose any burden, on competition. All submissions should refer to File 2016, BOX Options Exchange LLC
Number SR–ICC–2016–010. This file (‘‘BOX’’ or the ‘‘Exchange’’) filed with
number should be included on the
sradovich on DSK3GMQ082PROD with NOTICES

3 Staff has confirmed this statement, corrected to
the Securities and Exchange
conform with the proposed revised Risk subject line if email is used. To help the Commission (the ‘‘Commission’’) the
Management Framework filed with the Commission process and review your
Commission, with ICC via email on July 26, 2016. proposed rule change as described in
4 15 U.S.C. 78q–1(b)(3)(F). comments more efficiently, please use
5 Id. only one method. The Commission will 9 17 CFR 200.30–3(a)(12).
6 17 CFR 240.17Ad–22. post all comments on the Commission’s 1 15 U.S.C. 78s(b)(1).
7 17 CFR 240.17Ad–22(b)(2–3). Internet Web site (http://www.sec.gov/ 2 15 U.S.C. 78a.
8 17 CFR 240.17Ad–22(d)(8). rules/sro.shtml). Copies of the 3 17 CFR 240.19b–4.

VerDate Sep<11>2014 18:12 Aug 03, 2016 Jkt 238001 PO 00000 Frm 00104 Fmt 4703 Sfmt 4703 E:\FR\FM\04AUN1.SGM 04AUN1

Document Created: 2016-08-04 02:53:01
Document Modified: 2016-08-04 02:53:01

Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Notices
FR Citation		81 FR 51532