81 FR 78677 - Self-Regulatory Organizations; ICE Clear Credit LLC; Order Approving 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 216 (November 8, 2016)

Page Range		78677-78678
FR Document		2016-26906
Federal Register, Volume 81 Issue 216 (Tuesday, November 8, 2016)
[Federal Register Volume 81, Number 216 (Tuesday, November 8, 2016)]
[Notices]
[Pages 78677-78678]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-26906]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79220; File No. SR-ICC-2016-010]


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

November 2, 2016

I. Introduction

    On July 15, 2016, ICE Clear Credit LLC (``ICC'') filed with the 
Securities and Exchange Commission (``Commission''), pursuant to 
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ 
and Rule 19b-4 thereunder,\2\ a proposed rule change to revise the ICC 
Risk Management Framework to incorporate changes to the single name 
credit default swap (``CDS'') liquidity charge methodology and make 
additional minor, clarifying changes (SR-ICC-2016-010). The proposed 
rule change was published for comment in the Federal Register on August 
4, 2016.\3\ On September 15, 2016, the Commission extended the time 
period in which to either approve, disapprove, or institute proceedings 
to determine whether to disapprove the proposed rule change to November 
2, 2016.\4\ The Commission did not receive comments on the proposed 
rule change. For the reasons discussed below, the Commission is 
approving the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 34-78448 (July 29, 
2016), 81 FR 51532 (Aug. 4, 2016) (SR-ICC-2016-010).
    \4\ Securities Exchange Act Release No. 34-78846 (Sept. 15, 
2016), 81 FR 64574 (Sept. 20, 2016) (SR-ICC-2016-010).
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II. Description of the Proposed Rule Change

    ICC proposes revising the ICC Risk Management Framework to 
incorporate certain risk model enhancements related to its single name 
CDS liquidity charge methodology. 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.
    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. ICC believes the proposal 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 will incorporate a price-based bid-
offer width (``BOW'') floor component, which ICC asserts will provide 
stability of requirements, as well as a dynamic spread-based BOW 
component, which ICC asserts will reflect the additional risk 
associated with distressed market conditions. The values of such price-
based BOW and spread-based BOW will be fixed factors, which will be 
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. ICC's current risk factor level liquidity 
requirements are based on forward CDS spread levels. Under the revised 
calculation, liquidity charges at the risk factor level will be 
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 will be 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. ICC is not proposing any 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 and simplify ICC's liquidity charge 
methodology, which ICC believes should promote ease of understanding. 
In ICC's view, the current risk factor level liquidity requirements, 
based on forward CDS spread levels, are, in general, more difficult to 
replicate due

[[Page 78678]]

to the need for knowledge of spread levels across the entire term 
structure.
    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 will be decomposed and 
adjusted in order to maintain the same overall composition with both 
price and spread based components.
    ICC has also proposed minor clarifying edits to the ICC Risk 
Management Framework and the ICC Risk Management Model Description 
document. ICC will add 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 will add 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 will also make 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 Framework. Finally, 
ICC will add 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.

III. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act \5\ directs the Commission to 
approve a proposed rule change of a self-regulatory organization if the 
Commission finds that the proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to such self-regulatory organization. Section 17A(b)(3)(F) 
of the Act \6\ requires, among other things, that the rules of a 
clearing agency are 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.
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    \5\ 15 U.S.C. 78s(b)(2)(C).
    \6\ 15 U.S.C. 78q-1(b)(3)(F).
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    The Commission finds that the proposed rule change is consistent 
with the requirements of Section 17A of the Act \7\ and the rules and 
regulations thereunder applicable to ICC. ICC asserts that the proposed 
change will simplify its initial margin methodology and lead to more 
stable initial margin requirements. The Commission believes that ICC's 
proposed revisions to the ICC Risk Management Framework and the ICC 
Risk Model Description Document, including the introduction of minimum 
liquidity requirements for the relevant instruments that do not decay 
over time and therefore are independent of instrument maturities, are 
reasonably designed to meet the margin and financial resource 
requirements of Rule 17Ad-22(b)(2-3).\8\ In addition, the Commission 
believes that the revised methodology should assist market participants 
clearing or deciding whether to clear instruments through ICC to 
estimate liquidity charges for hypothetical and current positions. This 
enhancement in transparency is consistent with Rule 17Ad-22(d)(9),\9\ 
which requires clearing agencies to establish, implement, maintain, and 
enforce policies and procedures reasonably designed to provide market 
participants with sufficient information for them to identify and 
evaluate the risks and costs associated with using its service.
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    \7\ 15 U.S.C. 78q-1.
    \8\ 17 CFR 240.17Ad-22(b)(2-3).
    \9\ 17 CFR 240.17Ad-22(d)(9).
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IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposal is consistent with the requirements of the Act and in 
particular with the requirements of Section 17A of the Act \10\ and the 
rules and regulations thereunder.
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    \10\ 15 U.S.C. 78q-1.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\11\ that the proposed rule change (File No. SR-ICC-2016-010) be, 
and hereby is, approved.\12\
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    \11\ 15 U.S.C. 78s(b)(2).
    \12\ In approving the proposed rule change, the Commission 
considered the proposal's impact on efficiency, competition and 
capital formation. 15 U.S.C. 78c(f).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-26906 Filed 11-7-16; 8:45 am]
BILLING CODE 8011-01-P
Federal Register / Vol. 81, No. 216 / Tuesday, November 8, 2016 / Notices 78677

furtherance of the purposes of the Act. For the Commission, by the Division of document and the ICC Risk
If the Commission takes such action, the Trading and Markets, pursuant to delegated Management Framework. These
Commission shall institute proceedings authority.14 revisions do not require any changes to
to determine whether the proposed rule Brent J. Fields, the ICC Clearing Rules.
should be approved or disapproved. Secretary. Specifically, ICC proposes to
IV. Solicitation of Comments
[FR Doc. 2016–26907 Filed 11–7–16; 8:45 am] introduce minimum instrument
BILLING CODE 8011–01–P liquidity requirements independent of
Interested persons are invited to instrument maturities. ICC’s current
submit written data, views, and approach features instrument liquidity
arguments concerning the foregoing, SECURITIES AND EXCHANGE requirements that decay with time to
including whether the proposed rule COMMISSION maturity for fixed credit spread levels.
change is consistent with the Act. The proposed approach introduces
[Release No. 34–79220; File No. SR–ICC–
Comments may be submitted by any of 2016–010] minimum liquidity requirements for
the following methods: individual instruments, independent of
Electronic Comments Self-Regulatory Organizations; ICE time to maturity for the considered
Clear Credit LLC; Order Approving instruments. ICC believes the proposal
• Use the Commission’s Internet Proposed Rule Change To Revise the thus establishes minimum liquidity
comment form (http://www.sec.gov/ ICC Risk Management Model charges that do not decay over time as
rules/sro.shtml); or Description Document and the ICC maturity is approached. The revised
• Send an email to rule-comments@ Risk Management Framework calculation for single name CDS
sec.gov. Please include File Number SR– liquidity charges at the instrument level
Phlx–2016–107 on the subject line. November 2, 2016
will incorporate a price-based bid-offer
Paper Comments I. Introduction width (‘‘BOW’’) floor component, which
ICC asserts will provide stability of
• Send paper comments in triplicate On July 15, 2016, ICE Clear Credit
requirements, as well as a dynamic
to Brent J. Fields, Secretary, Securities LLC (‘‘ICC’’) filed with the Securities
spread-based BOW component, which
and Exchange Commission, 100 F Street and Exchange Commission
ICC asserts will reflect the additional
NE., Washington, DC 20549–1090. (‘‘Commission’’), pursuant to Section
risk associated with distressed market
All submissions should refer to File 19(b)(1) of the Securities Exchange Act
conditions. The values of such price-
Number SR–Phlx–2016–107. This file of 1934 (‘‘Act’’) 1 and Rule 19b–4
based BOW and spread-based BOW will
number should be included on the thereunder,2 a proposed rule change to
be fixed factors, which will be subject
subject line if email is used. To help the revise the ICC Risk Management
to at least monthly reviews and updates
Commission process and review your Framework to incorporate changes to
by ICC Risk Management Department
comments more efficiently, please use the single name credit default swap
with consultation with the Risk
only one method. The Commission will (‘‘CDS’’) liquidity charge methodology
Committee.
post all comments on the Commission’s and make additional minor, clarifying
changes (SR–ICC–2016–010). The ICC also proposes enhancements to
Internet Web site (http://www.sec.gov/ the liquidity charge calculation at the
rules/sro.shtml). proposed rule change was published for
comment in the Federal Register on risk factor level. ICC’s current risk factor
Copies of the submission, all level liquidity requirements are based
subsequent amendments, all written August 4, 2016.3 On September 15,
2016, the Commission extended the on forward CDS spread levels. Under
statements with respect to the proposed the revised calculation, liquidity
rule change that are filed with the time period in which to either approve,
disapprove, or institute proceedings to charges at the risk factor level will be
Commission, and all written computed by first calculating the
communications relating to the determine whether to disapprove the
proposed rule change to November 2, liquidity requirements for each
proposed rule change between the individual instrument position in the
Commission and any person, other than 2016.4 The Commission did not receive
comments on the proposed rule change. portfolio, and then summing all
those that may be withheld from the instrument liquidity requirements for
public in accordance with the For the reasons discussed below, the
Commission is approving the proposed positions with the same directionality,
provisions of 5 U.S.C. 552, will be i.e. bought or sold protection. The risk
available for Web site viewing and rule change.
factor liquidity requirement will be the
printing in the Commission’s Public II. Description of the Proposed Rule greatest liquidity requirement associated
Reference Room, 100 F Street NE., Change with either the sum of all bought
Washington, DC 20549, on official protection position liquidity
ICC proposes revising the ICC Risk
business days between the hours of requirements, or the sum of all sold
Management Framework to incorporate
10:00 a.m. and 3:00 p.m. Copies of the protection position liquidity
certain risk model enhancements related
filing also will be available for requirements. ICC is not proposing any
to its single name CDS liquidity charge
inspection and copying at the principal changes to the liquidity charge
methodology. ICC also proposes minor
office of the Exchange. All comments calculation at the portfolio level. ICC
clarifying edits to the ICC Risk
received will be posted without change; expects these enhancements will ensure
Management Model Description
the Commission does not edit personal more stable liquidity requirements for
identifying information from instruments across the curve and
mstockstill on DSK3G9T082PROD with NOTICES

14 17 CFR 200.30–3(a)(12).
submissions. You should submit only 1 15 U.S.C. 78s(b)(1). simplify ICC’s liquidity charge
information that you wish to make 2 17 CFR 240.19b–4. methodology, which ICC believes
available publicly. 3 Securities Exchange Act Release No. 34–78448
should promote ease of understanding.
All submissions should refer to File (July 29, 2016), 81 FR 51532 (Aug. 4, 2016) (SR– In ICC’s view, the current risk factor
Number SR–Phlx–2016–107 and should ICC–2016–010).
4 Securities Exchange Act Release No. 34–78846 level liquidity requirements, based on
be submitted on or before November 29, (Sept. 15, 2016), 81 FR 64574 (Sept. 20, 2016) (SR– forward CDS spread levels, are, in
2016. ICC–2016–010). general, more difficult to replicate due

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78678 Federal Register / Vol. 81, No. 216 / Tuesday, November 8, 2016 / Notices

to the need for knowledge of spread that the proposed rule change is proposed rule change (File No. SR–ICC–
levels across the entire term structure. consistent with the requirements of the 2016–010) be, and hereby is,
Additionally, to facilitate replication Act and the rules and regulations approved.12
of the enhanced liquidity charge thereunder applicable to such self- For the Commission, by the Division of
calculations, ICC will provide end-of- regulatory organization. Section Trading and Markets, pursuant to delegated
day data for instruments in which 17A(b)(3)(F) of the Act 6 requires, among authority.13
clients have open positions, allowing for other things, that the rules of a clearing Brent J. Fields,
additional transparency and easier agency are designed to promote the Secretary.
replication for clients who wish to prompt and accurate clearance and [FR Doc. 2016–26906 Filed 11–7–16; 8:45 am]
estimate liquidity charges for settlement of securities transactions
BILLING CODE 8011–01–P
hypothetical and current positions. and, to the extent applicable, derivative
ICC also proposes updating liquidity agreements, contracts, and transactions
scaling factors to reflect the and to comply with the provisions of
methodology enhancements. There is no SECURITIES AND EXCHANGE
the Act and the rules and regulations COMMISSION
price based component under the thereunder.
current methodology. To reflect the The Commission finds that the Sunshine Act Meeting
introduction of a price based proposed rule change is consistent with
component, the liquidity scaling factors the requirements of Section 17A of the Notice is hereby given, pursuant to
will be decomposed and adjusted in Act 7 and the rules and regulations the provisions of the Government in the
order to maintain the same overall thereunder applicable to ICC. ICC Sunshine Act, Public Law 94–409, that
composition with both price and spread asserts that the proposed change will the Securities and Exchange
based components. simplify its initial margin methodology Commission will hold a closed meeting
ICC has also proposed minor and lead to more stable initial margin on Thursday, November 10, 2016, at 2
clarifying edits to the ICC Risk requirements. The Commission believes p.m.
Management Framework and the ICC that ICC’s proposed revisions to the ICC Commissioners, Counsel to the
Risk Management Model Description Risk Management Framework and the Commissioners, the Secretary to the
document. ICC will add language to the ICC Risk Model Description Document, Commission, and recording secretaries
Overview section of the Risk including the introduction of minimum will attend the closed meeting. Certain
Management Framework to identify liquidity requirements for the relevant staff members who have an interest in
which ICC documents provide instruments that do not decay over time
additional details regarding ICC’s risk the matters also may be present.
and therefore are independent of The General Counsel of the
management approach. ICC will add
instrument maturities, are reasonably Commission, or her designee, has
language to the Governance and
designed to meet the margin and certified that, in her opinion, one or
Organization section of the Risk
financial resource requirements of Rule more of the exemptions set forth in 5
Management Framework to note that the
17Ad–22(b)(2–3).8 In addition, the U.S.C. 552b(c)(3), (5), (7), 9(B) and (10)
reporting line of ICC’s Chief Risk Officer
Commission believes that the revised and 17 CFR 200.402(a)(3), (a)(5), (a)(7),
to the Chairperson of the ICC Risk
methodology should assist market (a)(9)(ii), and (a)(10), permit
Committee, who is also a non-executive
participants clearing or deciding consideration of the scheduled matter at
manager on the Board, allows the Chief
whether to clear instruments through the closed meeting.
Risk Officer to bring any issues or
ICC to estimate liquidity charges for Chair White, as duty officer, voted to
concerns directly to the Board without
hypothetical and current positions. This consider the items listed for the closed
intermediation by other ICC personnel.
enhancement in transparency is meeting in closed session.
ICC will also make edits to the
consistent with Rule 17Ad–22(d)(9),9
Governance and Organization section of The subject matter of the closed
which requires clearing agencies to
the Risk Management Framework to meeting will be:
establish, implement, maintain, and
revise the list of documents reviewed by Institution and settlement of
enforce policies and procedures
the Risk Committee on at least an administrative proceedings; and
reasonably designed to provide market
annual basis to include the ICC End-of- Other matters relating to enforcement
participants with sufficient information
Day Price Discovery Policies and proceedings.
for them to identify and evaluate the
Procedures and the ICC Operational
risks and costs associated with using its At times, changes in Commission
Risk Management Framework. Finally,
service. priorities require alterations in the
ICC will add minor clarifying details to
scheduling of meeting items.
the technical calculation descriptions IV. Conclusion
set forth in the ICC Risk Management For further information and to
On the basis of the foregoing, the ascertain what, if any, matters have been
Model Description document, Commission finds that the proposal is
specifically in the Recovery Rate added, deleted or postponed, please
consistent with the requirements of the contact Brent J. Fields from the Office of
Sensitivity Risk Analysis, Interest Rate Act and in particular with the
Sensitivity Risk Analysis, Spread Risk the Secretary at (202) 551–5400.
requirements of Section 17A of the
Analysis, and Guaranty Fund Size Act 10 and the rules and regulations Dated: November 3, 2016.
Estimation sections. thereunder. Brent J. Fields,
III. Discussion and Commission It is therefore ordered, pursuant to Secretary.
mstockstill on DSK3G9T082PROD with NOTICES

Findings Section 19(b)(2) of the Act,11 that the [FR Doc. 2016–27029 Filed 11–4–16; 11:15 am]
BILLING CODE 8011–01–P
Section 19(b)(2)(C) of the Act 5 directs 6 15 U.S.C. 78q–1(b)(3)(F).
the Commission to approve a proposed 7 15 U.S.C. 78q–1.
12 In approving the proposed rule change, the
rule change of a self-regulatory 8 17 CFR 240.17Ad–22(b)(2–3).
Commission considered the proposal’s impact on
organization if the Commission finds 9 17 CFR 240.17Ad–22(d)(9).
efficiency, competition and capital formation. 15
10 15 U.S.C. 78q–1. U.S.C. 78c(f).
5 15 U.S.C. 78s(b)(2)(C). 11 15 U.S.C. 78s(b)(2). 13 17 CFR 200.30–3(a)(12).

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Document Created: 2018-02-14 08:23:35
Document Modified: 2018-02-14 08:23:35
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 78677