83 FR 62638 - Self-Regulatory Organizations; ICE Clear Europe Limited; Notice of Filing of Proposed Rule Change Relating to Amendments to the ICE Clear Europe CDS Risk Policy (the “CDS Risk Policy”), CDS Clearing Back-Testing Policy (the “Back-Testing Policy”) and CDS Stress-Testing Policy (the “Stress-Testing Policy”) (Collectively, the “CDS Policies”)

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 233 (December 4, 2018)

Page Range		62638-62641
FR Document		2018-26266
Federal Register, Volume 83 Issue 233 (Tuesday, December 4, 2018)
[Federal Register Volume 83, Number 233 (Tuesday, December 4, 2018)]
[Notices]
[Pages 62638-62641]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-26266]



[[Page 62638]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84667; File No. SR-ICEEU-2018-010]


Self-Regulatory Organizations; ICE Clear Europe Limited; Notice 
of Filing of Proposed Rule Change Relating to Amendments to the ICE 
Clear Europe CDS Risk Policy (the ``CDS Risk Policy''), CDS Clearing 
Back-Testing Policy (the ``Back-Testing Policy'') and CDS Stress-
Testing Policy (the ``Stress-Testing Policy'') (Collectively, the ``CDS 
Policies'')

November 28, 2018.
    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 November 13, 2018, ICE Clear Europe Limited (``ICE Clear Europe'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule changes described in Items I, II, and III below, which 
Items have been prepared by ICE Clear Europe. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    ICE Clear Europe proposes to modify and update certain provisions 
of its risk policies related to CDS Contracts.

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

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

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

(a) Purpose
    ICE Clear Europe proposes to modify and update certain provisions 
of its risk policies related to CDS Contracts.
CDS Risk Policy
    The proposed amendments to the CDS Risk Policy incorporate an 
overall Board risk appetite and limit framework, on terms consistent 
with other existing Clearing House policies, including the existing 
Stress-Testing Policy. The framework contemplates use of Board-level 
risk appetite statements, risk appetite metrics and management risk 
limits, and is subject to review at least annually.
    The proposed amendments specifically address periodic reviews of 
margin requirements and the related margin methodology and parameters. 
Under the revised policy, the clearing risk department is required to 
perform such a review at least monthly, consistent with applicable 
legal requirements. The results of the monthly review will be presented 
by the head of first line clearing risk to the Clearing House's Model 
Oversight Committee (``MOC''). The head of first line clearing risk 
reports to the President of ICE Clear Europe and manages ICE Clear 
Europe's first line clearing risk team including default management, 
liquidity risk, market risk and counterparty risk. At the end of each 
quarter, the clearing risk department will share its monthly reviews 
from the quarter with the Risk Oversight Department (``ROD''), which 
performs a second-line review. The head of second line clearing risk 
then will present the results of this quarterly review to the MOC. The 
head of second line clearing risk is the Chief Risk Officer and reports 
to the President and the senior independent director of ICE Clear 
Europe. The amendments also clarify that proposed margin methodology 
changes resulting from the review process are presented by the clearing 
risk department to the Board for approval.
    The amendments specify in further detail the timing of back-testing 
and stress-testing. Consistent with applicable law, these amendments 
require that: (a) ICE Clear Europe's clearing risk department conduct 
back-testing at least once each day using standard predetermined 
parameters and assumptions; and (b) ICE Clear Europe conducts 
sensitivity analyses of its margin models and review parameters and 
assumptions for back-testing on at least a monthly basis, and more 
frequently than monthly when the relevant products cleared or markets 
served display high volatility or become less liquid or when the size 
or concentration of positions held by Clearing Members increases or 
decreases significantly.
    With respect to stress testing, the amendments require that the 
clearing risk department conduct stress-testing at least once each day 
using standard predetermined parameters and assumptions, which are 
reviewed on at least a monthly basis and more frequently when the 
relevant products cleared or markets served display high volatility or 
become less liquid or when the size or concentration of positions held 
by Clearing Members increases or decreases significantly.
    The proposed amendments also update certain details regarding 
policy governance and reporting. The amendments specify that the models 
used to support the policy objectives of the policy are subject to an 
annual independent validation and governance oversight which may be 
performed by an independent member of the ROD or an external validator. 
The CDS Risk Policy owner, who is the CDS Risk Director and part of the 
clearing risk department, is responsible for ensuring that the policy 
remains up-to-date and is reviewed, with the support of the ROD. The 
amendments further specify the role of the clearing risk department and 
ROD with respect to policy adherence and the role of the Risk Working 
Group (``RWG'') (which consists of risk personnel of Clearing Members, 
and provides guidance on risk management matters, including review of 
margin and stress testing parameters), Trading Advisory Committee 
(``TAC'') (which advises on pricing processes) and MOC (which is 
responsible for overall model risk management of the Clearing House, 
and for oversight of the periodic reviews described above, as discussed 
further below). The policy includes further detail as to the 
composition and role of the RWG and MOC. The amendments also address 
escalation and reporting of any deviations from the policy, as well as 
compliance with regulatory reporting and filing requirements.
    Certain changes have also been made to update references to various 
committees and departments of ICE Clear Europe, to correct 
typographical and similar errors, to update cross-references, and to 
remove an unnecessary reference to ICE Clear Credit.
Back-Testing Policy
    The proposed amendments to the Back-Testing Policy include the risk 
appetite and limit framework also proposed to be included in the CDS 
Risk Policy, as discussed above. The amendments also include the same 
additional provisions relating to the timing of back-testing and 
related sensitivity analysis discussed above in the context of the CDS 
Risk Policy. In addition, the amendments clarify the meaning of certain 
confidence levels

[[Page 62639]]

used in the back-testing process, as levels representing the confidence 
to which models are expected to perform. The amendments also remove a 
reference to the 99% quantile used before EMIR implementation. In the 
guidelines relating to remediation of poor back-testing, the amendments 
state explicitly that portfolio back-testing is done using a confidence 
level of 99.5% or higher.
    As with the amendments to the CDS Risk Policy, the amendments 
update the provisions regarding policy governance and reporting. The 
Back-Testing Policy specifies that the models used to support the 
objectives of the policy are subject to an annual independent 
validation and governance oversight which may be performed by an 
independent member of the ROD or an external validator. The Back-
Testing Policy owner, who is the CDS Risk Director and part of the 
clearing risk department, is responsible for ensuring that it remains 
up-to-date and is reviewed, with the support of the ROD. The clearing 
risk department, with the support of the ROD, is responsible for 
adherence to the policy and relevant appetite metrics. The amendments 
also address escalation and reporting of any deviations from the 
policy, as well as compliance with regulatory reporting and filing 
requirements.
    Various other changes have also been made to update references to 
various committees and departments of ICE Clear Europe, to correct 
typographical and similar errors and to update cross-references.
Stress-Testing Policy
    The Stress-Testing Policy is being amended to include the same 
provisions relating to the timing of stress testing discussed above in 
the context of the CDS Risk Policy. Other changes to the Stress-Testing 
Policy are made to reflect the role of the Board Risk Committee, in 
addition to the CDS Risk Committee, in reviewing and overseeing stress-
testing, in order to ensure that both committees are sufficiently 
informed to advise the Board on the safety and soundness of the risk 
management approach and to provide a mechanism for management and the 
committees to test the level of protection offered in potential 
scenarios they believe are plausible.
(b) Statutory Basis
    ICE Clear Europe believes that the changes described herein are 
consistent with the requirements of Section 17A of the Act \3\ and the 
regulations thereunder applicable to it. Section 17A(b)(3)(F) of the 
Act \4\ in particular requires, among other things, that the rules of 
the 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 the 
protection of investors, and, in general, protect investors and the 
public interest. The proposed amendments are designed to modify key CDS 
risk management policies to state more clearly certain risk management 
requirements for CDS Contracts, including the timing of periodic review 
of margin requirements and related risk parameters, stress-testing and 
back-testing. The amendments also adopt various enhancements to the 
review and governance processes for those policies. In ICE Clear 
Europe's view, the amendments will enhance overall risk management of 
the Clearing House, and thereby promote the prompt and accurate 
clearance of transactions and further the public interest in sound 
operation of clearing agencies, within the meaning of Section 
17A(b)(3)(F).\5\ The amendments are not intended to effect, and are 
thus consistent with, the Clearing House's existing provisions relating 
to the safeguarding of funds and securities in the custody or control 
of the Clearing House or for which it is responsible, within the 
meaning of that section.
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    \3\ 15 U.S.C. 78q-1.
    \4\ 15 U.S.C. 78q-1(b)(3)(F).
    \5\ 15 U.S.C. 78q-1(b)(3)(F).
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    ICE Clear Europe also believes that the amendments are consistent 
with specific requirements of Rule 17Ad-22.\6\ Rules 17Ad-
22(e)(4)(vi)(A) \7\ and (e)(6)(vi)(A) \8\ require clearing agencies to 
implement reasonably designed policies and procedures to conduct 
stress-testing of their total financial resources and back-testing of 
their margin model at least once each day using standard predetermined 
parameters and assumptions. In compliance with these requirements, 
proposed amendments to the CDS Policies specify that ICE Clear Europe 
must conduct stress-testing of its total financial resources and back-
testing of its margin model at least once each day using all standard 
predetermined parameters and assumptions.
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    \6\ 17 CFR 240.17Ad-22.
    \7\ 17 CFR 240.17Ad-22(e)(4)(vi)(A). The rule states that 
``[e]ach covered clearing agency shall establish, implement, 
maintain and enforce written policies and procedures reasonably 
designed to, as applicable:
    (4) Effectively identify, measure, monitor, and manage its 
credit exposures to participants and those arising from its payment, 
clearing, and settlement processes, including by:
    (vi) Testing the sufficiency of its total financial resources 
available to meet the minimum financial resource requirements under 
paragraphs (e)(4)(i) through (iii) of this section, as applicable, 
by:
    A. Conducting stress testing of its total financial resources 
once each day using standard predetermined parameters and 
assumptions''.
    \8\ 17 CFR 240.17Ad-22(e)(6)(vi)(A). The rule states that 
``[e]ach covered clearing agency shall establish, implement, 
maintain and enforce written policies and procedures reasonably 
designed to, as applicable:
    (6) Cover, if the covered clearing agency provides central 
counterparty services, its credit exposures to its participants by 
establishing a risk-based margin system that, at a minimum:
    (vi) Is monitored by management on an ongoing basis and is 
regularly reviewed, tested, and verified by:
    A. Conducting backtests of its margin model at least once each 
day using standard predetermined parameters and assumptions''.
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    Pursuant to Rule 17Ad-22(b)(2),\9\ clearing agencies must have 
policies and procedures reasonably designed to review their margin 
models and parameters at least monthly. The proposed amendments to the 
CDS Risk Policy are consistent with this requirement. Rules 17Ad-
22(e)(4)(vi)(B) \10\ and 17Ad-22(e)(6)(vi)(B) \11\ also require a 
clearing

[[Page 62640]]

agency to have policies and procedures reasonably designed to review 
its stress-testing scenarios, models, and underlying parameters and 
assumptions, and its parameters and assumptions for back-testing its 
margin model. The proposed amendments to the CDS Risk Policy, CDS Back-
Testing Policy and CDS Stress Testing Policy, as discussed above, are 
consistent with these requirements, as they provide that reviews of the 
margin requirements and the parameters and assumptions relating to 
margin models, stress-testing and back-testing must be performed on at 
least a monthly basis. As a result, ICE Clear Europe believes that 
these amendments to the CDS Policies are in compliance with Rules 17Ad-
22(b)(2),\12\ 17Ad-22(e)(4)(vi)(B) \13\ and 17Ad-22(e)(6)(vi)(B).\14\
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    \9\ 17 CFR 240.17Ad-22(b)(2). The rule states that ``[a] 
registered clearing agency that performs central counterparty 
services shall establish, implement, maintain and enforce written 
policies and procedures reasonably designed to:
    (2) Use margin requirements to limit its credit exposures to 
participants under normal market conditions and use risk-based 
models and parameters to set margin requirements and review such 
margin requirements and the related risk-based models and parameters 
at least monthly.''
    \10\ 17 CFR 240.17Ad-22(e)(4)(vi)(B). The rule states that 
``[e]ach covered clearing agency shall establish, implement, 
maintain and enforce written policies and procedures reasonably 
designed to, as applicable:
    (4) Effectively identify, measure, monitor, and manage its 
credit exposures to participants and those arising from its payment, 
clearing, and settlement processes, including by:
    (iv) Testing the sufficiency of its total financial resources 
available to meet the minimum financial resource requirements under 
paragraphs (e)(4)(i) through (iii) of this section, as applicable, 
by:
    B. Conducting a comprehensive analysis on at least a monthly 
basis of the existing stress-testing scenarios, models, and 
underlying parameters and assumptions, and considering modifications 
to ensure they are appropriate for determining the covered clearing 
agency's required level of default protection in light of current 
and evolving market conditions''.
    \11\ 17 CFR 240.17Ad-22(e)(6)(vi)(B). The rule states that 
``[e]ach covered clearing agency shall establish, implement, 
maintain and enforce written policies and procedures reasonably 
designed to, as applicable:
    (6) Cover, if the covered clearing agency provides central 
counterparty services, its credit exposures to its participants by 
establishing a risk-based margin system that, at a minimum:
    (vi) Is monitored by management on an ongoing basis and is 
regularly reviewed, tested, and verified by:
    B. Conducting a sensitivity analysis of its margin model and a 
review of its parameters and assumptions for backtesting on at least 
a monthly basis, and considering modifications to ensure the 
backtesting practices are appropriate for determining the adequacy 
of the covered clearing agency's margin resources''.
    \12\ 17 CFR 240.17Ad-22(b)(2).
    \13\ 17 CFR 240.17Ad-22(e)(4)(vi)(B).
    \14\ 17 CFR 240.17Ad-22(e)(6)(vi)(B).
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    Rules 17Ad-22(e)(4)(vi)(C) \15\ and 17Ad-22(e)(6)(vi)(C) \16\ 
require clearing agencies to review parameters and assumptions more 
frequently than monthly when the products cleared or markets served 
display high volatility or become less liquid or when the size or 
concentration of positions held by their participants increases 
significantly. In compliance with this requirement, the proposed 
amendments to the CDS Policies specifically require that reviews of 
parameters and assumptions underlying margin models, stress-testing and 
back-testing must be performed more frequently when the relevant 
products display high volatility or become less liquid or when the size 
or concentration of positions held by Clearing Members increases or 
decreases significantly. Further, Rules 17Ad-22(e)(4)(vi)(D) \17\ and 
17Ad-22(e)(6)(vi)(D) \18\ require clearing agencies to report the 
results of the reviews conducted pursuant to Rules 17Ad-22(e)(4)(vi)(B) 
and (C) \19\ as well as 17Ad-22(e)(6)(vi)(B) and (C) \20\ to 
appropriate decision makers, including but not limited to the board or 
the risk management committee. In compliance with this requirement, as 
noted above, at the end of each quarter, the clearing risk department 
shares its monthly reviews for that quarter with the ROD which performs 
a second-line review and the head of second line clearing risk presents 
the results of its review to the MOC.
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    \15\ 17 CFR 240.17Ad-22(e)(4)(vi)(C). The rule states that 
``[e]ach covered clearing agency shall establish, implement, 
maintain and enforce written policies and procedures reasonably 
designed to, as applicable:
    (4) Effectively identify, measure, monitor, and manage its 
credit exposures to participants and those arising from its payment, 
clearing, and settlement processes, including by:
    (vi) Testing the sufficiency of its total financial resources 
available to meet the minimum financial resource requirements under 
paragraphs (e)(4)(i) through (iii) of this section, as applicable, 
by:
    C. Conducting a comprehensive analysis of stress testing 
scenarios, models, and underlying parameters and assumptions more 
frequently than monthly when the products cleared or markets served 
display high volatility or become less liquid, or when the size or 
concentration of positions held by the covered clearing agency's 
participants increases significantly''.
    \16\ 17 CFR 240.17Ad-22(e)(6)(vi)(C). The rule states that 
``[e]ach covered clearing agency shall establish, implement, 
maintain and enforce written policies and procedures reasonably 
designed to, as applicable: (6) Cover, if the covered clearing 
agency provides central counterparty services, its credit exposures 
to its participants by establishing a risk-based margin system that, 
at a minimum:
    (vi) Is monitored by management on an ongoing basis and is 
regularly reviewed, tested, and verified by:
    C. Conducting a sensitivity analysis of its margin model and a 
review of its parameters and assumptions for backtesting more 
frequently than monthly during periods of time when the products 
cleared or markets served display high volatility or become less 
liquid, or when the size or concentration of positions held by the 
covered clearing agency's participants increases or decreases 
significantly''.
    \17\ 17 CFR 240.17Ad-22(e)(4)(vi)(D). The rule states that 
``[e]ach covered clearing agency shall establish, implement, 
maintain and enforce written policies and procedures reasonably 
designed to, as applicable: (4) Effectively identify, measure, 
monitor, and manage its credit exposures to participants and those 
arising from its payment, clearing, and settlement processes, 
including by:
    (vi) Testing the sufficiency of its total financial resources 
available to meet the minimum financial resource requirements under 
paragraphs (e)(4)(i) through (iii) of this section, as applicable, 
by:
    D. Reporting the results of its analyses under paragraphs 
(e)(4)(vi)(B) and (C) of this section to appropriate decision makers 
at the covered clearing agency, including but not limited to, its 
risk management committee or board of directors, and using these 
results to evaluate the adequacy of and adjust its margin 
methodology, model parameters, models used to generate clearing or 
guaranty fund requirements, and any other relevant aspects of its 
credit risk management framework, in supporting compliance with the 
minimum financial resources requirements set forth in paragraphs 
(e)(4)(i) through (iii) of this section ''.
    \18\ 17 CFR 240.17Ad-22(e)(6)(vi)(D). The rule states that 
``[e]ach covered clearing agency shall establish, implement, 
maintain and enforce written policies and procedures reasonably 
designed to, as applicable: (6) Cover, if the covered clearing 
agency provides central counterparty services, its credit exposures 
to its participants by establishing a risk-based margin system that, 
at a minimum:
    (vi) Is monitored by management on an ongoing basis and is 
regularly reviewed, tested, and verified by:
    D. Reporting the results of its analyses under paragraphs 
(e)(6)(vi)(B) and (C) of this section to appropriate decision makers 
at the covered clearing agency, including but not limited to, its 
risk management committee or board of directors, and using these 
results to evaluate the adequacy of and adjust its margin 
methodology, model parameters, and any other relevant aspects of its 
credit risk management framework''.
    \19\ 17 CFR 240.17Ad-22(e)(4)(vi)(B) and (C).
    \20\ 17 CFR 240.17Ad-22(e)(6)(vi)(B) and (C).
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    Rule 17Ad-22(b)(4) \21\ requires clearing agencies to perform an 
annual model validation, including a performance evaluation, of their 
margin models and the related parameters and assumptions. Rules 17Ad-
22(e)(4)(vii) \22\ and 17Ad-22(e)(6)(vii),\23\ also require clearing 
agencies to have policies and procedures in place to ensure the 
performance of a model validation of their credit risk models, margin 
system, and related models not less than annually. In compliance with 
these requirements, proposed amendments to the CDS Policies 
specifically state that the models used to support their objectives are 
subject to a validation that shall be performed on an annual basis by a 
member of the ROD or an external validator.
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    \21\ 17 CFR 240.17Ad-22(b)(4). The rule states that ``[a] 
registered clearing agency that performs central counterparty 
services shall establish, implement, maintain and enforce written 
policies and procedures reasonably designed to:
    (4) Provide for an annual model validation consisting of 
evaluating the performance of the clearing agency's margin models 
and the related parameters and assumptions associated with such 
models by a qualified person who is free from influence from the 
persons responsible for the development or operation of the models 
being validated''.
    \22\ 17 CFR 240.17Ad-22(e)(4)(vii). The rule states that 
``[e]ach covered clearing agency shall establish, implement, 
maintain and enforce written policies and procedures reasonably 
designed to, as applicable:
    (4) Effectively identify, measure, monitor, and manage its 
credit exposures to participants and those arising from its payment, 
clearing, and settlement processes, including by:
    (vii) Performing a model validation for its credit risk models 
not less than annually or more frequently as may be contemplated by 
the covered clearing agency's risk management framework established 
pursuant to paragraph (e)(3) of this section.''
    \23\ 17 CFR 240.17Ad-22(e)(6)(vii). The rule states that 
``[e]ach covered clearing agency shall establish, implement, 
maintain and enforce written policies and procedures reasonably 
designed to, as applicable: (6) Cover, if the covered clearing 
agency provides central counterparty services, its credit exposures 
to its participants by establishing a risk-based margin system that, 
at a minimum:
    (vii) Requires a model validation for the covered clearing 
agency's margin system and related models to be performed not less 
than annually, or more frequently as may be contemplated by the 
covered clearing agency's risk management framework established 
pursuant to paragraph (e)(3) of this section''.
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    Rule 17Ad-22(e)(2) \24\ requires clearing agencies to establish 
reasonably

[[Page 62641]]

designed policies and procedures to provide for governance arrangements 
that are clear and transparent and specify clear and direct lines of 
responsibility. To facilitate compliance with this requirement, the 
proposed amendments to the CDS Policies more clearly define the roles 
and responsibilities of the MOC, the RWG and the TAC and other 
personnel with respect to ongoing review of the margin methodology, 
stress testing and back-testing.
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    \24\ 17 CFR 240.17 Ad-22(e)(2). The rule states that ``[e]ach 
covered clearing agency shall establish, implement, maintain and 
enforce written policies and procedures reasonably designed to, as 
applicable:
    (2) Provide for governance arrangements that:
    (i) Are clear and transparent
    (ii) Clearly prioritize the safety and efficiency of the covered 
clearing agency;
    (iii) Support the public interest requirements in Section 17A of 
the Act (15 U.S.C. 78q-1) applicable to clearing agencies, and the 
objectives of owners and participants;
    (iv) Establish that the board of directors and senior management 
have appropriate experience and skills to discharge their duties and 
responsibilities;
    (v) Specify clear and direct lines of responsibility; and
    (vi) Consider the interests of participants' customers, 
securities issuers and holders, and other relevant stakeholders of 
the covered clearing agency''.
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(B) Clearing Agency's Statement on Burden on Competition

    ICE Clear Europe does not believe the proposed rule changes would 
have any impact, or impose any burden, on competition not necessary or 
appropriate in furtherance of the purpose of the Act. The amendments to 
the CDS Policies apply to all CDS Contracts and are intended to 
strengthen risk management relating to these products. ICE Clear Europe 
does not believe the amendments will have any direct effect on Clearing 
Members, other market participants or the market for cleared products 
generally. As a result, ICE Clear Europe does not believe the 
amendments will materially affect the cost of, or access to, clearing. 
To the extent the amendments may have an impact on margin levels, ICE 
Clear Europe believes such changes will be appropriate in furtherance 
of the risk management of the Clearing House. Therefore, ICE Clear 
Europe does not believe the proposed rule changes impose any burden on 
competition that is inappropriate in furtherance of the purposes of the 
Act.

(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants or Others

    Written comments relating to the proposed rule changes have not 
been solicited or received. ICE Clear Europe will notify the Commission 
of any written comments received by ICE Clear Europe.

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 [email protected]. Please include 
File Number SR-ICEEU-2018-010 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-ICEEU-2018-010. 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 website (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 website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of such filings will also be available for inspection 
and copying at the principal office of ICE Clear Europe and on ICE 
Clear Europe's website at https://www.theice.com/clear-europe/regulation. All comments received will be posted without change. 
Persons submitting comments are cautioned that we do not redact or edit 
personal identifying information from comment submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-ICEEU-2018-010 and should be 
submitted on or before December 26, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-26266 Filed 12-3-18; 8:45 am]
 BILLING CODE 8011-01-P
Federal Register / Vol. 83, No. 233 / Tuesday, December 4, 2018 / Notices 62639

used in the back-testing process, as the Act 4 in particular requires, among to implement reasonably designed
levels representing the confidence to other things, that the rules of the policies and procedures to conduct
which models are expected to perform. clearing agency be designed to promote stress-testing of their total financial
The amendments also remove a the prompt and accurate clearance and resources and back-testing of their
reference to the 99% quantile used settlement of securities transactions margin model at least once each day
before EMIR implementation. In the and, to the extent applicable, derivative using standard predetermined
guidelines relating to remediation of agreements, contracts and transactions, parameters and assumptions. In
poor back-testing, the amendments state to assure the safeguarding of securities compliance with these requirements,
explicitly that portfolio back-testing is and funds in the custody or control of proposed amendments to the CDS
done using a confidence level of 99.5% the clearing agency or for which it is Policies specify that ICE Clear Europe
or higher. responsible and the protection of must conduct stress-testing of its total
As with the amendments to the CDS investors, and, in general, protect financial resources and back-testing of
Risk Policy, the amendments update the investors and the public interest. The its margin model at least once each day
provisions regarding policy governance proposed amendments are designed to using all standard predetermined
and reporting. The Back-Testing Policy modify key CDS risk management parameters and assumptions.
specifies that the models used to policies to state more clearly certain risk Pursuant to Rule 17Ad–22(b)(2),9
support the objectives of the policy are management requirements for CDS
clearing agencies must have policies
subject to an annual independent Contracts, including the timing of
and procedures reasonably designed to
validation and governance oversight periodic review of margin requirements
which may be performed by an review their margin models and
and related risk parameters, stress-
independent member of the ROD or an parameters at least monthly. The
testing and back-testing. The
external validator. The Back-Testing proposed amendments to the CDS Risk
amendments also adopt various
Policy owner, who is the CDS Risk Policy are consistent with this
enhancements to the review and
Director and part of the clearing risk requirement. Rules 17Ad–
governance processes for those policies.
department, is responsible for ensuring 22(e)(4)(vi)(B) 10 and 17Ad–
In ICE Clear Europe’s view, the
that it remains up-to-date and is 22(e)(6)(vi)(B) 11 also require a clearing
amendments will enhance overall risk
reviewed, with the support of the ROD. management of the Clearing House, and (vi) Is monitored by management on an ongoing
The clearing risk department, with the thereby promote the prompt and basis and is regularly reviewed, tested, and verified
support of the ROD, is responsible for accurate clearance of transactions and by:
adherence to the policy and relevant further the public interest in sound A. Conducting backtests of its margin model at
appetite metrics. The amendments also operation of clearing agencies, within least once each day using standard predetermined
parameters and assumptions’’.
address escalation and reporting of any the meaning of Section 17A(b)(3)(F).5 9 17 CFR 240.17Ad–22(b)(2). The rule states that
deviations from the policy, as well as The amendments are not intended to ‘‘[a] registered clearing agency that performs central
compliance with regulatory reporting effect, and are thus consistent with, the counterparty services shall establish, implement,
and filing requirements. Clearing House’s existing provisions maintain and enforce written policies and
Various other changes have also been relating to the safeguarding of funds and procedures reasonably designed to:
securities in the custody or control of (2) Use margin requirements to limit its credit
made to update references to various exposures to participants under normal market
committees and departments of ICE the Clearing House or for which it is conditions and use risk-based models and
Clear Europe, to correct typographical responsible, within the meaning of that parameters to set margin requirements and review
and similar errors and to update cross- section. such margin requirements and the related risk-
ICE Clear Europe also believes that based models and parameters at least monthly.’’
references. 10 17 CFR 240.17Ad–22(e)(4)(vi)(B). The rule
the amendments are consistent with
Stress-Testing Policy specific requirements of Rule 17Ad–22.6
states that ‘‘[e]ach covered clearing agency shall
establish, implement, maintain and enforce written
The Stress-Testing Policy is being Rules 17Ad–22(e)(4)(vi)(A) 7 and policies and procedures reasonably designed to, as
amended to include the same provisions (e)(6)(vi)(A) 8 require clearing agencies applicable:
relating to the timing of stress testing (4) Effectively identify, measure, monitor, and
manage its credit exposures to participants and
discussed above in the context of the 4 15 U.S.C. 78q–1(b)(3)(F).
those arising from its payment, clearing, and
5 15 U.S.C. 78q–1(b)(3)(F).
CDS Risk Policy. Other changes to the settlement processes, including by:
6 17 CFR 240.17Ad–22.
Stress-Testing Policy are made to reflect 7 17 CFR 240.17Ad–22(e)(4)(vi)(A). The rule states (iv) Testing the sufficiency of its total financial
the role of the Board Risk Committee, in that ‘‘[e]ach covered clearing agency shall establish,
resources available to meet the minimum financial
addition to the CDS Risk Committee, in implement, maintain and enforce written policies resource requirements under paragraphs (e)(4)(i)
through (iii) of this section, as applicable, by:
reviewing and overseeing stress-testing, and procedures reasonably designed to, as
B. Conducting a comprehensive analysis on at
applicable:
in order to ensure that both committees least a monthly basis of the existing stress-testing
(4) Effectively identify, measure, monitor, and
are sufficiently informed to advise the manage its credit exposures to participants and scenarios, models, and underlying parameters and
Board on the safety and soundness of those arising from its payment, clearing, and assumptions, and considering modifications to
ensure they are appropriate for determining the
the risk management approach and to settlement processes, including by:
covered clearing agency’s required level of default
provide a mechanism for management (vi) Testing the sufficiency of its total financial
resources available to meet the minimum financial protection in light of current and evolving market
and the committees to test the level of resource requirements under paragraphs (e)(4)(i) conditions’’.
protection offered in potential scenarios through (iii) of this section, as applicable, by: 11 17 CFR 240.17Ad–22(e)(6)(vi)(B). The rule

they believe are plausible. A. Conducting stress testing of its total financial states that ‘‘[e]ach covered clearing agency shall
resources once each day using standard establish, implement, maintain and enforce written
(b) Statutory Basis predetermined parameters and assumptions’’. policies and procedures reasonably designed to, as
8 17 CFR 240.17Ad–22(e)(6)(vi)(A). The rule states applicable:
ICE Clear Europe believes that the that ‘‘[e]ach covered clearing agency shall establish, (6) Cover, if the covered clearing agency provides
changes described herein are consistent implement, maintain and enforce written policies central counterparty services, its credit exposures to
with the requirements of Section 17A of and procedures reasonably designed to, as its participants by establishing a risk-based margin
applicable: system that, at a minimum:
the Act 3 and the regulations thereunder
(6) Cover, if the covered clearing agency provides (vi) Is monitored by management on an ongoing
applicable to it. Section 17A(b)(3)(F) of central counterparty services, its credit exposures to basis and is regularly reviewed, tested, and verified
its participants by establishing a risk-based margin by:
3 15 U.S.C. 78q–1. system that, at a minimum: Continued

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62640 Federal Register / Vol. 83, No. 233 / Tuesday, December 4, 2018 / Notices

agency to have policies and procedures markets served display high volatility or which performs a second-line review
reasonably designed to review its stress- become less liquid or when the size or and the head of second line clearing risk
testing scenarios, models, and concentration of positions held by their presents the results of its review to the
underlying parameters and participants increases significantly. In MOC.
assumptions, and its parameters and compliance with this requirement, the Rule 17Ad–22(b)(4) 21 requires
assumptions for back-testing its margin proposed amendments to the CDS clearing agencies to perform an annual
model. The proposed amendments to Policies specifically require that reviews model validation, including a
the CDS Risk Policy, CDS Back-Testing of parameters and assumptions performance evaluation, of their margin
Policy and CDS Stress Testing Policy, as underlying margin models, stress-testing models and the related parameters and
discussed above, are consistent with and back-testing must be performed assumptions. Rules 17Ad–22(e)(4)(vii) 22
these requirements, as they provide that more frequently when the relevant and 17Ad–22(e)(6)(vii),23 also require
reviews of the margin requirements and products display high volatility or clearing agencies to have policies and
the parameters and assumptions relating become less liquid or when the size or procedures in place to ensure the
to margin models, stress-testing and concentration of positions held by performance of a model validation of
back-testing must be performed on at Clearing Members increases or their credit risk models, margin system,
least a monthly basis. As a result, ICE decreases significantly. Further, Rules and related models not less than
Clear Europe believes that these 17Ad–22(e)(4)(vi)(D) 17 and 17Ad– annually. In compliance with these
amendments to the CDS Policies are in 22(e)(6)(vi)(D) 18 require clearing requirements, proposed amendments to
compliance with Rules 17Ad–22(b)(2),12 agencies to report the results of the the CDS Policies specifically state that
17Ad–22(e)(4)(vi)(B) 13 and 17Ad– reviews conducted pursuant to Rules the models used to support their
22(e)(6)(vi)(B).14 17Ad–22(e)(4)(vi)(B) and (C) 19 as well objectives are subject to a validation that
Rules 17Ad–22(e)(4)(vi)(C) 15 and as 17Ad–22(e)(6)(vi)(B) and (C) 20 to shall be performed on an annual basis
17Ad–22(e)(6)(vi)(C) 16 require clearing appropriate decision makers, including by a member of the ROD or an external
agencies to review parameters and but not limited to the board or the risk validator.
assumptions more frequently than management committee. In compliance Rule 17Ad–22(e)(2) 24 requires
monthly when the products cleared or with this requirement, as noted above, clearing agencies to establish reasonably
at the end of each quarter, the clearing
B. Conducting a sensitivity analysis of its margin risk department shares its monthly 21 17 CFR 240.17Ad–22(b)(4). The rule states that
model and a review of its parameters and reviews for that quarter with the ROD
assumptions for backtesting on at least a monthly ‘‘[a] registered clearing agency that performs central
basis, and considering modifications to ensure the counterparty services shall establish, implement,
backtesting practices are appropriate for 17 17 CFR 240.17Ad–22(e)(4)(vi)(D). The rule maintain and enforce written policies and
determining the adequacy of the covered clearing states that ‘‘[e]ach covered clearing agency shall procedures reasonably designed to:
agency’s margin resources’’. establish, implement, maintain and enforce written (4) Provide for an annual model validation
12 17 CFR 240.17Ad–22(b)(2). policies and procedures reasonably designed to, as consisting of evaluating the performance of the
13 17 CFR 240.17Ad–22(e)(4)(vi)(B). applicable: (4) Effectively identify, measure, clearing agency’s margin models and the related
14 17 CFR 240.17Ad–22(e)(6)(vi)(B). monitor, and manage its credit exposures to parameters and assumptions associated with such
15 17 CFR 240.17Ad–22(e)(4)(vi)(C). The rule
participants and those arising from its payment, models by a qualified person who is free from
clearing, and settlement processes, including by: influence from the persons responsible for the
states that ‘‘[e]ach covered clearing agency shall development or operation of the models being
establish, implement, maintain and enforce written (vi) Testing the sufficiency of its total financial
resources available to meet the minimum financial validated’’.
policies and procedures reasonably designed to, as 22 17 CFR 240.17Ad–22(e)(4)(vii). The rule states
applicable: resource requirements under paragraphs (e)(4)(i)
through (iii) of this section, as applicable, by: that ‘‘[e]ach covered clearing agency shall establish,
(4) Effectively identify, measure, monitor, and implement, maintain and enforce written policies
manage its credit exposures to participants and D. Reporting the results of its analyses under
paragraphs (e)(4)(vi)(B) and (C) of this section to and procedures reasonably designed to, as
those arising from its payment, clearing, and applicable:
settlement processes, including by: appropriate decision makers at the covered clearing
agency, including but not limited to, its risk (4) Effectively identify, measure, monitor, and
(vi) Testing the sufficiency of its total financial
management committee or board of directors, and manage its credit exposures to participants and
resources available to meet the minimum financial
using these results to evaluate the adequacy of and those arising from its payment, clearing, and
resource requirements under paragraphs (e)(4)(i)
adjust its margin methodology, model parameters, settlement processes, including by:
through (iii) of this section, as applicable, by:
models used to generate clearing or guaranty fund (vii) Performing a model validation for its credit
C. Conducting a comprehensive analysis of stress
requirements, and any other relevant aspects of its risk models not less than annually or more
testing scenarios, models, and underlying
credit risk management framework, in supporting frequently as may be contemplated by the covered
parameters and assumptions more frequently than
compliance with the minimum financial resources clearing agency’s risk management framework
monthly when the products cleared or markets
requirements set forth in paragraphs (e)(4)(i) established pursuant to paragraph (e)(3) of this
served display high volatility or become less liquid,
through (iii) of this section ’’. section.’’
or when the size or concentration of positions held
18 17 CFR 240.17Ad–22(e)(6)(vi)(D). The rule 23 17 CFR 240.17Ad–22(e)(6)(vii). The rule states
by the covered clearing agency’s participants
increases significantly’’. states that ‘‘[e]ach covered clearing agency shall that ‘‘[e]ach covered clearing agency shall establish,
16 17 CFR 240.17Ad–22(e)(6)(vi)(C). The rule establish, implement, maintain and enforce written implement, maintain and enforce written policies
states that ‘‘[e]ach covered clearing agency shall policies and procedures reasonably designed to, as and procedures reasonably designed to, as
establish, implement, maintain and enforce written applicable: (6) Cover, if the covered clearing agency applicable: (6) Cover, if the covered clearing agency
policies and procedures reasonably designed to, as provides central counterparty services, its credit provides central counterparty services, its credit
applicable: (6) Cover, if the covered clearing agency exposures to its participants by establishing a risk- exposures to its participants by establishing a risk-
provides central counterparty services, its credit based margin system that, at a minimum: based margin system that, at a minimum:
exposures to its participants by establishing a risk- (vi) Is monitored by management on an ongoing (vii) Requires a model validation for the covered
based margin system that, at a minimum: basis and is regularly reviewed, tested, and verified clearing agency’s margin system and related models
(vi) Is monitored by management on an ongoing by: to be performed not less than annually, or more
basis and is regularly reviewed, tested, and verified D. Reporting the results of its analyses under frequently as may be contemplated by the covered
by: paragraphs (e)(6)(vi)(B) and (C) of this section to clearing agency’s risk management framework
C. Conducting a sensitivity analysis of its margin appropriate decision makers at the covered clearing established pursuant to paragraph (e)(3) of this
model and a review of its parameters and agency, including but not limited to, its risk section’’.
management committee or board of directors, and 24 17 CFR 240.17 Ad–22(e)(2). The rule states that
assumptions for backtesting more frequently than
monthly during periods of time when the products using these results to evaluate the adequacy of and ‘‘[e]ach covered clearing agency shall establish,
cleared or markets served display high volatility or adjust its margin methodology, model parameters, implement, maintain and enforce written policies
become less liquid, or when the size or and any other relevant aspects of its credit risk and procedures reasonably designed to, as
concentration of positions held by the covered management framework’’. applicable:
19 17 CFR 240.17Ad–22(e)(4)(vi)(B) and (C). (2) Provide for governance arrangements that:
clearing agency’s participants increases or decreases
significantly’’. 20 17 CFR 240.17Ad–22(e)(6)(vi)(B) and (C). (i) Are clear and transparent

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Federal Register / Vol. 83, No. 233 / Tuesday, December 4, 2018 / Notices 62641

designed policies and procedures to III. Date of Effectiveness of the inspection and copying at the principal
provide for governance arrangements Proposed Rule Change and Timing for office of ICE Clear Europe and on ICE
that are clear and transparent and Commission Action Clear Europe’s website at https://
specify clear and direct lines of Within 45 days of the date of www.theice.com/clear-europe/
responsibility. To facilitate compliance publication of this notice in the Federal regulation. All comments received will
with this requirement, the proposed Register or within such longer period be posted without change. Persons
amendments to the CDS Policies more up to 90 days (i) as the Commission may submitting comments are cautioned that
clearly define the roles and designate if it finds such longer period we do not redact or edit personal
responsibilities of the MOC, the RWG to be appropriate and publishes its identifying information from comment
and the TAC and other personnel with reasons for so finding or (ii) as to which submissions. You should submit only
respect to ongoing review of the margin the self-regulatory organization information that you wish to make
methodology, stress testing and back- consents, the Commission will: available publicly. All submissions
testing. (A) By order approve or disapprove should refer to File Number SR–ICEEU–
the proposed rule change or 2018–010 and should be submitted on
(B) Clearing Agency’s Statement on
(B) institute proceedings to determine or before December 26, 2018.
Burden on Competition
whether the proposed rule change For the Commission, by the Division of
ICE Clear Europe does not believe the should be disapproved. Trading and Markets, pursuant to delegated
proposed rule changes would have any authority.25
impact, or impose any burden, on IV. Solicitation of Comments Eduardo A. Aleman,
competition not necessary or Interested persons are invited to Assistant Secretary.
appropriate in furtherance of the submit written data, views, and [FR Doc. 2018–26266 Filed 12–3–18; 8:45 am]
purpose of the Act. The amendments to arguments concerning the foregoing, BILLING CODE 8011–01–P
the CDS Policies apply to all CDS including whether the proposed rule
Contracts and are intended to strengthen change is consistent with the Act.
risk management relating to these Comments may be submitted by any of SECURITIES AND EXCHANGE
products. ICE Clear Europe does not the following methods: COMMISSION
believe the amendments will have any
direct effect on Clearing Members, other Electronic Comments Sunshine Act Meetings
market participants or the market for • Use the Commission’s internet
cleared products generally. As a result, comment form (http://www.sec.gov/ TIME AND DATE: 2:00 p.m. on Thursday,
ICE Clear Europe does not believe the rules/sro.shtml) or December 6, 2018.
amendments will materially affect the • Send an email to rule-comments@ PLACE: The meeting will be held at the
cost of, or access to, clearing. To the sec.gov. Please include File Number SR– Commission’s headquarters, 100 F
extent the amendments may have an ICEEU–2018–010 on the subject line. Street NE, Washington, DC 20549.
impact on margin levels, ICE Clear
Paper Comments STATUS: This meeting will be closed to
Europe believes such changes will be
the public.
appropriate in furtherance of the risk • Send paper comments in triplicate
management of the Clearing House. to Secretary, Securities and Exchange MATTERS TO BE CONSIDERED:
Therefore, ICE Clear Europe does not Commission, 100 F Street NE, Commissioners, Counsel to the
believe the proposed rule changes Washington, DC 20549–1090. Commissioners, the Secretary to the
impose any burden on competition that All submissions should refer to File Commission, and recording secretaries
is inappropriate in furtherance of the Number SR–ICEEU–2018–010. This file will attend the closed meeting. Certain
purposes of the Act. number should be included on the staff members who have an interest in
subject line if email is used. To help the the matters also may be present.
(C) Clearing Agency’s Statement on The General Counsel of the
Comments on the Proposed Rule Commission process and review your
comments more efficiently, please use Commission, or his designee, has
Change Received From Members, certified that, in his opinion, one or
Participants or Others only one method. The Commission will
post all comments on the Commission’s more of the exemptions set forth in 5
Written comments relating to the internet website (http://www.sec.gov/ U.S.C. 552b(c)(3), (5), (6), (7), (8), 9(B)
proposed rule changes have not been rules/sro.shtml). Copies of the and (10) and 17 CFR 200.402(a)(3),
solicited or received. ICE Clear Europe submission, all subsequent (a)(5), (a)(6), (a)(7), (a)(8), (a)(9)(ii) and
will notify the Commission of any amendments, all written statements (a)(10), permit consideration of the
written comments received by ICE Clear with respect to the proposed rule scheduled matters at the closed meeting.
Europe. change that are filed with the Commissioner Roisman, as duty
Commission, and all written officer, voted to consider the items
(ii) Clearly prioritize the safety and efficiency of
communications relating to the listed for the closed meeting in closed
the covered clearing agency; session.
(iii) Support the public interest requirements in proposed rule change between the
Section 17A of the Act (15 U.S.C. 78q–1) applicable Commission and any person, other than The subject matters of the closed
to clearing agencies, and the objectives of owners those that may be withheld from the meeting will be:
and participants; public in accordance with the Institution and settlement of
(iv) Establish that the board of directors and injunctive actions;
senior management have appropriate experience
provisions of 5 U.S.C. 552, will be
and skills to discharge their duties and available for website viewing and Institution and settlement of
responsibilities; printing in the Commission’s Public administrative proceedings;
(v) Specify clear and direct lines of responsibility; Reference Room, 100 F Street NE, Resolution of litigation claims; and
and Washington, DC 20549, on official Other matters relating to enforcement
(vi) Consider the interests of participants’ proceedings.
customers, securities issuers and holders, and other
business days between the hours of
relevant stakeholders of the covered clearing 10:00 a.m. and 3:00 p.m. Copies of such
agency’’. filings will also be available for 25 17 CFR 200.30–3(a)(12).

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Document Created: 2018-12-04 00:43:09
Document Modified: 2018-12-04 00:43:09
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		83 FR 62638