Federal Register / Vol. 86, No. 43 / Monday, March 8, 2021 / Notices 13417 

manipulation that the proposal raises, as described 

above. 

28Rule 700(b)(3), Commission Rules of Practice, 

17 CFR 201.700(b)(3). 

29See id. 

30 In disapproving this proposed rule change, the 

Commission has considered the proposed rule’s 

impact on efficiency, competition, and capital 

formation. See 15 U.S.C. 78c(f). Although the 

commenter (see SIFMA Letter, supra note 14, at 4) 

asserts that the current Beneficial Holders Rule puts 

newer and smaller sponsors at an unnecessary 

disadvantage to larger sponsors having the 

enterprise-wide scale and distribution reach to 

gather assets in the months after launch, neither the 

commenter nor the Exchange has provided data to 

support this conclusion. 

31 15 U.S.C. 78s(b)(2). 

32 15 U.S.C. 78f(b)(5). 

33 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

the Commission’s Rules of Practice, the 

‘‘burden to demonstrate that a proposed 

rule change is consistent with the 

Exchange Act and the rules and 

regulations issued thereunder . . . is on 

the self-regulatory organization [‘SRO’] 

that proposed the rule change.’’ 28 The 

description of a proposed rule change, 

its purpose and operation, its effect, and 

a legal analysis of its consistency with 

applicable requirements must all be 

sufficiently detailed and specific to 

support an affirmative Commission 

finding, and any failure of an SRO to 

provide this information may result in 

the Commission not having a sufficient 

basis to make an affirmative finding that 

a proposed rule change is consistent 

with the Exchange Act and the 

applicable rules and regulations.29 The 

Commission concludes that, because 

NYSE Arca has not demonstrated that 

its proposal is designed to prevent 

fraudulent and manipulative acts and 

practices or to protect investors and the 

public interest, the Exchange has not 

met its burden to demonstrate that its 

proposal is consistent with Section 

6(b)(5) of the Exchange Act.30 For this 

reason, the Commission must 

disapprove the proposal. 

IV. Conclusion 

For the reasons set forth above, the 

Commission does not find, pursuant to 

Section 19(b)(2) of the Exchange Act,31

that the proposed rule change is 

consistent with the requirements of the 

Exchange Act and the rules and 

regulations thereunder applicable to a 

national securities exchange, and in 

particular, with Section 6(b)(5) of the 

Exchange Act.32

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Exchange Act, 

that proposed rule change SR– 

NYSEArca–2020–56 is disapproved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.33

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2021–04676 Filed 3–5–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–91240; File No. SR–ICEEU– 

2021–006] 

Self-Regulatory Organizations; ICE 

Clear Europe Limited; Notice of Filing 

of Proposed Rule Change Relating to 

the ICE Clear Europe CDS Clearing 

Stress Testing Policy, CDS End of Day 

Price Discovery Policy, CDS Risk 

Model Description and CDS Risk 

Policy and CDS Parameters Review 

Procedures 

March 2, 2021. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on February 

23, 2021, ICE Clear Europe Limited 

(‘‘ICE Clear Europe’’ or the ‘‘Clearing 

House’’) 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. 

I. Clearing Agency’s Statement of the 

Terms of Substance of the Proposed 

Rule Change 

ICE Clear Europe Limited proposes to 

modify certain provisions of its CDS 

Clearing Stress Testing Policy, CDS End 

of Day Price Discovery Policy, CDS Risk 

Model Description and CDS Risk Policy 

(together, the ‘‘Documents’’) and to 

adopt a new document titled CDS 

Parameters Review Procedures (the 

‘‘Parameters Procedures’’). 

II. Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Proposed Rule Change 

In its filing with the Commission, ICE 

Clear Europe included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. ICE 

Clear Europe has prepared summaries, 

set forth in sections (A), (B), and (C) 

below, of the most significant aspects of 

such statements. 

(A) Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Proposed Rule Change 

(a) Purpose 

ICE Clear Europe is proposing to 

amend the Documents and institute the 

new Parameters Procedures principally 

to describe more fully certain existing 

Clearing House practices, as discussed 

herein. ICE Clear Europe is also 

proposing to make certain 

enhancements to CDS stress testing, 

specifically to incorporate the impact of 

the COVID–19 pandemic into its stress 

testing framework. 

CDS End of Day Price Discovery Policy 

The amendments to this policy would 

generally clarify the process to 

determine prices for a particular 

instrument when fewer than three 

Clearing Members have open interest in 

that instrument, in order to provide 

more reliable pricing in that scenario. 

The amendments would also make 

minor terminology updates to conform 

uses of defined terms, correctly 

reference various ICE Clear Europe 

personnel and operations and make 

similar typographical corrections 

throughout the document and add a 

new table. 

Currently, the CDS End of Day Price 

Discovery Policy states that if fewer 

than three CDS Clearing Members have 

cleared open interest in an instrument, 

ICE Clear Europe may require all CDS 

Clearing Members to provide a price 

submission for that instrument. ICE 

Clear Europe proposes to supplement 

this concept to provide more flexibility 

to ensure enough submissions to enable 

effective determination of reliable endof-day prices and thereby facilitate an 

accurate and stable variation margin 

process. Specifically, the amendments 

are designed to produce more reliable 

prices by increasing the probability of 

receiving multiple submissions. As 

amended, the policy would state that 

ICE Clear Europe believes that tradeable 

quotes submitted by CDS Clearing 

Members are the preferred source of 

data and should be used where possible 

and reliable, meaning where there is 

more than one CDS Clearing Member 

with which the quote could be crossed. 

Where there are not enough CDS 

Clearing Members to enable tradeable 

quotes (i.e., quotes at which a member 

would transact) to be crossed with more 

than one CDS Clearing Member (i.e., 

fewer than three CDS Clearing Members 


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with open interest in the relevant 

instrument), then ICE Clear Europe 

would switch to rely on indicative 

quotes and would require these from all 

CDS Clearing Members. (For this 

purpose, an indicative quote is a 

reasonable estimate of the market price 

but does not necessarily reflect a price 

at which the member would transact.) 

When requesting indicative quotes in 

this manner, ICE Clear Europe would 

not require CDS Clearing Members to 

enter into firm-trades in these 

instruments. The minimum number of 

three CDS Clearing Members, below 

which indicative quotes would be used, 

would be subject to ongoing review by 

ICE Clear Europe as to whether this is 

the appropriate threshold given market 

circumstances. 

A new Table 4 showing an example 

of an assignment of index risk factors to 

market proxy groups would be added 

pursuant to the amendments relating to 

end-of-day bid-offer widths (‘‘EOD 

BOWs’’) for index instruments. The new 

table does not reflect a change in 

practice and is intended for clarity. The 

table would show the index risk factors 

for each of the CDX and iTraxx market 

proxy groups. A reference to Table 2 in 

the EOD BOWs section would be 

updated to Table 4. Existing references 

to Tables 4 through 7 would be 

respectively updated to Tables 5 

through 8. 

In the governance section addressing 

material changes to the EOD price 

discovery methodology, spread-to-price 

conversion determinants or parameters, 

the amendments would clarify that 

review would be performed by the TAG 

(instead of the TAC) and the Product 

Risk Committee (instead of the Risk 

Committee). This amendment is 

intended to reflect current practice. 

Numerous minor typographical and 

similar updates would be made 

throughout the CDS End of Day Price 

Discovery Policy. For example, the term 

‘‘Clearing Participant’’ would be 

updated to ‘‘Clearing Member’’, ‘‘CP’’ 

would be updated to ‘‘CM’’ and 

‘‘Trading Advisory Committee’’ (or 

‘‘TAC’’) would be updated to ‘‘Trading 

Advisory Group’’ (or ‘‘TAG’’), to be 

consistent with terminology used in the 

Rules and other ICE Clear Europe 

documentation. The statement that the 

trading desks at each self-clearing 

member (‘‘SCM’’) would be required to 

copy ICE Clear Europe on the intraday 

quotes they provide market participants 

via email would be updated to 

requested to copy. Certain outdated 

cross-references would be removed. 

With respect to the red matters in the 

escalation and notification protocol for 

appetite metrics, the Board and 

Executive Risk Committee would be 

notified immediately instead of as soon 

as possible. Other minor clean-up 

changes would also be made to improve 

readability and clarity. 

CDS Clearing Stress Testing Policy 

ICE Clear Europe is proposing to add 

new stress test scenarios to this policy 

and to make certain other clarifications 

and enhancements to the description of 

the stress-testing methodology in order 

to capture the large market moves 

experienced during the COVID–19 

pandemic, strengthen the CDS 

discordant stress test scenarios and 

better reflect the current governance 

structure related to stress testing. 

Purpose 

The discussion of the purpose of Clear 

House stress testing practices, including 

as to how they are integrated into ICE 

Clear Europe’s risk procedures and 

governance structure, would be revised 

to reflect the Clearing House’s current 

governance framework, and specifically 

to reference the Model Oversight 

Committee (‘‘MOC’’) and to remove an 

outdated reference to the Board Risk 

Committee (‘‘BRC’’). The amendments 

would also provide that any terms not 

defined in the policy would be defined 

in the ICE Clear Europe CDS Risk Policy 

and the Rules, instead of only in the 

Rules. 

Methodology 

The general methodology section of 

the policy would be amended to add a 

discussion of stress testing in the 

context of wrong way risk. For this 

purpose, positions in index risk factors 

and single-name risk factors that exhibit 

high levels of association with a 

Clearing Member’s portfolio are 

combined in a sub-portfolio, which is 

subject to additional stress testing 

analysis. The amendments to this 

section do not reflect a change in 

Clearing House practice but are 

intended to better document existing 

practice. 

The amendments also revise the 

governance process where a scenario or 

portfolio in the standard set of stress 

scenarios is no longer applicable, or is 

superseded by new scenarios or 

portfolios, and the Clearing Risk 

Department wishes to retire or modify 

the outdated scenario or portfolio. In 

that case, the Clearing Risk Department 

would conduct an analysis to determine 

whether a change is significant, which 

would be reviewed by the Risk 

Oversight Department (‘‘ROD’’). The 

Board, or its delegated committee, 

would approve the significant 

decommissioning of scenarios, while 

the Model Oversight Committee 

(‘‘MOC’’) would approve the 

decommissioning of scenarios (if not 

significant) or recommend the 

decommissioning of scenarios to the 

Board if deemed significant. The 

amendment is intended largely to 

formalize current practice, and also 

reflect the role of the MOC under the 

Clearing House’s Model Risk 

Governance Framework (the ‘‘MRGF’’). 

The existing description of the steps 

that the Clearing Risk Department 

would take in such a scenario (involving 

approval by the relevant risk committee) 

would be deleted. The amendments 

would also clarify that if the Clearing 

Risk Department wishes to add new 

scenarios or portfolios, the MOC must 

approve of the addition, but the Board’s 

approval is not required. This is a 

change from the current procedure, 

under which it is sufficient to simply 

inform the CDS Risk Committee. 

Further, the amendments would also 

state explicitly that in stress testing and 

sensitivity testing, under the multiple 

Clearing Member default scenario, 

conditional uncollateralized loss-givedefaults (‘‘LGDs’’) resulting from 

Clearing Member single-name positions 

would also be explicitly incorporated. 

This reflects current practice. 

Various Changes 

Various defined terms would be 

updated throughout the document. The 

CDS Product Risk Committee would be 

referred to as the CDS PRC instead of 

the CDS RC. Members or Clearing 

Members would be referred to as CMs. 

Throughout the document, references to 

Initial Margin would be updated to IM 

and references to Guaranty Fund would 

be updated to GF. 

Changes to Predefined Scenarios; New 

COVID–19 Scenarios 

The introductory description of the 

predefined scenarios would be amended 

to clarify that the scenarios reflect a 

stress period of risk from 1 to 7 days 

(referred to in the policy as ‘‘N’’-day 

scenarios), taking into account the 5-day 

margin period of risk used in the 

existing margin methodology for house 

accounts and the 7-day margin period of 

risk used in the existing margin 

methodology for client accounts. The 

description of the magnitude of the base 

‘‘FX Stress Scenario’’ would be 

amended to state that it reflects the 

greatest relevant N-day stress period 

(instead of five days). 

Overall, the changes to the stress 

testing scenarios, other than the 

addition of the new COVID–19 

scenarios, are intended to more 

thoroughly describe the stress test 


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Federal Register / Vol. 86, No. 43 / Monday, March 8, 2021 / Notices 13419 

scenarios. The changes (including the 

addition of the COVID–19 scenarios) are 

not expected to result in any changes in 

margin levels or other financial impact 

on the Clearing House or Clearing 

Members. 

Extreme but Plausible Market Scenarios 

The amendments would update the 

description of the extreme but plausible 

market scenarios. The description of the 

2008/2009 credit crisis scenario would 

be updated to state that the widening/ 

tightening credit crisis spread scenarios 

are based on the greatest observed N-day 

(instead of five-day) relative spread 

increases/decreases expressed as 

percentages. The amendments would 

also clarify that the determination of the 

exact stress period is defined by the 

greatest observed spreads change of the 

Most Actively Traded Instruments 

(‘‘MATI’’) for each relevant subportfolio. The stress spread changes, 

defined for each Index, corporate and 

sovereign risk factor (‘‘RF’’), would be 

extracted from the market history for the 

MATI of the considered RF. 

Amendments would also clarify that the 

other three historically observed stress 

test scenarios from the 2008/2009 

period would be based specifically 

around the period surrounding Lehman 

Brothers’ default to capture the large 

market moves of that period. These 

amendments are intended to provide a 

more thorough description of these 

existing stress testing scenarios. 

The description of the Western 

European credit crisis scenarios would 

similarly be clarified to state explicitly 

that the scenarios replicate the stress 

market moves resulting from the 

concerns around the debt sustainability 

of several Eurozone countries. 

Widening/Tightening Western European 

Credit Crisis Spread Scenarios would be 

based on the greatest observed Nday 

(instead of five-day) relative spread 

increases/decreases (which would no 

longer be restricted to the most actively 

traded instruments). Amendments 

would also clarify that the 

determination of the exact stress period 

would be defined by the greatest 

observed spreads change of the MATI 

for each sub-portfolio. The other three 

historically observed stress test 

scenarios would be based specifically 

around the second quarter of 2010 to 

capture the large market moves of that 

period. The spread shocks would be 

expressed in percentage for each RF. 

These amendments are intended to 

provide a more thorough description of 

these existing stress testing scenarios. 

The description of the Lehman 

Brothers Default Price Change Scenario 

would be expanded. The amendments 

would state that the scenario 

magnitudes are defined for each RF 

according to its sector classification and 

time to maturity of the considered 

instrument. The corresponding stress 

test Opposite LB Default Price Change 

Scenarios would be derived from the 

Lehman Brothers scenarios by means of 

multiplying the scenario result by a 

negative factor to reflect the reduced 

magnitudes of the observed price 

increases during the considered period. 

These amendments are intended to 

provide a more thorough description of 

these existing stress testing scenarios. 

New COVID–19 Based Scenarios 

Given that moves in both spreads and 

prices were, generally, higher than other 

observed extreme but plausible stress 

test scenarios during the COVID–19 

pandemic, ICE Clear Europe is 

proposing to add the following 

additional COVID–19 pandemic fear 

scenarios based on stress market moves 

experienced between February and 

April 2020: 

• The COVID–19 Widening/ 

Tightening Spread Scenarios, which 

would be based on the greatest observed 

N-day relative spread increases/ 

decreases during the period. The 

determination of the exact stress period 

would be defined by the greatest 

observed N-day spread changes of the 

MATI for each sub-portfolio; and 

• The COVID–19 Price Decrease 

Scenario would be defined in price 

space to maintain the stress severity 

during periods of low spread levels and 

high prices, when the IM requirements 

are expected to be lower. The scenario 

would be based on the greatest observed 

N-day relative price decreases during 

the aforementioned period. The 

determination of the exact stress period 

would be defined by the greatest 

observed N-day spread changes of the 

MATI for each sub-portfolio. A 

corresponding stress test COVID–19 

Price Increase Scenario would be 

derived from the price decrease scenario 

by applying factors for Indices and SNs 

to reflect the reduced magnitudes of the 

observed price increases during the 

considered period. 

Discordant Scenarios 

The scope of discordant spread 

scenarios (for corporates and sovereigns) 

would be clarified. Specifically, the 

description of the corporate discordance 

spread scenarios would reflect that such 

scenarios are based specifically on 

discordant moves along the major 

European and North American 5Y onthe-run (OTR) indices. The amendments 

would also state that the corporate SNs 

and indices discordant spread scenarios, 

which reflect realizations when certain 

indices or sub-indices for the EU region 

and certain U.S. OTR indices exhibited 

the greatest combined discordant 

change, would be created and applied to 

SNs and Indices. The amendments 

would further update references to 

indices used in stress scenarios and 

state that other stress scenarios would 

be based on discordant spread 

realizations across European Indices. 

The amendments would also note that 

other stress scenarios would reflect 

discordant spreads realizations among 

geographical regions. These 

amendments are intended to provide a 

more thorough description of existing 

stress testing scenarios. 

Hypothetical Scenarios 

With respect to hypothetical 

scenarios, greater detail would be added 

to clarify that the curve inverting spread 

scenario is based on the largest 

widening shock among the 2008/2009 

Credit Crisis Widening and the Western 

European Credit Crisis Widening for 

each RF. Similarly, the curve steepening 

spread scenario is based on the largest 

tightening shock among the 2008/2009 

Credit Crisis Tightening and Western 

European Credit Crisis Tightening 

scenarios. 

New sectors and countries discordant 

scenarios would also be added. These 

scenarios would be designed to 

reproduce discordant moves across 

sectors and entities of different 

countries, noting that the large price 

moves in the oil benchmark products 

(especially WTI negative prices) in the 

first half of 2020 created asymmetric 

shocks to the energy and financials 

sectors compared to other sectors, 

which would be reflected in the Energy 

vs Other Sectors Discordant scenario. 

The five-year spread shocks would be 

estimated at sector level, and the 

derivation of the shocks for the other 

tenors would be based on the tenorspecific inverting and steepening 

factors. The sector-specific shocks 

would then be applied to all RFs within 

the sector. The opposite stress scenario 

would also be considered for 

completeness. The spread shocks 

estimated for the clearable Western 

European Sovereigns would be applied 

to the European corporate SNs for each 

country. The opposite stress scenario 

would also be considered for 

completeness. 

Another hypothetical scenario, the 

forward-looking credit events scenarios, 

would be updated to clarify that the 

Clearing Member reference entity that 

would be considered would be different 

from the Clearing Member whose 

portfolio is subject to the stress test. 


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They would also add that the reference 

entity is assumed to enter in a state of 

default and thus create Loss Given 

Default (‘‘LGD’’) and that a reference 

entity is selected that creates the largest 

LGD exposure, rather than the greatest 

one-year EOD spread level. 

Extreme Market Scenarios 

The amendments would clarify that 

extreme steepening and extreme 

inverting scenarios would be created 

from crises steepening and crises 

inverting scenarios by doubling the 

shocks for inverting scenarios and 

applying a factor to steepening 

scenarios. The amendments would also 

incorporate the new COVID–19 

historical scenarios into the 

determination of extreme scenarios, 

similar to the calculation of extreme 

scenarios based on the LB default 

scenario. 

With respect to the guaranty fund 

(‘‘GF’’) scenarios, greater specificity 

would be provided to clarify that the 

stress test scenarios would be designed 

to account for the occurrence of credit 

events for two Clearing Member risk 

factor groups (‘‘RFGs’’) and three nonClearing Member RFGs. The 

amendments would also clarify that the 

GF scenario considers an even more 

extreme case in which five RFGs 

undergo credit events (changing a 

reference from single names to the more 

accurate RFG). The chart setting out the 

quantile ratios for the student t 

distributions with different shape 

parameters would be removed as 

unnecessary. 

The GF adequacy analysis would be 

amended to state that as the number of 

defaults of reference entities is one of 

the major risks in the CDS clearing 

service, the Clearing Risk Department 

considers complementary extreme 

scenarios where a combination of up to 

five RFGs for up to five Clearing 

Members would be assumed to default 

before simulating spreads widening and 

tightening on the non-defaulting entities 

in order to fully deplete the GF. The 

amendments would explain that the 

scenario aims at providing estimates of 

the level of protection achieved through 

initial margin (‘‘IM’’) and GF in relation 

to multiple defaults. This amendment is 

intended to clarify the stress-testing 

description but does not reflect a change 

in current stress testing practice. 

Portfolio Selection 

The description of the process for 

determination of sample portfolios for 

stress testing would be updated to 

reflect that ICE Clear Europe would 

derive the portfolio from the currently 

cleared portfolios by considering only 

positions in index RFs and sectors that 

exhibit a high degree of association with 

the considered Clearing Member, in 

particular indices, sovereigns and 

financials RFs (rather than considering 

exactly the opposite positions from the 

currently cleared portfolio). The 

constructed sub-portfolios would be 

subject to the stress test analysis with 

the standard set of stress test scenarios. 

The aim of the stress analysis with the 

sample portfolios would be to provide 

estimates to the potential exposure of 

Clearing Members to RFs generating 

general wrong way risk (‘‘WWR’’). The 

current reference to special strategy 

sample portfolios would be deleted, and 

a new provision would address 

application of stress testing scenarios to 

expected future portfolios upon the 

launch of new services and RFs. The 

stress test analysis would be presented 

and reviewed by the CDS Product Risk 

Committee prior to launch of the new 

RFs. 

Interpretation and Review of StressTesting Results 

The interpretation and review of the 

stress-testing results section would be 

amended to provide that enhancements 

to stress scenarios would be discussed 

and approved based on the governance 

outlined in the MRGF. The amendments 

would also clarify that the two greatest 

affiliate groups’ (‘‘Cover-2’’) 

uncollateralized stress loss associated 

with scenarios characterized as extreme 

but plausible market scenarios should 

be covered by funded default resources 

(excluding potential assessments). If 

Cover-2 protection under these 

scenarios is not achieved, additional 

funds could be required to cover the 

shortfall and enhancements to the 

current risk methodology would be 

considered. The amendments would 

further provide that the Board and its 

delegated committees (instead of the 

CDS Risk Committee and Board Risk 

Committee) would be provided with 

information as to the stress test results 

as necessary or appropriate to perform 

their duties. The amendments are 

intended to allow the Board the 

flexibility to determine the appropriate 

committees for review of stress testing. 

Certain outdated statements would be 

removed, including matters relating to 

governance that are addressed in the 

MRGF as well as outdated references to 

certain examples or specific committees. 

As discussed in the methodology 

section above, any related deficiency 

analysis and review would be 

undertaken by the MOC instead of the 

Executive Risk Committee, in 

accordance with the procedures of the 

MRGF. The stress testing report would 

be presented to the CDS Product Risk 

Committee instead of the CDS Risk 

Committee during scheduled meetings 

(instead of scheduled monthly 

meetings). 

The amendments would specifically 

remove the following statements: 

• The statement as to the stress 

scenarios that lead to model review 

include; 

• the statement that the hypothetical 

losses generated in response to stress 

scenarios are compared to the available 

margins on deposit and Guaranty Fund 

contributions and if applicable, the ICE 

Clear Europe contribution to the risk 

waterfall and the funds available 

through the one-time limited assessment 

from each Clearing Member; 

• the statement that ICE Clear Europe 

is responsible for identifying in which 

zone a particular stress test result falls; 

and 

• statements as to certain functions of 

the Clearing Risk Department, Clearing 

Risk senior management, ERC, CDS RC, 

the BRC and the Board, which have 

been replaced by the role of the MOC 

and the other revised governance 

arrangements discussed above. 

Policy Governance and Reporting 

The policy governance and reporting 

section would be amended to remove 

the requirement that the policy be 

reviewed annually by the CDS Risk 

Committee and only would require 

review by the Board Risk Committee. 

Material changes to the policy would be 

discussed by the MOC (instead of the 

ERC) and approved by the Board on the 

advice of the CDS Product Risk 

Committee and the Board Risk 

Committee prior to implementation. 

These amendments are intended to be 

more consistent with other Clearing 

House governance processes and 

formalize existing arrangements to 

ensure that appropriate bodies are 

engaged in policy governance. 

Appendix 

The FX stress test scenario 

amendments would reflect the greatest 

N-day relative depreciation (instead of 

five-day) and would remove the specific 

dates. This is intended to be a 

conforming change consistent with the 

other amendments to use an N-day 

period described above. 

CDS Risk Policy 

The amendments to this policy would 

describe more fully the existing use of 

the Clearing House’s Monte Carlo 

(‘‘MC’’) simulation approach in the 

context of establishing initial margin 

and GF requirements. The amendments 

would also generally clarify the use and 


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source of intraday prices and make 

other drafting improvements and 

clarifications, including through 

revising certain descriptions and 

providing certain defined terms. The 

amendments simplify certain cross 

references to the CDS Risk Model 

Description throughout the policy by 

removing unnecessary section 

references (to facilitate keeping the CDS 

Risk Policy up to date). In general, the 

amendments are intended to provide a 

clearer explanation of the Clearing 

House’s methodology for IM and GF 

requirements and are not intended to 

materially change the methodology or to 

change the levels of IM and GF 

requirements. 

With respect to IM, the amendments 

would clarify the description of the IM 

methodology by stating that the risk 

protection measure is based on using a 

combined approach featuring a stressbased spread response Value-at-Risk 

(‘‘VaR’’) measure and a Monte Carlo 

(‘‘MC’’) simulation spread response VaR 

measure. They would also add that 

model performance would be monitored 

through stress testing and sensitivity 

analyses. The amendments are intended 

to more clearly reflect existing practices, 

and would not change the IM 

methodology. 

With respect to the spread response 

requirements description, the 

amendments would provide greater 

clarity that the spread response risk 

requirement that captures credit spread 

fluctuations is a stress-based spread 

response that computes Profit/Loss (‘‘P/ 

L’’) distributions from a set of simulated 

hypothetical (forward looking) credit 

spreads scenarios. 

The description of the stress-based 

spread response scenarios would be 

modified by rewording the introduction 

to improve readability and to clarify the 

applicable benchmark tenors estimated 

for all the Risk Sub-factors, replacing 

certain outdated references to tenors. 

The amendments are intended to reflect 

and more clearly describe current 

practices. 

A new section would be added to 

describe in more detail the Monte Carlo 

simulation approach currently used by 

the Clearing House. The amendments 

would provide that in this approach, 

ICE Clear Europe generates spread 

scenarios by means of student-t copulas 

to connect the univariate distributions 

that describe spread fluctuations. The 

student-t copulas reflect historical 

estimates of Kendall t correlation 

coefficients to simulate spread logreturns. 

The simulated copula scenarios are 

used to arrive at hypothetical spread 

levels by means of estimated univariate 

spread log-return distributions. Each 

instrument would be repriced at the 

simulated spread levels to generate a 

scenario instrument P/L based on postindex decomposition positions. For 

each scenario, instrument P/Ls would 

be aggregated according to pre-defined 

RFs and sub-portfolio position sets in 

order to obtain RF and sub-portfolio P/ 

Ls. 

These distributions would be used to 

estimate the RF and sub-portfolio 99.5% 

VaR measures at a chosen risk horizon. 

The portfolio level integrated Spread 

Response would be estimated as a 

weighted sum of RF and sub-portfolio 

99.5% VaR measures. 

The description of the antiprocyclicality considerations would be 

updated to provide that the stress price 

changes would be derived from the 

price-based extreme but plausible stress 

test scenarios under the revised CDS 

Stress Testing Policy, as described 

above, instead of only from the market 

behavior during and after the Lehman 

Brothers default period. 

Throughout the policy, references to 

the risk department would also be 

updated to the Clearing Risk 

Department. 

The amendments also provide that the 

Clearing Risk Department may 

recommend margin methodology 

changes based on the governance 

procedures outlined in the MRGF, 

consistent with the requirements of that 

framework. The amendments would 

also note that in the event that ICE Clear 

Europe is accepting sizable positions 

through the weekly back-loading 

process in the context of margin calls, 

it will pre-collect IM and mark-tomarket changes, instead of just IM. 

With respect to mark-to-market 

margin (‘‘MTMM’’), the description 

regarding the determination of cash 

owing, the payment of MTMM, the 

timing of margin calculations and the 

making of MTMM calls would be 

removed as unnecessary operational 

detail. These matters are also generally 

covered in the CDS Risk Policy and 

Finance Procedures. Similarly, the 

discussion of the requirements and 

rights of a Clearing Member upon a 

change in MTMM balance (i.e. to pay or 

be credited cash) would be deleted as 

unnecessary detail. 

With respect to intra-day monitoring, 

the amendments would provide that ICE 

Clear Europe would ensure the quality 

of the intraday prices by monitoring and 

comparing the quotes received with the 

intraday prices of the transactions 

cleared at ICE CDS clearing houses. ICE 

Clear Europe could also compare 

intraday prices with those of another 

third-party provider. The comparison 

process would be carried out before 

issuing intraday margin calls. The 

description of the intraday risk limit 

calculation would be updated such that 

it would be based on 40% of the total 

IM requirements, with a minimum 

amount corresponding to the minimum 

GF contribution and would be capped at 

a monetary amount reviewed in 

conjunction with the ICE Clear Europe 

senior management and the CDS 

Product Risk Committee. The precise 

monetary amount would be removed 

from the policy to give the Clearing 

House flexibility if it determined it was 

appropriate to review and reconsider 

this amount in the future in conjunction 

with senior management and the BRC. 

There is currently no plan to change the 

existing EUR 100 million cap in 

practice. The procedure for intra-day 

margin calls would be further clarified 

by removing a statement that where 

there has been a 50% erosion of the 

Intraday Risk Limit, the Risk 

Department will investigate the matter. 

In ICE Clear Europe’s view, a separate 

step at the 50% erosion level is 

unnecessary, as ICE Clear Europe will 

not take any particular action at that 

level. Once the erosion exceeds 50%, 

the Clearing Risk Department is 

required to inform the relevant CDS 

Clearing Member that it may be subject 

to an intraday margin call (and in so 

doing the Clearing Risk Department will 

make any necessary investigations of the 

matter). 

The statement that the Risk 

Management Department will notify the 

ICE Clear Europe Treasury Department 

of the ‘‘special’’ margin call would be 

removed as an operational detail not 

necessary for the policy. Generally, the 

Clearing Risk Department sets the 

margin level and would communicate it 

to other departments in the ordinary 

course, as it does for any change of 

margin level. 

With respect to the GF, the 

amendments would update the drafting 

of certain language (including the 

reference to the ‘‘Cover 2’’ requirement) 

to remove certain unnecessary detail. 

With respect to related antiprocyclicality considerations, the 

amendments would refer to the extreme 

but plausible price-based stress test 

scenarios described in the revised CDS 

Clearing Stress Testing Policy, as 

discussed above. Amendments would 

also provide that the GF allocation 

process is performed by the Clearing 

Risk Department on a weekly basis 

rather than every Thursday and based 

on the previous business day’s close of 

business positions rather than 

Wednesday’s close of business 

positions. The amendments would also 


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clarify that the requirement that a 

portion of the GF be in USD is intended 

to accommodate all USD-denominated 

CDS contracts, not merely sovereign 

CDS contracts . . . The current 

numerical example of GF calls/ 

collection would be removed as 

unnecessary. 

With respect to back-testing, the 

amendments provide if the model 

calibration consistently demonstrates 

exceptions outside of the coverage level, 

the Clearing Risk Department would 

review the models and recommend 

revisions following the governance 

procedures outlined in the MRGF. 

Pursuant to the amendments, the 

stress-testing section would add that the 

historical data would account for 

COVID–19 outbreak fear, consistent 

with the changes to the CDS Stress 

Testing Policy discussed above. 

The amendments would update 

certain terms throughout the document 

as follows: ICE Clear Europe would be 

referred to as ICEU; Member, member or 

Clearing Member would generally be 

updated to CM; Risk Model Description 

would be updated to CDS Risk Model 

Description; CDS Risk Committee would 

be updated to CDS Product Risk 

Committee; Risk Department, Risk 

Management Department or Clearing 

Risk department would be updated to 

Clearing Risk Department; General 

Wrong Way Risk would be referred to as 

‘‘GWWR’’; Guaranty Fund would be 

updated to GF, Specific Wrong Way 

Risk would be abbreviated as SWWR; 

Model Oversight Committee would be 

given the acronym ‘‘MOC’’; the Model 

Risk Governance Framework would be 

given the acronym ‘‘MRGF’’; Initial 

Margin would be updated to IM; Dollar 

would be updated to USD; CDS Back 

Testing Framework would be updated to 

Policy; a Risk Oversight Committee 

reference would be updated to ROC; 

CDS Risk Product Committee and CDS 

RC would be respectively updated to 

CDS Product Risk Committee and CDS 

PRC; and Risk Committee would be 

updated to CDS PRC. Certain other 

typographical corrections would be 

made. 

CDS Risk Model Description 

This document was amended in May 

2019 (the ‘‘2019 Amendments’’) and 

additional amendments are currently 

being proposed (the ‘‘Current 

Amendments’’). As discussed below, the 

Current Amendments would: 

• Clarify the treatment of volatility 

estimates for the Recovery Rate 

Sensitivity Requirement (‘‘RRSR’’), risk 

factor calibration and the raw data 

cleansing process; and 

• add detail regarding the use of ICE 

Clear Europe cleared volume in the 

Concentration Charge threshold review. 

• As discussed below, the 2019 

Amendments: 

• enhanced the calculation of the 

WWR threshold; 

• clarified the parameter estimation 

of the recovery rate sensitivity 

requirement; 

• clarified the discussion around 

model testing; 

• added a section to explicitly refer to 

the assumption around the use of the 

same time series for IM and GF 

distributions in the CDS Risk Model; 

and provided that the interest rate 

sensitivity requirement of the model 

reflects a time horizon of five days for 

house accounts and seven days for 

client accounts. 

With the exception of the changes to 

the calculation of the WWR threshold, 

the amendments are in the nature of 

clarification and improving descriptions 

of the Clearing House’s existing 

methodology, and do not constitute a 

change in the methodology. The 

enhancement of the calculation of the 

WWR threshold, as discussed below, 

while a change from prior practice, is 

expected to have an immaterial effect on 

margin levels. 

The 2019 Amendments 

The following is a description in 

further detail of the 2019 Amendments 

to the CDS Risk Model. 

Model Design and Development 

The amendments updated the 

description of the interest rate 

sensitivity requirement component of 

the IM model to add that the changes 

captured in the discount default-free 

terms structure used for pricing the 

cleared instruments are over a certain 

time horizon (five days for house 

accounts and seven days for client 

accounts). This amendment 

documented existing practice. 

Initial Margin Methodology 

With respect to IM, the amendments 

updated the loss given default risk 

analysis to specify initial values of 

certain parameters and to note that 

certain parameters are reviewed by the 

Risk Working Group on at least a 

monthly basis. 

With respect to the haircut applied as 

part of the multi-currency portfolio 

treatment methodology, the 

amendments clarified that in order to 

provide consistency and uniformity in 

the parameters applied to the CDS risk 

model, ICE Clear Europe adopted the 

same (more conservative) haircut in line 

with ICE Clear Credit LLC. This 

amendment did not change existing 

practice and was intended to strengthen 

the IM methodology by documenting 

existing practice. 

Similarly, with respect to the foreign 

exchange haircut applied to periodic 

adjustments to the GF, the amendments 

also clarified that in order to provide 

consistency and uniformity in the 

parameters applied to the CDS risk 

model, ICE Clear Europe adopted the 

same (more conservative) haircut in line 

with ICE Clear Credit LLC. This 

amendment also did not change existing 

practice and was intended to strengthen 

the IM methodology by documenting 

existing practice. 

Monte Carlo Implementation 

Amendments were made to clarify 

and simplify the overall description of 

the Monte Carlo implementation. The 

amendments were not intended to 

reflect a change from current practice, 

but rather provide a clearer description 

of the existing implementation. 

Specifically, ICE Clear Europe believes 

that the revised description provides a 

more practical, and less theoretical, 

explanation of the Monte Carlo 

implementation that will facilitate 

replication and validation of the 

implementation by third parties. 

Among other clarifications, the 

revised description states explicitly that 

the final spread response requirement 

would be the most conservative 

requirement in the specified stressbased spread response equation, which 

is consistent with current practice. 

Certain subsections of the Monte Carlo 

description, including those relating to 

the discussion of matrix decomposition, 

were deleted as unnecessary in light of 

the description of the implemented 

model. The amendments updated the 

copula simulation description to 

provide further detail as to the 

determination and use of the linear 

correlation matrix and construction of 

student-t random variables and vectors 

for the production of relevant scenarios. 

The existing description of the 

conditional block matrix simulation 

framework and full matrix simulation 

framework were revised to provide a 

more simplified description of the twostep conditional simulation approach 

that is currently used by the Clearing 

House. A section describing copula 

parameter estimation for purposes of 

multivariate distribution was added 

while the description of simulation for 

standardized spread log returns was 

removed as unnecessary. The model 

parameters section was removed (with 

relevant parameters being addressed in 

the Parameters Procedures as discussed 

below). Overall, these changes were 


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3European Market Infrastructure Regulation 

(EMIR) Article 27. 

intended to more clearly reflect the 

current model, and would not represent 

a change in methodology. 

The Risk Measures section was 

amended to reflect existing practice that 

each cleared portfolio would be initially 

split into sub-portfolios based on 

common features in order to obtain risk 

estimates reflective of the market 

behavior and default management 

practices. The definitions of the subportfolios and their respective risk 

horizons would be periodically 

reviewed by the ICE Clear Europe Risk 

Management department and updated 

upon consultation with the Product Risk 

Committee. 

More detail was provided with 

respect to the use of simulated P/L 

scenarios, combined with the postindex-decomposition positions related 

to a given RF, to generate a currencyspecific RF P/L vector. Each risk factor 

will be attributed to only one sub 

portfolio and all instruments related to 

a given risk factor would be 

denominated in the same currency. The 

multi-currency risk aggregation 

approach will be applied to risk factors 

within the European Corporate and U.S. 

Corporate sub-portfolios denominated 

in EUR and USD currencies, 

respectively. A diagram would be added 

to demonstrate a bivariate simulation 

aspect of the risk aggregation approach. 

This change was intended to document 

existing practices. 

The Monte Carlo Engine Setups 

subsection and Conclusion subsection 

to the Monte Carlo Implementation 

section were deleted for improved 

clarity as content relevant to the 

implementation is addressed more 

clearly in other sections, and the prior 

description of the system or engine does 

not, in ICE Clear Europe’s view, add 

useful information beyond the other 

aspects of model description. 

Overall, these amendments generally 

did not represent a change in current 

operation of the MC component of the 

risk model. 

Time Series for IM and GF Distribution 

A section explaining the existing use 

of the same time series for IM and GF 

distribution was added. The approach is 

designed to be conservative and ensure 

that the portfolio loss at 99.75% 

quantile (used for GF determination) 

would be always greater than 99.5% 

quantile loss (used for IM 

determination). The approach also 

avoids unnecessary operational 

complexity. The validity of the 

assumption is monitored through the 

stress test impact analysis. The 

amendments were intended to 

document existing practices and 

therefore were not expected to have a 

material impact. 

Current Amendments 

The following is a description in 

further detail of the Current 

Amendments to the CDS Risk Model. 

Initial Margin Methodology 

The amendments clarify the source of 

certain market risk transfer activity data 

used in the concentration charge 

threshold parameterization. The 

amendments also update the loss 

threshold calculation in the 

determination of specific WWR and 

general WWR (to be based on price 

minus recovery rate as opposed to one 

minus recovery rate). Although the 

change makes the WWR calculation 

more precise, the monetary impact on 

margin requirements is expected to be 

immaterial (and near zero). The 

amendments would generally 

strengthen the precision of the Initial 

Margin methodology based upon 

independent validation findings. 

The amendments would provide 

additional detail with respect to the 

volatility floor value used in the IM 

methodology. The amended description 

would provide that the volatility floor is 

estimated based on the average 

overlapping five-day absolute change of 

recovery rates (RRs) for a set of 

defaulted names. The defaulted names 

have a long time series of observed RRs 

(i.e. more than a year) and comprise a 

stress period of 2009–2012. The 

Clearing Risk Department would be able 

to review the estimated parameters in 

case of the availability of sufficient long 

time series of observed RRs. This is 

consistent with existing practice and 

intended to strengthen the IM 

methodology by more clearly 

documenting the practice. 

The amendments would also clarify 

that with respect to the concentration 

charge threshold, the market risk 

transfer activity data obtained from the 

Depository Trust & Clearing Corporation 

specifically contains both bilateral 

positions and ICE cleared positions. 

This is consistent with existing practice 

and intended to strengthen the IM 

methodology by more clearly 

documenting the practice. 

Anti-Procyclicality Measures 

The amendments would modify the 

approach to anti-procyclicality of spread 

response requirements to be calibrated 

based on historically observed extreme 

but plausible stress test scenarios in 

price space defined in the revised CDS 

Stress Testing Policy, as discussed 

above, which include various stress 

scenarios including the Lehman 

Brothers’ default and COVID–19 

outbreak. This broadens the current 

anti-procyclicality approach, which is 

based specifically on the Lehman 

Brothers’ default scenario. The 

amendments are intended to enhance 

the anti-procyclicality approach to 

address multiple price-based scenarios 

as the Lehman Brothers’ default 

scenario alone may not be sufficient. In 

particular, the amendments are 

intended to incorporate the Covid–19 

stress scenario, in light of experience 

during the pandemic. Amendments also 

reflect the 20% portfolio gross margin 

floor required under relevant European 

regulation.3

Monte Carlo Implementation 

The amendments would clarify that in 

the MC implementation, distributions 

are based on simulated constant 

maturity CDS spread scenarios, and that 

instrument profits or losses are 

calculated by re-pricing instruments at 

their coupons as well as their implied 

recovery rates. 

This change is intended to document 

existing practices. 

Data 

The amendments would clarify 

certain data fallbacks used by the 

Clearing House when the normal 

established EOD spread data is not 

available. Consistent with current 

practice, the amendments would 

provide that if CDS spreads are not 

available using the usual data sources, 

then the ICE Clear Europe Clearing Risk 

Department would use proxy log-returns 

of existing clearable risk sub-factors 

from a similar or correlated industry/ 

sector. In case ICE Clear Europe rolls out 

risk factors already cleared at ICE Clear 

Credit, the existing CDS spreads time 

series would be used directly after 

reviewing the back-test results. The 

amendments would also clarify that 

certain CDS spread time series are 

available by risk sub-factor for the 

relevant benchmark tenors. 

The amendments would provide 

additional detail as to the collection, 

analysis and back testing of relevant 

data for new risk sub-factors. Pursuant 

to the amendments, if new risk 

subfactors are to be rolled out, ICE Clear 

Europe would collect prices from the 

Clearing Members on the benchmark 

tenors as per normal EOD price 

discovery process before making the 

contracts clearing eligible. The Clearing 

Risk department would be responsible 

for reviewing the fixed maturity time 


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series data on the benchmark tenors 

until the first day of the price collection. 

The backfilling of missing data would 

be performed in log-return space 

derived from the available EOD fixedmaturity spread levels. In general, the 

5Y tenor time series would always be 

available. If the original log-returns time 

series presents incomplete data for less 

actively traded tenors for only a few 

days, then interpolation/extrapolation 

techniques would be applied to derive 

the missing data. 

Once fixed maturity time series are 

complete, ICE Clear Europe Clearing 

Risk Department would perform backtests on hypothetical trading strategies 

and stress tests on hypothetical 

portfolios (i.e., by injecting bilateral 

positions extracted from DTCC on the 

sub-risk factor to roll out into cleared 

portfolios of Clearing Members) in order 

to further ensure that time series for the 

new risk sub-factors are appropriate to 

calibrate the risk models. The results of 

the analyses would be presented to the 

CDS Product Risk Committee. 

Fixed maturity time series would be 

transformed to constant maturity time 

series (‘‘CMTS’’) to eliminate the impact 

of semi-annual rolls. The amendments 

provide further detail as to the manner 

in which CMTS series are determined 

and used for index and single-name risk 

factors. These amendments are intended 

to provide further clarity to the process 

as described in the Risk Model 

Description, but not significantly change 

current Clearing House practice, 

consistent with the existing Risk Model 

Description. 

The amendments would also provide 

that back-testing results would be 

available to assess the quality of time 

series as well as the performance of the 

calibrated models (instead of just the 

latter). 

Overall, these amendments relating to 

data are intended to better document 

existing practices and therefore are not 

expected to change Clearing House 

operation. 

Testing 

The Testing section would be 

amended to provide that tests would be 

broadly grouped into the following 

categories: Stress tests; back-tests; 

sensitivity tests; anti-procyclicality 

tests; and benchmarking. The 

amendments are generally intended to 

reflect, and be consistent with the ICE 

Clear Europe CDS Back-Testing Policy, 

CDS Clearing Stress-Testing Policy, CDS 

Parameters Review Procedures and Procyclicality Framework, and further 

details of testing are provided in those 

documents. With respect to 

benchmarking, as currently described in 

the Risk Management Model 

Description, ICE Clear Europe would 

benchmark the spread response model 

against the Model Carlo simulation 

approach. Certain existing details 

regarding back testing of the core model 

components, comparing the calibrated 

recovery rates used in the jump to 

default requirement and actual market 

data, assessing whether the assumed 

stress scenario adopted to size the GF is 

fit for purpose, testing the liquidity 

component of the model, assessing 

measures to mitigate the procyclicality 

of the margins and testing margin 

sensitivity would be removed as that 

detail is contained in the ICE Clear 

Europe Back-Testing Policy, CDS 

Clearing Stress-Testing Policy, CDS 

Parameters Review Procedures and Procyclicality Framework. The 

amendments do not represent a 

substantive change in ICE Clear 

Europe’s approach to testing but are 

intended to clarify the Risk Model 

Description and to enhance it by more 

clearly stating relevant assumptions. 

Other Changes Throughout the 

Documents 

Minor typographical and drafting 

updates are also proposed throughout 

the Documents, including updating 

references to Clearing Participants (or 

CPs) to Clearing Members (or CMs) to be 

consistent with the Rules, references to 

Trading Advisory Committee (or TAC) 

or Trading Advisory Group (or TAG) to 

reflect that the TAG is not technically a 

Clearing House committee, and Risk 

Committee to Product Risk Committee 

or CDS Product Risk Committee, as 

appropriate, to reflect the correct name 

of that existing committee. 

CDS Parameters Review Procedures 

ICE Clear Europe proposes to 

formalize certain existing practices and 

procedures for calibrating and reviewing 

the core parameters and underlying 

assumptions of its Risk Management 

(‘‘RM’’) model that are not explicitly 

described in its CDS Risk Model 

Description and CDS Risk Policy into a 

new Parameters Procedures document. 

The Parameters Procedures thus 

generally are not expected to change 

existing Clearing House practice. 

Parameters Setting and Calibration 

ICE Clear Europe’s Parameters 

Procedures would discuss the process of 

setting and reviewing the model core 

parameters and their underlying 

assumptions. The model requirements 

include Spread Response (‘‘SR’’) 

requirements, Jump-To-Default (‘‘JTD’’) 

requirements, basis risk requirements, 

interest rate (‘‘IR’’) sensitivity 

requirements, liquidity charge 

requirements, and concentration charge 

requirements. 

Spread Response 

The Parameters Procedures would 

describe the parameters (and related 

process for reviewing and updating 

those parameters) that are associated 

with the Spread Response components 

of the CDS risk model, including as to 

applicability (index or single name or 

both), level of granularity (e.g., risk 

factor), update frequency and the source 

of the parameter estimations. 

Time series associated with constant 

maturity benchmark tenors would be 

analysed and the distributions that 

describe the fluctuations of the 

benchmark tenors calibrated. The 

statistical parameters update would be 

performed at least on a monthly basis 

and controlled and managed through 

ICE Clear Europe internal systems. 

The monitoring of the stress period 

selected for the scale parameter would 

be performed on a monthly basis in 

accordance with the CDS Risk Model 

Description. Proposed changes to the 

stress period would be reviewed by the 

Clearing House’s Clearing Risk 

Department with its Risk Working 

Group and MOC. 

Jump-to-Default Requirement 

Parameters 

The parameters impacting the JTD 

requirement are categorized as either 

LGD or WWR parameters. The 

Parameters Procedures would explain 

how, in order to measure credit event 

losses, the Clearing House’s Risk 

Department constructs JTD scenarios in 

terms of anticipated recovery rate 

(‘‘RR’’) levels (‘‘RR scenarios’’). The 

Parameters Procedures would describe 

RR scenarios and estimations for 

corporate SNs, sectors, and sovereign 

reference entities, and notes foreign 

exchange rate risk considerations with 

respect to sovereign reference entities. 

The Parameters Procedures would 

require ICE Clear Europe to estimate and 

review the LGD parameters at least 

monthly and describes the associated 

governance process, noting the 

reviewers and any prerequisites to the 

implementation of parameter updates. 

The Parameters Procedures would 

also detail the process of setting and 

reviewing the WWR parameters. The 

Parameters Procedures would contain 

information regarding the parameters 

that would be used to quantify WWR 

dependence and to compute WWR JTD 

requirements. 


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4 15 U.S.C. 78q–1. 

5 15 U.S.C. 78q–1(b)(3)(F). 

Basis Risk Requirements 

The Parameters Procedures would 

discuss how the Clearing House’s Risk 

Department maintains and monitors 

hypothetical portfolios representing 

basis trades between cleared index and 

single-name instruments. Basis risk is 

calibrated by comparing the P/Ls of 

such portfolios to estimated IM 

requirements, excluding any 

concentration charges. 

Interest Rate Sensitivity Requirements 

The Parameters Procedures would 

contain information on the estimation 

and the review of the parameters that 

serve as inputs to the IR sensitivity 

component of the risk model. The IR 

sensitivity component accounts for the 

risk associated with changes in the 

default-free discount term structure 

used to price CDS instruments. With 

respect to the IR sensitivity requirement 

parameters, the Parameters Procedures 

would specify how the risk department 

estimates the up and down parallel 

shifts for the US Dollar and Euro 

default-free discount term structures. 

The Parameters Procedures would direct 

ICE Clear Europe to estimate and review 

the IR sensitivity requirement 

parameters at least monthly. 

Liquidity Charge 

The Parameters Procedures would 

explain the process of setting and 

reviewing parameters for the liquidity 

charge component of the risk model. 

With respect to index instruments, the 

Parameters Procedures would address 

the determination of bid/offer 

parameters from the default spread 

width matrix and other assumptions 

about liquidation cost of an index 

portfolio, and address procedures for 

review of that matrix. The Parameters 

Procedures would also describe the 

parameters used in determining bid/ 

offer widths for single names, including 

the use of price-based floor levels and 

spread-based volatility measures. The 

Parameters Procedures require the 

Clearing House to review the liquidity 

charge parameters at least monthly. 

Concentration Charge 

The Parameters Procedures would 

discuss the estimation and the review of 

the concentration charge parameters, 

including detailing how the Risk 

Department establishes series-specific or 

SN-specific concentration charge 

threshold levels for each index or SN 

Risk. 

Factor (‘‘RF’’), and how the Risk 

Department estimates concentration 

charge growth rates that determine how 

quickly concentration charges increase 

with position size. The Parameters 

Procedures direct the Clearing House to 

estimate and review the concentration 

charge parameters at least monthly. 

Sensitivity Analysis 

The Parameters Procedures would 

detail the sensitivity analyses that the 

Clearing House performs to explore the 

sensitivity of the RM system’s outputs to 

certain model core parameters that are 

calibrated on an ad-hoc basis and to 

alternative data analyses and parameter 

estimation techniques. The Parameters 

Procedures also provide for summary 

reports of relevant analyses to be 

provided to the Risk Oversight 

Department or other relevant groups. 

Portfolio Benefits Parameters 

The portfolio benefits parameters 

control portfolio benefits during the 

computation of the SR with the stress 

based VaR approach. The Parameters 

Procedures would describe the methods 

for monitoring the benefits and 

performing sensitivity analysis of 

potential parameter changes that would 

reduce benefits. 

Dependence Structure Shifts 

The Parameters Procedures also 

address sensitivity analysis of portfolio 

benefits implemented during the 

computation of the SR under the MC 

simulation approach, based on different 

dependence structures. The approach is 

intended to guide the Risk Department 

in situations where back-testing results 

indicate excessive portfolio benefits. 

SWWR Threshold Shift 

The Parameters Procedures would 

address sensitivity analysis with respect 

to model parameters that control the 

permitted level of index derived SWWR, 

to provide guidance to the Risk 

Department in situations when a 

decision to fully collateralize SWWR is 

made upon a consultation with the 

Model Oversight Committee and the 

Product Risk Committee. 

GWWR Correlation Shifts 

Sensitivity analysis also considers 

GWWR arising from Clearing Members 

exposed to Western European 

Sovereigns when the Kendall tau rankorder correlation between the Member 

and the Sovereign entity is above a 

threshold. The sensitivity analysis 

would be to provide guidance to the risk 

departments in situations when an 

increase of the dependence among 

members and sovereigns might lead to 

changes in risk requirements. 

MAD Level Shifts 

The Parameters Procedures would 

describe sensitivity analysis on MAD 

levels, which is performed by shifting 

all MAD estimates to their stress levels 

to provide information about the 

response of risk requirements to 

potential volatility shifts and to assess 

the viability of certain parameter-setting 

assumptions. This sensitivity analysis 

would be to provide guidance to the 

Risk Department about potential risk 

requirement changes in stress periods 

due to increase in volatility shifts. 

EWMA Sensitivity Analysis 

The Parameters Procedures would 

address sensitivity analysis relating to 

the setting of the exponentially 

weighted moving average (‘‘EWMA’’) 

decay rate (‘‘EWMA factor’’), which may 

affect the procyclicality of the model. 

Statutory Basis 

ICE Clear Europe believes that the 

amendments to the Documents and the 

adoption of the Parameters Procedures 

are consistent with the requirements of 

Section 17A of the Act 4 and the 

regulations thereunder applicable to it. 

In particular, Section 17A(b)(3)(F) of the 

Act 5 requires, among other things, that 

the rules of a clearing agency be 

designed to promote the prompt and 

accurate clearance and settlement of 

securities transactions and, to the extent 

applicable, derivative agreements, 

contracts, and transactions, the 

safeguarding of securities and funds in 

the custody or control of the clearing 

agency or for which it is responsible, 

and the protection of investors and the 

public interest. 

The amendments to the Documents 

and the adoption of the Parameters 

Procedures are generally designed to 

enhance and clarify the descriptions of 

key ICE Clear Europe risk models and 

documentation used in determining 

CDS margin and GF requirements, 

particularly in the CDS Risk Policy, CDS 

Risk Model Description and CDS Endof-Day Pricing Policy. Although these 

changes are largely not intended to 

represent a change in Clearing House 

practices, they should enhance the 

clarity and ongoing monitoring and 

implementation of these policies. The 

amendments also make a number of 

changes to the CDS Stress Testing 

Policy, which are intended to add new 

stress scenarios relating to the COVID– 

19 pandemic, in light of experience in 

early 2020, and clarify more generally 

that certain extreme scenarios should 

not be limited to scenarios relating to 

the Lehman Brothers default. The 

amendments also adopt a new set of 

Parameters Procedures, which is 


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13426 Federal Register / Vol. 86, No. 43 / Monday, March 8, 2021 / Notices 

6 15 U.S.C. 78q–1(b)(3)(F). 

7 17 CFR 240.17 Ad–22(e)(3)(i). 

8 17 CFR 240.17 Ad–22(e)(3)(i). 

9 17 CFR 240.17Ad–22. 

10 17 CFR 240.17Ad–22(e)(4)(vi)(B). 

11 17 CFR 240.17 Ad–22(e)(2)(i) and (v). 

12 17 CFR 240.17 Ad–22(e)(2)(i) and (v). 

13 17 CFR 240.17Ad–22(e)(6)(iv). 

14 17 CFR 240.17Ad–22(e)(6)(iv). 

15 17 CFR 240.17Ad–22(e)(6)(i) to (iii). 

intended to codify and formalize the 

Clearing House’s approach to setting the 

key parameters used in the CDS risk 

model, conducting related sensitivity 

analyses of the impact of such 

parameters and reviewing such 

parameters on an ongoing basis. As 

such, the Parameters Procedures 

support ICE Clear Europe’s ability to 

maintain sufficient margin requirements 

and enhance ICE Clear Europe’s 

approach to identifying potential 

parameter changes that are appropriate 

to maintain the operation of the risk 

model and thereby ensure that the 

Clearing House continues to maintain 

sufficient financial resources to 

withstand defaults by Clearing 

Members. Therefore, the amendments to 

the Documents, and the adoption of the 

Parameters Procedures, will help ICE 

Clear Europe ensure that it maintains 

adequate financial resources to support 

its CDS operations, enhance the stability 

of the Clearing House and overall 

promote the prompt and accurate 

clearance and settlement of securities 

transactions and, derivative agreements, 

contracts, and transactions, the 

safeguarding of securities and funds in 

ICE Clear Europe’s custody or control or 

for which ICE Clear Europe is 

responsible, and the public interest in 

the sound operation of clearing 

agencies. Accordingly, the amendments 

are consistent with the requirements of 

Section 17A(b)(3)(F).6

For similar reasons, the amendments 

and the Parameters Procedures also are 

consistent with relevant requirements of 

Rule 17Ad–22. Rule 17Ad–22(e)(3)(i) 7

requires clearing agencies to maintain a 

sound risk management framework that 

identifies, measures, monitors and 

manages the range of risks that it faces. 

The various amendments throughout 

the Documents as well as the new 

Parameters Procedures document are all 

intended to clarify the operation of ICE 

Clear Europe’s risk management systems 

and provide for enhanced stress testing. 

They provide greater clarity with 

respect to various risk management 

tools, ensure that COVID–19 and other 

extreme but plausible stress scenarios 

are accounted for and ensure current 

governance practices are clearly set out, 

all of which facilitate ICE Clear Europe’s 

compliance with Rule 17Ad22(e)(3)(i).8

In addition, ICE Clear Europe believes 

that the adoption of the Parameters 

Procedures are consistent with the 

relevant requirements of Rule 17Ad– 

22(e)(4)(vi)(B),9 which requires ICE 

Clear Europe to identify, measure, 

monitor and manage its credit exposures 

to participants and those arising from its 

payment, clearing, and settlement 

processes, including by testing the 

sufficiency of its total financial 

resources available to meet the 

minimum financial resource 

requirements, including by conducting a 

comprehensive analysis of underlying 

parameters and assumptions on at least 

a monthly basis. The Parameters 

Procedures would also provide a clear 

framework for ICE Clear Europe to 

estimate and review the model core 

parameter settings and perform and 

review sensitivity analyses related to 

certain parameter settings on at least a 

monthly basis. The amendments to the 

CDS Stress Testing Policy will, as 

discussed above, enhance the stress 

testing of the Clearing House by 

incorporating a wider range of extreme 

scenarios (including those reflecting 

recent market events) in stress testing, 

which are reviewed on at least a 

monthly basis. Other amendments 

would clarify how the Clearing Risk 

Department would address a scenario or 

portfolio in the standard set of stress 

scenarios no longer being applicable, or 

being superseded by new scenarios or 

portfolios, where the Clearing Risk 

Department wishes to retire or modify 

the outdated scenario or portfolio or add 

a new scenario. The amendments serve 

to promote the soundness of the 

Clearing House’s risk management 

model and system and ensure that the 

Clearing House possesses the ability to 

manage the risks associated with 

discharging its responsibilities, 

consistent with the requirements of Rule 

17Ad–22(e)(4)(vi)(B).10

Rules 17Ad–22(e)(2)(i) and (v) 11

requires that clearing agencies provide 

for governance arrangements that are 

clear and transparent and specify clear 

and direct lines of responsibility. 

References to the roles of certain 

committees and departments with 

respect to reviews and approvals 

throughout the Documents have been 

updated to better reflect existing 

practice with respect to the roles of 

groups. Where appropriate, references to 

the MRGF, which sets out further 

governance details, have been added 

throughout the documents. The 

amendments provide additional clarity 

with respect to Clearing House 

governance and lines of responsibility 

consistent with Rules 17Ad–22(e)(2)(i) 

and (v).12

Rule 17Ad–22(e)(6)(iv) 13requires that 

clearing agencies cover their credit 

exposures to participants by 

establishing a risk-based margin system 

that uses reliable sources of timely price 

data and uses procedures and sound 

valuation models for addressing 

circumstances in which pricing data are 

not readily available or reliable. 

Amendments to the CDS Model Risk 

Description would more clearly state the 

procedures for determining relevant 

prices should input data not be 

available from back-up sources, further 

strengthening ICE Clear Europe’s 

strategies to ensure it has access to 

reliable sources of timely price data in 

compliance with this requirement. The 

amendments would also provide further 

detail regarding the treatment of data 

collected and the backfilling of missing 

data. The amendments to the CDS Risk 

Policy would also strengthen the quality 

of intraday prices through enhanced 

intraday monitoring through additional 

comparisons of intraday prices with 

other ICE CDS clearing houses and 

third-party providers. Together, the 

amendments strengthen ICE Clear 

Europe’s compliance with Rule 17Ad– 

22(e)(6)(iv).14

Rules 17Ad–22(e)(6)(i) to (iii) 15

require that clearing agencies establish a 

risk-based margin system that (i) 

considers, and produces margin levels 

commensurate with, the risks and 

particular attributes of each relevant 

product, portfolio, and market; (ii) 

marks participant positions to market 

and collects margin, including variation 

margin or equivalent charges if relevant, 

at least daily and includes the authority 

and operational capacity to make 

intraday margin calls in defined 

circumstances; and (iii) calculates 

margin sufficient to cover its potential 

future exposure to participants in the 

interval between the last margin 

collection and the close out of positions 

following a participant default. The 

proposed amendments would provide 

more detail regarding the IM 

methodology set out in the CDS Risk 

Policy, facilitating the maintenance of 

sufficient margin levels. The CDS Risk 

Policy amendments would also provide 

that in the event that ICE Clear Europe 

is accepting sizable positions through 

the weekly back-loading process in the 

context of margin calls, it will precollect IM and mark-to-market changes, 

instead of just IM, to further ensure 

sufficient margin collection. 

Amendments to the IM methodology in 

the CDS Risk Model Description would 


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Federal Register / Vol. 86, No. 43 / Monday, March 8, 2021 / Notices 13427 

16 17 CFR 240.17Ad–22(e)(6)(i) to (iii). 

17 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

also enhance various aspects of the 

related risk analysis and related 

calculations. Overall, these amendments 

strengthen ICE Clear Europe’s margin 

system and compliance with Rules 

17Ad–22(e)(6)(i) to (iii).16

(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 Documents and the new Procedures 

apply to all CDS Contracts. In general, 

the amendments are intended to clarify 

the description of the CDS risk model, 

and not substantially change the 

practices of the Clearing House with 

respect to the calculation of CDS margin 

and GF requirements. As such, the 

amendments will apply to all CDS 

Clearing Members and are unlikely, in 

ICE Clear Europe’s view, to materially 

affect the cost of clearing for CDS 

products or affect access to clearing for 

CDS products at ICE Clear Europe or the 

market for cleared services generally. 

Certain amendments to the CDS Stress 

Testing Framework would add new 

stress-testing scenarios in light of recent 

events, including COVID–19 related 

scenarios. To the extent such 

amendments may have any impact on 

margin levels, ICE Clear Europe believes 

such changes will be appropriate in 

furtherance of the risk management of 

the Clearing House in light of the market 

movements observed during the 

pandemic. 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 with respect to the proposed 

rule changes. 

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– 

ICEEU–2021–006 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–2021–006. 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– 

2021–006 and should be submitted on 

or before March 29, 2021. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.17

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2021–04678 Filed 3–5–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–91241; File No. SR– 

NASDAQ–2021–010] 

Self-Regulatory Organizations; The 

Nasdaq Stock Market LLC; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change To Enhance 

the End of Day Summary Message on 

Nasdaq Last Sale Plus 

March 2, 2021. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on February 

17, 2021, The Nasdaq Stock Market LLC 

(‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I and II 

below, which Items have been prepared 

by the Exchange. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to enhance 

the End of Day (‘‘EOD’’) summary 

message on Nasdaq Last Sale (‘‘NLS’’) 

Plus by replacing the current high, low 

and closing price of a security based on 

its trading on the Nasdaq, Nasdaq BX 

and Nasdaq PSX exchanges with the 

high, low and closing price of a security 

published by the securities information 

processors (‘‘SIPs’’), and adding the 

opening price of a security as published 

by the SIPs to that message 

The text of the proposed rule change 

is available on the Exchange’s website at 

https://listingcenter.nasdaq.com/ 

rulebook/nasdaq/rules, at the principal 

office of the Exchange, and at the 

Commission’s Public Reference Room. 


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