Federal Register / Vol. 83, No. 142 / Tuesday, July 24, 2018 / Notices 35033 

ESTIMATE OF ANNUAL RESPONDENT BURDEN—Continued 

Form No. Annual 

responses 

Time 

(minutes) 

Burden 

(hours) 

BA–9 (FTP) .................................................................................................................................. 160 76 203 

Total ...................................................................................................................................... 360 ........................ 457 

Additional Information or Comments: 

To request more information or to 

obtain a copy of the information 

collection justification, forms, and/or 

supporting material, contact Dana 

Hickman at (312) 751–4981 or 

Dana.Hickman@RRB.GOV. Comments 

regarding the information collection 

should be addressed to Brian Foster, 

Railroad Retirement Board, and 844 

North Rush Street, Chicago, Illinois 

60611–1275 or emailed to Brian.Foster@

rrb.gov. Written comments should be 

received within 60 days of this notice. 

Brian Foster, 

Clearance Officer. 

[FR Doc. 2018–15755 Filed 7–23–18; 8:45 am] 

BILLING CODE 7905–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–83662; File No. SR–ICC– 

2018–008] 

Self-Regulatory Organizations; ICE 

Clear Credit LLC; Notice of Filing of 

Proposed Rule Change Relating to 

ICC’s Risk Management Model 

Description Document and ICC’s Risk 

Management Framework 

July 18, 2018. 

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

Securities Exchange Act of 1934, 15 

U.S.C. 78s(b)(1) and Rule 19b–4, 17 CFR 

240.19b–4, notice is hereby given that 

on July 5, 2018, ICE Clear Credit LLC 

(‘‘ICC’’) filed with the Securities and 

Exchange Commission the proposed 

rule change as described in Items I, II 

and III below, which Items have been 

prepared by ICC. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Clearing Agency’s Statement of the 

Terms of Substance of the Proposed 

Rule Change, Security-Based Swap 

Submission, or Advance Notice 

The principal purpose of the 

proposed rule change is to make 

revisions to the ICC Risk Management 

Model Description Document and the 

ICC Risk Management Framework 

related to the transition from a stressbased approach to a Monte Carlo-based 

methodology for the spread response 

and recovery rate (‘‘RR’’) sensitivity 

response components of the Initial 

Margin model. These revisions do not 

require any changes to the ICC Clearing 

Rules. 

II. Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Proposed Rule Change, Security-Based 

Swap Submission, or Advance Notice 

In its filing with the Commission, ICC 

included statements concerning the 

purpose of and basis for the proposed 

rule change, security-based swap 

submission, or advance notice and 

discussed any comments it received on 

the proposed rule change, securitybased swap submission, or advance 

notice. The text of these statements may 

be examined at the places specified in 

Item IV below. ICC has prepared 

summaries, set forth in sections (A), (B), 

and (C) below, of the most significant 

aspects of these statements. 

(A) Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Proposed Rule Change, Security-Based 

Swap Submission, or Advance Notice 

(a) Purpose 

ICC proposes revising its Risk 

Management Model Description 

Document and its Risk Management 

Framework. ICC believes such revisions 

will facilitate the prompt and accurate 

clearance and settlement of securities 

transactions and derivative agreements, 

contracts, and transactions for which it 

is responsible. The proposed revisions 

are described in detail as follows. 

The purpose of the proposed changes 

is to transition from a stress-based 

approach to a Monte Carlo-based 

methodology for the spread response 

and recovery rate (‘‘RR’’) sensitivity 

response components of the Initial 

Margin model. ICC notes certain 

limitations of its stress-based approach, 

namely, that it generates a limited 

number of stress scenarios that may not 

capture the risk of portfolios with more 

complex non-linear instruments and 

that it does not provide for a consistent 

estimation of the portfolio level spread 

response based on a defined risk 

measure (e.g., Value-at-Risk (‘‘VaR’’)) 

and quantile (e.g., 99%). The transition 

to a Monte Carlo-based methodology 

rectifies these limitations, as it 

considers a large set of scenarios to 

more appropriately capture portfolio 

risk, including the risk of more complex 

non-linear instruments, and produces 

consistent quantile-based portfolio risk 

measure estimates. 

To derive the spread response 

component, the current stress-based 

approach considers a set of hypothetical 

‘‘tightening’’ and ‘‘widening’’ credit 

spread scenarios, from which it 

computes instrument Profit/Loss (‘‘P/ 

L’’) responses for every Risk Factor 

(‘‘RF’’) scenario. All instrument P/L 

responses for a scenario are aggregated 

to obtain the portfolio P/L response for 

that scenario. Since the set of scenarios 

does not reflect the joint distribution of 

the considered RFs, offsets between P/ 

Ls are applied to provide some portfolio 

benefits. To derive the RR sensitivity 

response component, all instruments 

belonging to a RF or Risk Sub-Factor 

(‘‘RSF’’) are subjected to RR stress 

scenarios to obtain the resulting P/L 

responses, and the worst scenario 

response is chosen for the estimation of 

the RF/RSF RR sensitivity response 

component. 

Under the proposed Monte Carlobased methodology, the ‘‘integrated 

spread response’’ component replaces 

the spread response and RR sensitivity 

response components. This component 

will be computed by creating P/L 

distributions from a set of jointlysimulated hypothetical (forward 

looking) spread and RR scenarios. The 

proposed Monte Carlo-based 

methodology utilizes standard tools in 

modeling dependence, which can be 

seen as a means for constructing 

multivariate distributions with different 

univariate distributions and with 

desired dependence structures, to 

generate the spread and RR scenarios. 

The proposed Monte Carlo-based 

methodology provides flexibility in 

modeling tail dependence, an important 

concept in risk management as it 

provides information about how 

frequently extreme values are expected 

to occur, and thus ICC considers them 

particularly suitable for implementing 

its Monte Carlo framework. 

The univariate RF distribution 

assumptions do not change under the 

proposed Monte Carlo-based 


jstallworth on DSKBBY8HB2PROD with NOTICES
35034 Federal Register / Vol. 83, No. 142 / Tuesday, July 24, 2018 / Notices 

methodology. ICC will utilize the 

simulated scenarios to derive 

hypothetical spread and RR levels, at 

which each instrument is repriced in 

order to generate a scenario instrument 

P/L based on post-index-decomposition 

positions. ICC will create P/L 

distributions from the set of jointlysimulated hypothetical (forward 

looking) credit spread and RR scenarios 

to compute the integrated spread 

response component. The P/L 

distributions for each instrument allow 

ICC to decompose portfolio level P/L at 

the RF level and to estimate RF-level 

risk measures. The proposed model will 

utilize the 5-day 99.5% VaR measure 

and allow ICC to be compliant with the 

European Market Infrastructure 

Regulation (‘‘EMIR’’) as applied to OverThe-Counter instruments. 

Risk Management Model Description 

Document 

ICC proposes revisions to the ‘Initial 

Margin Methodology’ section of the Risk 

Management Model Description 

Document to reflect the described 

transition from a stress-based approach 

to a Monte Carlo-based methodology for 

the spread response and RR sensitivity 

response components. ICC proposes to 

clarify its risk management approach to 

note that it features stress loss 

considerations and a P/L distribution 

analysis at selected quantile levels that 

are 99% or higher. The proposed 

changes also include a description of 

each of the Initial Margin model 

components, which are separated into 

statistically calibrated components and 

stress-based add-on components. The 

statistically calibrated components (i.e., 

spread and RR dynamics, interest rate 

dynamics, and index/single-name 

(‘‘SN’’) basis dynamics) reflect 

fluctuations in market observed or 

implied quantities, and their direct P/L 

impacts. The stress-based add-on 

components (i.e., idiosyncratic loss 

given default (‘‘LGD’’), wrong-way-risk 

(‘‘WWR’’) LGD, bid/offer width risk, and 

concentration risk) reflect the risk 

associated with low probability events 

with limited information sets. 

ICC proposes to reorganize the ‘Initial 

Margin Methodology’ section to begin 

with the ‘LGD Risk Analysis’ section. 

The proposed changes to the ‘LGD Risk 

Analysis’ section include minor updates 

to terminology. The proposed revisions 

clarify that the LGD calculation 

considers RSF-specific RR level 

scenarios and that the Jump-To-Default 

(‘‘JTD’’) RR stress levels are updated if 

needed. ICC proposes to update the 

Profit/Loss-Given-Default (‘‘P/LGD’’) 

calculation at the RSF level to indicate 

the association between JTD and the RR 

level scenarios. ICC proposes to remove 

a reference to the stress levels noted in 

the current ‘RR Sensitivity Risk 

Analysis’ section. ICC proposes to move 

the RF level P/LGD calculation ahead of 

the Risk Factor Group (‘‘RFG’’) LGD 

calculations to avoid disrupting the 

grouping of RFG LGD calculations. 

ICC proposes amendments to the ‘JTD 

Risk Analysis’ section. The proposed 

revisions to the Uncollateralized LGD 

(‘‘ULGD’’) calculation incorporate the 

integrated spread response component 

described above and remove reference 

to the current RR sensitivity response 

component. ICC also proposes, for 

clarity, to shorten a description in the 

WWR JTD calculation and to move 

details regarding the Kendall tau rankorder correlation to follow the WWR 

JTD calculation since such details are 

associated with the WWR JTD 

calculation. The details regarding the 

Kendall tau rank-order correlation 

remain unchanged, except for the 

addition of clarifying language 

referencing regulatory guidance with 

respect to RFs deemed highly 

correlated. ICC proposes to include this 

information, which is currently located 

in a source in a footnote, within the text 

to provide further description of the 

source in the footnote. ICC also 

proposes minor structural updates to its 

description of specific WWR (‘‘SWWR’’) 

to enhance readability. 

ICC proposes to add clarifying 

language to the ‘Interest Rate Sensitivity 

Risk Analysis’ section to note that the 

interest rate sensitivity component is a 

statistically calibrated Initial Margin 

component. ICC also proposes to correct 

a notation to reflect an inverse 

distribution function. 

ICC proposes amendments to the 

‘Basis Risk Analysis’ section, which 

consist of combining into this section 

the current index decomposition 

process, followed by SN position offsets, 

and then generating basis risk 

requirements. Currently, the index 

decomposition process and SN position 

offsets are discussed under the ‘Spread 

Risk Analysis’ section. However, given 

the proposed changes to the ‘Spread 

Risk Analysis’ section along with the 

interrelation of these concepts, ICC 

proposes to combine these concepts by 

discussing each of them as a different 

subsection under the ‘Basis Risk 

Analysis’ section. Since the index 

decomposition process, followed by SN 

position offsets, generates basis risk 

requirements, these concepts are 

particularly well suited for discussion 

within the same section. Specifically, 

ICC proposes moving the description 

under the current ‘Long-Short Benefits 

among RFs with Common Basis’ 

subsection to the proposed ‘Index 

Decomposition and Long-Short Offsets’ 

subsection. ICC proposes minor changes 

to such description, including removing 

references to the spread response 

component that ICC proposes to replace. 

Similarly, ICC proposes moving the 

description under the current ‘Portfolio 

Benefits Hierarchy Summary’ 

subsection to the proposed ‘Long/Short 

Offset Hierarchy’ subsection. The 

description includes the hierarchy to be 

followed in the allocation of each SN 

position to the index derived opposite 

positions and remains largely the same. 

ICC proposes minor changes to remove 

references to the current spread 

response component and to update the 

index series in an example. 

ICC proposes moving the analysis 

under the current ‘Basis Risk Analysis’ 

section to the proposed ‘Index-Basis 

Risk Estimation’ subsection. The 

analysis discusses the calculation of the 

basis risk component and remains 

largely the same. The proposed edits 

state that the basis risk component is 

statistically calibrated to provide 

additional clarity, update a description 

to specify that index instruments may 

react to changing market conditions 

differently than SN instruments to more 

accurately reflect trading characteristics, 

and remove an example considered to 

be unnecessary and overly specific 

given its applicability to one index. 

ICC proposes to combine the current 

‘Spread Risk Analysis’ and ‘RR 

Sensitivity Risk Analysis’ sections into 

the proposed ‘Spread and RR Risk 

Analysis’ section to reflect ICC’s 

transition from a stress-based approach 

to a Monte Carlo-based methodology for 

the spread response and RR sensitivity 

response components. As discussed 

above, ICC currently utilizes different 

methodologies to separately derive the 

spread response and the RR sensitivity 

response components, which are 

discussed in the ‘Spread Risk Analysis’ 

and ‘RR Sensitivity Risk Analysis’ 

sections, respectively. Under the 

proposed approach, ICC will utilize 

credit spreads and RR distributions to 

jointly simulate scenarios to estimate 

portfolio risk measures. Accordingly, 

ICC proposes to combine the ‘Spread 

Risk Analysis’ and ‘RR Sensitivity Risk 

Analysis’ sections into the ‘Spread and 

RR Risk Analysis’ section given their 

interrelation under the proposed 

approach, in which the integrated 

spread response will be computed by 

creating P/L distributions from a set of 

jointly-simulated hypothetical (forward 

looking) spread and RR scenarios. 

ICC proposes to remove details 

regarding the current stress-based 

approach from the ‘Initial Margin 


jstallworth on DSKBBY8HB2PROD with NOTICES
Federal Register / Vol. 83, No. 142 / Tuesday, July 24, 2018 / Notices 35035 

Methodology’ section and to describe 

how ICC generates credit spread 

scenarios using Monte Carlo techniques 

in the amended ‘Spread Risk Analysis’ 

section. As described above, the spread 

response component is derived in terms 

of a set of hypothetical ‘‘tightening’’ and 

‘‘widening’’ credit spread scenarios 

under the current stress-based approach. 

The analysis of the univariate 

characteristics of credit spread logreturns to arrive at credit spread 

scenarios does not change under the 

Monte Carlo-based methodology. 

The univariate RF distribution 

assumptions do not change under the 

Monte Carlo-based methodology and 

thus the ‘Distribution of the Credit 

Spreads’ subsection remains largely the 

same with some clarifying changes to 

language included. 

ICC proposes to describe the 

implementation of the Monte Carlobased methodology in the new 

‘Multivariate Statistical Approach via 

Copulas’ subsection. ICC proposes to 

include a discussion on the construction 

and application of the standard tools in 

modeling dependence, including the 

review of their theoretical background, 

in the new ‘Copulas’ subsection. 

ICC proposes the ‘Tail Dependence’ 

subsection to provide a description of 

the concept of tail dependence, given its 

relevancy as it indicates the probability 

of extreme values occurring jointly. The 

proposed subsection provides 

additional support behind ICC’s 

conclusion that the tools for modeling 

dependence are particularly suitable for 

connecting the various univariate 

distributions in a multivariate setting as 

they provide flexibility in modeling tail 

dependence. 

Under the proposed ‘Copula 

Simulation’ subsection, ICC describes 

its Monte Carlo-based simulation 

approach. The proposed approach is 

based on first generating for all SN RF/ 

RSF and On The Run indices Most 

Actively Traded Tenor (‘‘MATT’’) 

scenarios using the stochastic 

representation of the selected 

multivariate distribution under 

consideration. The conditional 

simulation approach is then utilized to 

generate individual RF/tenor-specific 

scenarios. ICC also proposes to describe 

the block simulation approach that it 

utilizes in generating scenarios, which 

departs from an approach where all 

tenors for all SNs are simulated 

together. Instead, specific blocks of the 

correlation matrix are considered 

through the stepwise block simulation 

approach. 

Under the proposed ‘Copula 

Parameter Estimation’ subsection, ICC 

discusses the estimation of a new 

parameter. The proposed subsection 

includes a description of two methods 

that can be used for parameter 

estimation, namely the ‘‘quasi 

Maximum Likelihood’’ approach and 

the ‘‘Canonical Maximum Likelihood’’ 

method. ICC proposes to include the 

value at which this parameter is set 

conservatively and to explain that such 

a value reflects strong tail dependence 

within the simulation framework, which 

is important because ICC estimates that 

tail dependence will increase in stressed 

market conditions. 

Next, ICC proposes to remove details 

regarding the current stress-based 

approach for the RR sensitivity response 

component and to describe how ICC 

jointly simulates credit spread and RR 

scenarios using Monte Carlo techniques 

in the amended ‘RR Risk Analysis’ 

section. As discussed above, under the 

current stress-based approach, the RR 

sensitivity response component is 

computed in terms of RR stress 

scenarios and incorporates potential 

losses associated with changes in the 

market implied RR. The proposed 

Monte Carlo-based methodology 

considers the risk arising from 

fluctuations in the market implied RRs 

of each SN RF and/or RSF jointly with 

the fluctuations in the curves of credit 

spreads. 

The univariate RR distribution 

assumptions do not change under the 

Monte Carlo-based methodology and 

thus the proposed ‘Distribution of RRs’ 

subsection contains much of the 

relevant analysis under the current ‘RR 

Sensitivity Risk Analysis’ section with 

some additional clarifying language to 

further specify that the RR stress-based 

sensitivity requirement transitioned to a 

Monte Carlo simulation-based 

methodology. ICC proposes to note the 

assumption regarding the analysis of 

each SN RF/RSF that includes the 

description located under the current 

‘Beta Distribution’ subsection since the 

integrated spread response also assumes 

a Beta distribution describing the 

behavior of the RRs. 

The amended ‘Parameter Estimation’ 

subsection discusses the parameter 

calibration necessary to simulate RR 

scenarios and is largely the same. The 

proposed revisions remove or replace 

terminology associated with the stressbased approach with terminology 

associated with the Monte Carlo-based 

approach. 

The proposed ‘Spread-Recovery-Rate 

Bivariate Model’ subsection describes 

the use of credit spread and RR 

distributions to jointly simulate 

scenarios to estimate portfolio risk 

measures under the Monte Carlo-based 

methodology. Namely, ICC proposes to 

discuss the use of the conditional 

simulation approach to jointly simulate 

SN RF/RSF-specific RR scenarios with 

SN RF/RSF MATT spread log-return 

scenarios. ICC proposes to note several 

assumptions under this model, along 

with an explanation of how it generates 

the individual SN RF/RSF-specific RR 

scenarios and the tenor-specific spread 

scenarios using copulas. 

ICC proposes moving the ‘ArbitrageFree Modeling’ subsection, which is 

currently located under the ‘Spread Risk 

Analysis’ section, under the ‘Spread and 

RR Risk Analysis’ section. The analysis 

remains largely the same with some 

language clarifications, including 

references to simulated spread levels in 

conjunction with simulated RR levels 

within the text and within formulas to 

ensure consistency with the proposed 

‘Spread and RR Risk Analysis’ section. 

ICC proposes further revisions to 

terminology, such as removing 

terminology associated with the stressbased approach and incorporating the 

Monte Carlo simulation based 

methodology described above to ensure 

consistency with the proposed ‘Spread 

and RR Risk Analysis’ section. ICC also 

proposes replacing specific references to 

the current most actively traded tenor 

with references to the more general 

concept of ‘‘most actively traded tenor’’ 

to account for a situation in which the 

referenced most actively traded tenor is 

different. 

Under the proposed ‘Risk Estimations’ 

subsection, ICC describes the 

computation of the integrated spread 

response component. Once the Monte 

Carlo scenarios are simulated, all 

instruments will be repriced, and the 

respective instrument P/L responses 

will be computed. Upon consideration 

of the instrument positions in each 

portfolio along with the instrument P/L 

responses, portfolio risk estimations 

will be performed and the integrated 

spread response component will be 

established. 

ICC proposes to discuss its calculation 

of P/Ls for instruments, RFs, common 

currency sub-portfolios, and multicurrency sub-portfolios under the new 

‘RF and Sub-Portfolio Level Integrated 

Spread Response’ subsection. ICC 

proposes to retain the use of subportfolios as is currently done today. 

However, the portfolio benefits across 

sub-portfolios will be limited. This 

enhancement allows ICC to decompose 

portfolio level P/L at the sub-portfolio 

level and to estimate sub-portfolio level 

risk measures. 

Under the proposed ‘Instrument P/L 

Estimations’ subsection, ICC describes 

the calculation of instrument P/Ls. 

Namely, ICC will reprice all instruments 


jstallworth on DSKBBY8HB2PROD with NOTICES
35036 Federal Register / Vol. 83, No. 142 / Tuesday, July 24, 2018 / Notices 

at the hypothetical spread and RR 

levels, which are derived from the 

simulated spread and RR scenarios, and 

take the difference between the prices of 

the instruments at the simulated 

scenarios and the current end-of-day 

(‘‘EOD’’) prices. ICC will utilize the 

instrument-related P/L distribution to 

estimate the instrument-specific 

integrated spread response as the 99.5% 

VaR measure in the currency of the 

instrument. 

Under the proposed ‘RF P/L 

Estimations’ subsection, ICC describes 

the calculation of RF P/Ls. ICC will 

utilize the simulated P/L scenarios, 

combined with the post-indexdecomposition positions related to a 

given RF, to generate a currency-specific 

RF P/L distribution. ICC will utilize this 

RF-related P/L distribution to estimate 

the RF-specific integrated spread 

response as the 99.5% VaR measure in 

the currency of the considered RF. 

Under the proposed ‘Common 

Currency Sub-Portfolio P/L Estimations’ 

subsection, ICC describes the 

calculation of common currency subportfolio P/Ls. For a currency specific 

sub-portfolio, ICC extracts the relevant 

risk measures from sub-portfolio level 

P/L distributions, which are obtained 

from the aggregation of common 

currency RF P/L distributions. 

Under the proposed ‘Multi-Currency 

Sub-Portfolio P/L Estimations’ 

subsection, ICC adds clarifying language 

describing the calculation of multicurrency sub-portfolio P/Ls. ICC 

proposes to extend multi-currency 

portfolio benefits to RFs with similar 

market characteristics, where the RFs 

and their respective instruments are 

denominated in different currencies. 

Under the proposed approach, longshort integrated spread response 

benefits are provided between Corporate 

RFs that are denominated in different 

currencies. ICC proposes to retain the 

multi-currency risk aggregation 

approach, which involves obtaining 

U.S. Dollar (‘‘USD’’) and Euro (‘‘EUR’’) 

denominated sub-portfolio P/L 

distributions, to RFs within the North 

American Corporate and European 

Corporate sub-portfolios denominated 

in USD and EUR currencies, 

respectively. 

ICC proposes to include its 

calculation for the portfolio level 

integrated spread response component 

in the ‘Portfolio level Integrated Spread 

Response’ subsection. The calculation 

will include the sub-portfolio-specific 

integrated spread response after any 

potential multicurrency benefits and the 

RF-specific integrated spread response. 

ICC proposes the new ‘RF Attributed 

Integrated Spread Response 

Requirements’ subsection to describe 

the calculation of the RF attributed 

integrated spread response component 

for each RF in the considered portfolio. 

ICC proposes minor revisions to the 

‘Anti-Procyclicality Measures’ 

subsection to replace terminology 

associated with the stress-based 

approach with terminology associated 

with the Monte Carlo-based approach. 

ICC also proposes to update calculation 

descriptions relating to portfolio 

responses to note that certain amounts 

are converted to or represented in USD 

using the EOD established foreign 

exchange (‘‘FX’’) rate. 

ICC proposes updates to the ‘MultiCurrency Portfolio Treatment’ section to 

incorporate the proposed integrated 

spread response component. ICC 

proposes to clarify that it implements a 

multi-currency portfolio treatment 

methodology for portfolios with 

instruments that are denominated in 

different currencies. The proposed 

changes also remove references to the 

current spread response component. 

ICC propose minor edits to the 

‘Portfolio Loss Boundary Condition’ 

section to remove or replace references 

to the current spread response and RR 

sensitivity response components with 

references to the proposed integrated 

spread response component within the 

text and within formulas to ensure 

consistency with the proposed ‘Spread 

and RR Risk Analysis’ section, 

specifically the ‘Portfolio Level 

Integrated SR’ subsection. Moreover, 

ICC proposes to reference, for clarity, 

the total number of RFs within the 

considered sub-portfolio in its 

calculations of the maximum portfolio 

loss and the maximum portfolio 

integrated spread response to ensure 

consistency with the proposed ‘Spread 

and RR Risk Analysis’ section, 

specifically the ‘Portfolio Level 

Integrated SR’ subsection. 

ICC proposes minor changes to the 

‘Guaranty Fund (‘‘GF’’) Methodology’ 

section. The proposed changes move the 

descriptions associated with the credit 

spread curve shape scenarios (i.e., 

Uniform Scaling, Pivoting, and Tenor 

Specific) from the current ‘Spread Risk 

Analysis’ section to the ‘Unconditional 

Uncollateralized Exposures’ subsection. 

Although the credit spread curve shape 

scenarios are currently considered as 

part of the spread response component, 

ICC proposes to only use them for GF 

purposes. The descriptions and 

calculations associated with the credit 

spread curve shape scenarios remain 

largely the same with some clarifying 

changes, including the substitution of a 

variable for the simulation quantile in 

the calculations to reflect consistency 

with the GF risk measure, and structural 

changes to the descriptions to enhance 

readability. Additionally, the proposed 

changes include reference to the 

integrated spread response in place of 

the spread response in the calculations 

describing the GF stress spread 

response. 

ICC proposes other non-material 

changes to the Risk Management Model 

Description Document, including minor 

grammatical, typographical, and 

structural changes to enhance 

readability and minor updates to 

calculations to update symbol notations. 

Risk Management Framework 

ICC proposes conforming revisions to 

its Risk Management Framework to 

reflect the transition from a stress-based 

approach to a Monte Carlo-based 

methodology for the spread response 

and RR sensitivity response components 

of the Initial Margin model. The 

proposed revisions are described in 

detail as follows. 

ICC proposes changes to the ‘Waterfall 

Level 2: Initial Margin’ section to 

combine the spread response and the RR 

sensitivity components into the 

proposed integrated spread response 

component. The proposed revisions 

introduce the integrated spread 

response component under the 

amended ‘Integrated Spread Response 

Requirements’ section and replace all 

references to the spread response with 

references to the integrated spread 

response. ICC proposes conforming 

changes throughout the framework. 

Currently, the spread response 

component is obtained by estimating 

scenario P/L for a set of hypothetical 

‘‘tightening’’ and ‘‘widening’’ credit 

spread scenarios and by considering the 

largest loss. Under the proposed 

revisions, the integrated spread 

response will be computed by creating 

P/L distributions from a set of jointlysimulated hypothetical (forward 

looking) credit spread and RR scenarios. 

The proposed changes provide an 

updated calculation of the instrument 

scenario P/L, note the mappings 

between spread and RR levels and 

prices are performed by means of the 

International Swap and Derivatives 

Association (‘‘ISDA’’) standard 

conversion convention, and specify that 

the hypothetical prices are forward 

looking. ICC also proposes to state that 

the integrated spread response approach 

assumes a distribution that describes the 

behavior of the RRs. 

ICC proposes the new ‘Index 

Decomposition Approach’ subsection, 

which contains the analysis under the 

current ‘Index Decomposition Benefits 

between Index RFs and SN RSFs’ 


jstallworth on DSKBBY8HB2PROD with NOTICES
Federal Register / Vol. 83, No. 142 / Tuesday, July 24, 2018 / Notices 35037 

1 15 U.S.C. 78q–1(b)(3)(F). 

2 Id. 

3 Id. 

4 17 CFR 240.17Ad–22. 

5 17 CFR 240.17Ad–22(b)(2). 

6 Id. 

7 17 CFR 240.17Ad–22(b)(3). 

8 Id. 

9 17 CFR 240.17Ad–22(d)(8). 

10 15 U.S.C. 78q–1. 

11 17 CFR 240.17Ad–22(d)(8). 

subsection without any material 

changes. ICC also proposes the new 

‘Portfolio Approach’ subsection to 

describe the Monte Carlo simulation 

framework, which replaces the current 

stress-based approach noted above. ICC 

proposes to utilize Monte Carlo 

techniques to generate spread and RR 

scenarios. ICC will utilize the simulated 

scenarios to derive hypothetical spread 

and RR levels, at which each instrument 

is repriced in order to generate a 

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

each scenario, instrument P/Ls are 

aggregated to obtain RF and subportfolio P/Ls, which represent the RF 

and sub-portfolio P/L distributions that 

are used to estimate the RF and subportfolio 99.5% VaR measures at a risk 

horizon that is at least 5 days. The 

portfolio level integrated spread 

response is estimated as a weighted sum 

of RF and sub-portfolio 99.5% VaR 

measures. ICC also proposes to move its 

analysis related to achieving anti procyclicality to the amended ‘Integrated 

Spread Response Requirements’ section 

without any material changes. 

(b) Statutory Basis 

Section 17A(b)(3)(F) of the Act 1

requires, among other things, that the 

rules of a clearing agency be designed to 

promote the prompt and accurate 

clearance and settlement of securities 

transactions, and to the extent 

applicable, derivative agreements, 

contracts and transactions; to assure the 

safeguarding of securities and funds 

which are in the custody or control of 

the clearing agency or for which it is 

responsible; and to comply with the 

provisions of the Act and the rules and 

regulations thereunder. ICC believes 

that the proposed rule changes are 

consistent with the requirements of the 

Act and the rules and regulations 

thereunder applicable to ICC, in 

particular, to Section 17(A)(b)(3)(F),2

because ICC believes that the proposed 

rule changes will promote the prompt 

and accurate clearance and settlement of 

securities transactions, derivatives 

agreements, contracts, and transactions, 

and contribute to the safeguarding of 

securities and funds associated with 

security-based swap transactions in 

ICC’s custody or control, or for which 

ICC is responsible. The transition to a 

Monte Carlo-based methodology 

rectifies certain limitations associated 

with the current stress-based approach, 

since Monte Carlo techniques allow ICC 

to consider a large set of scenarios to 

more appropriately capture portfolio 

risk, including the risk of more complex 

non-linear instruments, and produce 

consistent quantile-based portfolio risk 

measures. Moreover, the proposed 

transition to a Monte Carlo-based 

methodology enhances ICC’s Initial 

Margin model since it provides a robust 

and flexible solution to assessing the 

risk of complex portfolios. As a result, 

ICC believes that it will be better able to 

capture portfolio risk and generate 

sound and efficient Initial Margin 

requirements, which would enhance the 

financial resources available to ICC and 

thus decrease the possibility that a 

default adversely impacts ICC’s 

operations, thereby facilitating ICC’s 

ability to promptly and accurately clear 

and settle its cleared CDS contracts and 

enhancing ICC’s ability to assure the 

safeguarding of securities and funds 

which are in the custody or control of 

ICC or for which it is responsible. As 

such, the proposed rule changes are 

designed to promote the prompt and 

accurate clearance and settlement of 

securities transactions, derivatives 

agreements, contracts, and transactions 

and to contribute to the safeguarding of 

securities and funds associated with 

security-based swap transactions in 

ICC’s custody or control, or for which 

ICC is responsible within the meaning 

of Section 17A(b)(3)(F) 3 of the Act. 

The proposed rule change will also 

satisfy the requirements of Rule 17Ad– 

22.4 Rule 17Ad–22(b)(2) 5 requires ICC 

to establish, implement, maintain and 

enforce written policies and procedures 

reasonably designed to use margin 

requirements to limit its credit 

exposures to participants under normal 

market conditions. ICC believes that the 

transition from a stress-based to a Monte 

Carlo-based methodology provides for a 

consistent and capital-efficient portfolio 

approach, which will improve ICC’s 

ability to calculate margin requirements. 

An enhanced margin calculation will 

allow ICC to establish margin 

requirements that are better able to 

capture the risk of portfolios, including 

portfolios with more complex nonlinear instruments, to ensure that ICC 

establishes margin requirements that are 

commensurate with the risks and 

characteristics of each portfolio, thereby 

improving ICC’s ability to limit its credit 

exposures to participants under normal 

market conditions, consistent with the 

requirements of Rule 17Ad–22(b)(2).6

Rule 17Ad–22(b)(3) 7 requires ICC to 

establish, implement, maintain and 

enforce written policies and procedures 

reasonably designed to maintain 

sufficient financial resources to 

withstand, at a minimum, a default by 

the two Clearing Participant (‘‘CP’’) 

families to which it has the largest 

exposures in extreme but plausible 

market conditions. The utilization of 

Monte Carlo techniques will enhance 

the financial resources available to ICC 

by enhancing ICC’s Initial Margin model 

such that ICC is better able to capture 

portfolio risk and generate stable and 

efficient Initial Margin requirements. As 

a result, the likelihood that a default 

adversely impacts ICC’s operations 

lessens, allowing ICC to continue to 

ensure that it maintains sufficient 

financial resources to withstand, at a 

minimum, a default by the two CP 

families to which it has the largest 

exposures in extreme but plausible 

market conditions, consistent with the 

requirements of Rule 17Ad–22(b)(3).8

Rule 17Ad–22(d)(8) 9 requires ICC to 

have governance arrangements that are 

clear and transparent to fulfill the 

public interest requirements in Section 

17A of the Act.10 ICC’s Risk 

Management Framework and Risk 

Management Model Description 

Document clearly assign and document 

responsibility and accountability for 

risk decisions and require consultation 

with or approval from the ICC Board, 

committees, or management. ICC 

determined to transition to a Monte 

Carlo-based methodology in accordance 

with its governance process, which 

included review of the changes to the 

Risk Management Framework and the 

Risk Management Model Description 

Document and related risk management 

considerations by the ICC Risk 

Committee and approval by the Board. 

These governance arrangements 

continue to be clear and transparent, 

such that information relating to the 

assignment of responsibilities for risk 

decisions and the requisite involvement 

of the ICC Board, committees, and 

management is clearly documented, 

consistent with the requirements of Rule 

17Ad–22(d)(8).11

(B) Clearing Agency’s Statement on 

Burden on Competition 

ICC does not believe the proposed 

rule changes would have any impact, or 

impose any burden, on competition. 

The proposed changes to ICC’s Risk 

Management Model Description 

Document and ICC’s Risk Management 

Framework will apply uniformly across 


jstallworth on DSKBBY8HB2PROD with NOTICES
35038 Federal Register / Vol. 83, No. 142 / Tuesday, July 24, 2018 / Notices 

12 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 82911 

(March 20, 2018), 83 FR 12966 (March 26, 2018) 

(SR–ISE–2017–106). 

4 Id. The Exchange notes that similar features are 

available with other index options contracts listed 

on the Exchange and other options exchanges, 

including P.M. settled options on the full value of 

the Nasdaq-100 Index (‘‘NDXP’’). 

all market participants. Therefore, ICC 

does not believe the proposed rule 

changes impose any burden on 

competition that is inappropriate in 

furtherance of the purposes of the Act. 

(C) Clearing Agency’s Statement on 

Comments on the Proposed Rule 

Change, Security-Based Swap 

Submission, or Advance Notice 

Received From Members, Participants or 

Others 

Written comments relating to the 

proposed rule change have not been 

solicited or received. ICC will notify the 

Commission of any written comments 

received by ICC. 

III. Date of Effectiveness of the 

Proposed Rule Change, Security-Based 

Swap Submission, or Advance Notice 

and Timing for Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period 

up to 90 days (i) as the Commission may 

designate if it finds such longer period 

to be appropriate and publishes its 

reasons for so finding or (ii) as to which 

the self-regulatory organization 

consents, the Commission will: 

(A) By order approve or disapprove 

such proposed rule change, or 

(B) institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change, security-based swap 

submission, or advance notice is 

consistent with the Act. Comments may 

be submitted by any of the following 

methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

ICC–2018–008 on the subject line. 

Paper Comments 

Send paper comments in triplicate to 

Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–ICC–2018–008. 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, security-based swap 

submission, or advance notice that are 

filed with the Commission, and all 

written communications relating to the 

proposed rule change, security-based 

swap submission, or advance notice 

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 the 

filing also will be available for 

inspection and copying at the principal 

office of ICE Clear Credit and on ICE 

Clear Credit’s website at https://

www.theice.com/clear-credit/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–ICC–2018–008 and 

should be submitted on or before 

August 14, 2018. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.12

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2018–15771 Filed 7–23–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–83660; File No. SR–ISE– 

2018–63] 

Self-Regulatory Organizations; Nasdaq 

ISE, LLC; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change To Amend the 

Exchange’s Schedule of Fees To 

Waive Fees and Rebates for Trades in 

NQX Options 

July 18, 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 July 6, 

2018, Nasdaq ISE, LLC (‘‘ISE’’ 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 amend the 

Exchange’s Schedule of Fees, as further 

described below. 

The text of the proposed rule change 

is available on the Exchange’s website at 

http://ise.cchwallstreet.com/, at the 

principal office of the Exchange, and at 

the Commission’s Public Reference 

Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange 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. The 

Exchange has prepared summaries, set 

forth in sections A, B, and C below, of 

the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange recently received 

approval to list index options on the 

Nasdaq 100 Reduced Value Index 

(‘‘NQX’’) on a pilot basis.3 The NQX 

options contract will be the same in all 

respects as the current Nasdaq-100 

Index (‘‘NDX’’) options contract listed 

on the Exchange, except that it will be 

based on 1⁄5 of the value of the Nasdaq 

100 Index, and will be P.M. settled with 

an exercise settlement value based on 

the closing index value of the Nasdaq 

100 on the day of expiration.4 The 


jstallworth on DSKBBY8HB2PROD with NOTICES