Eric Nield

November 17, 2022

Re: Formalization of Collateral Risk 

Management Framework and Updates to 

Treasury Operations Policies and Procedures 

and Liquidity Risk Management Framework

Pursuant to Section 5c(c)(1) of the 

Commodity Exchange Act and Commission 

Regulation 40.6(a)

VIA ELECTRONIC PORTAL

Mr. Christopher Kirkpatrick

Secretary

Commodity Futures Trading Commission

Three Lafayette Centre

1155 21st Street, NW

Washington, D.C. 20581

Dear Mr. Kirkpatrick:

ICE Clear Credit LLC (“ICC”) hereby submits, pursuant to Section 5c(c)(1) of the Commodity Exchange Act 

(the “Act”) and Commodity Futures Trading Commission (“Commission”) Regulation 40.6(a), a selfcertification to formalize the Collateral Risk Management Framework (“CRMF”) and to amend the Treasury 

Operations Policies and Procedures (“Treasury Policy”) and the Liquidity Risk Management Framework 

(“LRMF”). ICC is registered with the Commission as a derivatives clearing organization (“DCO”). ICC 

intends to implement the changes no sooner than the tenth business day following the filing of this 

submission with the Commission at its Washington, D.C. headquarters and with its Chicago regional office.

ICC proposes to formalize the CRMF and to make related changes to the Treasury Policy and the LRMF.

This submission includes a description of the CRMF and the changes to the Treasury Policy and LRMF. 

Certification of the changes pursuant to Section 5c(c)(1) of the Act and Commission Regulation 40.6(a) is 

also provided below. 

The proposed changes formalize a standalone CRMF to centralize relevant information on ICC’s collateral 

assets risk management methodology in one document. The proposed changes further remove duplicative 

information from the Treasury Policy and update references in the Treasury Policy and the LRMF 

accordingly. Such changes would not amend ICC’s methodology but would instead promote transparency 

and effective operation of the collateral assets risk management model by unifying key information on ICC’s 

collateral assets risk management approach in one document. The revisions are discussed in detail as 

follows.

CRMF

ICC proposes to formalize the CRMF as a standalone document containing its current collateral assets risk 

management approach. The CRMF begins by introducing ICC’s quantitative risk management approach 

that accounts for the risk associated with fluctuations of collateral asset prices. The document is further 

divided into six sections that are detailed below. 

Section I sets out the computation of the current collateral asset haircut factors. To compute collateral 

haircut factors, estimations of two risk measures are performed. The more conservative risk measure is 

chosen to establish the haircut factors that capture potential collateral value losses. The chosen 

methodology, which consists of quantifying the potential risk exposures by analyzing the distribution of the 
appropriately identified risk factor describing the collateral asset price changes, is set forth in more detail in 

this section. 

The following subsections are specific to currency and sovereign debt haircut factors. Regarding currency 

haircut factors in Subsection I.a, a two-stage approach is set out to account for the risk associated with 

fluctuations of collateral asset prices denominated in foreign currencies and its corresponding time series 

are used for collateral denominated in foreign currencies. The risk of the underlying collateral asset is 

estimated in its own currency in the first stage, and the risk exposure to an exchange rate conversion is 

considered by applying a foreign exchange (“FX”) haircut factor in the second stage. With respect to 

sovereign debt haircut factors, Subsection I.b sets out how the fluctuations of the time to maturity yield rates 

are considered and its corresponding time series are used for sovereign debt collateral. In each subsection, 

further detail, such as relevant computations, equations, definitions, and considerations, is included to 

describe how currency and sovereign debt haircut factors are determined. 

The final haircut factor rounding process is set out in Subsection I.c. The estimated haircut factors are 

rounded up to ensure appropriate stability and some conversative bias. Relevant computations, equations 

and illustrations demonstrate the haircut factor rounding process. 

Section II details the current collateral assets risk management model and contains additional risk 

management information. This section begins by introducing the statistical calibration of the model by 

estimating an appropriate distribution to a time series of past realizations of the driving factor. One of the 

main components of the collateral assets risk management model is the distribution that describes the 

realizations of the asset price determining risk factor. Certain assumptions are also introduced to provide 

more stable and easy-to-reproduce numerical results. 

The model framework is described in more detail in the following subsections. Subsection II.a details certain 

distributional assumptions appropriate for FX and fixed income (“FI”) assets on which the haircut 

methodology is based. A summary of relevant literature is included; the haircut methodology uses the cited 

results on distribution families with applications to FX and FI instruments. Subsection II.b and II.c set forth 

parameter estimations. Subsection II.b expresses how parameter estimates are obtained and used to 

compute multi-day risk measures. Parameter estimations are performed in stages to facilitate numerical 

implementation and result replication and to eliminate potential operational risk. The main inputs for the 

statistical approach are set out and the calibration of the collateral haircut model is discussed. Subsection 

II.c explains how the variability of a risk factor is described for risk management purposes and sets out the 

selected measure of variability for all considered time series. Subsection II.d depicts multi-period 

forecasting, including the analysis that is performed to extend one-day to multi-period forecasts. Subsection 

II.e discusses how risk measures are obtained which are used for haircut purposes. For each subsection, 

additional detail, such as relevant parameters, computations, equations, definitions, and figures, is included 

to describe relevant processes. 

Section III contains governance procedures relevant to the CRMF. Collateral haircut factor estimations are 

executed daily, and the ICC Risk Department reviews the results and determines any updates, at least 

monthly. Haircut factors can be updated more frequently at the discretion of the ICC Chief Risk Officer 

(“CRO”) or designee. Additional language explains the implementation of updates by relevant departments 

and the periodic review of the statistical performance of the collateral haircut model, which consists of backtesting of applicable risk factors at least quarterly. A discussion of the back-testing exercise is included 

related to exploring poor back-testing results and taking remedial actions. The associated governance 

process is also summarized, including the ICC officers responsible for determining poor back-testing, the 

steps required following such determination, the groups consulted regarding poor back-testing or remedial 

action, and additional statistical analyses to measure and monitor the significance of back-testing results.

Section IV provides applications to FX and FI instruments to demonstrate the viability of the model used in 

the collateral risk management methodology. Subsection IV.a presents an example of the modeling 
approach applied to cash collateral denominated in a currency different from the required currency. 

Subsection IV.b presents an example of the modeling approach applied to US Treasury Bonds 

denominated in US Dollars (“USD”). Subsection IV.c presents an example of the modeling approach applied 

to US Treasury Inflation Protected Securities (“TIPS”) denominated in USD. Each subsection sets out a 

three-stage approach to estimate risk measures and corresponding haircut factors and includes illustrations 

and back-testing results. Finally, Section V consists of a list of references and Section VI adds a revision 

history. 

Treasury Policy

The proposed changes remove information on ICC’s collateral assets risk management approach from the 

Treasury Policy. Currently, Appendix 6 to the Treasury Policy, titled Collateral Assets Risk Management 

Framework, (“Appendix 6”) contains this information. ICC proposes to remove Appendix 6 and, accordingly, 

to replace a reference to Appendix 6 with a reference to the CRMF in Section V.B.3. 

In general, information from Appendix 6 is included throughout Sections I and III of the CRMF with minor 

differences in drafting style and without substantive changes. The below list summarizes where the 

information in Appendix 6 would reside following removal and differences from the CRMF. 

• The approach accounting for the risk associated with fluctuations of collateral assets 

denominated in foreign currencies in Appendix 6, paragraph 1 is moved to the CRMF, 

Subsection I.a.

• The estimations of two risk measures in Appendix 6, paragraph 2 are moved to the CRMF, 

Section I.

• Examples related to currencies and sovereign debt from Appendix 6, paragraphs 3 and 4 are 

moved to the CRMF, Subsections I.a and I.b, respectively.

• A risk measure definition in Appendix 6, paragraph 5 is moved to the CRMF, Section I. A policy 

reference from Appendix 6, paragraph 5 is removed, as ICC considers it unnecessary given the 

additional risk management information in the CRMF.

• Information on FX and sovereign debt haircuts in Appendix 6, paragraphs 6-9 is moved to the 

CRMF, Subsections I.a and I.b, respectively.

• The rounding of estimated haircuts in Appendix 6, paragraph 10 is moved to the CRMF, 

Subsection I.c. Information on establishing, reviewing, and updating haircuts in Appendix 6, 

paragraph 10 is moved to the CRMF, Section III.

• Information on updating haircuts during periods of extreme stress in Appendix 6, paragraph 11 

is moved to the CRMF, Subsection I.c.

As described above, the remaining CRMF sections include additional information that is not in Appendix 

6. The CRMF would more fully describe ICC’s collateral assets risk management approach and would not 

change the methodology in Appendix 6. 

LRMF

ICC proposes minor changes to the LRMF to update references from the Treasury Policy to the CRMF. 

Currently, Section 2.4 in the LRMF references information in Appendix 6, including details on the 

collateral haircut methodology and process for reviewing and updating collateral haircuts. The amended 

LRMF would reference the CRMF instead of the Treasury Policy which would contain the subject 

information under the proposed updates. 

Core Principle Review:
ICC reviewed the DCO core principles (“Core Principles”) as set forth in the Act. During this review, ICC 

identified the following Core Principles as being impacted:

Financial Resources: The amendments are consistent with the financial resources requirements of Core 

Principle B and Commission Regulation 39.33. The amendments enhance ICC’s ability to manage its 

financial resources by providing further clarity and transparency on its collateral assets risk management 

approach. The additional information in the CRMF provides a more detailed explanation of the collateral 

assets risk management model and methodology, which will facilitate replication and validation by third 

parties. The changes also enhance the implementation of various processes and procedures associated 

with the collateral assets risk management methodology to ensure that responsible parties effectively carry 

out their associated duties. The amendments would thus support ICC’s ability to maintain its financial 

resources and withstand the pressures of defaults, consistent with the financial resources requirements of 

Core Principle B and Commission Regulation 39.33.

Risk Management: The amendments are consistent with the risk management requirements of Core 

Principle D. The amendments formalize the CRMF to centralize relevant information on ICC’s collateral 

assets risk management methodology. The amendments remove duplicative information from the Treasury 

Policy and update references in the Treasury Policy and the LRMF to the CRMF as needed. The changes 

would not amend ICC’s methodology and would promote effective operation of the collateral assets risk 

management model by unifying key information on ICC’s collateral assets risk management approach in 

one document. The amendments continue to ensure that ICC possesses the ability to manage the risks 

associated with discharging its responsibilities, consistent with the risk management requirements of Core 

Principle D. 

Treatment of Funds: The amendments are consistent with the treatment of funds requirements of Core 

Principle F. ICC continues to limit the assets that ICC accepts as collateral to those with low credit, liquidity, 

and market risks. Further, the CRMF provides a clear framework for ICC to continue to set and enforce 

appropriately conservative haircuts for acceptable collateral assets and would set out responsible parties. 

The additional governance procedures in the CRMF ensure that ICC establishes, reviews, and updates 

haircuts within defined intervals, and more frequently if deemed necessary. The changes thus serve to 

ensure the safety of funds and assets and to allow ICC to continue to hold such funds and assets in a 

manner by which to minimize the risk of loss or of delay in ICC’s access to the assets and funds.

Amended Rules:

ICC proposes to formalize the CRMF and to amend the Treasury Policy and the LRMF. ICC has respectfully 

requested confidential treatment for the CRMF, Treasury Policy, and LRMF, which were submitted 

concurrently with this self-certification submission.

Certifications:

ICC hereby certifies that the CRMF and the changes to the Treasury Policy and LRMF comply with the Act 

and the regulations thereunder. There were no substantive opposing views to the changes.

ICC further certifies that, concurrent with this filing, a copy of the submission was posted on ICC’s website, 

and may be accessed at: https://www.theice.com/clear-credit/regulation.

ICC would be pleased to respond to any questions the Commission or the staff may have regarding this 

submission. Please direct any questions or requests for information to the attention of the undersigned at 

(312) 836-6742.
Sincerely,

Eric Nield

General Counsel