1

ICE Clear Europe Limited

Registered in England No.06219884

Registered office: Milton Gate, 60 Chiswell Street, London EC1Y 4SA

August 9, 2023

Mr. Christopher J. Kirkpatrick

Office of the Secretariat

Commodity Futures Trading Commission

Three Lafayette Centre

1155 21st Street, NW

Washington, DC 20581

Re: ICE Clear Europe Self-Certification Pursuant to Commission Rule 40.6 –

Liquidity Stress Testing Procedures

Dear Mr. Kirkpatrick:

ICE Clear Europe Limited (“ICE Clear Europe” or the “Clearing House”), a registered 

derivatives clearing organization under the Commodity Exchange Act, as amended (the 

“Act”), hereby submits to the Commodity Futures Trading Commission (the 

“Commission”), pursuant to Commission Rule 40.6 for self-certification, a new set of 

Liquidity Stress Testing Procedures (the “Liquidity Stress Testing Procedures” or 

“Procedures”)1 discussed herein. The amendments will become effective on the first 

business day following the tenth business day after submission, or such later date as 

ICE Clear Europe may determine. 

Concise Explanation and Analysis

ICE Clear Europe is consolidating and formalizing into new Liquidity Stress Testing 

Procedures the documentation of certain existing practices and processes for 

determining if it has sufficient liquidity available under stress conditions. The 

Procedures complement existing ICE Clear Europe policies and procedures, including 

the ICE Clear Europe Liquidity and Investment Management Policy (which sets out 

principles of the cash and collateral management functions of the Clearing House) and 

the Liquidity Management Procedures (which address monitoring and management of 

1 Capitalized terms used but not defined herein have the meanings specified in the ICE Clear Europe 

Clearing Rules and the Liquidity Stress Testing Procedures.
2 

ICE Clear Europe Limited

Registered in England No.06219884

Registered office: Milton Gate, 60 Chiswell Street, London EC1Y 4SA

liquidity risks, liquidity needs and liquidity resources, including in the case of liquidity 

shortfalls).

2

 ICE Clear Europe is also making certain enhancements to its liquidity 

stress testing (“LST”) practices as discussed herein. 

Liquidity Stress Testing

The Procedures include a section describing the Clearing House’s LST objectives. The 

Procedures state that the objective of LST is to answer the question of whether the 

Clearing has enough liquid assets to meet its payment obligations even under stressed 

scenarios. In particular, the Clearing House will seek to answer such question in respect 

of three groups of stressed scenarios: (i) two Clearing Member families defaulting 

simultaneous in all their capacities to the Clearing House under extreme but plausible 

market conditions, (ii) one Clearing Member family defaulting in all its capacities to 

the Clearing House under extreme but plausible market conditions, and (iii) one service 

provider defaulting or being unavailable due to technical issues. The Procedures 

describe that LST will achieve its objective by evaluating whether the Clearing House

has enough assets (Liquid Resources or “LR”) to cover its payment obligations 

(Liquidity Needs or “LN”) each day under different scenarios of default or 

unavailability while under extreme but plausible market conditions. The liquidity 

scenarios will be the combinations of entities that are defaulting or are unavailable and 

is each a separate scenario. Consistent with current practice, the groups of scenarios 

used in liquidity stress testing are set out in the Clearing House’s liquidity parameters 

and reviews (“Parameters”). 

The Procedures state the key elements of LST, the frequency of such testing and how 

the Clearing House utilizes the results. LST is made up of three key elements as 

follows: (i) LN, which are the payment obligations of the Clearing House on each day 

in the scenario, (ii) LR, which are the liquid assets that the Clearing House can use to 

meet its payment obligations on each day in the scenario, and (iii) Liquidity Coverage 

or “LC”, which is the excess (or lack, applicable) of LR that the Clearing House has on 

each day in the scenario after trying to meet the LN. The Procedures provide further 

detail and description of each element. 

The Procedures also describe that the Clearing House evaluates the “cover 2” standard 

by viewing any failure from any Clearing Member family pair, in any material currency 

or in the aggregate, count as failing LST, rather than just examining the Clearing 

Member pair with the most negative LC. 

The Procedures provide the LC is the key metric for LST. The LST is run daily and the 

results are used to review (i) the mix of LR in the investment programme, (ii) the term 

of those LR, and (iii) the allocation of LR between different service providers. 

Scenarios that fail LST will be investigated that day and mitigating actions will be taken 

to ensure sufficient liquidity in the relevant scenario. Mitigating actions may include 

requiring CMs to post additional LR, modifying the types, concentration and/or term 

2 ICE Clear Europe has separately submitted for self-certification pursuant to Rule 40.6 related 

amendments to its Liquidity and Investment Management Policy and Liquidity Management 

Procedures that contemplate the adoption of the Liquidity Stress Testing Procedures. See Submission 

to Commission (filed August 9, 2023). 
3 

ICE Clear Europe Limited

Registered in England No.06219884

Registered office: Milton Gate, 60 Chiswell Street, London EC1Y 4SA

profile of LR, reviewing the assumptions and parameters of LST to assess whether they 

are overly conservative or implausible, among others described in the Procedures. 

The Procedures also note that the Clearing House has payment obligations and liquid 

resources in multiple currencies and, to account for this, LC is calculated in the 

aggregate and reported in USD. LC is also calculated separately for each material 

currency, only including LR in that currency. The Procedures also address when a 

currency is determined to be material, where the list of material currencies may be 

found and how often such thresholds are reviewed. 

Performance Monitoring and Periodic Reviews 

The Procedures describe the Clearing House’s procedures for performance monitoring 

and periodic reviews of the LST program. It states that the Clearing House monitors 

the performance of its LST at least monthly using back testing, reverse stress testing 

and sensitivity testing as tools to help to identify trends or structural changes in the level 

of liquidity coverage or the profile of the LR. Each of these tests is described in further 

detail in the Procedures, including as to the tests and assumptions used for sensitivity 

analysis. The results of such monitoring may inform the Clearing House’s decisions 

making around the appropriate mix of collateral posted by CMs. The Clearing House 

also analyses and discuss monthly (i) whether any new or emerging risks need to be 

included in the stress tests, and (ii) the adequacy of assumptions, parameters and inputs 

to LST and scenario groups. ICE Clear Europe assumes the adequacy of stress market 

conditions (from the credit stress testing) and collateral haircuts (both of which include 

extreme but plausible market scenarios), and these factors are not analyzed or discussed 

each month. 

The Procedures also describe in further detail the use of sensitivity tests and analysis, 

including as to: (i) timing of the projected Variation Margin payment, which will

simulate “Known” and “Projected” Variation Margin, (ii) netting assumptions, which 

will include varying the assumption that payments can be netted at different levels, and 

(iii) same day liquidation assumption, which will include analyzing the same day 

liquidation cap against the liquidity needs. Sensitivity analyses also include other 

material changes that that are already an integral part of the daily tests, including but 

not limited to (i) assuming no access to FX markets, (ii) stressing liquidation values for 

collateral or FX values, (iii) stressing market conditions, and (iv) access to treasury and 

repo markets. 

Core Calculation – Liquidity Needs 

The Procedures include an explanation of the Clearing House’s calculations in respect 

of its LN. As mentioned above, LN are the net payment obligations to Clearing 

Members and other entities that the Clearing House needs to cover in LST scenarios. 

The Procedures include a list of payment obligations included in LST, including 

variation margin, deliveries and settlements, liquidation costs, cash collateral 

withdrawals and exchanges, committed investments and other potential obligations. 

The Procedures describe in detail each such payment obligation and the scenarios in 

which such obligation may arise. A table has also been included which depicts the 

payment obligations that are included as LN, on which day they are included in the 

calculation, and whether the amounts are known in advance or are projections. 
4 

ICE Clear Europe Limited

Registered in England No.06219884

Registered office: Milton Gate, 60 Chiswell Street, London EC1Y 4SA

The Procedures describe the Clearing House’s processes for aggregating payment 

obligations for purposes of LST. Payment obligations typically arise at a settlement 

account level and are then aggregated from the account level to the Clearing Member 

level, then to the Clearing Member family level and then to pairs of Clearing Member 

families by adding together the relevant payment obligations. There are certain 

exceptions to the process: (i) collateral exchanges, committed investments and “other” 

are at the ICEU level and not aggregated and (ii) for scenarios for the unavailability of 

services providers, the aggregation stops at the level of the individual service providers, 

even if multiple service providers are part of the same group of the companies. 

Core Calculation – Liquid Resources and Liquidity Coverage 

The Procedures include an explanation of the Clearing House’s calculations in respect 

of its LR and LC. The Procedures set out the process as follows: (i) eligibility as the 

first step, meaning that the Clearing House works out of the inventory of eligible assets 

(LR), (ii) availability as the next step, meaning that the Clearing House removes LR 

that are not available in that scenario (or reduce their values appropriately), and (iii) 

utility as the final step, meaning that the Clearing House works out the values for the 

next available LR on each day, and how much has been used up to cover the LN on the

day (and previous days). LN will not be carried over from one day to the next and are 

either fully covered by the LR on a particular day or, if they are not fully covered, the 

LR are treated as fully used up. The Procedures describe in detail each step in the 

calculation of LR, reflecting the different types of eligible assets (including different 

forms of cash collateral on deposit at central banks and commercial banks or invested 

through reverse repurchase arrangements, committed or secured lines of credit, ICE 

Clear Europe’s contribution to its guaranty funds and non-cash collateral of defaulting 

and non-defaulting Clearing Members). The Procedures also describe in detail each 

step in calculation of LC, for any given trading day (T) and for the following two trading 

days (T+1 and T+2). 

Other Calculation Components 

The Procedures address the selection of market scenarios that are used in LST, and 

specifically the determination of the market scenario for each Clearing Member family 

pair that leads to the worst LC. A description of the metric that the Clearing House 

uses to select to the worst scenario will be included, taking into account LN and LR that 

are market-scenario dependent (particularly projected variation margin, physical 

delivery projected price move and wrong way risk), as well as descriptions of the 

selection process.

The Clearing House’s processes for aggregating payment obligations described above 

to determine LN are summarized and worked examples of such calculation are included 

in an appendix to the Procedures. 

The Procedures describe the inclusion in LST of two sets of LN related to Physical 

Deliveries for defaulting Clearing Members: missed deliveries (due to the seller failing 

to deliver physical goods on the delivery date, in which case the Clearing House will

have to replace the goods at the replacement cost) and missed payments (due to the 

buyer or seller defaulting before the payment date, in which case the Clearing House 

will have to complete the payment to the Seller, and the LN will be the full invoice 
5

ICE Clear Europe Limited

Registered in England No.06219884

Registered office: Milton Gate, 60 Chiswell Street, London EC1Y 4SA

value (which will be an LN credit if the Seller defaults as such payment will no longer 

be due)). A schedule of LN related to Physical Deliveries is set out in an appendix to 

the Procedures. As is described in further detail in the Procedures, the replacement cost 

is the cost to replace the goods or positions at the stressed market price and its 

components mirror those of liquidating a futures position. LST uses delivery margin 

(or the comparable initial margin) as a proxy for additional liquidation costs in the 

determination. The Procedures also describe how the Clearing House recognizes LN 

due to missed payments in full out to the physical delivery settlement period of risk (as 

set out in the Parameters from time to time). Positions with payment dates beyond such 

period of risk will be assumed to be liquidated at the end of the liquidity time horizon 

and their cost will be the replacement cost. For products that do not have a specific 

delivery or payment date set in advance but rather a range of dates, LST will be 

calculated using the relevant LN on the earliest date that delivery could happen until 

the specific date is known. 

The Procedures describe in detail the Clearing House’s framework regarding 

calculation of LN related to physical deliveries for different types of deliveries, 

including physical deliveries of UK gilts, physical deliveries for non-defaulting 

Clearing Members which are buyers, and physical deliveries for non-defaulting 

Clearing Members which are sellers.

As part of the Clearing House’s ‘other’ calculation components, the Procedures 

describe the use of Clearing House’s liquid resources from pledged accounts for LST 

purposes. The Procedures provide that the use of pledged cash and non-cash assets will 

be restricted to only covering the LN from the accounts that pledged the assets, due to 

restrictions in the Clearing House’s Pledged Collateral Addendum. LST will therefore 

limit the LR included from such pledged accounts to the lowest of (i) the collateral 

posted by that account (or what is available, for non-cash collateral), and (ii) the LN for 

that account across all days that has not been filled by previous limits. Limits will be 

applied to the assets available in each scenario so that the LR cannot include more than 

what is available even if the calculated limit is higher than what is available. A worked 

example of the limits is included in Appendix 3 of the Procedures. The Procedures set 

certain additional limits with respect to use of pledged accounts in LST, including 

account-level limits and bulk limits for performing members. 

The Procedures address cash collateral exchanges, which are an LN caused by cash 

collateral being exchanged for non-cash collateral in the same or in other currencies, or 

cash collateral in one currency being exchanged for cash collateral in another currency. 

The LN for cash collateral exchanges excess cash withdrawals will be included on T 

for each currency in the single currency calculations and as a total amount in USD in 

the aggregate calculation. Such inclusion assumes that the Clearing House will decline 

collateral exchanges (including both exchanges of cash collateral for non-cash 

collateral and exchanges of cash collateral in one currency for cash collateral in another 

currency) after T until a stress event has passed, as supporting by the Clearing House’s 

Finance Procedures and by Rules 502(f) and (g). The Procedures describe the 

methodology for determining the amount used for cash collateral exchanges in LST, 

and in respect of pledged and non-pledge accounts. 
6 

ICE Clear Europe Limited

Registered in England No.06219884

Registered office: Milton Gate, 60 Chiswell Street, London EC1Y 4SA

The Procedures describe how LST adjusts to asset settlement holidays by treating 

holidays separately for each currency and asset class. The Procedures also set out how 

the Clearing House performs the ‘all currency’ calculation, which is an aggregate 

calculation of worst scenarios across currencies. For such calculation, LST calculates 

the worst Selection Metric using the total Selection Metric across all currencies in USDequivalent. The conversion into USD will be used to select the worst scenarios, and the 

LN from those scenarios will then be used in their base currencies for the rest of the 

calculation. Once the market scenario is selected, the LN will be included and used in 

the calculation in their base currencies. 

Assumptions, Limitations and Implications

The Procedures describe the key assumptions that underly LST, including but not 

limited to the following: (i) defaults will be due to missed payments, (ii) liquidity will

be managed at a CCP level and not a product/segment level, (iii) LST will be calculated 

using the positions and liquid resources as they were at the close of business on T-1, 

(iv) all portfolios will remain unchanged during the stress testing period and the 

defaulters’ portfolios are not partially closed out or hedged until they are disposed of at 

the end of the margin period of risk, (v) the liquidity time horizon can be compressed 

to T, T+1 and T+2, and (vi) collateral and investments are highly liquid, based on the 

List of Permitted Cover . Details about each such assumption are provided. 

The Procedures also recognize certain limitations of LST, including but not limited to 

the following: (i) cash collateral exchanges are projected from the current environment 

rather than specific, stressed periods. This will be conservative because in actual periods 

of stress, Clearing Members tend to leave more cash with clearinghouses, thereby 

reducing the cash collateral exchange amounts, and (ii) LST will not show the full value 

of stress payment flows since the LN will show the net variation margin flows rather 

than gross variation margin flows. The Clearing House is comfortable with this 

implication because the LC will be unchanged. 

Document Governance and Exception Handling. 

Finally, the Procedures describe governance and exception handling. The document 

owner will be responsible for ensuring that it remains up-to-date and reviewed in 

accordance with the Clearing House’s governance processes. Where the results of the 

tests described in the Procedures show insufficient liquid financial resources, the 

Clearing House will increase its liquid financial resources to an acceptable level as soon 

as practicable. The document owner will be responsible for reporting material breaches 

or unapproved deviations from the Procedures to their Head of Department, the Chief 

Risk Officer and the Head of Compliance (or their delegates), who together will 

determine if further escalation should be made to relevant senior executives, the Board 

or competent authorities. The Procedures state that exceptions to the Procedures will 

be approved in accordance with the Clearing House’s governance process for approval 

of changes to the Procedures. 

Changes in Liquidity Stress Testing Practices 

As set forth above, the Liquidity Stress Testing Procedures largely document and 

consolidate the Clearing House’s existing practices and processes with respect to LST, 
7

ICE Clear Europe Limited

Registered in England No.06219884

Registered office: Milton Gate, 60 Chiswell Street, London EC1Y 4SA

and in such cases the adoption of the procedures will not result in a change in practice. 

Nonetheless, the Clearing House is making certain changes and enhancements to LST 

as part of adoption of the Liquidity Stress Testing Procedures, specifically as follows:

(i) LST will assume that non-cash collateral provided by non-defaulting Clearing 

Members can be liquidated by sale (as opposed to only through repurchase agreements), 

subject to an assumed cap on the same-day liquidation of securities. It is assumed for 

this purpose that the Clearing House could buy back equivalent non-cash collateral after 

the end of the applicable stress scenario. The change is intended to more precisely 

reflect the total liquidity resources available to the Clearing House in the event of a 

default, as the existing Rules and Procedures permit the use of non-cash title transfer 

collateral provided by non-defaulting Clearing Members for liquidity purposes, subject 

to the obligation of the Clearing House to restore any such non-cash collateral of nondefaulting Clearing Members. As discussed in (iii) below, LST will assume certain 

daily liquidation limits proposed to be provided for in the Liquidity Stress Testing

Procedures. The current LST approach includes a more limited set of non-cash 

collateral resources (those provided by the defaulter), which is more restrictive than is 

required by the current Rules and Procedures. ICE Clear Europe believes the revised 

calculation is more consistent with the Rules and Procedures and presents a more 

accurate reflection of availability liquidity resources.

(ii) Pledged assets provided by defaulting or non-defaulting Clearing Members can be 

considered to cover LN, subject to certain restrictions, including but only using such 

assets for LST for LN relating to the account that pledged the asset, as set out in more 

detail above. These changes are intended to more clearly reflect in LST the limitations

on the use of such pledged assets by the Clearing House under the existing Rules and 

Procedures. (For example, the current Liquidity Management Procedures and F&O 

Default Management Policy prohibit the use of pledged assets relating to an account to 

cover liquidity needs from other, non-pledged accounts.)

(iii) LST will assume a cap on the amount of liquidation of non-cash collateral 

(securities) that could be done on a same-day basis, as noted in the discussion of (i) 

above. The cap will be applied on a per currency basis in light of the Clearing House’s 

annual testing. The change is intended to better take into account liquidity conditions 

in relevant securities markets in which non-cash collateral would be liquidated, to avoid 

overestimating for LST purposes the amount of securities that could be liquidated on 

any given day.

(iv) As set forth in more detail above, the Liquidity Stress Testing Procedures enhance 

the calculation of LN for physical deliveries, including by more clearly detailing the 

components of replacement cost, more clearly covering missed delivery of physical 

goods by the seller, and accounting for scenarios where there is a delivery and payment 

range. Overall, these enhancements will facilitate calculation of liquidity needs for both 

long and short positions that are in, or going into, delivery (as opposed to the net 

liquidity calculation across long and short positions made under the existing LST). ICE 

Clear Europe believes the revised calculation will enable it to more accurately assess 

the liquidity needs arising in connection with physical settlement obligations. The 

calculation takes advantage of operational enhancements that have been made to the 
8

ICE Clear Europe Limited

Registered in England No.06219884

Registered office: Milton Gate, 60 Chiswell Street, London EC1Y 4SA

ICE Clear Europe systems used for managing physical deliveries which provide 

additional relevant data for LST.

(v) Changes have been made to the calculation of LN for collateral exchanges in order 

to be more stable over time using separate amounts for pledged and non-pledged 

accounts, and assuming that in the event of a liquidity issue, the Clearing House will 

suspend collateral exchanges on the days following a default on Day T, until liquidation 

is complete, consistent with the Rules as discussed above. Under the amended 

approach, LN will be projected using a conservative statistical confidence interval 

applied to a reasonable historical observation period of applicable daily net cash 

withdrawals. ICE Clear Europe believes this approach would provide a better projection 

of liquidity needs relating to exchanges than the current approach, which is based on a 

7-day lookback. 

In ICE Clear Europe’s view, these changes will enhance the LST process and the 

Clearing House’s ability to manage liquidity risk. 

Compliance with the Act and CFTC Regulations

The amendments to the Delivery Procedures are potentially relevant to the following 

core principles: (B) Financial Resources, (D) Risk Management and (O) Governance, 

and the applicable regulations of the Commission thereunder. 

• Financial Resources. As set forth above, the Procedures are designed to 

consolidate and formalize in a single document the Clearing House’s practices 

relating to liquidity stress testing. The Procedures describe the Clearing 

House’s processes for determining whether it has sufficient assets to cover its 

payment obligations under a range of different scenarios, including the way 

such calculations are made, the testing required to make such determinations, 

and key factors, components and considerations. In ICE Clear Europe’s view, 

the amendments thus facilitate its ability to measure, monitor and manage its 

liquidity risks, consistent with the requirements of Core Principle B and 

Commission Rule 39.11(e).

 

• Risk Management. As discussed above, the Procedures describe in a single 

comprehensive and consolidated document the Clearing House’s practices that 

relate to liquidity stress testing and management of such testing. The 

Procedures are intended to describe the Clearing House’s current liquidity stress 

testing practices which are intended to ensure that the Clearing House has 

adequate liquidity to cover its payment and other obligations in the event of 

Clearing Member default or certain failures of other service providers. The 

Procedures also clarify the Clearing House’s sources and mitigations of various 

types of liquidity risk. As set forth above, although the Procedures largely 

document existing practice, the Clearing House is also making certain 

enhancements to LST through the procedures, including with respect to the 

liquidation of assets by sale, treatment of pledged assets, treatment of physical 

deliveries and treatment of collateral exchanges. The Procedures will facilitate 

the Clearing House's ability to conduct LST and thereby measure, monitor and 

manage its liquidity risks. In ICE Clear Europe’s view, as set out above, the 
9 

ICE Clear Europe Limited

Registered in England No.06219884

Registered office: Milton Gate, 60 Chiswell Street, London EC1Y 4SA

Procedures facilitate the Clearing House’s overall management of the risks 

associated with discharging its responsibilities. As such, ICE Clear Europe 

believes the amendments are consistent with the requirements of Core Principle 

D and Commission Rule 39.13.

• Governance. As discussed, the Procedures clarify certain responsibilities of the 

document owner and other ICE Clear Europe personnel in respect of ongoing 

review of the Procedures. In line with the Clearing House’s other policies and 

procedures, the Procedures also describe the responsibilities of the document 

owner and appropriate escalation and notification requirements for responding 

to exceptions and deviations from the Procedures. In ICE Clear Europe’s view,

the amendments are therefore consistent with the requirements of Core Principle 

O and CFTC Rule 39.24. 

As set forth herein, the amendments consist of the amendments to the Liquidity Stress 

Testing Procedures. ICE Clear Europe has requested confidential treatment with 

respect to the amendments, which have been submitted concurrently with this selfcertification submission. 

ICE Clear Europe hereby certifies that the amendments comply with the Act and the 

Commission’s regulations thereunder. 

ICE Clear Europe received no substantive opposing views in relation to the 

amendments. 

ICE Clear Europe has posted a notice of pending certification and a copy of this 

submission on its website concurrent with the filing of this submission. 

If you or your staff should have any questions or comments or require further 

information regarding this submission, please do not hesitate to contact the undersigned 

at george.milton@theice.com or +44 20 7429 4564. 

Very truly yours, 

George Milton

Head of Regulation & Compliance