[Federal Register Volume 79, Number 247 (Wednesday, December 24, 2014)]
[Notices]
[Pages 77578-77579]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-30120]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73877; File No. SR-ICC-2014-18]


Self-Regulatory Organizations; ICE Clear Credit LLC; Order 
Granting Approval of Proposed Rule Change To Revise the ICC Risk 
Management Framework

December 18, 2014.

I. Introduction

    On October 22, 2014, ICE Clear Credit LLC (``ICC'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change SR-ICC-2014-18 pursuant to section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder.\2\ The 
proposed rule change was published for comment in the Federal Register 
on November 3, 2014.\3\ The Commission received no comment letters 
regarding the proposed change. For the reasons discussed below, the 
Commission is granting approval of the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 34-73444 (Oct. 28, 
2014), 79 FR 65270 (Nov. 3, 2014) (SR-ICC-2014-18).
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II. Description of the Proposed Rule Change

    ICC is proposing to revise the ICC Risk Management Framework to 
incorporate certain risk model enhancements. The revisions do not 
require any changes to the ICC Clearing Rules.
    ICC proposes revising the ICC Risk Management Framework to 
facilitate compliance with requirements under the European Market 
Infrastructure Regulations, specifically anti-procyclicality conditions 
described in Article 28 of the Regulatory Technical Standards.\4\ 
Currently, according to ICC, it considers three levels of volatility in 
its Risk Management Framework to account for stable but prudent margin 
requirements. ICC proposes adding a fourth volatility scale that 
assigns a 25% weight to a stress period (currently the stress period is 
set to January 14, 2008 to December 31, 2008) and the remaining 75% to 
the immediate most recent 250 observations, consistent with Article 
28(b) of the Regulatory Technical Standards. According to ICC, the 
revised initial margin requirements are expected to result in more 
conservative initial margin figures for some risk factors. In addition, 
ICC proposes introducing devolatilization enhancements to describe 
spread log-return time series that span market periods associated with 
different volatility regimes.
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    \4\ Commission Delegated Regulation (EU) No. 153/2013 of 19 
December 2012 Supplementing Regulation (EU) No. 648/2012 of the 
European Parliament and of the Council with regard to Regulatory 
Technical Standards on Requirements for Central Counterparties (the 
``Regulatory Technical Standards'').
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    Additionally, ICC proposes a revised approach to computing index 
liquidity charges. As described by ICC, the enhancement consists of 
reducing the portfolio liquidity benefits across different index 
series. As part of its product offering, ICC clears credit default swap 
(``CDS'') index series. A new series of CDS indices is issued every six 
months, and the new series is referred to as being ``on-the-run,'' 
while previous series are referred to as being ``off-the-run.'' ICC 
states that the revised calculation establishes series-specific 
liquidity charges by considering the series-specific positions and 
establishing series-specific position directionality based on the 
corresponding 5-year equivalent notional amount directionality. 
Further, to capture the market behavior around index rolls when the 
bid/offer width for index-roll transactions (i.e., trading the on-the-
run vs. first off-the-run indices) is typically smaller than the bid/
offer width of each individual leg, ICC proposes implementing time-
dependent long/short liquidity charge portfolio benefits for the on-
the-run and the first off-the run series. The proposed revisions to the 
liquidity charges are expected by ICC to result in more conservative 
requirements than the ones associated with the current approach.
    ICC also proposes enhancements to the calculation of its 
concentration charges by introducing index series-specific 
concentration charges. According to ICC, the revised calculation 
establishes series-specific concentration charges for positions 
exceeding series-specific concentration threshold limits based on the 
direction of the 5-year equivalent notional amount or the net notional 
amount. Under the revised calculation, ICC states it will estimate 
series-specific concentration charge threshold limits based on the 
distribution of series-specific open interest information at the 
Clearing House. ICC believes that the estimated series-specific 
concentration charge threshold limits reflect the average open interest 
over a 5-day period. ICC expects the proposed revisions to the 
concentration charge will result in more conservative requirements than 
the ones associated with the current approach.

III. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act \5\ directs the Commission to 
approve a proposed rule change of a self-regulatory organization if the 
Commission finds that such proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to such self-regulatory organization. Section 17A(b)(3)(F) 
of the Act \6\ requires, among other things, that the rules of a 
clearing agency are 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, in general, to protect investors and the public 
interest.
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    \5\ 15 U.S.C. 78s(b)(2)(C).
    \6\ 15 U.S.C. 78q-1(b)(3)(F).
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    The Commission finds that the proposed rule change is consistent 
with section 17A of the Act \7\ and the rules thereunder applicable to 
ICC. The proposed changes to the ICC Risk Management Framework are 
expected to impose more prudent initial margin requirements, meeting 
the requirements of Rule 17Ad-22(b)(1) and (2).\8\ The proposed 
changes, when considered together with ICC's existing Guaranty Fund 
methodology, are expected to result in total financial resources 
maintained by ICC sufficient to withstand, at a minimum, a default by 
the two participant families to which it has the largest exposures in 
extreme but plausible market conditions in accordance with Rule 17Ad-
22(b)(3).\9\ Therefore, ICC's proposed changes are reasonably designed 
to meet the margin and financial resource requirements of Rule 17Ad-
22(b)(1)--(3).\10\ The Commission therefore believes that the changes 
will promote the prompt and accurate settlement of securities and 
derivatives transactions, consistent with the requirements of section 
17A(b)(3)(F) of the Act.\11\
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    \7\ 15 U.S.C. 78q-1.
    \8\ 17 CFR 240.17Ad-22(b)(1) and (2).
    \9\ 17 CFR 240.17Ad-22(b)(3).
    \10\ 17 CFR 240.17Ad-22(b)(1)--(3).
    \11\ 15 U.S.C. 78q-1(b)(3)(F).
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IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposal is consistent with the requirements of the Act and in 
particular with the requirements of section 17A of the

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Act \12\ and the rules and regulations thereunder.
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    \12\ 15 U.S.C. 78q-1.
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    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\13\ that the proposed rule change (File No. SR-ICC-2014-18) be, 
and hereby is, approved.\14\
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    \13\ 15 U.S.C. 78s(b)(2).
    \14\ In approving the proposed rule change, the Commission 
considered the proposal's impact on efficiency, competition and 
capital formation. 15 U.S.C. 78c(f).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-30120 Filed 12-23-14; 8:45 am]
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