[Federal Register Volume 85, Number 122 (Wednesday, June 24, 2020)]
[Notices]
[Pages 37992-37995]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-13536]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89090; File No. SR-ICEEU-2020-009]
Self-Regulatory Organizations; ICE Clear Europe Limited; Notice
of Filing and Immediate Effectiveness of Proposed Rule Change Relating
to Amendments to the ICE Clear Europe Model Risk Governance Framework
June 18, 2020.
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 June 12, 2020, ICE Clear Europe Limited (``ICE Clear Europe'' or the
``Clearing House'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule changes described in Items I, II,
and III below, which Items have been primarily prepared by ICE Clear
Europe. ICE Clear Europe filed the proposed rule change pursuant to
Section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(6) \4\ thereunder,
such that the proposed rule change was immediately effective upon
filing with the Commission. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(6).
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[[Page 37993]]
I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
The principal purpose of the proposed amendments is for ICE Clear
Europe to modify its Model Risk Governance Framework (the ``Model Risk
Governance Framework'' or ``Framework'') to clarify the Clearing
House's model risk management processes and to update the Framework's
document governance and exception handling processes. The revisions to
the Model Risk Governance Framework would not involve any changes to
the ICE Clear Europe Clearing Rules or Procedures.\5\
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\5\ Capitalized terms used but not defined herein have the
meanings specified in the ICE Clear Europe Clearing Rules.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
In its filing with the Commission, ICE Clear Europe included
statements concerning the purpose of and basis for the proposed rule
change and discussed any comments it received on the proposed rule
change. The text of these statements may be examined at the places
specified in Item IV below. ICE Clear Europe has prepared summaries,
set forth in sections (A), (B), and (C) below, of the most significant
aspects of such statements.
(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
(a) Purpose
Following its annual review of the Model Risk Governance Framework,
ICE Clear Europe is proposing to amend the Framework as follows: (i)
Clarify certain procedures for model risk management, including with
respect to new models and reviews of existing models; (ii) to update
governance provisions relating to document review, breach management
and exception handling; and (iii) to make various drafting
clarifications and improvements.
Model Risk Management
The section of the Framework addressing validation and model
performance assessment would be renamed to the more general ``Model
Risk Management'' and clarify that the Clearing House will identify,
measure, monitor and mitigate model risk in all stages of a model life
cycle. Certain general explanatory, non-substantive language (such as
language generally explaining stages of new models, referencing the
general nature of model changes and explaining the general importance
of model validation and performance assessment) would be removed as
unnecessary.
With respect to new models, language would be introduced to clarify
that the time elapsed from validation to the production date is not to
exceed the validation cycle.
With respect to review of existing models, the Clearing House
proposes to add further detail regarding annual validation cycles: The
time horizon of the cycles would be measured on a month-to-month basis,
and the time the remediation plan was approved would be used as a
reference. In addition, it would be clarified that model performance
assessments would be conducted on a periodic basis, with cycles no
greater than those used for validations (as opposed to no greater than
one year). These assessments would, at a minimum, include the review of
the testing performance of the models as well as the appropriateness of
the parameters and assumptions used in them.
In the section discussing model retirement, language providing that
the efficiency of a model may deteriorate over its life cycle for
several reasons would be removed as unnecessary. The section would also
be updated to provide that the Clearing House's assessment of the risks
and consequences of retiring a model would, at a minimum, include a
review of the reasons for the retirement, the coverage of risks post-
retirement, the existing interdependencies and the regulatory
compliance.
Governance
The amendments to the Framework would also update arrangements for
breach management, ongoing Framework reviews and exception handling.
The amendments are intended to make the Framework consistent in this
regard with other ICE Clear Europe policies and governance processes.
In particular, the amendments would provide that (i) the document
owner, as specified in ICE Clear Europe policies, is responsible for
ensuring that documents remain up-to-date and are reviewed in
accordance with the Clearing House's governance processes, (ii) the
document owner will report material breaches or unapproved deviations
from the Framework to their Head of Department, the Chief Risk Officer
and the Head of Compliance (or their delegates) who will determine if
further escalation will be made to relevant senior executives, the
Board and/or competent authorities, and (iii) exceptions to the Model
Risk Governance Framework would be approved in accordance with the
Clearing House's governance process for the approval of changes to such
document.
General Drafting Clarifications and Improvements
By way of general drafting clarification and improvements, the
amendments to the Model Risk Governance Framework would re-word certain
sections for improved readability as well as make general grammatical
and typographical corrections. Certain terminology would be updated
throughout the Framework, including clarifying the use of the term
``remediation plan'' as opposed to ``remediation action''. The ``Second
Line'' discussion of Model Risk Governance would be clarified to
provide that the Risk Oversight Department is responsible to establish,
maintain and observe guidelines for performing independent validation
exercises only, and not also for model performance assessments and
review of impact assessments (as those are generally ``First Line''
functions).
(b) Statutory Basis
ICE Clear Europe believes that the proposed amendments to the Model
Risk Governance Framework are consistent with the requirements of
Section 17A of the Act \6\ and the regulations thereunder applicable to
it. In particular, Section 17A(b)(3)(F) of the Act \7\ requires, among
other things, that the rules of a clearing agency be designed to
promote the prompt and accurate clearance and settlement of securities
transactions and, to the extent applicable, derivative agreements,
contracts, and transactions, the safeguarding of securities and funds
in the custody or control of the clearing agency or for which it is
responsible, and the protection of investors and the public interest.
The proposed changes to the Model Risk Governance Framework are
designed to clarify and strengthen ICE Clear Europe's model risk
management framework. The amendments would clarify that model risk
management is to be identified, measured, monitored and mitigated in
all stages of a model life cycle. The amendments would provide greater
detail as to the timing of the Clearing House's assessment of new
models and of existing models; specifically, the time elapsed to the
production launch date with respect to a new model would not be greater
than the validation cycle, and the time horizon of existing models
[[Page 37994]]
would be measured on a month-to-month basis, using the time the
remediation plan was approved as reference. The amendments would also
clarify requirements for ongoing performance assessments, and enhance
the governance over the Framework, to be consistent with other ICE
Clear Europe policies. ICE Clear Europe believes that the Framework as
so amended would enhance the overall risk management of the Clearing
House, and thereby promote the prompt and accurate clearance of
transactions and further the public interest in sound operation of
clearing agencies, within the meaning of Section 17A(b)(3)(F).\8\ The
amendments are not intended to affect, and are consistent with, the
Clearing House's existing Rules and Procedures relating to the
safeguarding of funds and securities in the custody or control of the
Clearing House or for which it is responsible, within the meaning of
that section.
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\6\ 15 U.S.C. 78q-1.
\7\ 15 U.S.C. 78q-1(b)(3)(F).
\8\ 15 U.S.C. 78q-1(b)(3)(F).
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In addition, ICE Clear Europe believes that the proposed revisions
to the Model Risk Governance Framework are consistent with the relevant
requirements of Rule 17Ad-22.\9\ Rule 17Ad-22(b)(4) \10\ requires
clearing agencies to perform an annual model validation, including a
performance evaluation, of their margin models and the related
parameters and assumptions. Rules 17Ad-22(e)(4)(vii) \11\ and 17Ad-
22(e)(6)(vii),\12\ also require clearing agencies to have policies and
procedures in place to ensure the performance of a model validation of
their credit risk models, margin system, and related models not less
than annually. Pursuant to the amendments, validation would continue to
be performed on an annual basis and the additional clarifications
minimum standards would further improve the review and validation
process, in compliance with these requirements.
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\9\ 17 CFR 240.17Ad-22.
\10\ 17 CFR 240.17Ad-22(b)(4). The rule states that ``[a]
registered clearing agency that performs central counterparty
services shall establish, implement, maintain and enforce written
policies and procedures reasonably designed to: (4) Provide for an
annual model validation consisting of evaluating the performance of
the clearing agency's margin models and the related parameters and
assumptions associated with such models by a qualified person who is
free from influence from the persons responsible for the development
or operation of the models being validated''.
\11\ 17 CFR 240.17Ad-22(e)(4)(vii). The rule states that
``[e]ach covered clearing agency shall establish, implement,
maintain and enforce written policies and procedures reasonably
designed to, as applicable: (4) Effectively identify, measure,
monitor, and manage its credit exposures to participants and those
arising from its payment, clearing, and settlement processes,
including by: (vii) Performing a model validation for its credit
risk models not less than annually or more frequently as may be
contemplated by the covered clearing agency's risk management
framework established pursuant to paragraph (e)(3) of this section''
\12\ 17 CFR 240.17Ad-22(e)(6)(vii). The rule states that
``[e]ach covered clearing agency shall establish, implement,
maintain and enforce written policies and procedures reasonably
designed to, as applicable: (6) Cover, if the covered clearing
agency provides central counterparty services, its credit exposures
to its participants by establishing a risk-based margin system that,
at a minimum:
(vii) Requires a model validation for the covered clearing
agency's margin system and related models to be performed not less
than annually, or more frequently as may be contemplated by the
covered clearing agency's risk management framework established
pursuant to paragraph (e)(3) of this section''
Rule 17Ad-22(e)(2) \13\ requires clearing agencies to establish
reasonably designed policies and procedures to provide for
governance arrangements that are clear and transparent and specify
clear and direct lines of responsibility. The proposed amendments to
the Framework more clearly define the roles and responsibilities of
the document owner, the Head of Department, the senior members of
the Risk Oversight Department and the senior members of the
Compliance Department, consistent with governance arrangement for
other ICE Clear Europe policies and procedures. ICE Clear Europe
believes that the amendments to the Framework are therefore
consistent with the requirements of Rule 17Ad-22(e)(2).\14\
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\13\ 17 CFR 240.17 Ad-22(e)(2). The rule states that ``[e]ach
covered clearing agency shall establish, implement, maintain and
enforce written policies and procedures reasonably designed to, as
applicable: (2) Provide for governance arrangements that: (i) Are
clear and transparent (ii) Clearly prioritize the safety and
efficiency of the covered clearing agency; (iii) Support the public
interest requirements in Section 17A of the Act (15 U.S.C. 78q-1)
applicable to clearing agencies, and the objectives of owners and
participants; (iv) Establish that the board of directors and senior
management have appropriate experience and skills to discharge their
duties and responsibilities; (v) Specify clear and direct lines of
responsibility; and (vi) Consider the interests of participants'
customers, securities issuers and holders, and other relevant
stakeholders of the covered clearing agency.''
\14\ 17 CFR 240.17 Ad-22(e)(2).
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(B) Clearing Agency's Statement on Burden on Competition
ICE Clear Europe does not believe the proposed amendments would
have any impact, or impose any burden, on competition not necessary or
appropriate in furtherance of the purposes of the Act. The amendments
are being adopted to further strengthen the Model Risk Governance
Framework by implementing internal procedures intended to strengthen
oversight of models. The amendments would apply to all product
categories, and are not intended to affect directly Clearing Members or
market participants, or the markets for cleared products. As a result,
ICE Clear Europe does not otherwise believe the amendments would affect
the costs of or access to clearing, or the market for clearing services
generally. Therefore, ICE Clear Europe does not believe the proposed
rule change imposes any burden on competition that is inappropriate in
furtherance of the purposes of the Act.
(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants or Others
Written comments relating to the proposed amendments have not been
solicited or received by ICE Clear Europe. ICE Clear Europe will notify
the Commission of any written comments received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not:
(i) Significantly affect the protection of investors or the public
interest;
(ii) impose any significant burden on competition; and
(iii) become operative for 30 days from the date on which it was
filed, or such shorter time as the Commission may designate, it has
become effective pursuant to Section 19(b)(3)(A) of the Act \15\ and
Rule 19b-4(f)(6) \16\ thereunder.
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\15\ 15 U.S.C. 78s(b)(3)(A).
\16\ 17 CFR 240.19b-4(f)(6).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
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 [email protected]. Please include
File Number SR-ICEEU-2020-009 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.
[[Page 37995]]
All submissions should refer to File Number SR-ICEEU-2020-009. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of such filings will also be available for inspection
and copying at the principal office of ICE Clear Europe and on ICE
Clear Europe's website at https://www.theice.com/notices/Notices.shtml?regulatoryFilings.
All comments received will be posted without change. Persons
submitting comments are cautioned that we do not redact or edit
personal identifying information from comment submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-ICEEU-2020-009 and should be
submitted on or before July 15, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-13536 Filed 6-23-20; 8:45 am]
BILLING CODE 8011-01-P