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Federal Register / Vol. 86, No. 43 / Monday, March 8, 2021 / Notices
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scenarios. The changes including the addition of the COVID19 scenarios are not expected to result in any changes in margin levels or other financial impact on the Clearing House or Clearing Members.
Extreme but Plausible Market Scenarios The amendments would update the description of the extreme but plausible market scenarios. The description of the 2008/2009 credit crisis scenario would be updated to state that the widening/
tightening credit crisis spread scenarios are based on the greatest observed N-day instead of five-day relative spread increases/decreases expressed as percentages. The amendments would also clarify that the determination of the exact stress period is defined by the greatest observed spreads change of the Most Actively Traded Instruments MATI for each relevant subportfolio. The stress spread changes, defined for each Index, corporate and sovereign risk factor RF, would be extracted from the market history for the MATI of the considered RF.
Amendments would also clarify that the other three historically observed stress test scenarios from the 2008/2009
period would be based specifically around the period surrounding Lehman Brothers default to capture the large market moves of that period. These amendments are intended to provide a more thorough description of these existing stress testing scenarios.
The description of the Western European credit crisis scenarios would similarly be clarified to state explicitly that the scenarios replicate the stress market moves resulting from the concerns around the debt sustainability of several Eurozone countries.
Widening/Tightening Western European Credit Crisis Spread Scenarios would be based on the greatest observed Nday instead of five-day relative spread increases/decreases which would no longer be restricted to the most actively traded instruments. Amendments would also clarify that the determination of the exact stress period would be defined by the greatest observed spreads change of the MATI
for each sub-portfolio. The other three historically observed stress test scenarios would be based specifically around the second quarter of 2010 to capture the large market moves of that period. The spread shocks would be expressed in percentage for each RF.
These amendments are intended to provide a more thorough description of these existing stress testing scenarios.
The description of the Lehman Brothers Default Price Change Scenario would be expanded. The amendments
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would state that the scenario magnitudes are defined for each RF
according to its sector classification and time to maturity of the considered instrument. The corresponding stress test Opposite LB Default Price Change Scenarios would be derived from the Lehman Brothers scenarios by means of multiplying the scenario result by a negative factor to reflect the reduced magnitudes of the observed price increases during the considered period.
These amendments are intended to provide a more thorough description of these existing stress testing scenarios.
New COVID19 Based Scenarios Given that moves in both spreads and prices were, generally, higher than other observed extreme but plausible stress test scenarios during the COVID19
pandemic, ICE Clear Europe is proposing to add the following additional COVID19 pandemic fear scenarios based on stress market moves experienced between February and April 2020:
The COVID19 Widening/
Tightening Spread Scenarios, which would be based on the greatest observed N-day relative spread increases/
decreases during the period. The determination of the exact stress period would be defined by the greatest observed N-day spread changes of the MATI for each sub-portfolio; and The COVID19 Price Decrease Scenario would be defined in price space to maintain the stress severity during periods of low spread levels and high prices, when the IM requirements are expected to be lower. The scenario would be based on the greatest observed N-day relative price decreases during the aforementioned period. The determination of the exact stress period would be defined by the greatest observed N-day spread changes of the MATI for each sub-portfolio. A
corresponding stress test COVID19
Price Increase Scenario would be derived from the price decrease scenario by applying factors for Indices and SNs to reflect the reduced magnitudes of the observed price increases during the considered period.
Discordant Scenarios The scope of discordant spread scenarios for corporates and sovereigns would be clarified. Specifically, the description of the corporate discordance spread scenarios would reflect that such scenarios are based specifically on discordant moves along the major European and North American 5Y onthe-run OTR indices. The amendments would also state that the corporate SNs and indices discordant spread scenarios,
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which reflect realizations when certain indices or sub-indices for the EU region and certain U.S. OTR indices exhibited the greatest combined discordant change, would be created and applied to SNs and Indices. The amendments would further update references to indices used in stress scenarios and state that other stress scenarios would be based on discordant spread realizations across European Indices.
The amendments would also note that other stress scenarios would reflect discordant spreads realizations among geographical regions. These amendments are intended to provide a more thorough description of existing stress testing scenarios.
Hypothetical Scenarios With respect to hypothetical scenarios, greater detail would be added to clarify that the curve inverting spread scenario is based on the largest widening shock among the 2008/2009
Credit Crisis Widening and the Western European Credit Crisis Widening for each RF. Similarly, the curve steepening spread scenario is based on the largest tightening shock among the 2008/2009
Credit Crisis Tightening and Western European Credit Crisis Tightening scenarios.
New sectors and countries discordant scenarios would also be added. These scenarios would be designed to reproduce discordant moves across sectors and entities of different countries, noting that the large price moves in the oil benchmark products especially WTI negative prices in the first half of 2020 created asymmetric shocks to the energy and financials sectors compared to other sectors, which would be reflected in the Energy vs Other Sectors Discordant scenario.
The five-year spread shocks would be estimated at sector level, and the derivation of the shocks for the other tenors would be based on the tenorspecific inverting and steepening factors. The sector-specific shocks would then be applied to all RFs within the sector. The opposite stress scenario would also be considered for completeness. The spread shocks estimated for the clearable Western European Sovereigns would be applied to the European corporate SNs for each country. The opposite stress scenario would also be considered for completeness.
Another hypothetical scenario, the forward-looking credit events scenarios, would be updated to clarify that the Clearing Member reference entity that would be considered would be different from the Clearing Member whose portfolio is subject to the stress test.

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