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Federal Register / Vol. 86, No. 43 / Monday, March 8, 2021 / Notices
clarify that the requirement that a portion of the GF be in USD is intended to accommodate all USD-denominated CDS contracts, not merely sovereign CDS contracts . . . The current numerical example of GF calls/
collection would be removed as unnecessary.
With respect to back-testing, the amendments provide if the model calibration consistently demonstrates exceptions outside of the coverage level, the Clearing Risk Department would review the models and recommend revisions following the governance procedures outlined in the MRGF.
Pursuant to the amendments, the stress-testing section would add that the historical data would account for COVID19 outbreak fear, consistent with the changes to the CDS Stress Testing Policy discussed above.
The amendments would update certain terms throughout the document as follows: ICE Clear Europe would be referred to as ICEU; Member, member or Clearing Member would generally be updated to CM; Risk Model Description would be updated to CDS Risk Model Description; CDS Risk Committee would be updated to CDS Product Risk Committee; Risk Department, Risk Management Department or Clearing Risk department would be updated to Clearing Risk Department; General Wrong Way Risk would be referred to as GWWR; Guaranty Fund would be updated to GF, Specific Wrong Way Risk would be abbreviated as SWWR;
Model Oversight Committee would be given the acronym MOC; the Model Risk Governance Framework would be given the acronym MRGF; Initial Margin would be updated to IM; Dollar would be updated to USD; CDS Back Testing Framework would be updated to Policy; a Risk Oversight Committee reference would be updated to ROC;
CDS Risk Product Committee and CDS
RC would be respectively updated to CDS Product Risk Committee and CDS
PRC; and Risk Committee would be updated to CDS PRC. Certain other typographical corrections would be made.

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CDS Risk Model Description This document was amended in May 2019 the 2019 Amendments and additional amendments are currently being proposed the Current Amendments. As discussed below, the Current Amendments would:
Clarify the treatment of volatility estimates for the Recovery Rate Sensitivity Requirement RRSR, risk factor calibration and the raw data cleansing process; and
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add detail regarding the use of ICE
Clear Europe cleared volume in the Concentration Charge threshold review.
As discussed below, the 2019
Amendments:
enhanced the calculation of the WWR threshold;
clarified the parameter estimation of the recovery rate sensitivity requirement;
clarified the discussion around model testing;
added a section to explicitly refer to the assumption around the use of the same time series for IM and GF
distributions in the CDS Risk Model;
and provided that the interest rate sensitivity requirement of the model reflects a time horizon of five days for house accounts and seven days for client accounts.
With the exception of the changes to the calculation of the WWR threshold, the amendments are in the nature of clarification and improving descriptions of the Clearing Houses existing methodology, and do not constitute a change in the methodology. The enhancement of the calculation of the WWR threshold, as discussed below, while a change from prior practice, is expected to have an immaterial effect on margin levels.
The 2019 Amendments The following is a description in further detail of the 2019 Amendments to the CDS Risk Model.
Model Design and Development The amendments updated the description of the interest rate sensitivity requirement component of the IM model to add that the changes captured in the discount default-free terms structure used for pricing the cleared instruments are over a certain time horizon five days for house accounts and seven days for client accounts. This amendment documented existing practice.
Initial Margin Methodology With respect to IM, the amendments updated the loss given default risk analysis to specify initial values of certain parameters and to note that certain parameters are reviewed by the Risk Working Group on at least a monthly basis.
With respect to the haircut applied as part of the multi-currency portfolio treatment methodology, the amendments clarified that in order to provide consistency and uniformity in the parameters applied to the CDS risk model, ICE Clear Europe adopted the same more conservative haircut in line with ICE Clear Credit LLC. This
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amendment did not change existing practice and was intended to strengthen the IM methodology by documenting existing practice.
Similarly, with respect to the foreign exchange haircut applied to periodic adjustments to the GF, the amendments also clarified that in order to provide consistency and uniformity in the parameters applied to the CDS risk model, ICE Clear Europe adopted the same more conservative haircut in line with ICE Clear Credit LLC. This amendment also did not change existing practice and was intended to strengthen the IM methodology by documenting existing practice.
Monte Carlo Implementation Amendments were made to clarify and simplify the overall description of the Monte Carlo implementation. The amendments were not intended to reflect a change from current practice, but rather provide a clearer description of the existing implementation.
Specifically, ICE Clear Europe believes that the revised description provides a more practical, and less theoretical, explanation of the Monte Carlo implementation that will facilitate replication and validation of the implementation by third parties.
Among other clarifications, the revised description states explicitly that the final spread response requirement would be the most conservative requirement in the specified stressbased spread response equation, which is consistent with current practice.
Certain subsections of the Monte Carlo description, including those relating to the discussion of matrix decomposition, were deleted as unnecessary in light of the description of the implemented model. The amendments updated the copula simulation description to provide further detail as to the determination and use of the linear correlation matrix and construction of student-t random variables and vectors for the production of relevant scenarios.
The existing description of the conditional block matrix simulation framework and full matrix simulation framework were revised to provide a more simplified description of the twostep conditional simulation approach that is currently used by the Clearing House. A section describing copula parameter estimation for purposes of multivariate distribution was added while the description of simulation for standardized spread log returns was removed as unnecessary. The model parameters section was removed with relevant parameters being addressed in the Parameters Procedures as discussed below. Overall, these changes were
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