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Federal Register / Vol. 86, No. 43 / Monday, March 8, 2021 / Notices source of intraday prices and make other drafting improvements and clarifications, including through revising certain descriptions and providing certain defined terms. The amendments simplify certain cross references to the CDS Risk Model Description throughout the policy by removing unnecessary section references to facilitate keeping the CDS
Risk Policy up to date. In general, the amendments are intended to provide a clearer explanation of the Clearing Houses methodology for IM and GF
requirements and are not intended to materially change the methodology or to change the levels of IM and GF
requirements.
With respect to IM, the amendments would clarify the description of the IM
methodology by stating that the risk protection measure is based on using a combined approach featuring a stressbased spread response Value-at-Risk VaR measure and a Monte Carlo MC simulation spread response VaR
measure. They would also add that model performance would be monitored through stress testing and sensitivity analyses. The amendments are intended to more clearly reflect existing practices, and would not change the IM
methodology.
With respect to the spread response requirements description, the amendments would provide greater clarity that the spread response risk requirement that captures credit spread fluctuations is a stress-based spread response that computes Profit/Loss P/
L distributions from a set of simulated hypothetical forward looking credit spreads scenarios.
The description of the stress-based spread response scenarios would be modified by rewording the introduction to improve readability and to clarify the applicable benchmark tenors estimated for all the Risk Sub-factors, replacing certain outdated references to tenors.
The amendments are intended to reflect and more clearly describe current practices.
A new section would be added to describe in more detail the Monte Carlo simulation approach currently used by the Clearing House. The amendments would provide that in this approach, ICE Clear Europe generates spread scenarios by means of student-t copulas to connect the univariate distributions that describe spread fluctuations. The student-t copulas reflect historical estimates of Kendall t correlation coefficients to simulate spread logreturns.
The simulated copula scenarios are used to arrive at hypothetical spread levels by means of estimated univariate
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spread log-return distributions. Each instrument would be repriced at the simulated spread levels to generate a scenario instrument P/L based on postindex decomposition positions. For each scenario, instrument P/Ls would be aggregated according to pre-defined RFs and sub-portfolio position sets in order to obtain RF and sub-portfolio P/
Ls.
These distributions would be used to estimate the RF and sub-portfolio 99.5%
VaR measures at a chosen risk horizon.
The portfolio level integrated Spread Response would be estimated as a weighted sum of RF and sub-portfolio 99.5% VaR measures.
The description of the antiprocyclicality considerations would be updated to provide that the stress price changes would be derived from the price-based extreme but plausible stress test scenarios under the revised CDS
Stress Testing Policy, as described above, instead of only from the market behavior during and after the Lehman Brothers default period.
Throughout the policy, references to the risk department would also be updated to the Clearing Risk Department.
The amendments also provide that the Clearing Risk Department may recommend margin methodology changes based on the governance procedures outlined in the MRGF, consistent with the requirements of that framework. The amendments would also note that in the event that ICE Clear Europe is accepting sizable positions through the weekly back-loading process in the context of margin calls, it will pre-collect IM and mark-tomarket changes, instead of just IM.
With respect to mark-to-market margin MTMM, the description regarding the determination of cash owing, the payment of MTMM, the timing of margin calculations and the making of MTMM calls would be removed as unnecessary operational detail. These matters are also generally covered in the CDS Risk Policy and Finance Procedures. Similarly, the discussion of the requirements and rights of a Clearing Member upon a change in MTMM balance i.e. to pay or be credited cash would be deleted as unnecessary detail.
With respect to intra-day monitoring, the amendments would provide that ICE
Clear Europe would ensure the quality of the intraday prices by monitoring and comparing the quotes received with the intraday prices of the transactions cleared at ICE CDS clearing houses. ICE
Clear Europe could also compare intraday prices with those of another third-party provider. The comparison
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process would be carried out before issuing intraday margin calls. The description of the intraday risk limit calculation would be updated such that it would be based on 40% of the total IM requirements, with a minimum amount corresponding to the minimum GF contribution and would be capped at a monetary amount reviewed in conjunction with the ICE Clear Europe senior management and the CDS
Product Risk Committee. The precise monetary amount would be removed from the policy to give the Clearing House flexibility if it determined it was appropriate to review and reconsider this amount in the future in conjunction with senior management and the BRC.
There is currently no plan to change the existing EUR 100 million cap in practice. The procedure for intra-day margin calls would be further clarified by removing a statement that where there has been a 50% erosion of the Intraday Risk Limit, the Risk Department will investigate the matter.
In ICE Clear Europes view, a separate step at the 50% erosion level is unnecessary, as ICE Clear Europe will not take any particular action at that level. Once the erosion exceeds 50%, the Clearing Risk Department is required to inform the relevant CDS
Clearing Member that it may be subject to an intraday margin call and in so doing the Clearing Risk Department will make any necessary investigations of the matter.
The statement that the Risk Management Department will notify the ICE Clear Europe Treasury Department of the special margin call would be removed as an operational detail not necessary for the policy. Generally, the Clearing Risk Department sets the margin level and would communicate it to other departments in the ordinary course, as it does for any change of margin level.
With respect to the GF, the amendments would update the drafting of certain language including the reference to the Cover 2 requirement to remove certain unnecessary detail.
With respect to related antiprocyclicality considerations, the amendments would refer to the extreme but plausible price-based stress test scenarios described in the revised CDS
Clearing Stress Testing Policy, as discussed above. Amendments would also provide that the GF allocation process is performed by the Clearing Risk Department on a weekly basis rather than every Thursday and based on the previous business days close of business positions rather than Wednesdays close of business positions. The amendments would also
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