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Federal Register / Vol. 86, No. 208 / Monday, November 1, 2021 / Notices
lotter on DSK11XQN23PROD with NOTICES1

processes and procedures related to ICCs counterparty monitoring practices and CRS, and not to materially change existing processes and practices in the FCM and Bank Procedures. Additional detail is memorialized in the Documents which was not previously in the Bank and FCM Procedures, including ICCs standards for counterparty relationships and procedures for counterparty onboarding and withdrawal in Section 3 of the CMPs and a comprehensive description of the CRS, including its foundations, data, testing, and assumptions and limitations, in the CRS
Policy. Overall, the purpose of and substance across the documents remains largely consistent with some differences in drafting style or terminology, additional procedures or detail, and other minor updates or revisions.
b Statutory Basis ICC believes that the proposed rule change is consistent with the requirements of Section 17A of the Act 4
and the regulations thereunder applicable to it, including the applicable standards under Rule 17Ad22.5 In particular, Section 17Ab3F of the Act 6 requires that the rule change be consistent with the prompt and accurate clearance and settlement of securities transactions and derivative agreements, contracts and transactions cleared by ICC, the safeguarding of securities and funds in the custody or control of ICC
or for which it is responsible, and the protection of investors and the public interest. As discussed herein, the proposed rule change is generally designed to enhance, clarify, and more clearly document descriptions of key ICC procedures related to ICCs counterparty monitoring practices and CRS. The proposed CMPs would consolidate ICCs existing counterparty monitoring procedures for CPs and FSPs into one document. Information related to the CRS would be moved into a separate policy, the CRS Policy, which describes ICCs credit scoring approach and is intended to more clearly document the processes and procedures associated with the CRS. Memorializing additional detail in respect of the CRS, such as its foundations, data sources, testing, and assumptions and limitations, in the CRS Policy would strengthen the CRS to ensure that it appropriately estimates credit scores representative of the financial condition of counterparties. Consolidation of the FCM and Bank Procedures regarding counterparty monitoring in the CMPs
and regarding the credit scoring approach in the CRS Policy would allow ICC to avoid unnecessary repetition, avoid potential confusion between policies, and promote efficiency. ICC
believes that the proposed rule change would thus facilitate and enhance its ability to carry out its counterparty monitoring responsibilities and manage counterparty credit risk and thus promote overall risk management and the stability of ICC. Accordingly, in ICCs view, the proposed rule change is consistent with the prompt and accurate clearance and settlement of securities transactions, derivatives agreements, contracts, and transactions, the safeguarding of securities and funds in the custody or control of ICC or for which it is responsible, and the protection of investors and the public interest, within the meaning of Section 17Ab3F of the Act.7
The proposed rule change would also satisfy the relevant requirements of Rule 17Ad22.8 Rule 17Ad22e2i and v 9 requires each covered clearing agency to establish, implement, maintain, and enforce written policies and procedures reasonably designed to provide for governance arrangements that are clear and transparent and specify clear and direct lines of responsibility. The Documents clearly and transparently assign and document responsibility and accountability associated with counterparty monitoring and computation of credit scores. The CMPs specify how identified issues are escalated and set out the roles and responsibilities of internal personnel and committees, including with respect to ongoing counterparty monitoring, review, and reporting; on-boarding and withdrawal of counterparties; and changes to the Watch List. The CMPs clearly set out the roles of the PRC and Subcommittee with respect to counterparty monitoring, review, and approval and detail their interaction with the Risk Department and CRO. For the CRS, the ICC Risk Department is responsible for calibrating the credit risk factor metrics under the CRS Policy.
The CRS Policy also assigns responsibility for checking the validity of data for the CRS and remedying inconsistencies. As such, in ICCs view, the proposed rule change ensures that ICC maintains policies and procedures that are reasonably designed to provide for clear and transparent governance arrangements and specify clear and
direct lines of responsibility, consistent with Rule 17Ad22e2i and v.10
Rule 17Ad22e4ii 11 requires each covered clearing agency to establish, implement, maintain, and enforce written policies and procedures reasonably designed to effectively identify, measure, monitor, and manage its credit exposures to participants and those arising from its payment, clearing, and settlement processes, including by maintaining additional financial resources at the minimum to enable it to cover a wide range of foreseeable stress scenarios that include, but are not limited to, the default of the two participant families that would potentially cause the largest aggregate credit exposure for the covered clearing agency in extreme but plausible market conditions. The proposed rule change enhances ICCs ability to manage its financial resources since the Documents are designed to minimize the risk associated with ICCs counterparty relationships by more clearly describing key processes, controls, decisions, and escalations associated with ICCs counterparty review and monitoring processes and CRS. The Documents are not intended to materially change ICCs existing processes and practices in the FCM and Bank Procedures.
Memorializing the processes and procedures associated with the CRS in the CRS Policy would strengthen the CRS to ensure that it appropriately estimates credit scores representative of the financial condition of counterparties. The proposed rule change would thus promote ICCs ability to ensure financial health and the ability to fulfill obligations by ICCs counterparties, which promotes and strengthens ICCs own financial condition and supports ICCs ability to maintain its financial resources and withstand the pressures of defaults, consistent with the requirements of Rule 17Ad22e4ii.12
Rule 17Ad22e16 13 requires each covered clearing agency to establish, implement, maintain, and enforce written policies and procedures reasonably designed to safeguard its own and its participants assets, minimize the risk of loss and delay in access to these assets, and invest such assets in instruments with minimal credit, market, and liquidity risks. The Documents memorialize the processes and procedures associated with managing credit risk from ICCs counterparties, including FSPs who are 10 Id.

4 15

U.S.C. 78q1.
5 17 CFR 240.17Ad22.
6 15 U.S.C. 78q1b3F.

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7 Id.

11 17

8 17

12 Id.

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