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Federal Register / Vol. 86, No. 43 / Monday, March 8, 2021 / Notices
with open interest in the relevant instrument, then ICE Clear Europe would switch to rely on indicative quotes and would require these from all CDS Clearing Members. For this purpose, an indicative quote is a reasonable estimate of the market price but does not necessarily reflect a price at which the member would transact.
When requesting indicative quotes in this manner, ICE Clear Europe would not require CDS Clearing Members to enter into firm-trades in these instruments. The minimum number of three CDS Clearing Members, below which indicative quotes would be used, would be subject to ongoing review by ICE Clear Europe as to whether this is the appropriate threshold given market circumstances.
A new Table 4 showing an example of an assignment of index risk factors to market proxy groups would be added pursuant to the amendments relating to end-of-day bid-offer widths EOD
BOWs for index instruments. The new table does not reflect a change in practice and is intended for clarity. The table would show the index risk factors for each of the CDX and iTraxx market proxy groups. A reference to Table 2 in the EOD BOWs section would be updated to Table 4. Existing references to Tables 4 through 7 would be respectively updated to Tables 5
through 8.
In the governance section addressing material changes to the EOD price discovery methodology, spread-to-price conversion determinants or parameters, the amendments would clarify that review would be performed by the TAG
instead of the TAC and the Product Risk Committee instead of the Risk Committee. This amendment is intended to reflect current practice.
Numerous minor typographical and similar updates would be made throughout the CDS End of Day Price Discovery Policy. For example, the term Clearing Participant would be updated to Clearing Member, CP
would be updated to CM and Trading Advisory Committee or TAC would be updated to Trading Advisory Group or TAG, to be consistent with terminology used in the Rules and other ICE Clear Europe documentation. The statement that the trading desks at each self-clearing member SCM would be required to copy ICE Clear Europe on the intraday quotes they provide market participants via email would be updated to requested to copy. Certain outdated cross-references would be removed.
With respect to the red matters in the escalation and notification protocol for appetite metrics, the Board and
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Executive Risk Committee would be notified immediately instead of as soon as possible. Other minor clean-up changes would also be made to improve readability and clarity.
CDS Clearing Stress Testing Policy ICE Clear Europe is proposing to add new stress test scenarios to this policy and to make certain other clarifications and enhancements to the description of the stress-testing methodology in order to capture the large market moves experienced during the COVID19
pandemic, strengthen the CDS
discordant stress test scenarios and better reflect the current governance structure related to stress testing.
Purpose The discussion of the purpose of Clear House stress testing practices, including as to how they are integrated into ICE
Clear Europes risk procedures and governance structure, would be revised to reflect the Clearing Houses current governance framework, and specifically to reference the Model Oversight Committee MOC and to remove an outdated reference to the Board Risk Committee BRC. The amendments would also provide that any terms not defined in the policy would be defined in the ICE Clear Europe CDS Risk Policy and the Rules, instead of only in the Rules.
Methodology The general methodology section of the policy would be amended to add a discussion of stress testing in the context of wrong way risk. For this purpose, positions in index risk factors and single-name risk factors that exhibit high levels of association with a Clearing Members portfolio are combined in a sub-portfolio, which is subject to additional stress testing analysis. The amendments to this section do not reflect a change in Clearing House practice but are intended to better document existing practice.
The amendments also revise the governance process where a scenario or portfolio in the standard set of stress scenarios is no longer applicable, or is superseded by new scenarios or portfolios, and the Clearing Risk Department wishes to retire or modify the outdated scenario or portfolio. In that case, the Clearing Risk Department would conduct an analysis to determine whether a change is significant, which would be reviewed by the Risk Oversight Department ROD. The Board, or its delegated committee, would approve the significant decommissioning of scenarios, while
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the Model Oversight Committee MOC would approve the decommissioning of scenarios if not significant or recommend the decommissioning of scenarios to the Board if deemed significant. The amendment is intended largely to formalize current practice, and also reflect the role of the MOC under the Clearing Houses Model Risk Governance Framework the MRGF.
The existing description of the steps that the Clearing Risk Department would take in such a scenario involving approval by the relevant risk committee would be deleted. The amendments would also clarify that if the Clearing Risk Department wishes to add new scenarios or portfolios, the MOC must approve of the addition, but the Boards approval is not required. This is a change from the current procedure, under which it is sufficient to simply inform the CDS Risk Committee.
Further, the amendments would also state explicitly that in stress testing and sensitivity testing, under the multiple Clearing Member default scenario, conditional uncollateralized loss-givedefaults LGDs resulting from Clearing Member single-name positions would also be explicitly incorporated.
This reflects current practice.
Various Changes Various defined terms would be updated throughout the document. The CDS Product Risk Committee would be referred to as the CDS PRC instead of the CDS RC. Members or Clearing Members would be referred to as CMs.
Throughout the document, references to Initial Margin would be updated to IM
and references to Guaranty Fund would be updated to GF.
Changes to Predefined Scenarios; New COVID19 Scenarios The introductory description of the predefined scenarios would be amended to clarify that the scenarios reflect a stress period of risk from 1 to 7 days referred to in the policy as N-day scenarios, taking into account the 5-day margin period of risk used in the existing margin methodology for house accounts and the 7-day margin period of risk used in the existing margin methodology for client accounts. The description of the magnitude of the base FX Stress Scenario would be amended to state that it reflects the greatest relevant N-day stress period instead of five days.
Overall, the changes to the stress testing scenarios, other than the addition of the new COVID19
scenarios, are intended to more thoroughly describe the stress test
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