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Federal Register / Vol. 86, No. 43 / Monday, March 8, 2021 / Notices
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series data on the benchmark tenors until the first day of the price collection.
The backfilling of missing data would be performed in log-return space derived from the available EOD fixedmaturity spread levels. In general, the 5Y tenor time series would always be available. If the original log-returns time series presents incomplete data for less actively traded tenors for only a few days, then interpolation/extrapolation techniques would be applied to derive the missing data.
Once fixed maturity time series are complete, ICE Clear Europe Clearing Risk Department would perform backtests on hypothetical trading strategies and stress tests on hypothetical portfolios i.e., by injecting bilateral positions extracted from DTCC on the sub-risk factor to roll out into cleared portfolios of Clearing Members in order to further ensure that time series for the new risk sub-factors are appropriate to calibrate the risk models. The results of the analyses would be presented to the CDS Product Risk Committee.
Fixed maturity time series would be transformed to constant maturity time series CMTS to eliminate the impact of semi-annual rolls. The amendments provide further detail as to the manner in which CMTS series are determined and used for index and single-name risk factors. These amendments are intended to provide further clarity to the process as described in the Risk Model Description, but not significantly change current Clearing House practice, consistent with the existing Risk Model Description.
The amendments would also provide that back-testing results would be available to assess the quality of time series as well as the performance of the calibrated models instead of just the latter.
Overall, these amendments relating to data are intended to better document existing practices and therefore are not expected to change Clearing House operation.
Testing The Testing section would be amended to provide that tests would be broadly grouped into the following categories: Stress tests; back-tests;
sensitivity tests; anti-procyclicality tests; and benchmarking. The amendments are generally intended to reflect, and be consistent with the ICE
Clear Europe CDS Back-Testing Policy, CDS Clearing Stress-Testing Policy, CDS
Parameters Review Procedures and Procyclicality Framework, and further details of testing are provided in those documents. With respect to benchmarking, as currently described in
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the Risk Management Model Description, ICE Clear Europe would benchmark the spread response model against the Model Carlo simulation approach. Certain existing details regarding back testing of the core model components, comparing the calibrated recovery rates used in the jump to default requirement and actual market data, assessing whether the assumed stress scenario adopted to size the GF is fit for purpose, testing the liquidity component of the model, assessing measures to mitigate the procyclicality of the margins and testing margin sensitivity would be removed as that detail is contained in the ICE Clear Europe Back-Testing Policy, CDS
Clearing Stress-Testing Policy, CDS
Parameters Review Procedures and Procyclicality Framework. The amendments do not represent a substantive change in ICE Clear Europes approach to testing but are intended to clarify the Risk Model Description and to enhance it by more clearly stating relevant assumptions.
Other Changes Throughout the Documents Minor typographical and drafting updates are also proposed throughout the Documents, including updating references to Clearing Participants or CPs to Clearing Members or CMs to be consistent with the Rules, references to Trading Advisory Committee or TAC
or Trading Advisory Group or TAG to reflect that the TAG is not technically a Clearing House committee, and Risk Committee to Product Risk Committee or CDS Product Risk Committee, as appropriate, to reflect the correct name of that existing committee.
CDS Parameters Review Procedures ICE Clear Europe proposes to formalize certain existing practices and procedures for calibrating and reviewing the core parameters and underlying assumptions of its Risk Management RM model that are not explicitly described in its CDS Risk Model Description and CDS Risk Policy into a new Parameters Procedures document.
The Parameters Procedures thus generally are not expected to change existing Clearing House practice.
Parameters Setting and Calibration ICE Clear Europes Parameters Procedures would discuss the process of setting and reviewing the model core parameters and their underlying assumptions. The model requirements include Spread Response SR
requirements, Jump-To-Default JTD
requirements, basis risk requirements, interest rate IR sensitivity
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requirements, liquidity charge requirements, and concentration charge requirements.
Spread Response The Parameters Procedures would describe the parameters and related process for reviewing and updating those parameters that are associated with the Spread Response components of the CDS risk model, including as to applicability index or single name or both, level of granularity e.g., risk factor, update frequency and the source of the parameter estimations.
Time series associated with constant maturity benchmark tenors would be analysed and the distributions that describe the fluctuations of the benchmark tenors calibrated. The statistical parameters update would be performed at least on a monthly basis and controlled and managed through ICE Clear Europe internal systems.
The monitoring of the stress period selected for the scale parameter would be performed on a monthly basis in accordance with the CDS Risk Model Description. Proposed changes to the stress period would be reviewed by the Clearing Houses Clearing Risk Department with its Risk Working Group and MOC.
Jump-to-Default Requirement Parameters The parameters impacting the JTD
requirement are categorized as either LGD or WWR parameters. The Parameters Procedures would explain how, in order to measure credit event losses, the Clearing Houses Risk Department constructs JTD scenarios in terms of anticipated recovery rate RR levels RR scenarios. The Parameters Procedures would describe RR scenarios and estimations for corporate SNs, sectors, and sovereign reference entities, and notes foreign exchange rate risk considerations with respect to sovereign reference entities.
The Parameters Procedures would require ICE Clear Europe to estimate and review the LGD parameters at least monthly and describes the associated governance process, noting the reviewers and any prerequisites to the implementation of parameter updates.
The Parameters Procedures would also detail the process of setting and reviewing the WWR parameters. The Parameters Procedures would contain information regarding the parameters that would be used to quantify WWR
dependence and to compute WWR JTD
requirements.

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