The proposed rule change consists of amendments to the Clearing Agency Stress Testing Framework (Market Risk) (“ST Framework”) and the Clearing Agency Liquidity Risk Management Framework (“LRM Framework,” and, together with the ST Framework, the “Frameworks”) of DTC and its affiliates, National Securities Clearing Corporation (“NSCC”) and Fixed Income Clearing Corporation (“FICC,” and together with NSCC and DTC).
- First, the proposed changes would amend both the ST Framework and the LRM Framework to move descriptions of the Clearing Agencies’ liquidity stress testing activities from the LRM Framework to the ST Framework. In connection with this proposed change, the Clearing Agencies are also proposing to recategorize the stress scenarios used for liquidity risk management, such that all such stress scenarios are described as either regulatory or informational scenarios.
- Second, the proposed changes would amend the ST Framework to (1) enhance stress testing for the Government Securities Division of FICC (“GSD”) to obtain certain data utilized in stress testing from external vendors and implement a back-up stress testing calculation that would be utilized in the event such data is not supplied by its vendors, and amend the ST Framework to reflect these practices for both GSD and the Mortgage-Backed Securities Division of FICC (“MBSD”);
- (2) reflect that a stress testing team is primarily responsible for the actions described in the ST Framework,
- (3) make other revisions to update and clarify the statements in the ST Framework
- Third, the proposed changes would amend the LRM Framework to update and clarify the statements in the LRM Framework.
The Clearing Agencies adopted the ST Framework to set forth the manner in which they identify, measure, monitor, and manage their respective credit exposures to participants and those arising from their respective payment, clearing, and settlement processes by, for example, maintaining sufficient prefunded financial resources to cover its credit exposures to each participant fully with a high degree of confidence and testing the sufficiency of those prefunded financial resources through stress testing. In this way, the ST Framework describes the stress testing activities of each of the Clearing Agencies and how the Clearing Agencies meet the applicable requirements of Rule 17Ad-22(e)(4).