Risk Management

Risk Governance

ICE Clear Netherlands operates ICNL's Risk Committee, comprising both Clearing Member and Client representatives as well as an Independent Board Member. In their advisory role to the Board of ICE Clear Netherlands, the Risk Committee play a key role in ensuring that the Clearing House maintains and implements procedures, processes and controls that are designed to:

• Protect the integrity of the guaranty funds;
• Manage and mitigate credit and market risks;
• Consider applications for membership; and
• Review the clearing of new products

Risk Waterfall

The ICE Clear Netherlands Risk Committee currently comprises of one Independent, Non-Executive, Board member (Chair), one Clearing Member participant and one Client participant.

Initial Margin Overview

All risk models used by ICE Clear Netherlands are reviewed and subject to a formal model governance process that requires independent validation. The suitability of all models is reviewed on an annual basis. Any material change to an existing model and all new models are subject to independent model validation.

Parameters used within the models are reviewed and set by the ICE Clear Netherlands Risk Department in accordance with policies agreed by the ICNL Risk Committee.

Initial Margin

Futures & Options Initial Margin
Initial margin is a returnable deposit based on a Member's open positions. It is calibrated to be sufficient to cover the expected cost of closing out a defaulting Member's position in normal market conditions to a 99% confidence interval. Model performance is monitored daily via both portfolio and contract level back-testing. For Futures and Options products, initial margin requirement is calculated using ICE Risk Model;. The ICE Risk Model comprises the following components:

Clearing Members may be required to provide additional margin to cover concentration risk, illiquid positions or wrong way risk. Changes to ICE Risk Model margin parameters are notified via email to market participants as Circulars.

F&O Margin Rates

Margins

F&O Margin Fund

In order to ensure that ICE Clear Netherlands has sufficient capital, ICE Clear Netherlands has established a mutualised guaranty fund which is based on stress testing results as required by EMIR Articles 42 and 43. The Guaranty Fund is calibrated to be sufficient to cover the potential cost of the simultaneous default of the two Clearing Member groups to which the Clearing House has the largest exposure to, under extreme but plausible scenarios.

The contribution of each Clearing Member to the Guaranty Fund is recalculated quarterly and determined by each Clearing Member's 60% * Uncollateralised Stress Loss and for 40% * Intraday initial margin over the preceding quarter, minimum F&O Guaranty Fund Contribution of EUR 1.5 million, respectively EUR 3 million for Clearing Members which provide clearing services to its Eligible Persons pursuant to the Clearing Membership Agreement to which such Clearing Member is a party to the Guaranty Fund.

Powers of Assessment can be used by ICE Clear Netherlands in addition to the Guaranty Fund and are limited to twice the non-defaulting Clearing Members' Guaranty Fund requirements immediately preceding an event of default in respect of a single Clearing Member default (see Rule 909(c) (Powers of Assessment: F&O).

The adequacy of the Guaranty Fund is monitored on a daily basis by ICE Clear Netherlands' Risk Department and is reviewed by the ICNL Risk Committee.

The Guaranty Fund — Application of Guaranty Fund assets in the event of a default

The order in which the F&O Guaranty Fund assets are applied in the event of a Clearing Member default is as follows:

1. The Defaulter's initial margin, including any 'super margin' such as concentration charge and excess collateral the Defaulter may have posted
2. The full amount the Defaulter has contributed to the F&O Guaranty Fund
3. ICE's initial F&O Guaranty Fund Contribution. ICE's initial contribution to the Financials & Softs will be consumed prior to the application of any non-defaulting Clearing Member's contributions
4. Non-defaulting Members contributions
5. Powers of Assessment. Contributions relating to the F&O Guarantee Fund will be applied with a maximum of two times the F&O Guarantee Fund contribution

The Clearing House will, on a best endeavours basis and where it is able to identify individual client positions and it does not compromise its duty to contain the Defaulter’s losses, assist clients of the Defaulter in the transfer of their positions to an alternative Member. For further information on porting of client positions, please see the "Disclosure Statement pursuant to Article 39(7) of EMIR" and "Customer Protection Framework".

Back Testing

Portfolio level initial margin will be back-tested against the actual two-day price changes to ensure that initial margin requirements are performing within risk parameters. Back-testing results will also be presented to the Risk Committee. Further details of back-testing results of Clearing Member portfolios will be contained within ICE Clear Netherlands CPMI-IOSCO Public Quantitative Disclosure Standards for CCPs.

Default Management

In the event of a Clearing Member default, the primary responsibility of the Clearing House is to contain the cost of closing out the Defaulter's position to an amount less than the margin and guaranty fund contribution of the Defaulter.

This protects both the non-defaulting Clearing Members and the Clearing House from losses and by extension the markets that the Clearing House provides clearing services to.

ICE Clear Netherlands has extensive powers under the Clearing Rules (Part 9: Default Rules) that allow it to perform this function. This includes details on events that could constitute an Event of Default.

Porting Documents

• Porting Documentation Cover Notes
• Default Portability Preference Notice
• Default Porting Notice

Procyclicality

In stressed or volatile market conditions, an initial margin model could drive rapid or over reactive increases in margin requirements. This added procyclicality causes a potential liquidity burden for Clearing Members.

ICNL assesses procyclicality using percentage changes in initial margin over a 5-day window and the threshold condition is applied to the 95th percentile expected shortfall level of the percentage changes over a rolling 250 day window. R-A-G triggers an amber warning if the expected shortfall exceeds 50%, and red if it goes beyond 100%. This is calculated for the top benchmark products per market.

ICE Risk Model Overview

ICE Risk Model is a margin calculation tool that supports the calculation of original margin amounts for products cleared by ICE Clear Netherlands, based upon the ICE Risk Model specification.

All market participants and users, as well as others with an interest in understanding how ICE Clear Netherlands margins its products, are welcome to download and use the ICE Risk Model software. Users are not charged for use or download of the software, but there are limitations to using the software in commercial applications.

ICE Risk Model User Guide

• Downloading the ICE Risk Model software
• Using the ICE Risk Model applications once downloaded
• Using ICE Risk Model in batch mode
• An overview of the ICE Risk Model margin reports
• A description of Net Liquidating Value (NLV) for premium paid up-front options

Technical Requirements

• 64-bit operating system from Windows 7 or Windows Server 2008 onwards

Release date 6 November 2020