I. Introduction

On July 6, 2026, ICE Clear Credit LLC (“ICC”) filed with the Securities and Exchange Commission (the “Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the “Act”) ^[1] and Rule 19b-4 thereunder,^[2] a proposed rule change (hereafter, “Proposed Rule Change”) to revise the ICC Risk Management Model Description for the CDS Clearing Service. The Proposed Rule Change was published for comment in the Federal Register on July 21, 2026.^[3] The Commission has not received comments regarding the Proposed Rule Change. For the reasons discussed below, the Commission is approving the Proposed Rule Change.

II. Description of the Proposed Rule Change

ICC is registered with the Commission as a clearing agency for the purpose of clearing Credit Default Swap (“CDS”) contracts.^[4] ICC maintains a Risk Management Model Description that describes ICC's quantitative risk models and the associated methods and techniques that ICC uses to determine its Initial Margin (“IM”) and guaranty fund requirements and documents key aspects of its risk management methodology. The Proposed Rule Change would amend the Risk Management Model Description to enhance ICC's contagion risk methodology and update certain references to publicly available sources of information. The Proposed Rule Change would not require changes to the ICC CDS Clearing Rules.

A. Contagion Risk Methodology Enhancement

ICC proposes to enhance the contagion-risk methodology within the Jump-to-Default (“JTD”) component of its risk management model. The JTD component is one component of the IM requirement that ICC calculates for each Clearing Participant (“CP”) portfolio. This component accounts for potential losses arising from credit events involving single-name reference entities for which a CP has sold or purchased protection.

The JTD component includes three considerations.^[5] First, wrong-way-risk (“WWR”) consideration accounts for potential losses under stressed market conditions when a CP and certain single-name Risk Factors ^[6] are strongly ( printed page 57179) positively correlated. Second, the contagion-risk consideration captures the accumulation of the remaining exposures associated with such single-name Risk Factors across the portfolio. Third, the idiosyncratic JTD consideration accounts for credit events associated with individual single-name Risk Factors.

The current risk management methodology incorporates idiosyncratic credit events and the potential losses associated with those events. These potential losses are referred to as Loss Given Default (“LGD”). ICC calculates LGD at the Risk Factor Group (“RFG”) ^[7] level by applying a single-name-specific set of recovery rates to the single-name positions that would result in a loss upon the occurrence of a credit event.

ICC proposes to introduce the concept of Profit Given Default (“PGD”) into the Risk Management Model Description. PGD is designed to recognize potential gains arising from applicable offsetting positions within a CP's portfolio during stressed market conditions. According to ICC, recognizing these gains would provide portfolio benefits, including reduced risk requirements, when a CP maintains applicable offsetting positions. ICC states that this treatment would also encourage CPs to clear offsetting positions to hedge and diversify their exposures to single-name Risk Factors that are strongly positively correlated to the CP under stressed market conditions.^[8]

ICC would calculate PGD for an RFG as the greater of zero or the sum of the Profit/LGD calculations for each Risk Factor within that RFG. Accordingly, PGD could not be negative and would reflect either potential offsetting gains or zero. ICC would also revise the methodology to permit the PGD calculated at the RFG level to be attributed to each Risk Factor within the RFG and to address circumstances in which an RFG contains only one Risk Factor.

ICC would incorporate PGD into its portfolio-level contagion-risk analysis. Specifically, the proposed amendments would incorporate PGD at the Risk Factor level into the contagion-risk calculation that captures the accumulation of uncollateralized LGD associated with Risk Factors generating general WWR.^[9] According to ICC, incorporating PGD would provide a more capital-efficient approach to measuring accumulated exposures involving a CP and single-name Risk Factors that exhibit a strong positive correlation during stressed market conditions.^[10] ICC states that the proposed change would provide portfolio benefits that incentivize CPs to hedge their WWR exposures while allowing ICC to continue applying conservative approach to managing directional WWR exposures.^[11]

In the Notice, ICC described its analysis of the effect of the Proposed Rule Change on CPs' total requirements, including IM and Guaranty Fund requirements. According to ICC, its analysis demonstrated a very small average effect across CPs. ICC states, however, that an individual CP could experience a reduction in its total requirements depending on its cleared positions and the extent to which applicable offsetting positions are present.^[12]

B. Additional Changes

ICC also proposes to update certain references in the Risk Management Model Description to publicly available sources of information. Currently, Section IV.2 of the Risk Management Model Description refers to a proprietary classification system that ICC uses to categorize cleared single-name Risk Factors in the banking sector and assign their country of domicile.

Under the Proposed Rule Change, ICC would use the publicly available list of Global Systemically Important Banks to categorize cleared single-name Risk Factors in the banking sector. ICC would also use the publicly available Global Legal Entity Identifier Foundation system to determine the country of domicile of applicable single-name Risk Factors. ICC further would add a clarifying footnote explaining how sovereign single name Risk Factors are mapped to the ultimate parent's country of domicile.

ICC states that these changes would not alter its underlying risk methodology, which would continue to apply to cleared single-name Risk Factors with strong positive correlations involving CPs in the sovereign and banking sectors.^[13] According to ICC, replacing the proprietary references with publicly available sources would provide additional transparency because those sources are globally recognized and publicly available.^[14]

III. Discussion and Commission Findings

Section 19(b)(2)(C) of the Act directs the Commission to approve a proposed rule change of a self-regulatory organization if it finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to such organization.^[15] Under the Commission's Rules of Practice, the “burden to demonstrate that a proposed rule change is consistent with the Act and the rules and regulations issued thereunder . . . is on the self-regulatory organization [‘SRO’] that proposed the rule change.” ^[16]

The description of a proposed rule change, its purpose and operation, its effect, and a legal analysis of its consistency with applicable requirements must all be sufficiently detailed and specific to support an affirmative Commission finding,^[17] and any failure of an SRO to provide this information may result in the Commission not having a sufficient basis to make an affirmative finding that a proposed rule change is consistent with the Act and the applicable rules and regulations.^[18] Moreover, “unquestioning reliance” on an SRO's representations in a proposed rule change is not sufficient to justify Commission approval of a proposed rule change.^[19]

After carefully considering the Proposed Rule Change, the Commission finds that the Proposed Rule Change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to ICC. More specifically, for the reasons discussed below, the Proposed Rule Change is consistent with Section 17A(b)(3)(F) of the Act ^[20] and Rule 17Ad-22(e)(6)(i) ^[21] thereunder.

A. Consistency With Section 17A(b)(3)(F) of the Act

Section 17A(b)(3)(F) of the Act requires, among other things, that the rules of a clearing agency be designed to promote the prompt and accurate clearance and settlement of securities transactions and, to the extent applicable, derivative agreements, contracts, transactions; to assure the safeguarding of securities and funds in ( printed page 57180) the custody or control of the clearing agency or for which it is responsible; and to protect investors and the public interest.^[22]

As discussed above in Part II.A, ICC proposes to incorporate PGD into its contagion-risk methodology. The proposed methodology would recognize potential gains associated with applicable offsetting positions while continuing to account for potential losses and directional WWR exposures. It would also continue to measure the accumulation of exposures involving a CP and single-name Risk Factors that exhibit strong positive correlations during stressed market conditions.

By accounting for both potential losses and potential gains associated with applicable offsetting positions, the Proposed Rule Change is designed to support ICC's measurement of its risks arising from CP portfolios. Managing such risks supports ICC's ability to maintain adequate financial resources and continue providing clearance and settlement services in the event of a CP default.

The Commission also considered ICC's analysis of the Proposed Rule Change's effect on CPs' total IM and Guaranty Fund requirements.^[23] The analysis demonstrated a very small average effect across CPs, although an individual CP could experience a reduction in its total requirements depending on its cleared positions and applicable offsetting positions. These results support ICC's determination that the proposed change would recognize the risk-reducing effect of applicable offsetting positions while allowing ICC to continue applying a conservative approach to directional WWR exposures.

Accordingly, the Commission believes that the changes described in Part II.A are designed to promote the prompt and accurate clearance and settlement of securities transactions and to assure the safeguarding of securities and funds in ICC's custody or control or for which it is responsible.

As described in Part II.B, the Proposed Rule Change would also replace certain references to proprietary classifications with references to publicly available information. These changes would provide additional transparency regarding the sources ICC uses to categorize banking-sector Risk Factors and determine country of domicile without altering the underlying risk methodology. The Commission believes that providing greater transparency regarding these sources would allow CPs and other interested parties to better understand ICC's Risk Management Model Description and thereby help protect investors and the public interest.

For the reasons stated above, the Commission finds that the Proposed Rule Change is consistent with Section 17A(b)(3)(F) of the Act.^[24]

B. Consistency with Rule 17 ad-22(e)(6)(i) Under the Act

Rule 17Ad-22(e)(6)(i) requires each covered clearing agency to establish, implement, maintain, and enforce written policies and procedures reasonably designed to, as applicable, cover, if the covered clearing agency provides central counterparty services, its credit exposures to its participants by establishing a risk-based margin system. The rule requires that such risk-based margin system, at a minimum, consider and produce margin levels commensurate with the risks and particular attributes of each relevant product, portfolio, and market.^[25]

As discussed above in Part II.A, the Proposed Rule Change would modify ICC's initial margin methodology by incorporating PGD into its calculation of accumulated exposures involving CP and single-name Risk Factors that exhibit strong positive correlations during stressed market conditions. Specifically, the proposed methodology would credit a CP with potential gains associated with a reference entity's default when ICC determines the CP's initial margin requirement. Accounting for these potential gains would enable ICC's initial margin methodology to consider the particular risk characteristics of the relevant products and portfolios and to produce initial margin requirements commensurate with those risks.

For these reasons, the Commission finds the Proposed Rule Change is consistent with Rule 17Ad-22(e)(6)(i).^[26]

IV. Conclusion

On the basis of the foregoing, the Commission finds that the proposed rule change is consistent with the requirements of the Act, and in particular, with the requirements of Section 17A(b)(3)(F) of the Act ^[27] and Rule 17Ad-22(e)(6)(i) ^[28] thereunder.

It is therefore ordered, pursuant to Section 19(b)(2) of the Act ^[29] that the proposed rule change (SR-ICC-2026-006) be, and hereby is, approved.^[30]