Notice2026-18210
Self-Regulatory Organizations; ICE Clear Credit LLC; Order Approving Proposed Rule Change Relating to the Risk Management Model Description for the CDS Clearing Service
Primary source
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Published
September 8, 2026
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 91 Issue 172 (Tuesday, September 8, 2026)</title>
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[Federal Register Volume 91, Number 172 (Tuesday, September 8, 2026)]
[Notices]
[Pages 57178-57180]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-18210]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-106263; File No. SR-ICC-2026-006]
Self-Regulatory Organizations; ICE Clear Credit LLC; Order
Approving Proposed Rule Change Relating to the Risk Management Model
Description for the CDS Clearing Service
September 2, 2026.
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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Self-Regulatory Organizations; ICE Clear Credit LLC; Notice
of Filing of Proposed Rule Change to the Risk Management Model
Description for the CDS Clearing Service; Securities Exchange Act
Release No. 34-105931 (July 16, 2026), 91 FR 45843 (July 21, 2026)
(SR-ICC-2026-006) (``Notice'').
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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.
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\4\ Capitalized terms not otherwise defined herein have the
meanings assigned to them in ICC Rules and the Risk Management Model
Description, as applicable.
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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
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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.
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\5\ Notice, 91 FR at 45844.
\6\ ICC considers every CDS index, sub-index, or underlying
single name to be a Risk Factor.
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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.
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\7\ A set of single name Risk Factors related by a common
parental ownership structure are considered an RFG. Notice, 91 FR at
45844.
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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\
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\8\ Notice, 91 FR at 45844.
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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\
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\9\ Id.
\10\ Notice, 91 FR at 45844.
\11\ Id.
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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\
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\12\ Id. ICC also included a summary of this analysis as a
confidential Exhibit 3 to the filing.
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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\
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\13\ Notice, 91 FR at 45844.
\14\ Id.
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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\
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\15\ 15 U.S.C. 78s(b)(2)(C).
\16\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR
201.700(b)(3).
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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\
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\17\ Id.
\18\ Id.
\19\ Susquehanna Int'l Group, LLP v. Securities and Exchange
Commission, 866 F.3d 442, 447 (D.C. Cir. 2017) (``Susquehanna'').
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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.
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\20\ 15 U.S.C. 78q-1(b)(3)(F).
\21\ 17 CFR 240.17ad-22(e)(6)(i).
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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
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the custody or control of the clearing agency or for which it is
responsible; and to protect investors and the public interest.\22\
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\22\ 15 U.S.C. 78q-1(b)(3)(F).
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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.
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\23\ ICC included a summary of this analysis as a confidential
Exhibit 3 to the filing.
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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\
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\24\ Id.
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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\
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\25\ 17 CFR 240.17ad-22(e)(6)(i).
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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\
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\26\ Id.
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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.
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\27\ 15 U.S.C. 78q-1(b)(3)(F).
\28\ 17 CFR 240.17ad-22(e)(6)(i).
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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\
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\29\ 15 U.S.C. 78s(b)(2).
\30\ In approving the proposed rule change, the Commission
considered the proposal's impact on efficiency, competition, and
capital formation. 15 U.S.C. 78c(f).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\31\
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\31\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2026-18210 Filed 9-4-26; 8:45 am]
BILLING CODE 8011-01-P
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