[Federal Register Volume 85, Number 71 (Monday, April 13, 2020)]
[Notices]
[Pages 20561-20562]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-07651]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88578; File No. SR-LCH SA-2020-001]


Self-Regulatory Organizations; LCH SA; Order Approving Proposed 
Rule Change Relating to Amendments to the Wind Down Plan

April 7, 2020.

I. Introduction

    On February 24, 2020, Banque Centrale de Compensation, which 
conducts business under the name LCH SA (``LCH SA''), filed with the 
Securities and Exchange Commission (``Commission'') pursuant to Section 
19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 
19b-4 thereunder \2\ a proposed rule change updating its wind down plan 
(``WDP''). The proposed rule change was published for comment in the 
Federal Register on March 4, 2020.\3\ The Commission did not receive 
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; LCH SA; Notice of Filing of 
Proposed Rule Change Relating to Amendments to the Wind Down Plan; 
Exchange Act Release No. 88297 (February 27, 2020); 85 FR 12814 
(March 4, 2020) (``Notice'').
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II. Description of the Proposed Rule Change 4
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    \4\ The description herein is substantially excerpted from the 
Notice, 85 FR 12814.
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    The purpose of the WDP is to ensure an orderly wind down of LCH SA 
under extreme circumstances and to limit market impact as much as 
possible, should its recovery plan or the resolutions measures that 
could have been taken by the authorities fail to allow LCH SA to obtain 
the resources required to return to business as usual conditions. The 
WDP sets out the steps that LCH SA would follow to close its clearing 
services and shut down the company. In addition, the WDP reflects LCH 
SA's estimate of the costs that it would incur to conduct a wind-down, 
thereby allowing LCH SA to ensure that it maintains capital sufficient 
to cover such costs.\5\
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    \5\ For more information regarding LCH SA's WDP, please see 
Securities Exchange Act Release No. 34-83451 (June 15, 2018), 83 FR 
28886 (June 21, 2018) (SR-LCH SA-2017-013).
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    In 2018, LCH SA conducted a review of its WDP and is proposing to 
update it to clarify the circumstances under which LCH SA could 
determine to wind down. More specifically, these revisions would make 
clear that LCH SA generally could not make such a determination on its 
own initiative. Instead, if LCH SA is no longer deemed viable after 
consultation with its regulatory authorities \6\ (either while 
operating under its current governance or once it has been put under 
resolution), the ACPR could require LCH SA to wind down.\7\ Further, 
the proposal would clarify that only in the case where all business 
lines have been closed and LCH SA no longer has any clearing activity, 
could LCH SA make the decision to wind down on its own initiative and 
without the direction of its regulator.
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    \6\ LCH SA is regulated as a credit institution and central 
counterparty by its National Competent Authorities: 
l'Autorit[eacute] des march[eacute]s financiers, l'Autorit[eacute] 
de Contr[ocirc]le Prudentiel et de R[eacute]solution (ACPR), and 
Banque de France.
    \7\ ACPR can act as either the prudential authority or the 
resolution authority for LCH SA.
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    LCH SA is also proposing to update the WDP with new estimates of 
the costs that it would incur to wind-down. Such costs would still be 
lower than the amount that LCH SA holds as liquid resources 
corresponding to 6 months of expenses that are the minimum required by 
the European Market Infrastructure Regulation (``EMIR'').
    Additionally, the proposed rule change would update the `assessment 
of key member, exchange, and IT contract termination provisions' 
section of the WDP to add (i) contracts that LCH SA recently entered 
with particular platforms and (ii) the contract governing the LCH SA 
staff layoff processes.\8\
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    \8\ However, the conditions of this employment contract would 
not apply in case of wind down, and only legal conditions, which are 
less demanding for LCH SA, would be applicable for staff layoffs.
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III. 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 the 
organization.\9\ For the reasons given below, the Commission finds that 
the proposed rule change is consistent with Rules 17Ad-22(e)(3)(ii), 
17Ad-22(e)(15)(i) and (ii).\10\
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    \9\ 15 U.S.C. 78s(b)(2)(C).
    \10\ 17 CFR 240.17Ad-22(e)(3)(ii), (e)(15)(i), and (e)(15)(ii).
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A. Consistency With Rule 17Ad-22(e)(3)(ii)

    Rule 17Ad-22(e)(3)(ii) requires a covered clearing agency to 
establish, implement, maintain and enforce written policies and 
procedures that are reasonably designed, as applicable, to ensure that 
it maintains plans for the orderly wind-down of the covered clearing 
agency necessitated by credit losses, liquidity shortfalls, losses from 
general business risk, or any other losses.\11\ As described above, the 
proposed rule change would revise the WDP to clarify that it is the 
ACPR and not LCH SA that can decide to wind-down. Additionally, LCH SA 
would also update the list of key contractual provisions reflected in 
the WDP to add contracts for services providers and an employment 
contract.
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    \11\ 17 CFR 240.17Ad-22(e)(3)(ii).
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    The Commission believes that these clarifications and updates allow 
LCH SA to maintain the WDP with current and relevant information. In 
particular, the Commission believes that more precise specification of 
the role of the ACPR should clarify which entity has the authority to 
trigger the WDP. The Commission also believes that by updating the list 
of contracts with wind-down provisions, LCH SA can maintain current and 
relevant information in its WDP. Therefore, for the above reasons

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the Commission finds that the proposed rule change is consistent with 
Rule 17Ad-22(e)(3)(ii).

B. Consistency With Rule 17Ad-22(e)(15)(i)-(ii)

    Rule 17Ad-22(e)(15)(i) requires a covered clearing agency to 
establish, implement, maintain and enforce written policies and 
procedures reasonably designed, as applicable, to, among other things, 
(i) determine the amount of liquid net assets funded by equity based 
upon its general business risk profile and the length of time required 
to achieve a recovery or orderly wind-down, as appropriate, of its 
critical operations and services if such action is taken, and (ii) 
provide for holding liquid net assets funded by equity equal to the 
greater of either six months of its current operating expenses or the 
amount determined by the board of directors to be sufficient to ensure 
a recovery or orderly wind-down of critical operations and services of 
the covered clearing agency, as contemplated by the plans established 
under Rule 17Ad-22(e)(3)(ii).
    As noted above, LCH SA proposes to update its WDP with new 
estimated wind-down costs, which are less than the amount that LCH SA 
holds as liquid resources corresponding to 6 months of expenses that 
are the minimum required by EMIR. The Commission believes that by 
updating its WDP with this information after its annual review allows 
LCH SA to maintain procedures reasonably designed to determine wind-
down costs and to ensure they remain under the amount of capital held 
for that purpose. Therefore, the Commission believes that this aspect 
of the proposed rule change is consistent with Rule 17Ad-22(e)(15)(i).
    Similarly, the Commission believes that by updating these costs, 
LCH SA would be able to assess whether it holds liquid net assets 
sufficient to ensure an orderly wind-down of critical operations and 
services. Therefore, the Commission believes that the proposed rule 
change is consistent with Rule 17Ad-22(e)(15)(ii).

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 Rules 17Ad-22(e)(3)(ii), 
17Ad-22(e)(15)(i) and (ii).\12\
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    \12\ 17 CFR 240.17Ad-22(e)(3)(ii), (e)(15)(i), and (e)(15)(ii).
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    It is therefore ordered pursuant to Section 19(b)(2) of the Act 
\13\ that the proposed rule change (SR-LCH SA-2020-001), be, and hereby 
is, approved.\14\
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    \13\ 15 U.S.C. 78s(b)(2).
    \14\ 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.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-07651 Filed 4-10-20; 8:45 am]
 BILLING CODE 8011-01-P